HOPFED BANCORP INC - FORM 8-K - EX-99.1

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Exhibit 99.1

NEWS

HOPFED BANCORP, INC. REPORTS IMPROVED OPERATING

RESULTS IN THE SECOND QUARTER OF 2018

Pre-Tax Income up 29.1% Year-over-Year

Dividend Increased 40%

HOPKINSVILLE, KY (July 27, 2018) – 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 six month periods ended June 30, 2018. For the three month period ended June 30, 2018, net income was $1.7 million, or $0.28 per share, compared to $1.1 million, or $0.18 per share, for the three month periods ended June 30, 2017 and March 31, 2018. For the six month period ended June 30, 2018, net income was $2.8 million, or $0.46 per share, compared to $2.1 million, or $0.33 per share, for the six month period ended June 30, 2017.

Commenting on the results for the six month period ended June 30, 2018, John E. Peck, President and Chief Executive Officer, said, “We are excited to report earnings growth of $0.13 per share, representing an increase of 39.4% in the six month period ended June 30, 2018 compared to the six month period ended June 30, 2017. For the six month period ended June 30, 2018, net interest income was $14.5 million, an increase of $747,000 compared to the six month period ended June 30, 2017.”

“At June 30, 2018, non-accrual loans were $1.6 million compared to $8.6 million at June 30, 2017. At June 30, 2018, loans classified as substandard were $11.5 million compared to $24.8 million at June 30, 2017. The Company’s current levels of substandard and non-accrual loans are strong indicators that our near term credit quality outlook remains positive. The Company’s local economy remains strong with most of our communities at or near full employment. Our loan pipeline remains robust and we are optimistic about the Company’s future. Our improving financial performance and future prospects provided the Board of Directors with the opportunity to increase our common dividend by 40%, to $0.07 per share.”

Financial Highlights

•

In the six month period ended June 30, 2018, total loans increased $35.0 million, representing an annual growth rate of 10.9%. At June 30, 2018, total loans originated and outstanding in the Nashville, Tennessee loan production offices were $88.8 million, compared to $80.5 million at March 31, 2018 and $61.5 million at June 30, 2017.

•

The Company’s net interest margin for the three and six month periods ended June 30, 2018 was 3.45% compared to 3.39% and 3.35% for the three and six month periods ended June 30, 2017.

-MORE-

HFBC Reports Second Quarter Results

Page 2

July 27, 2018

Results of Operations

In the three month periods ended June 30, 2018 and June 30, 2017, interest income was $9.1 million and $8.4 million. The improvements in interest income are the result of a $43.7 million increase in the average balance of loans for the three month period ended June 30, 2018 compared to the three month period ended June 30, 2017. Improvements in the level of net interest income has been partially offset by higher funding cost. The Company’s interest expense has increased by $381,000 for the three month period ended June 30, 2018 compared to the three month period ended June 30, 2017 despite a modest $30,000 increase in average interest bearing liabilities. For the three month period ended June 30, 2018, net interest income was $7.3 million compared to $7.0 million for the three month period ended June 30, 2017. On a linked quarter basis, the Company’s net interest income increased by $94,000. We anticipate that deposit pricing pressures will continue into the foreseeable future and eventually place pressures on the Company’s net interest margin and profitability.

For the three month period ended June 30, 2018, non-interest income was $2.4 million, an increase of $528,000 compared to the three month period ended June 30, 2017. The largest contributor to the increase in non-interest income for the three month period ended June 30, 2018 was a $467,000 increase on gains on the sale of securities compared to the three month period ended June 30, 2017. At June 15, 2018, the Company’s investment in a trust preferred security was called by the sponsor, resulting in a $340,000 gain. The remaining gains on the sale of securities resulted from the sale of pre-refunded municipal bonds. For the three month period ended June 30, 2018, mortgage origination income was $488,000 compared to $278,000 for the three month period ended June 30, 2017. The growth in mortgage origination income is the result of a robust Nashville housing market and our improving penetration in that market. On a linked quarter basis, non-interest income increased by $620,000, largely due to a $454,000 increase in gains on the sale of securities and a $170,000 increase in mortgage origination income.

