HopFed Bancorp, Inc. Reports Fourth Quarter Results

HOPKINSVILLE, Ky., Jan. 31, 2013 /PRNewswire/ --  HopFed Bancorp, Inc. (NASDAQ: HFBC) (the "Company"), the holding company for Heritage Bank (the "Bank"), today reported results for the three and twelve month periods ended December 31, 2012.  For the three month period ended December 31, 2012, the Company's net income available to common shareholders was $648,000, or $0.09 per share, basic and diluted, compared to net income available to common shareholders of $2.1 million, or $0.28 per share basic and diluted, for the three month period ended December 31, 2011. For the twelve month period ended December 31, 2012, the Company's net income available to common shareholders was $2.8 million, or $0.38 per share, basic and diluted, compared to a net income available to common shareholders of $1.9 million, or $0.25 per share basic and diluted, for the twelve month period ended December 31, 2011.

Commenting on the fourth quarter results, John E. Peck, President and Chief Executive Officer, said, "The Company has repurchased 100% of our Preferred Stock from the United States Treasury. The $18.4 million repurchase of Preferred Stock required the accelerated accretion of our warrant discount and a final dividend payment totaling $200,000 in December of 2012. The Warrant allowed the Treasury to purchase 253,667 shares of HopFed Common Stock at an exercise price of $10.88 and was scheduled to expire on December 12, 2018.  On January 16, 2013, the Company repurchased the Warrant issued to the Treasury for $256,257."

Mr. Peck continued, "We have been successful in reducing our cost of time deposits during the fourth quarter of 2012.  For the three month period ended December 31, 2012, the cost of retail time deposits was 1.74%, as compared to 1.92% for the three month period ended September 30, 2012. For the three month period ended December 31, 2012, the Company's cost of deposits was 1.20%, compared to 1.36% for the three month period ended September 30, 2012, and 1.46% for the three month period ended December 31, 2011. As discussed below, the Company's net interest margin improved substantially as compared to the three month period ended September 30, 2012."

Mr. Peck concluded, "The Company experienced a $9.2 million reduction in classified loans during the quarter and $23.7 million in the last two quarters. The Company's credit trends continue to improve and our non-performing asset ratio continues to decline. Reducing the level of adversely classified assets remains a priority for the Company."

Financial Highlights

• The Company and Bank's capital ratios remain strong after the repurchase of all Preferred Stock. At December 31, 2012, the Company's tangible book value was $13.88 per share and our tangible common equity ratio is 10.83%. The Bank's Tier 1 Leverage and Total Risk Based Capital Ratios at December 31, 2012, are 10.62% and 19.07%, respectively. The Company's Tier 1 Leverage and Total Risk Based Capital Ratios are 10.85% and 19.42%, respectively.
• At December 31, 2012, the Bank's and Company's net classified loans to risk based capital ratios were 60.74% and 59.36%, respectively.  At September 30, 2012, these ratios were 68.76% for the Bank and 60.42% for the Company. At June 30, 2012, these ratios were 86.50% for the Bank and 76.1% for the Company. These ratios are improved despite the $18.4 million repurchase of Preferred Stock.
• At December 31, 2012, the Company's allowance for loan loss totaled $10.6 million, or 1.99% of total loans and 138.99% of non-accrual loans. In the twelve month period ended December 31, 2012, the Company's net charge offs totaled $2.9 million, or an annualized rate of 0.52% of average loans.
• For the three month period ended December 31, 2012, the Company's net interest margin was 3.01%, as compared to 2.67% for the three month period ended September 30, 2012, and 3.13% for the three month period ended December 31, 2011.

Asset Quality

At December 31, 2012, the Company's level of non-accrual loans totaled $7.6 million, as compared to $6.1 million at December 31, 2011. At December 31, 2012, non-accrual loans total 1.43% of total loans. 

A summary of non-accrual loans at December 31, 2012, and December 31, 2011, is as follows:

A summary of the level of classified loans at December 31, 2012, is as follows:

At December 31, 2012, non-accrual loans plus other real estate owned totaled $9.2 million, or 0.95% of total assets, as compared to $8.4 million, or 0.81% of total assets, at December 31, 2011. The Company's level of other real estate owned has declined from $2.3 million at December 31, 2011, to $1.5 million at December 31, 2012.

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

At December 31, 2012, the Company's level of loans classified as substandard and doubtful were $66.6 million and none, respectively.  At September 30, 2012, the Company's level of loans classified as substandard and doubtful were $75.7 million and $116,000, respectively, as compared to $47.5 million and $1.7 million, respectively, at December 31, 2011. The Company's specific reserve for impaired loans was $3.8 million at December 31, 2012, and $4.1 million at December 31, 2011.

At December 31, 2012, the Company's level of performing Troubled Debt Restructurings ("TDRs") was $11.1 million, as compared to $6.2 million at December 31, 2011. A summary of the activity in loans classified as performing TDRs for the twelve month period ended December 31, 2012, is as follows:

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

A summary of TDRs and non-performing TDRs at December 31, 2012, and December 31, 2011, is stated below:

A summary of the activity in other real estate owned for the twelve month period ended December 31, 2012, is as follows:

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

Net Interest Income

For the three month period ended December 31, 2012, the Company's net interest income was $6.5 million, compared to $7.2 million for the three month period ended December 31, 2011, and $5.9 million for the three month period ended September 30, 2012. For the twelve month period ended December 31, 2012, the Company's net interest income was $26.0 million, as compared to $27.8 million for the twelve month period ended December 31, 2011. For the twelve month period ended December 31, 2012, the Company's net interest margin was 2.90%, as compared to 3.02% for the twelve month period ended December 31, 2011. For the twelve month period ended December 31, 2012, net interest income was reduced by $480,000 as a result of FHLB prepayment penalties. FHLB prepayment penalties reduced the Company's net interest margin for the twelve month period ended December 31, 2012, by 0.05%.

