10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2012 Commission file number 000-23667

HOPFED BANCORP, INC.

(Exact name of registrant as specified in its charter)

Delaware	61-1322555
(State of jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

4155 Lafayette Road, Hopkinsville, KY	42240
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (270) 885-1171.

Securities registered pursuant to Section 12(b) of the Act: None.

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $.01 per share

(Title of Class)

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes    ¨    No  x.

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 90 days.    YES  x    NO  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (subsection 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. (as defined in Rule 12b-2 of the Act).

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller Reporting Company	x

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

The registrant’s voting stock is traded on the NASDAQ Stock Market. The aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the price ($7.20 per share) at which the stock was sold on June 29, 2012, was approximately $51,961,946. For purposes of this calculation, the term “affiliate” refers to all executive officers and directors of the registrant and all stockholders beneficially owning more than 10% of the registrant’s Common Stock.

As of the close of business on March 29, 2013, 7,503,039 shares of the registrant’s Common Stock were outstanding.

Documents Incorporated By Reference

Part II:

Annual Report to Stockholders for the year ended December 31, 2012.

Part III:

Portions of the definitive proxy statement for the 2013 Annual Meeting of Stockholders.

PART I

ITEM 1. BUSINESS

In February 1998, HopFed Bancorp, Inc. (the “Corporation”) issued and sold 4,033,625 shares of common stock, par value $.01 per share (the “Common Stock”), in connection with the conversion of Hopkinsville Federal Savings Bank (the “Bank”) from a federal mutual savings bank to a federal stock savings bank and the issuance of the Bank’s capital stock to the Corporation. The conversion of the Bank, the acquisition of all of the outstanding capital stock of the Bank by the Corporation and the issuance and sale of the Common Stock are collectively referred to herein as the “Conversion.” In June of 2010, the Corporation issued and sold 3,333,334 shares of common stock, par value $0.01 per share in connection with a common stock offering. In July 2010, the Corporation issued and sold an additional 250,000 shares of common stock. Both sales were completed at an offering price of $9.00 per share ($8.55 net of expenses). After underwriting fees and selling expenses, the Corporation received additional capital proceeds of approximately $30.4 million. The consolidated results of the Bank and the Corporation are referred to as the Company.

HopFed Bancorp, Inc.

HopFed Bancorp, Inc. was incorporated under the laws of the State of Delaware in May 1997 at the direction of the Board of Directors of the Bank for the purpose of serving as a savings and loan holding company of the Bank upon the acquisition of all of the capital stock issued by the Bank in the Conversion. The Corporation’s assets primarily consist of the outstanding capital stock of the Bank. The Corporation’s principal business is overseeing the business of the Bank. The Corporation has registered with the Federal Reserve Bank (“FRB”) as a savings and loan holding company. See “Regulation – Regulation of the Company.”

As a holding company, the Corporation has greater flexibility than the Bank to diversify its business activities through existing or newly formed subsidiaries or through acquisition or merger with other financial institutions. On February 12, 2013, the Company announced the acquisition of Sumner Bank & Trust (“Sumner”) in Gallatin, Tennessee. The rationale and a discussion of this acquisition is further detailed beginning of page 3 of this report. The Company continues to view acquisitions in higher growth markets as a cost effective means of growth given the current market prices for institutions in our market area.

The Company is classified as a unitary savings and loan holding company. In previous years, both the Company and its wholly owned subsidiary, Heritage Bank, were supervised by the Office of Thrift Supervision. As part of the Dodd-Frank Act of 2010, the Office of Thrift Supervision was merged into the Office of the Comptroller of the Currency (OCC) on July 21, 2011, which assumed responsibility for the supervision of Heritage Bank. After the merger of the Office of Thrift Supervision into the Office of the Comptroller of the Currency, the Federal Reserve Bank (FRB) assumed responsibility for the supervision and regulation of the Company. The Company’s executive offices are located at 4155 Lafayette Road, Hopkinsville, Kentucky 42240, and its main telephone number is (270) 885-1171. The Company’s mailing address is P.O. Box 537, Hopkinsville, Kentucky 42241-0537.

Heritage Bank

The Bank is a federally chartered stock savings bank headquartered in Hopkinsville, Kentucky, with branch offices in Kentucky and Tennessee. The Kentucky locations include Hopkinsville, Murray, Cadiz, Elkton, Fulton, Calvert City and Benton. The Tennessee locations include Clarksville, Pleasant View, Ashland City, Kingston Springs and Erin. The Bank was incorporated by the Commonwealth of Kentucky in 1879 under the name Hopkinsville Building and Loan Association. In 1940, the Bank converted to a federal mutual savings association and received federal insurance of its deposit accounts. In 1983, the Bank became a federal mutual savings bank. On May 14, 2002, the Bank changed its name from Hopkinsville Federal Bank to Heritage Bank. The primary market area of the Bank consists of the adjacent counties of Calloway, Christian, Todd, Trigg, Fulton, and Marshall located in southwestern Kentucky and Montgomery, Cheatham, Houston, Obion & Weakley counties located in Tennessee.

2

The business of the Bank primarily consists of attracting deposits from the general public and investing such deposits in loans secured by single family residential real estate and investment securities, including U.S. Government and agency securities, municipal and corporate bonds, collateralized mortgages obligations (CMO’s), and mortgage-backed securities. The Bank also originates single-family residential/construction loans and multi-family and commercial real estate loans, as well as loans secured by deposits, other consumer loans and commercial loans. The Bank emphasizes the origination of residential real estate loans with adjustable interest rates and other assets which are responsive to changes in interest rates and allow the Bank to more closely match the interest rate maturation of its assets and liabilities.

Growth Opportunities

For the three year period ended December 31, 2012, the Company’s loan portfolio shrank by approximately $115.5 million. There were many factors that resulted in the Company’s negative loan growth over this period. In 2010, the deployment of more than 15,000 troops from nearby Fort Campbell, Kentucky to Afghanistan resulted in a reduced level of economic activity, lower sales for merchants, weaker demand for most goods and services and reduced tax collections. Furthermore, the deployment of troops occurred during a time of a national recession, further exasperating the weakness in the local economy. In late 2008, management’s decision to dramatically scale back construction and development lending also led to lower loan balances but an improved risk profile. At December 31, 2009, construction and land development loans totaled $97.7 million, as compared to $64.8 million at December 31, 2012.

Another important factor inhibiting lending growth was the presence of a Memorandum of Understanding and Agreement (MOU) originally between the Board of Directors of the Company and the OTS, the Company’s and Banks former regulator. The MOU required the Bank to limit the growth of specific types of lending, including commercial real estate lending. In 2010 and 2011, the MOU’s limitation on commercial real estate made it more difficult for the Bank to experience positive loan growth. The MOU’s limitation on commercial real estate lending was focused on the OTS definition of commercial real estate loan concentrations. In October 2012, the Office of the Comptroller of the Currency (“OCC”), the Bank’s current primary regulator, terminated the Bank’s MOU. In November of 2012, the Federal Reserve Bank (“FRB”) likewise terminated the MOU for the Company. We view the termination of both MOU’s as a positive development as we seek future growth opportunities.

In response to the decline in loans balance outstanding, the Company has sought to reduce the level and cost of its interest bearing liabilities. At April 30, 2010, the Company had brokered deposits totaling $104.0 million as compared to $44.5 million at December 31, 2012. The Company has also reduced the balance of Federal Home Loan Bank (“FHLB”) borrowings from $81.9 million at December 31, 2010, to $43.7 million at December 31, 2012. The reduction of FHLB borrowings include early repayments of $16.0 million in borrowings in September of 2012 resulting in $480,000 in prepayment penalties. In addition to reducing our level of wholesale funding, the Company’s funding mix has significantly improved, resulting in lower interest cost. At December 31, 2012, total time deposits (including brokered) were $437.1 million, a decline of $82.9 million as compared to December 31, 2011. Since December 31, 2010, total time deposits have declined by $117.9 million and total deposits have declined by $67.1 million during the same two year period.

The Company’s rural markets suffered a severe drought in 2012, reducing the average yield on corn from 180 bushels per acre to less than 40 bushels per acre. Soybean and wheat fared better as yields were close to historical norms. Despite poor corn yields, the agriculture sector remained stable due to strong commodity prices and the presence of crop insurance. Land prices continue to rise and the industry remains optimistic with 2013 land under production remaining near historically high levels.

The Clarksville, Montgomery County, Tennessee (“Clarksville”) market suffered a recent setback with the announcement that the Hemlock Semiconductor plant (production was scheduled to begin in late 2012) would not begin production due to the market conditions surrounding the solar industry. The Company terminated approximately 300 employees but the bigger loss is the anticipated growth in employment and economic activity that will not occur in the near future. Hemlock’s statement indicated that they were committed to production in Clarksville but must wait for the solar market to improve. No date was given for the beginning of production.