For the three month period ended June 30, 2018, non-interest expenses were $7.6 million, an increase of $341,000, or 4.7%, compared to June 30, 2017. For the three month period ended June 30, 2017, the Company received a one-time reimbursement of $225,000 for data processing expenses that reduced non-interest expenses in June 2017. For the three month period ended June 30, 2018, salaries and benefits expense were $4.1 million, an increase of $139,000, or 3.5%, compared to June 30, 2017. The increase in salaries and benefits expense were largely the result of staff payroll increases that occurred at the beginning of year. On a linked quarter basis, non-interest expenses increased by $34,000.

For the six month period ended June 30, 2018, net interest income was $14.5 million, an increase of $747,000 compared to June 30, 2017. The increase in net interest income was largely the result of a $39.5 million increase in the average balance of loans. For the six month period ended June 30, 2018, the Company’s provision for loan loss expense was $130,000 compared to $350,000 for the six month period ended June 30, 2017. At June 30, 2018, the Company’s reduced levels of loans classified as non-accrual and substandard required a reduced amount of provision expenses.

Total non-interest income declined by $24,000 in the six month period ended June 30, 2018 compared to the six month period ended June 30, 2017. The table below outlines the most significant changes in non-interest income for the six month period ended June 30, 2018 and June 30, 2017:


	Six month periods ended
	6/30/2018		6/30/2017		$ Change			% Change
	(Dollars in Thousands, Except Percentages)
Service charges	$	1,433	$	1,604	($	171	)		-10.66	%
Mortgage origination income		808		612		196			32.03	%
Gain on the sale of securities		508		16		492			3075.00	%
Income from bank owned life insurance		144		307		(163	)		-53.09	%
Other operating income		262		691		(429	)		-62.08	%

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

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HFBC Reports Second Quarter Results

Page 3

July 27, 2018

Results of Operations (continued)

The majority of changes in non-interest income for the six month periods ended June 30, 2018 and June 30, 2017 are similar to those outlined for the three month period comparisons above. Income from bank owned life insurance was $163,000 higher in the six month period ended June 30, 2017 compared to the same period in 2018 due to the payment of a death benefit. For the six month period ended June 30, 2018, other operating income was $262,000, a reduction of $429,000 for the six month period ended June 30, 2017. A significant portion of this variance is the result of a one-time payment from a vendor on the renewal of a contract of $225,000 in 2017.

For the six month periods ended June 30, 2018, total non-interest expenses were $15.1 million, an increase of $192,000, or 1.3%, compared to the six month period ended June 30, 2017. For the six month period ended June 30, 2018, data processing and professional services expense increased by $239,000 and $153,000 compared to the six month period ended June 30, 2017.

Balance Sheet

At June 30, 2018, total assets were $912.7 million, compared to $917.5 million at December 31, 2017. For the six month period ended June 30, 2018, the Company reduced cash and cash equivalent balances by $25.7 million and securities classified as available for sale by $15.8 million. The Company has used this liquidity to fund loan growth of $35.0 million and a $20.8 million decline in total deposits. The competition for deposits is becoming increasingly aggressive and expensive, resulting in a higher cost of deposit ratio for the Company. In several rural markets in which the Company participates, the increase in pricing power for new commercial loans has not increased at the same pace as our funding cost.

A summary of loans outstanding by type at June 30, 2018 and December 31, 2017 is as follows:


	June 30, 2018			December 31, 2017
	(Dollars in Thousands)
One-to-four family first mortgages	$	171,725		$	163,565
Home equity lines of credit		34,262			35,697
Second mortgages (closed end)		1,109			1,184
Multi-family		37,742			37,445
Construction		40,759			30,246
Land		9,033			14,873
Non-residential real estate		244,769			224,952
Farmland		33,271			36,851
Consumer loans		8,525			8,620
Commercial loans		96,214			88,938

Total loans, gross		677,409			642,371
Unearned income, net of fees		(518	)		(443	)
Less allowance for loan losses		(4,637	)		(4,826	)

Total loans	$	672,254		$	637,102

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

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HFBC Reports Second Quarter Results

