SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 000-23667
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HOPFED BANCORP, INC.
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(Exact name of registrant as specified in its charter)
Delaware 61-1322555
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2700 Fort Campbell Boulevard, Hopkinsville, Kentucky 42240
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (270) 885-1171
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety days. Yes x No
As of May 13, 2002, 3,630,390 shares of Common Stock were issued and
outstanding.
CONTENTS
PAGE
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
Consolidated Statements of Financial Condition as of March 31, 2002
(Unaudited) and December 31, 2001 2
Consolidated Statements of Income (Unaudited) for the Three-Month
Periods Ended March 31, 2002 and March 31, 2001 3
Consolidated Statements of Comprehensive Income (Unaudited) for
the Three-Month Periods Ended March 31, 2002 and 2001 4
Consolidated Statements of Cash Flows (Unaudited) for the Three-Month
Periods Ended March 31, 2002 and March 31, 2001 5
Notes to Unaudited Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 10
PART II. OTHER INFORMATION 11
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Item 1. Legal Proceedings 11
Item 2. Changes in Securities and Use of Proceeds 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters To a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HOPFED BANCORP, INC.
Consolidated Statements of Financial Condition
March 31, December 31,
ASSETS 2002 2001
------------ -----------
(Unaudited)
(Dollars in thousands)
Cash and due from banks $ 3,717 $ 3,941
Interest-earning deposits in Federal Home
Loan Bank ("FHLB") 98 39
Federal funds sold 2,150 690
Securities available for sale 90,943 100,519
Securities held to maturity, market value of
$4,171 and $4,822 at March 31, 2002 and
December 31, 2001, respectively 4,045 4,462
Loans receivable, net of allowance for loan
losses of $1,009 at March 31, 2002, and $923
at December 31, 2001 190,775 170,016
Loans held for sale - - - 928
Other Real Estate Owned 43 --
Accrued interest receivable 1,543 1,405
Premises and equipment, net 3,348 3,315
Deferred tax assets 354 82
Other assets 476 242
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Total assets $ 297,492 $ 285,639
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 215,866 $ 200,316
Advances from borrowers for taxes and insurance 280 201
Advances from FHLB 33,811 38,747
Federal income taxes payable 467 --
Dividends payable 399 399
Accrued expenses and other liabilities 2,874 2,387
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Total liabilities 253,697 242,050
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Stockholders' equity:
Common stock 40 40
Additional paid in capital 25,714 25,714
Retained earnings, substantially restricted 22,844 22,110
Treasury stock (at cost, 408,547 shares at
March 31, 2002 and 407,767 shares at
December 31, 2001 (4,853) (4,845)
Accumulated other comprehensive income,
net of taxes 50 570
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Total stockholders' equity 43,795 43,589
----------- ----------
Total liabilities and stockholders' equity $ 297,492 $ 285,639
=========== ==========
The balance sheet at December 31, 2001 has been derived from the audited
financial statements of that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying Notes to Unaudited Consolidated Financial Statements.
2
HOPFED BANCORP, INC.
Consolidated Statements of Income
(Unaudited)
For the Three Month Periods
Ended March 31,
--------------------------------
2002 2001
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(Dollars in thousands, except per share data)
Interest income:
Loans receivable $ 3,199 $ 2,660
Interest and dividends on investments 1,370 1,499
Time deposit interest income 18 143
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Total interest income 4,587 4,302
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Interest expense:
Deposits 1,663 2,146
Advances from FHLB 386 214
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Total interest expense 2,049 2,360
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Net interest income 2,538 1,942
Provision for loan losses 90 60
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Net interest income after provision for loan losses 2,448 1,882
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Noninterest income:
Loan and other service fees 225 80
Gain on sale of available for sale securities 202 ---
Other, net 9 18
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Total noninterest income 436 98
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Noninterest expenses:
Salaries and benefits 522 560
Deposit insurance premium 9 8
Occupancy expense, net 147 58
Data processing 91 45
Other operating expenses 367 263
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Total noninterest expenses 1,136 934
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Income before income taxes 1,748 1,046
Income tax expense 615 377
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Net income $ 1,133 $ 669
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Basic net income per share $ .31 $ .17
Diluted net income per share $ .31 $ .17
Dividends per share $ .11 $ .11
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Weighted average shares outstanding 3,631,499 3,856,949
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See accompanying Notes to Unaudited Consolidated Financial Statements.
3
HOPFED BANCORP, INC.
