Hopfed Bancorp (HFBC) 10-Q 2012 Q1 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 March 31, 2012

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 incorporation or organization)	(I.R.S. Employer Identification No.)
4155 Lafayette Road, 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  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required and posted pursuant to Rule 405 of Regulation S-T (subsection 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated file or a non-accelerated filer. See definition of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule12b-2 of the Exchange Act: (Check one)

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company filer	x

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x.

As of May 11, 2012, the Registrant had outstanding 7,493,986 shares of the Registrant’s Common stock.

CONTENTS

HOPFED BANCORP, INC.

		PAGE
PART I.	FINANCIAL INFORMATION
The unaudited consolidated condensed financial statements of the Registrant and its wholly owned subsidiaries are as follows:
Item 1.	Financial Statements
	Consolidated Condensed Statements of Financial Condition as of March 31, 2012 (unaudited) and December 31, 2011		2
	Consolidated Condensed Statements of Income (Loss) for the Three-Month Periods Ended March 31, 2012, and March 31, 2011		4
	Consolidated Condensed Statements of Comprehensive Income (Loss) for the Three-Month Periods Ended March 31, 2012 and March 31, 2011 (unaudited)		6
	Consolidated Condensed Statement of Stockholders’ Equity for the Three-Month Period Ended March 31, 2012 (unaudited)		7
	Consolidated Condensed Statements of Cash Flows for the Three-Month Periods Ended March 31, 2011, and March 31, 2010 (unaudited)		8
	Notes to Unaudited Consolidated Condensed Financial Statements		9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		39
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		48
Item 4.	Controls and Procedures		49
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings		50
Item 1A.	Risk Factors		50
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		50
Item 3.	Defaults Upon Senior Securities		50
Item 4.	Removed and Reserved		50
Item 5.	Other Information		50
Item 6.	Exhibits		51
SIGNATURES			52

1

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HOPFED BANCORP, INC.

Consolidated Condensed Statements of Financial Condition

(Dollars in Thousands)

	March 31, 2012		December 31, 2011
	(Unaudited )
Assets
Cash and due from banks	$	37,887		44,389
Interest-earning deposits in Federal Home Loan Bank		10,472		4,371
Cash and cash equivalents		48,359		48,760
Federal Home Loan Bank stock, at cost		4,428		4,428
Securities available for sale		405,686		383,782
Loans held for sale		515		—
Loans receivable, net of allowance for loan losses of $10,609 at March 31, 2012, and $11,262 at December 31, 2011		550,066		556,360
Accrued interest receivable		5,328		6,183
Real estate and other assets owned		1,181		2,267
Bank owned life insurance		9,214		9,135
Premises and equipment, net		23,217		23,431
Deferred tax assets		910		1,132
Intangible asset		454		519
Other assets		4,923		4,823
Total assets	$	1,054,281		1,040,820
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest-bearing accounts	$	87,838		79,550
Interest-bearing accounts
NOW accounts		146,672		130,114
Savings and money market accounts		75,227		70,443
Other time deposits		504,461		519,988
Total deposits		814,198		800,095
Advances from Federal Home Loan Bank		62,368		63,319
Repurchase agreements		42,477		43,080
Subordinated debentures		10,310		10,310
Advances from borrowers for taxes and insurance		241		153
Dividends payable		178		176
Accrued expenses and other liabilities		5,508		5,204
Total liabilities		935,280		922,337

See accompanying Notes to Unaudited Consolidated Condensed Financial Statements.

2

HOPFED BANCORP, INC.

Consolidated Condensed Statements of Financial Condition, Continued

(Dollars in Thousands)

	March 31, 2012			December 31, 2011
	(Unaudited )
Stockholders’ equity:
Preferred stock, par value $0.01 per share; authorized—500,000 shares; 18,400 shares issued and outstanding with a liquidation preference of $18,400,000 at December 31, 2011, and December 31, 2010		—			—
Common stock, par value $.01 per share; authorized 15,000,000 shares; 7,896,902 issued and 7,493,986 outstanding at March 31, 2012, and 7,895,336 issued and 7,492,420 outstanding at December 31, 2011 (a)		79			79
Common stock warrants (253,666 issued and outstanding)(a)		556			556
Additional paid-in-capital		76,022			75,967
Retained earnings-substantially restricted		39,908			39,591
Treasury stock (at cost, 402,916 shares at March 31, 2012, and December 31, 2011)		(5,076	)		(5,076	)
Accumulated other comprehensive income, net of taxes		7,512			7,366
Total stockholders’ equity		119,001			118,483
Total liabilities and stockholders’ equity	$	1,054,281			1,040,820

^(a)  Shares and warrants have been restated to reflect stock dividends distributed through October 18, 2011.

The consolidated condensed statement of financial condition at December 31, 2011, has been derived from the audited financial statements as of that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

See accompanying Notes to Unaudited Consolidated Condensed Financial Statements.

3

HOPFED BANCORP, INC.

Consolidated Condensed Statements of Income (Loss)

(Dollars in Thousands)

(Unaudited)

	For the Three Month Periods Ended March 31,
	2012		2011
Interest and dividend income:
Loans receivable		7,801		8,482
Investment in securities, taxable		2,375		2,690
Nontaxable securities available for sale		575		611
Interest-earning deposits		8		4
Total interest and dividend income		10,759		11,787
Interest expense:
Deposits		2,884		3,905
Advances from Federal Home Loan Bank		573		694
Repurchase agreements		248		205
Subordinated debentures		187		185
Total interest expense		3,892		4,989
Net interest income		6,867		6,798
Provision for loan losses		869		4,518
Net interest income after provision for loan losses		5,998		2,280
Non-interest income:
Service charges		938		856
Merchant card income		196		182
Mortgage origination revenue		203		72
Gain on sale of securities		44		721
Other than temporarily impairment on available for sale securities		—		(14	)
Income from bank owned life insurance		79		89
Financial services commission		227		187
Other operating income		230		272
Total non-interest income		1,917		2,365

See accompanying Notes to Unaudited Consolidated Condensed Financial Statements.

4

HOPFED BANCORP, INC.

Consolidated Condensed Statements of Income (Loss), Continued

(Dollars in Thousands, Except Per Share Amounts)

(Unaudited)

	For the Three Month  Periods Ended March 31,
	2012		2011
Non-interest expenses:
Salaries and benefits		3,507		3,326
Occupancy expense		855		788
Data processing expense		625		687
State deposit tax		162		168
Intangible amortization expense		65		81
Professional services expense		388		315
Deposit insurance and examination expense		419		592
Advertising expense		304		279
Postage and communications expense		141		148
Supplies expense		111		96
Loss on disposal of equipment		6		138
Loss on sale of real estate owned		147		509
Real estate owned expenses		46		73
Other operating expenses		323		249
Total non-interest expense		7,099		7,449
Income (loss) before income tax expense		816		(2,804	)
Income tax expense (benefit)		89		(960	)
Net income (loss)		727		(1,844	)
Less:
Dividend on preferred shares		229		227
Accretion dividend on preferred shares		28		27
Net income (loss) available to (attributable to) common shareholders	$	470		(2,098	)
Net income (loss) available to (attributable to) common shareholders
Per share, basic	$	0.06	($	0.28	)
Per share, diluted	$	0.06	($	0.28	)
Dividend per share	$	0.02	$	0.08
Weighted average shares outstanding—basic (a)		7,484,475		7,465,077
Weighted average shares outstanding—diluted (a)		7,484,475		7,465,077

^(a)  Weighted average shares have been adjusted to reflect a 2% stock dividend on October 18, 2011.

See accompanying Notes to Unaudited Consolidated Condensed Financial Statements.

5

HOPFED BANCORP, INC.

Consolidated Condensed Statements of Comprehensive Income (Loss)

(Dollars in Thousands)

(Unaudited)

	For the Three Month Periods  Ended March 31,
	2012			2011
Net income (loss)	$	727			(1,844	)
Other comprehensive income (loss), net of tax:
Unrealized holding gain (loss) on investment securities available for sale, net of tax effect of ($73) and $64 for the three months ended March 31, 2102, and March 31, 2011, respectively		142			(123	)
Unrealized gain on derivatives, net of tax effect of ($17) and ($42) for the three month periods ending March 31, 2012 and March 31, 2011, respectively;		33			79
Reclassification adjustment for gains included in net income (loss), net of tax effect of $15 and $245 for the three month periods ended March 31, 2012, and March 31,2011, respectively		(29	)		(476	)
Comprehensive income (loss)	$	873			(2,364	)

See accompanying Notes to Unaudited Consolidated Condensed Financial Statements.

6

HOPFED BANCORP, INC.

Consolidated Condensed Statement of Stockholders’ Equity

For the Three Month Period Ended March 31, 2012

(Dollars in Thousands, Except Share Amounts)

(Unaudited)

																	Accumulated
	Shares						Common		Additional								Other		Total
	Common Stock		Preferred Stock		Common Stock		Stock Warrants		Capital Surplus		Retained Earnings			Treasury Stock			Comprehensive Income		Stockholders Equity
Balance at December 31, 2011		7,492,420		18,400	$	79		556		75,967		39,591			(5,076	)		7,366		118,483
Restricted stock awards		1,566		—		—		—		—		—			—			—		—
Consolidated net income		—		—		—		—		—		727			—			—		727
Compensation expense, restricted stock awards		—		—		—		—		27		—			—			—		27
Net change in unrealized gain on securities available for sale, net of income taxes of $58		—		—		—		—		—		—			—			113		113
Net change in unrealized (loss) on derivatives, net of income tax benefit of $17		—		—		—		—		—		—			—			33		33
Cash dividend to preferred stockholder		—		—		—		—		—		(230	)		—			—		(230	)
Accretion of preferred stock discount		—		—		—		—		28		(28	)		—			—		—
Cash dividend to common stockholders		—		—		—		—		—		(152	)		—			—		(152	)
Balance March 31, 2012		7,493,986		18,400	$	79		556		76,022		39,908			(5,076	)		7,512		119,001

See accompanying Notes to Unaudited Consolidated Condensed Financial Statements

7

HOPFED BANCORP, INC.

