-----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, IB4aaGE1pH6OvcCNmKXZ0OpRs5mo4Gsz6y6qEn5fwdyn59uiZaIB6n0a3jMBYdjS 2BFdFyhNRty+oEwCHtm1yw== 0001025537-98-000070.txt : 19981116 0001025537-98-000070.hdr.sgml : 19981116 ACCESSION NUMBER: 0001025537-98-000070 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 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: SEC FILE NUMBER: 000-23667 FILM NUMBER: 98748812 BUSINESS ADDRESS: STREET 1: 2700 FORT CAMPBELL BLVD CITY: HOPKINSVILLE STATE: KY ZIP: 72240 BUSINESS PHONE: 5028851171 MAIL ADDRESS: STREET 1: 2700 FORT CAMPBELL BLVD CITY: HOPKINSVILLE STATE: KY ZIP: 72240 10-Q 1 FORM 10Q 9/30/98 FOR HOPFED BANCORP, INC. 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, 1998 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: (502) 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 September 30, 1998, 4,033,625 shares of Common Stock were issued and outstanding. CONTENTS PAGE PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Financial Condition as of September 30, 1998 and December 31, 1997....................................... 1 Consolidated Statements of Income for the Three-Month and Nine-Month Periods Ended September 30, 1998 and 1997.................... 2 Consolidated Statements of Comprehensive Income for the Three-Month and Nine-Month Periods Ended September 30, 1998 and 1997.... 3 Consolidated Statements of Cash Flows for the Nine-Month Periods Ended September 30, 1998 and 1997................... 4 Notes to Unaudited Condensed Financial Statements.............. 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................ 7 Item 3. Quantitative and Qualitative Disclosures About Market Risk................................................... 13 PART II. OTHER INFORMATION Item 5. Other Information.............................................. 13 SIGNATURES.............................................................. 14 PART I. FINANCIAL INFORMATION Item 1. Financial Statements HOPFED BANCORP, INC. AND SUBSIDIARY Consolidated Statements of Financial Condition September 30, December 31, ASSETS 1998 1997 ---- ---- (Unaudited) (In thousands) Cash and due from banks ......................... $ 1,163 $ 1,264 Time deposits ................................... -- 2,000 Interest-bearing deposits in Federal Home Loan Bank ("FHLB") ....................... 47 3,945 Federal funds sold .............................. 11,867 151,095 Investment securities available for sale ........ 60,509 26,699 Investment securities held to maturity (Estimated market values of $32,271 and $51,964 at September 30, 1998 and December 31, 1997, respectively) ............. 31,873 51,566 Loans receivable, net ........................... 107,387 103,470 Accrued interest receivable ..................... 1,098 1,184 Premises and equipment, net ..................... 2,512 2,333 Other assets .................................... 109 439 --------- --------- Total assets ........................... $ 216,565 $ 343,995 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Deposits ...................................... $ 154,025 $ 320,633 Federal income taxes .......................... 2,601 2,324 Advance payments from borrowers for taxes and insurance ......................... 357 171 Other liabilities ............................. 280 931 --------- --------- Total liabilities ...................... $ 157,263 $ 324,059 ========= ========= Shareholders' Equity: Common stock .................................. 40 -- Additional paid in capital .................... 39,375 -- Retained earnings, substantially restricted ... 18,902 16,613 Less deferred compensation - ESOP ............. (3,227) -- Net unrealized appreciation on investment securities available for sale ............... 4,212 3,323 --------- --------- Total shareholders' equity ................. 59,302 19,936 --------- --------- Total liabilities and shareholders' equity.. $ 216,565 $ 343,995 ========= ========= See accompanying Notes to Unaudited Condensed Financial Statements. 1 HOPFED BANCORP, INC. AND SUBSIDIARY Consolidated Statements of Income (Unaudited)
For the Three Months For the Nine Months Ended September 30, Ended September 30, -------------------- ------------------- 1998 1997 1998 1997 ---- ---- ---- ---- (Dollars in thousands, except per share data) Interest income: Interest on loans ..................... $ 2,080 $ 1,915 $ 6,172 $ 5,616 Interest and dividends on investments . 1,254 1,270 3,470 3,910 Time deposit interest income .......... 245 183 1,846 485 ---------- ---------- ---------- ---------- Total interest income .................... 3,579 3,368 11,488 10,011 ---------- ---------- ---------- ---------- Interest expense: Interest on deposits .................. 1,864 2,216 6,155 6,633 Other borrowed funds .................. -- -- -- 9 ---------- ---------- ---------- ---------- Total interest expense ................ 1,864 2,216 6,155 6,642 ---------- ---------- ---------- ---------- Net interest income ........................ 1,715 1,152 5,333 3,369 Provision for loan losses .................. 5 5 15 15 ---------- ---------- ---------- ---------- Net interest income after provision for loan losses ....................... 1,710 1,147 5,318 3,354 ---------- ---------- ---------- ---------- Other income: Loan and other service fees ........... 