-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TLCmtPRFuegqSqQVxT+aC1g1uR/7H/PKFCyYOZO2QWA2O/bOpejTWTYdINWLW6l4 2rauqsY9+3yrBA8c5Fb0Sg== 0000916641-01-501587.txt : 20020410 0000916641-01-501587.hdr.sgml : 20020410 ACCESSION NUMBER: 0000916641-01-501587 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOPFED BANCORP INC CENTRAL INDEX KEY: 0001041550 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 561995728 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-23667 FILM NUMBER: 1787238 BUSINESS ADDRESS: STREET 1: 2700 FORT CAMPBELL BLVD CITY: HOPKINSVILLE STATE: KY ZIP: 42440 BUSINESS PHONE: 5028851171 MAIL ADDRESS: STREET 1: 2700 FORT CAMPBELL BLVD CITY: HOPKINSVILLE STATE: KY ZIP: 42440 10-Q 1 d10q.txt QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 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, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 000-23667 ----------------- HOPFED BANCORP, INC. -------------------- (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 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 8, 2001, 3,658,838 shares of Common Stock were issued and outstanding. PART I. FINANCIAL INFORMATION --------------------- Item 1. Financial Statements Consolidated Statements of Financial Condition (unaudited) As of September 30, 2001 and December 31, 2000................. 2 Consolidated Statements of Income (unaudited)for the Three-Month And Nine-Month Periods Ended September 30, 2001 and 2000....... 3 Consolidated Statements of Comprehensive Income for the Three-Month and Nine-Month Periods Ended September 30, 2001 and 2000....... 4 Consolidated Statements of Cash Flows for the Nine-Month Periods Ended September 30, 2001 and 2000...................... 5 Notes to Unaudited Condensed Financial Statements.................... 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.........................................................11 PART II. OTHER INFORMATION ----------------- Item 6. Exhibits and Reports on Form 8-K....................................12 SIGNATURES....................................................................12 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS HOPFED BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, December 31, ASSETS 2001 2000 -------- -------- (Unaudited) (In thousands) Cash and due from banks................................... $ 2,726 $ 2,227 Interest-bearing deposits in Federal Home Loan Bank ("FHLB").................................. 36 50 Federal funds sold........................................ 17,927 1,530 Investment securities available for sale.................. 86,848 84,269 Investment securities held to maturity (Estimated market values of $5,571 and $7,930 at September 30, 2001 and December 31, 2000, respectively)........................ 5,388 7,796 Loans receivable, net..................................... 155,534 129,154 Accrued interest receivable............................... 1,450 2,285 Real estate owned......................................... 125 141 Premises and equipment, net............................... 3,028 2,442 Deferred tax assets....................................... 0 44 Other assets.............................................. 230 20 -------- -------- Total assets........................................... $273,292 $229,958 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Deposits................................................. $191,137 165,604 Advances from FHLB....................................... 34,000 17,040 Advance payments from borrowers for taxes and insurance 320 158 Other liabilities........................................ 3,302 1,794 -------- -------- Total liabilities...................................... 228,759 184,596 -------- -------- Shareholders' equity: Common stock............................................. 40 40 Additional paid in capital............................... 25,714 25,228 Treasury stock, at cost.................................. (4,226) (1,643) Retained earnings, substantially restricted.............. 21,605 21,896 Accumulated other comprehensive income (loss)............. 1,400 (159) -------- -------- Total shareholders' equity............................. 44,533 45,362 -------- -------- Total liabilities and shareholders' equity............ $273,292 $229,958 ======== ========