Consolidated Condensed Statements of Cash Flows

(Dollars in Thousands)

(Unaudited)

	For the Three Month  Periods Ended March 31,
	2012			2011
Cash flows from operating activities:
Net cash provided by operating activities	$	3,791			3,028
Cash flows from investing activities
Proceeds from sales, calls and maturities of securities available for sale		28,242			46,006
Purchase of securities available for sale		(50,869	)		(45,225	)
Net decrease in loans		4,792			14,474
Proceeds from sale of foreclosed assets		1,573			789
Purchase of premises and equipment		(187	)		(126	)
Net cash used in (provided by) investing activities		(16,449	)		15,918
Cash flows from financing activities:
Net increase in demand deposits		8,288			3,377
Net increase in time and other deposits		5,815			3,597
Increase in advances from borrowers for taxes and insurance		88			109
Repayment of advances from Federal Home Loan Bank		(951	)		(10,972	)
Net decrease in repurchase agreements		(603	)		(1,055	)
Dividend paid on preferred stock		(230	)		(230	)
Dividends paid on common stock		(150	)		(587	)
Net cash provided by (used in) financing activities		12,257			(5,761	)
Increase (decrease) in cash and cash equivalents		(401	)		13,185
Cash and cash equivalents, beginning of period		48,760			60,984
Cash and cash equivalents, end of period	$	48,359			74,169
Supplemental disclosures of cash flow information:
Interest paid	$	1,969			2,376
Income taxes paid	$	445			445
Supplemental disclosures of non-cash investing and financing activities:
Loans charged off	$	1,717			602
Foreclosures and in substance foreclosures of loans during period	$	633			494
Net unrealized gains (losses) on investment securities classified as available for sale	$	171			(908	)
Increase (decrease) in deferred tax asset related to unrealized gains on investments	($	58	)		309
Dividends declared and payable	$	178			613
Issue of unearned restricted stock	$	12			7

See accompanying Notes to Unaudited Consolidated Condensed Financial Statements

8

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(1) BASIS OF PRESENTATION

HopFed Bancorp, Inc. (the “Company”) was formed at the direction of Heritage Bank, formerly 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. The Bank owns 100% of the stock of Fall and Fall Insurance Agency (“Fall & Fall”) of Fulton, Kentucky. Fall & Fall sells life and casualty insurance to both individuals and businesses. The majority of Fall & Fall’s customer base is within the geographic footprint of the Bank.

The Bank operates a mortgage division, Heritage Mortgage Services, in Clarksville, Tennessee with agents located in several of its markets. The Bank has a financial services division, Heritage Solutions, with offices in Murray, Kentucky, Kingston Springs, Tennessee and Pleasant View, Tennessee. Heritage Solutions agents travel throughout western Kentucky and middle Tennessee offering fixed and variable annuities, mutual funds and brokerage services.

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted (“GAAP”) in the United States of America 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 U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of only normal recurring accruals) necessary for fair representation have been included. The results of operations and other data for the three month period ended March 31, 2012, are not necessarily indicative of results that may be expected for the entire fiscal year ending December 31, 2012.

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, 2011. The accounting policies followed by the Company are set forth in the Summary of Significant Accounting Policies in the Company’s December 31, 2011 Consolidated Financial Statements.

9

(2) INCOME (LOSS) PER SHARE

The following schedule reconciles the numerators and denominators of the basic and diluted income (loss) per share (“IPS”) computations for the three month periods ended March 31, 2012, and March 31, 2011. Diluted common shares arise from the potentially dilutive effect of the Company’s stock options and warrants outstanding.

	Three Month Periods Ended
	March 31,
	2012		2011
Basic IPS:
Net income (loss) available (attributable) to common stockholders	$	470,000	($	2,098,000	)
Average common shares outstanding		7,484,475		7,465,077
Net income (loss) per share available (attributable) to common shareholders, basic	$	0.06	($	0.28	)
Diluted IPS:
Net income (loss) available (attributable) to common stockholders	$	470,000	($	2,098,000	)
Average common shares outstanding		7,484,475		7,465,077
Dilutive effect of stock options		—		—
Average diluted shares outstanding		7,484,475		7,465,077
Net income (loss) per share available (attributable) to common shareholders, diluted	$	0.06	($	0.28	)

(3) STOCK COMPENSATION

The Company incurred compensation cost related to the HopFed Bancorp, Inc. 2004 Long Term Incentive Plan of $27,000 for the three month period ended March 31, 2012, and $31,000 for the three month period ended March 31, 2011. The Company issued 1,556 and 764 shares of restricted stock during the three month periods ended March 31, 2012, and March 31, 2011, respectively. The table below provides a detail of the Company’s future compensation expense related to restricted stock vesting at March 31, 2012:

Year Ending December 31,	Future Expense
2012	$	61,193
2013		55,291
2014		27,312
2015		9,127
Total	$	152,923

The compensation committee may make additional awards of restricted stock, thereby increasing the future expense related to this plan. In addition, award vesting may be accelerated due to certain events as outlined in the restricted stock award agreement. Any acceleration of vesting will change the timing of, but not the aggregate amount of, compensation expense incurred.

10

(4) SECURITIES

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluations. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

At March 31, 2012, the Company has 14 securities with unrealized losses. The carrying amount of securities and their estimated fair values at March 31, 2012, were as follows:

	March 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Restricted:
FHLB stock	$	4,428		—		—			4,428
Unrestricted:
U.S. government and agency securities:
Agency debt securities	$	191,462		3,775		(136	)		195,101
Tax free municipal bonds		60,285		4,416		—			64,701
Taxable municipal bonds		12,843		1,215		—			14,058
Trust preferred securities		2,000		—		(1,007	)		993
Mortgage-backed securities:
GNMA		28,954		1,421		(9	)		30,366
FNMA		62,341		2,056		(90	)		64,307
FHLMC		13,715		506		—			14,221
NON-AGENCY CMOs		1,921		26		(122	)		1,825
AGENCY CMOs		19,536		578		—			20,114
	$	393,057		13,993		(1,364	)		405,686

11

The carrying amount of securities and their estimated fair values at December 31, 2011, was as follows:

	December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
			(Dollars in Thousands)
Restricted:
FHLB stock	$	4,428		—		—			4,428
Unrestricted:
U.S. government and agency securities:	$	171,141		3,511		(65	)		174,587
Tax free municipal bonds		60,432		4,623		—			65,055
Taxable municipal bonds		12,846		1,059		—			13,905
Trust preferred securities		2,000		—		(1,007	)		993
Mortgage-backed securities:
GNMA		30,427		1,413		(19	)		31,821
FNMA		59,195		2,101		(1	)		61,295
FHLMC		15,108		491		—			15,599
NON-AGENCY CMOs		2,012		7		(223	)		1,796
AGENCY CMOs		18,163		568		—			18,731
	$	371,324		13,773		(1,315	)		383,782

12

The scheduled maturities of debt securities available for sale at March 31, 2012, were as follows:

March 31, 2012	Amortized Cost		Estimated Fair Value
	(Dollars in Thousands)
Due within one year	$	463	$	464
Due in one to five years		8,170		8,315
Due in five to ten years		34,219		35,887
Due in more than ten years		65,496		68,640
		108,348		113,306
Amortizing agency bonds		158,242		161,547
Mortgage-backed securities		126,467		130,833
Total debt securities available for sale	$	393,057	$	405,686

The scheduled maturities of debt securities available for sale at December 31, 2011, were as follows:

December 31, 2011	Amortized Cost		Estimated Fair Value
	(Dollars in Thousands)
Due within one year	$	461		464
Due in one to five years		6,844		6,929
Due in five to ten years		24,471		26,153
Due after ten years		72,460		75,804
		104,236		109,350
Amortizing agency bonds		142,183		145,190
Mortgage-backed securities		124,905		129,242
Total debt securities available for sale	$	371,324		383,782

13

The estimated fair value and unrealized loss amounts of temporarily impaired investments as of March 31, 2012, are as follows:

	Less than 12 months					12 months or longer					Total
	Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses
	(Dollars in Thousands)
Available for sale
U.S. government and agency securities:
Agency debt securities	$	15,922		(125	)		1,879		(11	)		17,801		(136	)
Taxable municipals		—		—			—		—			—		—
Tax free municipals		—		—			—		—			—		—
Trust preferred securities		—		—			993		(1,007	)		993		(1,007	)
Mortgage-backed securities:
GNMA		1,866		(9	)		—		—			1,866		(9	)
FNMA		6,298		(88	)		80		(2	)		6,378		(90	)
FHLMC		—		—			—		—			—		—
NON-AGENCY CMOs		—		—			944		(122	)		944		(122	)
AGENCY CMOs		—		—			—		—			—		—
Total Available for Sale	$	24,086		(222	)		3,896		(1,142	)		27,982		(1,364	)

The estimated fair value and unrealized loss amounts of temporarily impaired investments as of December 31, 2011, were as follows:

	Less than 12 months					12 months or longer					Total
	Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses
	(Dollars in Thousands)
Available for sale
U.S. government and agency securities:
Agency debt securities	$	20,422		(54	)		2,007		(11	)		22,429		(65	)
Taxable municipal bonds		—		—			—		—			—		—
Tax free municipal bonds		—		—			—		—			—		—
Trust preferred securities		—		—			993		(1,007	)		993		(1,007	)
Mortgage-backed securities:
GNMA		1,925		(19	)		—		—			1,925		(19	)
FNMA		—		—			81		(1	)		81		(1	)
FHLMC		—		—			—		—			—		—
NON-AGENCY CMOs		—		—			1,494		(223	)		1,494		(223	)
AGENCY CMOs		—		—			—		—			—		—
Total Available for Sale	$	22,347		(73	)		4,575		(1,242	)		26,922		(1,315	)

14

At March 31, 2012, securities with a book value of approximately $134.2 million and a market value of approximately $143.0 million were pledged to various municipalities for deposits in excess of FDIC limits as required by law. In addition, securities with a book value of $2.7 million and a market value of $2.9 million are pledged as collateral to the Federal Home Loan Bank of Cincinnati. The Federal Home Loan Bank of Cincinnati has issued letters of credit in the Bank’s name totaling $32.8 million secured by the Bank’s loan portfolio to secure additional municipal deposits.

