Hopfed Bancorp (HFBC) 10-Q 2017 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017

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  ☒    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 RegulationS-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  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated file or anon-accelerated filer. See definition of “accelerated filer”, “large accelerated filer” and “smaller reporting company” inRule12b-2 of the Exchange Act: (Check one)

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company filer	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined by Rule12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of November 6, 2017, the Registrant had outstanding 6,672,771 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
	Interim Consolidated Condensed Statements of Financial Condition as of September 30, 2017 (unaudited) and December 31, 2016		1
	Interim Consolidated Condensed Statements of Income for the Three and Nine Month Periods Ended September 30, 2017 and September 30, 2016 (unaudited)		3
	Interim Consolidated Condensed Statements of Comprehensive Income for the Three and Nine Month Periods Ended September 30, 2017 and September 30, 2016 (unaudited)		5
	Interim Consolidated Condensed Statement of Stockholders’ Equity for the Nine Month Period Ended September 30, 2017 (unaudited)		6
	Interim Consolidated Condensed Statements of Cash Flows for the Nine Month Periods Ended September 30, 2017 and September 30, 2016 (unaudited)		7
	Notes to Unaudited Interim Consolidated Condensed Financial Statements		8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		40
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		49
Item 4.	Controls and Procedures.		49
PART IIOTHER INFORMATION
Item 1.	Legal Proceedings		50
Item 1A.	Risk Factors		51
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		51
Item 3.	Defaults Upon Senior Securities		51
Item 4.	Mine Safety Disclosures		51
Item 5.	Other Information		51
Item 6.	Exhibits		52
SIGNATURES			52

1

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HOPFED BANCORP, INC.

Interim Consolidated Condensed Statements of Financial Condition

(Dollars in Thousands)

	September 30, 2017		December 31, 2016
	(unaudited)
Assets
Cash and due from banks	$	23,469		21,779
Interest-bearing deposits in banks		9,842		3,970
Cash and cash equivalents		33,311		25,749
Federal Home Loan Bank stock, at cost		4,428		4,428
Securities available for sale		192,287		209,480
Loans held for sale		1,749		1,094
Loans receivable, net of allowance for loan losses of $4,799 at September 30, 2017 and $6,112 at December 31, 2016		625,403		604,286
Accrued interest receivable		3,414		3,799
Foreclosed assets, net		4,975		2,397
Bank owned life insurance		10,287		10,662
Premises and equipment, net		22,945		23,461
Deferred tax assets		2,292		3,052
Other assets		2,973		3,078
Total assets	$	904,064		891,486
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest-bearing accounts	$	128,184		131,145
Interest-bearing accounts
Checking accounts		196,315		209,347
Savings and money market accounts		97,929		99,312
Other time deposits		308,801		293,078
Total deposits		731,229		732,882
Advances from Federal Home Loan Bank		31,000		11,000
Repurchase agreements		37,829		47,655
Subordinated debentures		10,310		10,310
Advances from borrowers for taxes and insurance		1,188		766
Accrued expenses and other liabilities		3,273		2,445
Total liabilities		814,829		805,058

See accompanying Notes to Unaudited Interim Consolidated Condensed Financial Statements.

1

HOPFED BANCORP, INC.

Interim Consolidated Condensed Statements of Financial Condition, Continued

(Dollars in Thousands)

	September 30, 2017			December 31, 2016
	(unaudited)
Stockholders’ equity
Preferred stock, par value $0.01 per share; authorized - 500,000 shares; no shares issued and outstanding at September 30, 2017 and December 31, 2016		—			—
Common stock, par value $.01 per share; authorized 15,000,000 shares; 7,976,131 issued and 6,688,674 outstanding at September 30, 2017 and 7,963,378 issued and 6,717,242 outstanding at December 31, 2016		80			80
Additionalpaid-in-capital		58,777			58,660
Retained earnings		51,646			49,035
Treasury stock, at cost (1,287,457 shares at September 30, 2017 and 1,246,136 shares at December 31, 2016)		(15,931	)		(15,347	)
Unearned Employee Stock Ownership Plan (“ESOP”) shares, at cost (465,881 shares at September 30, 2017 and 498,346 shares at December 31, 2016)		(6,125	)		(6,548	)
Accumulated other comprehensive income		788			548
Total stockholders’ equity		89,235			86,428
Total liabilities and stockholders’ equity	$	904,064			891,486

See accompanying Notes to Unaudited Interim Consolidated Condensed Financial Statements.

2

HOPFED BANCORP, INC.

Interim Consolidated Condensed Statements of Income

(Dollars in Thousands)

(Unaudited)

	For the Three Month Periods Ended September 30,				For the Nine Month Periods Ended September 30,
	2017		2016		2017		2016
Interest and dividend income:
Loans		7,260		6,569		20,959		19,175
Investment in securities, taxable		1,124		1,099		3,397		3,544
Nontaxable securities available for sale		233		326		796		1,019
Interest-bearing deposits		18		10		62		38
Total interest and dividend income		8,635		8,004		25,214		23,776
Interest expense:
Deposits		1,206		1,044		3,570		3,146
FHLB borrowings		89		33		151		134
Repurchase agreements		130		139		352		421
Subordinated debentures		112		99		324		287
Total interest expense		1,537		1,315		4,397		3,988
Net interest income		7,098		6,689		20,817		19,788
Provision for loan losses		71		255		421		1,178
Net interest income after provision for loan losses		7,027		6,434		20,396		18,610
Non-interest income:
Service charges		819		719		2,423		2,094
Merchant card		299		308		916		913
Mortgage origination revenue		335		415		947		1,218
Gain on sale of securities		162		79		178		422
Income from bank owned life insurance		95		104		402		265
Income from financial services		134		131		419		455
Other operating income		186		189		877		568
Totalnon-interest income		2,030		1,945		6,162		5,935

See accompanying Notes to Unaudited Interim Consolidated Condensed Financial Statements.

3

HOPFED BANCORP, INC.

Interim Consolidated Condensed Statements of Income, Continued

(Dollars in Thousands, Except Per Share Amounts)

(Unaudited)

	For the Three Month Periods						For the Nine Month Periods
	Ended September 30,						Ended September 30,
	2017			2016			2017		2016
Non-interest expenses:
Salaries and benefits		3,919			3,757			12,132		11,646
Occupancy		716			810			2,220		2,398
Data processing		795			744			2,105		2,175
State deposit tax		169			248			600		743
Professional services		409			368			1,221		1,008
Advertising		240			376			989		1,067
Foreclosure, net		(25	)		204			89		473
(Gain) Loss on sale of asset		—			(72	)		3		(72	)
Other		945			918			2,731		3,207
Totalnon-interest expense		7,168			7,353			22,090		22,645
Income before income tax expense		1,889			1,026			4,468		1,900
Income tax expense		486			41			989		102
Net income		1,403			985			3,479		1,798
Earnings per share:
Basic	$	0.22		$	0.16		$	0.56	$	0.29
Diluted	$	0.22		$	0.16		$	0.56	$	0.29
Dividend per share	$	0.05		$	0.04		$	0.14	$	0.12
Weighted average shares outstanding - basic		6,236,075			6,212,231			6,227,955		6,247,536
Weighted average shares outstanding - diluted		6,236,075			6,212,231			6,227,955		6,247,536

See accompanying Notes to Unaudited Interim Consolidated Condensed Financial Statements.

4

HOPFED BANCORP, INC.

Interim Consolidated Condensed Statements of Comprehensive Income

(Dollars in Thousands)

(Unaudited)

	For the Three Month						For the Nine Month
	Periods Ended September 30,						Periods Ended September 30,
	2017			2016			2017			2016
Net income	$	1,403			985			3,479			1,798
Other comprehensive income, net of tax:
Unrealized gain onnon-other than temporary impaired investment securities available for sale, net of taxes of of $24 and $384 for the three month periods ended September 30, 2017 and September 30, 2016, respectively; and ($223) and ($883) for the nine month periods ended September 30, 2017 and September 30, 2016, respectively.		(44	)		(744	)		431			1,715
Unrealized gain on OTTI securities, net of taxes of $52 and none for the three month periods ended September 30, 2017 and September 30, 2016, respectively; and $38 and ($37) for the nine month periods ended September 30, 2017 and September 30, 2016, respectively.		(100	)		—			(74	)		72
Reclassification adjustment for gains included in net income, September 30, 2017 and September 30, 2016, respectively; and $61 and $144 for the nine month periods ended September 30, 2017 and September 30, 2016, respectively.		(107	)		(52	)		(117	)		(278	)
Total other comprehensive income		(251	)		(796	)		240			1,509
Comprehensive income	$	1,152			189			3,719			3,307

See accompanying Notes to Unaudited Interim Consolidated Condensed Financial Statements.

5

HOPFED BANCORP, INC.

Interim Consolidated Condensed Statement of Stockholders’ Equity

For the Nine Month Period Ended September 30, 2017

(Dollars in Thousands, Except Share Amounts)

(Unaudited)

																	Accumulated
						Additional					Common			Unearned			Other		Total
	Common			Common		Paid in		Retained			Treasury			ESOP			Comprehensive		Stockholders’
	Shares			Stock		Capital		Earnings			Shares			Shares			Income		Equity
Balance December 31, 2016		6,717,242		$	80		58,660		49,035			(15,347	)		(6,548	)		548		86,428
Restricted stock awards		12,753			—		—		—			—			—			—		—
Net income		—			—		—		3,479			—			—			—		3,479
Repurchase of treasury stock		(41,321	)		—		—		—			(584	)		—			—		(584	)
ESOP shares committed to be released		—			—		—		—			—			423			—		423
Change in price of ESOP shares		—			—		40		—			—			—			—		40
Compensation expense, restricted stock awards		—			—		77		—			—			—			—		77
Net change in unrealized gain on securities available for sale, net of income taxes of ($124)		—			—		—		—			—			—			240		240
Cash dividend declared to common shareholders		—			—		—		(868	)		—			—			—		(868	)
Balance September 30, 2017		6,688,674		$	80		58,777		51,646			(15,931	)		(6,125	)		788		89,235

See accompanying Notes to Unaudited Interim Consolidated Condensed Financial Statements.

6

HOPFED BANCORP, INC.

