HopFed Bancorp, Inc. Reports First Quarter Results

HOPKINSVILLE, Ky., May 4, 2011 /PRNewswire/ -- HopFed Bancorp, Inc. (Nasdaq: HFBC), (the "Company") today reported results for the three month period ended March 31, 2011.  For the three month period ended March 31, 2011, the Company incurred a net loss attributable to common shareholders of $2,098,000, or $0.29 per share basic and diluted, compared to net income available to common shareholders of $1,606,000, or $0.44 per share basic and diluted, for the three month period ended March 31, 2010.  The Company's results of operations for the three month period ended March 31, 2011, were adversely impacted by a $4.5 million provision for loan loss expense.

Commenting on the first quarter results, John E. Peck, President and Chief Executive Officer, said, "The Company incurred a significant provision for loan loss expense during the quarter. The provision expense was necessary and appropriate due to a recent decline in economic activity in our markets. This decline is believed to have been precipitated by a number of factors, including higher mortgage rates and gas prices which have reduced both the demand for single family housing and the market value for development properties.  Higher gas prices have also reduced disposable income and are expected to limit future consumer spending. In addition to these national economic factors, our region also has experienced significant natural disasters for a third consecutive year. We anticipate that recent flooding may limit grain production in 2011, while local manufacturers have been hurt by recent tornadoes in our area. Events in Japan have affected local automobile part manufactures, as some have seen a reduction in the demand for their products from Japanese customers. While we regret that an additional provision expense is necessary, we remain committed to ensuring that our Company operates in a conservative yet prudent manner."

Mr. Peck continued, "Despite the challenges our Company and its customers continue to face, the Company's level of non-accrual loans at March 31, 2011, were at acceptable levels. Management remains focused on asset quality and the efficient liquidation of non-performing assets. We continue to focus on growing core deposits, selectively allowing higher costing deposits to either re-price or leave the bank."

Mr. Peck concluded, "Beginning in July 2011, the Company's regulator, the Office of Thrift Supervision ("OTS"), will be merged into the Office of the Comptroller of the Currency ("OCC"). At that time, Heritage Bank (the "Bank"), our thrift subsidiary, will be regulated by the OCC and our Company will be regulated by the Federal Reserve Board. As discussed in the Asset Quality section of the Company's most recent Annual Report on Form 10-K, the Company's management continues to prepare for the regulatory transition as we anticipate that the two agencies may vary on how they interpret specific regulations and may have a different regulatory focus."

Financial Highlights

• For the three month period ended March 31, 2011, the Company's cost of all deposits declined to 1.88%, as compared to 2.27% for the three months ended March 31, 2010, and 1.92% for the three month period ended December 31, 2010.

• At March 31, 2011, the Bank's Tier 1 Capital ratio and Total Risk Based Capital ratio were 9.28% and 16.38%, respectively.  At March 31, 2011, the Company's consolidated Tier 1 Capital Ratio and Total Risk Based Capital Ratio were 10.94% and 19.27%, respectively.

• At March 31, 2011, the Company's allowance for loan loss account was $13.9 million, or 2.34% of gross loans. At December 31, 2010, the Company's allowance for loan loss account was $9.8 million, or 1.61% of gross loans. At March 31, 2011, the Company's allowance for loan loss account equals 228.96% of non-accrual loans, as compared to 195.35% at December 31, 2010.

Asset Quality

At March 31, 2011, non-performing loans totaled $6.1 million, or 1.02% of total loans, as compared to $5.0 million, or 0.82% of total loans at December 31, 2010.  At March 31, 2011, non-performing assets totaled $15.1 million, or 1.41% of total assets, compared to $14.8 million, or 1.37% of total assets at December 31, 2010.  At March 31, 2011, the Company's allowance for loan loss balance was $13.9 million as compared to $9.8 million at December 31, 2010. The Company's allowance for loan loss account equaled approximately 228.96% of the Company's nonaccrual loans and 2.34% of total loans outstanding at March 31, 2011.  

