HopFed Bancorp, Inc. Reports Third Quarter Results

HOPKINSVILLE, Ky., Nov. 1, 2010 /PRNewswire-FirstCall/ -- HopFed Bancorp, Inc. (Nasdaq: HFBC), (the "Company") today reported results for the three and nine month periods ended September 30, 2010.  For the three month period ended September 30, 2010, net income available to common shareholders was $1,508,000 or $0.21 per share basic and diluted compared to a net loss of $2,875,000, or $0.80 per share basic and diluted, for the three month period ended September 30, 2009.  For the nine month period ended September 30, 2010, net income available to common shareholders was $4,928,000, or $1.01 per share basic and diluted as compared to a net loss of $1,009,000, or $0.28 per share basic and diluted for the nine month period ended September 30, 2009. Income results for the three and nine month periods ended September 30, 2009, were adversely affected by a $5.0 million goodwill impairment charge. The impairment charge reduced the Company's net income by $3.3 million or $0.92 per share basic and diluted, for the three and nine month periods ended September 30, 2009.

Commenting on the three and nine month periods ended September 30, 2010, John E. Peck, President and Chief Executive Officer, said, "The Company's profitability level for the first nine months of 2010 exceed that for the twelve month period ended December 31, 2008, which was the most profitable year in the Company's twelve year history.  The Company has made significant progress in addressing our credit issues. We anticipate gaining possession of approximately $9 million of non-accrual collateral in the fourth quarter of 2010, which will reduce the amount of time that these assets remain on Heritage Bank's books. We remain focused on enhancing the strength of our balance sheet, reducing our cost of funds and improving our deposit mix as loan demand remains weak."

Financial Highlights

• The Company continues to reduce its cost of deposits by focusing on relationship pricing within our core customer base. As a result, the Company's quarter cost of deposits has declined from 2.27% for the three month period ended March 31, 2010, 2.14% for the three months ended June 30, 2010, and 2.04% for the three month period ended September 31, 2010.

• The Company's growth in both non-interest bearing and interest bearing checking accounts remains impressive.  For the nine months ended September 30, 2010, the balances in these deposit accounts increased by more than $31.4 million, or more than 18%.

• The Company's provision for loan loss expense for the three and nine month periods ended September 30, 2010, was $1.3 million and $2.8 million, respectively, as compared to the provision for loan loss expense for the three and nine month periods ended September 30, 2009, of $1.4 million and $3.3 million, respectively.  The Company's allowance for loan loss account equaled approximately 75.4% of the Company's nonperforming loans at September 30, 2010.

• The Company and its wholly owned subsidiary, Heritage Bank, continue to maintain exceptional capital levels.  At September 30, 2010, the Bank's Tier 1 Capital and Total Risk Based Capital Ratios were 9.07% and 15.87%, respectively. At September 30, 2010, the Company's Tier 1 Capital and total Risk Based Capital Ratios were 10.83% and 19.04%.

Asset Quality

At September 30, 2010, the Company's non-performing loans totaled $12.0 million, or 1.90% of total loans, as compared to $11.2 million, or 1.72% of total loans at December 31, 2009.  At September 30, 2010, non-performing assets totaled $14.6 million, or 1.30% of total assets, compared to $13.1 million, or 1.28% of total assets, at December 31, 2009.  At September 30, 2010, the Company's allowance for loan loss balance was $9.0 million, or 1.43% of total loans.  For the nine month period ended September 30, 2010, the Company's net charge-offs totaled $2.6 million, an annualized rate of 0.55% of average loans.  Management continues to identify and resolve problem loans within the Bank's loan portfolio and has provided adequate reserves for all known and probable loan losses.

Net Interest Income

For the nine month period ended September 30, 2010, the Company's net interest income was $22.9 million, compared to $19.8 million for the nine month period ended September 30, 2009.  For the three month period ended September 30, 2010, the Company's net interest income was $7.7 million, compared to $6.9 million for the three month period ended September 30, 2009, and $7.9 million for the three month period ended June 30, 2010.  Net interest income continues to be negatively affected by the low rate market. The Company's investment portfolio yields are declining as agency bonds and mortgage backed securities experienced greater levels of prepayments. Management has chosen to reduce the balances of FHLB loans and brokered deposits due to the lack of attractive investment options.

For the three month period ended September 30, 2010, the Company's interest expense declined by $175,000 and $1.1 million as compared to the three month periods ended June 30, 2010, and September 30, 2009, respectively.  The decline of interest expense occurred despite a $53.2 million increase in average interest bearing liabilities during the three month period ended September 30, 2010, as compared to the three month period ended September 30, 2009.  For the three month period ended September 30, 2010, interest bearing liabilities increased by $6.4 million as compared to the three month period ended June 30, 2010.  For the three month periods ended June 30, 2010, and September 30, 2010, the Company's quarterly cost of deposits declined from 2.14% to 2.04%, respectively.

Non-interest Income

Non-interest income for the three month period ended September 30, 2010, was $3.1 million, compared to $2.1 million for the three month period ended September 30, 2009.  The increase in non-interest income for the period ended September 30, 2010, was the result of a $946,000 increase in gains on the sale of securities.  For the nine month periods ended September 30, 2010 and September 30, 2009, gains on the sale of securities totaled $1.8 million and $1.6 million, respectively.  The Company's decision to sell securities for gains is based on many factors, including the level of prepayments on mortgage backed securities and our desire to reduce the Company's dependency on higher cost deposit funding sources.

For the three and nine month periods ended September 30, 2010, service charge income was $953,000  and $3.0 million, respectively, as compared to $1.1 million and $3.1 million for the three and nine month periods ended September 30, 2009, respectively. For the three and nine month periods ended September 30, 2010, the decline in service charge income was only marginally affected by the new regulations that took effect August 1, 2010, but more significantly by a long term trend of lower levels of overdraft income. During the three month period ended September 30, 2010, lower long term interest rates resulted in an increase in mortgage refinancing activity.  As a result, the Company earned $204,000 in gains on the sale of loans during the three month period ended September 30, 2010, as compared to $69,000 for the same three month period in 2009.

Non-interest Expense

As compared to the three and nine month periods ended September 30, 2009, non-interest expenses declined by $4.8 million and $4.6 million, respectively, due to the $5.0 million goodwill impairment charge taken in 2009. Excluding the goodwill impairment charge, non-interest expenses increased by approximately 2% in the nine month period ended September 30, 2010. For the nine month period ended September 30, 2010, salaries and benefits expense increased by approximately $320,000 and other expenses increased by $273,000 as compared to the nine month period ended September 30, 2009.

Balance Sheet  

Total assets were $1.1 billion at September 30, 2010, an increase of $90.7 million from December 31, 2009.  During the same period, the Company's deposits grew by $37.6 million, while gross loans declined by approximately $20.6 million.  Loan demand remains weak, and the Company anticipates that it will continue to reduce its balances on time deposits until loan demand improves.  The Company continues to grow core deposit base and will continue to place a high emphasis on this strategy.  

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.

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.

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