Athens Bancshares Corp - FORM 10-Q

Attached files

file	filename
EXCEL - IDEA: XBRL DOCUMENT - Athens Bancshares Corp	Financial_Report.xls
EX-32.0 - EXHIBIT 32.0 - Athens Bancshares Corp	c24519exv32w0.htm
EX-31.2 - EXHIBIT 31.2 - Athens Bancshares Corp	c24519exv31w2.htm
EX-31.1 - EXHIBIT 31.1 - Athens Bancshares Corp	c24519exv31w1.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark one)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 1-34534

ATHENS BANCSHARES CORPORATION

(Exact name of registrant as specified in its charter)


Tennessee		27-0920126

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

106 Washington Avenue, Athens, Tennessee		37303

(Address of principal executive offices)		(Zip Code)

(423) 745-1111

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of November 7, 2011, the number of shares of common stock outstanding was 2,724,414.

ATHENS BANCSHARES CORPORATION

Table of Contents


	Page
	No.
Part I. Financial Information

Item 1. Financial Statements

Consolidated Balance Sheets as of September 30, 2011 (unaudited) and December 31, 2010		1

Consolidated Statements of Income for the Three Month and Nine Months Ended September 30, 2011 and 2010 (unaudited)		2

Consolidated Statements of Changes in Equity for the Nine Months Ended September 30, 2011 (unaudited)		3

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2010 (unaudited)		4

Notes to Consolidated Financial Statements (unaudited)		5

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		28

Item 3. Quantitative and Qualitative Disclosures About Market Risk		33

Item 4. Controls and Procedures		34

Part II. Other Information

Item 1. Legal Proceedings		35

Item 1A. Risk Factors		35

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		35

Item 3. Defaults Upon Senior Securities		36

Item 4. (Removed and Reserved)		36

Item 5. Other Information		36

Item 6. Exhibits		36

Signatures		37

Exhibit 31.1
Exhibit 31.2
Exhibit 32.0
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

Part I. FINANCIAL INFORMATION


Item 1.		Financial Statements

ATHENS BANCSHARES CORPORATION AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS


	(Unaudited)
	September 30,			December 31,
	2011			2010
ASSETS

Cash and due from banks	$	11,317,452		$	4,475,324
Federal funds sold		2,250,000			4,825,000
Interest-bearing deposits in banks		7,015,976			5,015,975


Total cash and cash equivalents		20,583,428			14,316,299

Interest-bearing time deposits in banks		249,000			747,000
Securities available for sale		37,022,108			41,537,586
Securities held to maturity (fair value approximates $- and $26 at September 30, 2011 and December 31, 2010, respectively)		—			25
Federal Home Loan Bank stock, at cost		2,898,800			2,898,800
Loans, net of allowance for loan losses of $5,000,412 and $3,965,395 at September 30, 2011 and December 31, 2010, respectively		204,151,668			199,386,478
Premises and equipment, net		4,641,052			4,701,660
Accrued interest receivable		1,111,491			1,111,043
Cash surrender value of bank owned life insurance		9,149,610			8,924,120
Foreclosed real estate		675,599			1,102,527
Other assets		3,085,314			3,289,029


Total assets	$	283,568,070		$	278,014,567


LIABILITIES AND EQUITY

LIABILITIES
Deposits:
Noninterest-bearing	$	11,930,753		$	10,808,127
Interest-bearing		207,217,613			204,879,217


Total deposits		219,148,366			215,687,344

Accrued interest payable		188,020			224,890
Securities sold under agreements to repurchase		1,882,616			794,732
Federal Home Loan Bank advances		8,128,228			8,213,861
Accrued expenses and other liabilities		3,977,525			3,516,545


Total liabilities		233,324,755			228,437,372


COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY
Preferred stock, $0.01 par value; authorized 10,000,000; none issued		—			—
Common stock, $0.01 par value; 50,000,000 shares authorized; 2,777,250 shares issued and 2,727,740 outstanding at September 30, 2011 and 2,777,250 at December 31, 2010		27,277			27,773
Additional paid-in capital		26,081,532			26,494,832
Common stock acquired by benefit plans:
Restricted stock		(1,149,026	)		(1,085,423	)
Unallocated common stock held by:
Employee Stock Ownership Plan Trust		(2,073,680	)		(2,073,680	)
Retained earnings		26,745,334			26,086,719
Accumulated other comprehensive income		611,878			126,974


Total stockholders’ equity		50,243,315			49,577,195


Total liabilities and stockholders’ equity	$	283,568,070		$	278,014,567

The accompanying notes are an integral part of these consolidated financial statements.

ATHENS BANCSHARES CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2011		2010		2011		2010
Interest and dividend income:
Loans, including fees	$	3,344,687	$	3,309,668	$	9,913,933	$	9,831,932
Dividends		28,909		32,522		100,724		102,709
Securities		281,599		285,322		922,323		833,151
Interest-bearing deposits in other banks		12,707		19,998		35,784		65,372


Total interest income		3,667,902		3,647,510		10,972,764		10,833,164


Interest expense:
Deposits		742,514		1,006,191		2,296,234		3,118,352
Fed funds purchased and securities sold under agreements to repurchase		477		668		1,298		3,538
Federal Home Loan Bank advances		89,385		90,497		266,128		275,055


Total interest expense		832,376		1,097,356		2,563,660		3,396,945


Net interest income		2,835,526		2,550,154		8,409,104		7,436,219

Provision for loan losses		563,609		423,925		1,558,960		1,107,611


Net interest income after provision for loan losses		2,271,917		2,126,229		6,850,144		6,328,608


Noninterest income:
Customer service fees		512,196		466,696		1,412,943		1,333,646
Other charges and fees		404,614		357,931		1,157,130		1,070,010
Investment sales commissions		155,635		76,759		355,349		206,954
Increase in cash surrender value of life insurance		87,191		90,087		261,029		229,686
Other noninterest income		123,387		112,256		294,577		375,437


Total noninterest income		1,283,023		1,103,729		3,481,028		3,215,733


Noninterest expenses:
Salaries and employee benefits		1,665,845		1,476,559		4,932,326		4,518,584
Occupancy and equipment		336,611		342,581		985,729		1,031,485
Federal deposit insurance premiums		19,644		68,257		154,474		251,238
Data processing		170,699		159,687		510,710		480,666
Advertising		42,508		40,546		142,457		123,971
Other operating expenses		646,719		655,995		1,859,479		2,953,943


Total noninterest expenses		2,882,026		2,743,625		8,585,175		9,359,887


Income before income taxes		672,914		486,333		1,745,997		184,454

Income tax (benefit) expense		209,527		136,985		551,609		(58,706	)


Net income	$	463,387	$	349,348	$	1,194,388	$	243,160


Earnings per common share:
Basic	$	0.18	$	0.13	$	0.47	$	0.09
Diluted	$	0.18	$	0.13	$	0.46	$	0.09
Dividends per common share	$	0.05	$	0.05	$	0.15	$	0.05

The accompanying notes are an integral part of these consolidated financial statements.

ATHENS BANCSHARES CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Nine Months Ended September 30, 2011

(Unaudited)


												Common			Accumulated
						Additional						Stock			Other
	Comprehensive		Common			Paid-In			Retained			Acquired By			Comprehensive
	Income (Loss)		Stock			Capital			Earnings			Benefit Plans			Income		Total

Balance, December 31, 2010			$	27,773		$	26,494,832		$	26,086,719		$	(3,159,103	)	$	126,974	$	49,577,195

Comprehensive income:
Net income	$	1,194,388		—			—			1,194,388			—			—		1,194,388
Other comprehensive income, net of tax:
Change in unrealized gains (losses) on securities available for sale, net of tax effect of $(297,199)		484,904		—			—			—			—			484,904		484,904


Total comprehensive income	$	1,679,292


Dividends — $0.15 per share				—			—			(384,854	)		—			—		(384,854	)
Purchase and release of restricted stock plan shares				—			(162,177	)		—			(63,603	)		—		(225,780	)
Stock compensation expense				—			221,202			—			—			—		221,202
Purchase of Company common stock				(496	)		(472,325	)		(150,919	)		—			—		(623,740	)


Balance, September 30, 2011			$	27,277		$	26,081,532		$	26,745,334		$	(3,222,706	)	$	611,878	$	50,243,315

The accompanying notes are an integral part of these consolidated financial statements.

