HFBC HopFed Bancorp Inc

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 twelve month periods ended December 31, 2018. For the three month period ended December 31, 2018, net income was $1.6 million, or $0.26 per share, compared to $1.2 million, or $0.20 per share, for the three month period ended September 30, 2018, and a net loss of $178,000, or ($0.03) per share, for the three month period ended December 31, 2017. For the twelve month period ending December 31, 2018, net income was $5.7 million, or $0.91 per share, compared to $3.3 million, or $0.53 per share, for the twelve month period ended December 31, 2017.

Commenting on the results for the three month period ended December 31, 2018, John E. Peck, President and Chief Executive Officer, said, “Improvements in net income were driven by lower non-interest expenses. For the three month period ended December 31, 2018, non-interest expenses were $6.7 million compared to $7.5 million and $7.8 million for the three month periods ended September 30, 2018 and December 31, 2017, respectively.

The improvements in the Company’s results of operations for the twelve month period ended December 31, 2018, compared to the twelve month period ended December 31, 2017, were the result of higher levels of net interest income, slightly lower levels of non-interest expenses and a reduced federal income tax rate. Operating results for the three and twelve month periods ended December 31, 2017, were negatively affected by passage of The Tax Cut and Jobs Act of 2017 signed into law in December 2017 that provided for significant reductions in the Company’s federal income tax rate. In December of 2017, the reduction in corporate tax rates required the Company to reduce our deferred tax assets by $980,000 through an increase in our federal income tax expense. For the three and twelve month periods ended December 31, 2017, the increase in the Company’s federal income tax expense reduced net income by approximately $0.15 per share.”

Financial Highlights

• On January 7, 2019, the Company issued a joint press release with First Financial Corporation (“THFF”) announcing the execution of a definitive merger agreement under which the Company will merge with and into THFF. The Company filed an 8-K/A with the Securities and Exchange Commission (“SEC”) on January 9, 2019, providing greater details on the terms of the merger. A copy of the joint press release is available on the Company’s website at www.bankwithheritage.com and the SEC’s website www.sec.gov.

• At December 31, 2018, net loans totaled $658.8 million, representing an increase of $21.7 million compared to December 31, 2017. At December 31, 2018, total loans originated and outstanding in Company’s three loan production offices were $95.5 million compared to $72.1 million at December 31, 2017.
• At December 31, 2018, non-accrual loans were $1.4 million compared to $1.3 million at December 31, 2017. At December 31, 2018, loans classified as substandard were $14.3 million compared to $10.8 million at December 31, 2017.
• The Company’s net interest margin for the three month period ended December 31, 2018, was 3.35% compared to 3.41% for each of the three month periods ended September 30, 2018 and December 31, 2017, respectively. The Company’s net interest margin for the twelve month periods ended December 31, 2018 and December 31, 2017 were 3.41% and 3.38%, respectively.

Results of Operations

In the three month periods ended December 31, 2018, September 30, 2018 and December 31, 2017, interest income was $9.5 million, $9.3 million and $8.5 million, respectively. The improvements in interest income are the result of a $27.7 million increase in the average balance of loans for the three month period ended December 31, 2018, compared to the three month period ended December 31, 2017. Link quarter improvements in interest income are the result of a 25 basis point increase in the New York Prime Rate. Improvements in interest income were more than offset by higher funding cost due to an increase in short term interest rates. The Company’s interest expense increased by $930,000 for the three month period ended December 31, 2018, compared to the three month period ended December 31, 2017, and by $265,000 on a linked quarter basis. For the three month periods ended December 31, 2018, September 30, 2018 and December 31, 2017, net interest income was $7.0 million, $7.1 million and $7.0 million, respectively.

For the three month period ended December 31, 2018, non-interest income was $1.8 million, representing declines of $77,000 and $52,000 compared to the three month periods ended September 30, 2018 and December 31, 2017, respectively. For the three month period ended December 31, 2018, the decline in non-interest income over comparable periods is largely the result of lower mortgage origination income, which declined by $50,000 on a linked quarter basis and $86,000 compared to the three month period ended December 31, 2017.

