HopFed Bancorp, Inc. (NASDAQ: HFBC) (the “Company”), the holding company for Heritage Bank USA, Inc. (the “Bank”), today reported operating results for the three and twelve month periods ended December 31, 2017. For the three month period ended December 31, 2017, net income was $225,000, or $0.04 per share, compared to $1.1 million, or $0.18 per share, for the three month period ended December 31, 2016. For the twelve month period ended December 31, 2017, net income rose 27.5% to $3.7 million, or $0.60 per share, compared to $2.9 million, or $0.47 per share, for the twelve month period ended December 31, 2016. The results for the three months and year ended December 31, 2017 included a charge of $980,000, or $0.16 per share, related to the write-down of the Company’s deferred tax asset after President Trump signed the Tax Cuts and Jobs Act of 2017 that reduced future federal corporate tax rates.

Commenting on the fourth quarter results, John E. Peck, President and Chief Executive Officer, said, “We finished 2017 with a very strong year and reported record balances of loans. Our earnings showed solid progress compared with 2016 and our momentum more than offset the fourth quarter tax charge that arose from the newly enacted tax legislation. The write-down of the deferred tax asset had no effect on our asset quality and financial strength. We anticipate that the Company will recover our write-down of the deferred tax asset in fifteen months through lower future income taxes. We remain confident in our Company’s future earning potential due to our strong asset quality and a vibrant local economy.”

Financial Highlights

  • In the three month period ended December 31, 2017, loan growth was $11.7 million, representing an annualized growth rate of 7.4%. For the year ended December 31, 2017, loan growth was $31.5 million, or 5.2%, compared to December 31, 2016. At December 31, 2017, total loans originated and outstanding in the Nashville, Tennessee loan production office were $68.6 million, compared to $42.5 million at December 31, 2016.
  • Non-accrual loans declined from $9.1 million, or 1.49% of total loans, at December 31, 2016 to $1.3 million, or 0.20% of total loans, at December 31, 2017. Loans classified as impaired were $29.3 million at December 31, 2016 and $10.8 million at December 31, 2017.
  • In the three month period ended December 31, 2017, the Company sold foreclosed assets totaling $1.7 million for a net gain of $80,000. At December 31, 2017, the Company’s non-performing asset ratio improved to 0.52%, compared to 1.29% of total assets at December 31, 2016.
  • For the three month period ended December 31, 2017, the Company purchased 50,903 shares of treasury stock at a weighted average cost of $14.23 per share. For the year ended December 31, 2017, the Company purchased 92,224 shares of treasury stock at a weighted average cost of $14.19 per share. At December 31, 2017, the Company held 1,338,360 shares of treasury stock with a weighted average cost of $12.44 per share. The Company may purchase an additional 300,000 shares of treasury stock under our current repurchase program.

Results of Operations

In the three month periods ended December 31, 2017, September 30, 2017 and December 31, 2016, net interest income was $7.0 million, $7.1 million and $6.6 million, respectively. On a linked quarter basis, the reduction in net interest income was the result of lower average balances of loans. For the three month period ended December 31, 2017, the average balance of net loans was $631.5 million, compared to $637.0 million for the three month period ended September 30, 2017 and $589.3 million for the three month period ended December 31, 2016.

In the twelve month periods ended December 31, 2017 and December 31, 2016, net interest income was $27.8 million and $26.4 million, respectively. For the years ended December 31, 2017 and December 31, 2016, the average balance of loans was $626.7 million and $570.7 million, respectively. To fund loan growth, the Company utilized both deposit growth and cash flows from the securities portfolio. For the year ended December 31, 2017, the Company’s average balance of loans increased by $56.0 million while the Company’s average balance of deposits grew by $26.0 million.