127 122 369 353 Other, net ............................ 12 12 50 51 ---------- ---------- ---------- ---------- Total other income .................... 139 134 419 404 ---------- ---------- ---------- ---------- Net expenses: Salaries and benefits ................. 343 342 1,049 1,064 Federal insurance premium ............. 40 29 117 92 Occupancy expense, net ................ 43 49 130 148 Data processing ....................... 29 36 85 85 Other operating expenses .............. 139 106 414 336 ---------- ---------- ---------- ---------- Total other expenses .................. 594 562 1,795 1,725 ---------- ---------- ---------- ---------- Income before income taxes ................. 1,255 719 3,942 2,033 Income tax expense ......................... 426 241 1,351 686 ---------- ---------- ---------- ---------- Net income ................................. $ 829 $ 478 $ 2,591 $ 1,347 ========== ========== ========== ========== Earnings (Loss) per share: Basic ................................. $ 0.22 N/A $ 0.70 N/A Fully diluted ......................... $ 0.22 N/A $ 0.70 N/A Weighted Average: Common Shares ......................... 4,033,625 N/A 4,033,625 N/A Less: unallocated ESOP Shares ......... 322,690 N/A 322,690 N/A ---------- ---------- 3,710,935 3,710,935 ========== ==========
See accompanying Notes to Unaudited Condensed Financial Statements. 2 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 -------------------- ------------------- 1998 1997 1998 1997 ---- ---- ---- ---- (In Thousands) Net Income ................................... $ 829 $ 478 $2,591 $1,347 Other comprehensive income, net of tax Unrealized holding gains (losses) arising during period .......................... 455 (10) 889 561 Less: reclassification adjustment for gains included in net income .............. 0 0 0 0 ------ ------ ------ ------ Comprehensive income ......................... $1,284 $ 468 $3,480 $1,908 ====== ====== ====== ======
See Accompanying Notes to Unaudited Condensed Financial Statements 3 HOPFED BANCORP, INC. Consolidated Statements of Cash Flows (Unaudited) For the Nine Months Ended September 30, ------------------------- 1998 1997 ---- ---- (In thousands) Cash flows from operating activities: Net income....................................... $ 2,591 $ 1,347 Adjustments to reconcile net income to net cash provided by operating activities: Deferred income taxes............................ 17 (10) Provision for loan losses........................ 15 15 Provision for depreciation....................... 70 75 FHLB stock dividend.............................. (95) (88) Amortization of investment security premiums..... 2 -- Accretion of investment security discounts....... (16) (28) (Increase) decrease in: Accrued interest receivable...................... 86 258 Other assets..................................... 330 (132) Increase (decrease) in: Current income taxes payable..................... (210) 15 Accrued expenses and other liabilities........... (650) (375) --------- -------- Net cash provided by operating activities........ 2,140 1,077 --------- -------- Cash flows from investing activities: Net decrease in time deposits.................... 2,000 -- Net (increase) decrease in interest earning deposits in FHLB......................... 3,898 (378) Net (increase) decrease in federal funds sold.... 139,228 (7,795) Proceeds from maturities of held-to-maturity securities.................... 19,699 30,127 Purchases of held-to-maturity securities......... -- (5,933) Proceeds from sale of available-for-sale securities.................. 7,729 -- Purchases of available-for-sale securities....... (40,078) (7,967) Net increase in loans............................ (3,931) (5,194) Purchases of premises/equipment.................. (255) (173) Proceeds from sale of equipment.................. 7 13 --------- -------- Net cash provided by investing activities........ 128,297 2,700 --------- -------- Cash flows from financing activities: Net increase (decrease) in demand deposits, NOW accounts and savings accounts................ (151,310) 542 Net decrease in time deposits.................... (15,299) (3,621) Increase in advance payments by borrowers for taxes and insurance................ 186 179 Net decrease in other borrowed funds............. -- (1,317) Net proceeds from issuance of stock.............. 36,188 -- Dividends paid................................... (303) -- --------- -------- Net cash used in financing activities............ (130,538) (4,217) --------- -------- Decrease in cash and cash equivalents................. (101) (440) Cash and cash equivalents, beginning of period........ 1,264 1,452 --------- -------- Cash and cash equivalents, end of period.............. 1,163 $ 1,012 ========= ======== Supplemental disclosures of cash flow information..... Cash paid for income taxes....................... $ 1,535 $ 550 --------- -------- Cash paid for interest........................... $ 6,656 $ 6,903 ========= ======== See accompanying Notes to Unaudited Condensed Financial Statements. 4 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, a portion of the net proceeds of the conversion, and a note receivable from the Company's Employee Stock Ownership Plan, and its sole business is that of the converted Bank and the investment of funds held by it. 