At March 31, 2012, securities with a book and market value of approximately $26.5 million were sold under agreements to repurchase from various customers. Furthermore, the Company has two wholesale repurchase agreements with third parties secured by investments with a combined book value of $19.1 million and a market value of $19.5 million. One repurchase agreement is in the amount of $6.0 million and has a maturity of September 18, 2016 and is currently callable on a quarterly basis and has a fixed rate of interest of 4.36%. The second repurchase agreement, in the amount of $10.0 million, has a maturity of September 5, 2014, is currently callable quarterly and has a fixed rate of interest of 4.28%.

15

(5) LOANS

Set forth below is selected data relating to the composition of the loan portfolio by type of loan at March 31, 2012 and December 31, 2011. At March 31, 2012 and December 31, 2011, there were no concentrations of loans exceeding 10% of total loans other than as disclosed below:

	March 31, 2012		March 31, 2012			December 31, 2011		December 31, 2011
	Amount		Percent			Amount		Percent
			(Dollars in Thousands)
Real estate loans:
One-to-four family (closed end) first mortgages	$	169,569		30.3	%	$	171,192		30.2	%
Second mortgages (closed end)		6,081		1.1	%		6,209		1.1	%
Home equity lines of credit		37,978		6.8	%		38,694		6.8	%
Multi-family		34,747		6.2	%		33,739		5.9	%
Construction		16,289		2.9	%		11,931		2.1	%
Land for development		51,225		9.1	%		52,338		9.2	%
Farmland		37,206		6.6	%		34,841		6.1	%
Non-residential real estate		138,448		24.7	%		148,644		26.2	%
Total mortgage loans		491,543		87.7	%		497,588		87.6	%
Consumer loans		15,043		2.7	%		15,110		2.7	%
Commercial loans		53,879		9.6	%		54,673		9.7	%
Total other loans		68,922		12.3	%		69,783		12.4	%
Total loans, gross		560,465		100.0	%		567,371		100.0	%
Deferred loan cost, net of income		210					251
Loans held for sale		515					—
Less allowance for loan losses		10,609					11,262
Total loans	$	550,581				$	556,360

16

The Bank assigns an industry standard NAICS code to each loan in the Bank’s portfolio. By assigning a standard code to each type of loan, management can more readily determine concentrations in risk by industry, location and loan type. This information is most useful when analyzing the Bank’s non-residential real estate loan portfolio. At March 31, 2012, and December 31, 2011, the Bank’s non-residential real estate loan portfolio was made up of the following loan types:

	Balance March 31, 2012		Balance December 31, 2011
	(Dollars in Thousands)
Land & development	$	51,225		52,338
Construction		6,174		6,151
Manufacturing		4,105		4,172
Professional and Technical		2,201		2,300
Retail Trade		11,685		12,019
Other Services		18,672		17,767
Finance & Insurance		136		141
Agricultural, Forestry, Fishing & Hunting		33,647		33,473
Real Estate and Rental and Leasing		45,145		50,770
Wholesale Trade		6,649		6,235
Arts, Entertainment & Recreation		4,159		5,309
Accomodations / Food Service		24,444		25,255
Healthcare and Social Assistance		9,958		10,140
Educational Services		28		30
Transportation & Warehousing		1,605		1,638
Information		2,566		2,646
Non-industry		3,161		3,219
Admin Support / Waste Mgmt		1,319		2,220
Total	$	226,879		235,823

The allowance for loan losses totaled $10.6 million at March 31, 2012, $11.3 million at December 31, 2011, and $13.9 million at March 31, 2011. The ratio of the allowance for loan losses to total loans was 1.89% at March 31, 2012, 1.98% at December 31, 2011, and 1.70% at March 31, 2011. The following table indicates the type and level of non-accrual loans at the periods indicated below:

	March 31, 2012		December 31, 2011		March 31, 2011
			(Dollars in Thousands)
One-to-four family mortgages	$	2,294		2,074		2,178
Home equity line of credit		100		134		190
Junior lien		—		101		—
Multi-family		—		—		300
Construction		—		—		1,483
Land		5,042		1,330		851
Non-residential real estate		3,630		2,231		626
Consumer assets owned by bank		18		9		114
Commercial loans		132		254		347
Total non-accrual loans	$	11,216		6,133		6,089

17

The following table provides a detail of the Company’s activity in the allowance for loan loss account by loan type for the three month period ended March 31, 2012:

Three month period ended March 31, 2012	Balance 12/31/2011		Charge off 2012			Recovery 2012		General Provision 2012			Specific Provision 2012			Ending Balance Period Ending March 31, 2012
			(Table in Thousands)
One-to-four family mortgages	$	2,640		(122	)		39		42			(400	)		2,199
Home equity line of credit		408		(53	)		1		31			76			463
Junior liens		277		—			1		—			13			291
Multi-family		1,201		—			—		(548	)		838			1,491
Construction		139		—			—		13			(51	)		101
Land		1,332		(779	)				1,321			324			2,198
Non-residential real estate		3,671		(579	)		100		101			(170	)		3,123
Consumer loans		262		(108	)		52		(10	)		63			259
Commercial loans		1,332		(76	)		2		(774	)		—			484
	$	11,262		(1,717	)		195		176			693			10,609

The following table provides a detail of the Company’s activity in the allowance for loan loss account by loan type for the year ended December 31, 2011:

Year Ended December 31, 2011	Balance 12/31/2010		Charge off 2011			Recovery 2011		General Provision 2011			Specific Provision 2011			Ending Balance Year Ending 12/31/2011
			(Table in Thousands)
One-to-four family mortgages	$	1,097		(758	)		139		1,687			475			2,640
Home equity line of credit		212		(123	)		—		245			74			408
Junior liens		146		(27	)		1		79			78			277
Multi-family		2,022		(89	)		—		26			(758	)		1,201
Construction		657		(353	)		—		(91	)		(74	)		139
Land		865		(308	)		30		353			392			1,332
Non-residential real estate		4,025		(2,645	)		84		1,114			1,093			3,671
Consumer loans		108		(371	)		112		425			(12	)		262
Commercial loans		698		(201	)		20		305			510			1,332
	$	9,830		(4,875	)		386		4,143			1,778			11,262

The Company’s general provisions represent the current four quarter loss history of the Company by loan type. The loss history is weighted to place more emphasis on the most recent quarterly result and may be further adjusted for any adverse trends in the local or national markets. A negative general provision indicates that the Company’s recent loss history has improved over prior periods and that lower amounts of general provisions are necessary.

18

The table below presents past due and non-accrual balances at March 31, 2012, by loan classification allocated between performing and non-performing:

	Currently		30 - 89 Days		Non-accrual		Special		Impaired Loans Currently Performing
March 31, 2012	Performing		Past Due		Loans		Mention		Substandard		Doubful		Total
					(Dollars in Thousands)
One-to-four family mortgages	$	149,583		637		2,294		7,213		9,842		—		169,569
Home equity line of credit		35,704		3		100		1,778		232		161		37,978
Junior liens		5,308		3		—		101		669		—		6,081
Multi-family		21,741		396		—		7,086		5,524		—		34,747
Construction		10,487		—		—		1,800		4,002		—		16,289
Land		17,318		1,590		5,042		7,937		19,338		—		51,225
Non-residential real estate		137,968		272		3,630		12,971		20,699		114		175,654
Consumer loans		14,538		49		18		154		284		—		15,043
Commercial loans		43,097		—		132		3,731		6,914		5		53,879
	$	435,744		2,950		11,216		42,771		67,504		280		560,465

All loans listed as 30-89 days past due and non-accrual are not performing as agreed. Loans listed as special mention, substandard and doubtful are paying as agreed. However, the customer’s financial statements may indicate weaknesses in their current cash flow, the customer’s industry may be in decline due to current economic conditions, collateral values used to secure the loan may be declining, or the Company may be concerned about the customer’s future business prospects.

The Bank does not originate loans it considers sub-prime and is not aware of any exposure to the additional credit concerns associated with sub-prime lending in either the Company’s loan or investment portfolios. The Company does have a significant amount of construction and land development loans. Management reports to the Company’s Board of Directors on the status of the Company’s specific construction and development loans as well as the market trends in those markets in which the Company actively participates.

19

The Company’s annualized net charge off ratios for three month periods ended March 31, 2012, March 31, 2011, and the year ended December 31, 2011, were 1.08%, 0.27% and 0.71%, respectively. The ratios of allowance for loan losses to non-accrual loans at March 31, 2012, March 31, 2011, and December 31, 2011, were 94.59%, 229.00%, and 183.62% respectively. The following table sets forth an analysis of the Bank’s allowance for loan losses for the periods ended:

	March 31, 2012			December 31, 2011			March 31, 2011
	(Dollars in Thousands, Except Percentages)
Beginning balance, allowance for loan loss	$	11,262			9,830			9,830
Charge offs
One-to-four family mortgages		(122	)		(758	)		(227	)
Home equity line of credit		(53	)		(123	)		—
Junior liens		—			(27	)		—
Multi-family		—			(89	)		—
Construction		—			(353	)		(60	)
Land		(579	)		(308	)		(148	)
Non-residential real estate		(779	)		(2,645	)		(67	)
Consumer loans		(108	)		(371	)		(100	)
Commercial loans		(76	)		(201	)		—
Total charge offs		(1,717	)		(4,875	)		(602	)
Recoveries
One-to-four family mortgages		39			139			82
Home equity line of credit		1			—			—
Junior liens		1			1			—
Multi-family		—			—			—
Construction		—			—			—
Land		100			30			—
Non-residential real estate		—			84			84
Consumer loans		52			112			32
Commercial loans		2			20			—
Total recoveries		195			386			198
Net charge offs		(1,522	)		(4,489	)		(404	)
Provision for loan losses		869			5,921			4,518
Ending balance	$	10,609			11,262			13,944
Average loan balance, gross	$	562,866			638,378			592,517
Ratio of net charge offs to average outstanding loans during the period		1.08	%		0.71	%		0.27	%

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.