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, ----------------------- ---------------------- 2001 2000 2001 2000 ---- ---- ---- ---- (Dollars in thousands, except per share data) Interest income: Interest on loans................................. $ 2,953 $ 2,446 $ 8,446 $ 6,751 Interest and dividends on investments ............ 1,419 1,811 4,295 5,367 Time deposit interest income...................... 73 7 386 28 ---------- ---------- ---------- ---------- Total interest income.............................. 4,445 4,264 13,127 12,146 ---------- ---------- ---------- ---------- Interest expense: Interest on deposits.............................. 2,217 2,003 6,630 5,826 Interest on advances.............................. 220 356 640 833 ---------- ---------- ---------- ---------- Total interest expense............................. 2,437 2,359 7,270 6,659 ---------- ---------- ---------- ---------- Net interest income................................. 2,008 1,905 5,857 5,487 Provision for loan losses........................... 60 311 162 331 ---------- ---------- ---------- ---------- Net interest income after provision for loan losses................................... 1,948 1,594 5,695 5,156 ---------- ---------- ---------- ---------- Other income: Loan and other service fees....................... 189 113 445 348 Securities gains.................................. 9 -- 9 -- Gain on sale of loans............................. 58 -- 58 -- Other, net........................................ 23 14 45 45 ---------- ---------- ---------- ---------- Total other income................................ 279 127 557 393 ---------- ---------- ---------- ---------- Noninterest expense: Salaries and benefits............................. 2,301 502 3,351 1,663 Federal insurance premium......................... 13 9 36 27 Occupancy expense, net............................ 133 55 215 151 Data processing................................... 49 39 141 121 Other operating expenses.......................... 296 162 1,000 537 ---------- ---------- ---------- ---------- Total other expenses.............................. 2,792 767 4,743 2,499 ---------- ---------- ---------- ---------- Income (Loss) before income taxes................... (565) 954 1,509 3,050 Income tax expense (benefit)........................ (171) 302 573 1,032 ---------- ---------- ---------- ---------- Net income (Loss)................................... $ (394) $ 652 $ 936 $ 2,018 ========== ========== ========== ========== Basic net income (loss) per share................... $ (0.11) $ 0.16 $ 0.25 $ 0.50 Diluted net income (loss) per share................. $ (0.11) $ 0.16 $ 0.25 $ 0.50 Dividends per share................................. $ 0.11 $ 0.11 $ 0.33 $ 0.295 Weighted average common shares: Basic............................................. 3,718,780 4,004,138 3,794,207 3,999,215 ========== ========== ========== ========== Diluted........................................... 3,726,347 4,004,138 3,800,650 3,999,215 ========== ========== ========== ==========
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, -------------------- ------------------- 2001 2000 2001 2000 ---- ---- ---- ---- (In Thousands) Net income (Loss) $(394) $ 652 $ 936 $2,018 Other comprehensive income, net of tax Unrealized holding gains arising during period net of tax effect of $554 and $372 for the three months ended September 30, 2001 and 2000, respectively, and $688 and $30 for the nine months ended September 30, 2001 and 2000, 1,076 722 1,337 57 respectively Minimum pension liability adjustment 222 222 ----- ------ ------ ------ Comprehensive income $ 904 $1,374 $2,495 $2,075 ===== ====== ====== ======
See Accompanying Notes to Unaudited Condensed Financial Statements 4 HOPFED BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Months Ended September 30, ------------------------- 2001 2000 -------- -------- (In thousands) Cash flows from operating activities: Net income ...................................................... $ 936 $ 2,018 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses.......................................... 162 331 Provision for depreciation......................................... 98 89 FHLB stock dividend................................................ (117) (110) Investment accretion(amortization) net............................. 64 18 Gain on sale of loans.............................................. 58 -- Gain on sale of investments........................................ 9 -- MRP shares......................................................... -- 454 (Increase) decrease in: Accrued interest receivable........................................ 835 (920) Other assets....................................................... (168) (65) Increase (decrease) in: Current income taxes payable....................................... (165) (223) Deferred income taxes.............................................. 463 156 Accrued expenses and other liabilities............................. 1,265 (414) -------- -------- Net cash provided by operating activities.......................... 3,440 1,334 -------- -------- Cash flows from investing activities: Proceeds from maturities of held-to-maturity securities............ 2,414 1,668 Proceeds from sale of available-for-sale securities................ 65,607 6,502 Purchases of available-for-sale securities ........................ (66,123) (25,049) Net increase in loans ............................................. (26,600) (12,465) Real estate acquired in settlement of loans........................ 18 (141) Purchases of premises/equipment.................................... (684) (56) -------- -------- Net cash (used) provided by investing activities .................. (25,368) (29,541) -------- -------- Cash flows from financing activities: Net increase (decrease) in demand deposits......................... 