Market Overview

HopFed Bancorp, Inc. Reports Improved Operating Results in the Second Quarter of 2018

Share:

Pre-Tax Income up 29.1% Year-over-Year

Dividend Increased 40%

HopFed Bancorp, Inc. (NASDAQ:HFBC) (the "Company"), the holding company
for Heritage Bank USA, Inc. (the "Bank"), today reported operating
results for the three and six month periods ended June 30, 2018. For the
three month period ended June 30, 2018, net income was $1.7 million, or
$0.28 per share, compared to $1.1 million, or $0.18 per share, for the
three month periods ended June 30, 2017 and March 31, 2018. For the six
month period ended June 30, 2018, net income was $2.8 million, or $0.46
per share, compared to $2.1 million, or $0.33 per share, for the six
month period ended June 30, 2017.

Commenting on the results for the six month period ended June 30, 2018,
John E. Peck, President and Chief Executive Officer, said, "We are
excited to report earnings growth of $0.13 per share, representing an
increase of 39.4% in the six month period ended June 30, 2018 compared
to the six month period ended June 30, 2017. For the six month period
ended June 30, 2018, net interest income was $14.5 million, an increase
of $747,000 compared to the six month period ended June 30, 2017."

"At June 30, 2018, non-accrual loans were $1.6 million compared to $8.6
million at June 30, 2017. At June 30, 2018, loans classified as
substandard were $11.5 million compared to $24.8 million at June 30,
2017. The Company's current levels of substandard and non-accrual loans
are strong indicators that our near term credit quality outlook remains
positive. The Company's local economy remains strong with most of our
communities at or near full employment. Our loan pipeline remains
robust, and we are optimistic about the Company's future. Our improving
financial performance and future prospects provided the Board of
Directors with the opportunity to increase our common dividend by 40%,
to $0.07 per share."

Financial Highlights

  • In the six month period ended June 30, 2018, total loans increased
    $35.0 million, representing an annual growth rate of 10.9%. At June
    30, 2018, total loans originated and outstanding in the Nashville,
    Tennessee, loan production offices were $88.8 million, compared to
    $80.5 million at March 31, 2018 and $61.5 million at June 30, 2017.
  • The Company's net interest margin for the three and six month periods
    ended June 30, 2018 was 3.45% compared to 3.39% and 3.35% for the
    three and six month periods ended June 30, 2017.

Results of Operations

In the three month periods ended June 30, 2018 and June 30, 2017,
interest income was $9.1 million and $8.4 million. The improvements in
interest income are the result of a $43.7 million increase in the
average balance of loans for the three month period ended June 30, 2018
compared to the three month period ended June 30, 2017. Improvements in
the level of net interest income has been partially offset by higher
funding cost. The Company's interest expense has increased by $381,000
for the three month period ended June 30, 2018 compared to the three
month period ended June 30, 2017 despite a modest $30,000 increase in
average interest bearing liabilities. For the three month period ended
June 30, 2018, net interest income was $7.3 million compared to $7.0
million for the three month period ended June 30, 2017. On a linked
quarter basis, the Company's net interest income increased by $94,000.
We anticipate that deposit pricing pressures will continue into the
foreseeable future and eventually place pressures on the Company's net
interest margin and profitability.

For the three month period ended June 30, 2018, non-interest income was
$2.4 million, an increase of $528,000 compared to the three month period
ended June 30, 2017. The largest contributor to the increase in
non-interest income for the three month period ended June 30, 2018 was a
$467,000 increase on gains on the sale of securities compared to the
three month period ended June 30, 2017. At June 15, 2018, the Company's
investment in a trust preferred security was called by the sponsor,
resulting in a $340,000 gain. The remaining gains on the sale of
securities resulted from the sale of pre-refunded municipal bonds. For
the three month period ended June 30, 2018, mortgage origination income
was $488,000 compared to $278,000 for the three month period ended June
30, 2017. The growth in mortgage origination income is the result of a
robust Nashville housing market and our improving penetration in that
market. On a linked quarter basis, non-interest income increased by
$620,000, largely due to a $454,000 increase in gains on the sale of
securities and a $170,000 increase in mortgage origination income.