Consolidated Statements of Comprehensive Income
(Unaudited)
For the Three Month
Periods Ended March 31
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2002 2001
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(In thousands)
Net income $ 1,133 $ 669
Other comprehensive income
Realized gains on the sale of investment securities
classified as available for sale net of tax effect
of $ (69) (133) ----
Unrealized holding gains (losses) arising during
period net of tax effect of $268 and $(124) for
the three months ended March 31, 2002
and 2001, respectively (520) 241
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Comprehensive income $ 480 $ 910
======== ========
See accompanying Notes to Unaudited Consolidated Financial Statements.
4
HOPFED BANCORP, INC.
Consolidated Statements of Cash Flows
(Unaudited)
For the Three Month
Periods Ended March 31,
--------------------------------
2002 2001
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(In thousands)
Cash flows from operating activities:
Net cash provided by operating activities 2,171 1,558
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Cash flows from investing activities
Proceeds from maturities of held to maturity securities 419 974
Proceeds from sale of available for sale securities 21,167 32,763
Purchase of available for sale securities (12,666) (28,351)
Net increase in loans receivable (19,983) (4,981)
Purchases of premises and equipment (94) (200)
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Net cash provided (used) by investing activities (11,157) 205
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Cash flows from financing activities:
Net increase in demand deposits 12,809 582
Net increase in time deposits 2,737 8,573
Increase in advances from borrowers for taxes
and insurance 79 66
Net increase (decrease) in other borrowed funds (4,936) 960
Dividends paid (399) (406)
Purchase of treasury stock (9) (666)
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Net cash provided by financing activities 10,281 9,109
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Increase (decrease) in cash and cash equivalents 1,295 10,872
Cash and cash equivalents, beginning of period 4,670 3,807
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Cash and cash equivalents, end of period $ 5,965 14,679
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Supplemental disclosure of cash flow information
Cash paid for income taxes $ 92 $ - - -
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Cash paid for interest $ 2,015 $ 2,362
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See accompanying Notes to Unaudited Consolidated Financial Statements.
5
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
HopFed Bancorp, Inc. (the "Company") was formed at the direction of
Hopkinsville Federal Bank (the "Bank") to become the holding company of
the Bank upon the conversion of the Bank from a federally chartered
mutual savings bank to a federally chartered stock savings bank. The
conversion was consummated on February 6, 1998. The Company's primary
assets are the outstanding capital stock of the converted Bank, and its
sole business is that of the converted Bank.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles ("GAAP") for
interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by GAAP for complete
financial statements. In the opinion of management, all adjustments
(consisting of only normal recurring accruals) necessary for fair
representation have been included. The results of operations and other
data for the three-month period ended March 31, 2002, are not
necessarily indicative of results that may be expected for the entire
fiscal year ending December 31, 2002.
(2) EARNINGS PER SHARE
The following schedule reconciles the numerators and demoniators of the
basic and diluted Earnings per share ("EPS") computations for the
three-months ended March 31, 2002 and 2001. Diluted common shares arise
from the potentially dilutive effect of the Company's stock Options
oustanding.
Quarters Ended March 31,
---------------------------------
2002 2001
Basic EPS:
Net income $ 1,133,000 $ 669,000
Average common shares outstanding 3,631,499 3,856,949
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Earnings per share $ 0.31 $ 0.17
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Diluted EPS:
Net income $ 1,133,000 $ 669,000
Average common shares outstanding 3,631,499 3,856,949
Dilutive effect of stock options 2,721 ---
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Average diluted shares outstanding 3,634,220 3,856,949
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Diluted earnings per share $ 0.31 $ 0.17
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6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Comparison of Financial Condition at March 31, 2002 and December 31, 2001
Total assets increased by $11.9 million, from $285.6 million at December
31, 2001 to $297.5 million at March 31, 2002. Securities available for sale
decreased from $100.5 million at December 31, 2001 to $90.9 million at March 31,
2002. Federal funds sold increased from $690,000 at December 31, 2001 to $2.2
million at March 31, 2002.
At March 31, 2002, investments classified as "held to maturity" were
carried at an amortized cost of $4.0 million and had an estimated fair market
value of $4.2 million, and securities classified as "available for sale" had an
estimated fair market value of $90.9 million.
The loan portfolio increased $20.8 million during the three months ended
March 31, 2002. Net loans totaled $190.8 million and $170.0 million at March 31,
2002 and December 31, 2001, respectively. For the three months ended March 31,
2002, the average yield on loans was 7.10%, compared to 7.70% for the year ended
December 31, 2001.
The allowance for loan losses totaled $1.0 million at March 31, 2002, an
increase of $86,000 from the allowance of $923,000 at December 31, 2001. The
ratio of the allowance for loan losses to loans was .53% and .54% at March 31,
2002 and December 31, 2001, respectively. Also at March 31, 2002, non-performing
loans were $473,000, or .25% of total loans, compared to $551,000, or .32% of
total loans, at December 31, 2001, and the ratio of allowance for loan losses to
non-performing loans at March 31, 2002 and December 31, 2001 was 213.3% and
167.2%, respectively.