20

The Company conducts annual reviews on all loan relationships above $1.0 million to ascertain the borrowers continued ability to service their debt as agreed. In addition to the credit relationships mentioned above, management may classify any credit relationship once it becomes aware of adverse credit trends for that customer. Typically, the annual review consists of updated financial statements for borrowers and any guarantors, a review of the borrower’s credit history with the Company and other creditors, and current income tax information.

As a result of this review, management will classify loans based on their credit risk. Additionally, the Company provides a risk grade for all loans past due more than sixty days. The Company uses the following risk definitions for risk grades:

Satisfactory loans of average strength having some deficiency or vulnerability to changing economic or industry conditions. These customers should have reasonable amount of capital and operating ratios. Secured loans may lack in margin or liquidity. Loans to individuals, perhaps supported in dollars of net worth, but with supporting assets may be difficult to liquidate.

Watchloans are acceptable credits: (1) that need continual monitoring, such as out-of territory or asset-based loans (since the Bank does not have an asset-based lending department), or (2) with a marginal risk level to business concerns and individuals that; (a) have exhibited favorable performance in the past, though currently experiencing negative trends; (b) are in an industry that is experiencing volatility or is declining, and their performance is less than industry norms; and (c) are experiencing unfavorable trends in their financial position, such as one-time net losses or declines in asset values. These marginal borrowers may have early warning signs of problems such as occasional overdrafts and minor delinquency. If considered marginal, a loan would be a “watch” until financial data demonstrated improved performance or further deterioration to a “substandard” grade usually within a 12-month period. In the table on page 23, Watch loans are included with satisfactory loans and classified as Pass.

Other Loans Especially Mentionedare currently protected but are potentially weak. These loans constitute an undue and unwarranted credit risk but not to the point of justifying a substandard classification. The credit risk may be relatively minor yet constitutes an unwarranted risk in light of the circumstances surrounding a specific loan. These credit weaknesses, if not checked or corrected, will weaken the loan or inadequately protect the Bank’s credit position at some future date.

21

ASubstandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. The loans are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. This does not imply ultimate loss of the principal, but may involve burdensome administrative expenses and the accompanying cost to carry the credit. Examples of substandard loans include those to borrowers with insufficient or negative cash flow, negative net worth coupled with inadequate guarantor support, inadequate working capital, and/or significantly past-due loans and overdrafts.

A loan classifiedDoubtful has all the weaknesses inherent in a substandard credit except that the weaknesses make collection or liquidation in full (on the basis of currently existing facts, conditions, and values) highly questionable and improbable. The possibility of loss is extremely high, but because of certain pending factors charge-off is deferred until its more exact status may be determined. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral, and refinancing plans. The doubtful classification is applied to that portion of the credit in which the full collection of principal and interest is questionable.

A loan is considered to be impaired when management determines that it is possible that the Company will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement. The value of individually impaired loans is measured based on the present value of expected payments using the fair value of the collateral if the loan is collateral dependent. Currently, it is management’s practice to classify all substandard or doubtful loans as impaired. At March 31, 2012, December 31, 2011 and March 31, 2011, the Company’s impaired loans totaled $82.2 million, $49.3 million and $67.2 million, respectively. At March 31, 2012, December 31, 2011, and March 31, 2011, the Company’s specific reserve for impaired loans totaled $4.6 million, $4.1 million and $6.6 million, respectively.

22

A summary of the Company’s impaired loans, including their respective regulatory classification and their respective specific reserve at March 31, 2012, were as follows:

											Specific		Allowance
											Reserve		for
March 31, 2012			Special		Impaired Loans						for		Performing
	Pass		Mention		Substandard		Doubful		Total		Impairment		Loans
					(Dollars in Thousands)
One-to-four family mortgages	$	149,647		7,256		12,252		414		169,569		687		1,512
Home equity line of credit		35,705		1,801		242		230		37,978		110		353
Junior liens		4,931		101		1,049		— ��		6,081		253		38
Multi-family		21,741		7,086		5,920		—		34,747		864		627
Construction		10,487		1,800		4,002		—		16,289		27		74
Land		17,318		7,937		25,210		760		51,225		1,566		632
Non-residential real estate		137,968		12,971		24,601		114		175,654		896		2,227
Consumer loans		14,552		169		319		3		15,043		14		245
Commercial loans		43,087		3,731		6,950		111		53,879		174		310
Total	$	435,436		42,852		80,545		1,632		560,465		4,591		6,018

A summary of the Company’s impaired loans and their respective reserve at December 31, 2011, were as follows:

											Specific		Allowance
											Reserve		for
December 31, 2011			Special		Impaired Loans						for		Performing
	Pass		Mention		Substandard		Doubful		Total		Impairment		Loans
					(Dollars in Thousands)
One-to-four family mortgages	$	153,375		9,434		8,153		230		171,192		728		1,912
Home equity line of credit		36,528		1,694		233		239		38,694		131		277
Junior liens		4,778		622		809		—		6,209		180		97
Multi-family		20,715		7,073		5,951		—		33,739		26		1,175
Construction		9,943		213		1,775		—		11,931		14		125
Land		17,570		24,714		9,055		999		52,338		924		408
Non-residential real estate		142,190		25,077		16,101		117		183,485		1,374		2,297
Consumer loans		14,399		268		423		20		15,110		80		182
Commercial loans		45,509		4,009		5,034		121		54,673		623		709
Total	$	445,007		73,104		47,534		1,726		567,371		4,080		7,182

23

Impaired loans by classification type and the related valuation allowance amounts at March 31, 2012, were as follows:

							For the three month period ended
	At March 31, 2012						03/31/12
Impaired loans with no recorded allowance:			Unpaid				Average		Interest
	Recorded Investment		Principal Balance		Related Allowance		Recorded Investment		Income Recognized
One-to-four family mortgages	$	8,657		8,684		—		8,684		104
Home equity line of credit		220		220		—		220		3
Junior liens		162		162		—		162		2
Multi-family		4,181		4,181		—		4,181		72
Construction		3,711		3,711		—		3,711		—
Land		18,753		19,911		—		19,911		514
Non-residential real estate		15,465		17,735		—		17,735		233
Consumer loans		65		65		—		65		2
Commercial loans		1,905		2,009		—		2,009		47
Total	$	53,119		56,678		—		56,678		977
							For the three month period ended
	At March 31, 2012						03/31/12
Impaired loans with recorded allowance:			Unpaid				Average		Interest
	Recorded Investment		Principal Balance		Related Allowance		Recorded Investment		Income Recognized
One-to-four family mortgages	$	4,009		4,009		687		4,009		50
Home equity line of credit		252		252		110		252		3
Junior liens		887		887		253		887		17
Multi-family		1,740		1,740		864		1,740		19
Construction		291		291		27		291		7
Land		7,216		7,216		1,566		7,216		100
Non-residential real estate		9,250		9,250		896		9,250		175
Consumer loans		38		38		14		38		1
Commercial loans		5,375		5,375		174		5,375		1
Total	$	29,058		29,058		4,591		29,058		373
Total impaired loans	$	82,177		85,736		4,591		85,736		1,350

24

On a periodic basis, the Bank may modify the terms of certain loans. In evaluating whether a restructuring constitutes a troubled debt restructuring (TDR), Financial Accounting Standards Board has issued Accounting Standards Update 310 (ASU 310),A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring.In evaluating whether a restructuring constitutes a TDR, the Bank must separately conclude that both of the following exist:

• The restructuring constitutes a concession

• The debtor is experiencing financial difficulties

ASU 310 provides the following guidance for the Bank’s evaluation of whether it has granted a concession as follows:

• If a debtor does not otherwise have access to funds at a market interest rate for debt with similar risk characteristics as the restructured debt, the restructured debt would be considered a below market rate, which may indicate that the Bank may have granted a concession. In that circumstance, the Bank should consider all aspects of the restructuring in determining whether it has granted a concession, the creditor must make a separate assessment about whether the debtor is experiencing financial difficulties to determine whether the restructuring constitutes a TDR.

• A temporary or permanent increase in the interest rate on a loan as a result of a restructuring does not eliminate the possibility of the restructuring from being considered a concession if the new interest rate on the loan is below the market interest rate for loans of similar risk characteristics.

• A restructuring that results in a delay in payment that is insignificant is not a concession. However, the Bank must consider a variety of factors in assessing whether a restructuring resulting in a delay in payment is insignificant.