For the three month period ended June 30, 2018, non-interest expenses
were $7.6 million, an increase of $341,000, or 4.7%, compared to June
30, 2017. For the three month period ended June 30, 2017, the Company
received a one-time reimbursement of $225,000 for data processing
expenses that reduced non-interest expenses in June 2017. For the three
month period ended June 30, 2018, salaries and benefits expense were
$4.1 million, an increase of $139,000, or 3.5%, compared to June 30,
2017. The increase in salaries and benefits expense were largely the
result of staff payroll increases that occurred at the beginning of
year. On a linked quarter basis, non-interest expenses increased by
$34,000.

For the six month period ended June 30, 2018, net interest income was
$14.5 million, an increase of $747,000 compared to June 30, 2017. The
increase in net interest income was largely the result of a $39.5
million increase in the average balance of loans. For the six month
period ended June 30, 2018, the Company's provision for loan loss
expense was $130,000 compared to $350,000 for the six month period ended
June 30, 2017. At June 30, 2018, the Company's reduced levels of loans
classified as non-accrual and substandard required a reduced amount of
provision expenses.

Total non-interest income declined by $24,000 in the six month period
ended June 30, 2018 compared to the six month period ended June 30,
2017. The table below outlines the most significant changes in
non-interest income for the six month period ended June 30, 2018 and
June 30, 2017:

        Six month periods ended        

6/30/2018

   

6/30/2017

$ Change

% Change

(Dollars in Thousands, Except Percentages)
 
Service charges $ 1,433 $ 1,604   ($171 ) -10.66 %
Mortgage origination income 808 612 196 32.03 %
Gain on the sale of securities 508 16 492 3075.00 %
Income from bank owned life insurance 144 307 (163 ) -53.09 %
Other operating income 262 691 (429 ) -62.08 %
 

The majority of changes in non-interest income for the six month periods
ended June 30, 2018 and June 30, 2017 are similar to those outlined for
the three month period comparisons above. Income from bank owned life
insurance was $163,000 higher in the six month period ended June 30,
2017 compared to the same period in 2018 due to the payment of a death
benefit. For the six month period ended June 30, 2018, other operating
income was $262,000, a reduction of $429,000 for the six month period
ended June 30, 2017. A significant portion of this variance is the
result of a one-time payment from a vendor on the renewal of a contract
of $225,000 in 2017.

For the six month periods ended June 30, 2018, total non-interest
expenses were $15.1 million, an increase of $192,000, or 1.3%, compared
to the six month period ended June 30, 2017. For the six month period
ended June 30, 2018, data processing and professional services expense
increased by $239,000 and $153,000 compared to the six month period
ended June 30, 2017.

This information is preliminary and based on company data available
at the time of the presentation.

Balance Sheet

At June 30, 2018, total assets were $912.7 million, compared to $917.5
million at December 31, 2017. For the six month period ended June 30,
2018, the Company reduced cash and cash equivalent balances by $25.7
million and securities classified as available for sale by $15.8
million. The Company has used this liquidity to fund loan growth of
$35.0 million and a $20.8 million decline in total deposits. The
competition for deposits is becoming increasingly aggressive and
expensive, resulting in a higher cost of deposit ratio for the Company.
In several rural markets in which the Company participates, the increase
in pricing power for new commercial loans has not increased at the same
pace as our funding cost. A summary of loans outstanding by type at June
30, 2018 and December 31, 2017 is as follows:

       

June 30, 2018

   

December 31, 2017

(Dollars in Thousands)

 
One-to-four family first mortgages $ 171,725 $ 163,565
Home equity lines of credit 34,262 35,697
Second mortgages (closed end) 1,109 1,184
Multi-family 37,742 37,445
Construction 40,759 30,246
Land 9,033 14,873
Non-residential real estate 244,769 224,952
Farmland 33,271 36,851
Consumer loans 8,525 8,620
Commercial loans   96,214     88,938  
Total loans, gross 677,409 642,371
 