3

Despite the setback discussed above, management views Clarksville as the most vibrant market currently served by the Company. The table below is a summary of selected information from the 2010 U.S. Census related to the Company’s current market area:

	2010 Census Est Population		Population Change 2000- 2010			Median Household Income		Median Value Owner occupied housing units
Christian (Hopkinsville)		73,955		2.3	%	$	37,061	$	95,500
Marshall		31,448		4.4	%	$	43,326	$	96,900
Calloway		37,191		8.8	%	$	39,194	$	105,300
Todd		12,460		4.1	%	$	36,989	$	79,700
Trigg		14,339		13.8	%	$	41,825	$	98,300
Fulton		6,813		–12.1	%	$	31,965	$	55,300
Mongomery (Clarksville)		172,331		27.9	%	$	48,930	$	129,400
Cheatham		39,105		9.0	%	$	52,585	$	155,900
Houston		8,486		4.2	%	$	33,738	$	87,900

In conducting an analysis of this data, Clarksville is the only market currently served by the Company with a 10 year population growth rate of more than 10% and a total population of more than 15,000. Only two markets, Clarksville and Cheatham County, have median household incomes greater than $43,500 per year, which is the approximate median household income in Tennessee and Kentucky and less that the $51,900 median household income in the United States. The population of the Company’s current footprint is approximately 400,000.

The following chart outlines the Bank’s market share in its six largest markets individually at June 30, 2009, 2010, 2011, and 2012, according to information provided by the FDIC market Share Report:

	At June 30
	2009			2010			2011			2012
Calloway		14.0	%		17.4	%		16.2	%		15.3	%
Christian		22.8	%		28.4	%		26.2	%		22.5	%
Fulton		58.9	%		58.2	%		56.4	%		53.9	%
Marshall		14.3	%		14.6	%		15.0	%		14.9	%
Cheatham		14.9	%		14.8	%		16.9	%		17.8	%
Montgomery		2.9	%		3.2	%		3.0	%		3.0	%

4

In addition to the Clarksville market, management views promising opportunities for growth in the midsize metropolitan markets near the Company’s current locations. Highly desirable markets include Bowling Green, Kentucky, Hardin, Kentucky, Louisville, Kentucky, and Nashville, Tennessee. These markets provide desirable demographic and growth opportunities as compared to the Company’s current footprint. As evident in the table below, Kentucky growth opportunities may be most attractive in Bowling Green, which is approximately 70 miles from the Company’s corporate headquarters. The tables below include the two largest counties by population in the Kentucky and other communities in Kentucky within a two hour drive of the Company’s headquarters:

Kentucky	2010 Census Population		Population Change 2000- 2010			Median Household Income		Median Value Owner occupied housing units
Henderson		46,250		3.2	%	$	40,438	$	101,200
Hardin (Elizabethtown)		105,543		12.1	%	$	47,540	$	131,900
Daviess (Owensboro)		96,656		5.6	%	$	42,821	$	106,400
McCracken (Paducah)		65,565		0.1	%	$	41,630	$	107,500
Warren (Bowling Green)		113,792		23.0	%	$	43,954	$	135,400
Fayette (Lexington)		295,803		13.5	%	$	47,469	$	159,200
Jefferson (Louisville)		741,096		6.8	%	$	45,352	$	145,900

Meanwhile, the Nashville, Tennessee metropolitan statistical area has a population of approximately 1.6 million (includes Cheatham County, Tennessee listed above) and attractive demographics outlined below:

Nashville TN MSA	2010 Estimated Census Population		Population Change 2000- 2010			Median Household Income		Median Value Owner occupied housing units
Robertson (Springfield)		66,283		21.8	%	$	50,820	$	149,100
Sumner (Gallatin)		160,645		23.1	%	$	54,916	$	169,100
Wilson (Lebanon)		113,193		28.4	%	$	60,678	$	187,500
Rutherford (Murfreesboro)		262,604		44.3	%	$	53,770	$	157,100
Williamson (Franklin)		183,182		44.7	%	$	87,832	$	335,800
Maury (Columbia)		80,956		16.5	%	$	46,278	$	137,100
Dickson		49,666		15.1	%	$	44,554	$	128,700
Davidson (Nashville)		626,681		10.0	%	$	45,668	$	164,700
Cheatham (listed above)		39,105		9.00	%	$	52,585	$	155,900

Equity Transactions

On December 12, 2008, the Company received an $18.4 million investment from the United States Treasury (“Treasury”) in the form of preferred stock. The terms of the investment included a 5% dividend for five years, increasing to 9% thereafter. The investment had no stated maturity but could be paid back in whole or part at any time with regulatory approval. In addition to the dividend, the Treasury received a stock Warrant that allowed the Treasury to immediately purchase 243,816 shares of the Company’s Common Stock immediately at a strike price of $11.32 and had a final maturity of December 12, 2018. The amount and price of the warrant have been adjusted to 253,667 shares and a strike price of $10.88 as a result of a 2% stock dividend declared for shareholders of record at September 30, 2010 and October 3, 2011.

On December 19, 2012, the Company repurchased all outstanding shares of preferred stock at par from the Treasury. The Company did not issue additional capital to repurchase the preferred stock. The repurchased Preferred Stock is recognized on the Company’s balance sheet as treasury shares. On January 16, 2013, the Company repurchased the outstanding Warrant from the Treasury for $256,257.

5

In June and July of 2010, the Company sold a total of 3,583,334 shares of Common Stock at $9.00 per share ($8.55 net of expenses) in a public offering. The net proceeds of the public offering, $30.4 million, were used for general corporate purposes and included a $10.0 million investment to the Bank. The sale of common stock in June 2010 included 112,639 shares of treasury stock.

Subsequent Event

On January 16, 2013, the Company announced that it had repurchased a Warrant issued to the Treasury for $256,257. The Warrant was originally issued on December 12, 2008 and allowed the owner to purchase 253,667 shares of the Company’s common stock at $10.88 per share. The Warrant was to mature on December 12, 2018.

On February 12, 2013, the Company announced the acquisition of Sumner Bank & Trust (“Sumner”) in Gallatin, Tennessee for approximately $14.3 million in cash, or $10.04 per share. At December 31, 2012, Sumner had assets of $184.0 million, deposits of $157.6 million and loans outstanding of $121.6 million. Sumner has two full service banking locations in Gallatin, Tennessee and one full service location in Hendersonville, Tennessee. Sumner has three loan production offices in the Tennessee communities of Franklin and Lebanon in middle Tennessee and Jackson in west Tennessee. The acquisition of Sumner will provide us with greater access to the Nashville, Tennessee market as well as an entry into the west Tennessee market. The Sumner acquisition is subject to approval by Sumner’s shareholders and regulatory approval and is expected to close in the third quarter of 2013.

Available Information

The Company’s filings with the Securities and Exchange Commission (“SEC”), including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments thereto, are available on the Company’s website as soon as reasonably practicable after the reports are filed with or furnished to the SEC. Copies can be obtained free of charge in the “Investor Relations” section of the Company’s website at www.bankwithheritage.com.

Stock Repurchases

The Company’s acceptance of the capital investment from the Treasury required the Company to cease all stock repurchase activity for a period of no less than three years or until capital investment is redeemed in full, which occurred in December 2012. As of March 29, 2013, 402,916 shares of common stock had been repurchased. The Company did not purchase any capital stock in 2011 or 2012. The repurchase of Preferred Stock from the Treasury resulted in the Company recognizing 18,400 shares of treasury preferred stock.

Lending Activities

General. The total gross loan portfolio totaled $535.5 million at December 31, 2012, representing 55.3% of total assets at that date. Substantially all loans are originated in the Bank’s market area. At December 31, 2012, $203.8 million, or 38.0% of the loan portfolio, consisted of one-to-four family, residential mortgage loans. Other loans secured by real estate include non-residential real estate loans, which amounted to $215.3 million, or 40.2% of the loan portfolio at December 31, 2012, and multi-family residential loans, which were $33.1 million, or 6.2% of the loan portfolio at December 31, 2012. At December 31, 2012, construction loans were $18.9 million, or 3.5% of the loan portfolio, and total consumer and commercial loans totaled $64.4 million, or 12.1% of the loan portfolio.

6

Analysis of Loan Portfolio. Set forth below is selected data relating to the composition of the loan portfolio by type of loan at the dates indicated. At December 31, 2012, there were no concentrations of loans exceeding 10% of total loans other than as disclosed below.

	2012						2011						2010						2009						2008
	Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent
	(Dollars in thousands)
Type of Loan:
Real estate loans:
One-to-four family residential	$	203,754			38.0	%	$	216,095			38.1	%	$	229,058			37.6	%	$	240,823			37.0	%	$	223,598			35.3	%
Multi-family residential		33,056			6.2	%		33,739			5.9	%		29,416			4.8	%		46,325			7.1	%		36,857			5.8	%
Construction		18,900			3.5	%		11,931			2.1	%		23,361			3.8	%		33,216			5.1	%		62,300			9.8	%
Non-residential (1)		215,342			40.2	%		235,823			41.6	%		255,348			41.9	%		254,067			39.0	%		223,180			35.2	%
Total real estate loans		471,052			87.9	%		497,588			87.7	%		537,183			88.1	%		574,431			88.2	%		545,935			86.1	%
Other loans:
Secured by deposits		3,768			0.7	%		4,016			0.7	%		4,081			0.7	%		4,075			0.6	%		3,949			0.6	%
Other consumer loans		10,118			1.9	%		11,094			2.0	%		13,979			2.3	%		17,908			2.8	%		19,731			3.1	%
Commercial loans		50,549			9.5	%		54,673			9.6	%		54,439			8.9	%		54,531			8.4	%		64,595			10.2	%
Total other loans		64,435			12.1	%		69,783			12.3	%		72,499			11.9	%		76,514			11.8	%		88,275			13.9	%
		535,487			100.0	%		567,371			100.0	%		609,682			100.0	%		650,945			100.0	%		634,210			100.0	%
Deferred loan cost, net		146						251						363						261						279
Allowance for loan losses		(10,648	)					(11,262	)					(9,830	)					(8,851	)					(6,133	)
Total	$	524,985					$	556,360					$	600,215					$	642,355					$	628,356

(1) Consists of loans secured by first liens on residential lots and loans secured by first mortgages on commercial real property and land.

