HopFed Bancorp, Inc. Reports Fourth Quarter Results

HOPKINSVILLE, Ky., Jan. 31, 2011 /PRNewswire/ -- HopFed Bancorp, Inc. (Nasdaq: HFBC), (the "Company") today reported results for the three and twelve month periods ended December 31, 2010.  For the three month period ended December 31, 2010, net income available to common shareholders was $557,000, or $0.08 per share basic and diluted, compared to net income available to common shareholders of $1,953,000, or $0.55 per share basic and diluted, for the three month period ended December 31, 2009.  For the twelve month period ended December 31, 2010, net income available to common shareholders was $5,485,000, or $0.98 per share basic and diluted, as compared to net income available to common shareholders of $944,000, or $0.26 per share basic and diluted, for the twelve month period ended December 31, 2009.  Income results for the year ended December 31, 2009 were adversely affected by a $5.0 million goodwill impairment charge. The impairment charge reduced the Company's after-tax net income by $3.3 million or $0.92 per share basic and diluted, for the year ended December 31, 2009.

Commenting on the three and twelve month periods ended December 31, 2010, John E. Peck, President and Chief Executive Officer, said, "The Company has obtained legal possession of a significant portion of our problem assets.  As a result, the Company's balance in other real estate owned increased from $2.6 million at September 30, 2010, to $9.8 million at December 31, 2010."

Mr. Peck continued, "The Company's profitability declined in the current quarter primarily due to additional provision expenses resulting from a reclassification of four credit relationships.  Despite increased credit expenses, the Company remained profitable in the fourth quarter and the year ended December 31, 2010, and was the Company's most profitable ever. As we enter a new year, the Company's primary focus will remain on maintaining a strong balance sheet, reducing the level of problem assets and lowering our cost of funds."

Financial Highlights

• For the three month period ended December 31, 2010, the Company's cost of all deposits declined to 1.92%, as compared to 2.04% for the three months ended September 30, 2010, and 2.44% for the three month period ended December 31, 2009.

• The Company's growth in both non-interest bearing and interest bearing checking accounts remains impressive.  For the twelve months ended December 31, 2010, the balances in these deposit accounts increased by more than $32.8 million despite a $7.5 million decline in brokered deposits.

• The Company's provision for loan loss expense for the three and twelve month periods ended December 31, 2010, was $3.2 million and $6.0 million, respectively, as compared to the provision for loan loss expense for the three and twelve month periods ended December 31, 2009, of $884,000 and $4.2 million, respectively.  

• During the three month period ended December 31, 2010, the Company charged off approximately $2.4 million in loans and added $7.2 million to other real estate owned.  At December 31, 2010, the Company's non-performing loans totaled $5.0 million, and management had specific reserves against nonperforming loans totaling $4.3 million.

• The Company and its wholly owned subsidiary, Heritage Bank, continue to maintain exceptional capital levels.  At December 31, 2010, the Bank's Tier 1 Capital and Total Risk Based Capital Ratios were 9.37% and 16.22%, respectively.  At December 31, 2010, the Company's Tier 1 Capital and Total Risk Based Capital Ratios were 11.09% and 19.24%, respectively.

Asset Quality

At December 31, 2010, non-performing loans totaled $5.0 million, or 0.82% of total loans, as compared to $11.2 million, or 1.72% of total loans at December 31, 2009.  At December 31, 2010, non-performing assets totaled $14.8 million, or 1.37% of total assets, compared to $13.1 million, or 1.28% of total assets, at December 31, 2009.  At December 31, 2010, the Company's allowance for loan loss balance was $9.8 million. The Company's allowance for loan loss account equaled approximately 195.35% of the Company's nonperforming loans and 1.61% of total loans outstanding at December 31, 2010.  For the twelve month period ended December 31, 2010, the Company's net charge-offs totaled $5.0 million, an annualized rate of 0.78% of average loans. 

The decline in non-performing loans is largely the result of foreclosures being placed into other real estate owned (ORE).  Of the recently acquired multi-family properties, all but $1.4 million consist of four to eight unit buildings located in the Company's largest market.  The Company anticipates that the marketing time for disposition of these units will be six to twelve months.

