HopFed Bancorp, Inc. Reports First Quarter Results

HopFed Bancorp, Inc. (NASDAQ: HFBC) (the “Company”), the holding company for Heritage Bank USA, Inc. (the “Bank”), today reported results for the three month period ended March 31, 2017. For the three month period ended March 31, 2017, the Company’s net income was $935,000, or $0.15 per share basic and diluted, compared to $509,000, or $0.08 per share basic and diluted, for the three month period ended March 31, 2016.

Commenting on the first quarter results, John E. Peck, President and Chief Executive Officer, said, “During the three month period ended March 31, 2017, net loan balances increased by $11.2 million, an annualized growth rate of 7.4%. The Company’s loan pipeline remains encouraging as we continue to strive to improve our profitability through disciplined loan growth.”

Mr. Peck continued, “The Company’s recently implemented changes to our consumer transaction account product line has been a success. At March 31, 2017, the Company’s transaction accounts balances have increased by $14.1 million despite an overall reduction in the number of accounts due to the elimination of free checking. The Company’s core operating results continue to improve and we are excited about the future of the Company,” Mr. Peck concluded.

Financial Highlights

The Company purchased 693 shares of its common stock in the quarter at a weighted average price of $12.58 per share. At March 31, 2017, the Company holds 1,246,829 shares in treasury stock with a weighted average cost of $12.32 per share.
At March 31, 2017, the Company’s tangible book value was $14.04 per share and tangible common equity ratio was 9.47%. The Company’s tangible book value and common equity ratio computations do not include 488,161 unallocated shares of common stock held by the Company’s ESOP.
The Bank’s Tier 1 Leverage Ratio, Common Equity Tier 1 Capital Ratio and Total Risk Based Capital Ratio at March 31, 2017 were 10.47%, 15.01% and 16.00%, respectively. The Company’s Tier 1 Leverage Ratio, Common Equity Tier 1 Capital Ratio and Total Risk Based Capital Ratio at March 31, 2017 were 10.55%, 15.14% and 16.13%, respectively.
For the three month period ended March 31, 2017, net loan charge offs were $238,000, or 0.15% of average loan balances.

Asset Quality

A summary of non-accrual loans at March 31, 2017 and December 31, 2016 is as follows:

March 31, 2017 December 31, 2016 (Dollars in Thousands) One-to-four family mortgages $ 248 270 Home equity line of credit 402 402 Land 7,234 7,675 Farmland 454 --- Non-residential real estate 210 208 Consumer loans 3 3 Commercial loans 393 516 Total non-accrual loans 8,944 9,074

A summary of the activity in foreclosed assets for the three month period ended March 31, 2017 is as follows:

Activity During 2017

Balance Reduction Gain (Loss) Balance 12/31/2016 Foreclosure Sales in Values on Sale 3/31/2017 (Dollars in Thousands) One-to-four family mortgages $ 135 --- --- --- --- $ 135 HELOC 28 --- --- --- --- 28 Multi-family 1,775 --- --- --- --- 1,775 Non-residential real estate 459 43 (329 ) --- --- 173 Total $ 2,397 43 (329 ) --- --- $ 2,111

Asset Quality (continued)

At March 31, 2017, the Company’s level of loans classified as substandard was $26.3 million as compared to $29.3 million at December 31, 2016. At March 31, 2017, the Company’s classified loan to risk based capital ratio was 26.2%. The Company’s specific reserve for impaired loans was $492,000 at March 31, 2017 and $1,148,000 at December 31, 2016. A summary of the level of classified loans at March 31, 2017, is as follows:

Specific Allowance March 31, 2017 Special

Impaired Loans

Allowance for For Loans Pass Mention Substandard

Doubtful

Total Impairment Not Impaired (Dollars in Thousands) One-to-four family mortgages 154,341 55 3,230 --- 157,626 --- 1,097 Home equity line of credit 36,132 --- 562 --- 36,694 --- 328 Junior liens 1,324 29 12 --- 1,365 --- 9 Multi-family 37,668 --- 815 --- 38,483 --- 593 Construction 17,386 --- --- --- 17,386 --- 141 Land 12,020 431 7,691 --- 20,142 105 328 Farmland 40,588 693 1,531 --- 42,812 35 631 Non-residential real estate 202,168 1,518 10,247 --- 213,933 53 1,288 Consumer loans 8,261 0 413 --- 8,674 98 142 Commercial loans 82,857 254 1,844 --- 84,955 201 1,115 Total 592,745 2,980 26,345 --- 622,070 492 5,672

