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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 September 30, 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
- ---------------------------------------------------- ------------
(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 November 15, 2002, 3,630,396 shares of Common Stock were issued
and outstanding.
CONTENTS
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PAGE
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of September 30, 2002 (unaudited)
and December 31, 2001 2
Consolidated Statements of Income (unaudited)for the Three-Month and Nine-Month
Periods Ended September 30, 2002 and 2001 3
Consolidated Statements of Comprehensive Income (unaudited)for the Three-Month
and Nine-Month Periods Ended September 30, 2002 and 2001 4
Consolidated Statements of Cash Flows (unaudited)for the Nine-Month
Periods Ended September 30, 2002 and 2001 5
Notes to Unaudited Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 16
Item 4. Controls and Procedures 16
PART II. OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HOPFED BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
September 30, December 31,
ASSETS 2002 2001
------------ ------------
(Unaudited)
(In thousands)
Cash and due from banks $ 7,651 $ 3,941
Interest-earning deposits in Federal Home
Loan Bank ("FHLB") 23 39
Federal funds sold 22,070 690
Securities available for sale 85,818 100,519
Securities held to maturity, market value of
$3,345 and $4,664 at September 30, 2002 and
December 31, 2001, respectively 3,237 4,462
Loans receivable, net of allowance for loan
losses of $1,240 at September 30, 2002, and $923
at December 31, 2001 277,524 170,016
Loans held for sale at fair value -- 928
Accrued interest receivable 2,001 1,405
Premises and equipment, net 4,503 3,315
Deferred tax asset -- 82
Intangible Assets 7,063
Other assets 4 242
--------- ---------
Total assets $ 409,894 $ 285,639
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 335,374 $ 200,316
Advances from borrowers for taxes and insurance 449 201
Advances from FHLB 23,738 38,747
Dividends payable 396 399
Accrued expenses and other liabilities 3,602 2,387
--------- ---------
Total liabilities 363,559 242,050
--------- ---------
Stockholders' Equity:
Common stock 40 40
Additional paid in capital 25,714 25,714
Retained earnings, substantially restricted 24,542 22,110
Treasury stock (at cost, 408,909 shares at
September 30, 2002 and 407,767 shares at
December 31, 2001 (4,857) (4,845)
Accumulated other comprehensive income
net of taxes 896 570
--------- ---------
Total stockholders' equity 46,335 43,589
--------- ---------
Total liabilities and stockholders' equity $ 409,894 $ 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 Condensed Financial Statements.
2
HOPFED BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
----------------------------- ---------------------------
2002 2001 2002 2001
------------ ------------ ----------- -----------
(Dollars in thousands, except per share data)
Interest income:
Interest on loans $ 3,908 $ 2,953 $ 10,520 $ 8,446
Interest and dividends on investments 992 1,419 3,610 4,295
Time deposit interest income 50 73 86 386
----------- ----------- ----------- -----------
Total interest income 4,950 4,445 14,216 13,127
----------- ----------- ----------- -----------
Interest expense:
Interest on deposits 1,994 2,217 5,320 6,630
Interest on advances 338 220 1,062 640
----------- ----------- ----------- -----------
Total interest expense 2,332 2,437 6,382 7,270
----------- ----------- ----------- -----------
Net interest income 2,618 2,008 7,834 5,857
Provision for loan losses 250 60 430 162
----------- ----------- ----------- -----------
Net interest income after provision
for loan losses 2,368 1,948 7,404 5,695
----------- ----------- ----------- -----------
Non-interest income:
Loan and other service fees 338 189 814 445
Gain on sale of securities 168 9 514 9
Gain on sale of assets 164 58 171 58
Other, net 7 23 18 45
----------- ----------- ----------- -----------
Total non-interest income 677 279 1,517 557
----------- ----------- ----------- -----------
Non-interest expenses:
Salaries and benefits 672 2,301 1,721 3,351
Federal insurance premium 27 13 80 36
Occupancy expense, net 113 133 320 215
Data processing 103 49 279 141
Other operating expenses 229 296 1,023 1,000
----------- ----------- ----------- -----------
Total non-interest expenses 1,144 2,792 3,423 4,743
----------- ----------- ----------- -----------
Income (Loss) before income taxes 1,901 (565) 5,498 1,509
Income tax expense (benefit) 632 (171) 1,853 573
----------- ----------- ----------- -----------
Net income (Loss) 1,269 (394) 3,645 936
=========== =========== =========== ===========
Basic net income (Loss) per share $ 0.35 $ (.11) $ 1.00 $ .25
Diluted net income (Loss) per share $ 0.35 $ (.11) $ 1.00 $ .25
Dividends per share $ 0.11 $ .11 $ 0.33 $ .33
=========== =========== =========== ===========
Weighted average shares outstanding 3,630,396 3,718,780 3,630,760 3,794,207
=========== =========== =========== ===========
Weighted average shares outstanding, diluted 3,637,928 3,726,347 3,636,098 3,800,650
=========== =========== =========== ===========
See accompanying Notes to Unaudited Condensed Financial Statements.