Page 4

July 27, 2018

Asset Quality

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


	6/30/2018			3/31/2018			12/31/2017			9/30/2017			6/30/2017
	(unaudited)			(unaudited)			(audited)			(unaudited)			(unaudited)
	(Dollars in Thousands, Except Percentages)
Loans past due 30-89 days		1,605			432			393			754			2,910
Loans past due 90 + days accruing interest		—			—			88			—			—
Total non-accrual loans		1,602			2,004			1,285			1,739			8,579
Total loans classified as substandard		11,491			14,082			10,780			11,217			24,808
Total performing TDR loans		3,253			3,255			3,163			3,371			3,388
Total foreclosed assets		3,427			3,329			3,369			4,975			1,408
Quarterly net charge offs		79			240			(336	)		2,451			(956	)
Non-accrual loans / Total loans		0.24	%		0.30	%		0.20	%		0.28	%		1.34	%
Non-performing assets / Total assets		0.55	%		0.58	%		0.52	%		0.74	%		1.09	%
Allowance / Total loans		0.69	%		0.70	%		0.75	%		0.76	%		1.12	%
Allowance / Non-accrual loans		289.48	%		232.24	%		375.74	%		275.96	%		83.69	%
Substandard loans / Risk based capital		11.24	%		13.94	%		10.72	%		11.08	%		24.28	%
Quarterly net charge off ratio (annualized)		0.05	%		0.15	%		-0.21	%		1.54	%		-0.61	%
Total risk based capital		102,211			100,997			100,535			101,228			102,173
FTE Employees		226			227			229			227			230

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, Murfreesboro 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

-MORE-

HFBC Reports Second Quarter Results

Page 5

July 27, 2018

HOPFED BANCORP, INC.

Consolidated Condensed Balance Sheets

(Dollars in Thousands)


	6/30/2018			3/31/2018			12/31/2017			09/30/17			06/30/17
	(unaudited)			(unaudited)						(unaudited)			(unaudited)
Assets
Cash and due from banks		16,399			18,472			37,965			23,469			20,208
Interest-earning deposits in banks		2,955			3,149			7,111			9,842			4,801

Cash and cash equivalents		19,354			21,621			45,076			33,311			25,009
Federal Home Loan Bank stock, at cost		4,428			4,428			4,428			4,428			4,428
Securities available for sale		168,983			180,212			184,791			192,287			205,363
Loans held for sale		1,126			2,706			1,539			1,749			2,386
Loans receivable		676,891			665,178			641,928			630,202			638,422
Allowance for loan losses		(4,637	)		(4,654	)		(4,826	)		(4,799	)		(7,180	)
Accrued interest receivable		3,253			3,212			3,589			3,414			3,332
Foreclosed assets		3,427			3,329			3,369			4,975			1,408
Bank owned life insurance		10,512			10,439			10,368			10,287			10,192
Premises and equipment, net		22,365			22,619			22,700			22,945			23,097
Deferred tax assets		2,320			2,127			1,764			2,292			3,025
Other assets		4,640			2,748			2,784			2,973			2,645

Total assets		912,662			913,965			917,510			904,064			912,127

Liabilities:
Deposits:
Non-interest-bearing accounts		136,004			139,093			136,197			128,184			132,305
Interest-bearing accounts
NOW accounts		198,691			219,483			208,496			196,315			216,256
Savings and money market accounts		97,552			101,153			104,347			97,929			98,270
Other time deposits		300,941			287,077			304,969			308,801			299,113

Total deposits		733,188			746,806			754,009			731,229			745,944
Advances from Federal Home Loan Bank		38,000			25,000			23,000			31,000			21,000
Repurchase agreements		39,648			41,792			38,353			37,829			41,820
Subordinated debentures		10,310			10,310			10,310			10,310			10,310
Advances from borrowers for taxes and insurance		1,256			780			808			1,188			984
Accrued expenses and other liabilities		3,091			2,524			3,618			3,273			3,278

Total liabilities		825,493			827,212			830,098			814,829			823,336

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

-MORE-

HFBC Reports Second Quarter Results

Page 6

July 27, 2018

HOPFED BANCORP, INC.

Consolidated Condensed Balance Sheets, Continued

(Dollars in Thousands, Except Percentages, Share and Per Share Data)


	6/30/2018			3/31/2018			12/31/2017			09/30/17			06/30/17
	(unaudited)			(unaudited)						(unaudited)			(unaudited)
Stockholders’ equity:
Common stock, par value $.01		80			80			80			80			80
Additional paid-in-capital		58,948			58,875			58,825			58,777			58,750
Retained earnings		53,179			51,957			51,162			51,646			50,552
Treasury stock- common , at cost		(16,706	)		(16,684	)		(16,655	)		(15,931	)		(15,361	)
Unearned ESOP Shares, at cost		(5,606	)		(5,758	)		(5,901	)		(6,125	)		(6,269	)
Accumulated other comprehensive income, net of taxes		(2,726	)		(1,717	)		(99	)		788			1,039