Interim Consolidated Condensed Statements of Cash Flows

(Dollars in Thousands)

(Unaudited)

	For the Nine Month Periods Ended September 30,
	2017			2016
Cash flows from operating activities:
Net cash provided by operating activities	$	7,702			7,098
Cash flows from investing activities:
Proceeds from sales, calls and maturities of securities available for sale		40,480			54,274
Purchase of securities available for sale		(23,572	)		(28,805	)
Net increase in loans		(25,806	)		(24,246	)
Proceeds from sale of foreclosed assets		1,666			1,319
Proceeds from sale of premises and equipment		—			100
Purchase of premises and equipment		(399	)		(551	)
Net cash provided by (used in) investing activities		(7,631	)		2,091
Cash flows from financing activities:
Net decrease in demand deposits		(17,376	)		(13,126	)
Net increase (decrease) in time and other deposits		15,723			(13,963	)
Increase in advances from borrowers for taxes and insurance		422			497
Advances from Federal Home Loan Bank		58,000			23,000
Repayment of advances from Federal Home Loan Bank		(38,000	)		(27,000	)
Net decrease in repurchase agreements		(9,826	)		(1,305	)
Cash used to repurchase treasury stock		(584	)		(1,808	)
Dividends paid on common stock		(868	)		(746	)
Net cash provided by (used in) financing activities		7,491			(34,451	)
Increase (decrease) in cash and cash equivalents		7,562			(25,262	)
Cash and cash equivalents, beginning of period		25,749			54,698
Cash and cash equivalents, end of period	$	33,311		$	29,436
Supplemental disclosures of cash flow information:
Interest paid		4,374			4,060
Income taxes paid	$	421		($	700	)
Supplemental disclosures ofnon-cash investing and financing activities:
Loans charged off		3,081			674
Foreclosures of loans during period		4,268			354
Net unrealized gains on investment securities classified as available for sale		364			2,286
Decrease in deferred tax asset related to unrealized gains on investments		(124	)		(777	)
Dividends declared and payable		355			289
Issuance of restricted common stock		176			145

See accompanying Notes to Unaudited Interim Consolidated Condensed Financial Statements.

7

NOTES TO UNAUDITED INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(1) BASIS OF PRESENTATION

The accompanying unaudited interim consolidated condensed financial statements include the accounts of HopFed Bancorp, Inc. (“HopFed” or the “Corporation”) and its subsidiaries (collectively, the “Company”). The Corporation is a parent holding company of Heritage Bank USA, Inc. (the “Bank”). The Banks owns JBMM, LLC, a wholly owned, limited liability company, which owns and manages the Bank’s foreclosed assets. The Bank also owns Heritage USA Title, LLC, which sells title insurance to the Bank’s real estate loan customers. The Bank owns Fort Webb LP, LLC, which owns a limited partnership interest in Fort Webb Elderly Housing LLLP, a low income senior citizen housing facility in Bowling Green, Kentucky. All significant intercompany accounts have been eliminated.

The Bank is a Kentucky commercial bank regulated by the Kentucky Department of Financial Institutions (“KDFI”) and the Federal Deposit Insurance Corporation (“FDIC”). HopFed Bancorp is regulated by the Federal Reserve Bank of Saint Louis (“FED”).

The accompanying unaudited interim consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form10-Q and Article 10 of RegulationS-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 presentation have been included. The results of operations and other data for the nine month period ended September 30, 2017 are not necessarily indicative of results that may be expected the entire fiscal year ending December 31, 2017.

The accompanying unaudited interim consolidated condensed financial statements should be read in conjunction with the Consolidated Financial Statements and the Notes thereto included in the Company’s Annual Report on Form10-K as of and for the year ended December 31, 2016. The accounting policies followed by the Company are set forth in the Summary of Significant Accounting Policies in the Company’s December 31, 2016 Consolidated Financial Statements.

8

(2) EARNINGS PER SHARE

Basic earnings per share (EPS) is computed by dividing net income by the weighted average number of common stock shares outstanding. Diluted EPS is computed by dividing net income by the weighted average number of common stock shares outstanding, adjusted for the effect of potentially dilutive stock awards outstanding during the period. For the three and nine month periods ended September 30, 2017 and September 30, 2016, the Company has excluded all unearned shares held by the ESOP.

	For the Three Month Periods Ended September 30,
	2017		2016
Basic EPS:
Net income	$	1,403,000	$	985,000
Average common shares outstanding		6,236,075		6,212,231
Earnings per share	$	0.22	$	0.16
Diluted EPS
Net income	$	1,403,000	$	985,000
Average common shares outstanding		6,236,075		6,212,231
Dilutive effect of stock options		—		—
Average diluted shares outstanding		6,236,075		6,212,231
Earnings per share, diluted	$	0.22	$	0.16
	For the nine month Periods
	Ended September 30,
	2017		2016
Basic EPS:
Net income	$	3,479,000	$	1,798,000
Average common shares outstanding		6,227,955		6,247,536
Earnings per share	$	0.56	$	0.29
Diluted EPS
Net income	$	3,479,000	$	1,798,000
Average common shares outstanding		6,227,955		6,247,536
Dilutive effect of stock options		—		—
Average diluted shares outstanding		6,227,955		6,247,536
Earnings per share, diluted	$	0.56	$	0.29

9

(3) SECURITIES

The carrying amount of securities and their estimated fair values at September 30, 2017 were as follows:

	September 30, 2017
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(Dollars in Thousands)
Restricted:
FHLB stock	$	4,428		—		—			4,428
Available for sale:
U.S. Agency securities	$	89,419		766		(356	)		89,829
Taxable municipal bonds		1,281		10		(6	)		1,285
Tax free municipal bonds		27,349		903		(21	)		28,231
Trust preferred securities		1,646		71		—			1,717
Mortgage backed securities		71,399		378		(552	)		71,225
	$	191,094		2,128		(935	)		192,287

10

The carrying amount of securities and their estimated fair values at December 31, 2016 were as follows:

	December 31, 2016
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(Dollars in Thousands)
Restricted:
FHLB stock	$	4,428		—		—			4,428
Available for sale:
U.S. Treasury securities		2,000		1		—			2,001
U.S. Agency securities		83,667		983		(638	)		84,012
Taxable municipal bonds		2,720		17		(10	)		2,727
Tax free municipal bonds		33,004		1,081		(174	)		33,911
Trust preferred securities		1,634		183		—			1,817
Mortgage-backed securities		85,626		437		(1,051	)		85,012
	$	208,651		2,702		(1,873	)		209,480

The scheduled maturities of debt securities available for sale at September 30, 2017 were as follows:

			Estimated
	Amortized		Fair
	Cost		Value
	(Dollars in Thousands)
Due within one year	$	3,830	$	3,850
Due in one to five years		23,534		23,745
Due in five to ten years		25,505		25,847
Due after ten years		7,230		7,558
		60,099		61,000
Amortizing agency bonds		59,596		60,062
Mortgage-backed securities		71,399		71,225
Total securities available for sale	$	191,094	$	192,287

11

The estimated fair value and unrealized loss amounts of temporarily impaired investments as of September 30, 2017 were as follows:

	Less than 12 months					12 months or longer					Total
	Estimated		Unrealized			Estimated		Unrealized			Estimated		Unrealized
	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
	(Dollars in Thousands)
Available for sale
U.S. Agency securities	$	31,029		(212	)		8,217		(144	)		39,246		(356	)
Taxable municipal bonds		519		(6	)		—		—			519		(6	)
Tax free municipal bonds		1,666		(4	)		928		(17	)		2,594		(21	)
Mortgage-backed securities		25,788		(171	)		17,353		(381	)		43,141		(552	)
Total available for sale	$	59,002		(393	)		26,498		(542	)		85,500		(935	)

The estimated fair value and unrealized loss amounts of temporarily impaired investments as of December 31, 2016 were as follows:

	Less than 12 months					12 months or longer					Total
	Estimated		Unrealized			Estimated		Unrealized			Estimated		Unrealized
	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
	(Dollars in Thousands)
Available for sale
U.S. Agency securities	$	41,963		(597	)		3,459		(41	)		45,422		(638	)
Taxable municipal bonds		1,347		(10	)		—		—			1,347		(10	)
Tax free municipal bonds		7,369		(174	)		—		—			7,369		(174	)
Mortgage-backed securities		48,462		(796	)		7,439		(255	)		55,901		(1,051	)
Total available for sale	$	99,141		(1,577	)		10,898		(296	)		110,039		(1,873	)

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 September 30, 2017, the Company has 60 securities with unrealized losses. The losses for all securities are considered to be a direct result of the effect that the prevailing interest rate environment had on the value of debt securities and are not related to the credit worthiness of the issuers. Furthermore, the Company has the intent and ability to retain its investments in the issuers for a period of time that management believes to be sufficient to allow for any anticipated recovery in fair value. Therefore, the Company did not recognize any other-than-temporary impairments as of September 30, 2017.

At September 30, 2017 and December 31, 2016, securities with a book value of approximately $117.4 million and $125.6 million and a market value of approximately $120.1 million and $128.4 million, respectively, were pledged to various municipalities for deposits in excess of FDIC limits as required by law.

12

(4) LOANS

The Company uses the following loan segments as described below:

• One-to-four family first mortgages areclosed-end loans secured by residential housing. Loans may be either owner ornon-owner occupied properties. If the loan is owner-occupied, the loan is analyzed and under-written as a consumer loan. Loan terms may be up to 30 years.

• Home equity lines of credit may be first or second mortgages secured byone-to-four family properties. Home equity loans carry a variable rate and typically are open ended for a period not to exceed ten years with a fifteen year final maturity. Loans secured by home equity lines of credit are under-written under the Company’s consumer loan guidelines.

• Junior liens areclosed-end loans secured byone-to-four family residences with a fixed or variable rate. Typically, the collateral for these loans are owner occupied units with a subordinate lien. Loans secured by junior liens are under-written under the Company’s consumer loan guidelines.

• Multi-family loans areclosed-end loans secured by residential housing with five or more units in a single building. Multi-family loans may carry a variable rate of interest or the interest rate on the loan is a fixed rate (usually five years). After the initial fixed rate period, the loan reverts to a variable rate or has balloon maturity. Multi-family loans have amortization terms of up to twenty years and are under-written under the Company’s commercial loan underwriting guidelines.

• Constructions loans may consist of residential or commercial properties and carry a fixed or variable rate for the term of the construction period. Construction loans have a maturity of between twelve and twenty-four months depending on the type of property. After the construction period, loans are amortized over a twenty-year period. All construction loans are under written under the Company’s commercial loan underwriting guidelines for the type of property being constructed.

• Land loans consist of properties currently under development, land held for future development and land held for recreational purposes. Land loans used for recreational purposes are amortized for twenty years and typically carry a fixed rate of interest forone-to-five years with a balloon maturity or floating rate period to follow and are under-written under the Company’s commercial loan underwriting guidelines.

• Loans classified as farmland by the Company include properties that are used exclusively for the production of grain, livestock, poultry or swine. Loans secured by farmland have a maturity of up to twenty years and carry a fixed rate of interest for five to ten years. Loans secured by farmland are under-written under the Company’s commercial loan underwriting guidelines.