ATHENS BANCSHARES CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended
	September 30, 2011			September 30, 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	1,194,388		$	243,160
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		337,619			404,358
Amortization of securities and other assets		321,680			227,903
Provision for loan losses		1,558,960			1,107,611
Deferred income taxes		(125,967	)		118,492
Other gains and losses, net		(67,765	)		(34,827	)
Stock compensation expense		221,202			—
Net change in:
Cash surrender value of life insurance		(225,490	)		(175,518	)
Loans held for sale		(356,775	)		(172,450	)
Accrued interest receivable		(448	)		(110,256	)
Accrued interest payable		(36,870	)		(6,125	)
Prepaid FDIC assessment		165,213			213,870
Other assets and liabilities		259,206			569,616


Net cash provided by operating activities		3,244,953			2,385,834


CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in interest-bearing deposits		498,000			(4,468,000	)
Securities available for sale:
Purchases		(9,520,985	)		(16,997,266	)
Maturities, prepayments and calls		14,189,463			5,472,262
Sales		378,100			—
Securities held to maturity:
Principal repayments received		25			28
Loan originations and principal collections, net		(6,542,602	)		(10,343,071	)
Purchases of premises and equipment		(277,011	)		(173,922	)
Purchase of bank owned life insurance		—			(2,200,000	)
Proceeds from sale of foreclosed real estate		1,068,287			1,199,297


Net cash used in investing activities		(206,723	)		(27,510,672	)


CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits		3,461,022			(13,295,876	)
Net increase (decrease) in securities sold under agreements to repurchase		1,087,884			(88,290	)
Proceeds from issuance of common stock		—			24,285,400
Purchase of Company common stock		(623,740	)		—
Dividends paid		(384,854	)		(127,752	)
Stock purchased by restricted stock trust		(225,780	)		—
Repayment of Federal Home Loan Bank advances		(85,633	)		(2,082,339	)


Net cash provided by financing activities		3,228,899			8,691,143


NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		6,267,129			(16,433,695	)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		14,316,299			40,707,334


CASH AND CASH EQUIVALENTS, END OF PERIOD	$	20,583,428		$	24,273,639


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid on deposits and borrowed funds	$	2,600,530		$	3,403,070
Income taxes paid		822,214			530,477


SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING ACTIVITIES:
Acquisition of real estate acquired through foreclosure	$	611,353		$	1,913,659

The accompanying notes are an integral part of these consolidated financial statements.

ATHENS BANCSHARES CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


Note 1.		Summary of Significant Accounting Policies

The accounting and reporting policies of Athens Bancshares Corporation (the “Company”) and subsidiary conform with United States generally accepted accounting principles (“GAAP”) and practices within the banking industry. The Financial Accounting Standards Board (“FASB”) has adopted the FASB Accounting Standards Codification (“ASC”) as the single source of authoritative nongovernmental GAAP. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) are also sources of authoritative GAAP for SEC registrants.

The policies that materially affect financial position and results of operations are summarized as follows:

Interim Financial Information (Unaudited)

The accompanying unaudited consolidated financial statements have been prepared in accordance with GAAP for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the SEC. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. Operating results for the three and nine months ended September 30, 2011, are not necessarily indicative of the results that may be expected for the full year or in any other period. For further information, refer to the Company’s consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

The Company has evaluated events and transactions for potential recognition and disclosure through the date the financial statements were issued.

Nature of operations

The Company is a holding company whose principal activity is the ownership and management of its wholly owned subsidiary, Athens Federal Community Bank (the “Bank”). The Bank provides a variety of financial services to individuals and corporate customers through its seven branches located in Athens, Sweetwater, Etowah, Madisonville, and Cleveland, Tennessee. The Bank’s primary deposit products include checking, savings, certificates of deposit, and IRA accounts. Its primary lending products are one-to-four family residential, commercial real estate, and consumer loans. Southland Finance, Inc. (“Southland”) is a consumer finance company with one branch located in Athens, Tennessee. Ti-Serv, Inc. (“Ti-Serv”)maintains the Bank’s investment in Valley Title Services, LLC and provides title insurance services. Southland and Ti-Serv are wholly-owned subsidiaries of the Bank.

ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


Note 1.		Summary of Significant Accounting Policies (Continued)

Use of estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of deferred tax assets, other-than-temporary impairment of securities, and the fair value of financial instruments.

Recent Accounting Pronouncements

In January 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-01, Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20 (ASU 2011-01). The FASB determined that certain provisions relating to troubled debt restructurings (“TDR”) should be deferred until additional guidance and clarification on the definition of a TDR is issued.

In April 2011, the FASB issued ASU No. 2011-02, A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring (ASU 2011-02). ASU 2011-02 amends ASC Topic 310 — Receivables, by clarifying guidance for creditors in determining whether a concession has been granted and whether a debtor is experiencing financial difficulties. The amendments are effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. ASU 2011-02 also makes disclosure requirements deferred under ASU 2011-01 effective for interim and annual periods beginning on or after June 15, 2011. Adoption of ASU 2011-02 did not have a material impact on the Company’s consolidated financial statements or operations.

In April 2011, the FASB issued ASU No. 2011-03, Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements (ASU 2011-03), intended to improve financial reporting of repurchase agreements and refocus the assessment of effective control on a transferor’s contractual rights and obligations rather than practical ability to perform those rights and obligations. The guidance in ASU 2011-03 is effective for the first interim or annual period beginning on or after December 15, 2011. The Company is evaluating the effect, if any, the adoption of ASU 2011-03 will have on its consolidated financial statements.

ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


Note 1.		Summary of Significant Accounting Policies (Continued)

In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (ASU 2011-04). ASU 2011-04 represents the converged guidance of the FASB and the International Accounting Standards Board (“IASB”) on fair value measurement. A variety of measures are included in the update intended to either clarify existing fair value measurement requirements, change particular principles requirements for measuring fair value or for disclosing information about fair value measurements. For many of requirements, the FASB does not intend to change the application of existing requirements under Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements. ASU 2011-04 is effective for interim and annual periods beginning after December 15, 2011, and early application is not permitted. The Company is evaluating the impact adoption of ASU 2011-04 will have on its consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income (ASU 2011-05), intended to increase the prominence of items reported in other comprehensive income and to facilitate convergence of accounting guidance in this area with that of the IASB. The amendments require that all non-owner changes in stockholders’ equity be presented in a single continuous statement of comprehensive income or in two separate but consecutive statements. Amendments under ASU 2011-05 for public entities should be applied retrospectively for fiscal years, and interim periods within those years, beginning December 15, 2011. The Company is evaluating the impact adoption of ASU 2011-05 will have on its consolidated financial statements.

In September 2011, the FASB issued ASU 2011-08, Intangibles — Goodwill and Other (Topic 350) — Testing Goodwill for Impairment (ASU 2011-08). ASU 2011-08 amends Topic 350, Intangibles — Goodwill and Other, to give entities the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. However, if an entity concludes otherwise, then it is required to perform the first step of the two-step impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying amount of the reporting unit. ASU 2011-08 is effective for annual and interim impairment tests beginning after December 15, 2011, and is not expected to have a significant impact on the Company’s consolidated financial statements.

ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


Note 1.		Summary of Significant Accounting Policies (Continued)

Other than disclosures contained within these statements, the Company has determined that all other recently issued accounting pronouncements will not have a material impact on its consolidated financial statements or do not apply to its operations.

Earnings Per Common Share

When presented, basic earnings per share are computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company.

The following is a summary of the basic and diluted earnings per share for the three months ended September 30, 2011 and 2010:


	Three Months Ended September 30,
	2011		2010

Basic earnings per share calculation:
Numerator: Net income	$	463,387	$	349,348

Denominator: Weighted average common shares outstanding		2,528,890		2,777,250
Effect of dilutive stock options		20,137		—

Diluted shares	$	2,549,027	$	2,777,250


Basic earnings per share	$	0.18	$	0.13

Diluted earnings per share	$	0.18	$	0.13

ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


Note 1.		Summary of Significant Accounting Policies (Continued)

The following is a summary of the basic and diluted earnings per share for the nine months ended September 30, 2011 and 2010:


	Nine Months Ended September 30,
	2011		2010
Basic earnings per share calculation:
Numerator: Net income	$	1,194,388	$	243,160

Denominator: Weighted average common shares outstanding		2,541,843		2,777,250
Effect of dilutive stock options		28,139		—

Diluted shares	$	2,569,982	$	2,777,250


Basic earnings per share	$	0.47	$	0.09

Diluted earnings per share	$	0.46	$	0.09


Note 2.		Securities

The amortized cost and estimated fair value of securities classified as available for sale and held to maturity at September 30, 2011 and December 31, 2010 are as follows:


	September 30, 2011
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value

Securities Available for Sale:

Securities of U.S. Government agencies and corporations	$	23,601,120	$	313,317	$	—		$	23,914,437

Mortgage-backed and related securities (1)		7,438,570		436,996		(132	)		7,875,434

State and municipal securities		4,995,519		236,718		—			5,232,237


	$	36,035,209	$	987,031	$	(132	)	$	37,022,108


Securities Held to Maturity:

Mortgage-backed and related securities (1)	$	—	$	—	$	—		$	—

ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


Note 2.		Securities (Continued)


	December 31, 2010
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value

Securities Available for Sale:

Securities of U.S. Government agencies and corporations	$	29,389,077	$	206,789	$	(257,160	)	$	29,338,706

Mortgage-backed and related securities (1)		6,269,479		402,284		(624	)		6,671,139

State and municipal securities		5,674,233		443		(146,935	)		5,527,741


	$	41,332,789	$	609,516	$	(404,719	)	$	41,537,586


Securities Held to Maturity:

Mortgage-backed and related securities (1)	$	25	$	1	$	—		$	26


(1)		Collateralized by residential mortgages and guaranteed by U.S. Government sponsored entities.

The amortized cost and estimated market value of securities at September 30, 2011 and December 31, 2010, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to call or prepay the securities with or without call or prepayment penalties.