For the three month period ended December 31, 2018, total non-interest expenses were $6.7 million, a decline of $788,000 and $1.1 million compared to the three month periods ended September 30, 2018 and December 31, 2017, respectively. For the three and twelve month periods ended December 31, 2018, professional services expense declined by $232,000 on a linked quarter basis and $838,000 compared to three month period ended December 31, 2017. In the twelve month period ended December 31, 2018, professional services expenses declined by $605,000 compared to the twelve month period ended December 31, 2017. The decline in professional services is largely the result of a shareholder lawsuit and shareholder demand letters. All activist shareholder issues were resolved in 2018, thereby reducing our legal expenses. On a linked quarter basis, salary and benefit expense are lower due to seasonal factors and reduced levels of incentive bonuses paid for loan production and growth.

For the twelve month period ended December 31, 2018, interest income was $36.7 million, representing an increase of $2.9 million compared to the twelve month period ended December 31, 2017. The improved level of interest income was largely the result of a $35.8 million increase in the average balance of loans and an increase in the Prime Rate. However, a $2.2 million increase in interest expense limited the overall benefits of higher net interest income levels. For the twelve month period ended December 31, 2018, net interest income was $28.6 million, an increase of $765,000 compared to December 31, 2017.

Total non-interest income declined by $213,000 in the twelve month period ended December 31, 2018, compared to the twelve month period ended December 31, 2017. For the twelve month period ended December 31, 2018, income from bank owned life insurance was $179,000 lower compared to the twelve month period ended December 31, 2017, due to the payment of a death benefit in March 2017. For the twelve month period ended December 31, 2018, other operating income was $632,000, a reduction of $443,000 compared to the twelve month period ended December 31, 2017. A significant portion of this variance is the result of a one-time payment of $225,000 in 2017. For the twelve month period ended December 31, 2018, gains on the sale of securities increased by $384,000 compared to the twelve month period ended December 31, 2017, largely as a result of an issuer calling a trust preferred security in June of 2018 in which the Company previously recognized a $400,000 impairment charge.

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

Results of Operations (continued)

For the twelve month period ended December 31, 2018, total non-interest expenses were $29.4 million, a decline of $546,000 compared to the twelve month period ended December 31, 2017. For the twelve month period ended December 31, 2018, professional services expense were $1.7 million compared to $2.3 million for the twelve month period ended December 31, 2017. For the twelve month period ended December 31, 2018, data processing expenses were $3.2 million compared to $2.9 million for the twelve month period ended December 31, 2017.

Balance Sheet

At December 31, 2018, total assets were $931.4 million, compared to $917.5 million at December 31, 2017. For the twelve month period ended December 31, 2018, the Company reduced its securities portfolio by $14.0 million to fund loan growth of $21.4 million. The competition for deposits remains aggressive and expensive, resulting in higher interest expense on deposits and a $14.2 million decline in total deposits. Lower deposit balances were offset by a $14.7 million increase in retail repurchase agreements as larger retail customers sought higher rates and alternatives to FDIC insurance coverage limits. A summary of loans outstanding by type at December 31, 2018 and December 31, 2017 is as follows:

          December 31, 2018 December 31, 2017

(Dollars in Thousands)

  One-to-four family first mortgages $ 175,638 $ 163,565 Home equity lines of credit 32,781 35,697 Second mortgages (closed end) 1,037 1,184 Multi-family 26,067 37,445 Construction 38,700 30,246 Land 12,175 14,873 Non-residential real estate 242,390 224,952 Farmland 34,041 36,851 Consumer loans 8,442 8,620 Commercial loans   92,466     88,938   Total loans, gross 663,737 642,371   Unearned income, net of fees (419 ) (443 )   Less allowance for loan losses   (4,536 )   (4,826 )   Total loans   658,782     637,102      

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

 

Asset Quality

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

                      12/31/2018 9/30/2018 6/30/2018 3/31/2018 12/31/2017

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

(Dollars in Thousands, Except Percentages)