13

• Non-residential real estate loans are secured by commercial real estate properties and may be either owner ornon-owner occupied. The loans typically have a twenty year maturity and may be fixed for a period of five to ten years. After the initial fixed rate period, the note will either revert to a one year adjustable rate loan or have a balloon maturity. Loans secured bynon-residential real estate are under-written under the Company’s commercial loan underwriting standards.

• The Company originates secured and unsecured consumer loans. Collateral for consumer loans may include deposits, brokerage accounts, automobiles and other personal items. Consumer loans are typically fixed for a term of one to five years and are under-written using the Company’s consumer loan policy.

• The Company originates unsecured and secured commercial loans. Secured commercial loans may have business inventory, accounts receivable and equipment as collateral. The typical customer may include all forms of manufacturing, retail and wholesale sales, professional services and various forms of agri-business interest. Commercial loans may be fixed or variable rate and typically have terms between one and five years.

Set forth below is selected data relating to the composition of the loan portfolio by type of loan at September 30, 2017 and December 31, 2016.

	September 30, 2017			December 31, 2016
	(Dollars in Thousands)
Real estate loans:
One-to-four family first mortgages	$	165,926		$	147,962
Home equity lines of credit		34,995			35,684
Junior liens		1,402			1,452
Multi-family		37,321			34,284
Construction		25,594			39,255
Land		14,289			23,840
Farmland		37,262			47,796
Non-residential real estate		216,056			182,940
Total mortgage loans		532,845			513,213
Consumer loans		9,222			8,717
Commercial loans		88,515			88,907
Total other loans		97,737			97,624
Total loans		630,582			610,837
Deferred loan fees, net of cost		(380	)		(439	)
Less allowance for loan losses		(4,799	)		(6,112	)
Total loans, net	$	625,403		$	604,286

14

Although the Company has a diversified loan portfolio, 84.5% and 84.0% of the portfolio was concentrated in loans secured by real estate at September 30, 2017 and December 31, 2016, respectively. At September 30, 2017 and December 31, 2016, the majority of these loans are located within the Company’s general operating area of the United States.

The following table provides a detail of the Company’s activity in the allowance for loan loss account by loan type for the nine month period ended September 30, 2017:

											Ending
	Balance		Charge offs			Recoveries		Provision			Balance
	12/31/2016		2017			2017		2017			9/30/2017
	(Dollars in Thousands)
One-to-four family mortgages	$	852		(49	)		9		(79	)		733
Home equity line of credit		260		—			10		(86	)		184
Junior liens		8		—			2		(4	)		6
Multi-family		412		—			417		(506	)		323
Construction		277		—			—		(146	)		131
Land		1,760		(2,608	)		559		1,535			1,246
Farmland		778		—			—		(409	)		369
Non-residential real estate		964		—			13		(215	)		762
Consumer loans		208		(200	)		70		68			146
Commercial loans		593		(224	)		267		263			899
Total	$	6,112		(3,081	)		1,347		421			4,799

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, 2016:

											Ending
	Balance		Charge offs			Recoveries		Provision			Balance
	12/31/2015		2016			2016		2016			12/31/2016
	(Dollars in Thousands)
One-to-four family mortgages	$	1,030		—			167		(345	)		852
Home equity line of credit		201		(30	)		14		75			260
Junior liens		8		—			14		(14	)		8
Multi-family		227		(421	)		—		606			412
Construction		377		—			—		(100	)		277
Land		1,379		—			—		381			1,760
Farmland		358		—			—		420			778
Non-residential real estate		1,139		—			10		(185	)		964
Consumer loans		358		(422	)		293		(21	)		208
Commercial loans		623		(595	)		141		424			593
Total	$	5,700		(1,468	)		639		1,241			6,112

15

The table below presents past due andnon-accrual balances at September 30, 2017 by loan classification allocated between performing andnon-performing:

			30 - 89						Impaired Loans
	Currently		Days		Non-accrual		Special		Currently Performing
	Performing		Past Due		Loans		Mention		Substandard		Doubtful		Total
	(Dollars in Thousands)
One-to-four family mortgages	$	164,817		582		333		51		143		—	$	165,926
Home equity line of credit		34,433		—		401		—		161		—		34,995
Junior liens		1,398		4		—		—		—		—		1,402
Multi-family		37,321		—		—		—		—		—		37,321
Construction		25,594		—		—		—		—		—		25,594
Land		13,724		—		40		—		525		—		14,289
Farmland		35,626		—		455		1,147		34		—		37,262
Non-residential real estate		207,765		165		—		778		7,348		—		216,056
Consumer loans		9,066		3		5		—		148		—		9,222
Commercial loans		83,246		—		505		3,645		1,119		—		88,515
Total	$	612,990		754		1,739		5,621		9,478		—	$	630,582

The table below presents past due andnon-accrual balances at December 31, 2016 by loan classification allocated between performing andnon-performing:

			30 - 89		Non-				Impaired Loans
	Currently		Days		Accrual		Special		Currently Performing
	Performing		Past Due		Loans		Mention		Substandard		Doubtful		Total
	(Dollars in Thousands)
One-to-four family mortgages		145,069		896		270		744		983		—		147,962
Home equity line of credit		35,087		22		402		25		148		—		35,684
Junior liens		1,407		4		—		30		11		—		1,452
Multi-family		31,280		—		—		—		3,004		—		34,284
Construction		39,255		—		—		—		—		—		39,255
Land		15,581		—		7,675		35		549		—		23,840
Farmland		44,832		—		—		674		2,290		—		47,796
Non-residential real estate		172,395		—		208		3		10,334		—		182,940
Consumer loans		8,354		28		3		—		332		—		8,717
Commercial loans		84,913		261		516		603		2,614		—		88,907
Total		578,173		1,211		9,074		2,114		20,265		—		610,837

At September 30, 2017 and December 31, 2016, there were no loans more than 90 days past due accruing interest.

16

The following table presents the balance in the allowance for loan losses and the recorded investment in loans as of September 30, 2017 and December 31, 2016, by portfolio segment and based on the impairment method.

			Land
			Development /		Commercial		Residential
	Commercial		Construction		Real Estate		Real Estate		Consumer		Total
	(Dollars in Thousands)
September 30, 2017:
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	267		—		19		—		36		322
Collectively evaluated for impairment		632		1,377		1,435		923		110		4,477
Total ending allowance balance	$	899		1,377		1,454		923		146		4,799
Loans:
Loans individually evaluated for impairment	$	1,624		565		7,837		1,038		153		11,217
Loans collectively evaluated for impairment		86,891		39,318		282,802		201,285		9,069		619,365
Total ending loans balance	$	88,515		39,883		290,639		202,323		9,222		630,582

			Land
			Development /		Commercial		Residential
	Commercial		Construction		Real Estate		Real Estate		Consumer		Total
	(Dollars in Thousands)
December 31, 2016:
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	28		1,036		—		—		84		1,148
Collectively evaluated for impairment		565		1,001		2,154		1,120		124		4,964
Total ending allowance balance	$	593		2,037		2,154		1,120		208		6,112
Loans:
Loans individually evaluated for impairment	$	3,130		8,224		15,836		1,814		335		29,339
Loans collectively evaluated for impairment		85,777		54,871		249,184		183,284		8,382		581,498
Total ending loans balance	$	88,907		63,095		265,020		185,098		8,717		610,837

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 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 and the market value of the underlying collateral. Although management believes its allowance for loan losses is adequate, there can be no assurance that additional allowances will not be required or that losses on loans will not be incurred.

The Company utilizes a credit grading system that provides a uniform framework for establishing and monitoring credit risk in the loan portfolio. Under this system, each loan is graded based onpre-determined risk metrics and categorized into one of the risk grades discussed below. The Company uses the following risk grade definitions for commercial loans:

17

Excellent -Loans in this category are to persons or entities of unquestioned financial strength, a highly liquid financial position, with collateral that is liquid and well margined. These borrowers have performed without question on past obligations, and the Bank expects their performance to continue. Internally generated cash flow covers current maturities of long-term debt by a substantial margin. Loans secured by Bank certificates of deposit and savings accounts, with appropriate holds placed on the accounts, are to be rated in this category.

Very Good -These are loans to persons or entities with strong financial condition and above-average liquidity who have previously satisfactorily handled their obligations with the Bank. Collateral securing the Bank’s debt is margined in accordance with policy guidelines. Internally generated cash flow covers current maturities of long-term debt more than adequately. Unsecured loans to individuals supported by strong financial statements and on which repayment is satisfactory may be included in this classification.

Satisfactory -Assets of this grade conform to substantially all the Bank’s underwriting criteria and evidence an average level of credit risk; however, such assets display more susceptibility to economic, technological or political changes since they lack the above average financial strength of credits rated Very Good. Borrower’s repayment capacity is considered to be adequate. Credit is appropriately structured and serviced; payment history is satisfactory.

Acceptable -Assets of this grade conform to most of the Bank’s underwriting criteria and evidence an acceptable, though higher than average, level of credit risk; however, these loans have certain risk characteristics which could adversely affect the borrower’s ability to repay given material adverse trends. Loans in this category require an above average level of servicing and show more reliance on collateral and guaranties to preclude a loss to the Bank should material adverse trends develop. If the borrower is a company, its earnings, liquidity and capitalization are slightly below average when compared to its peers.

Watch -These loans are characterized by borrowers who have marginal cash flow, marginal profitability, or have experienced an unprofitable year and a declining financial condition. The borrower has in the past satisfactorily handled debts with the Bank, but in recent months has either been late, delinquent in making payments, or made sporadic payments. While the Bank continues to be adequately secured, margins have decreased or are decreasing, despite the borrower’s continued satisfactory condition. Other characteristics of borrowers in this class include inadequate credit information, weakness of financial statement and repayment capacity, but with collateral that appears to limit exposure. This classification includes loans to established borrowers that are reasonably margined by collateral, but where potential for improvement in financial capacity appears limited.

Special Mention -Loans in this category have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deteriorating prospects for the asset or in the institution’s credit position at some future date. Borrowers may be experiencing adverse operating trends or market conditions.Non-financial reasons for rating a credit exposure Special Mention include, but are not limited to: management problems, pending litigations, ineffective loan agreement and/or inadequate loan documentation, structural weaknesses and/or lack of control over collateral.

Substandard -A substandard asset is inadequately protected by the current sound worth or paying capacity of the debtor or the collateral pledged. There exists one or more well defined weaknesses that jeopardize the liquidation of the debt. There is a distinct possibility the Bank will experience some loss if the deficiencies are not corrected.

18

Doubtful -A loan classified as doubtful has all the weaknesses inherent in a loan classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. These are poor quality loans in which neither the collateral, if any, nor the financial condition of the borrower presently ensure collectability in full in a reasonable period of time; in fact, there is permanent impairment in the collateral securing the Bank’s loan. These loans are in awork-out status and have a definedwork-out strategy.