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, 1998, are not necessarily indicative of results that may be expected for the entire fiscal year ending December 31, 1998. 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, 1997. The accounting policies followed by the Company are set forth in the Summary of Significant Accounting Policies in the Company's December 31, 1997 Consolidated Financial Statements. 2. EARNINGS AND DIVIDENDS PER SHARE The Company has adopted Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." This Statement established standards for computing and presenting earnings per share ("EPS"). This Statement simplified the standards for computing EPS previously found in APB Opinion No. 15, "Earnings per Share," and made them comparable to international EPS standards. It replaced the presentation of primary EPS with a presentation of basic EPS and requires dual presentation of basic and diluted EPS on the face of the income statement and disclosure of a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. For the three months and nine months ended September 30, 1998, the Company's weighted average common shares are the same for the basic and diluted EPS computations. 5 3. REPORTING COMPREHENSIVE INCOME The Company has adopted FASB Statement No. 130, "Reporting Comprehensive Income." Statement No. 130 requires the reporting of comprehensive income in addition to net income from operations. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income. The Company holds securities classified as available-for-sale, which have unrealized gains. The before tax and after tax amounts, as well as the tax (expense) benefit is summarized below.
Tax (Expense)/ Before Tax Benefit After Tax ------------- ------------------ ------------- (In thousands) For the three months ended September 30, 1998: Unrealized holding gains........ $ 688 $ (233) $ 455 For the three months ended September 30, 1997: Unrealized holding gains........ (15) 5 (10) For the nine months ended September 30, 1998: Unrealized holding gains........ 1,347 (458) 889 For the nine months ended September 30, 1997: Unrealized holding gains........ 850 (289) 561
4. PENDING ACCOUNTING PRONOUNCEMENTS The FASB has issued SFAS No. 133, "Accounting for Derivative Instruments and for Hedging Activities." The Statement requires derivatives to be recorded in the balance sheet as either an asset or liability measured at its fair value. The Statement also requires that changes in the derivatives' fair values be recognized currently in earnings unless specific hedge accounting criteria are met. This Statement is effective for fiscal years beginning after June 15, 1999 (prospectively) and is not expected to have a material effect on the Consolidated Financial Statements. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Comparison of Financial Condition at September 30, 1998 and December 31, 1997 Total assets decreased by $127.4 million, from $344.0 million at December 31, 1997 to $216.6 million at September 30, 1998. Federal funds sold decreased from $151.1 million at December 31, 1997, to $11.9 million at September 30, 1998, primarily due to funds returned in connection with the conversion. Securities held to maturity declined $19.7 million due to various issues maturing. These funds were reinvested in securities available for sale, which increased $33.8 million. The Bank continued to price its deposits less aggressively in an effort to reduce its overall cost of funds. At September 30, 1998, deposits decreased to $154.0 million from $320.6 million at December 31, 1997, a net decrease of $166.6 million, primarily as a result of completion of the conversion process and the refunding of excess subscriptions. The Bank's average cost of deposits for the three and nine months ended September 30, 1998 was 4.87% and 4.19%, respectively, compared to 4.79% for the year ended December 31, 1997. Management continually evaluates the investment alternatives available to the Bank's customers and adjusts the pricing on its deposit products to more actively manage its funding costs while remaining competitive in its market area. The Bank's loan portfolio increased by $2.5 million and $3.9 million during the three and nine months ended September 30, 1998, respectively. Net loans totaled $107.4 million and $103.5 million at September 30, 1998 and December 31, 1997, respectively. The increase in the loan activity during the three and nine months ended September 30, 1998 was primarily due to the Bank's continued efforts to increase its loan originations using funds currently held in investment securities. For the three and nine months ended September 30, 1998, the Bank's average yield on loans was 7.84% and 7.83%, respectively, compared to 7.67% for the year ended December 31, 1997. At September 30, 1998, the Bank's investments classified as "held to maturity" were carried at amortized cost of $31.9 million and had an estimated fair market value of $32.3 million, and its securities classified as "available for sale" had an estimated fair market value of $60.5 million, including Federal Home Loan Mortgage Corporation stock with an estimated fair market value of $6.1 million. The allowance for loan losses totaled $253,000 at September 30, 1998, an increase of $16,000 from the allowance of $237,000 at December 31, 1997. The ratio of the allowance