Net Interest Income

For the three month period ended March 31, 2017, the Company’s net interest income was $6.8 million, compared to $6.7 million for the three month period ended March 31, 2016, and $6.6 million for the three month period ended December 31, 2016, respectively. For the three month period ended March 31, 2017, the improved levels of net interest income as compared to March 31, 2016 is directly attributable to a $54.8 million increase in the average balance of loans outstanding during the three month period ended March 31, 2017 as compared to the three month period ended March 31, 2016. The growth in loan balances for the three month period ended March 31, 2017 as compared to the three month period ended March 31, 2016 helped to offset a reduction in the average yield on loans. For the three month periods ended March 31, 2017 and March 31, 2016, the average yield on loans was 4.38% and 4.62%, respectively. For the three month period ended March 31, 2017, the Company’s net interest margin was 3.31%, as compared to 3.39% for the three month period ended March 31, 2016.

For the three month periods March 31, 2017 and March 31, 2016, interest expense was $1.4 million, respectively. For the three month period ending March 31, 2017, the average cost of interest bearing liabilities was 0.81%, as compared to 0.83% for the three month period ended March 31, 2016. The average balance of interest bearing liabilities for the three month periods ended March 31, 2017 and March 31, 2016 was $690.7 million and $678.7 million, respectively.

Non-interest Income

Non-interest income for the three month period ended March 31, 2017 was $2.3 million, as compared to $2.0 million for the three month periods ended March 31, 2016 and December 31, 2016. The most significant reasons for the increase in non-interest income were increases of income from bank owned life insurance and other operating income. For the three month period ended March 31, 2017, income from bank owned life insurance was $235,000, as compared to $84,000 for the three month period ended March 31, 2016. The increase in income from bank owned life insurance was the result of death benefit paid during the three month period ended March 31, 2017. For the three month period ended March 31, 2017, other operating income was $479,000, as compared to $176,000 for the three month period ended March 31, 2016. In the three month period ended March 31, 2017, the Company received approximately $250,000 from one time licensing fees.

For the three month period ended March 31, 2017, service charge income increased by $127,000 and $110,000, respectively, as compared to the three month periods ended March 31, 2016 and December 31, 2016. For the three month period ended March 31, 2017, the Company’s income on the origination of mortgage loans was $334,000, as compared to $368,000 and $367,000 for the three month periods ended March 31, 2016 and December 31, 2016.

The Company recognized net gains on the sale of securities of $2,000, $291,000 and $190,000 for the three month periods ended March 31, 2017, March 31, 2016 and December 31, 2016, respectively. The decline in security gains is the result of a growing deposit base, making it unnecessary for the Company to sell securities to fund loan growth and increases in short term interest rates.

Non-interest Expense

For the three month period ended March 31, 2017, non-interest expenses increased by $6,000 as compared to the three month period ended March 31, 2016. For the three month period ended March 31, 2017, the Company’s salaries and benefits expense increased by $248,000 as compared to the three month period ended March 31, 2016. The increase in compensation expense for the three month period ended March 31, 2017 as compared to the three month period ended March 31, 2016 is largely the result of a $67,000 increase in health insurance benefits due to an increase in medical insurance cost and a $146,000 increase in overall compensation. For the three month period ended March 31, 2017, other operating expenses totaled $846,000, as compared to $1.2 million for the three month period ended March 31, 2016.

On a linked quarter basis, the Company’s other operating expenses declined by $143,000. On a linked quarter basis, salaries and benefits increased by $482,000 due to end of year salary increases, additional payroll taxes resulting from the beginning of a new year, increases in health insurance benefits and seasonal vacation accruals. On a linked quarter basis, seasonal changes in vacation accruals accounted for $231,000 of the increase in salary and benefits expense and health insurance benefits accounted for $71,000 of the increase in salary and benefits expense. On a linked quarter basis, foreclosed assets expense increased by $159,000.

Balance Sheet

At March 31, 2017, consolidated assets were $923.3 million, an increase of $31.8 million as compared to December 31, 2016. For the three month period ended March 31, 2017, the Company experienced an $18.8 million increase in time deposits, a $24.3 million increase in cash balances, and an $11.2 million increase in net loan balances. For the three month period ended March 31, 2017, the Company’s non-interest bearing and interest bearing checking accounts increased by $5.2 million and $8.2 million, respectively.

The Company

Heritage Bank USA, Inc. (“Heritage Bank”) is a Kentucky state chartered commercial bank with the Kentucky Department of Financial Institutions and the Federal Deposit Insurance Corporation as its regulators. HopFed Bancorp, Inc., the holding company for Heritage Bank, is a non-member federally chartered commercial bank holding company regulated by the Federal Reserve Board. Heritage Bank has eighteen offices in western Kentucky and middle Tennessee and loan production offices in Nashville, Tennessee and Brentwood, Tennessee. The Company offers a broad line of financial services through Heritage Wealth Management of Murray, Kentucky, Hopkinsville, Kentucky, and Pleasant View, Tennessee. Heritage Mortgage Services of Clarksville, Tennessee, offers long term fixed rate 1-4 family mortgage loans that are originated for the secondary market in all communities in the Company’s general market area. Heritage Bank offers a broad line of banking and financial products and services 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 risk, 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.