  Loans past due 30-89 days 809 1,780 1,605 432 393 Loans past due 90 + days accruing interest --- --- --- --- 88 Total non-accrual loans 1,430 1,841 1,602 2,004 1,285 Total loans classified as substandard 14,323 11,005 11,491 14,082 10,780 Total performing TDR loans 3,530 3,518 3,162 3,255 3,163 Total foreclosed assets 3,598 3,533 3,427 3,329 3,369 Quarterly net charge offs 102 158 78 240 (336 )   Non-accrual loans / Total loans 0.22 % 0.28 % 0.24 % 0.30 % 0.20 % Non-performing assets / Total assets 0.54 % 0.59 % 0.55 % 0.58 % 0.51 % Allowance / Total loans 0.68 % 0.68 % 0.69 % 0.70 % 0.75 % Allowance / Non-accrual loans 317.25 % 247.48 % 289.48 % 232.24 % 375.74 % Substandard loans / Risk based capital 13.63 % 10.68 % 11.24 % 13.94 % 10.49 %

Quarterly net charge off ratio (annualized)

0.06 % 0.09 % 0.05 % 0.15 % -0.21 % Risk Based Capital 105,055 103,085 102,211 100,997 102,739 FTE Employees 220 225 226 227 229  

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 the Tennessee communities of Nashville, Murfreesboro and Brentwood. 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.

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

  HOPFED BANCORP, INC. Consolidated Condensed Balance Sheets (Dollars in Thousands)

(Unaudited)

                       

Assets

12/31/2018 9/30/2018 6/30/2018 3/31/2018 12/31/2017   Cash and due from banks $ 36,339 21,987 16,399 18,472 37,965 Interest-earning deposits in banks   15,711   8,687     2,955   3,149   7,111   Cash and cash equivalents 52,050 30,674 19,354 21,621 45,076 Federal Home Loan Bank stock, at cost 4,428 4,428 4,428 4,428 4,428 Securities available for sale 170,804 159,282 168,983 180,212 184,791 Loans held for sale 1,248 1,873 1,126 2,706 1,539 Loans receivable 663,318 668,374 676,891 665,178 641,928 Allowance for loan losses (4,536 ) (4,553 ) (4,637 ) (4,654 ) (4,826 ) Accrued interest receivable 3,503 3,390 3,253 3,212 3,589 Foreclosed assets 3,598 3,533 3,427 3,329 3,369 Bank owned life insurance 10,672 10,587 10,511 10,439 10,368 Premises and equipment, net 21,759 22,072 22,365 22,619 22,700 Deferred tax assets 1,825 2,399 2,320 2,127 1,764 Other assets   2,730   2,816     4,641   2,748   2,784   Total assets $ 931,399   904,875     912,662   913,965   917,510    

Liabilities:

  Deposits: Non-interest-bearing accounts $ 129,476 134,297 $ 136,004 139,093 136,197 Interest-bearing accounts NOW accounts 196,972 185,380 198,691 219,483 208,496 Savings and money market accounts 97,232 97,347 99,552 101,153 104,347 Other time deposits   316,157   309,890     300,941   287,077   304,969   Total deposits 739,837 726,914 735,188 746,806 754,009   Advances from Federal Home Loan Bank 33,000 33,000 38,000 25,000 23,000 Repurchase agreements 53,011 42,043 39,648 41,792 38,353 Subordinated debentures 10,310 10,310 10,310 10,310 10,310 Accrued expenses and other liabilities   4,455   5,170     4,347   3,304   4,426   Total liabilities   840,613   817,437     827,493   827,212   830,098  

 

 

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)

(Unaudited)

          12/31/2018     9/30/2018     6/30/2018     3/31/2018     12/31/2017 Stockholders' equity: Common stock, par value $.01 80 80 80 80 80 Additional paid-in-capital 59,105 59,035 58,948 58,875 58,825 Retained earnings 55,134 53,979 53,179 51,957 51,162

Treasury stock- common, at cost

(16,706 ) (16,706 ) (16,706 ) (16,684 ) (16,655 ) Unearned ESOP Shares, at cost (5,268 ) (5,457 ) (5,606 ) (5,759 ) (5,901 )