	September 30, 2011
	Securities Available for Sale				Securities Held to Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value

Due in one year or less	$	6,108,857	$	6,219,489	$	—	$	—
Due after one year through five years		17,953,510		18,164,995		—		—
Due five years to ten years		1,492,709		1,557,199		—		—
Due after ten years		3,041,563		3,204,991		—		—
Mortgage-backed securities		7,438,570		7,875,434		—		—


Total	$	36,035,209	$	37,022,108	$	—	$	—

ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


Note 2.		Securities (Continued)


	December 31, 2010
	Securities Available for Sale				Securities Held to Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value

Due in one year or less	$	7,376,700	$	7,356,405	$	—	$	—
Due after one year through five years		20,774,132		20,715,338		—		—
Due five years to ten years		3,217,241		3,179,863		—		—
Due after ten years		3,695,237		3,614,841		—		—
Mortgage-backed securities		6,269,479		6,671,139		25		26


Total	$	41,332,789	$	41,537,586	$	25	$	26

The Company recognized $1,633 in realized gains for the nine-month period ended September 30, 2011 and realized no gains or losses for the year ended December 31, 2010.

The Company has pledged securities with carrying values of approximately $13,146,000 and $18,177,000 (which approximates fair values) to secure deposits of public and private funds as of September 30, 2011 and December 31, 2010, respectively.

Securities with gross unrealized losses at September 30, 2011 and December 31, 2010, aggregated by investment category and length of time that individual securities have been in a continuous loss position, are as follows:


	September 30, 2011
	Less than 12 Months				12 Months or Greater				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
	(dollars in thousands)

Securities Available for Sale:

Mortgage-backed and related securities	$	21	$	—	$	18	$	—	$	39	$	—


	$	21	$	—	$	18	$	—	$	39	$	—

ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


Note 2.		Securities (Continued)


	December 31, 2010
	Less than 12 Months					12 Months or Greater					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
	(dollars in thousands)

Securities Available for Sale:

Securities of U.S. Government agencies and corporations	$	12,803	$	(257	)	$	—	$	—		$	12,803	$	(257	)

Mortgage-backed and related securities		46		(1	)		53		—			99		(1	)

State and municipal securities		4,896		(102	)		332		(45	)		5,228		(147	)


	$	17,745	$	(360	)	$	385	$	(45	)	$	18,130	$	(405	)

Management performs periodic reviews for impairment in accordance with ASC Topic 320, Investment — Debt and Equity Securities.

At September 30, 2011, the two securities with unrealized losses had depreciated 0.33 percent from the Company’s amortized cost basis. At December 31, 2010, the 19 securities with unrealized losses had depreciated 2.19 percent from the Company’s amortized cost basis. Most of these securities are guaranteed by either U.S. government corporations or agencies or had investment grade ratings upon purchase. Further, the issuers of these securities have not established any cause for default. The unrealized losses associated with these investment securities are primarily attributable to changes in interest rates and not to the credit quality of the issuers. These securities will continue to be monitored as a part of the Company’s ongoing impairment analysis, but are expected to perform even if the rating agencies reduce the credit rating of the bond insurers. Management evaluates the financial performance of each issuer on a quarterly basis to determine if it is probable that the issuers can make all contractual principal and interest payments.

ASC Topic 320 requires an entity to assess whether the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. Management does not intend to sell these securities and it is not more likely than not that management will be required to sell the securities before the recovery of its amortized cost basis. In making this determination, management has considered the Company’s cash flow and liquidity requirements, capital requirements, economic factors, and contractual and regulatory obligations for indication that these securities will be required to be sold before a forecasted recovery occurs. Therefore, in management’s opinion, all securities that have been in a continuous unrealized loss position for the past 12 months or longer as of September 30, 2011 were not other-than-temporarily impaired as of September 30, 2011, and therefore, no impairment charges were warranted as of September 30, 2011.

ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


Note 3.		Loans and Allowances for Loan Losses

The Bank and Southland provide mortgage, consumer, and commercial lending services to individuals and businesses primarily in the East Tennessee area.

The Company’s loan portfolio consisted of the following at September 30, 2011 and December 31, 2010:


	September 30,			December 31,
	2011			2010

Mortgage loans on real estate:
Residential 1-4 family	$	81,344,800		$	79,373,610
Residential multifamily (5 or more units)		20,769,567			20,851,097
Commercial		45,383,577			43,733,879
Construction and land		23,768,874			19,837,210


		171,266,818			163,795,796

Commercial loans		12,016,418			12,765,618

Consumer and equity lines of credit		26,466,076			27,335,361


Total loans		209,749,312			203,896,775

Less: Allowance for loan losses		(5,000,412	)		(3,965,395	)
Unearned interest and fees		(386,288	)		(323,515	)
Net deferred loan origination fees		(210,944	)		(221,387	)


Loans, net	$	204,151,668		$	199,386,478

ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


Note 3.		Loans and Allowances for Loan Losses (Continued)

The following presents activity in the allowance for loan losses for the nine months ended September 30, 2011 and the year ended December 31, 2010:


	September 30,			December 31,
	2011			2010

Beginning balance	$	3,965,395		$	3,412,963
Provision for loan losses		1,558,960			1,711,030
Loans charged-off		(588,610	)		(1,272,953	)
Recoveries		64,667			114,355


Ending balance	$	5,000,412		$	3,965,395

Loan impairment and any related valuation allowance is determined under the provisions established by ASC Topic 310. For all periods presented above, impaired loans without a valuation allowance represent loans for which management believes that the collateral value of the loan is higher than the carrying value of that loan.

The allocation of the allowance for loan losses and recorded investment in loans by portfolio segment at September 30, 2011 and December 31, 2010 are as follows:


	September 30, 2011
					Commercial
					Real Estate
			Residential		and Multi-		Construction		Consumer
	Commercial		1-4 Family		Family		and Land		and Other		Unallocated		Total

Specified reserves- impaired loans	$	468,315	$	640,190	$	146,119	$	1,169,642	$	103,635	$	—	$	2,527,901

General reserves		203,156		596,715		841,006		336,319		459,152		36,163		2,472,511


Total reserves	$	671,471	$	1,236,905	$	987,125	$	1,505,961	$	562,787	$	36,163	$	5,000,412


Loans individually evaluated for impairment	$	2,321,788	$	5,179,526	$	2,509,161	$	3,006,366	$	436,329			$	13,453,170

Loans collectively evaluated for impairment		9,694,630		76,165,274		63,643,983		20,762,508		26,029,747				196,296,142


Total	$	12,016,418	$	81,344,800	$	66,153,144	$	23,768,874	$	26,466,076			$	209,749,312

ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


Note 3.		Loans and Allowances for Loan Losses (Continued)


	December 31, 2010
					Commercial
					Real Estate
			Residential		and Multi-		Construction		Consumer
	Commercial		1-4 Family		Family		and Land		and Other		Unallocated		Total

Specified reserves- impaired loans	$	317,562	$	321,604	$	492,369	$	534,737	$	93,462	$	—	$	1,759,734

General reserves		206,428		742,610		807,249		198,709		225,809		24,856		2,205,661


Total reserves	$	523,990	$	1,064,214	$	1,299,618	$	733,446	$	319,271	$	24,856	$	3,965,395


Loans individually evaluated for impairment	$	2,641,736	$	2,445,307	$	2,648,507	$	1,701,657	$	241,627			$	9,678,834

Loans collectively evaluated for impairment		10,123,882		76,928,303		61,936,469		18,135,553		27,093,734				194,217,941


Total	$	12,765,618	$	79,373,610	$	64,584,976	$	19,837,210	$	27,335,361			$	203,896,775

The following table details the changes in the allowance for loan losses during the nine months ended September 30, 2011 by class of loan:


							Commercial
							Real Estate
				Residential			and Multi-			Construction		Consumer
	Commercial			1-4 Family			Family			and Land		and Other			Unallocated		Total

Balance, December 31, 2010	$	523,990		$	1,064,214		$	1,299,618		$	733,446	$	319,271		$	24,856	$	3,965,395
Charge-offs		(47,452	)		(72,206	)		(244,051	)		—		(224,901	)		—		(588,610	)
Recoveries		4,350			3,182			9,555			—		47,580			—		64,667
Provision for loan losses		190,583			241,715			(77,997	)		772,515		420,837			11,307		1,558,960


Balance, September 30, 2011	$	671,471		$	1,236,905		$	987,125		$	1,505,961	$	562,787		$	36,163	$	5,000,412

ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


Note 3.		Loans and Allowances for Loan Losses (Continued)

The following tables present loans individually evaluated for impairment by class of loans as of September 30, 2011 and December 31, 2010:


	September 30, 2011
					Commercial
					Real Estate
			Residential		and Multi-		Construction		Consumer
	Commercial		1-4 Family		Family		and Land		and Other		Total

Loans individually evaluated for impairment:

Without a valuation allowance	$	—	$	1,372,371	$	1,233,842	$	364,939	$	270,469	$	3,241,621

With a valuation allowance		2,321,788		3,807,155		1,275,319		2,641,427		165,860		10,211,549

Total impaired loans	$	2,321,788	$	5,179,526	$	2,509,161	$	3,006,366	$	436,329	$	13,453,170