HOPFED BANCORP, INC.

Consolidated Balance Sheets

(Dollars in thousands)

Assets

March 31, 2017 December 31, 2016 (Unaudited) Cash and due from banks $ 30,663 21,779 Interest bearing deposits in banks 19,408 3,970 Cash and cash equivalents 50,071 25,749 Federal Home Loan Bank stock, at cost 4,428 4,428 Securities available for sale 207,580 209,480 Loans held for sale 1,091 1,094

Loans receivable, net of allowance for loan losses of $6,164 at March 31, 2017 and $6,112 at December 31, 2016

615,480 604,286 Accrued interest receivable 3,121 3,799 Foreclosed assets, net 2,111 2,397 Bank owned life insurance 10,120 10,662 Premises and equipment, net 23,225 23,461 Deferred tax assets 2,918 3,052 Other assets 3,162 3,078 Total assets 923,307 891,486

Liabilities and Stockholders’ Equity

Liabilities: Deposits: Non-interest-bearing accounts $ 136,333 131,145 Interest-bearing accounts NOW accounts 217,562 209,347 Savings and money market accounts 100,009 99,312 Other time deposits 311,839 293,078 Total deposits 765,743 732,882 Advances from Federal Home Loan Bank 11,000 11,000 Repurchase agreements 45,492 47,655 Subordinated debentures 10,310 10,310 Advances from borrowers for taxes and insurance 867 766 Accrued expenses and other liabilities 2,434 2,445 Total liabilities 835,846 805,058

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

HOPFED BANCORP, INC.

Consolidated Balance Sheets, Continued

(Dollars in thousands)

March 31, 2017 December 31, 2016 (Unaudited)

Stockholders’ equity

Preferred stock, par value $0.01 per share; authorized - 500,000 shares; no shares issued or outstanding at March 31, 2017 and December 31, 2016

--- ---

Common stock, par value $.01 per share; authorized 15,000,000 shares; 7,963,378 issued and 6,716,549 outstanding at March 31, 2017 and 7,963,378 issued and 6,717,242 outstanding at December 31, 2016

80 80 Additional paid-in-capital 58,705 58,660 Retained earnings 49,721 49,035

Treasury stock, at cost (1,246,829 shares at March 31, 2017 and 1,246,136 shares at December 31, 2016)

(15,356 ) (15,347 )

Unearned ESOP Shares, at cost (488,161 at March 31, 2017 and 498,346 shares at December 31, 2016)

(6,414 ) (6,548 ) Accumulated other comprehensive income 725 548

Total stockholders’ equity

87,461 86,428

Total liabilities and stockholders’ equity

$ 923,307 891,486

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

HOPFED BANCORP, INC.

Consolidated Condensed Statements of Income

(Dollars in thousands)

(Unaudited)

For the Three Month Periods Ended March 31, 2017 2016 Interest and dividend income: Loans $ 6,736 6,465 Investment in securities, taxable 1,118 1,247 Nontaxable securities available for sale 283 353 Interest-bearing deposits 23 16 Total interest and dividend income 8,160 8,081 Interest expense: Deposits 1,167 1,095 FHLB borrowings 32 73 Repurchase agreements 103 143 Subordinated debentures 104 94 Total interest expense 1,406 1,405 Net interest income 6,754 6,676 Provision for loan losses 291 458

Net interest income after provision for loan losses

6,463 6,218 Non-interest income: Service charges 804 677 Merchant card 302 291 Mortgage origination income 334 368 Gain on sale of investments 2 291 Income from bank owned life insurance 235 84 Income from financial services 140 133 Other operating income 479 176 Total non-interest income 2,296 2,020

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

HOPFED BANCORP, INC.

Consolidated Condensed Statements of Income, Continued

(Dollars in thousands, except share and per share data)

(Unaudited)

For the Three Month Periods Ended March 31, 2017 2016 Non-interest expenses: Salaries and benefits $ 4,236 3,988 Occupancy expense 775 787 Data processing 764 727 State deposit tax 231 248 Professional services 348 335 Advertising 381 320 Foreclosure, net 108 68 Other operating expenses 846 1,210 Total non-interest expense 7,689 7,683 Income before income tax expense 1,070 555 Income tax expense 135 46 Net income 935 509 Net income per share: Basic $ 0.15 $ 0.08 Fully diluted $ 0.15 $ 0.08 Dividend per share $ 0.04 $ 0.04 Weighted average shares outstanding - basic 6,218,706 6,297,755 Weighted average shares outstanding - diluted 6,218,706 6,297,755

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

HOPFED BANCORP, INC.