The Company’s net interest margin for the three month periods ended December 31, 2017, September 30, 2017 and December 31, 2016 was 3.41%, 3.43% and 3.35%, respectively. On a linked quarter basis, the slight reduction in the net interest margin is largely the result of higher deposit balances and lower average balances of loans outstanding. The Company’s net interest margin for the twelve month periods ended December 31, 2017 and December 31, 2016 was 3.38% and 3.35%, respectively.

For the three month periods ended December 31, 2017, the Company’s non-interest income was $1.9 million, compared to $2.0 million for the three month periods ended September 30, 2017 and December 31, 2016, respectively. For the three month period ended December 31, 2017, the Company experienced a $9,000 loss on the sale of securities, compared to a gain of $162,000 and $190,000 for three month periods ended September 30, 2017 and December 31, 2016, respectively. For the three month period ended December 31, 2017, service charge income was $801,000, compared to $819,000 and $694,000 for the three month periods ended September 30, 2017 and December 31, 2016, respectively. The increase in service charge income for the three and twelve month periods ended December 31, 2017, was the result of changes made to our consumer transaction accounts that reduced the amount of checking accounts not being assessed a service charge.

For the twelve month periods ended December 31, 2017 and December 31, 2016, non-interest income was $8.0 million and $7.9 million, respectively. The table below outlines the most significant changes in non-interest income for the twelve month period ended December 31, 2017 compared to December 31, 2016:

                 
Dollar Percentage
12/31/17 12/31/16 Change Change
(Dollars in Thousands, Except Percentages)
Service charge income $ 3,224 $ 2,788 $ 436 15.64 %
Mortgage origination income 1,321 1,585 (264 ) -16.66 %
Gain on the sale of securities 169 612 (443 ) -72.39 %

Income from bank owned life insurance

483 343 140 40.82 %
Financial services income 536 614 (78 ) -12.70 %
Other operating income 1,075 769 306 39.79 %
 

On a linked quarter basis, the Company’s non-interest expenses increased by $28,000. The small increase in non-interest expenses was largely the result of a $76,000 increase in professional services and a $125,000 increase in advertising expenses. For the three month period ended December 31, 2017, salaries and benefits expense increased $163,000, or 4.3% and professional services expenses increased $89,000, or 22.5%, compared to the three month period ended December 31, 2016. The increase in salaries and benefits expense includes approximately $40,000 related to health insurance and $80,000 related to employee payroll expenses. The increase in professional services expenses for the three and twelve month periods ended December 31, 2017 is largely the result of legal cost associated with a shareholder lawsuit and shareholder demand letter.

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

Results of Operations (continued)

For the twelve month periods ended December 31, 2017 and December 31, 2016, non-interest expenses were $29.3 million and $29.9 million, respectively. The table below outlines the most significant changes in non-interest expenses for the twelve month period ended December 31, 2017 compared to December 31, 2016:

                 
Dollar Percentage
12/31/17 12/31/16 Change Change
(Dollars in Thousands, Except Percentages)
Salaries and benefits $ 16,049 $ 15,400 $ 649 4.21 %
Occupancy 2,920 3,173 (253 ) -7.97 %
State deposit tax 770 990 (220 ) -22.22 %
Professional services 1,706 1,404 302 21.51 %
Foreclosure, net 9 448 (439 ) -97.99 %
Other operating expenses 3,592 4,170 (578 ) -13.86 %
 

For the twelve month period ended December 31, 2017, the increase in salary and benefits includes a $305,000 increase in the Company’s health insurance expense and a $344,000 increase in payroll expenses. The increase in professional services is largely the result of litigation tied to both a shareholder lawsuit and shareholder demand letter. In the twelve month period ended December 31, 2017, foreclosure expenses are lower due to a $400,000 reduction in the legal expenses required to take legal possession of properties and a $137,000 increase on gains on the sale of foreclosed assets, compared to the twelve month period ended December 31, 2016.

Balance Sheet

At December 31, 2017, total assets were $917.3 million, compared to $891.5 million at December 31, 2016. During November and December of 2017, the Company experienced significant inflows in both commercial and government deposits. Management anticipates that this inflow of deposits will reverse themselves in the first quarter of 2018 due to the normal economic cycle of agri-business and government tax collections.