25

A summary of the Company’s loans classified as Troubled Debt Restructurings (TDR’s) that are reported as performing at March 31, 2012 and December 31, 2011, is below:

	March 31, 2012			December 31, 2011
TDR by Loan Type:	(Dollars in Thousands)
One-to-four family mortgages	$	2,548			2,521
Home equity line of credit		244			—
Junior lien		—			857
Multi-family		239			—
Construction		—			—
Land		934			941
Non-residential real estate		3,114			3,367
Consumer loans		109			33
Commercial loans		1,056			125
Total TDR	$	8,244			7,844
Less:
TDR in non-accrual status:
One-to-four family mortgages		(1,469	)		(1,410	)
Home equity line of credit		—			—
Junior lien		—			(100	)
Multi-family		—			—
Construction		—			—
Land		—			—
Non-residential real estate		—			(1	)
Consumer loans		—			(1	)
Commercial loans		(106	)		(105	)
Total performing TDR	$	6,669			6,227

(6) REAL ESTATE AND OTHER ASSETS OWNED

The Company’s real estate and other assets owned represent properties and personal collateral acquired through customer loan defaults. The property is recorded at the lower of cost or fair value less estimated cost to sell and carrying cost at the date acquired. Any difference between the book value and estimated market value is recognized as a charge off through the allowance for loan loss account. Additional real estate owned and other asset losses may be determined on individual properties at specific intervals or at the time of disposal. In general, the Company will obtain a new appraisal on all real estate owned with a book balance in excess of $100,000 on an annual basis. Additional losses are recognized as a non-interest expense.

26

At March 31, 2012, December 31, 2011, and March 31, 2011, the Company had balances in real estate and other assets owned consisting of the following with other nonperforming loan information:

	March 31, 2012			December 31, 2011			March 31, 2011
				(Dollars in Thousands)
One-to-four family mortgages	$	540			480			303
Multi-family		—			905			6,823
Construction		216			465			460
Land		425			248			555
Non-residential real estate		—			160			865
Consumer assets owned by bank		—			9			2
Total other assets owned	$	1,181			2,267			9,008
Total non-accrual loans	$	11,216			6,133			6,089
Total non-performing assets	$	12,397			8,400			15,097
Non-performing asset / Total assets		1.18	%		.81	%		1.41	%

The following is a summary of the activity in the Company’s real estate and other assets owned for the three month period ending March 31, 2012:

			Activity During 2011
	Balance 12/31/2011		Foreclosures		Sales			Reduction in Values			Gain (Loss) on Sales			Balance 3/31/2012
			(Dollars in Thousands)
One-to-four family mortgages	$	480		378		(294	)		(38	)		14			540
Multi-family		905		—		(875	)		—			(30	)		—
Construction		465		—		(235	)		—			(14	)		216
Land		248		255		—			(59	)		(19	)		425
Non-residential real estate		160		—		(160	)		—			—			—
Consumer assets		9		—		(9	)		—			—			—
Total	$	2,267		633		(1,573	)		(97	)		(49	)		1,181

27

(7) INVESTMENTS IN AFFILIATED COMPANIES

Investments in affiliated companies accounted for under the equity method consist of 100% of the common stock of HopFed Capital Trust 1 (“Trust”), a wholly-owned statutory business trust. The Trust was formed on September 25, 2003. Summary financial information for the Trust follows (dollars in thousands):

Summary Statements of Financial Condition	At March 31, 2012		At December 31, 2011
Asset—investment in subordinated debentures issued by HopFed Bancorp, Inc.	$	10,310		10,310
Liabilities		—		—
Stockholder’s equity—trust preferred securities	$	10,000		10,000
Common stock (100% Owned by HopFed Bancorp, Inc.)		310		310
Total stockholders’ equity	$	10,310		10,310

Summary Statement of Income

	Three Month Periods Ended  March 31,
	2012		2011
Income—interest income from subordinated debentures issued by HopFed Bancorp, Inc.	$	96		88
Net income	$	96		88

Summary Statement of Stockholders’ Equity

	Trust Preferred Securities		Common Stock		Retained Earnings			Total Stockholders’ Equity
Beginning balances, December 31, 2011	$	10,000		310		—			10,310
Net income		—		—		96			96
Dividends:
Trust preferred securities		—		—		(93	)		(93	)
Common paid to HopFed Bancorp, Inc.		—		—		(3	)		(3	)
Ending balances, March 31, 2012	$	10,000		310		—			10,310

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(8) FAIR VALUE OF ASSETS AND LIABILITIES

In September 2006, the FASB issued ASC 820-10, Fair Value Measurements. This Statement defines fair value, establishes a framework for measuring fair value and expands disclosure about fair value. The statement establishes a fair value hierarchy which requires an entity to maximize the use of observable input and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value.

• Level 1 is for assets and liabilities that management has obtained quoted prices (unadjusted for transaction cost) or identical assets or liabilities in active markets that the Company has the ability to access as of the measurement date.

• Level 2 is for assets and liabilities in which significant unobservable inputs other than Level 1 prices such as quoted prices for similar assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

• Level 3 is for assets and liabilities in which significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The fair values of securities available for sale are determined by a matrix pricing, which is a mathematical technique that is widely used in the industry to value debt securities without exclusively using quoted prices for the individual securities in the Company’s portfolio but rather by relying on the securities relationship to other benchmark quoted securities. Impaired loans are valued at the net present value of expected payments using the fair value of any assigned collateral. The values for bank owned life insurance are obtained from stated values from the respective insurance companies. The liability associated with the Company’s derivative is obtained from a quoted value supplied by our correspondent banker. The value of real estate owned is obtained from appraisals completed on properties at the time of acquisition and annually thereafter.

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Assets and Liabilities Measured on a Recurring Basis

The assets and liabilities measured at fair value on a recurring basis are summarized below:

March 31, 2012 Description	Total carrying value in the consolidated balance sheet at March 31, 2012		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Available for sale securities	$	405,686		—		404,693		993
Bank owned life insurance		9,214		—		9,214		—
Liabilities
Interest rate swap		1,247		—		1,247		—

December 31, 2011 Description	Total carrying value in the consolidated balance sheet at December 31, 2011		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Available for sale securities	$	383,782		—		382,789		993
Bank owned life insurance		9,135		—		9,135		—
Liabilities
Interest rate swap		1,297		—		1,297		—

The assets and liabilities measured at fair value on a non-recurring basis are summarized below for March 31, 2012:

March 31, 2012 Description	Total carrying value in the consolidated balance sheet at March 31, 2012		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Real estate owned	$	1,181		—		—	$	1,181
Impaired loans, net of reserve of $4,591	$	77,586		—		—	$	77,586

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The assets and liabilities measured at fair value on a non-recurring basis are summarized below for December 31, 2011:

December 31, 2011 Description	Total carrying value in the consolidated balance sheet at December 31, 2011		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Real estate owned	$	2,258		—		—	$	2,258
Other assets owned		9		—		—		9
Impaired loans, net of reserve of $4,080	$	45,180		—		—	$	45,180

The table below includes a roll-forward of the consolidated condensed statement of financial condition items for the three month periods ended March 31, 2012, and March 31, 2011, (including the change in fair value) for assets and liabilities classified by HopFed Bancorp, Inc. within level 3 of the valuation hierarchy for assets and liabilities measured at fair value on a recurring basis. When a determination is made to classify an asset or liability within level 3 of the valuation hierarchy, the determination is based upon the significance of the unobservable factors to the overall fair value measurement. However, since level 3 assets and liabilities typically include, in addition to the unobservable or level 3 components, observable components (that is components that are actively quoted and can be validated to external sources), the gains and losses in the table below include changes in fair value due in part to observable factors that are part of the valuation methodology.

	2012				2011
Three month period ended March 31,	Available for Sale Securities		Liabilities		Available for Sale Securities			Liabilities
	(Dollars in Thousands)
Fair value, January 1,	$	993		—	$	1,277			—
Change in unrealized gains (losses) included in other comprehensive income for assets and liabilities still held at March 31,				—		(38	)		—
Purchases, issuances and settlements, net		—		—		—			—
Transfers in and/or out of Level 3		—		—		—			—
Fair value, March 31,	$	993		—	$	1,239			—

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The estimated fair values of financial instruments were as follows at March 31, 2012:

	Carrying Amount		Estimated Fair Value
	(Dollars in Thousands)
Financial assets:
Cash and due from banks	$	37,887		37,887
Interest-earning deposits in Federal Home Loan Bank		10,472		10,472
Securities available for sale		405,686		405,686
Federal Home Loan Bank stock		4,428		4,428
Loans receivable		550,581		582,761
Bank owned life insurance		9,214		9,214
Accrued interest receivable		5,328		5,328
Financial liabilities:
Deposits		814,198		824,812
Advances from borrowers for taxes and insurance		241		241
Advances from Federal Home Loan Bank		62,368		67,462
Repurchase agreements		42,477		44,221
Subordinated debentures		10,310		10,096
Accrued interest payable		1,210		1,210
Market loss on value of interest rate swap		1,247		1,247
Off-balance-sheet liabilities:
Commitments to extend credit		—		—
Commercial letters of credit		—		—

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The estimated fair values of financial instruments were as follows at December 31, 2011:

	Carrying Amount		Estimated Fair Value
	(Dollars in Thousands)
Financial assets:
Cash and due from banks	$	44,389		44,389
Interest-earning deposits in Federal Home Loan Bank		4,371		4,371
Securities available for sale		383,782		383,782
Federal Home Loan Bank stock		4,428		4,428
Loans receivable		556,360		585,734
Bank owned life insurance		9,135		9,135
Accrued interest receivable		6,183		6,183
Financial liabilities:
Deposits		800,095		811,415
Advances from borrowers for taxes and insurance		153		153
Advances from Federal Home Loan Bank		63,319		69,206
Repurchase agreements		43,080		44,969
Subordinated debentures		10,310		10,099
Accrued interest payable		1,254		1,254
Market loss on value of interest rate swap		1,297		1,297
Off-balance-sheet liabilities:
Commitments to extend credit		—		—
Commercial letters of credit		—		—

(9) ISSUANCE OF PREFERRED SHARES

On December 12, 2008, HopFed Bancorp issued and sold 18,400 shares of preferred stock to the United States Treasury (Treasury) for $18,400,000 pursuant to the Capital Purchase Program. The Company also issued 243,816 common stock warrants to the Treasury as a condition to its participation in the Capital Purchase Program. The warrants have an exercise price of $11.32 each and are immediately exercisable. The warrants expire in ten years from the date of issuance. The preferred stock has no stated maturity and is non-voting, other than having class voting rights on certain matters, and pays cumulative dividends quarterly at a rate of 5% per year for the first five years and 9% thereafter.