3
HOPFED BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
(Unaudited)
For the Three Months For the nine Months
Ended September 30, Ended September 30,
---------------------------- ------------------------------
2002 2001 2002 2001
------------- ---------- -------------- -----------
(In thousands)
$ 1,269 ($394) $ 3,645 $ 936
Net income (Loss)
Other comprehensive income, net of tax
Unrealized holding gains arising during
period net of tax effect of $249 and $554 for
the three months ended September 30, 2002 and
2001, respectively, and $168 and $688 for the
nine months ended September 30, 2002 and 2001,
respectively 484 1,076 326 1,337
Minimium pension liability adjustment -- 222 -- 222
Less: Reclassification adjustment for gains
Included in net income (111) -- (339) --
------- ------- ------- -------
Comprehensive income $ 1,642 $ 904 $ 3,632 $ 2,495
======= ======= ======= =======
See accompanying Notes to Unaudited Condensed Financial Statements
4
HOPFED BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
For the Nine Months Ended
September 30,
--------------------------------------
2002 2001
--------- ----------
(In thousands)
Cash flows from operating activities:
Net cash provided by (used) in operating activities $ 4,410 $ 3,440
--------- ---------
Cash flows from investing activities:
Proceeds from maturities of held-to-maturity securities 1,228 2,414
Proceeds from sale of available-for-sale securities 122,302 65,607
Purchases of available-for-sale securities (107,211) (66,123)
Net increase in loans (107,002) (26,600)
Real Estate Acquired in Settlement of Loans 18
Purchases of premises/equipment (644) (684)
Purchase of Intangible Assets (7,098) --
--------- ---------
Net cash used in investing activities (98,425) (25,368)
--------- ---------
Cash flows from financing activities:
Net increase in demand deposits 46,213 19,092
Net increase (decrease) in time deposits 88,845 6,441
Advances from (payments to) FHLB (15,009) 16,960
Increase in advance payments by
Borrowers for taxes and insurance 248 162
Net dividends paid (1,196) (1,262)
Purchase of treasury stock (12) (2,583)
--------- ---------
Net cash provide by financing activities 119,089 38,810
--------- ---------
Increase in cash and cash equivalents 25,074 16,882
Cash and cash equivalents, beginning of period 4,670 3,807
--------- ---------
Cash and cash equivalents, end of period 29,744 20,689
========= =========
Supplemental disclosures of cash flow information
Cash paid for income taxes $ 2,037 $ 1,166
========= =========
Cash paid for interest $ 6,922 $ 7,268
========= =========
See accompanying Notes to Unaudited Condensed Financial Statements.
5
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
HopFed Bancorp, Inc. (the "Company") was formed at the direction of
Heritage Bank, formerly known as 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 asset is 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
presentation have been included. The results of operations and other
data for the nine month period ended September 30, 2002 are not
necessarily indicative of results that may be expected for the entire
fiscal year ending December 31, 2002.
The accompanying unaudited financial statements should be read in
conjunction with the Consolidated Financial Statements and the Notes
thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 2001. The accounting policies followed by the
Company are set forth in the Summary of Significant Accounting Policies
in the Company's December 31, 2001 Consolidated Financial Statements.
2. ACQUISITION
The Company's wholly-owned subsidiary, Heritage Bank, completed the
acquisition of two offices of Old National Bank located in Fulton,
Kentucky ("Fulton Division") and Fall & Fall Insurance (Fall & Fall), a
full service insurance agency, on September 5 and 6, 2002. This
acquisition enhances the Company's position in the markets of
Northwestern Tennessee and southwestern Kentucky.
The consolidated statement of income includes the results of operations
for the Fulton Division from the September 5, 2002 acquisition date.
