HopFed Bancorp, Inc. Reports Second Quarter Results

HopFed Bancorp, Inc. Reports Second Quarter Results

HOPKINSVILLE, Ky.--(BUSINESS WIRE)-- HopFed Bancorp, Inc. (NAS: HFBC) (the "Company"), the holding company for Heritage Bank USA, Inc. (the "Bank"), today reported results for the three and six month periods ended June 30, 2013. For the three month period ended June 30, 2013, the Company's net income available to common shareholders was $1.2 million, or $0.16 per share, basic and diluted, compared to net income available to common shareholders of $903,000, or $0.12 per share basic and diluted, for the three month period ended June 30, 2012. For the six month period ended June 30, 2013, the Company's net income available to common shareholders was $2.2 million, or $0.29 per share, basic and diluted, compared to a net income attributable to common shareholders of $1.4 million, or $0.18 per share basic and diluted, for the six month period ended June 30, 2012.

Commenting on the second quarter results, John E. Peck, President and Chief Executive Officer, said, "Operating results improved modestly during the three month period ended June 30, 2013, as compared to the three months period ended March 31, 2013, due to an increase in gains on the sales of securities, an increase in the amount of service charge income and an increase in the amount of financial services commissions. The Company continues to carefully control our non-interest expenses as our linked quarter operating expenses declined by $150,000 and total operating expenses for the six month period ended June 30, 2013, were $140,000 lower as compared to the six month period ended June 30, 2012."


Mr. Peck continued, "The Company's non-accrual loans increased during the three month period ended June 30, 2013, as we placed a $6.3 million non-residential real estate relationship in non-accrual status and charged off approximately $1.3 million of that relationship in June 2013. The increase in non-accrual loans reduced interest income on loans by approximately $140,000. The increase in non-accruals did not result in an increase in the necessary funding level of the allowance for loan loss account or result in a material increase in the Company's level of adversely classified assets."

Mr. Peck concluded, "The Company continues to improve its deposit mix by reducing the Company's reliance on time deposit funding. At June 30, 2013, the Company's linked quarter non-interest expense declined by $120,000. In the three month period ending September 30, 2013, the Company has more than $60.0 million in time deposits re-pricing at a weighted average cost of 1.71%. The potential to lower our interest on deposit expense is likely to be offset by lower yields on loans and investments."

Financial Highlights

  • At June 30, 2013, the Company's tangible book value was $13.05 per share and tangible common equity ratio was 10.31%. The reduction in book value at June 30, 2013, as compared to March 31, 2013, was the result of a lower level of unrealized gains on securities. The Bank's Tier 1 Capital and Total Risk Based Capital Ratios at June 30, 2013, were 11.04% and 19.14%, respectively. The Company's Tier 1 Capital and Total Risk Based Capital Ratios were 11.18% and 19.31%, respectively.
  • At June 30, 2013, the Company's allowance for loan loss totaled $9.4 million, or 1.75% of total loans and 79.6% of non-accrual loans. In the six month period ended June 30, 2013, the Company's net charge offs totaled $2.0 million, or an annualized rate of 0.77% of average loans.
  • For the three month period ended June 30, 2013, the Company's net interest margin was 2.90%, as compared to 2.87% for the three month period ended June 30, 2012, and 2.99% for the three month period ended March 31, 2013. During the three month period ended June 30, 2013, net interest income was reduced by approximately $140,000 due to increases in non-accrual loans.

Asset Quality

At June 30, 2013, the Company's level of non-accrual loans totaled $11.8 million, as compared to $7.7 million at December 31, 2012, and $7.1 million at March 31, 2013. The increase in non-accrual loans is largely the result of one non-residential real estate relationship of approximately $5.0 million being classified as non-accrual in June 2013.