Valuation allowance related to impaired loans	$	468,315	$	640,190	$	146,119	$	1,169,642	$	103,635	$	2,527,901


Average investment in impaired loans	$	2,590,842	$	4,706,092	$	2,571,795	$	2,382,594	$	628,588	$	12,879,911


Interest income recognized on impaired loans	$	98,795	$	144,652	$	77.535	$	30,439	$	13,625	$	365,046


	December 31, 2010
					Commercial
					Real Estate
			Residential		and Multi-		Construction		Consumer
	Commercial		1-4 Family		Family		and Land		and Other		Total

Loans individually evaluated for impairment:

Without a valuation allowance	$	29,662	$	807,616	$	729,037	$	154,035	$	—	$	1,720,350

With a valuation allowance		2,612,074		1,637,691		1,919,470		1,547,622		241,627		7,958,484

Total impaired loans	$	2,641,736	$	2,445,307	$	2,648,507	$	1,701,657	$	241,627	$	9,678,834


Valuation allowance related to impaired loans	$	317,562	$	321,604	$	492,369	$	534,737	$	93,462	$	1,759,734

The following is a summary of information pertaining to average investment and interest income recognized on impaired loans as of December 31, 2010:


Average investment in impaired loans:	$	9,022,095


Interest income recognized on impaired loans:	$	600,000

ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


Note 3.		Loans and Allowances for Loan Losses (Continued)

The following presents an aged analysis of past due loans as of September 30, 2011 and December 31, 2010:


	September 30, 2011
			Greater Than								Recorded
			90 Days								Investment > 90
	30-89 Days		Past Due And		Total						Days and
	Past Due		Non-accrual		Past Due		Current Loans		Total Loans		Accruing

Residential 1-4 family	$	893,682	$	1,218,180	$	2,111,862	$	79,232,938	$	81,344,800	$	—
Commercial real estate and multifamily		—		—		—		66,153,144		66,153,144		—
Construction and land		337,992		1,381,403		1,719,395		22,049,479		23,768,874		—
Commercial		—		—		—		12,016,418		12,016,418		—
Consumer and other		215,633		47,671		263,304		26,202,772		26,466,076		14,887


Total	$	1,447,307	$	2,647,254	$	4,094,561	$	205,654,751	$	209,749,312	$	14,887


	December 31, 2010
			Greater Than								Recorded
			90 Days								Investment > 90
	30-89 Days		Past Due And		Total						Days and
	Past Due		Non-accrual		Past Due		Current Loans		Total Loans		Accruing

Residential 1-4 family	$	689,195	$	632,421	$	1,321,616	$	78,051,994	$	79,373,610	$	63,740
Commercial real estate and multifamily		131,849		326,635		458,484		64,126,492		64,584,976		53,515
Construction and land		—		974,445		974,445		18,862,765		19,837,210		—
Commercial		6,618		38,000		44,618		12,721,000		12,765,618		—
Consumer and other		164,427		67,509		231,936		27,103,425		27,335,361		9,490


Total	$	992,089	$	2,039,010	$	3,031,099	$	200,865,676	$	203,896,775	$	126,745

Credit quality indicators:

Federal regulations require us to review and classify our assets on a regular basis. There are three classifications for problem assets: substandard, doubtful, and loss. “Substandard assets” must have one or more defined weaknesses and are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. “Doubtful assets” have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. An asset classified “loss” is considered uncollectible and of such little value that continuance as an asset of the institution, without establishment of a specific valuation allowance or charge off, is not warranted. The regulations also provide for a “special mention” category, described as assets which do not currently expose an institution to a sufficient degree of risk to warrant classification but do possess credit deficiencies or potential weaknesses deserving close attention. When we classify an asset as substandard or doubtful, we may establish a specific allowance for loan losses.

ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


Note 3.		Loans and Allowances for Loan Losses (Continued)

The following outlines the amount of each loan classification and the amount categorized into each risk rating class as of September 30, 2011 and December 31, 2010:


	September 30, 2011
			Special
	Pass		Mention		Substandard		Doubtful		Loss		Total
Residential 1-4 family	$	74,961,222	$	1,204,052	$	5,172,568	$	—	$	6,958	$	81,344,800
Commercial real estate and multifamily		63,643,983		—		2,509,161		—		—		66,153,144
Construction and land		20,318,109		444,399		3,006,366		—		—		23,768,874
Commercial		9,693,336		1,294		2,085,353		—		236,435		12,016,418
Consumer and other		25,818,825		210,922		425,996		—		10,333		26,466,076


Total	$	194,435,475	$	1,860,667	$	13,199,444	$	—	$	253,726	$	209,749,312


	December 31, 2010
			Special
	Pass		Mention		Substandard		Doubtful		Loss		Total

Residential 1-4 family	$	74,953,467	$	1,974,836	$	2,445,307	$	—	$	—	$	79,373,610
Commercial real estate and multifamily		61,936,469		—		2,648,507		—		—		64,584,976
Construction and land		17,714,246		421,307		1,701,657		—		—		19,837,210
Commercial		10,104,402		19,481		2,431,504		—		210,231		12,765,618
Consumer and other		26,982,454		111,279		226,622		—		15,006		27,335,361


Total	$	191,691,038	$	2,526,903	$	9,453,597	$	—	$	225,237	$	203,896,775

As a result of adopting the amendments in ASU 2011-02 during this quarter, the Company reassessed all restructurings that occurred on or after January 1, 2011 for identification as troubled debt restructuring (“TDR”). The Company’s reassessment resulted in no additional TDR’s than those previously identified. A modification of a loan constitutes a TDR when a borrower is experiencing financial difficulty and the modification constitutes a concession. By granting the concession, the Company expects to increase the probability of collection by more than would be expected by not granting the concession. The Company’s determination of whether a modification is a TDR considers the facts and circumstances surrounding each respective modification.

ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 3. Loans and Allowances for Loan Losses (Continued)

The following presents information related to loans modified as a TDR during the nine months ended September 30, 2011:


	Nine Months Ended September 30, 2011
			Pre-Modification		Post-Modification
	Number of		Outstanding		Outstanding
	Loans		Recorded Investment		Recorded Investment

Residential 1-4 family		3	$	222,731	$	222,731
Commercial real estate and multifamily		—		—		—
Construction and land		3		996,914		996,914
Commercial		—		—		—
Consumer and other		12		100,453		100,453

		18	$	1,320,098	$	1,320,098

The following are loans modified as a TDR from October 1, 2010 through September 30, 2011, that subsequently defaulted (i.e., were 60 days or more past due following a modification) during the nine months ended September 30, 2011.


	Loans Modified as a TDR
	Within the Previous Twelve Months
	That Subsequently Defaulted During the
	Nine Months Ended September 30, 2011
	Number of Loans		Recorded Investment

Residential 1-4 family		1	$	41,736
Commercial real estate and multifamily		—		—
Construction and land		—		—
Commercial		—		—
Consumer and other		3		24,371

		4	$	66,107

Note 4. Fair Value Disclosures

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the ASC Topic 820, Fair Value Measurements and Disclosures, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 4. Fair Value Disclosures (Continued)

ASC Topic 820 provides a consistent definition of fair value, which focuses on exit price in an orderly transaction between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

ASC Topic 820 also establishes a three-tier fair value which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value, as follows:

Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access.

Level 2 — Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active and other inputs that are observable or can be corroborated by observable market data.

Level 3 — Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. There have been no changes in the methodologies used at September 30, 2011 and December 31, 2010.

The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments.

Cash, cash equivalents, and interest-bearing deposits in banks:

The carrying amounts of cash, cash equivalents, and interest-bearing deposits in banks approximate fair values based on the short-term nature of the assets.

ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 4. Fair Value Disclosures (Continued)

Securities:

Fair values are estimated using pricing models and discounted cash flows that consider standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, and credit spreads. Securities classified as available for sale are reported at fair value utilizing Level 2 inputs.

Federal Home Loan Bank stock, at cost:

The carrying value of FHLB stock approximates fair value based on the redemption provisions of the FHLB.

Loans:

For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Fair value for fixed-rate loans are estimated using discounted cash flow analyses, using market interest rates for comparable loans. The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with ASC Topic 310, Receivables. The fair value of impaired loans is estimated using several methods including collateral value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At September 30, 2011, substantially all of the total impaired loans were evaluated based on the fair value of collateral. In accordance with ASC Topic 310, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on the observable market price or a current, independent appraised value, the Company records the impaired loan as nonrecurring Level 2. The Company records the impaired loan as nonrecurring Level 3 when management has become aware of events that have significantly impacted the condition or marketability of the collateral since the most recent appraisal. In this case, management will reduce the appraisal value based on factors determined by their judgment and collective knowledge of the collateral and market conditions.

Cash surrender value of bank owned life insurance:

The carrying amounts of cash surrender value of bank owned life insurance approximate their fair value. The carrying amount is based on information received from the insurance carriers indicating the financial performance of the policies and the amount the Company would receive should the policies be surrendered. The Company reflects these assets within Level 2 of the valuation hierarchy.

ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 4. Fair Value Disclosures (Continued)

Foreclosed real estate:

Foreclosed real estate consisting of properties obtained through foreclosure or in satisfaction of loans is initially recorded at fair value, determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources, adjusted for estimated selling costs. At the time of foreclosure, any excess of the loan balance over the fair value of the real estate held as collateral is treated as a charge against the allowance of loan losses. Gains or losses on sale and any subsequent adjustments to the fair value are recorded as a component of foreclosed real estate expense. Other real estate is included in Level 2 of the valuation hierarchy.

Deposits:

The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits and NOW, money market, and savings accounts, is equal to the amount payable on demand at the reporting date. The fair value of time deposits is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.

Securities sold under agreements to repurchase:

The estimated fair value of these liabilities, which are extremely short term, approximates their carrying value.

Federal Home Loan Bank advances:

Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt.

Accrued interest:

The carrying amounts of accrued interest approximate fair value.

Commitments to extend credit, letters of credit and lines of credit:

The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates.

ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 4. Fair Value Disclosures (Continued)

The tables below present the recorded amount of assets and liabilities measured at fair value on a recurring basis:


			Quoted Prices in		Significant		Significant
			Active Markets		Other		Other
	Balance as of		for Identical		Observable		Unobservable
	September 30,		Assets		Inputs		Inputs
	2011		(Level 1)		(Level 2)		(Level 3)

Securities available for sale:

Securities of U.S. Government agencies and corporations	$	23,914,437	$	—	$	23,914,437	$	—
Mortgage-backed securities		7,875,434		—		7,875,434		—
State and municipal securities		5,232,237		—		5,232,237		—


Total securities available for sale	$	37,022,108	$	—	$	37,022,108	$	—


Cash surrender value of bank owned life insurance	$	9,149,610	$	—	$	9,149,610	$	—


			Quoted Prices in		Significant		Significant
			Active Markets		Other		Other
	Balance as of		for Identical		Observable		Unobservable
	December 31,		Assets		Inputs		Inputs
	2010		(Level 1)		(Level 2)		(Level 3)

Securities available for sale:

Securities of U.S. Government agencies and corporations	$	29,338,706	$	—	$	29,338,706	$	—
Mortgage-backed securities		6,671,139		—		6,671,139		—
State and municipal securities		5,527,741		—		5,527,741		—


Total securities available for sale	$	41,537,586	$	—	$	41,537,586	$	—


Cash surrender value of bank owned life insurance	$	8,924,120	$	—	$	8,924,120	$	—

ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 4. Fair Value Disclosures (Continued)

The tables below present information about assets and liabilities for which a nonrecurring change in fair value was recorded:


			Quoted Prices in		Significant		Significant
			Active Markets		Other		Other
	Balance as of		for Identical		Observable		Unobservable
	September 30,		Assets		Inputs		Inputs
	2011		(Level 1)		(Level 2)		(Level 3)

Impaired loans	$	7,683,648	$	—	$	7,645,648	$	38,000
Foreclosed real estate		675,599		—		675,599		—


			Quoted Prices in		Significant		Significant
			Active Markets		Other		Other
	Balance as of		for Identical		Observable		Unobservable
	December 31,		Assets		Inputs		Inputs
	2010		(Level 1)		(Level 2)		(Level 3)

Impaired loans	$	6,198,750	$	—	$	6,126,747	$	72,003
Foreclosed real estate		1,102,527		—		1,102,527		—

The carrying amount and estimated fair value of the Company’s financial instruments at September 30, 2011 and December 31, 2010 are as follows (in thousands):


	2011				2010
	Carrying		Estimated		Carrying		Estimated
	Amount		Fair Value		Amount		Fair Value

Financial assets:
Cash and cash equivalents	$	20,583	$	20,583	$	14,316	$	14,316
Interest-bearing time deposits in banks		249		249		747		747
Securities		37,022		37,022		41,538		41,538
Federal Home Loan Bank stock, at cost		2,899		2,899		2,899		2,899
Loans, net		204,152		208,688		199,386		201,211
Cash surrender value of bank owned life insurance		9,150		9,150		8,924		8,924
Accrued interest receivable		1,111		1,111		1,111		1,111

Financial liabilities:
Deposits		219,148		225,930		215,687		223,788
Securities sold under agreements to repurchase		1,883		1,883		795		795
Federal Home Loan Bank advances		8,128		8,345		8,214		8,486
Accrued interest payable		188		188		225		225

Unrecognized financial instruments (net of contract amount):
Commitments to extend credit		—		—		—		—
Letter of credit		—		—		—		—
Lines of credit		—		—		—		—

ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 5. Stock Options, ESOP, and Restricted Shares

2010 Equity Incentive Plan

The Athens Bancshares Corporation 2010 Equity Incentive Plan (“the 2010 Plan”) was approved by the Company’s stockholders at the annual meeting of stockholders held on July 14, 2010. Under the terms of the 2010 Plan, the Company may grant restricted stock awards and stock options to its employees, officers, and directors. The purpose of the 2010 Plan is to promote the success of the Company by linking the personal interests of its employees, officers, and directors to the interest of the Company’s shareholders, and by providing participants with an incentive for remarkable performance. All of the Company’s employees, officers, and directors are eligible to participate in the 2010 Plan.

Under terms of the 2010 Plan, the Company is authorized to issue up to 277,725 stock options and up to 111,090 shares of restricted stock.

The Company granted stock options to its directors, officers, and employees on December 15, 2010. Both incentive stock options and non-qualified stock options were granted under the 2010 Plan. The exercise price for each option was equal to the market price of the Company’s stock on the date of grant and the maximum term of each option is ten years. The vesting period for all options is five years from the date of grant. The Company recognizes compensation expense over the vesting period, based on the grant-date fair value of the options granted. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model. For the nine months ended September 30, 2011 and 2010, the Company recorded stock compensation expense of $40,612 and $0, respectively. At September 30, 2011, the total remaining compensation cost to be recognized on non-vested options is approximately $230,000.

A summary of the activity in the 2010 Plan as of September 30, 2011, is presented in the following table:


	Nine Months Ended September 30, 2011
			Average		Aggregate
			Exercise		Intrinsic
	Shares		Price		Value (1)

Outstanding at December 31, 2010		236,062	$	11.50		—
Granted		—		N/A		—
Exercised		—		N/A		—
Forfeited		—		N/A		—


Outstanding at September 30, 2011		236,062		11.50	$	236,062


Options exercisable at September 30, 2011		—		N/A		—

ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 5. Stock Options, ESOP, and Restricted Shares (Continued)

2010 Equity Incentive Plan (Continued)

(1) The aggregate intrinsic value of a stock option in the table above represents the total pre-tax intrinsic value (the amount by which the current market value of the underlying stock exceeds the exercise price of the option) that would have been received by the option holders had all option holders exercised their options on September 30, 2011. This amount changes based on changes in the market value of the Company’s stock.

Other information regarding options outstanding and exercisable as of September 30, 2011, is as follows:

Options Outstanding

Options Exercisable

Weighted

Average

Weighted-

Remaining

Weighted-

Number

Average

Contractual

Number

Average

Exercise

Life

Exercise

Exercise Price

Price

In Years

Price

$11.50

236,062

11.50

9.25

—

Information pertaining to non-vested options for the nine months ended September 30, 2011, is as follows:


			Weighted Average
	Number		Grant Date Fair
	of Shares		Value

Non-vested options, December 31, 2010		236,062	$	1.27
Granted		—		—
Vested		—		—
Forfeited		—		—


Non-vested options, September 30, 2011		236,062	$	1.27

On January 19, 2011, the Company awarded 94,426 shares of restricted stock to its directors, officers, and employees pursuant to the terms of the 2010 Plan. Compensation expense associated with the performance-based share awards is recognized over the time period that the restrictions associated with the awards lapse based on the total cost of the award, which is the fair market value of the stock on the date of the grant. The closing price on the date of the grants issued on January 19, 2011 was $12.75 per share. For the nine months ended September 30, 2011, the Company recognized $180,590 in compensation expense attributable to the 94,426 shares that have been awarded.

ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 5. Stock Options, ESOP, and Restricted Shares (Continued)

2010 Equity Incentive Plan (Continued)

A summary of activity for unvested restricted awards for the nine months ended September 30, 2011 is as follows:


			Grant Date
			Weighted-Average
	Number		Cost

Unvested at January 1, 2011		—	$	—
Shares awarded		94,426		12.75
Restrictions lapsed and shares released		—		—
Shares forfeited		—		—


Unvested at September 30, 2011		94,426	$	12.75

Employee Stock Ownership Plan (ESOP)

The Company sponsors a leveraged employee stock ownership plan (“ESOP”) that covers substantially all employees who meet certain age and eligibility requirements. As part of the Company’s initial public offering, the ESOP purchased 222,180 shares, or approximately 8% of the 2,777,250 shares issued, with the proceeds of a 15-year loan from the Company which is payable in annual installments and bears interest at 3.25%.

The Bank has committed to make contributions to the ESOP sufficient to support the debt service of the loan. The loan is secured by the unallocated shares, which are held in a suspense account, and are allocated among the participants as the loan is repaid. Cash dividends paid on allocated shares are distributed to the participant and cash dividends paid on unallocated shares are used to repay the outstanding debt of the ESOP.

ESOP shares are held by the plan trustee in a suspense account until allocated to participant accounts. Shares released from the suspense account are allocated to participants on the basis of their relative compensation in the year of allocation. Participants become vested in the allocated shares upon four years of employment with the Company. Any forfeited shares are allocated to other participants in the same proportion as contributions.