In 2017, the Company’s loan growth has occurred largely in the non-residential real estate and residential real estate loan portfolios. The Company seeks to further enhance loan growth with additional exposure in the areas of commercial and construction lending. We are actively seeking established lending professionals in our growth markets to enhance our prospects for future success. A summary of loans outstanding by type at December 31, 2017 and December 31, 2016 is as follows (Dollars in Thousands):

         
12/31/17 12/31/16
 
One-to-four family first mortgages $ 163,565 $ 147,962
Second mortgages (closed end) 1,184 1,452
Home equity lines of credit 35,697 35,684
Multi-family 37,445 34,284
Construction 30,246 39,255
Land 14,873 23,840
Farmland 36,851 47,796
Non-residential real estate 224,952 182,940
Consumer loans 8,620 8,717
Commercial loans   88,938     88,907  
Total loans, gross 642,371 610,837
 
Deferred loan cost, net of income (443 ) (439 )
 
Less allowance for loan losses   (4,826 )   (6,112 )
 
Total loans $ 637,102   $ 604,286  
 

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

Asset Quality

For the year ended December 31, 2017, the Company’s net charge-offs totaled $1.8 million, or 0.28% of average loan balances, compared to net charge-offs of $829,000, or 0.15% of average loan balances for the year ended December 31, 2016. At December 31, 2017, the Company’s non-accrual loans were $1.3 million, or 0.20% of total loans, compared to $9.1 million, or 1.49% of total loans at December 31, 2016. The Company’s level of impaired loans declined from $29.3 million at September 30, 2016 and $10.7 million at December 31, 2017. The table below provides a history of the Company’s significant credit quality metrics:

                     
12/31/17 09/30/17 06/30/17 03/31/17 12/31/16

(Dollars in Thousands, Except Percentages)

 
Loans past due 30-89 days 393 754 2,910 746 1,211

Loans past due 90 + days accruing interest

88 --- --- --- ---
Total non-accrual loans 1,285 1,739 8,579 8,944 9,074
Total loans classified as impaired 10,780 11,217 24,808 26,345 29,339
Total performing TDR loans 3,163 3,371 3,388 4,237 6,461
Total foreclosed assets 3,369 4,975 1,408 2,111 2,397
Quarterly net charge offs (336 ) 2,451 (956 ) 238 765
 
Non-accrual loans / Total loans 0.20 % 0.28 % 1.34 % 1.44 % 1.49 %
Non-performing assets / Total assets 0.52 % 0.74 % 1.09 % 1.20 % 1.29 %
Allowance / Total loans 0.75 % 0.76 % 1.12 % 0.99 % 1.00 %
Allowance / Non-accrual loans 375.74 % 275.96 % 83.69 % 68.92 % 67.36 %
Substandard loans / Risk based capital 10.68 % 10.86 % 24.28 % 26.15 % 29.66 %

Quarterly net charge off ratio (annualized)

-0.21 % 1.54 % -0.61 % 0.15 % 0.52 %
 

The Company

HopFed Bancorp, Inc. is the holding company for Heritage Bank USA, Inc. (“Heritage Bank”), a Kentucky state chartered commercial bank. Heritage Bank has eighteen offices in western Kentucky and middle Tennessee and loan production offices in Nashville and Brentwood, Tennessee. The Company offers a broad line of financial services and products with the personalized focus of a community banking organization. More information about HopFed Bancorp and Heritage Bank is located 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 risks, 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. The Company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the Company’s expectations. Certain tabular presentations may not reconcile because of rounding.