Loan Maturity Schedule. The following table sets forth certain information at December 31, 2012, regarding the dollar amount of loans maturing in the portfolio based on their contractual maturity dates. Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdrafts are reported as due in one year or less.

	Due the year ending December 31,						Due 3 through 5 years after December 31,		Due 5 through 10 years after December 31,		Due 10 through 15 years after December 31,		Due 15 years after December 31,
	2013		2014		2015		2013		2013		2013		2013		Total
	(Dollars In Thousands)
One-to-four family residential	$	5,635		3,103		2,004		10,977		53,412		34,117		94,506		203,754
Multi-family residential		3,294		174		—		3,849		3,455		1,784		20,500		33,056
Construction		13,229		1,182		—		—		508		—		3,981		18,900
Non-residential		45,508		9,136		2,147		17,593		24,339		51,861		64,758		215,342
Secured by deposits		2,506		664		309		264		25		—		—		3,768
Other		23,493		7,887		8,549		9,650		7,603		3,072		413		60,667
Total	$	93,665		22,146		13,009		42,333		89,342		90,834		184,158		535,487

7

The following table sets forth at December 31, 2012, the dollar amount of all loans due after December 31, 2013, which had predetermined interest rates and had floating or adjustable interest rates.

	Predetermined Rate		Floating or Adjustable Rate
	(Dollars In Thousands)
One-to-four family residential	$	33,249	$	164,870
Multi-family residential		4,461		25,301
Construction		116		5,555
Non-residential		43,062		126,772
Other		29,932		8,504
Total	$	110,820	$	331,002

Scheduled contractual principal repayments of loans do not reflect the actual life of such assets. The average life of loans is substantially less than their contractual terms because of prepayments. In addition, due-on-sale clauses on loans generally give the lender the right to declare a loan immediately due and payable in the event, among other things, that the borrower sells the real property subject to the mortgage and the loan is not repaid. The average life of mortgage loans tends to increase when current mortgage loan market rates are substantially higher than rates on existing mortgage loans and, conversely, decrease when current mortgage loan market rates are substantially lower than rates on existing mortgage loans.

In the last ten years, the Company has attempted to diversify its loan portfolio mix to mitigate the risk of lending in a geographically limited area. The Company uses several metrics to measure our relative success in this area. The table below identifies loan balances by type as a percentage of consolidated total risk based capital:

	Total		Current Balance as Percentage Of Consolidated Risk Based Capital
	(Dollars in Thousands)
One-to-four family residential	$	203,754		194.08	%
Multi-family residential		33,056		31.49	%
Construction		18,900		18.00	%
Non-residential		169,436		161.39	%
Land		45,906		43.73	%
Consumer		13,886		13.23	%
Commercial		50,549		48.15	%
Total gross loans	$	535,487		510.07	%

8

The Company uses standardized industry codes known as NASIC codes to track the individual components of its loan portfolio, including our non-residential real estate loan portfolio. At December 31, 2012, the Company commercial real estate loan portfolio consisted of the following:

	Current Balance		Unadvanced Amount		Total Commitment
	(Dollars in Thousands)
Land	$	45,906		5,299		51,205
Construction		—		—		—
Manufacturing		3,856		614		4,470
Professional, Technical		2,025		124		2,149
Retail Trade		12,391		528		12,919
Other Services		18,303		152		18,455
Finance & Insurance		386		22		408
Agricultural, Forestry, Fishing & Hunting		42,420		3,429		45,849
Real Estate and Rental and Leasing		48,249		783		49,032
Wholesale Trade		8,891		5,034		13,925
Arts, Entertainment & Recreation		3,461		110		3,571
Accomodations / Food Service		17,152		1		17,153
Healthcare and Social Assistance		7,932		28		7,960
Educational Services		—		—		—
Transportation & Warehousing		1,295		30		1,325
Information		2,488		50		2,538
Non-industry		46		—		46
Admin Support / Waste Mgmt		541		—		541
Total	$	215,342		16,204		231,546

Management measures commercial real estate (CRE) concentrations as discussed in Concentrations of Commercial Real Estate Lending, Sound Risk Management Practices issued on December 12, 2006, jointly by the Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System (Federal Reserve) and the Federal Deposit Insurance Corporation (FDIC). In this guidance, the agencies make a significant distinction between owner-occupied CRE and non-owner occupied CRE. The agencies have a heighted level of concerned with those loans with risk profiles sensitive to the condition of the CRE market.

CRE loans secured by non-farm, non-residential CRE where the primary source of repayment is the cash flow from the ongoing operations and activities conducted by the owner of the property are generally excluded from the guidance. Using the instructions provided in the FDIC call report, the Bank has calculated that $150.0 million of our loan portfolio, or 136.8% of the Bank’s risk based capital, consists of properties classified as non-owner occupied commercial real estate which includes all loans secured by multi-family properties, all construction and land development loans and certain other commercial real estate loans identified by regulations as non-owner occupied. These properties included multi-family, land development and construction, and non-owner occupied commercial real estate.

Included in the definition of commercial real estate are $64.8 million in construction and land development loans, or 59.1% of our risk based capital. Both of our concentration categories are within regulatory guidelines and appear reasonable to management at this time. However, the Company currently classifies

9

Originations, Purchases and Sales of Loans. The Bank generally has authority to originate and purchase loans secured by real estate located throughout the United States. Consistent with its emphasis on being a community-oriented financial institution, the Bank conducts substantially all of its lending activities in its market area. The following table sets forth certain information with respect to loan origination activity for the periods indicated.

	Year Ended December 31,
	2012			2011			2010
	(Dollars In Thousands)
Loan originations:
One-to-four family residential	$	84,559		$	39,651		$	83,568
Multi-family residential		4,489			7,494			13,480
Construction		21,361			15,975			18,537
Non-residential		71,051			52,093			74,798
Other		51,892			60,001			54,240
Total loans originated		233,352			175,214			244,623
Loan reductions:
Transfer to other real estate owned		2,285			3,748			11,505
(Increase) decrease in deferred loan origination fees, net of income		105			112			(102	)
Increase (decrease) in allowance for loan losses		(614	)		1,432			979
Loans sold		47,749			35,647			42,866
Loan principal payments		215,202			178,130			231,515
Net decrease in loan portfolio	($	31,375	)	($	43,855	)	($	42,140	)

Loan originations are derived from a number of sources, including existing customers, referrals by real estate agents, depositors and borrowers and advertising, as well as walk-in customers. Solicitation programs consist of advertisements in local media, in addition to occasional participation in various community organizations and events. Real estate loans are originated by the Bank’s loan personnel. All of the loan personnel are salaried, and are not compensated on a commission basis for loans originated. Loan applications are accepted at any of the Bank’s branches.

Loan Underwriting Policies. Lending activities are subject to written, non-discriminatory underwriting standards and to loan origination procedures prescribed by the Board of Directors and its management. Detailed loan applications are obtained to determine the ability of borrowers to repay, and the more significant items on these applications are verified through the use of credit reports, financial statements and confirmations. Loan requests exceeding loan officer limits must be approved by the loan committee or Board of Directors.

Generally, upon receipt of a loan application from a prospective borrower, a credit report and verifications are ordered to confirm specific information relating to the loan applicant’s employment, income and credit standing. If a proposed loan is to be secured by a mortgage on real estate, an appraisal of the real estate is undertaken by an appraiser approved by the Board of Directors and licensed or certified (as necessary) by the Commonwealth of Kentucky or the State of Tennessee. In the case of one-to-four family residential mortgage loans, except when the Bank becomes aware of a particular risk of environmental contamination, the Bank generally does not obtain a formal environmental report on the real estate at the time a loan is made. A formal environmental report may be required in connection with nonresidential real estate loans.

It is the Bank’s policy to record a lien on the real estate securing a loan and to obtain a title opinion from Kentucky counsel who provides that the property is free of prior encumbrances and other possible title defects. Title Insurance is generally required on all commercial real estate loans, all one-to-four family loans with balances exceeding $70,000 and all one-to-four family loans that are to be sold in the secondary market. Borrowers must also obtain hazard insurance policies prior to closing and, when the property is in a flood hazard area, pay flood insurance policy premiums. The majority of real estate loan applications are underwritten and closed in accordance with the Bank’s own lending guidelines, which generally do not conform to secondary market guidelines. Although such loans may not be readily saleable in the secondary market, management believes that, if necessary, such loans may be sold to private investors at a discount to par.