As ESOP shares are allocated to participants, the Company recognizes compensation expense equal to the fair value of the earned ESOP shares. No compensation expense has been recorded for the nine months ended September 30, 2011. A detail of ESOP shares as of September 30, 2011, is as follows:


Allocated shares		14,812
Unallocated shares		207,368

Total ESOP shares		222,180


Fair value of unreleased shares at September 30, 2011	$	2,592,100


Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operation

Safe Harbor Statement for Forward-Looking Statements

This report may contain forward-looking statements within the meaning of the federal securities laws. These statements are not historical facts; rather they are statements based on the Company’s current expectations regarding its business strategies and their intended results and its future performance. Forward-looking statements are preceded by terms such as “expects,” “believes,” “anticipates,” “intends” and similar expressions.

Forward-looking statements are not guarantees of future performance. Numerous risks and uncertainties could cause or contribute to the Company’s actual results, performance and achievements being materially different from those expressed or implied by the forward-looking statements. Factors that may cause or contribute to these differences include, without limitation, general economic conditions, including changes in market interest rates and changes in monetary and fiscal policies of the federal government; legislative and regulatory changes; the quality and composition of the loan and investment securities portfolio; loan demand; deposit flows; competition; and changes in accounting principles and guidelines. Additional factors that may affect our results are discussed in our Annual Report on Form 10-K for the year ended December 31, 2010 under “Item 1A. Risk Factors.” These factors should be considered in evaluating the forward-looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, the Company assumes no obligation and disclaims any obligation to update any forward-looking statements.

Critical Accounting Policies

During the nine-month period ended September 30, 2011, there was no significant change in the Company’s critical accounting policies or the application of critical accounting policies as disclosed in the Company’s audited consolidated financial statements and related footnotes for the year ended December 31, 2010 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

Comparison of Financial Condition at September 30, 2011 and December 31, 2010

Assets. Total assets increased from $278.0 million at December 31, 2010 to $283.6 million at September 30, 2011.

Cash and Cash Equivalents. Total cash and cash equivalents increased $6.3 million, or 44.1% from $14.3 million at December 31, 2010 to $20.6 million at September 30, 2011 due primarily to increases in deposits.

Loans. Net loans receivable increased $4.8 million, or 2.4% from $199.4 million at December 31, 2010 to $204.2 million at September 30, 2011, primarily as a result of (1) the funding of a $5.0 million loan to purchase an assisted living facility in Lake Wells, Florida and the subsequent repayment of $3.9 million of this loan to the prior owner, with the Bank having maintained a participation interest on the prior loan on this facility with another bank; (2) the funding of a $3.0 million loan to refinance a skilled nursing facility in Black Earth, Wisconsin; (3) the funding of an $893,000 loan for construction of an owner-occupied physical therapy center in Chattanooga, Tennessee; (4) the funding of a $1.1 million loan for the purchase of commercial lots in Chattanooga, Tennessee; (5) the funding of a $600,000 loan to refinance an owner occupied office building in Cleveland, Tennessee; (6) a $2.0 million increase in residential real estate loans; (7) a $2.9 million payoff on a loan secured by a hotel in Chattanooga, Tennessee refinanced through another lender; and (8) a $1.0 million increase in allowance for loan losses.

Securities. Total securities decreased $4.5 million, or 10.8% from $41.5 million at December 31, 2010 to $37.0 million at September 30, 2011, primarily as a result of $9.5 million in purchases of agency securities, which was more than offset by $12.0 million in calls of agency securities, a $300,000 call of a municipal security and the sale of a $375,000 municipal security during the period. The purchases were funded from available cash.

Deposits. Total deposits increased $3.4 million, or 1.6% from $215.7 million at December 31, 2010 to $219.1 million at September 30, 2011. The primary reason for the increase in deposits was a $5.4 million increase in demand and NOW accounts primarily due to a $4.5 million increase in non-personal NOW accounts relating to two public entities. Other increases were in non-interest bearing demand deposits of $1.1 million and savings deposit accounts of $2.0 million, partially offset by a decrease of $153,000 in money market accounts and $5.0 million in certificates of deposit.

Borrowings. Federal Home Loan Bank borrowings decreased $86,000 from $8.2 million at December 31, 2010 to $8.1 million at September 30, 2011. The slight decrease was due to principal payments on an amortizing advance.

Stockholders’ Equity. Stockholders’ equity increased $666,000 or 1.3% from $49.6 million at December 31, 2010 to $50.2 million at September 30, 2011. The primary reasons for the increase include net income for the first nine months of $1.2 million, an increase in unrealized gain on securities held for sale (net of taxes) of $485,000, dividends declared and paid on outstanding shares (other than unallocated ESOP shares) of $385,000, additional open market purchases of stock to be available for restricted stock grants under the 2010 Plan of $226,000 partially offset by a $221,000 increase in additional paid-in capital related to stock compensation expense for the period on grants of options and restricted stock and $624,000 in repurchased and retired common stock.

Results of Operations for the Three Months Ended September 30, 2011 and 2010

Overview. The Company reported net income of $463,000, or $0.18 basic earnings per share, for the three-month period ended September 30, 2011, compared to a net income of $349,000 or $0.13 basic earnings per share, for the same period in 2010.

Net Interest Income. Net interest income after provision for loan losses increased $146,000 or 6.9% for the three months ended September 30, 2011 compared to the same period in 2010, primarily as a result of a decrease in interest expense on deposits, offset by increases in provision for loan losses.

Total interest income increased $20,000 or 0.6%, from $3.6 million for the three months ended September 30, 2010 to $3.7 million for the three months ended September 30, 2011. The increase was primarily the result of a $35,000 increase in interest on loans, partially offset by reductions in dividends, income on securities and interest-bearing deposits in other banks of $4,000, $4,000 and $7,000, respectively. The increase in interest income on loans was due to the combined effect of increases in average balances partially offset by a decrease in average rates due to the decline in market interest rates. The decrease in dividends was a result of decreased dividends received from stock owned in the Federal Home Loan Bank. The decrease in income from securities was primarily a result of decreases in market interest rates, while the decrease in interest income on deposits in other banks was a result of a decrease in average balances.

Total interest expense decreased $265,000 or 24.1% from $1.1 million for the three months ended September 30, 2010 to $832,000 for the three months ended September 30, 2011. The decrease was primarily a result of a $264,000 decrease in interest on deposits. The primary reason for the decrease in interest on deposits was movement of maturing certificates of deposits to money market and checking accounts and a reduction in market interest rates.

Provision for Loan Losses. The provision for loan losses was $564,000 for the three months ended September 30, 2011 compared to $424,000 for the same period in 2010. The increase in the provision for loan losses was primarily due to increases in specific loss reserves recorded on impaired loans and a continued decline in overall economic conditions.

Non-performing loans, net of specific valuation allowances, increased $1.3 million from $1.3 million at June 30, 2011 to $2.6 million at September 30, 2011. Non-performing residential mortgage loans and construction loans increased $965,000 and $389,000, respectively, while non-performing consumer loans decreased $28,000. The balance of non-performing loans, net of specific valuation allowances, at September 30, 2011, includes non-accrual loans of $2.6 million. There were no residential mortgage loans that were over 90 days past due but still accruing interest at September 30, 2011. The balance of non-accrual loans, net of specific valuation allowances, at September 30, 2011 consisted of $1.2 million in residential mortgage loans, $1.4 million in construction and land loans and $33,000 in consumer loans.

Net charge-offs were $114,000 for the three months ended September 30, 2011 compared to $288,000 for the same period in 2010. Charge-offs totaling $132,000 were recorded during the quarter ended September 30, 2011 in connection with residential mortgage loans ($29,000), commercial business loans ($5,000) and consumer loans ($98,000).

The allowance for loan losses was $5.0 million at September 30, 2011. Management has deemed this amount as adequate at that date based on its best estimate of probable known and inherent loan losses at that date. The consistent application of management’s allowance for loan losses methodology resulted in an increase in the level of the allowance for loan losses consistent with the increase in specific loss reserves on impaired loans.

Non-interest Income. Non-interest income increased $179,000, or 16.2%, to $1.3 million for the three months ended September 30, 2011 compared to $1.1 million for the same period in 2010, primarily due to an increase in customer investment sales commissions. Income from customer investment sales commissions increased $79,000 primarily as a result of the continued partial recovery of investment markets. Customer service fees, other charges and fees and other noninterest income increased $46,000, $47,000 and $11,000, respectively. The increases were primarily a result of increases in income related to the origination and sale of mortgage loans on the secondary market, increases in income related to debit cards and automated teller machines, increases in deposit account fees and consumer and commercial loan fees of $55,000, $41,000, $4,000 and $2,000, respectively. The increase in income related to the origination and sell of mortgage loans on the secondary market and consumer and commercial loan fees was primarily due to an increase in loan volume due to continued decrease in market rates period over period. The primary reasons for increases in debit card income, automated teller machine fees and other deposit account fees was an increase in the number of deposit accounts and continued marketing efforts to increase customer usage of these products. These increases were partially offset by a decrease in income related to the increase in cash value of life insurance of $3,000.