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

 
HOPFED BANCORP, INC.
Consolidated Condensed Balance Sheets
(Dollars in Thousands)
(Unaudited)
 
 

Assets

       12/31/17     09/30/17     06/30/17     03/31/17     12/31/16
 
Cash and due from banks $ 37,965 23,469 20,208 30,663 21,779
Interest-earning deposits in banks   7,111   9,842   4,801   19,408   3,970  
Cash and cash equivalents 45,076 33,311 25,009 50,071 25,749
Federal Home Loan Bank stock, at cost 4,428 4,428 4,428 4,428 4,428
Securities available for sale 184,791 192,287 205,363 207,580 209,480
Loans held for sale 1,539 1,749 2,386 1,091 1,094
Loans receivable 641,928 630,202 638,422 621,644 610,398
Allowance for loan losses (4,826 ) (4,799 ) (7,180 ) (6,164 ) (6,112 )
Accrued interest receivable 3,589 3,414 3,332 3,121 3,799
Foreclosed assets 3,369 4,975 1,408 2,111 2,397
Bank owned life insurance 10,368 10,287 10,192 10,120 10,662
Premises and equipment, net 22,700 22,945 23,097 23,225 23,461
Deferred tax assets 1,764 2,292 3,025 2,918 3,052
Other assets   2,577   2,973   2,645   3,162   3,078  
Total assets   917,303   904,064   912,127   923,307   891,486  
 

Liabilities:

 
Deposits:
Non-interest-bearing accounts $ 136,197 128,184 132,305 136,333 131,145
Interest-bearing accounts
NOW accounts 208,496 196,315 216,256 217,562 209,347
Savings and money market accounts 104,347 97,929 98,270 100,009 99,312
Other time deposits   304,969   308,801   299,113   311,839   293,078  
Total deposits 754,009 731,229 745,944 765,743 732,882
 
Advances from Federal Home Loan Bank 23,000 31,000 21,000 11,000 11,000
Repurchase agreements 38,353 37,829 41,820 45,492 47,655
Subordinated debentures 10,310 10,310 10,310 10,310 10,310
Accrued expenses and other liabilities   3,817   4,461   4,262   3,301   3,211  
Total liabilities   829,489   814,829   823,336   835,846   805,058  
 

.

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

 
HOPFED BANCORP, INC.
Consolidated Condensed Balance Sheets, Continued
(Dollars in Thousands, Except Percentages, Share and Per Share Data)
(Unaudited)
                     
 
12/31/2017 09/30/17 06/30/17 03/31/17 12/31/16
 
Stockholders' equity:
Common stock, par value $.01 80 80 80 80 80
Additional paid-in-capital 58,825 58,777 58,750 58,705 58,660
Retained earnings 51,564 51,646 50,552 49,721 49,035

Treasury stock- common, at cost

(16,655 ) (15,931 ) (15,361 ) (15,356 ) (15,347 )
Unearned ESOP Shares, at cost (5,901 ) (6,125 ) (6,269 ) (6,414 ) (6,548 )

Accumulated other comprehensive income, net of taxes

(99 ) 788   1,039   725   548  
 
Total stockholders' equity 87,814   89,235   88,791   87,461   86,428  
 
Total liabilities and stockholders' equity 917,303   904,064   912,127   923,307   891,486  
 
 

Additional Capital Information

                     
 
12/31/17 09/30/17 06/30/17 03/31/17 12/31/16
 
 
Preferred stock authorized 500,000 500,000 500,000 500,000 500,000
Preferred stock outstanding --- --- --- --- ---
Common shares authorized 15,000,000 15,000,000 15,000,000 15,000,000 15,000,000
Common shares issued 7,976,131 7,976,131 7,964,076 7,963,378 7,963,378
Common shares outstanding 6,637,771 6,688,674 6,716,809 6,716,549 6,717,242
Treasury shares 1,338,360 1,287,457 1,247,267 1,246,829 1,246,136
Unearned ESOP shares (estimated) * 450,000 466,115 476,862 488,161 498,346

Book value per share (excludes unearned ESOP shares)

$ 14.19 $ 14.34 $ 14.23 $ 14.04 $ 13.90
 
Tier 1 leverage ratio 10.6 % 10.9 % 10.4 % 10.6 % 10.8 %
Total risk based capital ratio 16.0 % 16.3 % 16.1 % 16.1 % 16.2 %
Common equity tier 1 capital ratio 15.3 % 15.6 % 15.0 % 15.1 % 15.2 %
 

* Management has provided an estimate as to the number of ESOP shares released in 2017. The Company will not receive final information on ESOP shares released for 2017 until the end of February 2018.