Unearned income, net of fees (518 ) (443 )
 
Less allowance for loan losses   (4,637 )   (4,826 )
 
Total loans $ 672,254   $ 637,102  

Asset Quality

The table below provides a history of the Company's significant credit
quality metrics for the dates listed below:

       

6/30/2018

(unaudited)

   

3/31/2018

(unaudited)

   

12/31/2017

(audited)

   

9/30/2017

(unaudited)

   

6/30/2017

(unaudited)

(Dollars in Thousands, Except Percentages)

 
Loans past due 30-89 days 1,605 432 393 754 2,910
Loans past due 90 + days

accruing interest

--- --- 88 --- ---
Total non-accrual loans 1,602 2,004 1,285 1,739 8,579
Total loans classified as substandard 11,491 14,082 10,780 11,217 24,808
Total performing TDR loans 3,253 3,255 3,163 3,371 3,388
Total foreclosed assets 3,427 3,329 3,369 4,975 1,408
Quarterly net charge offs 79 240 (336 ) 2,451 (956 )
 
Non-accrual loans / Total loans 0.24 % 0.30 % 0.20 % 0.28 % 1.34 %
Non-performing assets / Total assets 0.55 % 0.58 % 0.52 % 0.74 % 1.09 %
Allowance / Total loans 0.69 % 0.70 % 0.75 % 0.76 % 1.12 %
Allowance / Non-accrual loans 289.48 % 232.24 % 375.74 % 275.96 % 83.69 %
Substandard loans / Risk based capital 11.24 % 13.94 % 10.72 % 11.08 % 24.28 %

Quarterly net charge off ratio (annualized)

0.05 % 0.15 % -0.21 % 1.54 % -0.61 %
Total risk based capital 102,211 100,997 100,535 101,228 102,173
FTE Employees 226 227 229 227 230
 

This information is preliminary and based on company data
available at the time of the presentation.

 
 
 

The Company

HopFed Bancorp, Inc. is the holding company for Heritage Bank USA, Inc.
("Heritage Bank"), a Kentucky state chartered commercial bank. Heritage
Bank has eighteen offices in western Kentucky and middle Tennessee and
loan production offices in Nashville, Murfreesboro and Brentwood,
Tennessee. The Company offers a broad line of financial services and
products with the personalized focus of a community banking
organization. More information about HopFed Bancorp and Heritage Bank is
located on its website www.bankwithheritage.com.

Forward-Looking Information

Information contained in this press release, other than historical
information, may be considered forward-looking in nature and is subject
to various risks, uncertainties, and assumptions. Should one or more of
these risks or uncertainties materialize, or should the underlying
assumptions prove incorrect, actual results may vary materially from
those anticipated, estimated or expected. Among the key factors that may
have a direct bearing on the Company's operating results, performance or
financial condition are competition and the demand for the Company's
products and services, and other factors as set forth in filings with
the Securities and Exchange Commission. The Company undertakes no duty
to update any forward-looking statement to conform the statement to
actual results or changes in the Company's expectations. Certain tabular
presentations may not reconcile because of rounding.

 
 
 
 
 

HOPFED BANCORP, INC.
Consolidated Condensed Balance
Sheets

(Dollars in Thousands)

 

Assets

       

6/30/2018

   

3/31/2018

   

12/31/2017

   

09/30/17

   

06/30/17

(unaudited) (unaudited) (unaudited) (unaudited)
 