The transaction resulted in $4.209 million of goodwill, $2.509 million
of core deposit intangibles and $380,000 of other intangibles, all of
which are deductible for tax purposes. The amount allocated to the core
deposit intangible was determined by an independent valuation and is
being amortized over the estimated useful life of seven years using the
straight-line method. The amount allocated to other intangible
represents the identified intangible asset for insurance contracts from
Fall & Fall. This intangible asset is being amortized over the
estimated useful life of seven years using the straight-line method.
6
The following condensed balance sheet discloses the amounts assigned to
each major asset and liability caption at the acquisition date:
(Dollars in thousands) (Unaudited)
Assets
Cash and cash equivalents $ 854,000
Securities available for sale 45,003,000
Loans 41,613,000
Premises and equipment 1,085,000
Accrued interest receivable 395,000
Intangible assets 7,098,000
Cash surrender value of life insurance 1,534,000
-----------
Total assets $97,582,000
===========
Liabilities
Deposits $96,532,000
Accrued interest payable 518,000
Deferred compensation 449,000
Other liabilities 83,000
-----------
Total liabilities $97,582,000
===========
The following represents supplemental pro forma disclosure required by SFAS 141
of total revenue, net income, and earnings per share as though the business
combination had been completed at the beginning of the earliest comparable
period.
Nine months ended September 30,
-------------------------------
2002 2001
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(In thousands, except per share data)
Total revenue $17,051 $17,240
Net income 3,666 1,283
Basic and diluted earnings per share $ 1.01 $ 0.34
7
Note 2 -- Acquisition (Continued)
Three months ended September 30,
--------------------------------
2002 2001
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(In thousands, except per share data)
Total revenue $ 5,671 $ 5,700
Net income 1,217 (320)
Basic and Diluted
Earnings (Loss) per share $ 0.34 $ (0.09)
EMERGING ACCOUNTING ISSUES
SFAS No. 141, "Business Combinations" issued on June 29, 2001 requires business
combinations entered into after June 30, 2001 to be accounted for using the
purchase method method of accounting. Specifically identifiable intangible
assets acquired, other than goodwill, will be amortized over their estimated
useful economic life.
SFAS No. 142, "Goodwill and Other Intangible Assets", issued on June 29, 2002
addresses how intangible assets that are acquired individually or with a group
of other assets should be accounted for in financial statements upon their
acquisition. This statement also addresses how goodwill and other intangible
assets should be accounted for after they have been initially recognized in the
financial statements. This statement results in the end to systematic goodwill
and other intangible amortization and requires impairment testing on those
balances at least annually or if circumstances arise that suggest that
impairment may be an issue. SFAS No. 142 was effective for the Company beginning
on January 1, 2002 and is applicable to all goodwill and other intangible assets
regardless of when those assets were initially recognized.
SFAS No. 143, "Accounting for Asset Retirement Obligations," issued in June
2001, addresses financial accounting and reporting for legal obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. SFAS No. 143 is effective for fiscal years beginning
after June 15, 2002. This Statement is not expected to have a material impact on
the Company's financial statements.
8
SFAS No. 144, "Accounting for the Impairment of Long-Lived Assets," issued in
August 2001, supercedes SFAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" and the accounting and
reporting provisions of APB No. 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions," for the disposal of
a segment of a business. While SFAS No. 144 retains many of the fundamental
provisions of SFAS No. 121, it establishes a single accounting model for
long-lived assets to be Disposed of by sale, and resolves certain implementation
issues not previously addressed by SFAS No. 121. SFAS No. 144 is effective for
fiscal years beginning after December 15, 2001. This Statement did not have a
material impact on the Company's financial statements.
SFAS No. 145, "Rescission of FASB Statement No. 4, 44, and 64, Amendment of FASB
Statement No. 13 and Technical Corrections," issued in April 2002, rescinds SFAS
No. 4, Reporting Gains and Losses from Extinguishment of Debt, and SFAS No. 64,
Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. Any gain or
loss on the extinguishment of debt that was classified as an extraordinary item
in prior periods will be Reclassified into continuing operations.
SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities," issued in June 2002 requires that a liability for a cost associated
with an exit or disposal activity be recognized when the liability is incurred
compared to current literature, which recognized A liability when the entity
committed to an exit plan. Management believes that this Statement will not have
a material impact on the Company's financial statements.