Non-interest Expense. Non-interest expense increased $138,000, or 5.0%, to $2.9 million for the 2011 period compared to $2.7 million for the same period in 2010. The primary reason for the increase in non-interest expense was an $189,000 increase in salary and employee benefits expense primarily due to expense related to the 2010 Equity Incentive Plan. Other changes in non-interest expense include a $6,000 decrease in occupancy and equipment expense primarily related to reductions in depreciation expense, a $49,000 reduction in federal deposit insurance premiums due to a change in calculation of federal deposit insurance premiums during the third quarter of 2011, an increase in data processing expense of $11,000 primarily related to increased charges related to electronic banking services. Other operating expenses decreased $7,000 primarily due to a reduction in foreclosure related expenses.

Income Tax Expense. The Company had an income tax expense of $210,000 for the three month period ended September 30, 2011 as compared to $137,000 for the same period in 2010. The increase in income tax expense was due to the increase in taxable income period over period.

Total Comprehensive Income. Total comprehensive income for the periods presented consists of net income and the change in unrealized gains (losses) on securities available for sale, net of tax. Total comprehensive income was $547,000 for the three month period ended September 30, 2011 compared to total comprehensive income of $445,000 for the three month period ended September 30, 2010. The increase was primarily a result of the $12,000 decrease in the change in unrealized gains on securities available for sale, net of tax, and an $114,000 increase in net income period over period.

Results of Operations for the Nine Months Ended September 30, 2011 and 2010

Overview. The Company reported net income of $1.2 million or $0.47 basic earnings per share, for the nine-month period ended September 30, 2011, compared to net income of $243,000 or $0.09 basic earnings per share, for the same period in 2010. The increase was primarily a result of the $1.1 million contribution to the Athens Federal Foundation in connection with the closing of the Bank’s stock conversion during 2010.

Net Interest Income. Net interest income after provision for loan losses increased $522,000 or 8.2% for the nine months ended September 30, 2011 compared to the same period in 2010, primarily as a result of a decrease in interest expense on deposits.

Total interest income increased $140,000 or 1.3%, from $10.8 million for the nine months ended September 30, 2010 to $11.0 million for the six months ended September 30, 2011. The increase was primarily the result of an $82,000 increase in interest income on loans and a $60,000 increase in interest on securities and interest bearing deposits in other banks. The increases were primarily due to the combined effect of increases in average balances partially offset by a decrease in market interest rates.

Total interest expense decreased $833,000 or 24.5% from $3.4 million for the nine months ended September 30, 2010 to $2.6 million for the nine months ended September 30, 2011. The decrease was primarily a result of a $822,000 decrease in interest on deposits and a $9,000 decrease in interest on Federal Home Loan Bank borrowings. The primary reason for the decrease in interest on deposits was movement of maturing certificates of deposits to money market and checking accounts and a reduction in market interest rates. The decrease in the interest paid on Federal Home Loan Bank borrowings was due to a decrease in the average balance of advances outstanding.

Provision for Loan Losses. The provision for loan losses was $1.6 million for the nine months ended September 30, 2011 compared to $1.1 million for the same period in 2010. The increase in the provision for loan losses was primarily due to increases in specific loss reserves recorded on impaired loans and a continued decline in overall economic conditions.

Non-performing loans, net of specific valuation allowances, increased $608,000 from $2.0 million at December 31, 2010 to $2.6 million at September 30, 2011. Non-performing residential mortgage loans and construction and land loans increased $585,000 and $407,000, respectively, while non-performing non-residential, commercial business loans and consumer loans decreased $327,000, $38,000 and $19,000, respectively. The balance of non-performing loans, net of specific valuation allowances, at September 30, 2011, includes non-accrual loans of $2.6 million. There were no residential mortgage loans that were over 90 days past due but still accruing interest at September 30, 2011. The balance of non-accrual loans, net of specific valuation allowances, at September 30, 2011 consisted of $1.2 million in residential mortgage loans, $1.4 million in construction loans and $33,000 in consumer loans.

Net charge-offs were $524,000 for the nine months ended September 30, 2011 compared to $1.1 million for the same period in 2010. Charge-offs totaling $589,000 were recorded during the nine months ended September 30, 2011 in connection with residential mortgage loans ($73,000), commercial mortgage loans ($244,000), commercial business loans ($47,000) and consumer loans ($225,000).

Non-interest Income. Non-interest income increased $265,000, or 8.3%, to $3.5 million for the nine months ended September 30, 2011 compared to $3.2 million for the same period in 2010, primarily due to increases in income related to an increase in customer investment sales commissions. Investment sales commissions increased $148,000, primarily due to the continued partial recovery of investment markets. Income from the origination and sale of loans on the secondary market increased $61,000, primarily due to an increase in the volume of originations due to reductions in market interest rates. Loan fees related to consumer and commercial loan servicing and origination increased $34,000 primarily due to an increase in the volume of loan originations. Income from the increase in cash value of life insurance increased $31,000 primarily due to the purchase of $2.0 million of additional bank owned life insurance in the second quarter of 2010. Customer service fees increased $79,000 primarily due to a $113,000 increase in income related to debit card and automated teller machine usage due to increased efforts to promote debit card usage. Other deposit related fees increased $20,000 primarily due to the increase in number of deposit accounts; while fees related to non-sufficient funds charges on deposit accounts partially offset these increases due to a decrease of $54,000. Other non-interest income decreased $81,000 primarily due to a one-time life insurance payment on a former director in the amount of $93,000 for the same period in 2010.

Non-interest Expense. Non-interest expense decreased $775,000, or 8.3%, to $8.6 million for the 2011 period compared to $9.4 million for the same period in 2010. The primary reason for the decrease in non-interest expense was the reduction in other operating expenses. The decrease in other operating expenses was primarily due to the contribution of $1.1 million in stock and cash to the Athens Federal Foundation upon completion of the Bank’s mutual to stock conversion in January 2010, partially offset by increases in expenses related to salary and employee benefits, data processing and advertising expenses of $414,000, $30,000 and $18,000, respectively. Salary and employee benefits increased primarily due to expenses related to the 2010 Equity Incentive Plan and an increase in commissions paid on customer investment sales. Data processing expense increased primarily due to increases in the number of accounts and increases in electronic banking fees due to increased debit card and other electronic services, which have been heavily marketed during the period. Advertising expenses increased primarily due to increased marketing and advertising period over period in an effort to increase core deposits. Other decreases include a $46,000 reduction in occupancy and equipment expense, primarily related to a decrease in depreciation of those assets period over period and a decrease in federal deposit insurance expense of $97,000, primarily related to the change in premium calculation enacted by the FDIC during 2011.

Income Tax Expense. The Company had an income tax expense of $552,000 for the nine month period ended September 30, 2011 as compared to an income tax benefit of ($59,000) for the same period in 2010. The primary reason for the change was the tax benefit received from the contribution to the Athens Federal Foundation during 2010.

Total Comprehensive Income. Total comprehensive income for the periods presented consists of the net income and the change in unrealized gains (losses) on securities available for sale, net of tax. Total comprehensive income was $1.7 million for the period ended September 30, 2011 compared to total comprehensive income of $653,000 for the period ended September 30, 2010. The increase was primarily a result of the $951,000 increase in net income period over period and the $75,000 increase in unrealized gains on securities available for sale, net of tax.

Liquidity and Capital Resources

Liquidity Management. Liquidity is the ability to meet current and future financial obligations of a short-term nature. The Bank’s primary sources of funds consist of deposit inflows, loan repayments, maturities and sales of investment securities and borrowings from the Federal Home Loan Bank of Cincinnati. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

The Bank regularly adjusts its investments in liquid assets based upon an assessment of (i) expected loan demand, (ii) expected deposit flows, (iii) yields available on interest-earning deposits and securities and (iv) the objectives of its asset/liability management policy.

The Bank’s most liquid assets are cash and cash equivalents and interest-bearing time deposits. The level of these assets depends on the Bank’s operating, financing, lending and investing activities during any given period. At September 30, 2011, cash and cash equivalents totaled $20.6 million. At September 30, 2011, securities classified as available-for-sale, which amounted to $37.0 million, and interest-bearing time deposits in banks of $249,000, provide additional sources of liquidity. In addition, at September 30, 2011, the Bank had the ability to borrow a total of approximately $24.8 million from the Federal Home Loan Bank of Cincinnati. At September 30, 2011, the Bank had $8.1 million in Federal Home Loan Bank advances outstanding and $11.8 million in letters of credit to secure public funds deposits.

The Bank must maintain an adequate level of liquidity to ensure the availability of sufficient funds to support loan growth and deposit withdrawals, to satisfy financial commitments and to take advantage of investment opportunities. Historically, the Bank has been able to retain a significant amount of its deposits as they mature.

The Company is a separate legal entity from the Bank and must provide for its own liquidity. In addition to its operating expenses, the Company, on a stand-alone basis, is responsible for paying any dividends declared to its shareholders. The Company’s primary source of income is dividends received from the Bank. The amount of dividends that the Bank may declare and pay to the Company in any calendar year, without the receipt of prior approval from the Office of the Comptroller of the Currency but with prior notice to the Office of the Comptroller of the Currency, cannot exceed net income for that year to date plus retained net income (as defined) for the preceding two calendar years. On a stand-alone basis, the Company had liquid assets of $7.7 million at September 30, 2011.