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The Bank offers a fixed rate loan program with maturities of 15, 20, and 30 years. These loans are underwritten and closed in accordance with secondary market standards. These loans are originated with the intent to sell on the secondary market. The Bank offers both servicing retained and servicing released products in an attempt to meet the needs of our customers. At December 31, 2012, the Bank’s 1-4 family loan servicing portfolio was approximately $26.3 million.

The Bank is permitted to lend up to 100% of the appraised value of the residential real property securing a mortgage loan. Under its lending policies, the Bank will originate a one-to-four family residential mortgage loan for owner-occupied property with a loan-to-value ratio of up to 95%. For residential properties that are not owner-occupied, the Bank generally does not lend more than 80% of the appraised value. For all residential mortgage loans, the Bank may increase its lending level on a case-by-case basis, provided that the excess amount is insured with private mortgage insurance. Exceptions to this policy must be approved by the loan committee or the Board of Directors. At December 31, 2012, the Bank held approximately $8.9 million of 1-4 family residential mortgages with a loan to value ratio exceeding 90% without private mortgage insurance. For these loans at December 31, 2012, approximately $790,000 are in non-accrual status and $173,000 was past due more than 30 days but less than 89 days.

Under applicable law, with certain limited exceptions, loans and extensions of credit outstanding by a savings institution to a person at one time shall not exceed 15% of the institution’s unimpaired capital and surplus. Loans and extensions of credit fully secured by readily marketable collateral may comprise an additional 10% of unimpaired capital and surplus. Applicable law additionally authorizes savings institutions to make loans to one borrower, for any purpose, in an amount not to exceed the lesser of $30.0 million or 30% of unimpaired capital and surplus to develop residential housing, provided certain requirements are satisfied. Under these limits, the Bank’s loans to one borrower were limited to approximately $16.4 million at December 31, 2012. At that date, the Bank had no lending relationships in excess of the loans-to-one-borrower limit.

Interest rates charged by the Bank on loans are affected principally by competitive factors, the demand for such loans and the supply of funds available for lending purposes. These factors are, in turn, affected by general economic conditions, monetary policies of the federal government, including the Federal Reserve Board, legislative tax policies and government budgetary matters.

One-to-four Family Residential Lending. The Bank historically has been and continues to be an originator of one-to-four family residential real estate loans in its market area. At December 31, 2012, one-to-four family residential mortgage loans totaled approximately $203.8 million, or 38.0% of the Bank’s loan portfolio. The Bank originated approximately $47.7 million in loans that were sold in the secondary market with servicing released. At December 31, 2012, the Bank had approximately $2.3 million in one-to-four family residential real estate loans past due more than ninety days or in non-accrual status. At December 31, 2012, the Company’s allowance for loan loss included $3.1 million in reserve for one to four family residential lending.

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The Bank primarily originates residential mortgage loans with adjustable rates. As of December 31, 2012, 83.7% of one-to-four family mortgage loans in the Bank’s loan portfolio carried adjustable rates or mature within one year. The Bank’s one to four family loan portfolio consists of closed end first and second mortgages as well as opened ended home equity lines of credit. At December 31, 2012, approximately $166.7 million of the Bank’s residential mortgage portfolio consisted of closed end first and junior liens. Such loans are primarily for terms of 25 years, although the Bank does occasionally originate adjustable rate mortgages for 15, 20 and 30 year terms, in each case amortized on a monthly basis with principal and interest due each month. The interest rates on these mortgages are adjusted once per year, with a maximum adjustment of 1% per adjustment period and a maximum aggregate adjustment of 5% over the life of the loan. Prior to August 1, 1997, rate adjustments on the Bank’s adjustable rate loans were indexed to a rate which adjusted annually based upon changes in an index based on the National Monthly Median Cost of Funds, plus a margin of 2.75%. Because the National Monthly Median Cost of Funds is a lagging index, which results in rates changing at a slower pace than rates generally in the marketplace, the Bank changed to a one-year Treasury bill constant maturity (“One Year CMT”), which the Bank believes reflects more current market information and thus allows the Bank to react more quickly to changes in the interest rate environment. In mid 2004, the Bank increased its margin on its adjustable rate loans to 3.00%. However, the vast majority of the current adjustable rate portfolio maintains a margin of 2.75% over the One Year CMT.

The Bank also originates, to a limited extent, fixed-rate loans for terms of 10 and 15 years. Such loans are secured by first mortgages on one-to-four family, owner-occupied residential real property located in the Bank’s market area. Because of the Bank’s policy to mitigate its exposure to interest rate risk through the use of adjustable rate rather than fixed rate products, the Bank does not emphasize fixed-rate mortgage loans. Fixed rate mortgage loans originated by the Bank are loans that often do not qualify for the secondary market due to numerous factors not related to credit quality. Typically, these products are not priced to be competitive with secondary market loans but to offer as an alternative if that option is not available. At December 31, 2012, $33.2 million of the Bank’s loan portfolio consisted of fixed-rate one-to-four family first mortgage loans that will mature after December 31, 2013. To further reduce its interest rate risk associated with such loans, the Bank may rely upon FHLB advances with similar maturities to fund such loans. See “– Deposit Activity and Other Sources of Funds – Borrowing.”

At December 31, 2012, the Bank had $37.1 million in home equity lines of credit outstanding and $29.2 million of additional credit available. Typically, these loans are for a term of fifteen years and have loan to value ratio of 80% to 100%. The home equity portfolio is priced at a spread to prime, adjusted daily, depending on the customer’s loan to value ratio at the time of origination. Many of the home equity lines of credit require monthly interest payments with all unpaid interest and principal due at maturity.

The retention of adjustable rate loans in the Bank’s portfolio helps reduce, but does not eliminate, the Bank’s exposure to increases in prevailing market interest rates. However, there are unquantifiable credit risks resulting from potential increases in costs to borrowers in the event of upward re-pricing of adjustable-rate loans. It is possible that during periods of rising interest rates, the risk of default on adjustable rate loans may increase due to increases in interest costs to borrowers. Further, although adjustable rate loans allow the Bank to increase the sensitivity of its interest-earning assets to changes in interest rates, the extent of this interest sensitivity is limited by the initial fixed-rate period before the first adjustment and the lifetime interest rate adjustment limitations. This risk is heightened by the Bank’s prior practice of offering its adjustable rate mortgages with a 1% limitation on annual interest rate adjustments. Accordingly, there can be no assurance that yields on the Bank’s adjustable rate loans will fully adjust to compensate for increases in the Bank’s cost of funds.

Finally, adjustable rate loans increase the Bank’s exposure to decreases in prevailing market interest rates, although the 1% limitation on annual decreases in the loans’ interest rate tends to offset this effect. In times of declining interest rates, borrowers often refinance into fixed rate loan products, limiting the Bank’s ability to significantly increase its interest rate margin on adjustable rate loans in a declining interest rate market. In times of increasing interest rates, the 1% annual cap on increases in the interest rates tends to reduce refinancing activity and reduce the Bank’s net interest margin.

Neither the fixed rate nor the adjustable rate residential mortgage loans held in the Bank’s portfolio are originated in conformity with secondary market guidelines issued by FHLMC or FNMA. As a result, such loans may not be readily saleable in the secondary market to institutional purchasers. However, such loans may still be sold to private investors whose investment strategies do not depend upon loans that satisfy FHLMC or FNMA criteria. Further, given its high liquidity, the Bank does not currently view loan sales as a necessary funding source.

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Construction Lending. The Bank engages in construction lending involving loans to individuals for construction of one-to-four family residential housing, multi-family housing and non-residential real estate located within the Bank’s market area, with such loans converting to permanent financing upon completion of construction. The Bank mitigates its risk with construction loans by imposing a maximum loan-to-value ratio of 80% for homes that will be owner-occupied or being built on a speculative basis.

The Bank also makes loans to qualified builders for the construction of one-to-four family residential housing located in established subdivisions in the Bank’s market area. Because such homes are intended for resale, such loans are generally not converted to permanent financing at the Bank. All construction loans are secured by a first lien on the property under construction.

Loan proceeds are disbursed in increments as construction progresses and as inspections warrant. Construction/permanent loans may have adjustable or fixed interest rates and are underwritten in accordance with the same terms and requirements as the Bank’s permanent mortgages.

Such loans generally provide for disbursement in stages during a construction period of up to eighteen months, during which period the borrower is required to make payments of interest only. The permanent loans are typically 30-year adjustable rate loans, with the same terms and conditions otherwise offered by the Bank. Monthly payments of principal and interest commence the month following the date the loan is converted to permanent financing. Borrowers must satisfy all credit requirements that would apply to the Bank’s permanent mortgage loan financing prior to receiving construction financing for the subject property.

Construction financing generally is considered to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate. Risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the property’s value at completion of construction or development and the estimated cost (including interest) of construction. During the construction phase, a number of factors could result in delays and cost overruns. If the estimate of construction costs proves to be inaccurate, the Bank may be confronted at or prior to the maturity of the loan, with a project having a value which is insufficient to assure full repayment. The ability of a developer to sell developed lots or completed dwelling units will depend on, among other things, demand, pricing, availability of comparable properties and economic conditions. The Bank has sought to minimize this risk by limiting construction lending to qualified borrowers in the Bank’s market area, by requiring the involvement of qualified builders, and by limiting the aggregate amount of outstanding construction loans. At December 31, 2008, the Bank’s loan portfolio included $62.3 million. By that time, the Bank had begun to reduce its construction loan exposure due to concerns about a slowing economy. The significant reduction in construction loans has had a negative impact on the Bank’s loan portfolio balances and net interest margin. However, the negative impact has been offset by the relatively minor credit problems that have occurred in this portfolio.