19,092 (3,665) Net increase (decrease) in time deposits........................... 6,441 5,644 Advances from FHLB................................................. 16,960 20,650 Increase in advance payments by borrowers for taxes and insurance................................. 162 158 Net dividends paid................................................. (1,262) (1,187) Purchases of treasury stock........................................ (2,583) (96) -------- -------- Net cash provided (used) in financing activities................... 38,810 21,504 -------- -------- Increase (decrease) in cash and cash equivalents.................... 16,882 (6,703) Cash and cash equivalents, beginning of period...................... 3,807 8,888 -------- -------- Cash and cash equivalents, end of period............................ 20,689 2,185 ======== ======== Supplemental disclosures of cash flow information Cash paid for income taxes......................................... $ 1,166 $ 1,107 -------- -------- Cash paid for interest............................................. $ 7,268 $ 6,712 ======== ========
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 Hopkinsville Federal Savings 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 and the investment of funds held by it. The accompanying unaudited consolidated 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 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, 2001, are not necessarily indicative of results that may be expected for the entire fiscal year ending December 31, 2001. 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, 2000. The accounting policies followed by the Company are set forth in the Summary of Significant Accounting Policies in the Company's December 31, 2000 Consolidated Financial Statements. The Consolidated Statement of Financial Condition at December 31, 2000, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. EMERGING ACCOUNTING STANDARDS In June 2001, the Financial Accounting Standards Board issued two statements which are summarized as follows: Business Combinations Statement of Financial Accounting Standard No. 141,"Business Combinations" (FAS 141) addresses financial accounting and reporting for business combinations. It requires all business combinations covered by the scope of the Standard to be accounted for using the purchase method. It is effective for business combinations which would be impacted by this statement. The requirements of this statement would need to be considered in any business combination contemplated in the future. Goodwill and Other Intangible Assets Statement of Financial Accounting Standard No 142, "Goodwill and Other Intangible Assets" (FAS 142) addresses financial accounting and reporting for goodwill and other intangible assets. It addresses how intangible assets should be accounted for at the time of acquisition and in subsequent periods. It requires that goodwill and other intangible assets having indefinite useful lives not be amortized. Instead, such assets must be tested at least annually for impairment. Such assets having finite useful lives would continue to be amortized over those lives. The Standard provides specific guidance for testing goodwill and other intangible assets for impairment and also requires additional disclosures concerning goodwill and other intangible assets. 6 FAS 142 is effective for fiscal years beginning after December 15, 2001 and must be applied to all goodwill and other intangible assets recognized in financial statements as of the start of that fiscal year. Impairment losses resulting from the initial application of the Standard are to be reported as resulting from a change in accounting principle. The adoption of this statement would have no impact on the current financial statements. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30,2001 AND DECEMBER 31, 2000 Total assets increased by $43.3 million, from $230.0 million at December 31, 2000 to $273.2 million at September 30, 2001. Investment securities classified as "available for sale" increased from $84.3 million at December 31, 2000 to $86.8 million at September 30, 2001. Federal funds sold increased from $1.5 million at December 31, 2000, to $17.9 at September 30, 2001. At September 30, 2001, investments classified as "held to maturity" were carried at amortized cost of $5.4 million and had an estimated fair market value of $5.6 million. The loan portfolio increased $26.4 million during the nine months ended September 30, 2001, including an increase of $10.5 million in commercial loans. During the three months ended September 30, 2001, a total of $7.7 million in commercial loans was originated, compared to $1.3 million in the three months ended September 30, 2000. Net loans totaled $155.6 million and $129.2 million at September 30, 2001 and December 31, 2000, respectively. For the nine months ended September 30, 2001, the average yield on loans was 