Cash and due from banks 16,399 18,472 37,965 23,469 20,208
Interest-earning deposits in banks 2,955   3,149   7,111   9,842   4,801  
Cash and cash equivalents 19,354 21,621 45,076 33,311 25,009
Federal Home Loan Bank stock, at cost 4,428 4,428 4,428 4,428 4,428
Securities available for sale 168,983 180,212 184,791 192,287 205,363
Loans held for sale 1,126 2,706 1,539 1,749 2,386
Loans receivable 676,891 665,178 641,928 630,202 638,422
Allowance for loan losses (4,637 ) (4,654 ) (4,826 ) (4,799 ) (7,180 )
Accrued interest receivable 3,253 3,212 3,589 3,414 3,332
Foreclosed assets 3,427 3,329 3,369 4,975 1,408
Bank owned life insurance 10,512 10,439 10,368 10,287 10,192
Premises and equipment, net 22,365 22,619 22,700 22,945 23,097
Deferred tax assets 2,320 2,127 1,764 2,292 3,025
Other assets 4,640   2,748   2,784   2,973   2,645  
Total assets 912,662   913,965   917,510   904,064   912,127  
 
 

Liabilities:

 
Deposits:
Non-interest-bearing accounts 136,004 139,093 136,197 128,184 132,305
Interest-bearing accounts
NOW accounts 198,691 219,483 208,496 196,315 216,256
Savings and money market accounts 97,552 101,153 104,347 97,929 98,270
Other time deposits 300,941   287,077   304,969   308,801   299,113  
Total deposits 733,188 746,806 754,009 731,229 745,944
 
Advances from Federal Home Loan Bank 38,000 25,000 23,000 31,000 21,000
Repurchase agreements 39,648 41,792 38,353 37,829 41,820
Subordinated debentures 10,310 10,310 10,310 10,310 10,310
Advances from borrowers for taxes and insurance 1,256 780 808 1,188 984
Accrued expenses and other liabilities 3,091   2,524   3,618   3,273   3,278  
Total liabilities 825,493   827,212   830,098   814,829   823,336  
 

This information is preliminary and based on company data
available at the time of the presentation.

 
 
 
 
 
 

HOPFED BANCORP, INC.
Consolidated Condensed Balance
Sheets, Continued

(Dollars in Thousands, Except
Percentages, Share and Per Share Data)

 
       

6/30/2018

   

3/31/2018

   

12/31/2017

   

09/30/17

   

06/30/17

(unaudited) (unaudited) (unaudited) (unaudited)
Stockholders' equity:
Common stock, par value $.01 80 80 80 80 80
Additional paid-in-capital 58,948 58,875 58,825 58,777 58,750
Retained earnings 53,179 51,957 51,162 51,646 50,552
Treasury stock- common, at cost (16,706 ) (16,684 ) (16,655 ) (15,931 ) (15,361 )
Unearned ESOP Shares, at cost (5,606 ) (5,758 ) (5,901 ) (6,125 ) (6,269 )
Accumulated other comprehensive
income, net of taxes   (2,726 )   (1,717 )   (99 )   788     1,039  
 
Total stockholders' equity   87,169     86,753     87,412     89,235     88,791  
 
Total liabilities and stockholders' equity   912,662     913,965     917,510     904,064     912,127  
 

Additional Capital Information

 

6/30/2018

3/31/2018

12/31/2017

09/30/17

06/30/17

(unaudited) (unaudited) (unaudited) (unaudited)
 
Preferred stock authorized 500,000 500,000 500,000 500,000 500,000
Preferred stock outstanding --- --- --- --- ---
Common shares authorized 15,000,000 15,000,000 15,000,000 15,000,000 15,000,000
Common shares issued 7,989,655 7,988,983 7,976,131 7,976,131 7,964,076
Common shares outstanding 6,647,675 6,648,589 6,637,771 6,688,674 6,716,809
Treasury shares 1,341,980 1,340,394 1,338,360 1,287,457 1,247,267
Unearned ESOP shares 412,091 423,679 434,548 465,861 476,862
Book value per share (excludes
unearned ESOP shares) $ 13.98 $ 13.94 $ 14.09 $ 14.34 $ 14.23
 
Tier 1 leverage ratio 10.7 % 10.6 % 10.6 % 10.9 % 10.4 %
Total risk based capital ratio 15.6 % 15.5 % 16.0 % 16.3 % 16.1 %
Common equity tier 1 ratio 14.9 % 14.8 % 15.2 % 15.6 % 15.0 %
 

This information is preliminary and based on company data
available at the time of the presentation.