At December 31, 2012, the Bank’s loan portfolio included $18.9 million of loans secured by properties under construction, including construction/permanent loans structured to become permanent loans upon the completion of construction and interim construction loans structured to be repaid in full upon completion of construction and receipt of permanent financing. At December 31, 2012, approximately $8.6 million of construction loans were for one to four family dwellings and $10.3 million were for non-residential real estate. At December 31, 2012, there were no construction loans past due more than ninety days or in non-accrual status. At December 31, 2012, the Company’s allowance for loan loss included $256,000 in the general reserve for construction loans.

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Multi-Family Residential and Non-Residential Real Estate Lending. The Bank’s multi-family residential loan portfolio consists of fixed and adjustable rate loans secured by real estate. At December 31, 2012, the Bank had $33.1 million of multi-family residential loans, which amounted to 6.2% of the Bank’s loan portfolio at such date. The Bank’s non-residential real estate portfolio generally consists of adjustable and fixed rate loans secured by first mortgages on commercial real estate, residential lots, and rental property. In most cases, such property is located in the Bank’s market area. At December 31, 2012, the Bank had approximately $215.3 million of such loans, which comprised 40.2% of its loan portfolio.

At December 31, 2012, non-residential real estate loans consisted of $46.8 million in land used in agricultural production, $52.1 million in non-owner occupied properties, $70.5 million in owner occupied commercial real estate and $45.9 million in raw land. The Company currently has no land under development and all lots are completed and available for sale. At December 31, 2012, approximately $23.8 million, or 52.0% of the Company’s land portfolio is classified as substandard. The reduction of land loans classified as substandard remains a high priority for management. Without the sales history to support full repayment in a timely manner, management’s expectations of land development customers are to begin to making scheduled principal and interest payments.

The inventory of land loans includes 418 lots available for sale with an aggregate loan balance of $15.0 million. The average lot has a loan balance of approximately $36,000. Also at December 31, 2012, the Company has $23.8 million in land loans on property that is designated for future development in which no meaningful infrastructure has been started. These loans represent approximately 1,585 acres of land with an average price per acre of approximately $15,000. The remaining $7.1 million in land loans is classified as land for personal use.

Multi-family residential real estate loans are underwritten with loan-to-value ratios up to 80% of the appraised value of the property. Non-residential real estate loans are underwritten with loan-to-value ratios up to 65% of the appraised value for raw land and 75% for land development loans. Non-residential real estate loans for agricultural and other non-residential real estate properties are underwritten with loan-to-value ratios up to 85%.

Multi-family residential and non-residential real estate lending entails significant additional risks as compared with one-to-four family residential property lending. Multi-family residential and commercial real estate loans typically involve larger loan balances to single borrowers or groups of related borrowers. The payment experience on such loans typically is dependent on the successful operation of the real estate project, retail establishment or business. These risks can be significantly impacted by supply and demand conditions in the market for the office, retail and residential space, and, as such, may be subject to a greater extent to adverse conditions in the economy generally.

To minimize these risks, the Bank generally limits itself to its market area or to borrowers with which it has prior experience or who are otherwise known to the Bank. It has been the Bank’s policy to obtain annual financial statements of the business of the borrower or the project for which multi-family residential real estate or non-residential real estate loans are made. At December 31, 2012, there were $38,000 in multi-family loans past due more than 90 days or classified as non-accrual. At December 31, 2012, there were $1.7 million in non-residential real estate that were past due by 90 days or more or classified as non-accrual and $2.8 million of loans secured by raw land that were past due by 90 days or more or classified as non-accrual.

In 2012, the Company’s experienced a decline in loan losses as compared to 2011 and 2010. In 2012, the Company’s net charges offs were $2.9 million, as compared to $4.5 million in 2011 and $5.0 million in 2010. In 2012, the Company net charge offs included $628,000 in loans secured by land, $1.0 million in loans secured by non-residential real estate, $417,000 in multi-family loans and $356,000 in loans secured by 1-4 family residences.

Consumer Lending. The consumer loans currently in the Bank’s loan portfolio consist of loans secured by savings deposits and other consumer loans. Savings deposit loans are usually made for up to 90% of the depositor’s savings account balance. The interest rate is approximately 2.0% above the rate paid on such deposit account serving as collateral, and the account must be pledged as collateral to secure the loan. Interest generally is billed on a quarterly basis. At December 31, 2012, loans on deposit accounts totaled $3.8 million, or 0.7% of the Bank’s loan portfolio. Other consumer loans include automobile loans, the amount and terms of which are determined by the loan committee, and home equity and home improvement loans, which are made for up to 100% of the value of the property. At December 31, 2012, all other consumer loans accounts totaled $10.1 million, or 1.9% of total loans.

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Consumer loans may entail greater credit risk than do residential mortgage loans, particularly in the case of consumer loans that are unsecured or are secured by rapidly depreciable assets, such as automobiles. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation. In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and therefore are more likely to be affected by adverse personal circumstances. Furthermore, the application of various federal and state laws, including bankrupcy and insolvency laws, may limit the amount which can be recovered on such loans. At December 31, 2012, there were $145,000 in consumer loans delinquent 90 days or more or classified as non-accrual. At December 31, 2012, the Company’s allowance for loan loss included $338,000 in reserve for consumer loans.

Commercial Lending. The Bank originates commercial loans on a secured and, to a lesser extent, unsecured basis. At December 31, 2012, the Bank’s commercial loans amounted to $50.5 million, or 9.5% of the Bank’s loan portfolio. The Bank’s commercial loans generally are secured by business assets. In addition, the Bank generally obtains guarantees from the principals of the borrower with respect to all commercial loans. At December 31, 2012, there was $617,000 in commercial loans delinquent 90 days or more or classified as non-accrual. At December 31, 2012, the Company’s allowance for loan loss included $619,000 in reserve for commercial loans.

At December 31, 2012, the Company’s level of classified loans to risk based capital is 59.4%. The Company seeks to reduce this ratio at least 40%. To make further reductions in the level of classified assets, management will focus on loans secured by land and commercial real estate. To assist in the reduction of the level of classified loans to capital, management has developed a special assets division to more closely monitor and work with classified assets. As a part of these efforts, management may wish to reduce the exposure to classified assets in specific categories and / or to specific customers. The strategy of reducing the level of classified assets may result in lower loan balances in 2013. However, management will take all reasonable actions necessary to reduce the level of classified assets.

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Non-accrual Loans and Other Problem Assets

The Bank’s non-accrual loans totaled 1.43% of total loans at December 31, 2012. Loans are placed on a non-accrual status when the loan is past due in excess of 90 days or the collection of principal and interest is doubtful. The Bank places a high priority on contacting customers by telephone as a primary method of determining the status of delinquent loans and the action necessary to resolve any payment problem. The Bank’s management performs quality reviews of problem assets to determine the necessity of establishing additional loss reserves. The Bank’s total non-performing assets to total asset ratio was 0.95% at December 31, 2012.

The following table sets forth information with respect to the Bank’s non-accrual loans at the dates indicated.

	At December 31,
	2012			2011			2010			2009			2008
	(Dollars In Thousands)
Accruing loans which are contractually past due 90 days or more:
Residential real estate	$	—		$	—		$	—		$	—		$	—
Non-residential real estate		—			—			—			—			—
Consumer		—			—			—			—			—
Total		—			—			—			—			—
Non-Accrual Loans:
Construction		—			—			1,541			572			341
Multi-family		38			—			301			4,851			—
Residential real estate		2,313			2,309			1,662			1,399			1,340
Land		2,768			1,330			363			3,503			5,052
Non residential real estate		1,782			2,231			1,043			490			427
Consumer		145			9			23			27			55
Commercial		617			254			97			367			106
Total non-accrual loans	$	7,663		$	6,133		$	5,030		$	11,209		$	7,321
Percentage of total loans		1.43	%		1.08	%		0.82	%		1.72	%		1.16	%

Federal regulations require savings institutions to classify their assets on the basis of quality on a regular basis. In determining the classification of an asset, the Company utilizes a Classified Asset Committee consisting of members of senior management, accounting, credit analysis, loan administration, loan review, internal audit and collections. The committee is charged with determining the value of assets that are potentially impaired as well as the accurate reporting of Troubled Debt Restructuring (TDR) assets as defined later in this report. The committee’s function is an important step in management’s determination as to the necessary level of funding required in the Company’s allowance for loan loss account.

An asset meeting one of the classification definitions set forth below may be classified and still be a performing loan. An asset is classified as substandard if it is determined to be inadequately protected by the current retained earnings and paying capacity of the obligor or of the collateral pledged, if any. A substandard classification may also result from the change in business purpose of a loan and / or its collateral. For example, a home builder who intends to sell a home upon completion changes his mind due to market conditions and places the home in a rental portfolio that he maintains.