Accumulated other comprehensive income, net of taxes

  (1,559 )   (3,493 )   (2,726 )   (1,716 )   (99 )   Total stockholders' equity   90,786     87,438     87,169     86,753     87,412     Total liabilities and stockholders' equity   931,399     904,875     914,662     913,965     917,510         Additional Capital Information 12/31/2018 9/30/2018 6/30/2018 3/31/2018 12/31/2017   Preferred stock authorized 500,000 500,000 500,000 500,000 500,000 Common shares authorized 15,000,000 15,000,000 15,000,000 15,000,000 15,000,000 Common shares issued 7,990,867 7,991,170 7,989,655 7,988,983 7,976,131 Common shares outstanding 6,648,887 6,649,190 6,647,675 6,648,589 6,637,771 Treasury shares 1,341,980 1,341,980 1,341,980 1,340,394 1,338,360 Unearned ESOP shares 382,691 400,768 412,091 423,679 434,548

Book value per share (excludes unearned ESOP shares)

$ 14.49 $ 13.99 $ 14.01 $ 13.97 $ 14.09   Tier 1 leverage ratio 11.0 % 10.9 % 10.7 % 10.6 % 10.6 % Total risk based capital ratio 16.2 % 15.9 % 15.6 % 15.5 % 16.0 % Common equity tier 1 ratio 15.5 % 15.2 % 14.9 % 14.8 % 15.2 %    

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 year ended

For the three month periods ended

December 31, 12/31/2018     9/30/2018     6/30/2018     3/31/2018     12/31/2017 2018     2017 Interest and dividend income:   Loans receivable 8,210 8,164 7,858 7,477 7,208 31,709 28,167 Investment in securities, taxable 998 970 1,033 1,079 1,081 4,080 4,478 Nontaxable securities available for sale 187 189 208 213 218 797 1,014 Interest-earning deposits 79 21 16 29 34   145 96 Total interest and dividend income 9,474 9,344 9,115 8,798 8,541   36,731 33,755   Interest expense: Deposits 1,946 1,694 1,392 1,244 1,240 6,276 4,810 Advances from Federal Home Loan Bank 187 210 134 92 97 623 248 Repurchase agreements 223 188 171 154 117 736 469 Subordinated debentures 140 139 138 122 112   539 436 Total interest expense 2,496 2,231 1,835 1,612 1,566   8,174 5,963   Net interest income 6,978 7,113 7,280 7,186 6,975 28,557 27,792 Provision for loan losses 84 74 62 68 56   288 477  

Net interest income after provision for loan losses

6,894 7,039 7,218 7,118 6,919   28,269 27,315   Non-interest income: Service charges 749 756 727 706 801 2,938 3,224 Merchant card income 325 316 330 308 306 1,279 1,222 Mortgage orgination revenue 288 338 489 319 374 1,434 1,321 Gain (loss) on sale of securities 40 5 481 27 (9 ) 553 169 Income from bank owned life insurance 85 75 73 71 81 304 483 Financial services commission 178 184 177 138 117 677 536 Other operating income 151 219 87 175 198   632 1,075 Total non-interest income 1,816 1,893 2,364 1,744 1,868   7,817 8,030    

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 year ended

For the three month periods ended

December 31, 12/31/2018     9/30/2018     6/30/2018     3/31/2018     12/31/2017 2018     2017 Non-interest expenses: Salaries and benefits 3,693 4,138 4,116 4,117 3,917 16,064 16,049 Occupancy 698 785 747 782 700 3,012 2,920 Data processing 812 807 765 784 779 3,168 2,884 State deposit tax 212 158 160 169 170 699 770 Professional services 257 489 499 466 1,095 1,711 2,316 Advertising 229 329 338 308 365 1,204 1,354 Foreclosure, net 37 20 21 (6 ) (80 ) 72 9 Loss on sale of asset --- 1 9 --- (1 ) 10 2 Other operating expenses   786   785   919   920     861     3,410   3,592 Total non-interest expense   6,724   7,512   7,574   7,540     7,806     29,350   29,896   Income before income tax expense 1,986 1,420 2,008 1,322 981 6,736 5,449 Income tax expense   368   180   323   196     1,159     1,067   2,148 Net income   1,618   1,240   1,685   1,126     (178 )   5,669   3,301 Net income per share Basic $ 0.26 $ 0.20 $ 0.28 $ 0.18     ($0.03 ) $ 0.91 $ 0.53 Diluted $ 0.26 $ 0.20 $ 0.28 $ 0.18     ($0.03 ) $ 0.91 $ 0.53 Dividend per share $ 0.07 $ 0.07 $ 0.07 $ 0.05   $ 0.05   $ 0.26 $ 0.19    