7.88%, compared to 7.73% for the year ended December 31, 2000. In the third quarter of 2001, the Company sold approximately $7.5 million dollars of USDA guaranteed loans at a net gain of approximately $58,000. The allowance for loan losses totaled $863,000 at September 30, 2001, an increase of $155,000 from the allowance of $708,000 December 31, 2000. The ratio of the allowance for loan losses to loans was 0.54% at September 30, 2001 and December 31, 2000, respectively. Also at September 30, 2001, non-performing loans were $583,000, or .34% of total loans, compared to $434,000, or .37% of total loans at December 31, 2000, and the ratio of allowance for loan losses to non-performing loans at September 30, 2001 and December 31, 2000 was 148.03% and 163.13%, 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. Real estate owned of $ 125,000 at September 30, 2001 represents one parcel of residential property on which the Bank held a first mortgage and which was acquired by the Bank in a sale initiated by the second mortgagee. At September 30, 2001, deposits increased to $191.1 million from $165.6 million at December 31, 2000, a net increase of $25.5 million. The average cost of deposits during the nine months ended September 30, 2001 and the year ended December 31, 2000 was 4.96% and 4.98%, 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. 7 COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 NET INCOME. Net income for the nine months ended September 30, 2001 was $936,000, compared to net income of $2.0 million for the nine months ended September 30, 2000. The decline in net income is the result of an after tax curtailment loss of $1.2 million on the Company's defined benefit pension plan. Excluding the loss on the curtailment, net income for the nine months ended September 30, 2001, would have been approximately $2.1 million. NET INTEREST INCOME. Net interest income for the nine months ended September 30, 2001 was $5.9 million, compared to $5.5 million for the nine months ended September 30, 2000. The increase in net interest income for the nine month period ended September 30, 2001 was due to the growth in the loan portfolio. For the nine months ended September 30, 2001, the average yield on total interest-earning assets was 7.33%, compared to 7.42% for the nine months ended September 30, 2000, and the average cost of interest-bearing liabilities was 5.02% for the nine months ended September 30, 2001, compared to 5.05% for the nine months ended September 30, 2000. As a result, the Bank's interest rate spread for the nine months ended September 30, 2001 was 2.31%, compared to 2.37% for the nine months ended September 30, 2000, and its net yield on interest-earning assets was 3.27% for the nine months ended September 30, 2001, compared to 3.35% for the nine months ended September 30, 2000. INTEREST INCOME. Interest income increased by $1.0, from $12.1 million to $13.1 million, or by 8.3%, during the nine months ended September 30, 2001 compared to the same period in 2000. This increase resulted from increased loans outstanding. The average balance of securities available for sale declined $900,000, from $90.4 million during the nine months ended September 30, 2000, to $89.5 million during the nine months ended September 30, 2001, while the average balance of securities held to maturity decreased $2.6 million, from $9.2 million during the nine months ended September 30, 2000 to $6.6 million during the nine months ended September 30, 2001. In addition, average time deposits and other interest-earning cash deposits increased $17.2 million, from $693,000 during the nine months ended September 30, 2000 to $17.9 million during the nine months ended September 30, 2001. Overall, average total interest-earning assets increased $20.7 million, or 9.5%, from $218.2 million during the nine months ended September 30, 2000 to $238.9 million during the nine months ended September 30, 2001. The ratio of average interest-earning assets to average interest-bearing liabilities decreased from 124.02% for the nine months ended September 30, 2000 to 123.78% for the nine months ended September 30, 2001. INTEREST EXPENSE. Interest expense increased $611,000, or 9.2%, to $7.3 million for the nine months ended September 30, 2001, compared to $6.7 million for the same period in 2000. The increase was attributable to an increase of $804,000 in interest on deposits that resulted from deposit growth. During the nine months ended September 30, 2001, the Bank borrowed $34 million from the FHLB of Cincinnati to refinance previous borrowings and to fund specific larger fixed rate loans made during the period. The average cost of interest-bearing deposits declined from 5.05% during the nine months ended September 30, 2000 to 4.96% during the nine months ended September 30, 2001. Over the same period, the average balance of interest-bearing deposits increased $16 million, from $158.9 million at September 30, 2000 to $174.9 million at September 30, 2001, or 10.1%. OTHER INCOME. Other income increased $164,000 to $557,000 for the nine months ended September 30, 2001, compared to $393,000 for the nine months ended September 30, 2000. The increase was attributable to a $58,000 gain on the sale of loans, a $9,000 gain on the sale of investments, and increased loan fee income. 