The Company's specific reserve for impaired loans increased to $6.6 million at March 31, 2011, as compared to $4.3 million at December 31, 2010. Despite the financial strain of a prolonged recession, the majority of our customers continues to pay as agreed, and they appear to have the ability to meet their obligations. In management's opinion, customers that have withstood more than two years of a recession are more likely to remain viable. For the three month period ended March 31, 2011, the Company's net charge-offs totaled $405,000, an annualized rate of 0.27% of average loans.

Net Interest Income

For the three month period ended March 31, 2011, the Company's net interest income was $6.8 million, compared to $7.2 million for the three month period ended March 31, 2010, and $7.3 million for the three month period ended December 31, 2010.  Weak loan demand and declining investment alternatives continue to weigh on the Company's net interest margin. Given the narrowing spreads between deposits and investments, the Company has chosen to reduce its exposure to Federal Home Loan Bank advances and brokered deposits.

For the three month period ended March 31, 2011, the Company's net interest margin was 2.94%, as compared to 3.19% for the three month period ended March 31, 2010, and 3.07% for the three month period ended December 31, 2010. Management anticipates that the growth in interest bearing liabilities will be sluggish through the first half of 2011 as we continue to emphasize reducing our cost of funds.

Non-interest Income

Non-interest income for the three month period ended March 31, 2011, was $2.4 million, compared to $2.3 million for the three month period ended March 31, 2010, and $3.6 million for the three month period ended December 31, 2010. The increase in non-interest income for the period March 31, 2011, as compared to March 31, 2010, was largely the result of a $220,000 increase in gains on the sale of investments. During the same periods, the increase in non-interest income was partially offset by a $129,000 decline in service charge income.  For the three month periods ended March 31, 2011, December 31, 2010, and March 31, 2010, service charge income was $856,000, $948,000 and $985,000 respectively. For the three month period ended March 31, 2011, March 31, 2010, and December 31, 2010, the Company earned $72,000, $84,000 and $199,000 in mortgage origination revenue, respectively.

Non-interest Expense

For the three month period ended March 31, 2011, non-interest expenses increased to $7.4 million as compared to $6.3 million for the same period in 2010. The most significant increases in non-interest expenses were in costs associated with losses incurred on the sale and write downs on other real estate owned, losses on the sale and retirement of fixed assets and increases in compensation and deposit insurance expenses. The increase in compensation expense was the result of additional staffing due to increased regulatory compliance needs and was not a seasonal trend.  

Balance Sheet  

Total assets were $1.07 billion at March 31, 2011, a decrease of $8.5 million as compared to December 31, 2010.  During the first quarter of 2011, the Company's deposits grew by $4.0 million despite a $4.0 million decline in brokered deposits. At March 31, 2011, Federal Home Loan Bank advances declined to $70.9 million as compared to $81.9 million at December 31, 2010. The decline in brokered deposits and FHLB advances were primary the result of a lack of loan demand and relatively modest investment options. For the three month period ended March 31, 2011, gross loans declined by approximately $15.4 million, to $594.7 million. The Company's focus will remain on core deposit growth, reducing our cost of funds, and reducing our balances in other assets owned through the sale of collateral.

The Company

HopFed Bancorp, Inc. is the holding company for Heritage Bank headquartered in Hopkinsville, Kentucky.  The Bank has eighteen offices in western Kentucky and middle Tennessee in addition to its subsidiaries, Fall & Fall Insurance of Fulton, Kentucky, Heritage Solutions of Murray, Kentucky, Hopkinsville, Kentucky, Kingston Springs, Tennessee and Pleasant View, Tennessee, and Heritage Mortgage Services of Clarksville, Tennessee.  The Bank offers a broad line of banking and financial products and services with the personalized focus of a community banking organization.  More information about HopFed Bancorp and Heritage Bank may be found on its website www.bankwithheritage.com.

Forward-Looking Information

Information contained in this press release, other than historical information, may be considered forwardlooking in nature and is subject to various risk, 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.

SOURCE HopFed Bancorp, Inc.