A summary of non-accrual loans at June 30, 2013, and December 31, 2012, is as follows:

 June 30, 2013 December 31, 2012
(Dollars in Thousands)
 
One-to-four family mortgages1,1312,243
Home equity line of credit2166
Junior lien374
Multi-family---38
Construction------
Land2,2562,768
Non-residential real estate7,0541,134
Farmland781648
Consumer loans354145
Commercial loans177617
Total non-accrual loans11,8117,663

A summary of the level of classified loans at June 30, 2013, is as follows:

       Specific Reserve
Impaired LoansReservefor

June 30, 2013

Special   forPerforming
PassMentionSubstandard DoubtfulTotalImpairmentLoans
(Dollars in Thousands)
One-to-four family mortgages151,3321,1695,34831157,8807941,583
Home equity line of credit35,017---965---35,982146243
Junior liens3,36145506---3,912---63
Multi-family27,870---2,095---29,965---233
Construction8,818176---

 

---8,994---67
Land22,1867,4419,519---39,1461,305415
Non-residential real estate126,70993213,750---141,3911,1451,892
Farmland45,0863524,862---50,300---462
Consumer loans12,418---438---12,856---392
Commercial loans53,8904352,930---57,255177482
Total486,68710,55040,41331537,6813,5675,832

At June 30, 2013, non-accrual loans plus other real estate owned totaled $13.4 million, or 1.42% of total assets, as compared to $9.2 million, or 0.95% of total assets, at December 31, 2012. A summary of the activity in other real estate owned for the six month period ended June 30, 2013, is as follows:

 Activity During 2013  
Balance    ReductionGain (Loss)Balance
 12/31/2012Foreclosures Proceedsin Valueson Sale6/30/2013
(Dollars in Thousands)
 
One-to-four family mortgages$258548(349)---(10)447
Multi-family------------------
Construction130---(110)(110)90---
Land1,112------------1,112
Non-residential real estate4440---(11)---73
Consumer assets 45(3)(4)(2)---
 
Total$1,548593(462)(125)78 1,632

At June 30, 2013, the Company's level of loans classified as substandard and doubtful were $40.4 million and $31,000, respectively, as compared to $66.6 million and none, respectively, at December 31, 2012. At June 30, 2013, the Company's classified loan to risk based capital ratio was 35.5%. The Company's specific reserve for impaired loans was $3.6 million at June 30, 2013, and $3.8 million at December 31, 2012, respectively.

At June 30, 2013, the Company's level of performing Troubled Debt Restructurings ("TDRs") was $469,000, as compared to $11.0 million at December 31, 2012. A summary of the activity in loans classified as TDRs for the six month period ended June 30, 2013, is as follows:

     

Removed

 
Removed due to

from

Balance atNewLoss orPayment or(Taken to)Balance at
 12/31/12TDRForeclosurePerformanceNon-accrual6/30/13
(Dollars in Thousands)
One-to-four family mortgages$1,888242---(1,863)---267
Home equity line of credit------------------
Junior Lien96------(10)(86)---
Multi-family234------(234)------
Construction4,112---------(4,112)---
Land6562,649(393)(656)---2,256
Non-residential real estate3,173266(864)(3,344)4,1123,343
Farmland865------(865)------
Consumer loans5------(1)---4
Commercial loans 9222--- (1)--- 230
 
Total performing TDR$11,0383,379(1,257)(6,974)(86)6,100

A summary of TDRs and non-performing TDRs at June 30, 2013, and December 31, 2012, is stated below:

 June 30, 2013 

December 31, 2012

(Dollars in Thousands)
One-to-four family mortgages$2671,888
Home equity line of credit------
Junior lien---196
Multi-family---234
Construction---4,112
Land2,2563,424
Non-residential real estate3,3433,173
Farmland---909
Consumer loans45
Commercial loans 230  128 
Total TDR 6,100  14,069 
Less:
TDR in non-accrual status
One-to-four family mortgages------
Home equity line of credit------
Junior lien---(100)
Multi-family------
Construction------
Land(2,256)(2,768)
Non-residential real estate(3,248)(44)
Consumer loans------
Commercial loans (127) (119)
Total performing TDR$469 $11,038 

Net Interest Income

For the three month period ended June 30, 2013, the Company's net interest income was $6.2 million, compared to $6.7 million for the three month period ended June 30, 2012, and $6.4 million for the three month period ended March 31, 2013. For the three month period ended June 30, 2013, the Company's net interest margin was 2.90%, as compared to 2.87% for the three month period ended June 30, 2012, and 2.99% for the three month period ended March 31, 2013.

For the six month period ended June 30, 2013, the Company's net interest income was $12.6 million, as compared to $13.5 million for the six month period ended June 30, 2012. For the six month period ended June 30, 2013, the Company's net interest margin was 2.94%, as compared to 2.93% for the six month period ended June 30, 2012.