for loan losses to loans was 0.24% and 0.23% at September 30, 1998 and December 31, 1997, respectively. Also at September 30, 1998, the Bank's non-performing loans were $233,000, or 0.22% of total loans, compared to $163,000, or 0.16% of total loans, at December 31, 1997, and the Bank's ratio of allowance for loan losses to non-performing loans at September 30, 1998 and December 31, 1997 was 108.58% and 145.50%, 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 7 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. The Bank has had minimal losses on loans in prior years. Comparison of Operating Results for the Nine Months Ended September 30, 1998 and 1997 Net Income. Net income for the nine months ended September 30, 1998 was $2.6 million, compared to net income of $1.3 million for the nine months ended September 30, 1997. The increase in net earnings for the nine months resulted primarily from net earnings on subscription funds and earnings on equity capital received in the conversion. Net Interest Income. Net interest income for the nine months ended September 30, 1998 was $5.3 million, compared to $3.4 million for the nine months ended September 30, 1997. The increase in net interest income for the nine months ended September 30, 1998 was primarily due to net earnings on subscription funds and earnings on equity capital received in the conversion. For the nine months ended September 30, 1998, the Bank's average yield on total interest-earning assets was 6.25%, compared to 6.74% for the nine months ended September 30, 1997, and its average cost of interest-bearing liabilities was 4.19% for the nine months ended September 30, 1998, compared to 4.90% for the nine months ended September 30, 1997. As a result, the Bank's interest rate spread for the nine months ended September 30, 1998 was 2.06% compared to 1.84% for the nine months ended September 30, 1997, and its net yield on interest-earning assets was 2.90% for the nine months ended September 30, 1998, compared to 2.27% for the nine months ended September 30, 1997. Interest Income. Interest income increased by $1.5 million, from $10.0 million to $11.5 million, or by 14.75%, during the nine months ended September 30, 1998 compared to the same period in 1997. This increase resulted from investment of subscription funds and equity capital received in the conversion, as well as the continued strategic shift from investment securities to higher-yielding loans. The average balance of securities held to maturity declined $42.1 million, from $81.2 million at September 30, 1997 to $39.1 million at September 30, 1998. Overall, average total interest-earning assets increased $47.1 million, or 23.78%, from September 30, 1997 to September 30, 1998. The ratio of average interest-earning assets to average interest-bearing liabilities increased from 109.53% for the nine months ended September 30, 1997 to 125.08% for the nine months ended September 30, 1998. Interest Expense. Interest expense decreased $487,000, or 7.33%, to $6.2 million for the nine months ended September 30, 1998, compared to $6.6 million for the same period in 1997. The decrease was attributable to the combined effect of a lower cost of funds and a decline in interest-bearing liabilities. The average cost of interest-bearing deposits declined from 4.90% at September 30, 1997 to 4.19% at September 30, 1998. Over the same period, the balance of deposits decreased $26.9 million, from $178.8 million at September 30, 1997 to $151.9 million at September 30, 1998, or 15.04%. 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 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 $15,000 provision for loan loss was required for the nine months ended September 30, 1998, compared to an additional $15,000 provision for the nine months ended September 30, 1997. Non-Interest Expense. There was a $71,000 increase in total non-interest expense in the nine months ended September 30, 1998 compared to the same period in 1997. Income Taxes. The Bank's effective tax rate for the nine months ended September 30, 1998 was 34.3%, compared to 33.7% for the same period in 1997. The increase in income tax expense of $665,000 in the nine months ended September 30, 1998 compared to the same period in 1997 was primarily due to a significant increase in income. Comparison of Operating Results for the Three Months Ended September 30, 1998 and 1997 Net Income. Net income for the three months ended September 30, 1998 was $829,000, compared to net income of $478,000 for the three months ended September 30, 1997. The increase in net earnings for the three months resulted primarily from lower cost of funds and earnings on equity capital received in the conversion. Net Interest Income. Net interest income for the three months ended September 30, 1998 was $1.7 million, compared to $1.2 million for the three months ended September 30, 1997. The increase in net interest income for the three months ended September 30, 1998 was primarily due to lower cost of funds and earnings on equity capital received in the conversion. For the three months ended September 30, 1998, the Bank's average yield on total interest-earning assets was 6.84%, compared to 6.84% for the three months ended September 30, 1997, and its average cost of interest-bearing liabilities was 4.87% for the three months ended