Total stockholders’ equity		87,169			86,753			87,412			89,235			88,791

Total liabilities and stockholders’ equity		912,662			913,965			917,510			904,064			912,127

Additional Capital Information


	6/30/2018			3/31/2018			12/31/2017			09/30/17			06/30/17
	(unaudited)			(unaudited)						(unaudited)			(unaudited)
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		7,989,655			7,988,983			7,976,131			7,976,131			7,964,076
Common shares outstanding		6,647,675			6,648,589			6,637,771			6,688,674			6,716,809
Treasury shares		1,341,980			1,340,394			1,338,360			1,287,457			1,247,267
Unearned ESOP shares		412,091			423,679			434,548			465,861			476,862
Book value per share (excludes unearned ESOP shares)	$	13.98		$	13.94		$	14.09		$	14.34		$	14.23
Tier 1 leverage ratio		10.7	%		10.6	%		10.6	%		10.9	%		10.4	%
Total risk based capital ratio		15.6	%		15.5	%		16.0	%		16.3	%		16.1	%
Common equity tier 1 ratio		14.9	%		14.8	%		15.2	%		15.6	%		15.0	%

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

-MORE-

HFBC Reports Second Quarter Results

Page 7

July 27, 2018

HOPFED BANCORP, INC.

Consolidated Condensed Quarterly Statement of Income

(Dollars in Thousands)

(Unaudited)


	For the three month periods ended											For the six month period ended
	6/30/2018		3/31/2018		12/31/2017			09/30/17		06/30/17		6/30/2018		6/30/2017
	(Unaudited)		(Unaudited)		(Unaudited)			(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Interest and dividend income:
Loans receivable		7,858		7,477		7,208			7,260		6,963		15,335		13,699
Investment in securities, taxable		1,033		1,079		1,081			1,124		1,155		2,112		2,273
Nontaxable securities available for sale		208		213		218			233		280		421		563
Interest-earning deposits		16		29		34			18		21		45		44

Total interest and dividend income		9,115		8,798		8,541			8,635		8,419		17,913		16,579

Interest expense:
Deposits		1,392		1,244		1,240			1,206		1,197		2,636		2,364
Advances from Federal Home Loan Bank		134		92		97			89		30		226		62
Repurchase agreements		171		154		117			130		119		325		222
Subordinated debentures		138		122		112			112		108		260		212

Total interest expense		1,835		1,612		1,566			1,537		1,454		3,447		2,860

Net interest income		7,280		7,186		6,975			7,098		6,965		14,466		13,719
Provision for loan losses		62		68		56			71		59		130		350

Net interest income after provision for loan losses		7,218		7,118		6,919			7,027		6,906		14,336		13,369

Non-interest income:
Service charges		727		706		801			819		800		1,433		1,604
Merchant card income		330		308		306			299		315		638		617
Mortgage origination revenue		489		319		374			335		278		808		612
Gain (loss) on sale of securities		481		27		(9	)		162		14		508		16
Income from bank owned life insurance		73		71		81			95		72		144		307
Financial services commission		177		138		117			134		145		315		285
Other operating income		87		175		198			186		212		262		691

Total non-interest income		2,364		1,744		1,868			2,030		1,836		4,108		4,132

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

-MORE-

HFBC Reports Second Quarter Results

Page 8

July 27, 2018

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 six month period ended
	6/30/2018		3/31/2018			12/31/2017			9/30/2017			6/30/2017		6/30/2018		6/30/2017
	(Unaudited)		(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)		(Unaudited)		(Unaudited)
Non-interest expenses:
Salaries and benefits		4,116		4,117			3,917			3,919			3,977		8,233		8,213
Occupancy		747		782			700			716			729		1,529		1,504
Data processing		765		784			779			795			546		1,549		1,310
State deposit tax		160		169			170			169			200		329		431
Professional services		499		466			1,095			409			464		965		812
Advertising		338		308			365			240			368		646		749
Foreclosure, net		21		(6	)		(80	)		(25	)		6		15		114
Loss on sale of asset		9		—			(1	)		—			3		9		3
Other operating expenses		919		920			861			945			940		1,839		1,786

Total non-interest expense		7,574		7,540			7,806			7,168			7,233		15,114		14,922

Income before income tax expense		2,008		1,322			981			1,889			1,509		3,330		2,579
Income tax expense		323		196			1,159			486			368		519		503

Net income		1,685		1,126			(178	)		1,403			1,141		2,811		2,076

Net income per share
Basic	$	0.28	$	0.18		($	0.03	)	$	0.22		$	0.18	$	0.46	$	0.33

Diluted	$	0.28	$	0.18		($	0.03	)	$	0.22		$	0.18	$	0.46	$	0.33

Dividend per share	$	0.07	$	0.05		$	0.05		$	0.05		$	0.05	$	0.12	$	0.09

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

-MORE-

HFBC Reports Second Quarter Results

Page 9

July 27, 2018

HOPFED BANCORP, INC.