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

 
HOPFED BANCORP, INC.
Consolidated Condensed Quarterly Statements of Income
(Dollars in Thousands)
(Unaudited)
 
     

For the three month periods ended

    

For the year ended

                   
12/31/17 9/30/17 6/30/17 3/31/17 12/31/16 12/31/17 12/31/16
Interest and dividend income:
Loans receivable 7,208 7,260 6,963 6,736 6,603 28,167 25,778
Investment in securities, taxable 1,081 1,124 1,155 1,118 1,051 4,478 4,595
Nontaxable securities available for sale 218 233 280 283 289 1,014 1,308
Interest-earning deposits 34   18 21 23 8 96 46
Total interest and dividend income 8,541   8,635 8,419 8,160 7,951 33,755 31,727
 
Interest expense:
Deposits 1,240 1,206 1,197 1,167 1,094 4,810 4,240
Advances from Federal Home Loan Bank 97 89 30 32 29 248 163
Repurchase agreements 117 130 119 103 87 469 508
Subordinated debentures 112   112 108 104 101 436 388
Total interest expense 1,566   1,537 1,454 1,406 1,311 5,963 5,299
 
Net interest income 6,975 7,098 6,965 6,754 6,640 27,792 26,428
Provision for loan losses 56   71 59 291 63 477 1,241
 

Net interest income after provision for loan losses

6,919   7,027 6,906 6,463 6,577 27,315 25,187
 
Non-interest income:
Service charges 801 819 800 804 694 3,224 2,788
Merchant card income 306 299 315 302 311 1,222 1,224
Mortgage orgination revenue 374 335 278 334 367 1,321 1,585
Gain (loss) on sale of securities (9 ) 162 14 2 190 169 612
Income from bank owned life insurance 81 95 72 235 78 483 343
Financial services commission 117 134 145 140 159 536 614
Other operating income 198   186 212 479 201 1,075 769
Total non-interest income 1,868   2,030 1,836 2,296 2,000 8,030 7,935
 

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

 
HOPFED BANCORP, INC.
Consolidated Condensed Statements of Income, Continued
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
 
 
      For the three month periods ended     For the year ended
                   
12/31/17 9/30/17 6/30/17 3/31/17 12/31/16 12/31/17 12/31/16
Non-interest expenses:
Salaries and benefits 3,917 3,919 3,977 4,236 3,754 16,049 15,400
Occupancy 700 716 729 775 775 2,920 3,173
Data processing 779 795 546 764 767 2,884 2,942
State deposit tax 170 169 200 231 247 770 990
Professional services 485 409 464 348 396 1,706 1,404
Advertising 365 240 368 381 334 1,354 1,401
Foreclosure, net (80 ) (25 ) 6 108 (51 ) 9 448
Loss on sale of asset (1 ) --- 3 --- --- 2 (72 )
Other operating expenses   861     945     940   846   989     3,592   4,170  
Total non-interest expense   7,196     7,168     7,233   7,689   7,211     29,286   29,856  
 
Income before income tax expense 1,591 1,889 1,509 1,070 1,366 6,059 3,266
Income tax expense   1,366     486     368   135   260     2,355   362  
Net income   225     1,403     1,141   935   1,106     3,704   2,904  
Net income per share
Basic $ 0.04   $ 0.22   $ 0.18 $ 0.15 $ 0.18   $ 0.60 $ 0.47  
Diluted $ 0.04   $ 0.22   $ 0.18 $ 0.15 $ 0.18   $ 0.60 $ 0.47  
Dividend per share $ 0.05   $ 0.05   $ 0.05 $ 0.04 $ 0.04   $ 0.19 $ 0.16  
 