Loss- Loans classified as loss are considered uncollectible and of such little value that their continuance as Bankable assets is not warranted. The Bank takes losses in the period in which they become uncollectible.

The following credit risk standards are assigned to consumer loans:

Satisfactory -All consumeropen-end andclosed-end retail loans shall have an initial risk grade assigned of 3—Satisfactory.

Substandard -All consumeropen-end andclosed-end retail loans past due 90 cumulative days from the contractual date will be classified as 7—Substandard. If a consumer/retail loan customer files bankruptcy, the loan will be classified as 7—Substandard regardless of payment history.

Loss -Allclosed-end retail loans that become past due 120 cumulative days andopen-end retail loans that become past due 180 cumulative days from the contractual due date will be charged off as loss assets. The charge off will be taken by the end of the month in which the120-day or180-day time period elapses. All losses in retail credit will be recognized when the affiliate becomes aware of the loss, but in no case should the charge off exceed the time frames stated within this policy.

A loan is considered to be impaired when management determines that it is probable 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 or using the fair value of the collateral less cost to sell if the loan is collateral dependent. Currently, it is management’s practice to classify all substandard or doubtful loans as impaired.

19

A summary of the Company’s loans by credit risk indicator and the related allowance at September 30, 2017 and December 31, 2016 were as follows:

					Impaired Loans
September 30, 2017	Pass		Special Mention		Substandard		Doubtful		Total		Specific Allowance for Impairment		Allowance for Loans not Impaired
	(Dollars in Thousands)
One-to-four family mortgages	$	165,399		51		476		—		165,926		—		733
Home equity line of credit		34,433		—		562		—		34,995		—		184
Junior liens		1,402		—		—		—		1,402		—		6
Multi-family		37,321		—		—		—		37,321		—		323
Construction		25,594		—		—		—		25,594		—		131
Land		13,724		—		565		—		14,289		—		1,246
Farmland		35,626		1,147		489		—		37,262		17		352
Non-residential real estate		207,930		778		7,348		—		216,056		2		760
Consumer loans		9,069		—		153		—		9,222		36		110
Commercial loans		83,246		3,645		1,624		—		88,515		267		632
Total	$	613,744		5,621		11,217		—		630,582		322		4,477
					Impaired Loans
December 31, 2016	Pass		Special Mention		Substandard		Doubtful		Total		Specific Allowance for Impairment		Allowance for Loans not Impaired
	(Dollars in Thousands)
One-to-four family mortgages	$	145,965		744		1,253		—		147,962		—		852
Home equity line of credit		35,109		25		550		—		35,684		—		260
Junior liens		1,411		30		11		—		1,452		—		8
Multi-family		31,280		—		3,004		—		34,284		—		412
Construction		39,255		—		—		—		39,255		—		277
Land		15,581		35		8,224		—		23,840		1,036		724
Farmland		44,832		674		2,290		—		47,796		—		778
Non-residential real estate		172,395		3		10,542		—		182,940		—		964
Consumer loans		8,382		—		335		—		8,717		84		124
Commercial loans		85,174		603		3,130		—		88,907		28		565
Total	$	579,384		2,114		29,339		—		610,837		1,148		4,964

20

Impaired loans by classification type and the related valuation allowance amounts at September 30, 2017 were as follows:

	At September 30, 2017						For the nine month period ended September 30, 2017
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(Dollars in Thousands)
Impaired loans with no specific allowance
One-to-four family mortgages	$	476		476		—		1,480		26
Home equity line of credit		562		562		—		559		25
Junior liens		—		—		—		8		—
Multi-family		—		—		—		1,419		—
Construction		—		—		—		—		—
Land		565		565		—		918		35
Farmland		164		164		—		1,257		2
Non-residential real estate		7,328		7,328		—		9,452		312
Consumer loans		9		9		—		10		—
Commercial loans		1,125		1,125		—		1,745		35
Total		10,229		10,229		—		16,848		435
Impaired loans with a specific allowance
One-to-four family mortgages		—		—		—		—		—
Home equity line of credit		—		—		—		—		—
Junior liens		—		—		—		—		—
Multi-family		—		—		—		—		—
Construction		—		—		—		—		—
Land		—		—		—		5,008		—
Farmland		325		325		17		244		—
Non-residential real estate		20		20		2		110		2
Consumer loans		144		144		36		255		—
Commercial loans		499		499		267		464		16
Total		988		988		322		6,081		18
Total	$	11,217		11,217		322		22,929		453

21

Impaired loans by classification type and the related valuation allowance amounts at December 31, 2016 were as follows:

	At December 31, 2016						For the year ended December 31, 2016
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(Dollars in Thousands)
Impaired loans with no specific allowance
One-to-four family mortgages	$	1,253		1,253		—		1,470		67
Home equity line of credit		550		550		—		390		24
Junior liens		11		11		—		13		1
Multi-family		3,004		3,004		—		3,005		172
Construction		—		—		—		—		—
Land		1,553		2,513		—		7,868		38
Farmland		2,290		2,290		—		1,563		120
Non-residential real estate		10,542		10,542		—		9,363		485
Consumer loans		—		—		—		21		1
Commercial loans		2,865		2,865		—		3,168		112
Total		22,068		23,028		—		26,861		1,020
Impaired loans with a specific allowance
One-to-four family mortgages				—		—		452		—
Home equity line of credit		—		—		—		—		—
Junior liens		—		—		—		—		—
Multi-family		—		—		—		910		—
Construction		—		—		—		—		—
Land		6,671		6,671		1,036		1,811		485
Farmland		—		—		—		533		—
Non-residential real estate		—		—		—		—		—
Consumer loans		335		335		84		273		—
Commercial loans		265		265		28		754		24
Total		7,271		7,271		1,148		4,733		509
Total	$	29,339		30,299		1,148		31,594		1,529

22

On a periodic basis, the Bank may modify the terms of certain loans. At December 31, 2016, the Company had eight loans, representing three lending relationships, classified as performing TDR. During the nine month period ended September 30, 2017, the Company removed one lending relationship from TDR status and one lending relationship had three loans to pay off. Onenon-residential real estate loan relationship, with two loans representing $2.2 million, has paid as agreed based on the original terms of their note for a period of at least six months. For the nine month period ended September 30, 2017, no loans were added to TDR classification and all loans currently classified as TDR are current based on their revised terms.

The following table provides the number of loans remaining in each category as of September 30, 2017 and December 31, 2016 that the Company had previously modified in a TDR:

	Number of Loans		Pre-Modification Outstanding Record Investment		Post Modification Outstanding Record Investment, net of related allowance
September 30, 2017
Non-residential real estate		3	$	3,371,435		3,371,435
December 31, 2016
Multi-family		3	$	815,273		815,273
Non-residential real estate		5		5,646,223		5,646,223

There were no loans as of September 30, 2017 that have been modified as TDRs and that subsequently defaulted within twelve months on their modified terms. At September 30, 2017, there are no commitments to lend additional funds to any borrower whose loan terms have been modified in a TDR.

23

(5) FORECLOSED ASSETS

The Company’s foreclosed assets have been 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 losses on foreclosed assets 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 foreclosed assets with a book balance in excess of $250,000 on an annual basis. Additional losses are recognized as anon-interest expense.

At September 30, 2017 and December 31, 2016, the Company had balances in foreclosed assets consisting of the following:

	September 30, 2017		December 31, 2016
	(Dollars in Thousands)
One-to-four family mortgages	$	1,025		135
Home equity line of credit		—		28
Multi-family real estate		750		1,775
Land		3,200		—
Non-residential real estate		—		459
Total other assets owned	$	4,975		2,397

For the nine month period ended September 30, 2017, the Company’s activity in foreclosed property included the following:

			Activity During 2017
	Balance							Reduction			Gain (Loss)			Balance
	12/31/2016		Foreclosure		Sales			in Values			on Sale			9/30/2017
	(Dollars in Thousands)
One-to-four family mortgages	$	135		1,025		(147	)		—			12		$	1,025
HELOC		28		—		(18	)		(10	)		—			—
Multi-family		1,775		—		(1,001	)		—			(24	)		750
Land		—		3,200		—			—			—			3,200
Non-residential real estate		459		43		(500	)		—			(2	)		—
Total	$	2,397		4,268		(1,666	)		(10	)		(14	)	$	4,975

24

The Company’s activity in foreclosed assets for the nine month period ended September 30, 2016 is as follows:

			Activity During 2016
	Balance							Reduction		Gain (Loss)			Balance
	12/31/2015		Foreclosure		Sales			in Values		on Sale			9/30/2016
	(Dollars in Thousands)
One-to-four family mortgages	$	55		—		(43	)		—		(12	)		—
Home equity line of credit		—		68		—			—		—			68
Multi-family		—		141		—			—		—			141
Land		943		130		(987	)		—		(13	)		73
Non-residential real estate		738		—		(270	)		—		(9	)		459
Consumer		—		15		(19	)		—		4			—
Total	$	1,736		354		(1,319	)		—		(30	)	$	741

(6) FAIR VALUE OF ASSETS AND LIABILITIES

Accounting Standards Codification Topic (ASC) 820, Fair Value Measurements,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.

25

The following are the significant methods and assumptions used by the Company in estimating its fair value disclosures for financial instruments:

Cash and due from banks

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents approximate those assets’ fair values, because they mature within 90 days or less and do not present credit risk concerns.

Interest-bearing deposits in banks

The carrying amounts reported in the consolidated balance sheets for interest earning deposits approximate those assets’ fair values, because they are considered overnight deposits and may be withdrawn at any time without penalty and do not present credit risk concerns.

Available-for-sale securities

Fair values for investment securitiesavailable-for-sale are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments provided by a third-party pricing service. The Company reviews all securities in which the book value is greater than the market value for impairment that is other than temporary. For securities deemed to be other than temporarily impaired, the Company reduces the book value of the security to its market value by recognizing an impairment charge on its income statement.

FHLB stock

The fair value of FHLB stock is recognized at cost.

Loans held for sale

Mortgage loans originated and intended to be sold are carried at the lower of cost or estimated fair value as determined on a loan by loan basis. Gains or losses are recognized at the time of ownership transfer. Net unrealized losses, if any, are recognized through a valuation allowance and charged to income.

Loans receivable

The fair values of fixed-rate loans and variable rate loans thatre-price on an infrequent basis is estimated using discounted cash flow analysis which considers futurere-pricing dates and estimated repayment dates, and further using interest rates currently being offered for loans of similar type, terms to borrowers of similar credit quality. Loan fair value estimates include judgments regarding future expected loss experience and risk characteristics. The estimated fair value of variable-rate loans thatre-price frequently and have no significant change in credit risk is approximately the carrying value of the loan.