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) (Unaudited)          

Three month periods ended

   

For the year ended

12/31/2018     9/30/2018     6/30/2018     3/31/2018     12/31/2017 12/31/2018     12/31/2017 Average Balance Sheet Data

 

 

 

 

 

 

  Loans, net of allowance $ 659,174 670,314 666,301 647,204 631,463 662,541 626,735 Available for sale taxable securities 144,506 146,225 153,723 160,582 164,667 151,201 173,062 Available for sale tax free securities 24,195 24,533 25,670 26,856 27,361 25,301 30,787 Interest bearing deposits held in banks 14,062 3,825 3,735 6,030 8,418 6,513 6,976 Average earning assets 841,937 844,897 849,429 840,672 831,909 845,556 837,560 Average non-earning assets 67,813 63,618 63,565 69,290 74,856 64,231 69,004 Average assets 909,750 908,515 912,994 909,962 906,765 909,787 906,564 Average interest bearing deposits 605,121 596,666 608,312 612,019 611,371 736,615 619,372 Repurchase agreements 41,333 38,611 38,604 39,072 34,677 39,409 38,388 FHLB borrowings 33,000 37,989 32,011 23,656 25,174 31,707 19,226 Subordinated debentures 10,310 10,310 10,310 10,310 10,310 10,310 10,310

Total average interest bearing liabilities

689,764 683,576 689,237 685,057 681,532 686,911 687,296 Average non-interest bearing deposits 126,487 131,615 133,075 133,412 132,624 131,130 128,397 Average other non-interest bearing liabilities 5,399 5,572 4,099 3,887 3,365 4,740 3,435 Average total equity 88,100 87,752 86,583 87,336 89,244 87,006 87,436    

Three month periods ended

For the year ended

Tax equivalent yield / Cost of: 12/31/2018 9/30/2018 6/30/2018 3/31/2018 12/31/2017 12/31/2018 12/31/2018   Loans, fully tax equivalent 5.00 % 4.89 % 4.72 % 4.62 % 4.58 % 4.80 % 4.50 % Available for sale taxable securities 2.76 % 0.27 % 2.69 % 2.69 % 2.63 % 2.70 % 2.59 % Available for sale tax free securities, fully tax equivalent 3.84 % 3.86 % 4.04 % 3.96 % 4.76 % 3.93 % 4.93 % Average yield of interest bearing deposits 2.25 % 1.88 % 1.71 % 1.92 % 1.62 % 2.23 % 1.38 % Yield on total interest earning assets 4.52 % 4.46 % 4.32 % 4.21 % 4.17 % 4.37 % 4.10 % Cost of total average deposits 1.06 % 0.93 % 0.89 % 0.67 % 0.67 % 0.85 % 0.64 % Cost of average total interest bearing liabilities 1.45 % 1.30 % 1.06 % 0.94 % 0.92 % 1.19 % 0.87 % Fully tax equivalent interest rate spread 3.09 % 3.16 % 3.25 % 3.30 % 3.25 % 3.19 % 3.23 % Fully tax equivalent net interest margin 3.35 % 3.41 % 3.45 % 3.45 % 3.41 % 3.41 % 3.38 % Net income 1,618 1,240 1,685 1,126 (178 ) 5,669 3,301 ROA 0.71 % 0.55 % 0.74 % 0.49 % 0.10 % 0.62 % 0.36 % Annualized return on equity 7.35 % 6.23 % 7.78 % 5.16 % 1.01 % 6.52 % 3.78 % Efficiency ratio 75.76 % 88.26 % 78.12 % 83.89 % 87.05 % 80.07 % 82.18 %    

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

 

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John E. PeckPresident and CEO(270) 885-1171