The declines in the Company's net interest income and net interest margin are largely the result of declining average loan balances and investment securities. Furthermore, the yields on all classes of earning assets continue to decline as both short term and long term rates are near record low levels. The Company's results for the three and six month periods ended June 30, 2013, were negatively impacted by a substantial increase in non-accrual loans.

Non-interest Income

Non-interest income for the three month period ended June 30, 2013, was $2.8 million, as compared to $2.6 million for the three month period ended June 30, 2012, and $2.5 million for the three month period ended March 31, 2013.Non-interest income for the six month periods ended June 30, 2013, and June 30, 2012, was $5.3 million and $4.6 million, respectively. The increase in non-interest income for the three month period ended June 30, 2013, as compared to the three month periods ended June 30, 2012, and March 31, 2013, was primarily the result of an increase in gains on the sale of securities.

The Company recognized net gains on the sale of securities of $789,000, $630,000, and $627,000 for the three month periods ended June 30, 2013, June 30, 2012, and March 31, 2013, respectively. The Company recognized net gains on the sales of securities of $1.4 million and $674,000, for the six month periods ended June 30, 2013, and June 30, 2012, respectively.

For the three and six month periods ended June 30, 2013, the Company's revenue related to the origination of fixed rate mortgage loans was $212,000 and $412,000, respectively, as compared to $263,000 and $466,000 for the same periods in 2012. The Company earned $347,000 and $644,000 in commission from our financial services production during the three and six month periods ended June 30, 2013, as compared to $271,000 and $498,000, respectively, for the same periods in 2012.

Non-interest Expense

Non-interest expenses were $7.1 million, $7.4 million and $7.3 million for the three month periods ended June 30, 2013, June 30, 2012, and March 31, 2013, respectively. For the six months ended June 30, 2013, and June 30, 2012, non-interest expenses were $14.4 million and $14.5 million, respectively.

On a linked quarter basis, professional services expenses increased by $156,000. The increase in professional services expense was largely the result of the Company's contested proxy vote. On a linked quarter basis, the Company has experienced a modest decline in most operating expense line items. For the three month period ended June 30, 2013, the Company's salaries and benefits expense declined by $134,000 as compared to the previous quarter, and total operating expenses declined by $150,000, each as compared to the previous quarter.

Balance Sheet

At June 30, 2013, consolidated assets were $949.4 million, a decrease of $18.3 million as compared to December 31, 2012. The decline in assets is largely the result of a $29.0 million reduction in time deposits as the Company has chosen to allow selected high cost deposit funding to leave the Company. The Company has funded the outflow of deposits by the sale of securities.

For the six month period ended June 30, 2013, gross loans increased by approximately $2.1 million, to $537.7 million as compared to $535.6 million at December 31, 2012. In the Company's market area, desirable lending opportunities remain limited at this time, making meaningful loan growth challenging.

The Company

Prior to June 5, 2013, HopFed Bancorp, Inc. was a federally chartered savings and loan holding company with Heritage Bank as its wholly owned thrift subsidiary. On June 5, 2013, Heritage Bank's legal name was changed to Heritage Bank USA, Inc. and its charter was converted to a Kentucky state chartered commercial bank with the Kentucky Department of Financial Institutions and the Federal Deposit Insurance Corporation as its regulators. Also on June 5, 2013, HopFed Bancorp, Inc. became a non-member federally chartered commercial bank holding company regulated by the Federal Reserve Board. HopFed Bancorp, Inc. is the holding company for Heritage Bank USA, Inc. headquartered in Hopkinsville, Kentucky. The Bank has eighteen offices in western Kentucky and middle Tennessee in addition to its subsidiary, Fall & Fall Insurance of Fulton, Kentucky. The Company has two additional operating divisions including Heritage Wealth Management of Murray, Kentucky, Hopkinsville, Kentucky, Kingston Springs, Tennessee and Pleasant View, Tennessee, which offers a broad line of financial services. Heritage Mortgage Services of Clarksville, Tennessee offers long term fixed rate 1- 4 family mortgages loans that are originated for the secondary market in all communities in the Company's general market area. 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 USA, Inc. 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 forward-looking 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, estimat

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