 
 
 
 
 
 

HOPFED BANCORP, INC.
Consolidated Condensed
Quarterly Statement of Income

(Dollars in Thousands)
(Unaudited)

 
       

For the three month periods ended

     

For the six month period ended

6/30/2018

   

3/31/2018

   

12/31/2017

   

09/30/17

   

06/30/17

6/30/2018

   

6/30/2017

Interest and dividend income: (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
 
Loans receivable 7,858 7,477 7,208 7,260 6,963 15,335 13,699
Investment in securities, taxable 1,033 1,079 1,081 1,124 1,155 2,112 2,273
Nontaxable securities available for sale 208 213 218 233 280 421 563
Interest-earning deposits 16 29 34   18 21 45 44
Total interest and dividend income 9,115 8,798 8,541   8,635 8,419 17,913 16,579
 
Interest expense:
Deposits 1,392 1,244 1,240 1,206 1,197 2,636 2,364
Advances from Federal Home Loan Bank 134 92 97 89 30 226 62
Repurchase agreements 171 154 117 130 119 325 222
Subordinated debentures 138 122 112   112 108 260 212
Total interest expense 1,835 1,612 1,566   1,537 1,454 3,447 2,860
 
Net interest income 7,280 7,186 6,975 7,098 6,965 14,466 13,719
Provision for loan losses 62 68 56   71 59 130 350
 

Net interest income after provision for loan losses

7,218 7,118 6,919   7,027 6,906 14,336 13,369
 
Non-interest income:
Service charges 727 706 801 819 800 1,433 1,604
Merchant card income 330 308 306 299 315 638 617
Mortgage origination revenue 489 319 374 335 278 808 612
Gain (loss) on sale of securities 481 27 (9 ) 162 14 508 16
Income from bank owned life insurance 73 71 81 95 72 144 307
Financial services commission 177 138 117 134 145 315 285
Other operating income 87 175 198   186 212 262 691
Total non-interest income 2,364 1,744 1,868   2,030 1,836 4,108 4,132
 

This information is preliminary and based on company data
available at the time of the presentation.

 
 
 
 
 
 

HOPFED BANCORP, INC.
Consolidated Condensed
Statements of Income, Continued

(Dollars in Thousands,
Except Per Share Data)

(Unaudited)

 
       

For the three month periods ended

     

For the six month period ended

6/30/2018

   

3/31/2018

   

12/31/2017

   

9/30/2017

   

6/30/2017

6/30/2018

   

6/30/2017

Non-interest expenses: (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
 
Salaries and benefits 4,116 4,117 3,917 3,919 3,977 8,233 8,213
Occupancy 747 782 700 716 729 1,529 1,504
Data processing 765 784 779 795 546 1,549 1,310
State deposit tax 160 169 170 169 200 329 431
Professional services 499 466 1,095 409 464 965 812
Advertising 338 308 365 240 368 646 749
Foreclosure, net 21 (6 ) (80 ) (25 ) 6 15 114
Loss on sale of asset 9 --- (1 ) --- 3 9 3
Other operating expenses   919   920     861     945     940   1,839   1,786
Total non-interest expense   7,574   7,540     7,806     7,168     7,233   15,114   14,922
 
Income before income tax expense 2,008 1,322 981 1,889 1,509 3,330 2,579
Income tax expense   323   196     1,159     486     368   519   503
Net income   1,685   1,126     (178 )   1,403     1,141   2,811   2,076
Net income per share
Basic $ 0.28 $ 0.18     ($0.03 ) $ 0.22   $ 0.18 $ 0.46 $ 0.33
Diluted $ 0.28 $ 0.18     ($0.03 ) $ 0.22   $ 0.18 $ 0.46 $ 0.33
Dividend per share $ 0.07 $ 0.05   $ 0.05   $ 0.05   $ 0.05 $ 0.12 $ 0.09
 

This information is preliminary and based on company data
available at the time of the presentation.