September 30, 1998, compared to 4.95% for the three months ended September 30, 1997. As a result, the Bank's interest rate spread for the three months ended September 30, 1998 was 1.97%, compared to 1.89% for the three months ended September 30, 1997, and its net yield on interest-earning assets was 3.33% for the three months ended September 30, 1998, compared to 2.34% for the three months ended September 30, 1997. Interest Income. Interest income increased by $200,000, from $3.4 million to $3.6 million, or by 6.26%, during the three months ended September 30, 1998 compared to the same period in 1997. This increase resulted from investment of equity capital received in the conversion, as well as the continued strategic shift from investment securities to higher-yielding loans. The average balance of securities held to maturity declined $42.1 million, from $75.7 million at September 30, 1997 to $33.6 million at September 30, 1998. In addition, average time deposits and other interest-earning cash deposits increased $5.6 million, from $11.9 million at September 30, 1997 to $17.5 million at September 30, 1998. Overall, average total interest-earning assets increased $14.9 million, or 7.57%, from September 30, 1997 to September 30, 1998. The ratio of 9 average interest-earning assets to average interest-bearing liabilities increased from 110.04% for the three months ended September 30, 1997 to 138.54% for the three months ended September 30, 1998. Interest Expense. Interest expense decreased $352,000, or 15.88%, to $1.9 million for the three months ended September 30, 1998, compared to $2.2 million for the same period in 1997. The decrease was primarily attributable to the decline in average balances of deposits. The average cost of average interest-bearing deposits declined from 4.95% at September 30, 1997 to 4.87% at September 30, 1998. Over the same period, the average balance of deposits decreased $26.1 million, from $179.2 million at September 30, 1997 to $153.1 million at September 30, 1998, or 14.56%. Provision for Loan Losses. The Bank determined that an additional $5,000 provision for loan loss was required for the three months ended September 30, 1998, compared to an additional $5,000 provision for the three months ended September 30, 1997. Non-Interest Expense. There was a $32,000 increase in total non-interest expense in the three months ended September 30, 1998 compared to the same period in 1997. Income Taxes. The Bank's effective tax rate for the three months ended September 30, 1998 was 33.9%, compared to 33.5% for the same period in 1997. The increase in income tax expense of $185,000 in the three months ended September 30, 1998 compared to the same period in 1997 was primarily due to a significant increase in income. Liquidity and Capital Resources. The Company has no business other than that of the Bank and investing the net conversion proceeds retained by it. Management believes that the net conversion proceeds retained by the Company (approximately $16.7 million at September 30, 1998), earnings on such proceeds and principal and interest payments on the ESOP loan, together with 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 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, 1998, 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. 10 The Bank must satisfy three capital standards: a ratio of core capital to adjusted total assets of 3.0%, 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, 1998, the Bank exceeded all regulatory capital requirements. The table below presents certain information relating to the Bank's capital compliance at September 30, 1998 and December 31, 1997. At September 30, 1998 At December 31, 1997 --------------------- -------------------- Amount Percent Amount Percent ------ ------- ------ ------- (Dollars in thousands) Tangible Capital . . . . . $35,227 18.0% $16,613 4.9% Core Capital . . . . . . . 35,227 18.0 16,613 4.9 Risk-Based Capital . . . . 35,479 49.2 16,850 16.5 At September 30, 1998, the Bank had outstanding commitments to originate loans totaling $1.5 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, 1998 totaled $63.2 million. Management believes that a significant percentage of such deposits will remain with the Bank. During the three month period ended September 30, 1998, the Company declared and paid a dividend of $.075 per share of Common Stock, or a total dividend of $303,000. The Year 2000 Problem The Company is aware of the current concerns throughout the business community of reliance upon computer software that does not properly recognize the Year 2000 in date formats, often referred to as the "Year 2000 Problem." The Year 2000 Problem is the result of software being written using two digits rather than four digits to define the applicable year (i.e., "98" rather than "1998"). A failure by a business to properly identify and correct a Year 2000 Problem in its operations could result in system failures or miscalculations. In turn, this could result in disruptions of operations, including among other things a temporary inability to process transactions, or otherwise engage in routine business transactions on a day-to-day basis. Operations of the Bank depend on the successful operation on a daily basis of its computer systems and a third party service bureau's equipment and software. In