On September 22, 2010, and September 21, 2011, the Board of Directors declared a 2% common stock dividend to be paid to shareholders of record on September 30, 2010 and October 3, 2011, respectively. As a result of the common stock dividends, total shares outstanding increased by 143,458 at September 30, 2011, and 146,485 on October 3, 2011. In addition, the Company is obligated to adjust the number and strike price of warrants issued to the United States Treasury under the Capital Purchase Program. At May 10, 2012, the warrant balance is 253,666 shares and the warrant strike price is $10.88.

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(10) STOCK OPTIONS

At March 31, 2012, all stock options outstanding were issued under the HopFed Bancorp, Inc. 1999 Stock Option Plan. At March 31, 2012, the Company can no longer issue options under this plan. The remaining 31,212 options are fully vested and outstanding until their maturity date. At March 31, 2012, the strike price of outstanding options exceeds the current market price of HopFed Bancorp, Inc. stock.

The following is a summary of stock options outstanding at March 31, 2012:

Exercise Price		Weighted Average Remaining Life (Years)		Outstanding Options
$	11.85		0.4		10,404
	16.67		2.2		20,808
$	15.06		1.6		31,212

(11) DERIVATIVE INSTRUMENTS

Under guidelines of Financial Accounting Standards Board (“FASB”) ASC 815, Derivative and Hedging Activities, as amended, all derivative instruments are required to be carried at fair value on the consolidated statement of financial position. ASC 815 provides special hedge accounting provisions, which permit the change in fair value of the hedge item related to the risk being hedged to be recognized in earnings in the same period and in the same income statement line as the change in the fair value of the derivative.

A derivative instrument designated in a hedge relationship to mitigate exposure to changes in the fair value of an asset, liability or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges under ASC 815. Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Cash value hedges are accounted for by recording the fair value of the derivative instrument and the fair value related to the risk being hedged of the hedged asset or liability on the consolidated statement of financial position with corresponding offsets recorded in the consolidated statement of financial position.

The adjustment to the hedged asset or liability is included in the basis of the hedged item, while the fair value of the derivative is recorded as a freestanding asset or liability. Actual cash receipts or payments and related amounts accrued during the period on derivatives included in a fair value hedge relationship are recorded as adjustments to the income or expense recorded on the hedged asset or liability.

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Under both the fair value and cash flow hedge methods, derivative gains and losses not effective in hedging the change in fair value or expected cash flows of the hedged item are recognized immediately in the income statement. At the hedge’s inception and at least quarterly thereafter, a formal assessment is performed to determine whether changes in the fair values or cash flows of the derivative instrument has been highly effective in offsetting changes in the fair values or cash flows of the hedged items and whether they are expected to be highly effective in the future. If it is determined a derivative instrument has not been, or will not continue to be highly effective as a hedge, hedged accounting is discontinued. ASC 815 basis adjustments recorded on hedged assets and liabilities are amortized over the remaining life of the hedged item beginning no later than when hedge accounting ceases. There were no fair value hedging gains or losses, as a result of hedge ineffectiveness, recognized for the three month period ended March 31, 2012, or the year ended December 31, 2011.

In October of 2008, the Bank entered into an interest rate swap agreement for a term of seven years and an amount of $10.0 million. The Bank will pay a fixed rate of 7.27% for seven years and receive an amount equal to the three-month London Interbank Lending Rate (LIBOR) plus 3.10%. The interest rate swap is classified as a cash flow hedge by the Bank and will be tested quarterly for effectiveness. At March 31, 2012, and December 31, 2011, the cost of the Bank to terminate the cash flow hedge was approximately $1,247,000 and $1,297,000, respectively.

(12) REGULATORY AGREEMENT

On April 30, 2010, the Company and the Bank, each entered into an informal Memorandum of Understanding (MOU) with its primary regulator at that time, the Office of Thrift Supervision (OTS). The agreement requires the Company to obtain prior written approval prior to the declaration of a common stock dividend or to receive a cash dividend from the Bank. The Company may continue to pay other normal operating expenses, and may pay interest on HopFed Capital Trust 1 and dividends on preferred stock held by the United States Department of Treasury without regulatory approval if the Bank maintains a Tier 1 Capital Ratio of 8.00% and a Total Risk Based Capital Ratio of 12.00%. At March 31, 2012, the Bank’s Tier 1 Ratio was 10.05% and its Total Risk Based Capital was 18.56%.

Under the Bank MOU, among other things, the Bank has agreed to the following: (1) the Bank will not declare or pay any dividends or make other capital distributions, or commit to pay dividends or make other capital distributions, without prior regulatory approval; (2) the Bank will adopt a concentration risk reduction plan to reduce the outstanding balance of commercial real estate loans relative to core capital and the allowance for loan losses; and (3) the Bank will not increase brokered deposits without prior regulatory approval.

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In addition, the MOUs identify actions, policies and procedures to be taken and adopted by the Board of Directors and management of the Company and the Bank, as appropriate, to ensure maintenance of adequate liquidity, monitor and report compliance with the MOUs and certain applicable regulations, reduce the level of classified assets, and correct certain deficiencies and weaknesses identified by the regulator. The MOUs will remain in effect until modified or terminated by the regulator.

The Board of Directors and management of each of the Company and the Bank have taken various actions to comply with the terms and conditions of the MOUs, and will continue to take all actions believed to be necessary for compliance. The Board and management will continue to work closely with its regulators in order to comply with the terms and conditions of the MOUs and are committed to addressing and resolving any and all issues presented in the MOUs.

(13) REGULATORY CHANGES

Effective July 21, 2011, pursuant to Section 312 of Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) (i) the regulatory functions and rulemaking authority of the OTS with regard to federally chartered savings and loans associations (including the Company’s wholly owned bank subsidiary) were transferred to the Office of the Comptroller of the Currency (“OCC”) and the (ii) regulatory functions and rulemaking authority of the OTS in regards to saving and loan companies, including HopFed Bancorp, Inc., were transferred to the Board of Governors of the Federal Reserve System (“FRB”). Beginning on July 21, 2011, the OCC became the primary regulator of the Bank and is vested with the authority to enforce the Bank’s MOU. Also beginning July, 21, 2011, the Company became subject to the regulation of the FRB, which is vested with authority to enforce the Company’s MOU.

The Bank is subject to various regulatory capital requirements now administered by the Office of the Comptroller of the Currency as successor to the OTS (see discussion above regarding “Regulatory Changes”). Failure to meet minimum capital requirements can result in certain mandatory—and possible additional discretionary—actions by regulators that, if undertaken, could have a direct and material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

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(14) EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS

In January 2011, the FASB issued ASU 2011-01,Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in ASU 2010-20 which temporarily delays the effective date of the disclosures about troubled debt restructuring in ASU 2010-20. This delay was intended to allow the FASB time to complete its deliberations on what constitutes a troubled debt restructuring.

In April 2011, the FASB issued ASU 2011-02,A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring. The provisions of ASU 2011-02 provide additional guidance related to determining whether a creditor has granted a concession, including factors and examples for creditors to consider in evaluating when a credit restructuring results in a delay in payment that is insignificant, prohibits creditors from using the borrowers interest cost as a factor in determining whether the lender has granted a concession to the borrower, and added factors for creditors to use in determining whether a borrower is experiencing financial difficulties. A provision in ASU 2011-02 ends the FASB’s deferral of additional disclosures about troubled debt restructuring as required by ASU 2010-20. The provisions of ASU 2011-02 were effective for the Company’s reporting period ending September 30, 2011. The adoption of ASU 2011-02 did not have a material impact on the Company’s consolidated financial statements of income, condition and cash flow.

In May 2011, the FASB issued ASU No. 2011-04,Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in United States of America generally accepted accounting principles (U.S. GAAP) and international Financial Reporting Standards (Topic 820)—Fair Value Measurement (ASU 2011-04), to provide consistent definition of the fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 was effective for reporting periods ending after March 30, 2012, and was applied prospectively. The implementation of ASU 2011-04 did not have a material impact on the Company’s consolidated financial statements of income, condition and cash flow.

In June 2011, the FASB issued ASU No. 2011-05,Comprehensive Income,new disclosure guidance related to the presentation of the Statement of Comprehensive Income. This guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in equity and requires presentation of reclassification adjustments on the face of the income statement. The effective date of this pronouncement is December 15, 2011. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements of income, condition, equity and cash flow.

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In September 2011, the FASB issued ASU No. 2011-8,Intangibles—Goodwill and other,regarding testing goodwill for impairment. The new guidance provides an entity the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting until is less than its carrying amount. If an entity determines that this is the case, it is required to perform the currently prescribed two-step goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill reporting unit is more than its carrying amount, the two-step goodwill impairment test is not required. The new guidance was effective on January 1, 2012. The implementation of ASU 2011-8 did not have a material impact on the Company’s consolidated financial statements of income, condition and cash flow.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Critical Accounting Policies

The consolidated condensed financial statements as of March 31, 2012, and December 31, 2011, and for the three month periods ended March 31, 2012, and March 31, 2011, included herein have been prepared by the Company, without an audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in interim financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the financial statements and notes thereon included in the Company’s 2011 Annual Report to Stockholders on Form 10-K.

Certain of the Company’s accounting policies are important to the portrayal of the Company’s financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances. Facts and circumstances, which could affect these material judgments, include, but without limitation, changes in interest rates, in the performance of the economy or in the financial condition of borrowers. Management believes that its critical accounting policies include determining the allowance for loan losses, determining the fair value of securities and other financial instruments, and assessing other than temporary impairments of securities.