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 Bank determined that an additional $162,000 provision for loan loss was required for the nine months ended September 30, 2001, compared to an additional $330,600 provision for the nine months ended September 30, 2000. 8 NON-INTEREST EXPENSE. There was a $2.2 million increase in total non-interest expense in the nine months ended September 30, 2001 compared to the same period in 2000, primarily due to a $1.8 million curtailment loss and increased cost associated with opening a new retail location. INCOME TAXES. The effective tax rate for the nine months ended September 30, 2001 was 38.0%, compared to 33.8% for the same period in 2000. COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 NET INCOME. The Company incurred a net loss of $394,000 for the three months ended September 30, 2001, compared to net income of $652,000 for the three months ended September 30, 2000. The current period net loss was the result of the Company's $1.8 million dollar curtailment loss on its defined benefit pension plan. Excluding the curtailment loss, the Company's net income for the three months ended September 30, 2001, would have been approximately $786,000. NET INTEREST INCOME. Net interest income was $2.0 million for the three months ended September 30, 2001, compared to net interest income of $1.9 million for the three months ended September 30, 2000. For the three months ended September 30, 2001, the average yield on total interest-earning assets was 7.13%, compared to 7.66% for the three months ended September 30, 2000, and the average cost of interest-bearing liabilities was 4.83% for the three months ended September 30, 2001, compared to 5.27% for the three months ended September 30, 2000. As a result, the Bank's interest rate spread for the three months ended September 30, 2001 was 2.29%, compared to 2.39% for the three months ended September 30, 2000, and its net yield on interest-earning assets was 3.22% for the three months ended September 30, 2001, compared to 3.42% for the three months ended September 30, 2000. INTEREST INCOME. Interest income increased by $181,000, from $4.3 million to $4.4 million, during the three months ended September 30, 2001, compared to the same period in 2000. The average balance of securities held to maturity declined $2.9 million, from $8.6 million during the three months ended September 30, 2000 to $5.7 million during the three months ended September 30, 2001. In addition, average time deposits and other interest-earning cash deposits increased $9.6 million, from $499,000 at September 30, 2000 to $10.1 million at September 30, 2001. The ratio of average interest-earning assets to average interest-bearing liabilities decreased from 124.28% for the three months ended September 30, 2000 to 123.72% for the three months ended September 30, 2001. INTEREST EXPENSE. Interest expense increased $78,000, or 3.3%, to $2.44 million for the three months ended September 30, 2001, compared to $2.36 million for the same period in 2000. The increase was attributable to an increase of $214,000 in interest on deposits. The average cost of interest-bearing deposits declined from 5.27% during the three months ended September 30, 2000 to 4.75% during the three months ended September 30, 2001. Over the same period, the average balance of interest-bearing deposits increased $24.4 million, from $158.3 million during the three months ended September 30, 2000 to $182.7 million during the three months ended September 30, 2001, or 15.4%. The average balance of advances from the FHLB was $19.0 million during the nine months ended September 30, 2001, compared to $20.8 million during the same period in 2000. PROVISION FOR LOAN LOSSES. The Bank determined that an additional $60,000 provision for loan loss was required for the three months ended September 30, 2001, compared to an additional $310,200 provision for the three months ended September 30, 2000. OTHER INCOME. Other income increased $152,000 to $279,000 for the three months ended September 30, 2001, compared to $127,000 for the three months ended September 30, 2000. The increase was attributable to a $58,000 gain on the sale of USDA loans, a $9,000 gain on the sale of investments, and increased loan fee income. 9 NON-INTEREST EXPENSE. There was a $2.0 million increase in total non- interest expense in the three months ended September 30, 2001 compared to the same period in 2000, primarily due to the Company's $1.8 million curtailment loss on the defined benefit pension plan as well as opening a new retail location early in 2001. INCOME TAXES. The effective tax benefit for the three months ended September 30, 2001 was 30.3%, compared to an effective tax rate of 31.7% for the same period in 2000. LIQUIDITY AND CAPITAL RESOURCES. The Company has no business other than that of the Bank and investing funds held by it. Management of the Company believes that dividends that may be paid by the Bank to the Company will provide sufficient funds for its 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, earnings on investment securities, and proceeds from maturing investment securities. The principal uses of funds by the Bank include the origination of loans and the purchase of investment securities. 