The Company's net interest margin improved significantly for the three month period ended December 31, 2012, as compared to the three month period ended September 30, 2012. The improvement occurred largely as a result of the re-pricing of more than $96 million in time deposits. On a linked quarter basis, interest expense on deposits declined by $348,000 and interest expense on FHLB borrowings declined by $563,000.

The decline in the Company's net interest income and net interest margin for the twelve month period ended December 31, 2012, as compared to the twelve month period ending December 31, 2011, is largely the result of declining average loan balances and high level of cash flow from our investment portfolio.

Non-interest Income

Non-interest income for the three month period ended December 31, 2012, was $2.2 million, as compared to $2.4 million for the three month periods ended December 31, 2011, and $2.9 million for the three month period ended September 30, 2012, respectively. Non-interest income for the twelve month period ended December 31, 2012, and December 31, 2011, was $9.6 million and $10.2 million, respectively.

The decrease in non-interest income for the three and twelve month periods ended December 31, 2012, as compared to the three and twelve month period ended December 31, 2011, was primarily the result of a lower level of gains on the sale of securities. The Company recognized net gains on the sale of securities of $53,000 and $1.7 million for the three month and twelve month periods ended December 31, 2012, as compared to $600,000 and $2.9 million for the three and twelve month periods ended December 31, 2011. The Company recognized $944,000 in gains on the sale of securities during the three month period ended September 30, 2012.

For the three and twelve month periods ended December 31, 2012, the Company's income from financial services increased by $90,000 and $177,000, respectively, as compared to the same periods in 2011. For the three and twelve month periods ended December 31, 2012, income from fixed rate mortgage originations was $272,000 and $956,000, as compared to $295,000 and $720,000 for the three and twelve month periods ended December 31, 2011.  For the three month period ended December 31, 2012, income on bank owned life insurance increased by $95,000 as compared to the three month period ended December 31, 2011, as a result of the death benefit received.

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

Non-interest Expense

Non-interest expenses were $6.9 million and $6.7 million for the three month periods ended December 31, 2012, and December 31, 2011, respectively, and $7.0 million for the three month period ended September 30, 2012. For the twelve month period ended December 31, 2012, and December 31, 2011, non-interest expenses were $28.4 million and $28.7 million, respectively. On a linked quarter basis, non-interest expenses declined $39,000 due to lower levels of professional services expenses and deposit insurance expense.  These reductions were largely offset by a $197,000 increase in other operating expense attributable to an alternative minimum tax adjustment at December 31, 2012.

The Company's salaries and benefits expense, other operating expenses and professional services expenses have increased due to increased regulatory and compliance requirements. The reduction in losses on sale of other real estate owned is the result of lower balances in that asset class. The reduction in the Company's deposit insurance and examination expense is largely the result of a reduced level of brokered and time deposits and the removal of informal regulatory actions.

Balance Sheet 

Total assets were $967.7 million at December 31, 2012, a decrease of $73.1 million as compared to December 31, 2011.  The decline in the size of the balance sheet is largely the result of an $82.9 million reduction in time deposit balances and a $19.6 million decline in FHLB borrowings. The reduction in time deposits included an $8.2 million decline in brokered deposits.  The Company funded the decline in the balance sheet largely by reducing the size of its investment portfolio by $27.4 million.  For the twelve month period ended December 31, 2012, gross loans declined by approximately $32.0 million, to $535.6 million as compared to $567.6 million at December 31, 2011.  

The Company recently repurchased all outstanding Preferred Stock and the associated Warrant sold under the Treasury's Capital Purchase Plan in December 2008. In repurchasing all outstanding preferred shares, the Company will not have to pay $920,000 in preferred dividends and incur $111,120 of warrant accretion in 2013, equal to $0.14 per share, basic and diluted. As a result of the repurchase of preferred shares, the Company accelerated a final dividend payment $87,000 and warrant accretion of $111,120, reducing net income available to common shareholders by $0.03 per share, basic and diluted.

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 subsidiary, Fall & Fall Insurance of Fulton, Kentucky. The Bank's operations include Heritage Solutions 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 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 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, 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.

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.

HOPFED BANCORP, INC.
Selected Financial Data

The table below adjusts tax-free investment income for the twelve month periods ended December 31, 2012, and December 31, 2011, by $1,076,000 and $1,065,000, respectively; for a tax equivalent rate using a cost of funds rate of 1.80% for the twelve month period ended December 31, 2012, and 2.00% for the twelve month period ended December 31, 2011.  The table adjusts tax-free loan income by $9,000 for the twelve month period ended December 31, 2012, and $34,000 for the twelve month period ended December 31, 2011, 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.

HOPFED BANCORP, INC.
Selected Financial Data

The table below adjusts tax-free investment income for the three month periods ended December 31, 2012, and December 31, 2011, by $274,000 and $249,000, respectively; for a tax equivalent rate using a cost of funds rate of 1.60% for the three month period ended December 31, 2012, and 2.00% for the three month period ended December 31, 2011.  The table adjusts tax-free loan income by $1,000 for the three month period ended December 31, 2012 and $8,000 for the three month period ended December 31, 2011, 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.

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