The Company may allow the builder to do this if he has experience in this line of business but requires the customer to refinance the home on a twenty year loans with monthly principal and interest payments. The change of business purpose (built for sale then converted to rental) requires that the Company classify the loan as substandard and review the collateral for impairment. After a period of time of satisfactory loan performance and having satisfactory financial trends, the Company may gradually upgrade the loan from substandard to satisfactory. The typical time for a loan to receive an upgrade from a substandard to satisfactory is twelve to eighteen months of continuous satisfactory performance.

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An asset is classified as doubtful if full collection is highly questionable or improbable. An asset is classified as loss if it is considered uncollectible, even if a partial recovery could be expected in the future. The regulations also provide for a special mention designation, described as assets which do not currently expose a savings institution to a sufficient degree of risk to warrant classification but do possess credit deficiencies or potential weaknesses deserving management’s close attention. Such assets designated as special mention may include non-performing loans consistent with the above definition.

Assets classified as substandard or doubtful require a savings institution to conduct an impairment test to determine if the establishment of a specific reserve against the allowance for loan loss account is necessary. Typically, the basis for a loan impairment test is the current market value of the collateral, discounted to allow for selling and carrying cost. Typically, new appraisals on 1-4 family properties are discounted 10% to 15% from the appraised value while land and commercial real estate are discounted at 15% to 25% of new appraised values depending on the perceived marketability of the property.

The Company requires a new appraisal for all impairment testing of collateral when the loan balance exceeds $250,000. For loans less than $250,000, the Company may choose to use an old appraisal and provide additional discounts to the appraised value in determining the amount of specific reserve required. In the last twelve months, the Company has found that appraisers face in increase in request for services and the time between a request for an appraisal and its completion is longer than normal, up to sixty days for complex multi-family or commercial properties. During the interim, the Company may chose to use an old appraisal with larger discounts to ascertain the likelihood of a loan impairment until a current appraisal is received.

If an asset or portion thereof is classified loss, we charge off such amount. If the Company determines that a loan relationship is collateral dependent, it will charge off the portion of that loan that is deemed to be impaired. The Company defines collateral dependent as any loan in that the customer will be unable to reduce the principal balance of the loan without the complete or partial sale of the collateral.

Federal examiners may disagree with management’s classifications. If management does not agree with an examiner’s classification of an asset, it may appeal this determination to the OCC Assistant Comptroller of the Currency. Management regularly reviews its assets to determine whether any assets require classification or re-classification. At December 31, 2012, the Bank had $66.6 million in loans classified as substandard. Loans classified as substandard or doubtful by the Bank meet our classification of impaired loans, as defined by ASC 942-310-45-1. At December 31, 2012, and including our most recent examination, there were no material disagreements between examiners, auditors and management regarding risk grading or the funding of the allowance for loan loss account.

As depicted in the table below, the level of classified loans experienced a significant increase in 2012 as compared to 2011. The increase in classified assets occurred largely during the first two quarters of 2012 as the Company identified several significant customer relationships with either declining levels of cash flow or missing financial information, making the review of their cash flow impossible. In addition, the Company’s level of classified loans increased as management began to convert interest only land loans into amortizing loans or requested that borrowers seek financing elsewhere.

During the third and fourth quarter of 2012, the level of classified loans generally declined as compared to the level at June 30, 2012. The improved level of classified loans occurred as the Company received updated financial information and saw a select number of customers seek financing elsewhere. In November 2012, the Company sold approximately $4.0 million in non-performing loans to a third party. Despite the second half decline in classified loans, the total level of classified loans at December 31, 2012, remained higher as compared to December 31, 2011, as follows:

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The tables below provide a summary of loans classified by the Bank as special mention, substandard and doubtful by category for the years ended December 31, 2012, and December 31, 2011. The table also identifies the amount of the Bank’s allowance for loan loss account specifically allocated to individual loans for the specific periods below:

	Special Mention		Impaired Loans				Specific Allowance for Impairment
			Substandard		Doubful
December 31, 2012			(Dollars In Thousands)
One-to-four family mortgages	$	779		4,595		—		754
Home equity line of credit		1,109		1,237		—		68
Junior lien		47		468		—		196
Multi-family		1,478		4,115		—		38
Construction		—		4,848		—		—
Land		7,683		23,849		—		932
Non-residential real estate		1,899		21,094		—		1,424
Consumer loans		—		556		—		121
Commercial loans		516		5,842		—		308
Total	$	13,511		66,604		—	$	3,841

	Special Mention		Impaired Loans				Specific Allowance for Impairment
			Substandard		Doubful
December 31, 2011			(Dollars In Thousands)
One-to-four family mortgages	$	9,434		8,153		230		728
Home equity line of credit		1,694		233		239		131
Junior lien		622		809		—		180
Multi-family		7,073		5,951		—		26
Construction		213		1,775		—		14
Land		24,714		9,055		999		924
Non-residential real estate		25,077		16,101		117		1,374
Consumer loans		268		423		20		80
Commercial loans		4,009		5,034		121		623
Total	$	73,104		47,534		1,726	$	4,080

Troubled Debt Restructuring

Due to challenges in the local and national economy that continue to persist, the Company has had more of its customers incur financial problems. These customers may request temporary or permanent modification of loans in an effort to avoid foreclosure. The Company analyzes each request separately and grants loan modifications based on the customer’s ability to eventually repay the loan and return to the original loan terms, the customer’s current loan status and the current and projected future value of the Bank’s collateral. Loans that are modified as a result of a customer’s financial distress are classified as Troubled Debt Restructuring (TDR). The classification of a loan as TDR is important in that it indicates that a particular customer may not be past due but represents a credit weakness due to the Bank’s willingness to modify loan terms based on the financial weakness of the borrower.

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The classification of a loan as a TDR may represent the Company’s “last best chance” to work with a distressed customer before foreclosure proceedings begin. At December 31, 2012, the Company had $14.1 million in loans classified as TDR, with $11.0 million of reported TDR’s performing as agreed by the loans modified terms. At December 31, 2012, non-performing TDRs included $2.8 million in land loans, $44,000 in loans secured by farmland, $100,000 secured by junior liens on 1-4 family properties and $119,000 in commercial loans. At December 31, 2012, the Company had $1.0 million in specific reserves of the allowance for loan loss account allocated to loans classified as performing TDRs and no specific reserves for non-performing TDRs. A summary of loans classified as TDR and the respective TDR activity for the year ended December 31, 2012, can be found in the table below:

	Balance at December 31, 2011		New TDR		Loss or Foreclosure			Removed due to performance			Balance at December 31,2012
	(Dollars in Thousands)
One-to-four family mortgages	$	2,521		146		—			(779	)		1,888
Junior Lien		857		—		—			(661	)		196
Multi-family		—		239		—			(5	)		234
Construction		—		4,272		(160	)		—			4,112
Land		941		4,850		(233	)		(2,134	)		3,424
Non-residential real estate		3,367		1,168		(453	)		—			4,082
Consumer loans		33		75		(5	)		(98	)		5
Commercial loans		125		931		(10	)		(918	)		128
Total TDR	$	7,844		11,681		(861	)		(4,595	)		14,069

A summary of loans classified as TDR and the respective TDR activity for the year ended December 31, 2011, can be found in the table below:

	Balance at December 31, 2010		New TDR		Loss or Foreclosure			Removed due to performance			Balance at December 31,2011
	(Dollars in Thousands)
One-to-four family mortgages	$	4,046		1,163		(401	)		(2,287	)		2,521
Junior Lien		—		857		—			—			857
Multi-family		246		—		(5	)		(241	)		—
Construction		1,541		100		(1,641	)		—			—
Land		512		963		(534	)		—			941
Non-residential real estate		3,915		1,540		(1,228	)		(860	)		3,367
Consumer loans		69		27		(9	)		(54	)		33
Commercial loans		700		102		(235	)		(442	)		125
Total TDR	$	11,029		4,752		(4,053	)		(3,884	)		7,844

Real estate acquired by the Bank as a result of foreclosure is classified as real estate owned until such time as it is sold. The Bank generally tries to sell the property at its current market price. The current market price is determined by obtaining an appraisal prior to the acquisition of the property. When such property is acquired, it is recorded at its fair value less estimated costs of sale. In the last eighteen months, the Company has determined that properties acquired through foreclosure have experienced a significant loss in market value as compared to the market value at the time of the origination of the loan. At the time of foreclosure, the collateral is reduced in value to its fair market value less holding and selling expenses and the remaining balance is charged against the allowance for loan losses.