Capital Management. The Bank is required to maintain specific amounts of capital pursuant to federal regulatory requirements. As of September 30, 2011, the Bank was in compliance with all regulatory capital requirements, which were effective as of such date, with tangible, core and risk-based capital ratios of 13.8%, 13.8% and 21.3%, respectively. The regulatory requirements at that date were 1.5%, 3.0% and 8.0%, respectively. At September 30, 2011, the Bank was considered “well-capitalized” under applicable regulatory guidelines.

Dividends. The Board of Directors of the Company declared and paid dividends on the Company’s common stock of $385,000 in the aggregate during the nine months ended September 30, 2011. The dividend payout ratio for the first nine months of 2011, representing dividends per share divided by diluted earnings per share, was 32.6%. The dividend payout is continually reviewed by management and the Board of Directors.

Off-Balance Sheet Arrangements

In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments, unused lines of credit and letters of credit.

For the nine months ended September 30, 2011, the Company did not engage in any off-balance sheet transactions reasonably likely to have a material effect on the Company’s financial condition, results of operations or cash flows.


Item 3.		Quantitative and Qualitative Disclosure About Market Risk

Qualitative Aspects of Market Risk

We manage the interest rate sensitivity of our interest-bearing liabilities and interest-earning assets in an effort to minimize the adverse effects of changes in the interest rate environment. Deposit accounts typically react more quickly to changes in market interest rates than mortgage loans because of the shorter maturities of deposits. As a result, sharp increases in interest rates may adversely affect our earnings while decreases in interest rates may beneficially affect our earnings. To reduce the potential volatility of our earnings, we have sought to improve the match between asset and liability maturities and rates, while maintaining an acceptable interest rate spread. Our strategy for managing interest rate risk emphasizes: adjusting the maturities of borrowings; adjusting the investment portfolio mix and duration and generally selling in the secondary market substantially all newly originated fixed rate one-to-four-family residential real estate loans. We currently do not participate in hedging programs, interest rate swaps or other activities involving the use of derivative financial instruments.

We have an Asset/Liability Management Committee, which includes members of management selected by the board of directors, to communicate, coordinate and control all aspects involving asset/liability management. The committee establishes and monitors the volume, maturities, pricing and mix of assets and funding sources with the objective of managing assets and funding sources to provide results that are consistent with liquidity, growth, risk limits and profitability goals.

Our goal is to manage asset and liability positions to moderate the effects of interest rate fluctuations on net interest and net income. The following table, which is based on information that we provided to the Office of Thrift Supervision, presents the change in our net portfolio value at June 30, 2011 (the latest date for which data is available), that would occur in the event of an immediate change in interest rates based on Office of Thrift Supervision assumptions, with no effect given to any steps that we might take to counteract that change.


	Net Portfolio Value								Net Portfolio Value as % of
Basis Point (“bp”)	(Dollars in thousands)								Portfolio Value of Assets
Change in Rates	$ Amount		$ Change			% Change			NPV Ratio			Change

300bp	$	53,288	$	4,663			10	%		18.03	%		164	bp
200		52,160		3,536			7			17.60			122
100		50,794		2,169			4			17.11			72
0		48,625		—			—			16.39			—
(100)		46,410		(2,215	)		(5	)		16.19			(72	)

The Office of Thrift Supervision uses various assumptions in assessing interest rate risk. These assumptions relate to interest rates, loan prepayment rates, deposit decay rates and the market values of certain assets under differing interest rate scenarios, among others. As with any method of measuring interest rate risk, certain shortcomings are inherent in the methods of analysis presented in the foregoing tables. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable-rate mortgage loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset. Further, if there is a change in interest rates, expected rates of prepayments on loans and early withdrawals from certificates could deviate significantly from those assumed in calculating the table. Prepayment rates can have a significant impact on interest income. Because of the large percentage of loans and mortgage-backed securities we hold, rising or falling interest rates have a significant impact on the prepayment speeds of our earning assets that in turn affect the rate sensitivity position. When interest rates rise, prepayments tend to slow. When interest rates fall, prepayments tend to rise. Our asset sensitivity would be reduced if prepayments slow and vice versa. While we believe these assumptions to be reasonable, there can be no assurance that assumed prepayment rates will approximate actual future mortgage-backed security and loan repayment activity.


Item 4.		Controls and Procedures

The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. In addition, based on that evaluation, no change in the Company’s internal control over financial reporting occurred during the quarter ended September 30, 2011 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION


Item 1.		Legal Proceedings

The Company is not involved in any pending legal proceedings. The Bank is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business. The Bank’s management believes that such routine legal proceedings, in the aggregate, are immaterial to the Bank’s financial condition and results of operations.


Item 1A.		Risk Factors

For information regarding the Company’s risk factors, see “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, filed with the Securities and Exchange Commission on March 18, 2011. As of September 30, 2011, the risk factors of the Company have not changed materially from those disclosed in the Form 10-K.


Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds

The Company’s board of directors authorized a stock repurchase program on April 20, 2011. Under the stock repurchase program, the Company is authorized to repurchase up to 138,862 shares, or 5.0%, of the Company’s issued common stock, through open market purchases, which may include purchases under a trading plan adopted pursuant to SEC rule 10b5-1, or through privately negotiated transactions. Repurchases will be made from time to time, depending on market conditions and other factors. There is no guarantee as to the exact number of shares to be repurchased by the Company.

The following table provides information with respect to purchases made by or on behalf of the Company or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of the Company’s common stock during the third quarter of 2011.

Maximum

Number of

Shares

Total

That May

Number of

Yet Be

Shares

Purchased

Under the

Total

Average

as Part of

Programs at

Number of

Price

Publicly

the

Shares

Paid Per

Announced

End of the

Period

Purchased

Share

Programs

Period

July 1, 2011 through July 31, 2011

2,625

13.19

2,625

124,807

August 1, 2011 through August 31, 2011

13,666

11.74

13,666

111,141

September 1, 2011 through September 30, 2011

21,789

12.64

21,789

89,352

Total

38,080

12.36

38,080

89,352


Item 3.		Defaults Upon Senior Securities

Not applicable.


Item 4.		(Removed and Reserved)


Item 5.		Other Information.

Not applicable.


Item 6.		Exhibits


No.			Description

	3.1		Amended and Restated Charter of Athens Bancshares Corporation (1)

	3.2		Amended and Restated Bylaws of Athens Bancshares Corporation (2)

	4.1		Specimen Stock Certificate of Athens Bancshares Corporation (3)

	10.1		Employment Agreement between Athens Federal Community Bank and Jeffrey L. Cunningham* (4)

	10.2		Employment Agreement between Athens Federal Community Bank and Michael R. Hutsell* (4)

	10.3		Employment Agreement between Athens Federal Community Bank and Jay Leggett, Jr*(5)

	10.4		Employment Agreement between Athens Bancshares Corporation and Jeffrey L. Cunningham* (4)

	10.5		Employment Agreement between Athens Bancshares Corporation and Michael R. Hutsell* (4)

	10.6		Supplemental Executive Retirement Plan Agreement between Athens Federal Community Bank and Jeffrey L. Cunningham* (4)

	10.7		Supplemental Executive Retirement Plan Agreement between Athens Federal Community Bank and Michael R. Hutsell*(5)

	10.8		Supplemental Executive Retirement Plan Agreement between Athens Federal Community Bank and Jay Leggett, Jr*(5)

	10.9		Athens Bancshares Corporation 2010 Equity Incentive Plan (6)

	31.1		Rule 13a-14(a)/15d-14(a) Certificate of Chief Executive Officer

	31.2		Rule 13a-14(a)/15d-14(a) Certificate of Chief Financial Officer

	32.0		Section 1350 Certificate of Chief Executive Officer and Chief Financial Officer

	101.0	*	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statement of Changes in Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to the Consolidated Financial Statements, tagged as blocks of text.


*		Management contract or compensatory plan, contract or arrangement

**		Furnished, not filed.

(1)		Incorporated herein by reference to the exhibit to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 10, 2009.

(2)		Incorporated herein by reference to the exhibit to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 23, 2009.

(3)		Incorporated herein by reference to the exhibits to the Company’s Registration Statement on Form S-1 (File No. 333-144454), as amended, initially filed with the Securities and Exchange Commission on September 17, 2009.

(4)		Incorporated herein by reference to the exhibits to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 6, 2010.

(5)		Incorporated herein by reference to the exhibits of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 27, 2010.

(6)		Incorporated herein by reference to the Company’s Definitive Proxy Statement filed with the Securities and Exchange Commission on June 7, 2010.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	ATHENS BANCSHARES CORPORATION
Dated: November 14, 2011	By:	/s/ Jeffrey L. Cunningham
		Jeffrey L. Cunningham
		President and Chief Executive Officer (principal executive officer)

Dated: November 14, 2011	By:	/s/ Michael R. Hutsell
		Michael R. Hutsell
		Treasurer and Chief Financial Officer (principal accounting and financial officer)

Athens Bancshares Corp - FORM 10-Q - November 14, 2011

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