EARNINGS PER SHARE
The following schedule reconciles the numerators and denominators of the basic
and diluted earnings per share ("EPS") computations for the three and nine
months ending September 30, 2002. Diluted common shares arise from the
potentially dilutive effect of the Company's stock Options outstanding.
9
Quarters Ended September 30
-----------------------------------------------
2002 2001
Basic EPS:
Net income $ 1,269,000 $ (394,000)
Average common shares outstanding 3,630,396 3,718,780
----------- -----------
Earnings per share $ 0.35 $ (0.11)
----------- -----------
Diluted EPS:
Net income $ 1,269,000 $ (394,000)
Average common shares outstanding 3,630,396 3,718,780
Dilutive effect of stock options 7,532 7,567
----------- -----------
Average diluted shares outstanding 3,637,928 3,726,347
----------- -----------
Diluted earnings per share $ 0.35 $ (0.11)
----------- -----------
Nine Months Ended September 30
-----------------------------------------------
2002 2001
Basic EPS:
Net income $ 3,645,000 $ 936,000
Average common shares outstanding 3,630,760 3,794,207
----------- -----------
Earnings per share $ 1.00 $ 0.25
----------- -----------
10
Diluted EPS:
Net income $ 3,645,000 $ 936,000
Average common shares outstanding 3,630,760 3,794,207
Dilutive effect of stock options 5,338 6,443
----------- -----------
Average diluted shares outstanding 3,636,098 3,800,650
----------- -----------
Diluted earnings per share $ 1.00 $ 0.25
----------- -----------
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Comparison of Financial Condition at September 30, 2002 and December 31, 2001
Total assets increased by $124.3 million, from $285.6 million at
December 31, 2001 to $409.9 million at September 30, 2002. Securities available
for sale decreased from $100.5 million at December 31, 2001 to $85.8 million at
September 30, 2002. Federal funds sold increased from $690,000 at December 31,
2001, to $22.1 million at September 30, 2002.
At September 30, 2002, investments classified as "held to maturity"
were carried at an amortized cost of $3.2 million and had an estimated fair
market value of $3.3 million, and securities classified as "available for sale"
had an estimated fair market value of $85.8 million.
The loan portfolio increased $107.5 million during the nine months
ended September 30, 2002. Net loans totaled $277.5 million and $170.0 million at
September 30, 2002 and December 31, 2001, respectively. For the nine months
ended September 30, 2002, the average yield on loans was 6.89%, compared to
7.69% for the year ended December 31, 2001.
The allowance for loan losses totaled $ 1.2 million at September 30,
2002, an increase of $317,000 from the allowance of $923,000 December 31, 2001.
The ratio of the allowance for loan losses to loans was 0.45% at September 30,
2002 and 0.55% at December 31, 2001. Also at September 30, 2002, non-performing
loans were $ 947,000, or 0.34% of total loans, compared to $551,000, or .34% of
total loans, at December 31, 2001, and the ratio of allowance for loan losses to
non-performing loans at September 30, 2002 and December 31, 2001 was 130.9% and
167.5%, respectively. The determination of the allowance for loan losses is
based on management's analysis, performed on a quarterly basis.
Various factors are considered in determining the necessary allowance
for loan losses, 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 the allowance
for loan losses is adequate, there can be no assurance that additional
provisions for loan losses will not be required or that losses on loans will not
be incurred. Minimal losses on loans have been incurred in prior years.
11
At September 30, 2002, deposits increased to $335.4 million from $200.3
million at December 31, 2001, a net increase of $135.1 million. The average cost
of deposits during the three and nine-month periods ended September 30, 2002 and
the year ended December 31, 2001 was 3.16%, 3.15% 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 cost while remaining competitive in its market area.
Comparison of Operating Results for the Nine Months Ended September 30, 2002 and
2001
Net Income. Net income for the nine months ended September 30, 2002 was
$3.6 million, compared to net income of $936,000 for the nine months ended
September 30, 2001. The increase in net earnings for the nine months end
September 30,2002 was the result of several factors, including a curtailment
expense of $1.4 million dollars taken in September 2001 to fully fund the bank's
defined benefit pension plan. The continued improvement in the Bank's net
interest margins has also contributed to the improved net income levels.