19

Subsequent to foreclosure, in accordance with accounting principles generally accepted in the United States of America, a valuation allowance is established if the carrying value of the property exceeds its fair value net of related selling expenses. The value of other real estate owned is periodically evaluated, no less than annually, to ascertain its current market value. Additional reductions in market value or recognized as an expense through a charge to losses on real estate owned. At December 31, 2012, the Bank’s real estate and other assets owned totaled $1.5 million. The following table sets forth information with respect to the Bank’s real estate and other assets owned at December 31, 2012, and December 31, 2011:

	2012		2011
	(Dollars in Thousands)
One-to-four family first mortgages	$	258		480
Multi-family		—		905
Construction		130		465
Land		1,112		248
Non-residential real estate		44		160
Consumer loans		4		9
Total real estate and other assets owned	$	1,548		2,267

Allowance for Loan Losses. In originating loans, the Bank recognizes that credit losses will be experienced and that the risk of loss will vary with, among other things, the type of loan being made, the creditworthiness of the borrower over the term of the loan, general economic conditions and, in the case of a secured loan, the quality of the security for the loan. It is management’s policy to maintain an adequate allowance for loan losses based on, among other things, the Bank’s and the industry’s historical loan loss experience, evaluation of economic conditions, regular reviews of delinquencies and loan portfolio quality and evolving standards imposed by federal bank examiners and other regulatory agencies. The Bank increases its allowance for loan losses by charging provisions for loan losses against the Bank’s income.

Management will continue to actively monitor the Bank’s asset quality and allowance for loan losses. Management will charge off loans and properties acquired in settlement of loans against the allowances for loan losses on such loans and such properties when appropriate and will provide specific loss allowances when necessary. Although management believes it uses the best information available to make determinations with respect to the allowances for loan losses and believes such allowances are adequate, future adjustments may be necessary if economic conditions differ substantially from the economic conditions in the assumptions used in making the initial determinations.

The Bank’s methodology for establishing the allowance for loan losses takes into consideration probable losses that have been identified in connection with specific assets as well as losses that have not been identified but can be expected to occur. Management conducts regular reviews of the Bank’s assets and evaluates the need to establish allowances on the basis of this review. Allowances are established by the Board of Directors on a quarterly basis based on an assessment of risk in the Bank’s assets taking into consideration the composition and quality of the portfolio, delinquency trends, current charge-off and loss experience, loan concentrations, the state of the real estate market, regulatory reviews conducted in the regulatory examination process and economic conditions generally.

Specific reserves will be provided for individual assets, or portions of assets, when ultimate collection is considered improbable by management based on the current payment status of the assets and the fair value of the security. At the date of foreclosure or other repossession, the Bank would transfer the property to real estate acquired in settlement of loans initially at the lower of cost or estimated fair value and subsequently at the lower of book value or fair value less estimated selling costs. Any portion of the outstanding loan balance in excess of fair value less estimated selling costs would be charged off against the allowance for loan losses. If, upon ultimate disposition of the property, net sales proceeds exceed the net carrying value of the property, a gain on sale of other real estate would be recorded.

20

Financial institutions must provide adequate disclosure of the methodology used regarding maintenance of an adequate allowance for loan and lease losses and an effective loan review system. The Bank utilizes a combination of its twelve quarter loan loss history and the sum of all impairment testing completed on individually classified loans deemed collateral dependent.

The charge off history is weighted using the sum of the year’s digits. This method provides a 15.4% weight to the most recent quarters losses, then 14.1% for the prior quarters losses, 12.8% for the 2^nd prior quarters losses and 11.5% for the prior quarter’s losses and continuing for twelve quarters. Using this method, the Bank trends for increasing or decreasing levels of charge offs may materially impact the funding level of the allowance for loan loss account. Additionally, the Bank reserves the loss amount of any loans deemed to be impaired. The Bank also applies certain qualitative factors in reviewing its allowance funding, including local and national delinquency and loss trends, noted concentrations or risk and recent additions to regulator guidance.

Financial institutions regulated by the OCC and FDIC may require institutions to immediately charge off any portion of a collateral dependent loan that is deemed to be impaired.

The following table sets forth an analysis of the Bank’s allowance for loan losses for the years indicated.

	Year Ended December 31,
	2012			2011			2010			2009			2008
	(Dollars in thousands)
Balance at beginning of period	$	11,262		$	9,830		$	8,851		$	6,133		$	4,842
Loans charged off:
Commercial loans		(2,727	)		(3,596	)		(4,354	)		(530	)		(364	)
Consumer loans and overdrafts		(510	)		(371	)		(472	)		(662	)		(685	)
Residential real estate		(447	)		(908	)		(464	)		(644	)		(365	)
Total charge-offs		(3,684	)		(4,875	)		(5,290	)		(1,836	)		(1,414	)
Recoveries		795			386			299			355			288
Net loans charged off		(2,889	)		(4,489	)		(4,991	)		(1,481	)		(1,126	)
Provision for loan losses		2,275			5,921			5,970			4,199			2,417
Balance at end of period	$	10,648			11,262		$	9,830		$	8,851		$	6,133
Ratio of net charge-offs to average loans outstanding during the period		0.52	%		0.76	%		0.79	%		0.23	%		0.20	%

21

The following table sets forth the breakdown of the allowance for loan losses by loan category at the dates indicated. Management believes that the allowance can be allocated by category only on an approximate basis. The allocation of the allowance to each category is not necessarily indicative of future losses and does not restrict the use of the allowance to absorb losses in any category.

	At December 31,
	2012					2011					2010					2009
	Amount		Percent of Loans in  Each Category to Total Loans			Amount		Percent of Loans in Each Category to Total Loans			Amount		Percent of Loans in Each Category to Total Loans			Amount		Percent of Loans in Each Category to Total Loans
	(Dollars in thousands)
One-to-four family	$	3,094		38.0	%	$	3,325		38.1	%	$	1,455		37.6	%	$	2,209		37.0	%
Construction		256		3.5	%		139		2.1	%		657		3.8	%		514		5.1	%
Multi-family residential		524		6.2	%		1,201		5.9	%		2,022		4.8	%		1,344		7.1	%
Non-residential		5,817		40.2	%		5,003		41.6	%		4,890		41.9	%		3,231		39.0	%
Secured by deposits		—		0.7	%		—		0.7	%		—		0.7	%		—		0.6	%
Other loans		957		11.4	%		1,594		11.6	%		806		11.2	%		1,553		11.2	%
Total allowance for loan losses	$	10,648		100.0	%	$	11,262		100.0	%	$	9,830		100.0	%	$	8,851		100.0	%

	At December 31, 2008
	Amount		Percent of Loans in Each Category to Total Loans
	(Dollars In Thousands)
One-to-four family	$	2,683		35.3	%
Construction		393		9.8	%
Multi-family residential		455		5.8	%
Non-residential		443		35.2	%
Secured by deposits		—		0.6	%
Other consumer loans		2,159		13.3	%
Total allowance for loan losses	$	6,133		100.0	%

Investment Activities

The Company makes investments in order to maintain the levels of liquid assets required by regulatory authorities and manage cash flow, diversify its assets, obtain yield and to satisfy certain requirements for favorable tax treatment. The principal objective of the investment policy is to earn as high a rate of return as possible, but to consider also financial or credit risk, liquidity risk and interest rate risk. The investment activities of the Corporation and the Bank consist primarily of investments in U.S. Government agency securities, municipal and corporate bonds, CMO’s (see definition below), and mortgage-backed securities. Typical investments include federally sponsored agency mortgage pass-through and federally sponsored agency and mortgage-related securities. Investment and aggregate investment limitations and credit quality parameters of each class of investment are prescribed in the Bank’s investment policy. The Corporation and the Bank perform analyses on mortgage-related securities prior to purchase and on an ongoing basis to determine the impact on earnings and market value under various interest rate and prepayment conditions. Securities purchases must be approved by the Bank’s Chief Financial Officer or President. The Board of Directors reviews all securities transactions on a monthly basis.

At December 31, 2012, securities, including FHLB stock, with an amortized cost of $344.9 million and an approximate market value of $360.8 million were classified as available for sale. Management presently does not intend to sell such securities and, based on the current liquidity level and the access to borrowings through the FHLB of Cincinnati, management currently does not anticipate that the Corporation or the Bank will be placed in a position of having to sell securities with material unrealized losses.

22

Mortgage-Backed and Related Securities. Mortgage-backed securities represent a participation interest in a pool of one-to-four family or multi-family mortgages, the principal and interest payments on which are passed from the mortgage originators through intermediaries that pool and repackage the participation interest in the form of securities to investors such as the Bank. CMO’s are a variation of mortgage-backed securities in which the mortgage pool is divided into specific classes, with different classes receiving different principal reduction streams based on numerous factors, including prepayments speeds. Such intermediaries may include quasi-governmental agencies such as FHLMC, FNMA and the Government National Mortgage Association (“GNMA”) which guarantees the payment of principal and interest to investors. Of the $92.4 million mortgage-backed security portfolio and $21.9 million CMO portfolio at December 31, 2012, approximately $26.6 million were originated through GNMA, approximately $72.8 million were originated through FNMA, approximately $9.4 million were originated through FHLMC, approximately $260,000 are Whole Loan CMO’s and approximately $5.2 million are SLMA student loan pools.

At December 31, 2012, the Company’s mortgage backed security portfolio included approximately $5.6 million in GNMA mortgages securities used in the construction of a hospital and approximately $22.3 million in other securities used to finance multi-family housing. Securities used to finance multi-family properties and other projects typically have longer dated maturities with substantial prepayment penalties and balloon periods of five to fifteen years. These securities are desirable in low or declining rate markets in which prepayment speeds on single family mortgage securities become a problem.