its analysis of these systems, equipment and software, a plan of action has been put in place by the Bank to minimize its risk exposure to the Year 2000 Problem. As part of the plan, an oversight committee has been set up to monitor Year 2000 compliance. The Bank's service bureau, which processes all customer related data, has represented to the Bank that it has completed its first and second rounds of Year 2000 testing and that final testing is expected to be completed prior to the end of 1998. The service bureau has advised the Bank that, upon completion of the final testing phase, it believes its systems and equipment will be Year 2000 compliant. A failure to remediate by the service bureau would have a material adverse effect on the Bank. 11 The Bank has modified its credit risk assessment to include consideration of incremental risk that may be posed by the inability of customers to address the Year 2000 Problem. The Bank has developed policies and procedures to help identify potential customer related risks to the Bank and to gain a better understanding of how its customers are managing their own risks associated with the Year 2000 Problem. The Bank believes its customer related risks are minimal due to the small number of commercial loan originations. Although the Company believes that the Year 2000 Problem will be substantially corrected prior to the Year 2000, the risk of system failures cannot be eliminated. Therefore, the Company will assess the worst case scenario caused by the Year 2000 Problem and address the possible effects thereof by December 31, 1998. The Company will assess the types and nature of contingency plans that will be required to maintain the Company's operational capacity after January 1, 2000. This assessment will cover all critical areas of the Company, including the Bank's service bureau. As of September 30, 1998, the Company and the Bank have incurred approximately $5,000 in direct compliance costs associated with the Year 2000 Problem. The Company estimates that $40,000 will approximate total direct compliance costs through the Year 2000. The Company does not separately track internal costs incurred for Year 2000 compliance; such costs are principally related to payroll expenditures. Funding for such costs has been and will be derived from normal operating cash flow. 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. 12 Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company monitors whether material changes in market risk have occurred since year-end. The Company does not believe that material changes in market risk exposures occurred during the nine months ended September 30, 1998. PART II. OTHER INFORMATION Item 5. Other Information Effective June 29, 1998, the Securities and Exchange Commission adopted an amendment to Rule 14a-4 under the Securities Exchange Act of 1934. As amended, Rule 14a-4(c)(1) relates to the Company's use of its discretionary proxy voting authority with respect to a stockholder proposal which the stockholder has not sought to include in the Company's proxy statement. If the proponent of the proposal fails to notify the Company by the date established by the notice provision in the Company's Certificate of Incorporation, management proxies will be allowed to use their discretionary voting authority if the proposal is raised at the meeting, without any discussion of the matter in the proxy statement. The Certificate of Incorporation of the Company provides an advance notice procedure for certain business to be brought before an annual meeting of stockholders. In order for a stockholder to properly bring business before an annual meeting, the stockholder must give written notice to the Secretary of the Company not less than 30 nor more than 60 days prior to the date of such meeting; provided, however, that if less than 40 days' notice of the meeting is given to stockholders, written notice by the stockholder to be timely must be delivered or mailed to the Secretary of the Company not later than the close of business on the tenth day following the day on which notice of the meeting was mailed to stockholders. With respect to the Company's 1999 Annual Meeting of Stockholders, which will be held at the main office of Hopkinsville Federal Savings Bank on or about April 28, 1999, if the Company is not provided notice of a stockholder proposal, which the stockholder has not previously sought to include in the Company's proxy statement, by March 29, 1999, management proxies will be allowed to use their discretionary authority as outlined above. 13 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, 1998 /s/ Bruce Thomas ------------------------------------------ Bruce Thomas President and Chief Executive Officer Date: November 13, 1998 /s/ Peggy R. Noel ------------------------------------------ Peggy R. Noel Executive Vice President, Chief Financial Officer and Chief Operations Officer 14 EX-27 2 FDS -- HOPFED BANCORP, INC.
9 0001041550 HopFed Bancorp, Inc. 1,000 U.S. DOLLARS 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 1 1,163 47 11,867 0 60,509 31,873 32,271 107,387 253 216,565 154,025 0 3,238 0 0 0 40 59,262 216,565 6,172 3,470 1,846 11,488 6,155 0 5,333 15 0 1,795 3,942 2,591 0 0 2,591 .698 .698 2.90 0 233 0 0 237 0 0 253 253 0 0
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