Net Interest Income. Net interest income for the nine months ended
September 30, 2002 was $7.8 million, compared to $5.9 million for the nine
months ended September 30, 2001. The increase in net interest income for the
nine months ended September 30, 2002 was primarily due to a reduction in
interest expense and additional loans outstanding. For the nine months ended
September 30, 2002, the Bank's average yield on average interest-earning assets
was 6.38%, compared to 7.33% for the nine months ended September 30, 2001, and
its average cost of interest-bearing liabilities was 3.39% for the nine months
ended September 30, 2002, compared to 5.02% for the nine months ended September
30, 2001. As a result, the Bank's interest rate spread for the nine months ended
September 30, 2002 was 2.99%, compared to 2.31% for the nine months ended
September 30, 2001, and its net yield on interest-earning assets was 3.51% for
the nine months ended September 30, 2002, compared to 3.27% for the nine months
ended September 30, 2001.
Interest Income. Interest income increased by $1.1 million from $13.1
million to $14.2 million, or by 8.4%, during the nine months ended September 30,
2002 compared to the same period in 2001. This increase primarily resulted from
increased loan volume. The average balance of securities available for sale
declined $6.6 million, from $89.5 million at September 30, 2001, to $82.9
million at September 30, 2002, while the average balance of securities held to
maturity declined $2.8 million, from $6.6 million at September 30, 2001 to $3.8
million at September 30, 2002. In addition, average time deposits and other
interest-earning cash deposits declined $11.1 million, from $17.9 million at
September 30, 2001 to $6.8 million at September 30, 2002. Overall, average total
interest-earning assets for the nine-month period ended September 30, 2002 are
$297.2 million. The ratio of average interest-earning assets to average
interest-bearing liabilities declined from 123.78% for the nine months ended
September 30, 2001 to118.3% for the nine months ended September 30, 2002.
Interest Expense. Interest expense declined by $888,000, or 12.1%, to
$6.4 million for the nine months ended September 30, 2002, compared to $7.3
million for the same period in 2001. The decline was attributable to the
repricing of certificates of deposits to lower interest
12
rates. The average cost of average interest-bearing deposits decreased from
5.02% for the nine months ended September 30, 2001 to 3.28% for the nine months
ended September 30, 2002. Over the same periods, the average balance of interest
bearing deposits increased $41.6 million, from $174.9 million for the nine
months ended September 30, 2001 to $216.5 million for the nine months ended
September 30, 2002, or 23.8%.
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 the 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 Bank determined that an additional
$430,000 provision for loan losses was required for the nine months ended
September 30, 2002.
Non-Interest Expenses. There was a $1.3 million dollar decline in total
non-interest expenses in the nine months ended September 30, 2002 compared to
the same period in 2001, due to a $1.4 million dollar curtailment expense taken
in September 2001.
Income Taxes. The effective tax rate for the nine months ended
September 30, 2002 was 34%, compared to 38.0% for the same period in 2001.
Comparison of Operating Results for the Three Months Ended September 30, 2002
and 2001
Net Income. Net income for the three months ended September 30, 2002
was $1.3 million compared to a net loss of $394,000 for the three months ended
September 30, 2001. The increase in net income for the three months ended
September 30, 2002 was the result of several factors, including reduced interest
expense, loan portfolio growth, and the $1.4 million dollar curtailment expense
taken in September 2001.
Net Interest Income. Net interest income for the three months ended
September 30, 2002 and September 30, 2001 was $2.6 million and $2.0 million,
respectively. For the three months ended September 30, 2002, the average yield
on total interest-earning assets was 6.16%, compared to 7.13% for the three
months ended September 30, 2001, and the average cost of interest-bearing
liabilities was 3.39% for the three months ended September 30, 2002, compared to
4.83% for the three months ended September 30, 2001. As a result, the interest
rate spread for the three months ended September 30, 2002 was 2.77%, compared to
2.29% for the three months ended September 30, 2001, and the net yield on
interest-earning assets was 3.26% for the three months ended September 30, 2002,
compared to 3.22% for the three months ended September 30, 2001.
Interest Income. Interest income increased by $505,000, from $4.4
million to $4.9 million, or by 11.4%, during the three months ended September
30, 2002 compared to the same period in 2001. The average balance of securities
available for sale decreased $4.5 million, from $78.1 million at September 30,
2001 to $73.6 million at September 30, 2002, while the average balance of
securities held to maturity declined $2.3 million, from $5.7 million at
13
September 30, 2001 to $3.4 million at September 30, 2002. In addition, average
time deposits and other interest-earning cash deposits increased $1.6 million,
from $10.1 million at September 30, 2001 to $11.7 million at September 30, 2002.