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

 
HOPFED BANCORP, INC.
Selected Financial Data
(Dollars in Thousands, Except Percentages)
(Unaudited)
 
 
     

Three month periods ended

    

For the year ended

12/31/17     9/30/17     6/30/17     3/31/17     12/31/16 12/31/17     12/31/16
Average Balance Sheet Data
Loans, net of allowance 631,463 636,955 622,606 615,382 589,282 626,735 570,674
Available for sale taxable securities 164,667 173,624 177,260 176,824 179,483 173,062 190,843
Available for sale tax free securities 27,361 29,090 32,919 33,868 35,102 30,787 38,981
Interest bearing deposits held in banks 8,418 4,351 5,888 9,260 5,915 6,976 7,512
Average earning assets 831,909 844,020 838,673 835,334 809,782 837,560 808,010
Average non-earning assets 74,856 64,913 70,359 75,527 70,443 69,004 72,407
Average assets 906,765 908,933 909,032 908,861 880,225 906,564 880,417
Average interest bearing deposits 611,371 612,655 628,583 625,104 596,763 619,372 596,109
Repurchase agreements 34,677 37,978 39,138 41,840 41,717 38,388 43,566
FHLB borrowings 25,174 26,909 11,176 13,433 11,000 19,226 12,404
Subordinated debentures 10,310 10,310 10,310 10,310 10,310 10,310 10,310
Total average interest bearing liabilities 681,532 687,852 689,207 690,687 659,790 687,296 662,389
Average non-interest bearing deposits 132,624 126,039 128,078 126,809 128,450 128,397 125,709
Average other non-interest bearing liabilities 3,365 5,628 3,915 3,993 3,557 3,435 3,274
Average total equity 89,244 89,214 87,832 87,372 88,428 87,436 89,045
 
 

Three month periods ended

For the year ended

Tax equivalent yield / Cost of: 12/31/17 9/30/17 6/30/17 3/31/17 12/31/16 12/31/17 12/31/16
 
Loans, fully tax equivalent 4.58 % 4.57 % 4.48 % 4.38 % 4.49 % 4.50 % 4.52 %
Available for sale taxable securities 2.63 % 2.59 % 2.61 % 2.53 % 2.34 % 2.59 % 2.41 %
Available for sale tax free securities, fully tax equivalent 4.76 % 4.78 % 5.09 % 5.00 % 4.93 % 4.93 % 5.02 %
Average yield of interest bearing deposits 1.62 % 1.65 % 1.43 % 0.99 % 0.54 % 1.38 % 0.61 %
Yield on total interest earning assets 4.17 % 4.15 % 4.09 % 3.98 % 4.00 % 4.10 % 4.01 %
Cost of total average deposits 0.67 % 0.65 % 0.63 % 0.62 % 0.60 % 0.64 % 0.59 %
Cost of average total interest bearing liabilities 0.92 % 0.89 % 0.84 % 0.81 % 0.79 % 0.87 % 0.80 %
Fully tax equivalent interest rate spread 3.25 % 3.26 % 3.25 % 3.17 % 3.21 % 3.23 % 3.21 %
Fully tax equivalent net interest margin 3.41 % 3.43 % 3.39 % 3.31 % 3.35 % 3.38 % 3.35 %
Net income 225 1,403 1,141 935 1,106 3,704 2,904
Return on Assets 0.10 % 0.62 % 0.50 % 0.41 % 0.50 % 0.41 % 0.33 %
Annualized return on equity 1.01 % 6.29 % 5.20 % 4.28 % 5.00 % 4.24 % 3.26 %
Efficiency ratio 80.25 % 77.41 % 80.80 % 83.58 % 82.05 % 80.50 % 86.72 %
 

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