Comparison of Financial Condition at March 31, 2012, and December 31, 2011

At March 31, 2012, total assets increased $13.5 million, to $1.05 billion, as compared to December 31, 2011 due to higher deposit levels. Securities available for sale increased from $383.8 million at December 31, 2011, to $405.7 million at March 31, 2012. At March 31, 2012, and December 31, 2011, securities classified as “available for sale” had an amortized cost of $393.1 million and $371.3 million, respectively.

The Company’s holdings of Federal Home Loan Bank of Cincinnati (FHLB) stock, at cost was $4.4 million at December 31, 2011 and March 31, 2012. Total Federal Home Loan Bank “FHLB” borrowings declined $951,000, from $63.3 million at December 31, 2011, to $62.4 million at March 31, 2012. Total repurchase balances decreased from 43.1 million at December 31, 2011, to $42.5 million at March 31, 2012.

Net loans totaled $550.1 million and $556.4 million at March 31, 2012, and December 31, 2011, respectively. Loan demand is weak for consumer, agricultural and commercial loan products. Given the current weakness in the economy, the Company remains highly selective in both its underwriting standards and types of loans being originated.

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The Company’s net loan balances are also adversely affected by the presence of a Memorandum of Understanding and Agreement (MOU) between the Office of the Comptroller of the Currency (“OCC”) and our Bank subsidiary. In addition, the Company’s operation is affected by the presence of a MOU between the holding company and the Federal Reserve Bank (FED).

At March 31, 2012, deposits increased to $814.2 million from $800.1 million at December 31, 2011, despite a $15.5 million reduction in time deposits. At March 31, 2012, non-interest checking account balances increased to $87.8 million, or 10.8% of total deposits. For the period ended March 31, 2012, interest bearing checking accounts and savings and money market accounts increased by $16.6 million and $4.8 million, respectively, as compared to December 31, 2011. The average cost of all deposits during the three month periods ended March 31, 2012, December 31, 2011, and March 31, 2011, was 1.42%, 1.50% and 1.86%, 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. Given weak loan demand and poor investment alternatives, the Company has chosen to reduce its balances of higher costing time deposits.

Comparison of Operating Results for the Three Month Periods Ended March 31, 2012 and 2011.

Net Income. The Company’s net income available to common shareholders was $470,000 for the three month period ended March 31, 2012, as compared to a net loss attributable to common shareholders of $2.1 million for the three month period ended March 31, 2011. The Company’s results for the three month period ended March 31, 2011, were negatively affected by a $4.5 million provision for loan loss expense.

Net Interest Income. Net interest income for the three month period ended March 31, 2012, was $6.9 million, compared to $6.8 million for the three month period ended March 31, 2011. The modest increase in net interest income for the three months ended March 31, 2012, as compared to March 31, 2011, was due to a $38.9 million decline in the average balance of interest bearing deposits and a $10.4 million increase in the average balance of non-interest bearing deposits. As a result in the changes in the Company’s deposits, our average cost of all deposits declined from 1.86% for the three month period ended March 31, 2011, to 1.42% for the three month period ending March 31, 2012, resulting in a $1.0 million decline in interest expense on deposits.

For the three months ended March 31, 2012, the average yield on loans was 5.66%, as compared to 5.73% for the three month period ended March 31, 2011. For the three month period ended March 31, 2012, income on taxable securities declined to $2.4 million, from $2.7 million for the three month period ended March 31, 2011. For the three month period ended March 31, 2012, the average balance of taxable securities increased by $32.5 million as compared to the three month period ended March 31, 2011 while the average balance of tax free securities declined by $1.7 million over the same period.

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For the three month period ending March 31, 2012, the yield on taxable securities was 2.88%, compared to 3.62% for the three-month period ended March 31, 2011. The decline in yields on taxable securities is the result of lower available yields on currently available investments as well as a decision by management to increase the portfolio’s allocation of adjustable rate securities.

For the three month period ending March 31, 2012, the tax equivalent yield on tax free securities was 5.15%, compared to 5.32% for the three-month period ended March 31, 2011. The yield on tax free securities has held relatively constant due to the relative stability in both the size and composition of the portfolio. Furthermore, lower yields on new purchases can be partially offset by a lower cost of funds, reducing the Company’s TEFRA tax effect.

For the three month periods ended March 31, 2012 and March 31, 2011, the Company’s cost of interest bearing liabilities was 1.83% and 2.22%, respectively. The lower cost of interest bearing liabilities was the result of lower short term interest rates At March 31, 2012, and March 31, 2011, the Company’s net interest margin was 2.98% and 2.94%, respectively.

Average Balances, Yields and Interest Expenses. The table below summarizes the overall effect of changes in both interest rates and the average balances of interest earning assets and liabilities for the three-month periods ended March 31, 2012, and March 31, 2011. Yields on assets and cost of liabilities are derived by dividing income or expense by the average daily balances of interest earning assets and liabilities for the appropriate three-month periods.

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Average balances for loans include loans classified as non-accrual, net of the allowance for loan losses. The table adjusts tax-free investment income by $271,000 for March 31, 2012, and $284,000 for March 31, 2011, for a tax equivalent rate using a cost of funds rate of 2.00% for March 31, 2012, and 2.25% for March 31, 2011. The table adjusts tax-free loan income by $6,000 for March 31, 2012, and $9,000 for March 31, 2011, for a tax equivalent rate using the same cost of funds rate:

	Average Balance 3/31/2012		Income and Expense 3/31/2012			Average Rates 3/31/2012			Average Balance 3/31/2011		Income and Expense 3/31/2011			Average Rates 3/31/2011
			(Table Amounts in Thousands, Except Percentages)
Loans	$	551,579		7,807			5.66	%	$	592,517		8,491			5.73	%
Investments AFS taxable		329,819		2,375			2.88	%		297,358		2,690			3.62	%
Investment AFS tax free		65,669		846			5.15	%		67,368		895			5.32	%
Federal funds		11,911		8			0.27	%		6,771		4			0.24	%
Total interest earning assets		958,978		11,036			4.60	%		964,014		12,080			5.01	%
Other assets		94,246								121,659
Total assets	$	1,053,224							$	1,085,673
Interest bearing checking		143,858		294			0.82	%		143,644		444			1.24	%
Saving / MMDA		72,434		33			0.18	%		66,708		55			0.33	%
Retail time deposits		457,461		2,289			2.00	%		467,196		2,890			2.47	%
Brokered deposits		57,345		268			1.87	%		92,406		516			2.23	%
FHLB borrowings		62,969		573			3.64	%		76,566		694			3.63	%
Repurchase agreements		44,043		248			2.25	%		40,631		205			2.02	%
Subordinated debentures		10,310		187			7.26	%		10,310		185			7.18	%
Total interest bearing liabilities		848,420		3,892			1.83	%		897,461		4,989			2.22	%
Non-interest bearing deposits		80,503								70,150
Other liabilities		5,164								6,004
Stockholders’ equity		119,137								112,058
Total liabilities and stockholders’ equity	$	1,053,224							$	1,085,673
Net change in interest earning assets and interest bearing liabilities				7,144			2.77	%				7,091			2.79	%
Net yield on interest earning assets				2.98	%							2.94	%

Interest Income. For the three month periods ended March 31, 2012, and March 31, 2011, the Company’s total interest income was $10.8 million and $11.8 million, respectively. As the Company’s loan demand has slowed down, we continue to have a greater dependency on investment income. The average balance of loans receivable declined from $592.5 million for the three months ended March 31, 2011, to $551.6 million for the three month period ended March 31, 2012. The ratio of average interest-earning assets to average interest-bearing liabilities increased from 107.42% for the three months ended March 31, 2011, to 113.03% for the three months ended March 31, 2012.

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Interest Expense. Interest expense declined approximately $1.1 million for the three months ended March 31, 2012, as compared to March 31, 2011. The decline was attributable to lower market interest rates, the re-pricing of higher costing deposits, and a reduction in the average balance of FHLB borrowings. The average cost of interest-bearing retail time deposits declined from 2.47% for the three month period ended March 31, 2011, to 2.00% for the three months ended March 31, 2012. Over the same period, the average balance of interest bearing retail time deposits declined $9.7 million, from $467.2 million for the three months ended March 31, 2011, to $457.5 million for the three months ended March 31, 2012.

The average cost of brokered deposits declined from 2.23% for the three months ended March 31, 2011, to 1.87% for the three months ended March 31, 2012. Over the same period, the average balance of brokered deposits declined $35.1 million to $57.3 million for the three month period ended March 31, 2012. For the three month period ended March 31, 2012, the Company’s total cost of deposits was 1.42% as compared to 1.86% for the three month period ended March 31, 2011.

The average balance of funds borrowed from the FHLB declined $13.6 million, from $76.6 million for the three months ended March 31, 2011, to $63.0 million for the three month period ended March 31, 2012. The average cost of borrowed funds from the FHLB was 3.63% for the three months ended March 31, 2011 and 3.64% for the three months ended March 31, 2012. The average balance of repurchase agreements increased from $40.6 million for the three months ended March 31, 2011, to $44.0 million for the three months ended March 31, 2012. The average cost of repurchase agreements increased from 2.02% for the three months ended March 31, 2011, to 2.25% for the three months ended March 31, 2012.

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 and 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 Company determined that an additional $869,000 in provision for loan loss was required for the three months ended March 31, 2012, compared to a $4.5 million in provision for loan loss expense for the three months ended March 31, 2011.

Non-Interest Income. There was a $448,000 decline in non-interest income in the three months ended March 31, 2012, as compared to the same period in 2011. The decline in non-interest income was largely the result of a $677,000 decline in gains realized on the sale of investments as management declined to harvest investment gains due to continued weak loan demand. For the three month period ended March 31, 2012, the Company earned $203,000 in mortgage origination income as compared to $72,000 during the three month period ended March 31, 2011. With the exception of security gains, the Company has experienced positive trends in most non-interest income categories.

