HFBC - HopFed Bancorp Inc. Reports Operating Results for the First Quarter of 2019

HopFed Bancorp, Inc. (NASDAQ: HFBC) (the “Company”), the holding company for Heritage Bank USA, Inc. (the “Bank”), today reported operating results for the three-month period ended March 31, 2019. For the three-month period ended March 31, 2019, the Company’s net income was $623,000, or $0.10 per share basic and diluted, compared to $1.1 million, or $0.18 per share basic and diluted, for the three-month period ended March 31, 2018. The reduction in net income for the three-month period ended March 31, 2019 was largely the result of merger related expenses.

Commenting on the results for the three-month period ended March 31, 2019, John E. Peck, President and Chief Executive Officer, said, “For the three-month period ended March 31, 2019, net loans increased by $7.5 million, representing an annualized growth rate of 4.5%. In the three-month period ended March 31, 2019, retail deposits increased by $10.6 million, allowing the Company to reduce its level of brokered deposits by $9.0 million. In the three-month period ended March 31, 2019, higher short term interest rates drove a $6.0 million increase in retail repurchase accounts. Non-interest expenses (excluding merger related expenses) declined by $392,000 in the three-month period ended March 31, 2019, compared to the three-month period ended March 31, 2018.”

Financial Highlights

• At March 31, 2019, total loans outstanding in the Company’s three loan production offices were $106.2 million compared to $95.5 million at December 31, 2018, and $80.5 million at March 31, 2018.
• At March 31, 2019, non-accrual loans were $1.1 million compared to $1.4 million at December 31, 2018. At March 31, 2019, loans classified as substandard were $16.6 million compared to $14.3 million at December 31, 2018.
• The Company’s net interest margin for the three-month period ended March 31, 2019, was 3.24% compared to 3.35% and 3.45% for the three-month periods ended December 31, 2018 and March 31, 2018, respectively.
• The Company’s book value per share at March 31, 2019, was $14.80. The stated book value excludes 371,693 shares of unearned stock held in the Company’s Employee Stock Ownership Plan (“ESOP”).

Results of Operations

In the three-month periods ended March 31, 2019, December 31, 2018 and March 31, 2018, interest income was $9.5 million, $9.5 million and $8.8 million, respectively. For the three-month period ended March 31, 2019, the average balance of interest bearing assets was $849.3 million, an increase of $8.7 million compared to the three-month period ended March 31, 2018. The improvements in interest income for the three-month period ended March 31, 2019, compared to the three-month period ended March 31, 2018, were more than offset by higher short term interest rates, increasing the Company’s interest expense.

On a linked quarter basis, the Company’s interest expense increased by $249,000. The increase in linked quarter interest expense was the result of an $8.4 million increase in interest bearing liabilities and a 0.12% increase in the total cost of average interest bearing liabilities. The Company’s interest expense increased by $1.1 million for the three-month period ended March 31, 2019, compared to the three-month period ended March 31, 2018. For the three-month period ended March 31, 2019, average interest bearing liabilities were $613.5 million compared to $612.0 million for the three-month period ended March 31, 2018. The total cost of average interest bearing liabilities was 1.57% for the three-month period ended March 31, 2019, compared to 0.94% for the three-month period ended March 31, 2018. For the three-month periods ended March 31, 2019, December 31, 2018 and March 31, 2018, net interest income was $6.8 million, $7.0 million and $7.2 million, respectively.

For the three-month period ended March 31, 2019, non-interest income was $1.6 million, representing declines of $180,000 and $108,000 compared to the three-month periods ended December 31, 2018 and March 31, 2018, respectively. On a linked quarter basis, the decline in non-interest income was broad based. Historically, the Company’s non-interest income is lower in the first quarter of each year and highest in the fourth quarter of each year due to factors such as the number of days in the reporting period and the differences in economic activity during the respective periods. For the three-month period ended March 31, 2019, mortgage origination revenue declined by $70,000 compared to the three-month period ended March 31, 2018, due to weaker loan demand in the Company’s market. For the three-month period ended March 31, 2019, the Company’s service charge and merchant card income declined by a combined $48,000 compared to the three-month period ended March 31, 2018.

For the three-month period ended March 31, 2019, total non-interest expenses were $7.7 million, an increase of $1.0 million on a linked quarter basis and an increase of $204,000 compared to the three-month period ended March 31, 2018. On a linked quarter basis, non-merger related non-interest expenses increased by $424,000 largely due to a $351,000 increase in salaries and benefits expense. The linked quarter increase in salaries and benefits is largely the result of a $57,000 increase in health insurance, a $52,000 increase in payroll taxes and a $210,000 increase in the amount of vacation accruals.

For the three-month period ended March 31, 2019, state deposit taxes increased by $46,000 and data processing expenses increased by $38,000 compared to the three-month period ended March 31, 2018. For the three-month period ended March 31, 2019, no other operating expense line items experienced an increase as compared to the three-month period ended March 31, 2018.

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

Balance Sheet

At March 31, 2019, total assets were $934.3 million compared to $931.4 million at December 31, 2018. At March 31, 2019, net loans totaled $666.3 million, an increase of $7.5 million compared to December 31, 2018. The Company continued to experience growth in retail repurchase agreements, which increased from $53.0 million at December 31, 2018, to $59.0 million at March 31, 2019.

A summary of loans outstanding by type at March 31, 2019 and December 31, 2018 is as follows:

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

Asset Quality

The table below provides a history of the Company’s significant credit quality metrics for the dates listed below:

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 the Tennessee communities of Nashville, Murfreesboro and Brentwood. The Company offers a broad line of financial services and products with the personalized focus of a community banking organization.

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.

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