Accrued interest receivable

Fair value is estimated to approximate the carrying amount because such amounts are expected to be received within 90 days or less and any credit concerns have been previously considered in the carrying value.

26

Deposits

The fair values disclosed for deposits with no stated maturity such as demand deposits, interest-bearing checking accounts and savings accounts are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). The fair values for certificates of deposit and other fixed maturity time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered on such type accounts or similar accounts to a schedule of aggregated contractual maturities or similar maturities on such time deposits.

Advances from borrowers for taxes and insurance

The carrying amount of advances from borrowers for taxes and insurance approximates its fair value.

Advances from the Federal Home Loan Bank (FHLB)

The fair value of these advances is estimated by discounting the future cash flows of these advances using the current rates at which similar advances or similar financial instruments could be obtained.

Repurchase agreements

Overnight repurchase agreements have a fair value at book, given that they mature overnight. The fair values of longer date repurchase agreements is estimated using discounted cash flow analysis which considers the current market pricing for repurchase agreements of similar final maturities and collateral requirements.

Subordinated debentures

The book value of subordinated debentures is cost. The subordinated debenturesre-price quarterly at a rate equal to three month libor plus 3.10%.

Fair Value Measurements on a Recurring Basis

Where quoted prices are available for identical securities in an active market, securities available for sale are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid government securities and certain other financial products. If quoted market prices are not available, then fair values are estimated by using pricing models that use observable inputs or quoted prices of securities with similar characteristics and are classified within Level 2 of the valuation hierarchy. In certain cases where there is limited activity or less transparency around inputs to the valuation and more complex pricing models or discounted cash flows are used, securities are classified within Level 3 of the valuation hierarchy.

27

Assets and Liabilities Measured on a Recurring Basis

The assets and liabilities measured at fair value on a recurring basis at September 30, 2017 are summarized below:

Description	Total carrying value in the consolidated balance sheet at 9/30/2017		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in Thousands)
Assets
Securities available for sale
U.S. Agency securities	$	89,829		—		89,829		—
Taxable municipals		1,285		—		1,285		—
Tax-free municipals		28,231		—		28,231		—
Trust preferred securities		1,717		—		—		1,717
Mortgage backed securities		71,225		—		71,225		—
Total	$	192,287		—		190,570		1,717

The assets and liabilities measured at fair value on a recurring basis at December 31, 2016 are summarized below:

	Total carrying value in the consolidated balance sheet at		Quoted Prices In Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	12/31/2016		(Level 1)		(Level 2)		(Level 3)
	(Dollars in Thousands)
Assets
Securities available for sale
U.S. Treasury securities	$	2,001		2,001		—		—
U.S. Agency securities		84,012		—		84,012		—
Taxable municipals		2,727		—		2,727		—
Tax-free municipals		33,911		—		33,911		—
Trust preferred securities		1,817		—		—		1,817
Mortgage backed securities		85,012		—		85,012		—
Total	$	209,480		2,001		205,662		1,817

28

The assets and liabilities measured at fair value on anon-recurring basis are summarized below for September 30, 2017:

	Total carrying value in the consolidated balance sheet at		Quoted Prices In Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	September 30, 2017		(Level 1)		(Level 2)		(Level 3)
	(Dollars in Thousands)
Assets
Foreclosed assets	$	4,975		—		—	$	4,975
Impaired loans, net of allowance	$	666		—		—	$	666

The assets and liabilities measured at fair value on anon-recurring basis are summarized below for December 31, 2016:

	Total carrying value in the consolidated balance sheet at		Quoted Prices In Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	December 31, 2016		(Level 1)		(Level 2)		(Level 3)
	(Dollars in Thousands)
Assets
Foreclosed assets	$	2,397		—		—	$	2,397
Impaired loans, net of allowance	$	6,123		—		—	$	6,123

29

The following table presents quantitative information about level 3 fair value measurements for assets measured at fair value on a recurring andnon-recurring basis at September 30, 2017 and December 31, 2016:

	Level 3 Significant Unobservable Input Assumptions
	Fair Value		Valuation Technique		Unobservable Input		Quantitative Range of Unobservable Inputs
	(Dollars in Thousand)
September 30, 2017
Assets measured on anon-recurring basis
Foreclosed assets	$	4,975		Discount to appraised value of collateral. Auction results		Appraisal comparability adjustments		5% to 10%
Impaired loans		666		Discount to appraised value of collateral		Appraisal comparability adjustments		10% to 25%
Asset measured on a recurring basis
Trust preferred securities		1,717		Discounted cash flow Spread to Libor swap curve		Compare to quotes for sale when available		One month libor 5% to 8%
December 31, 2016
Assets measured on anon-recurring basis
Foreclosed assets	$	2,397		Discount to appraised value of collateral		Appraisal comparability adjustments		30% to 55%
Impaired loans		6,123		Discount to appraised value of collateral		Appraisal comparability adjustments		10% to 15%
Asset measured on a recurring basis
Trust preferred securities		1,817		Discounted cash flow Spread to Libor swap curve		Compare to quotes for sale when available		One month libor 4% to 6%

30

Foreclosed assets and impaired loans are valued at fair value, less cost to sell. Fair value of a foreclosed asset is determined by an appraised value of the underlying collateral to which a discount is applied. Management establishes the discount or adjustments based on recent sales and any unique features the collateral may possess. Management also considers the anticipated selling cost associated with the collateral when establishing the discounted percentage. Management may adjust the discounts based on the most recent sales of comparable collateral.     

The Company bases the value of its trust preferred security on a quarterly review of SEC filings by the issuer to ascertain overall financial strength. Based on the analysis, the Company then reviews the Libor swap curve to analyze the overall yield of our investment compared to long-term swap rates. On rare occasions, the Company may receive an offer from a broker to purchase similar type instruments and the Company will analyze these offerings compared to our investment.

The table below includes a roll-forward of the consolidated condensed statement of financial condition items for the nine month periods ended September 30, 2017 and September 30, 2016, (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.

	2017			2016
Nine month period ended September 30,	Other Assets			Other Assets
	(Dollars in Thousands)
Fair value, January 1	$	1,817			1,865
Change in unrealized gain included in other comprehensive income for assets and liabilities still held at September 30,		(113	)		105
Accretion of previously discounted amounts		13			13
Fair value, September 30	$	1,717			1,983

31

The estimated fair values of financial instruments were as follows at September 30, 2017:

	Carrying Amount		Estimated Fair Value		Quoted Prices In Active Markets for Identical Assets Level 1		Using Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3
	(Dollars in Thousands)
Financial Assets:
Cash and due from banks	$	23,469		23,469		23,469		—		—
Interest-bearing deposits		9,842		9,842		9,842		—		—
Securities available for sale		192,287		192,287		—		190,570		1,717
Federal Home Loan Bank stock		4,428		4,428		—		—		4,428
Loans held for sale		1,749		1,749		—		1,749		—
Loans receivable		625,403		608,134		—		—		608,134
Accrued interest receivable		3,414		3,414		—		—		3,414
Financial liabilities:
Deposits		731,229		731,960		—		731,960		—
Advances from borrowers for taxes and insurance		1,188		1,188		—		1,188		—
Advances from Federal Home Loan Bank		31,000		31,069		—		31,069		—
Repurchase agreements		37,829		37,829		—		37,829		—
Subordinated debentures		10,310		10,099		—		—		10,099

32

The estimated fair values of financial instruments were as follows at December 31, 2016:

	Carrying Amount		Estimated Fair Value		Quoted Prices In Active Markets for Identical Assets Level 1		Using Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3
	(Dollars in Thousands)
Financial Assets:
Cash and due from banks	$	21,779		21,779		21,779		—		—
Interest-bearing deposits		3,970		3,970		3,970		—		—
Securities available for sale		209,480		209,480		2,001		205,662		1,817
Federal Home Loan Bank stock		4,428		4,428		—		—		4,428
Loans held for sale		1,094		1,094		—		1,094		—
Loans receivable		604,286		593,257		—		—		593,257
Accrued interest receivable		3,799		3,799		—		—		3,799
Financial liabilities:
Deposits		732,882		732,942		—		732,942		—
Advances from borrowers for taxes and insurance		766		766		—		766		—
Advances from Federal Home Loan Bank		11,000		10,979		—		10,979		—
Repurchase agreements		47,655		47,655		—		47,655		—
Subordinated debentures		10,310		10,099		—		—		10,099

(7) EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS

In May 2014, the FASB issued new guidance related to “Revenue from Contracts with Customers.” This guidance supersedes the revenue recognition requirements in ASC Topic 605,Revenue Recognition, and most industry-specific guidance throughout the ASC. The guidance requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This guidance is effective for interim and annual reporting periods beginning after December 15, 2016; however, the FASB has agreed to aone-year deferral of the effective date to December 15, 2017. Management is currently evaluating the impact that this ASU will have on the Company’s consolidated financial statements.

33

ASU2016-01, “Financial Instruments – Overall (Subtopic825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.”ASU2016-01, among other things, (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (iii) eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (v) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, (vi) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements and (vii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related toavailable-for-sale. ASU2016-01 will be effective on January 1, 2018. Management is currently evaluating the impact that this ASU will have on the Company’s consolidated financial statements.

ASU2016-02, “Leases (Topic 842).” ASU2016-02 will, among other things, require lessees to recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and aright-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model and ASC Topic 606, “Revenue from Contracts with Customers.” ASU2016-02 will be effective on January 1, 2019 and will require transition using a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Management is currently evaluating the potential impact of ASU2016-02 on the Company’s consolidated financial statements.

On June 16, 2016, the FASB released its finalized ASU2016-13,“Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. The amendments to U.S. GAAP require businesses and other organization to measure the expected credit losses on financial assets, such as loans, securities, bond insurance, and many receivables. The accounting changes apply to instruments recorded on balance sheets at their historical cost, although there are some limited changes to the accounting for debt instruments classified asavailable-for-sale. Write-downs will be based on historical information, current business conditions, and forecasts, and it expects the forecasts are expected to improve the loss estimates on financial assets that are losing value. The techniques that are employed today to write down loans and other instruments can still be used, although the variables for calculating the losses are expected to change. ASU2016-13 will become effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. Companies are permitted to adopt ASU2016-13 in fiscal years beginning after December 15, 2018. Management is currently evaluating the potential impact of this ASU on the Company’s consolidated financial statements.

34

ASU2016-15“Statement of Cash Flows (Topic 230)” is intended to reduce the diversity in practice around how certain transactions are classified within the statement of cash flows. ASU2016-15 is effective for public companies for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption was permitted with retrospective application. Management is evaluating the impact that the adoption of ASU2016-15 will have on the Company’s consolidated financial statements.

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.