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Non-Interest Expenses. There was a $350,000 decline in total non-interest expenses in the three-month period ended March 31, 2012, as compared to the same period in 2011. The most significant change in non-interest expenses for the three month period ended March 31, 2012, was a $362,000 decline in losses incurred on the sale of other real estate owned as compared to the same three month period in 2011. This expense has declined due to the Company’s continued success in reducing the balance of other real estate owned.

For the three months ended March 31, 2012, salaries and benefits expense increased by $181,000 over the three month period ended March 31, 2011. For the three month period ended March 31, 2012, no other operating expenses increased by more than $100,000 as compared to the three month period ended March 31, 2011.

Income Taxes. The effective tax rate for the three-month periods ending March 31, 2012 was 10.9% as compared to a tax benefit of 34% for the three month period ended March 31, 2011. The Company’s income tax rate remains low due to the amount of tax free income as well as a relatively low level of pre-tax income.

Liquidity and Capital Resources. The Company has no business other than that of the Bank. Management believes that dividends that may be paid by the Bank to the Company will provide sufficient funds for its current 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. In the past, the Company has been required to seek approval from the Office of Thrift Supervision prior to the declaration of a dividend to common shareholders. Currently, we are required to seek approval for each cash common dividend payment to the Federal Reserve Bank.

As discussed in Note 12 of Notes to Unaudited Consolidated Condensed Financial Statements section of this report, the Bank may not increase the amount of brokered deposits above $104.0 million without prior written approval from the Office of Comptroller of the Currency. The Bank uses brokered deposits to supplement its asset liability need for longer term deposits at reasonable prices. In addition to the coupon rate listed below, brokered deposits carry an additional fee of approximately 0.25% that includes the cost of selling and servicing the deposits. The Company includes this cost as interest expense on its statement of income.

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At March 31, 2012, the Bank’s brokered deposits consisted of the following:

Date Of Issue	Interest Rate			Current Balance		Next Maturity Date
9/29/2010		0.60	%	$	2,076,000		6/30/2012
7/1/2011		0.25	%	$	4,000,000		7/1/2012
10/16/2009		2.30	%	$	3,011,000		10/16/2012
3/3/2010		1.75	%	$	2,032,000		3/4/2013
1/22/2010		2.20	%	$	3,092,000		7/22/2013
3/2/2010		2.00	%	$	3,204,000		9/2/2013
9/22/2010		1.15	%	$	2,144,000		3/22/2014
8/19/2010		2.12	%	$	2,032,136		8/13/2013
7/1/2011		1.00	%	$	3,000,000		5/1/2014
8/11/2009		3.00	%	$	5,095,000		8/11/2014
7/26/2010		1.25	%	$	4,093,000		7/26/2015	(1)
12/21/2010		1.70	%	$	805,000		12/21/2015
7/1/2011		2.00	%	$	3,052,000		1/1/2016
1/3/2011		1.00	%	$	1,874,000		1/3/2016	(1)
3/17/2011		2.25	%	$	1,500,000		3/17/2016
10/13/2011		1.35	%	$	2,090,704		10/13/2016	(1)
3/9/2012		1.00	%	$	3,044,000		12/9/2016	(1)
9/22/2011		1.00	%	$	2,127,000		9/22/2017	(1)
9/22/2010		1.25	%	$	2,372,000		9/22/2020	(1)
10/6/2010		1.25	%	$	540,000		10/6/2020	(1)
Total				$	51,183,840

⁽¹⁾  Denotes brokered deposit with rising rate feature in which the Bank has a call option.

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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 March 31, 2012, the Bank exceeded all regulatory capital requirements.

The table below presents certain information relating to the Company’s and Bank’s capital compliance at March 31, 2012:

	Company					Bank
	Amount		Percent			Amount		Percent
	(Dollars in Thousands)
Tangible Capital	$	121,036		11.65	%	$	104,112		10.05	%
Core Capital	$	121,036		20.10	%	$	104,112		17.30	%
Risk Based Capital	$	128,597		21.35	%	$	111,673		18.56	%

At March 31, 2012, the Bank had outstanding commitments to originate loans totaling $35.2 million and undisbursed commitments on loans outstanding of $52.8 million. Management believes that the Bank’s sources of funds are sufficient to fund all of its outstanding commitments. Certificates of deposits scheduled to mature in one year or less from March 31, 2012, totaled $227.1 million. Management believes that a significant percentage of such deposits will remain with the Bank.

The Bank’s FHLB borrowings are secured by a blanket security agreement pledging the Bank’s 1-4 family first mortgage loans and non-residential real estate loans. At March 31, 2012, the Bank has pledged all eligible 1-4 family first mortgages, home equity lines of credit and non-residential real estate loans that may be pledged under this agreement.

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At March 31, 2012, the Bank has outstanding borrowings of $62.4 million from the FHLB with maturities ranging from nine month to seven years. A schedule of FHLB borrowings at March 31, 2012, is provided below:

Outstanding Balance		Rate			Maturity		Note
		(Dollars in thousands)
$	5,000		1.82	%		12/16/12
	1,612		3.30	%		06/01/13	Monthly Principal Payments
	5,000		2.32	%		12/30/13
	584		3.19	%		04/14/14	Monthly Principal Payments
	5,000		3.15	%		12/11/14
	4,000		5.34	%		03/17/16
	7,000		4.25	%		05/01/17	Quarterly callable
	10,000		4.56	%		06/28/17	Quarterly callable
	10,000		4.26	%		08/17/17	Quarterly callable
	14,172		3.13	%		01/01/19	Monthly Principal Payments
$	62,368		3.64	%		4.8 years	Weighted average life

At March 31, 2012, the Bank had $52.3 million in additional borrowing capacity with the FHLB which includes an overnight line of credit of $30.0 million and $8 million in overnight borrowing capacity from the Company’s correspondent bank.

The Bank’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit and standby letters of credit and financial guarantees written is represented by the contractual notional amount of those instruments. The Bank uses the same credit policies in making these commitments and conditional obligations as it does for on-balance-sheet instruments.

At March 31, 2012, the Company had the following off-balance sheet commitments (in thousands):

	March 31, 2012
Standby letters of credit	$	832
Unused home equity lines of credit	$	30,475
Unused commercial lines of credit	$	52,839
Commitments to originate loans	$	35,189

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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

The actual results of the Company’s asset liability management analysis are highly dependent on the prepayment speed of mortgage backed securities and collateralized mortgage obligations. The United States Treasury’s policy of purchasing longer dated Treasury bonds has the result of lowering mortgage loan rates, allowing more consumers to refinance their mortgages and pay-off their current mortgage, resulting in higher prepayment speeds on mortgage investment products.

The effects of rising interest rates are discussed throughout Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Actual results for the year ending December 31, 2012, will differ from simulations due to timing, magnitude, and the frequency or interest rate changes, market conditions, management strategies, and the timing of the Company’s cash receipts and disbursements.

The Company’s analysis at March 31, 2012, indicates that changes in interest rates are less likely to result in significant changes in the Company’s annual net interest income. A summary of the Company’s analysis at March 31, 2012, for the twelve month period ending March 31, 2013, is as follows:

	Down 1.00%		No change		Up 1.00%		Up 2.00%		Up 3.00%
	(Dollars In Thousands)
Net interest income	$	27,525	$	27,971	$	28,297	$	28,697	$	29,246

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures.

In accordance with Rule 13a-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”), an evaluation was carried out with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the quarter ended March 31, 2012.

Based upon their evaluation of these disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of the three months ended March 31, 2012, to ensure that material information relating to the Company, including its consolidated subsidiaries, was made known to them by others within those entities, particularly during the period in which this quarterly report on Form 10-Q was being prepared.

Any control system, no matter how well conceived and operated, can provide only reasonable assurance that its objectives are achieved. The design of a control system inherently has limitations, including the controls cost relative to their benefits. Additionally, controls can be circumvented. No cost-effective control system can provide absolute assurance that all control issues and instances of fraud will be detected.

The Company is subject to Section 404 of The Sarbanes-Oxley Act of 2002. Section 404 requires management to assess and report on the effectiveness of the Company’s internal controls over financial reporting.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the Company’s fiscal quarter ended March 31, 2012, that have materially affected, or are reasonable likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company currently has no material pending legal proceedings

Item 1A. Risk Factors

There have been no material changes to our risk factors as previously disclosed in Part 1, Item 1A of our annual report on Form 10K for the fiscal year ended December 31, 2011.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) None

(b) None

(c) None

Item 3. Defaults Upon Senior Securities

None

Item 4. Removed and Reserved

None

Item 5. Other Information

None

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Item 6. Exhibits

31.1		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for John E. Peck, Chief Executive Officer.
31.2		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Billy C. Duvall, Chief Financial Officer.
32.1		Certification Pursuant to Section 18 U.S.C. Section 1350 for John E. Peck, Chief Executive Officer.
32.2	��	Certification Pursuant to Section 18 U.S.C. Section 1350 for Billy C. Duvall, Chief Financial Officer.
101		The following materials from the Company’s quarterly report on Form 10-Q for the three months ended March 31, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statement of Financial Condition as of March 31, 2012 (unaudited) and December 31, 2011, (ii) Condensed Consolidated Statements of Income (Loss) for the three months ended March 31, 2012 and 2011(unaudited), (iii) Condensed Consolidated Statements of Cash Flows, for the three months ended March 31, 2012 and 2011 (unaudited), and (iv) Notes to Condensed Consolidated Financial Statements (unaudited), tagged as blocks of text.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	HOPFED BANCORP, INC.
Date: May 11, 2012	/s/ John E. Peck
	John E. Peck
	President and Chief Executive Officer
Date: May 11, 2012	/s/ Billy C. Duvall
	Billy C. Duvall
	Senior Vice President, Chief Financial
	Officer and Treasurer

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