The average balance of loans receivable at September 30, 2002 was $232.7
million, an increase of $78.4 million from the average balance at September 30,
2001. Overall, average total interest-earning assets for the quarter ended
September 30, 2002 increased by $82.6 million to $321.5 million. The ratio of
average interest-earning assets to average interest-bearing liabilities was
123.72% for the three-month period ended September 30, 2001 and 116.81% for the
three-month period ended September 30, 2002.
Interest Expense. Interest expense declined $105,000, to $2.3 million
for the three months ended September 30, 2002, compared to $2.4 million for the
same period in 2001. The decline was attributable to lower interest rates. The
decline in interest expense was muted by the influx of $96 million dollars of
deposits as a result of the acquisition of the Fulton division. The average cost
of average interest-bearing deposits decreased from 4.75% at September 30, 2001
to 3.30% at September 30, 2002. Over the same period, the average balance of
interest bearing deposits increased $59.1 million, from $182.7 million at
September 30, 2001 to $241.8 million at September 30, 2002, or 32.3%. The
average balance of advances from the FHLB was $33.4 million at September 30,
2002, compared to $19.0 million at September 30, 2001.
Provision for Loan Losses. The Bank determined that an additional
$250,000 provision for loan losses was required for the three months ended
September 30, 2002, compared to an additional $60,000 provision for the three
months ended September 30, 2001.
Non-Interest Expenses. There was an approximate $1.7 million decline in
total non-interest expenses in the three months ended September 30, 2002
compared to the same period in 2001, due to the $1.4 million dollar curtailment
expense incurred in September 2001.
Income Taxes. The effective tax rate for the three months ended
September 30, 2002 was 33.2%. The effective tax rate for the three-month period
ending September 30, 2001 was 30.3%.
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 initial operations and liquidity 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 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 September 30 2002, the
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Bank exceeded all regulatory capital requirements. The table below presents
certain information relating to the Bank's capital compliance at September 30,
2002
Amount Percent
------ -------
(Dollars in thousands)
Tangible Capital ................... $ 36,245 9.03%
Core Capital ....................... $ 36,245 9.03%
Risk-Based Capital ................. $ 37,485 15.23%
At September 30, 2002, the Bank had outstanding commitments to
originate loans totaling $20.4 million. Management believes that the Bank's
sources of funds are sufficient to fund all of its outstanding commitments. At
September 30,2002, the Bank has $119.9 million dollars in customer certificates
of deposits which are scheduled to mature in one year or less. Management
believes that a significant percentage of such deposits will remain with the
Bank.
On September 5 2002, the Bank completed the purchase of the business
assets and liabilities of Old National Bancorp located and assigned to Fulton,
Kentucky. These assets include Fall & Fall Insurance Agency and two banking
locations. The purchase of these assets increased that Bank's deposits by $96
million dollars and its loans by $42 million dollars. In addition, the Bank
received $46 million dollars in short-term treasury notes that have matured and
are being reinvested in a systematic manner.
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.
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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 is unable to predict future changes in
market rates and their impact on the Company's profitability. The Company does
not believe that material changes in market risk exposures have occurred since
December 31, 2001.
Item 4. Controls and Procedures
Within 90 days prior to the date of this report, the Company carried
out an evaluation under the supervision and with the participation of its
principal executive officer and principal financial officer, of the
effectiveness of the design and operation of its disclosure controls and
procedures. Based on this evaluation, the Company's principal executive officer
and principal financial officer concluded that its disclosure controls and
procedures are effective in timely alerting them to material information
required to be included in its periodic SEC reports. It should be noted that the
design of any system of controls is based in part upon certain assumptions about
the likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future
conditions, regardless of how remote.
In addition, the Company reviewed its internal controls, and there have
been no significant changes in its internal controls or other factors that could
significantly affect those controls subsequent to the date of their last
evaluation.
PART II. OTHER INFORMATION
--------------------------
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
---------
10.1 Employment Contract of Michael L. Woolfolk with HopFed Bancorp, Inc.
10.2 Employment Contract of Michael L. Woolfolk with Heritage Bank
99.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
99.2 Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
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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: November 19, 2002 /s/ John E. Peck
------------------------------------
John E. Peck
President and Chief Executive Officer
Date: November 19, 2002 /s/ Billy C. Duvall
------------------------------------
Billy C. Duvall
Vice President, Chief Financial
Officer and Treasurer
17