(8) INCOME TAXES

The Company files consolidated federal income tax returns and Tennessee excise tax returns. The Company files consolidated Kentucky income tax returns. The Bank is exempt from Kentucky corporate income tax. The Company has no unrecognized tax benefits and has accrued any interest or penalties for uncertain tax positions. The effective tax rate differs from the statutory federal rate of 35% and Tennessee excise rate of 6.5% due to investments in qualified municipal securities, Bank owned life insurance, income apportioned to Kentucky and certainnon-deductible expenses. The Company’s effective federal income tax rate varies significantly from our federal statutory tax rate for a variety of factors, including:

The Company’s investment in Fort Webb LP, LLC generates tax credits and depreciation expense that the Company can use to offset taxable income. At September 30, 2017 and December 31, 2016, the Company’s balance sheet did not include any equity investment in Fort Webb. The Company has other investments that produce both tax credits and depreciation expense that may be used to offset net income.

At September 30, 2017, the Company has $10.3 million in Bank owned life insurance policies. The income generated from these policies increase the cash flow of the policies on a tax free basis. Life insurance proceeds are paid upon the death of a covered party. These proceeds, netted against the current cash value of the policy, result in tax free income to the Company. For the nine month period ended September 30, 2017, the Company received additional income of approximately $160,000 from the net proceeds of a life insurance policy.

At September 30, 2017, the Company’s investment portfolio includes $28.2 million of tax free municipal bonds. Interest income on this portfolio, after netting out a disallowance for interest expense attributable to this portfolio, is tax exempt.

35

(9) ESOP

Substantially all of the Company’s employees who are at least 21 years old and have one year of employment with the Company participate in the 2015 HopFed Bancorp, Inc. Employee Stock Ownership Plan (“ESOP”). The ESOP purchased 600,000 shares of the Company’s common stock from the Company on March 2, 2015 at $13.14 per share. The ESOP borrowed $7.9 million from anopen-end line of credit from the Company for the purchase of the stock, using the 600,000 shares of common stock as collateral. The Company makes discretionary contributions to the ESOP. The ESOP utilizes these contributions along with the dividends on the 600,000 held by the ESOP to repay the loan from the Company. When loan payments are made, ESOP shares are released based on reductions in the principal balance of the loan. The shares are allocated to participants based on relative compensation.

Employees who are not employed on December 31st of each year are not eligible for participation in the ESOP. The Company anticipates that loan payments will be made at the end of each year. Participants receive shares at the end of employment. The Company has the option to repurchase the shares or provide the shares directly to the employee.

The Company made its second ESOP loan payment in December 2016. At September 30, 2017 and December 31, 2016, shares held by the ESOP were as follows:

	September 30, 2017		December 31, 2016
Accrued for allocation to participants		32,465		—
Earned ESOP shares		101,654		101,654
Unearned ESOP shares		465,881		498,346
Total ESOP shares		600,000		600,000
Fair value of unearned shares	$	6,731,980	$	6,707,737

(10) COMMITMENTS AND CONTINGENCIES

At September 30, 2017, the Bank had $33.3 million in outstanding commitments on revolving home equity lines of credit, $16.0 million in outstanding commitments on revolving personal lines of credit and $50.9 million in commitments to originate loans and undisbursed commitments on commercial lines of credit of $62.9 million. At September 30, 2017, the Company had $140,000 in standby letters of credit outstanding.

At September 30, 2017, the Company has $38.3 million in time deposits greater than $100,000 but less than $250,000 that are schedule to mature in one year and $73.0 million in time deposits with balances greater than $250,000 that are scheduled to mature in one year or less. 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’s1-4 family first mortgage loans andnon-residential real estate loans. At September 30, 2017 and December 31, 2016, the Bank has pledged all eligible1-4 family first mortgages. At September 30, 2017, the Bank has outstanding borrowings of $31.0 million from the FHLB. A schedule of FHLB borrowings at September 30, 2017 is provided below:

36

Outstanding Balance	Rate	Maturity
(Dollars in Thousands,Except Percentages)
$      8,000	1.27%	Overnight
5,000	0.88%	10/06/2017
6,000	1.18%	07/06/2018
7,000	1.55%	01/10/2019
5,000	1.73%	01/10/2020
$    31,000	1.33%

A schedule of FHLB borrowings at December 31, 2016 is provided below:

Outstanding Balance	Rate			Maturity
(Dollars in Thousands, Except Percentages)
$      5,000		0.88	%	10/06/2017
6,000		1.18	%	07/06/2018
$    11,000		1.04	%

The Federal Home Loan Bank of Cincinnati has issued letters of credit in the Bank’s name totaling $47.6 million secured by the Bank’s loan portfolio to secure additional municipal deposits. At September 30, 2017, securities with a book value of $39.3 million and a fair market value of $38.1 million were sold under agreements to repurchase from various customers.

The Company is a party to certain ordinary course litigation, and the Company intends to vigorously defend itself in all such matters. In the opinion of the Company, based on review and consultation with legal counsel, the outcome of such ordinary course litigation should not have a material adverse effect on the Company’s consolidated financial statements or results of operations.

37

(11) REGULATORY MATTERS

The new minimum capital level requirements applicable to Bank holding companies and Banks subject to the rules are: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 risk-based capital ratio of 6% (increased from 4%); (iii) a total risk-based capital ratio of 8% (unchanged from current rules); (iv) a Tier 1 leverage ratio of 4% for all institutions. The rules also establish a “capital conservation buffer” of 2.5% (to be phased in over three years) above the new regulatory minimum risk-based capital ratios, and result in the following minimum ratios once the capital conservation buffer is fully phased in: (i) a common equity Tier 1 risk-based capital ratio of 7%, (ii) a Tier 1 risk-based capital ratio of 8.5%, and (iii) a total risk-based capital ratio of 10.5%.

The capital conservation buffer requirement was phased in beginning in January 2016 at 0.625% of risk-weighted assets and will increase each year until fully implemented in January 2019. For 2017, the capital conservation buffer is 1.25%. An institution is subject to limitations on paying dividends, engaging in share repurchases and paying discretionary bonuses if capital levels fall below minimum plus the buffer amounts. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions.

Under these new rules, Tier 1 capital generally consists of common stock (plus related surplus) and retained earnings, limited amounts of minority interest in the form of additional Tier 1 capital instruments, andnon-cumulative preferred stock and related surplus, subject to certain eligibility standards, less goodwill and other specified intangible assets and other regulatory deductions. Cumulative preferred stock and trust preferred securities issued after May 19, 2010 no longer qualify as Tier 1 capital, but such securities issued prior to May 19, 2010, including in the case of bank holding companies with less than $15.0 billion in total assets, trust preferred securities issued prior to that date, continue to count as Tier 1 capital subject to certain limitations. The definition of Tier 2 capital is generally unchanged for most banking organizations, subject to certain new eligibility criteria.

The final rules allow banks and their holding companies with less than $250 billion in assets aone-time opportunity toopt-out of a requirement to include unrealized gains and losses in accumulated other comprehensive income in their capital calculation. The Company has made the decision toopt-out of this requirement.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of tangible and core capital (as defined in the regulations) to adjusted total assets (as defined), and of total capital (as defined) and Tier 1 to risk weighted assets (as defined). The minimum required capital amounts presented include the minimum required capital levels as of September 30, 2017 and December 31, 2016 based on thephase-in provisions of Basel III Capital Rules. Management believes, as of September 30, 2017 and December 31, 2016, that the Bank meets all capital adequacy requirements to which it is subject.

The Company’s consolidated capital ratios and the Bank’s actual capital amounts and ratios as of September 30, 2017 and December 31, 2016 are presented below:

38

	Actual					Minimum Capital Required – Basel III Phase-In Schedule					To be Well Capitalized for Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in Thousands, Except Percentages)
As of September 30, 2017
Tier 1 leverage capital to adjusted total assets
Company	$	96,428		10.9	%	$	36,273		4.0	%	$	45,341		5.0	%
Bank	$	94,196		10.6	%	$	35,461		4.0	%	$	44,326		5.0	%
Total capital to risk weighted assets
Company	$	101,228		16.3	%	$	57,354		9.25	%	$	62,005		10.0	%
Bank	$	98,995		16.0	%	$	57,225		9.25	%	$	61,865		10.0	%
Tier 1 capital to risk weighted assets
Company	$	96,428		15.6	%	$	44,953		7.25	%	$	49,604		8.0	%
Bank	$	94,196		15.2	%	$	44,852		7.25	%	$	49,492		8.0	%
Common equity tier 1 capital to risk weighted assets
Company	$	96,428		15.6	%	$	35,653		5.75	%		n/a		n/a
Bank	$	94,196		15.2	%	$	35,573		5.75	%	$	40,213		6.5	%
As of December 31, 2016
Tier 1 leverage capital to adjusted total assets
Company	$	92,803		10.8	%	$	34,392		4.0	%	$	42,990		5.0	%
Bank	$	91,617		10.7	%	$	34,315		4.0	%	$	42,894		5.0	%
Total capital to risk weighted assets
Company	$	98,915		16.2	%	$	52,682		8.625	%	$	61,080		10.0	%
Bank	$	97,729		16.0	%	$	52,561		8.625	%	$	60,941		10.0	%
Tier 1 capital to risk weighted assets
Company	$	92,803		15.2	%	$	40,466		6.625	%	$	48,864		8.0	%
Bank	$	91,617		15.0	%	$	40,373		6.625	%	$	48,753		8.0	%
Common equity tier 1 capital to risk weighted assets
Company	$	92,803		15.2	%	$	31,304		5.125	%		n/a		n/a
Bank	$	91,617		15.0	%	$	31,232		5.125	%	$	39,611		6.5	%

(12) Subsequent Event

On May 4, 2017, the Company, its directors, and a former director, were named as defendants in a lawsuit filed in the Court of Chancery in the State of Delaware by Company stockholders, Stilwell Associates, L.P., Stilwell Activist Fund, L.P. and Stilwell Activist Investments, L.P. (collectively, the “Plaintiffs”), concerning the adoption of Article III, Section 13 of the Company’s Amended and Restated Bylaws. The Bylaw concerns qualifications for individuals to serve on the Company’s Board of Directors. The Plaintiffs sought a declaration that the Bylaw was invalid or, in the alternative, a declaration that the Bylaw may not be applied to disqualify an otherwise qualified nominee or Plaintiffs on the basis of said nominee being part of a group acting in concert with one of the Plaintiffs. The Plaintiffs also sought an injunction enjoining the application of the Bylaw to disqualify an otherwise qualified nominee of Plaintiffs on the basis of said nominee being part of a group acting in concert with one of the Plaintiffs and an order declaring that all but one of the Defendants breached their fiduciary duties in adopting the Bylaw. The Plaintiffs did not seek damages. See Part II, Item 1 of the Company’s Quarterly Report on Form 10-Q filed on August 9, 2017, which is incorporated herein by reference.