The Company's largest market is expected to benefit from the return of approximately 14,000 military personnel from the Middle East in the next six months.  With the influx of returning troops, we also anticipate that economic activity in the area to increase.  We anticipate that the increased economic activity will have a positive influence on both the marketability of the Company's other real estate owned and loan demand.

Net Interest Income

For the twelve month ended December 31, 2010, the Company's net interest income was $30.2 million, compared to $26.8 million for the twelve month period ended December 31, 2009.  For the three month period ended December 31, 2010, the Company's net interest income was $7.3 million, compared to $7.0 million for the three month period ended December 31, 2009, and $7.7 million for the three month period ended September 30, 2010.  Weak loan demand continues to adversely affect the Company's net interest margin.  As investment alternatives become less attractive in the current low interest rate environment, management has chosen to selectively reduce its balances of Federal Home Loan Bank loan balances and brokered deposits.

For the three month period ended December 31, 2010, the Company's interest expense declined by $372,000 and $968,000 as compared to the three month periods ended September 30, 2010, and December 31, 2009, respectively.  The decline of interest expense occurred despite a $30.5 million increase in average interest bearing liabilities during the three month period ended December 31, 2010, as compared to the three month period ended December 31, 2009.  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 December 31, 2010, was $3.6 million, compared to $3.0 million for the three month period ended December 31, 2009.  The increase in non-interest income was the result of a $1.7 million in gains taken during the three month period ended December 31, 2010, as compared to $1.1 million in gains taken during the three month period ended December 31, 2009.

For the three and twelve month periods ended December 31, 2010, service charge income was $948,000  and $3.9 million, respectively, as compared to $1.1 million and $4.2 million for the three and twelve month periods ended December 31, 2009, respectively.  For the three month period ended December 31, 2010, new regulations regarding the use of overdraft protection resulted in a decline in overdraft revenue of approximately 20% as compared to the same period in 2009.

For the three month period ended December 31, 2010, the Company earned $199,000 in mortgage origination revenue as compared to $82,000 for the three month period ended December 31, 2009, and $204,000 for the three month period ended September 30, 2010.  During October and November 2010, lower long term rates spurred additional mortgage refinancing activities.  During December 2010, long term mortgage rates increased, reducing the amount of refinancing activity.  

Non-interest Expense

As compared to the three month period ended December 31, 2009, non-interest expenses increased by $640,000.  The most significant increases in non-interest expenses were in compensation and deposit insurance expenses, both increasing by more $200,000.  The increase in compensation expense is the result of additional staffing due to increased regulatory compliance needs and is not a seasonal trend.  For the twelve month periods ended December 31, 2010 and December 31, 2009, noninterest expense declined by $4.3 million primarily due to a $5.0 million goodwill impairment charge in the third quarter of 2009.  Excluding the goodwill impairment charge, total non-interest expenses increased by less than $700,000, or less than 3.0% as compared to 2009.

Balance Sheet  

Total assets were $1.08 billion at December 31, 2010, an increase of $52.7 million from December 31, 2009.  During the same period, the Company's deposits grew by $32.8 million, while gross loans declined by approximately $41.2 million.  In 2010, the Company reduced brokered deposit balances by approximately $7.5 million and borrowings from the Federal Home Loan Bank by approximately $20.6 million. The Company anticipates that loan demand will remain weak during the first half of 2011. The Company's focus will remain on core deposit growth, reducing its cost of funds, and resolution of problem assets.  

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.

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

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

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

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

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

The table below adjusts tax-free investment income for the twelve month periods ended December 31, 2010 and December 31, 2009, by $1,130 and $703, respectively; for a tax equivalent rate using a cost of funds rate of 2.50% for twelve month period ended December 31, 2010, and 3.00% for the twelve month period ended December 31, 2009.  The table adjusts tax-free loan income by $52 for the twelve month period ended December 31, 2010, for a tax equivalent rate using the same cost of funds rate:

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

The table below adjusts tax-free investment income for the three month periods ended December 31, 2010 and December 31, 2009, by $298 and $213, respectively; for a tax equivalent rate using a cost of funds rate of 2.50% for the three month period ended December 31, 2010, and 3.00% for the three month period ended December  31, 2009.  The table adjusts tax-free loan income by $9 for three month period ended December 31, 2010 and $16 for the three month period ended December 31, 2009, for a tax equivalent rate using the same cost of funds rate:

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

SOURCE HopFed Bancorp, Inc.