Selected Financial Data

(Dollars in Thousands, Except Percentages)


	Three month periods ended										Six month periods ended
	6/30/2018		3/31/2018		12/31/2017		9/30/2017		6/30/2017		6/30/2018		6/30/2017
	(Unaudited)		(Unaudited)				(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Average Balance Sheet Data
Loans, net of allowance		666,301		647,204		631,463		636,955		622,606		657,973		618,430
Available for sale taxable securities		153,723		160,582		164,667		173,624		177,260		157,134		177,044
Available for sale tax free securities		25,670		26,856		27,361		29,090		32,919		26,254		33,391
Interest bearing deposits held in banks		3,735		6,030		8,418		4,351		5,888		4,041		7,565
Average earning assets		849,429		840,672		831,909		844,020		838,673		845,402		836,430
Average non-earning assets		63,565		69,290		74,856		64,913		70,359		65,555		73,072
Average assets		912,994		909,962		906,765		908,933		909,032		910,957		909,502
Average interest bearing deposits		608,312		612,019		611,371		612,655		628,583		610,156		626,853
Repurchase agreements		38,604		39,072		34,677		37,978		39,138		38,837		40,482
FHLB borrowings		32,011		23,656		25,174		26,909		11,176		27,856		12,298
Subordinated debentures		10,310		10,310		10,310		10,310		10,310		10,310		10,310
Total average interest bearing liabilities		689,237		685,057		681,532		687,852		689,207		687,159		689,943
Average non-interest bearing deposits		133,075		133,412		132,624		126,039		128,078		133,244		127,447
Average other non-interest bearing liabilities		4,099		3,887		3,365		5,628		3,915		4,059		3,987
Average total equity		86,583		87,336		89,244		89,214		87,832		86,495		88,125


	Three month periods ended															Six month periods ended
	6/30/2018			3/31/2018			12/31/2017			9/30/2017			6/30/2017			6/30/2018			6/30/2017
	(Unaudited)			(Unaudited)						(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Tax equivalent yield / Cost of:
Loans, fully tax equivalent		4.72	%		4.62	%		4.58	%		4.57	%		4.48	%		4.66	%		4.44	%
Available for sale taxable securities		2.69	%		2.69	%		2.63	%		2.37	%		2.61	%		2.69	%		2.57	%
Available for sale tax free securities, fully tax equivalent		4.04	%		3.96	%		4.76	%		5.07	%		5.09	%		4.01	%		5.04	%
Average yield of interest bearing deposits		1.71	%		1.92	%		1.62	%		1.65	%		1.43	%		2.23	%		1.16	%
Yield on total interest earning assets		4.32	%		4.21	%		4.17	%		4.15	%		4.09	%		4.26	%		4.04	%
Cost of total average deposits		0.75	%		0.67	%		0.67	%		0.65	%		0.63	%		0.72	%		0.65	%
Cost of average total interest bearing liabilities		1.06	%		0.94	%		0.92	%		0.89	%		0.84	%		1.00	%		0.83	%
Fully tax equivalent interest rate spread		3.25	%		3.27	%		3.25	%		3.26	%		3.25	%		3.26	%		3.21	%
Fully tax equivalent net interest margin		3.45	%		3.45	%		3.41	%		3.43	%		3.39	%		3.45	%		3.35	%
Net income		1,685			1,126			(178	)		1,403			1,141			2,811			2,076
ROA		0.74	%		0.49	%		0.10	%		0.62	%		0.50	%		0.62	%		0.46	%
Annualized return on equity		7.78	%		5.16	%		1.01	%		6.29	%		5.20	%		6.50	%		4.71	%
Efficiency ratio - fully tax equivalent		82.17	%		83.89	%		80.25	%		77.41	%		80.80	%		83.14	%		86.72	%

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

-END-

FOR IMMEDIATE RELEASE

John E. Peck

President and CEO

(270) 885-1171