On October 3, 2017, upon the recommendation of the Nominating and Corporate Governance Committee, the Board of Directors adopted amendments to Article III, Section 13 of the Bylaws. See the Company’s Current Report on Form 8-K filed on October 4, 2017, which is incorporated herein by reference.

On October 25, 2017, the Court of Chancery granted the parties’ stipulation regarding dismissal of the lawsuit and dismissed the lawsuit without prejudice, subject to possible consideration of a Fee and Expense Application by the Plaintiffs. On October 26, 2017, the Company disclosed the dismissal in a press release and filing of an SEC Form 8-K.

39

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

Critical Accounting Policies

The preparation of the Company’s consolidated financial statements requires management to make subjective judgments associated with estimates. These estimates are necessary to comply with U.S. GAAP and general banking practices. These estimates include accounting for the allowance for loan losses, foreclosed assets, valuation of deferred tax assets and fair value measurements. A description of these estimates, which significantly affect the Company’s determination of our consolidated financial position, results of operations and cash flows, is set forth in Note 1, “Summary of Significant Accounting Policies” of the Notes to the Company’s consolidated financial statements in the Company’s Annual Report on Form10-K as of and for the year ended December 31, 2016.

The emphasis of this discussion is a comparison of assets, liabilities and stockholders’ equity as of September 30, 2017 to December 31, 2016, while comparing income and expenses for the three and nine month periods ended September 30, 2017 and September 30, 2016.

All information should be read in conjunction with the Company’s unaudited interim consolidated condensed financial statements and related notes appearing elsewhere in this report and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing in the Company’s Annual Report on Form10-K as of and for the year ended December 31, 2016.

Comparison of Financial Condition at September 30, 2016, and December 31, 2016

At September 30, 2017, total assets were $904.1 million, an increase of $12.6 million compared to December 31, 2016. For the nine month period ended September 30, 2017, the Company’s net loan portfolio has increased $21.1 million, to $625.4 million. To fund the Company’s loan growth, the Company has utilized a combination of FHLB borrowings and the cash flow from our investment portfolio.

At September 30, 2017, deposits declined by $1.7 million to $731.2 million. The decline in deposit accounts is the result of lower levels of both interest bearing checking accounts andnon-interest bearing checking accounts. At September 30, 2017,non-interest checking account balances are $128.2 million, representing a decline of $3.0 million compared to December 31, 2016. At September 31, 2017, interest bearing checking accounts totaled $196.3 million, a decline of $13.0 million compared to December 31, 2016. The decline in transaction account balances appears to be the result of increases in short term interest rates, with depositors having more attractive options with other investment products. In response to the decline in transaction accounts, the Company increased its balances of FHLB borrowings and brokered deposits. At September 30, 2017, other time deposits increased $15.7 million to $308.8 million. At September 30, 2017, the balance of FHLB borrowings and brokered deposits were $31.1 million and $60.3 million, respectively, compared to $11.0 million and $33.4 million, respectively at December 31, 2016.

Management anticipates that future loan growth will be funded largely by the recruitment of local time deposits and brokered time deposits. The Company’s investment portfolio may provide additional liquidity. However, a significant portion of the investment portfolio is pledged to municipalities to secure deposits, limiting the Company’s ability to significantly increase our loan to deposit ratio above the current level of 85.5% at September 30, 2017.    

40

Comparison of Operating Results for the Nine Month Periods Ended September 30, 2017 and September 30, 2016.

The Company’s net income was $3.5 million for the nine month period ended September 30, 2017, compared to net income of $1.8 million for the nine month period ended September 30, 2016. The improved level of income is largely the result of growth in the average balance of loans, a reduction in the Company’s provision for loan loss expense and a reduction innon-interest expenses. On the last day of September, the Company experienced approximately $13.0 million in payoffs on loans. However, we have made commitments to fund construction loans that are in process that should allow the Company to continue to experience loan growth at current levels in the near future.

The Company’s total interest income for the nine month period ended September 30, 2017 was $25.2 million, compared to $23.8 million for the nine month period ended September 30, 2016. The increase in interest income for the nine month period ended September 30, 2017 compared to September 30, 2016 was largely the result of a $63.3 million increase in the average balance of loans outstanding. The growth in loan balances has occurred due to favorable results in Nashville, Tennessee and in the Kentucky counties of Christian and Fulton. For the nine month period ended September 30, 2017, total interest income on loans was $21.0 million, an increase of $1.8 million compared to the nine month period ended September 30, 2016.

For the nine month period ended September 30, 2017, the Company’s loan growth has largely occurred as a result of an increase in residential andnon-residential real estate loans. The growth in residential real estate loans includes both variable and fixed rate loans while the growth innon-residential real estate loans is largely focused onnon-owner occupied commercial real estate. At September 30, 2017, approximately 56% of the Company’snon-residential real estate loan portfolio wasnon-owner occupied. At December 31, 2016, approximately 57.0% of the Company’s non-residential real estate portfolio was non-owner occupied.

	9/30/2017		12/31/2016		Growth
	(Dollars in Thousands)
One to four family first mortgages	$	165,926	$	147,962	$	17,964
Non-residential real estate	$	216,056	$	182,940	$	33,116

For the nine month period ended September 30, 2017, the Company’s fully tax equivalent yield on loans was 4.47%, a decline from 4.55% for the nine month period ended September 30, 2016. The long term trend of decline in loan yields appears to be moderating as loans priced with indexes tied to the Wall Street Journal Prime Rate and One year constant maturity treasury rate begin to reset higher due to rising short term rates. The pricing of new loans remains highly competitive and is not likely to result in a material increase to our loan yields in the near future.

For the nine month period ended September 30, 2017, the improved level of interest income has been partially offset by an increase in interest expense. For the nine month period ended September 30, 2017, the Company’s interest expense on deposits was $3.6 million, representing an increase of $424,000 compared to the nine month period ended September 30, 2016. This increase is largely the result of an increase in the average balances of interest bearing deposits. For the nine month period ended September 30, 2017, the average balance of interest bearing deposits was $622.1 million, representing an increase of $26.2 million compared to the average balance of interest bearing deposits for the nine month period ended September 30, 2016. The total cost of average deposits was 0.64% for the nine month period ended September 30, 2017 and 0.58% for the nine month period ended September 30, 2016. As the Company seeks to continue trends for additional loan growth, we anticipate that we will experience further increases to our deposit expenses largely due to competitive pressures and the anticipated continued increases in short term interest rates.

The average balance of repurchase agreements declined from $44.2 million for the nine months ended September 30, 2016 to $39.6 million for the nine month period ended September 30, 2017. The average balance of FHLB borrowings increased from $12.9 million for the nine months ended September 30, 2016 to $17.2 million for the nine month period ended September 30, 2017.

41

Average Balances, Yields and Interest Expenses. The table on the next page summarizes the overall effect of changes in both interest rates and the average balances of interest earning assets and liabilities for the nine month periods ended September 30, 2017 and September 30, 2016. 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 nine month periods.

42

Average balances for loans include loans classified asnon-accrual, net of the allowance for loan losses. The table adjuststax-free investment income by $394,000 for the nine month period ended September 30, 2017 and $506,000 for the nine month period ended September 30, 2016, for a tax equivalent rate using a cost of funds rate of 0.85%for the nine month period ended September 30, 2017 and 0.80% for the nine month period ended September 30, 2016. The table adjuststax-free loan income by $40,000 for the nine month period ended September 30, 2017 and $20,000 for the nine month period ended September 30, 2016, for a tax equivalent rate using the same cost of funds rate:

	Average Balance 09/30/2017		Income & Expense 09/30/2017			Average Rates 09/30/2017			Average Balance 09/30/2016		Income & Expense 09/30/2016			Average Rates 09/30/2016
	(Dollars in Thousands, Except Percentages)
Loans	$	626,123	$	20,999			4.47	%	$	562,870	$	19,195			4.55	%
Taxable AFS securities		175,891		3,397			2.58	%		194,657		3,544			2.43	%
Non-taxable AFS securities		31,941		1,190			4.97	%		40,283		1,525			5.05	%
Other interest bearing deposits in banks		6,490		62			1.27	%		8,168		38			0.62	%
Total interest earning assets		840,445		25,648			4.07	%		805,978		24,302			4.02	%
Other assets		67,884								74,212
Total assets	$	908,329							$	880,190
Retail time deposits	$	255,675		2,032			1.06	%	$	257,790		1,835			0.95	%
Brokered deposits		49,913		454			1.21	%		35,853		294			1.09	%
Interest bearing checking accounts		217,320		960			0.59	%		203,736		888			0.58	%
MMDA and savings accounts		99,160		124			0.17	%		98,510		129			0.17	%
FHLB borrowings		17,222		151			1.17	%		12,876		134			1.39	%
Repurchase agreements		39,638		352			1.18	%		44,186		421			1.27	%
Subordinated debentures		10,310		324			4.19	%		10,310		287			3.71	%
Total interest bearing liabilities		689,238		4,397			0.85	%		663,261		3,988			0.80	%
Non-interest bearing deposits		126,973								124,788
Othernon-interest bearing liabilities		4,257								3,501
Stockholders’ equity		87,861								88,640
Total liabilities and stockholders’ equity	$	908,329							$	880,190
Net interest income			$	21,251							$	20,314
Interest rate spread							3.22	%							3.22	%
Net interest margin				3.37	%							3.36	%

43

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 $421,000 in provision for loan loss was required for the nine month period ended September 30, 2017 compared to a $1.2 million provision for loan loss expense for the nine month period ended September 30, 2016. The lower level of required provision expense for the nine month period ended September 30, 2017 compared to September 30, 2016 is the result of $1.3 million in recoveries on previously charged off loans during the nine month period ended September 30, 2017, a significant decline in the Company’snon-accrual loans and reduced amounts of loans classified as substandard. The Company anticipates a minimal level of provision expense in the next few quarters given the reduction in both non-accrual loans and loan relationships classified as substandard.

Income Taxes. The effective tax rate for the nine month periods ending September 30, 2017 was 22.1% compared to 5.4% for the nine month period ended September 30, 2016. The increase in the Company’s tax rate is due to an increase in taxable net interest income. The Company’s tax rate remains well below the statutory tax rate of 34% due to the relatively high level of tax free income from $31.9 million in tax free municipal bonds and an increase in income from Bank owned life insurance resulting from the receipt of approximately $160,000 in proceeds from the death benefit of a life insurance policy.

Comparison of Operating Results for the Three Month Periods Ended September 30, 2017 and September 30, 2016.

The Company’s net income was $1.4 million for the three month period ended September 30, 2017, compared to net income of $985,000 for the three month period ended September 30, 2016. The improved level of net income for the three month period ended September 30, 2017 compared to the three month period ended September 30, 2016 was largely the result of growth in the average balance of loans, an $185,000 reduction innon-interest expenses and a $184,000 decline in the Company’s provision for loan loss expense.