The determination of the allowance for loan losses is based on
management's analysis, performed on a quarterly basis. Various factors are
considered, including the market value of the underlying collateral, growth and
composition of the loan portfolio, the relationship of the allowance for loan
losses to outstanding loans, historical loss experience, delinquency trends and
prevailing economic conditions. Although management believes its allowance for
loan losses is adequate, there can be no assurance that additional allowances
will not be required or that losses on loans will not be incurred. Minimal
losses on loans have been incurred in prior years.
At March 31, 2002, deposits increased to $215.9 million from $200.3
million at December 31, 2001, a net increase of $15.6 million. The average cost
of deposits during the period ended March 31, 2002 and the year ended December
31, 2001 was 3.33% and 4.83%, respectively. Management continually evaluates the
investment alternatives available to customers and adjusts the pricing on its
deposit products to more actively manage its funding costs while remaining
competitive in its market area.
Comparison of Operating Results for the Three Months Ended March 31, 2002
and 2001
Net Income. Net income for the three months ended March 31, 2002 was
$1,133,000, compared to net income of $669,000 for the three months ended March
31, 2001. As discussed below, the increase in net earnings for the three months
primarily resulted from a $483,000 decline in interest expense on deposits.
7
Net Interest Income. Net interest income for the three months ended
March 31, 2002 was $2.4 million, compared to $1.9 million for the three months
ended March 31, 2001. The increase in net interest income for the three months
ended March 31, 2002 was primarily due to a decline of $483,000 in interest
expense on deposits. For the three months ended March 31, 2002, the Company's
average yield on average interest-earning assets was 6.51%, compared to 7.54%
for the three months ended March 31, 2001, and its average cost of
interest-bearing liabilities was 3.46% for the three months ended March 31,
2002, compared to 5.16% for the three months ended March 31, 2001. As a result,
the Company's interest rate spread for the three months ended March 31, 2002 was
3.05%, compared to 2.38% for the three months ended March 31, 2001, and its net
yield on interest-earning assets was 3.60% for the three months ended March 31,
2002, compared to 3.39% for the three months ended March 31, 2001.
Interest Income. Interest income increased by $285,000 from $4.3
million to $4.6 million, or by 6.7%, during the three months ended March 31,
2002 compared to the same period in 2001. This increase primarily resulted from
an increase in the loan portfolio which produced an increase of $539,000 in
interest on loans. The average balance of loans receivable increased $49.5
million from $130.6 million at March 31, 2001 to $180.1 million at March 31,
2002. The average balance of investment securities increased $11.0 million, from
$86.8 million at March 31, 2001 to $97.8 million at March 31, 2002. Average time
deposits and other interest-earning cash deposits decreased $7.2 million, from
$10.9 million at March 31, 2001 to $3.7 million at March 31, 2002. The ratio of
average interest-earning assets to average interest-bearing liabilities
decreased from 124.4% for the three months ended March 31, 2001 to 119.0% for
the three months ended March 31, 2002.
Interest Expense. Interest expense decreased $311,000 or 13.2%, to $2.0
million for the three months ended March 31, 2002, compared to $2.4 million for
the same period in 2001. The decrease was attributable to a decline of $483,000
in interest on deposits and an increase in interest on FHLB advances of
$172,000. The average cost of average interest-bearing deposits decreased from
5.18% at March 31, 2001 to 3.33% at March 31, 2002. Over the same period, the
average balance of deposits increased $40.4 million, from $166.2 million at
March 31, 2001 to $206.6 million at March 31, 2002, or 24.4% and the average
balance of borrowed funds increased $19.7 million, from $17.4 million at March
31, 2001 to $37.1 million at March 31, 2002. The average cost of average
borrowed funds decreased from 4.93% at March 31, 2001 to 4.15% at March 31,
2002.
Provision for Loan Losses. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the risk
inherent in its loan portfolio and the general economy. Such evaluation
considers numerous factors including, general economic conditions, loan
portfolio composition, prior loss experience, the estimated fair value of the
underlying collateral and other factors that warrant recognition in providing
for an adequate loan loss allowance. The Company determined that an additional
$90,000 provision for loan loss was required for the three months ended March
31, 2002.
8
Noninterest Income. There was a $338,000 increase in noninterest income
in the three months ended March 31, 2002 compared to the same period in 2001,
due to a $202,000 gain on the sale of investment securities and an increase in
loan and other service fees.
Noninterest Expenses. There was a $202,000 increase in total
noninterest expenses in the three months ended March 31, 2002 compared to the
same period in 2001, primarily due to a $46,000 increase in data processing
expenses related to a software conversion, an increase of $89,000 in occupancy
expenses related to market expansions and a $67,000 increase in other operating
expenses, which included professional services and office supplies.