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 September 30, 2001, 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 September 30, 2001, the Bank exceeded all regulatory capital requirements. The table below presents certain information relating to the Bank's capital compliance at September 30, 2001. Amount Percent ------ ------- (Dollars in thousands) Tangible Capital......................... $42,282 15.62% Core Capital............................. 42,282 15.62% Risk-Based Capital....................... 43,145 31.14% At September 30, 2001, the Bank had outstanding commitments to originate loans totaling $6.1 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 September 30, 2001 totaled $98.9 million. Management believes that a significant percentage of such deposits will remain with the Bank. During the three month period ended September 30, 2001, the Company paid a dividend of $0.11 per share of Common Stock, or a total dividend of $416,000, and the Company declared a dividend of $0.11 per share of Common Stock, or a total dividend of $406,000 to be paid in October 2001. 10 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 During the nine month period ending September 30, 2001, the Federal Reserve Bank significantly reduced its fed funds target rate. As a result of the declining in market interest rates that followed the Federal Reserve Bank's action, the Bank had approximately $55 million dollars of its bond portfolio called. These funds were re-invested at a shorter maturity, in fed funds or used to fund the growth of the loan portfolio. The result was a reduction in investment yields of approximately 100 basis points for the month ending September 30, 2001 as compared to the month ended December 31, 2000. During the next twelve months, the Company's exposure to additional bonds being called is approximately $15 million dollars. The Company continues to encounter an increased level of cash flows from its investment portfolio as mortgage back securities prepayment speeds increase at an accelerated rate. The Company has adopted an investment strategy that limits its current period cash flows from new investments without materially increasing the average life or modified duration of the portfolio. The Company monitors interest rate risk using an OTS model to measure the estimated change in the Bank's net portfolio value (NPV) of its assets assuming instantaneous parallel shifts in the Treasury yield curve of 100 to 300 basis points in 100 basis points increments. The NPV is defined as the present value of expected cash flows from existing assets less the present value of expected cash flows from existing liabilities plus the present value of expected cash flows from existing liabilities plus the present value of net expected cash inflows from existing off-balance sheet contracts. The Bank has developed an Interest Rate Risk Policy that defines acceptable levels of interest rate risk and requires the quarterly reporting of interest rate risk to the Bank's Board of Directors. The information used in the NPV model is obtained by OTS from the Bank on schedule CMR of the quarterly Thrift Financial Report. The OTS NPV model is a commonly used measure of interest rate risk in OTS regulated institutions. The most recent measurement of the Bank's NPV ratio was June 30, 2001. This measurement revealed that the Bank's NPV would increase by 101 basis points, to 21.08% given a instantaneous decline of 200 basis points in the Treasury yield curve. Given a 200 basis point increase in the Treasury yield curve, the Bank's NPV would decline by 168 basis points to 18.39%. The thrift median at June 30, 2001 for a 200 basis point decline is an increase of 50 basis points. The thrift median at June 30, 2001 for a 200 basis point increase is 194 basis points decline. 11 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Current Report on Form 8-K dated September 19, 2001 reporting that the Board of Directors authorized management to discontinue the Company's defined benefit pension plan and replace it with a 401K plan. The change in pension plan resulted in a one-time pre-tax curtailment loss of $1.8 million dollars. 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 13, 2001 /s/ John E. Peck -------------------------------------------- John E. Peck President and Chief Executive Officer Date: November 13, 2001 /s/ Billy C. Duvall -------------------------------------------- Billy C. Duvall Executive Vice President and Chief Financial Officer 12 -----END PRIVACY-ENHANCED MESSAGE-----