The Company’s total interest income for the three month period ended September 30, 2017 was $8.6 million, compared to $8.0 million for the three month period ended September 30, 2016. The increase in net interest income for the three month period ended September 30, 2017 compared to September 30, 2016 was largely due to the $61.9 million increase in the average balance of loans outstanding.

For the three month period ended September 30, 2017, total interest expense was $1.5 million compared to $1.3 million for the three month period ended September 30, 2016. The increase in interest expense is largely the result of a $27.5 million increase in the average balance of interest bearing deposits used to fund current period loan growth. For the three month period ended September 30, 2017, the cost of average total deposits was 0.65% compared to 0.59% for the three month period ended September 30, 2016.

For the three month period ended September 30, 2017, the Company’s FHLB borrowing expense was $89,000 compared to $33,000 for the three month period ended September 30, 2016 due to a $12.9 million increase in the average balances of FHLB loans outstanding. For the three month periods ended September 30, 2017 and September 30, 2016, the Company’s cost of interest bearing liabilities was 0.89% and 0.80%, respectively. For the three month periods ended September 30, 2017 and September 30, 2016, the Company’s net interest margin was 3.43% and 3.41%, respectively.

The Company anticipates that the current trends in the marketplace, tighter liquidity levels and higher deposit cost, will require the Company to incur higher cost to fund our balance sheet. The immediate benefit of an increase in the New York Prime rate is beneficial. However, we may relinquish a portion of net income improvement to fund our balance sheet.

44

Average Balances, Yields and Interest Expenses. The table on the next page 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 September 30, 2017 and September 30, 2016. 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.

45

Average balances for loans include loans classified asnon-accrual, net of the allowance for loan losses. The table adjuststax-free investment income by $115,000 for the three month period ended September 30, 2017 and $162,000 for the three month period ended September 30, 2016, for a tax equivalent rate using a cost of funds rate of 0.89%for the three month period ended September 30, 2017 and 0.80% for the three month period ended September 30, 2016. The table adjuststax-free loan income by $17,000 for the three month period ended September 30, 2017 and $6,000 for the three month period ended September 30, 2016, for a tax equivalent rate using the same cost of funds rate (Dollars in thousands):

	Average Balance 09/30/2017		Income & Expense 09/30/2017			Average Rates 09/30/2017			Average Balance 09/30/2016		Income & Expense 09/30/2016			Average Rates 09/30/2016
	(Dollars in Thousands, Except Percentages)
Loans	$	636,955	$	7,277			4.57	%	$	575,083	$	6,575			4.57	%
Taxable AFS securities		173,624		1,124			2.59	%		185,812		1,099			2.37	%
Non-taxable AFS securities		29,090		348			4.78	%		38,467		488			5.07	%
Other interest bearing deposits in banks		4,351		18			1.65	%		5,517		10			0.73	%
Total interest earning assets		844,020		8,767			4.15	%		804,879		8,172			4.06	%
Other assets		64,913								69,248
Total assets	$	908,933							$	874,127
Retail time deposits	$	250,083		690			1.10	%	$	255,840		617			0.96	%
Brokered deposits		54,767		174			1.27	%		38,574		107			1.11	%
Interest bearing checking accounts		208,940		300			0.57	%		191,721		278			0.58	%
MMDA and savings accounts		98,895		42			0.17	%		99,077		42			0.17	%
FHLB borrowings		26,909		89			1.32	%		14,022		33			0.94	%
Repurchase agreements		37,978		130			1.37	%		46,282		139			1.20	%
Subordinated debentures		10,310		112			4.35	%		10,310		99			3.84	%
Total interest bearing liabilities		687,852		1,537			0.89	%		655,826		1,315			0.80	%
Non-interest bearing deposits		126,039								125,598
Othernon-interest bearing liabilities		5,628								3,781
Stockholders’ equity		89,214								88,922
Total liabilities and stockholders’ equity	$	908,933							$	874,127
Net interest income			$	7,230							$	6,857
Interest rate spread							3.26	%							3.26	%
Net interest margin				3.43	%							3.41	%

46

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 $71,000 in provision for loan loss was required for the three month period ended September 30, 2017 compared to a $255,000 provision for loan loss expense for the three month period ended September 30, 2016. In the three month period ended September 30, 2017, the Company recognized a charge off of $2.6 million on a loan relationship of $6.7 million. The charge off of the Company’s largest problem loan relationship has dramatically reduced our level ofnon-accrual loans and classified assets. The Company anticipates a minimal level of provision expense in the next few quarters given the reduction in both non-accrual loans and loan relationships classified as substandard.

Income Taxes. The effective tax rate for the three month periods ending September 30, 2017 was 25.8% due to an increase in the Company’s taxable net interest income. For the three month period ended September 30, 2016, the Company’s effective tax rate was 4.0% due to very low levels of net income and a relatively higher level of tax free 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.

47

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 income statement. At September 30, 2017, the Bank’s brokered deposits consisted of the following:

Issue Date	Interest Rate	Balance	Maturity
8/16/2016	0.75%	2,153,000	10/16/2017
7/22/2016	0.75%	2,070,000	11/22/2017
10/24/2016	0.80%	964,000	12/24/2017
1/3/2013	1.00%	3,030,000	1/3/2018
1/9/2015	1.20%	2,004,000	1/9/2018
7/10/2017	1.25%	3,320,000	2/10/2018
8/15/2017	1.20%	3,074,000	2/15/2018
8/15/2017	1.15%	2,748,000	2/15/2018
7/29/2016	0.85%	1,887,000	3/29/2018
1/12/2017	1.10%	5,433,000	4/12/2018
2/15/2017	1.10%	4,986,000	5/15/2018
10/24/2016	1.00%	2,149,000	6/24/2018
8/15/2017	1.45%	5,854,000	8/15/2018
1/12/2017	1.25%	5,074,000	9/12/2018
7/10/2017	1.40%	1,079,000	10/10/2018
7/19/2017	1.50%	2,060,000	11/19/2018
2/15/2017	1.30%	4,278,000	12/15/2018
8/16/2016	1.00%	1,008,000	2/19/2019
7/22/2016	1.00%	2,138,000	5/22/2019
7/29/2016	1.05%	2,964,000	7/29/2019
8/16/2016	1.10%	1,978,000	8/16/2019
Total		60,251,000

Forward-Looking Statements

This Quarterly Report on Form10-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,

48

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 andpay-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, 2017 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 September 30, 2017 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 September 30, 2017 for the twelve month period ending September 30, 2018 is as follows:

	Down 1.00%	No change	Up 1.00%	Up 2.00%	Up 3.00%
	(Dollars in Thousands)
Net interest income	$28,530	$29,929	$30,950	$31,767	$32,488

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures.

In accordance with Rule13a-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 Rule13a-15(e) and15d-15(e) under the Exchange Act) as of the end of the quarter ended September 30, 2017.

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 nine months ended September 30, 2017 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 Form10-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.

49

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 September 30, 2017 that have materially affected, or are reasonable likely to materially affect, the Company’s internal control over financial reporting.     

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

On May 4, 2017, the Company, its directors, and a former director, were named as defendants in a lawsuit filed in the Court of Chancery in the State of Delaware by Company stockholders, Stilwell Associates, L.P., Stilwell Activist Fund, L.P. and Stilwell Activist Investments, L.P. (collectively, the “Plaintiffs”), concerning the adoption of Article III, Section 13 of the Company’s Amended and Restated Bylaws. The Bylaw concerns qualifications for individuals to serve on the Company’s Board of Directors. The Plaintiffs sought a declaration that the Bylaw was invalid or, in the alternative, a declaration that the Bylaw may not be applied to disqualify an otherwise qualified nominee or Plaintiffs on the basis of said nominee being part of a group acting in concert with one of the Plaintiffs. The Plaintiffs also sought an injunction enjoining the application of the Bylaw to disqualify an otherwise qualified nominee of Plaintiffs on the basis of said nominee being part of a group acting in concert with one of the Plaintiffs and an order declaring that all but one of the Defendants breached their fiduciary duties in adopting the Bylaw. The Plaintiffs did not seek damages. See Part II, Item 1 of the Company’s Quarterly Report on Form 10-Q filed on August 9, 2017, which is incorporated herein by reference.

On October 3, 2017, upon the recommendation of the Nominating and Corporate Governance Committee, the Board of Directors adopted amendments to Article III, Section 13 of the Bylaws. See the Company’s Current Report on Form 8-K filed on October 4, 2017, which is incorporated herein by reference.

On October 25, 2017, the Court of Chancery granted the parties’ stipulation regarding dismissal of the lawsuit and dismissed the lawsuit without prejudice, subject to possible consideration of a Fee and Expense Application by the Plaintiffs. On October 26, 2017, the Company disclosed the dismissal in a press release and filing of an SEC Form 8-K.

50

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 Form10-K for the fiscal year ended December 31, 2016.

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

(a) Unregistered Sales of Equity Securities.

None

(b) Use of Proceeds.

Not applicable

(c) Repurchase of Equity Securities

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total number of shares Purchased as part of Publically Announced Programs		Maximum Number of Shares that Yet may be Purchased Under the Program at the end of the period
July 1, 2017 to July 31, 2017		190	$	14.25		1,847,457		91,229
August 1, 2017 to August 31, 2017		10,000	$	14.05		1,857,457		81,229
September 1, 2017 to September 30, 2017		30,000	$	14.23		1,857,457		51,229
Total		40,190	$	14.14		1,857,457		51,229

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not Applicable

Item 5. Other Information

None

51

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 Form10-Q for the three and nine month periods ended September 30, 2017 formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Condensed Statements of Financial Condition as of September 30, 2017 (unaudited) and December 31, 2016, (ii) Consolidated Condensed Statements of Income for the three and nine month periods ended September 30, 2017 and September 30, 2016 (unaudited), (iii) Consolidated Condensed Statements of Comprehensive Income (Loss) for the nine month periods ended September 30, 2017 and September 30, 2016 (unaudited), (iv) Consolidated Condensed Statements of Stockholders’ Equity, for the nine month periods ended September 30, 2016 and September 30, 2017 (unaudited); and (v) Consolidated Condensed Statements of Cash Flows, for the nine month periods ended September 30, 2017 and September 30, 2016 (unaudited), and (iv) Notes to Consolidated Condensed Financial Statements (unaudited), tagged as blocks of text.

SIGNATURES

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

		HOPFED BANCORP, INC.
Date: November 8, 2017	/s/ John E. Peck
		John E. Peck
		President and Chief Executive Officer
Date: November 8, 2017	/s/ Billy C. Duvall
		Billy C. Duvall
		Senior Vice President, Chief Financial
		Officer and Treasurer

52