Selected Financial Data

(Dollars in thousands)

(Unaudited)

For the three-months ended Change from 03/31/17 12/31/16 Prior Quarter Interest and dividend income: Loans $ 6,736 6,603 133 Investment in securities, taxable 1,118 1,051 67 Nontaxable securities available for sale 283 289 (6 ) Interest-bearing deposits 23 8 15

Total interest and dividend income

8,160 7,951 209 Interest expense: Deposits 1,167 1,094 73 FHLB borrowings 32 29 3 Repurchase agreements 103 87 16 Subordinated debentures 104 101 3 Total interest expense 1,406 1,311 95 Net interest income 6,754 6,640 114 Provision for loan losses 291 63 228

Net interest income after provision for loan losses

6,463 6,577 (114 ) Non-interest income: Service charges 804 694 110 Merchant card 302 311 (9 ) Mortgage origination income 334 367 (33 ) Gain on sale of investments 2 190 (188 ) Income from bank owned life insurance 235 78 157 Income from financial services 140 159 (19 ) Other operating income 479 201 278 Total non-interest income 2,296 2,000 296

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

HOPFED BANCORP, INC.

Selected Financial Data

(Dollars in thousands, except share and per share data)

(Unaudited)

For the three-months ended Change from 3/31/17 12/31/16 Prior Quarter Non-interest expenses: Salaries and benefits $ 4,236 3,754 482 Occupancy expense 775 775 --- Data processing 764 767 (3 ) State deposit tax 231 247 (16 ) Professional services 348 396 (48 ) Advertising 381 334 47 Foreclosure, net 108 (51 ) 159 Other operating expenses 846 989 (143 ) Total non-interest expense 7,689 7,211 478 Income before income tax expense 1,070 1,366 (296 ) Income tax expense 135 260 (125 ) Net income $ 935 1,106 (171 ) Net income per share Basic $ 0.15 $ 0.18 (0.03 ) Fully diluted $ 0.15 $ 0.18 (0.03 ) Dividend per share $ 0.04 $ 0.04 Weighted average shares outstanding - basic 6,218,706 6,193,278 Weighted average shares outstanding - diluted 6,218,706 6,193,278

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

HOPFED BANCORP, INC.

Selected Financial Data

The table below adjusts tax-free investment income for the three month periods ended March 31, 2017 and March 31, 2016, by $141,000 and $174,000, respectively; for a tax equivalent rate using a cost of funds rate of 0.81% for the three month period ended March 31, 2017 and 0.83% for the three month period ended March 31, 2016. The table adjusts tax-free loan income by $9,000 for the three month period ended March 31, 2017, and $5,000 for the three month period ended March 31, 2016, for a tax equivalent rate using the same cost of funds rate: Average Income and Average Average Income and Average Balance Expense Rates Balance Expense Rates 3/31/2017 3/31/2017 3/31/2017 3/31/2016 3/31/2016 3/31/2016 (Table Amounts in Thousands, Except Percentages) Loans receivable, net $ 615,382 6,745 4.38 % $ 560,544 6,470 4.62 % Taxable securities AFS 176,824 1,118 2.53 % 197,761 1,247 2.52 % Non-taxable securities AFS 33,868 424 5.00 % 42,098 527 5.01 % Other interest bearing deposits 9,260 23 0.99 % 9,491 16 0.67 % Total interest earning assets 835,334 8,310 3.98 % 809,894 8,260 4.08 % Other assets 73,527 85,874 Total assets $ 908,861 $ 895,768 Retail time deposits $ 259,086 664 1.03 % $ 264,308 640 0.97 % Brokered deposits 46,040 135 1.17 % 35,986 99 1.10 % Interest bearing checking 219,696 326 0.59 % 213,336 311 0.58 % Saving / MMDA 100,282 42 0.17 % 97,391 45 0.18 % FHLB borrowings 13,433 32 0.95 % 13,593 73 2.15 % Repurchase agreements 41,840 103 0.98 % 43,744 143 1.31 % Subordinated debentures 10,310 104 4.03 % 10,310 94 3.65 % Total interest bearing liabilities 690,687 1,406 0.81 % 678,668 1,405 0.83 % Non-interest bearing deposits 126,809 122,926 Other liabilities 3,993 4,706

Stockholders’ equity

87,372 89,468

Total liabilities and stockholders’ equity