 
 
 
 
 
 
 

HOPFED BANCORP, INC.
Selected Financial Data
(Dollars
in Thousands, Except Percentages)

 
       

Three month periods ended

     

Six month periods ended

6/30/2018

   

3/31/2018

   

12/31/2017

   

9/30/2017

   

6/30/2017

6/30/2018

   

6/30/2017

Average Balance Sheet Data (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
 
Loans, net of allowance 666,301 647,204 631,463 636,955 622,606 657,973 618,430
Available for sale taxable securities 153,723 160,582 164,667 173,624 177,260 157,134 177,044
Available for sale tax free securities 25,670 26,856 27,361 29,090 32,919 26,254 33,391
Interest bearing deposits held in banks 3,735 6,030 8,418 4,351 5,888 4,041 7,565
Average earning assets 849,429 840,672 831,909 844,020 838,673 845,402 836,430
Average non-earning assets 63,565 69,290 74,856 64,913 70,359 65,555 73,072
Average assets 912,994 909,962 906,765 908,933 909,032 910,957 909,502
Average interest bearing deposits 608,312 612,019 611,371 612,655 628,583 610,156 626,853
Repurchase agreements 38,604 39,072 34,677 37,978 39,138 38,837 40,482
FHLB borrowings 32,011 23,656 25,174 26,909 11,176 27,856 12,298
Subordinated debentures 10,310 10,310 10,310 10,310 10,310 10,310 10,310
Total average interest bearing liabilities 689,237 685,057 681,532 687,852 689,207 687,159 689,943
Average non-interest bearing deposits 133,075 133,412 132,624 126,039 128,078 133,244 127,447
Average other non-interest bearing liabilities 4,099 3,887 3,365 5,628 3,915 4,059 3,987
Average total equity 86,583 87,336 89,244 89,214 87,832 86,495 88,125
 
 
 

Three month periods ended

Six month periods ended

Tax equivalent yield / Cost of:

6/30/2018

3/31/2018

12/31/2017

9/30/2017

6/30/2017

6/30/2018

6/30/2017

(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
 
Loans, fully tax equivalent 4.72 % 4.62 % 4.58 % 4.57 % 4.48 % 4.66 % 4.44 %
Available for sale taxable securities 2.69 % 2.69 % 2.63 % 2.37 % 2.61 % 2.69 % 2.57 %

Available for sale tax free securities, fully tax equivalent

4.04 % 3.96 % 4.76 % 5.07 % 5.09 % 4.01 % 5.04 %
Average yield of interest bearing deposits 1.71 % 1.92 % 1.62 % 1.65 % 1.43 % 2.23 % 1.16 %
Yield on total interest earning assets 4.32 % 4.21 % 4.17 % 4.15 % 4.09 % 4.26 % 4.04 %
Cost of total average deposits 0.75 % 0.67 % 0.67 % 0.65 % 0.63 % 0.72 % 0.65 %

Cost of average total interest bearing liabilities

1.06 % 0.94 % 0.92 % 0.89 % 0.84 % 1.00 % 0.83 %
Fully tax equivalent interest rate spread 3.25 % 3.27 % 3.25 % 3.26 % 3.25 % 3.26 % 3.21 %
Fully tax equivalent net interest margin 3.45 % 3.45 % 3.41 % 3.43 % 3.39 % 3.45 % 3.35 %
Net income 1,685 1,126 (178 ) 1,403 1,141 2,811 2,076
ROA 0.74 % 0.49 % 0.10 % 0.62 % 0.50 % 0.62 % 0.46 %
Annualized return on equity 7.78 % 5.16 % 1.01 % 6.29 % 5.20 % 6.50 % 4.71 %
Efficiency ratio - fully tax equivalent 82.17 % 83.89 % 80.25 % 77.41 % 80.80 % 83.14 % 86.72 %
 

This information is preliminary and based on company data
available at the time of the presentation.

 
 
 
 

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