Income Taxes. The effective tax rate for the three months ended March
31, 2002 was 35.0%, compared to 36.0% for the same period in 2001.
Liquidity and Capital Resources. The Company has no business other than
that of the Bank. Management believes that dividends that may be paid by the
Bank to the Company will provide sufficient funds for its current needs.
However, no assurance can be given that the Company will not have a need for
additional funds in the future. The Bank is subject to certain regulatory
limitations with respect to the payment of dividends to the Company.
The Bank's principal sources of funds for operations are deposits from
its primary market areas, principal and interest payments on loans, proceeds
from maturing investment securities and the net conversion proceeds received by
it. The principal uses of funds by the Bank include the origination of mortgage
and consumer loans and the purchase of investment securities.
The Bank has signed a definative agreement to aquire the business
assets and liabilities of Old National Bancorp assigned to or located in Fulton,
Kentucky. These assets include two retail banking offices and Fall & Fall
Insurance Agency. The Bank anticipates the transaction will be completed in late
August of this year. As a part of this transaction, the Bank will acquire
approximately $35 million dollars in short term treasury notes.
The Bank has announced plans to relocate retail offices in both Benton
and Murray, Kentucky. The Bank anticipates that the relocation of both offices
will occur in the third or fourth quarter of 2002. The cost associated with the
relocations has not been determined but the company anticipates that its
liquidity levels will be adquate to fund these cost.
The Bank is required by current federal regulations to maintain
specified liquid assets of at least 5% of its net withdrawable accounts plus
short-term borrowings. Short-term liquid assets (those maturing in one year or
less) may not be less than 1% of the Bank's liquidity base. At March 31, 2002,
the Bank met all regulatory liquidity requirements, and management believes that
the liquidity levels maintained are adequate to meet potential deposit outflows,
loan demand and normal operations.
The Bank must satisfy three capital standards: a ratio of core capital
to adjusted total assets of 4.0%, a tangible capital standard expressed as 1.5%
of total adjusted assets, and a combination of core and "supplementary" capital
equal to 8.0% of risk-weighted assets. At March 31, 2002, the Bank exceeded all
regulatory capital requirements. The table below presents certain information
relating to the Bank's capital compliance at March 31, 2002.
9
At March 31, 2002
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Amount Percent
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(Dollars in thousands)
Tangible Capital $40,538 13.60%
Core Capital $40,538 13 60%
Risk-Based Capital $41,367 24.64%
At March 31, 2002, the Bank had outstanding commitments to originate
loans totaling $8.9 million. Management believes that the Bank's sources of
funds are sufficient to fund all of its outstanding commitments. Certificates of
deposits which are scheduled to mature in one year or less from March 31, 2002
totaled $77.9 million. Management believes that a significant percentage of such
deposits will remain with the Bank.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements.
Additional written or oral forward-looking statements may be made by the Company
from time to time in filings with the Securities and Exchange Commission or
otherwise. The words "believe," "expect," "seek," and "intend" and similar
expressions identify forward-looking statements, which speak only as of the date
the statement is made. Such forward-looking statements are within the meaning of
that term in Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Such statements may
include, but are not limited to, projections of income or loss, expenditures,
acquisitions, plans for future operations, financing needs or plans relating to
services of the Company, as well as assumptions relating to the foregoing.
Forward-looking statements are inherently subject to risks and uncertainties,
some of which cannot be predicted or quantified. Future events and actual
results could differ materially from those set forth in, contemplated by or
underlying the forward-looking statements.
The Company does not undertake, and specifically disclaims, any
obligation to publicly release the results of revisions which may be made to
forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company monitors whether material changes in market risk have
occurred since year-end. The Company does not believe that material changes in
market risk exposures occurred during the three months ended March 31, 2002.
10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities and Use of Proceeds
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Hopkinsville Federal Bank, the wholly owned subsidiary of the Company,
changed its name to Heritage Bank on May 13, 2002. The name change was initiated
due to the Bank's growth in markets throughout Western Kentucky and Tennessee.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - Not applicable
(b) Current Report on Form 8-K dated March 1, 2002, reporting
under Item 5, the execution of a definitive agreement to
acquire two retail banking offices and Fall & Fall
Insurance, an insurance agency, located in Fulton,
Kentucky, from Old National Bank.
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOPFED BANCORP, INC.
Date: May 14, 2002 /s/ John E. Peck
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John E. Peck
President and Chief Executive Officer
Date: May 14, 2002 /s/ Billy C. Duvall
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Billy C. Duvall
Vice President, Chief Financial
Officer and Treasurer
12