Mortgage-backed securities are typically issued with stated principal amounts and the securities are backed by pools of mortgages that have loans with interest rates that are within a range and have similar maturities. The underlying pool of mortgages can be composed of either fixed-rate or adjustable-rate mortgage loans. Mortgage-backed securities generally are referred to as mortgage participation certificates or pass-through certificates. As a result, the interest rate risk characteristics of the underlying pool of mortgages, i.e., fixed-rate or adjustable-rate, as well as prepayment risk, are passed on to the certificate holder. The life of a mortgage-backed pass-through security is equal to the life of the underlying mortgages. The actual maturity of a mortgage-backed security varies, depending on when the mortgagors prepay or repay the underlying mortgages. Prepayments of the underlying mortgages may shorten the life of the investment, thereby adversely affecting its yield to maturity and the related market value of the mortgage-backed security.

Amortizing U.S. Agency securities owned by the Company are similar in structure to mortgage backed securities. The Company owns two types of amortizing agency securities, both of which are issued with the full faith and credit guarantee of the Small Business Administration (SBA). The Small Business Investment Corporation (SBIC) bonds include pools of SBA loans for business equipment with a ten year maturity. The Small Business Administration Participation Notes (SBAP) has a twenty year maturity and is secured by pools of commercial real estate loans guaranteed by the SBA. Both investments provide superior yields to mortgage backed securities with a credit rating equal to GNMA and superior to FHLMC and FNMA. Historically, the actual cash flows and prepayment speeds for SBIC and SBAP bonds are typically slower than similar maturities for mortgage backed securities due to the cost of refinancing SBA loans. However, the Company has seen a significant increase in the prepayment speeds on these securities in the last twelve months.

The yield is based upon the interest income and the amortization of the premium or accretion of the discount related to the mortgage-backed security. Premiums and discounts on mortgage-backed securities are amortized or accreted over the estimated term of the securities using a level yield method. The prepayment assumptions used to determine the amortization period for premiums and discounts can significantly affect the yield of the mortgage-backed security, and these assumptions are reviewed periodically to reflect the actual prepayment.

The actual prepayments of the underlying mortgages depend on many factors, including the type of mortgage, the coupon rate, the age of the mortgages, the geographical location of the underlying real estate collateralizing the mortgages and general levels of market interest rates. The difference between the interest rates on the underlying mortgages and the prevailing mortgage interest rates is an important determinant in the rate of prepayments. During periods of falling mortgage interest rates, prepayments generally increase, and, conversely, during periods of rising mortgage interest rates, prepayments generally decrease. If the coupon rate of the underlying mortgage significantly exceeds the prevailing market interest rates offered for mortgage loans, refinancing generally increases and accelerates the prepayment of the underlying mortgages. Prepayment experience is more difficult to estimate for adjustable-rate mortgage-backed securities.

23

The following table sets forth the carrying value of the investment securities at the dates indicated.

	At December 31,
	2012		2011		2010
	(In thousands)
FHLB stock, restricted	$	4,428		4,428		4,378
Securities available for sale:
U.S. Agency securities, non-amortizing		12,362		29,397		33,988
U.S. Agency securities, amortizing		140,416		145,190		130,416
Mortgage-backed securities		114,295		129,242		110,872
Tax free municipal bonds		74,047		65,055		64,393
Taxable municipal bonds		13,736		13,905		16,792
Trust preferred security		1,489		993		1,277
Total investment securities	$	360,773	$	388,210		362,116

The following table sets forth information on the scheduled maturities, amortized cost, market values and average yields for U.S. Government agency securities, corporate bonds and municipal securities in the investment portfolio at December 31, 2011. At such date, $9.3 million of the agency securities were callable and/or due on or before March 5, 2013 and $3.1 million were not callable. In addition, approximately $140.4 million in small business administration amortizing bonds require periodic principal payments. At December 31, 2012, all municipal securities (both taxable and tax free) were callable and/or due between January 2013 and December 2020. The average yield for the tax free municipal security portfolio is quoted as a taxable equivalent yield.

	One Year or Less					One to Five Years					Five to Ten Years					After Ten Years					Total Investment Portfolio
	Carrying Value		Average Yield			Carrying Value		Average Yield			Carrying Value		Average Yield			Carrying Value		Average Yield			Carrying Value		Market Value		Average Yield
.	(Dollars in thousands)
Non-amortizing U.S. agency securities	$	—		—	%	$	—		—	%	$	5,132		3.10	%	$	7,230		2.28	%	$	12,362	$	12,362		2.62	%
Taxable municipal bonds	$	—		—	%	$	1,311		3.23	%	$	5,137		4.05	%	$	7,288		3.36	%	$	13,736	$	13,736		3.60	%
Tax free municipal bonds	$	346		2.36	%	$	10,371		5.32	%	$	22,047		4.23	%	$	41,283		5.66	%	$	74,047	$	74,047		5.17	%
Trust preferred		—		—			—		—			—		—		$	1,489		n/a		$	1,489	$	1,489		n/a

24

Deposit Activity and Other Sources of Funds

General. Deposits are the primary source of the Bank’s funds for lending, investment activities and general operational purposes. In addition to deposits, the Bank derives funds from loan principal and interest repayments, maturities of investment securities and mortgage-backed securities and interest payments thereon. Although scheduled loan repayments are a relatively stable source of funds, deposit inflows and outflows are significantly influenced by general interest rates and money market conditions. Borrowings may be used on a short-term basis to compensate for reductions in the availability of funds, or on a longer term basis for general corporate purposes. The Bank has access to borrow from the FHLB of Cincinnati. The Bank may rely upon retail deposits rather than borrowings as its primary source of funding for future asset growth.

In 2012, weak loan demand and high levels of liquidity have made it difficult to maintain a desirable level of profitability. Therefore, management is placing an emphasis on reducing the Bank’s cost of funds ratio. The reduction in cost of funds will be accomplished by changing the deposit mix and overall funding mix of the Bank. First, we continue to place a strong marketing emphasis on non-interest bearing checking accounts. In 2012, we opened more than 4,200 non-interest checking accounts and saw the average balance of these accounts increase by $11.3 million as compared to 2011. While growing transaction accounts, we have successfully reduced our interest expense for time deposits. This reduction was accomplished by allowing higher costing deposits to re-price to lower levels or leave the Bank. At December 31, 2012, total time deposits were $437.1 million, a decline of $82.9 million as compared to December 31, 2011. During 2012, the average balance of time deposits declined $61.4 million as compared to 2011. In 2012, the Bank reduced its average balance of FHLB borrowings by $14.4 million as compared to 2011 by prepaying fixed rate advances.

Deposits. The Bank attracts deposits principally from within its market area by offering competitive rates on its deposit instruments, including money market accounts, passbook savings accounts, individual retirement accounts, and certificates of deposit which range in maturity from three months to five years. Deposit terms vary according to the minimum balance required and the length of time the funds must remain on deposit and the interest rate. Maturities, terms, service fees and withdrawal penalties for its deposit accounts are established by the Bank on a periodic basis. The Bank reviews its deposit mix and pricing on a weekly basis. In determining the characteristics of its deposit accounts, the Bank considers the rates offered by competing institutions, lending and liquidity requirements, growth goals and federal regulations.

The Bank has, on a limited basis, utilized brokered deposits to augment its funding requirements. At December 31, 2012, the Bank had $46.6 million in brokered deposits as compared to $58.4 million at December 31, 2011. Given the high level of liquidity maintained by the Bank, it is our current practice to not replace the majority of brokered time deposits once they mature or, where applicable, the Bank tenders a call on the deposit All brokered deposits are FDIC insured.

The Bank attempts to compete for deposits with other institutions in its market area by offering competitively priced deposit instruments that are tailored to the needs of its customers. Additionally, the Bank seeks to meet customers’ needs by providing convenient customer service to the community. With the exception of brokered deposits, substantially all of the Bank’s depositors are Kentucky or Tennessee residents who reside in the Bank’s market area.

25

Deposits in the Bank at December 31, 2012, were represented by the various types of deposit programs described below.

Interest Rate*			Minimum Term	Category	Minimum Amount		Balance		Percentage of Total Deposits
					(In thousands)
	—	%	None	Non-interest bearing	$	100	$	94,083		12.4	%
	0.05	%*	None	NOW accounts		1,500		147,047		19.4	%
	0.10	%	None	Savings & money market		10		81,643		10.7	%
								322,773		42.5	%

			Certificates of Deposit
0.12	%	3 months or less	Fixed-term, fixed rate	1,000		50,138	6.6	%
0.42	%	3 to 12 months	Fixed-term, fixed-rate	1,000		170,044	22.4	%
0.65	%	12 to 24-months	Fixed-term, fixed-rate	1,000		78,333	10.3	%
0.80	%	24 to 36-months	Fixed-term, fixed-rate	1,000		42,661	5.5	%
0.90	%	36 to 48-months	Fixed-term, fixed-rate	1,000		78,036	10.3	%
1.06	%	48 to 60-months	Fixed-term, fixed rate	1,000		17,880	2.4	%
						437,092	57.5	%
					$	759,865	100.0	%

* Represents current interest rate offered by the Bank.

The following table sets forth, for the periods indicated, the average balances and interest rates based on month-end balances for interest-bearing demand deposits and time deposits.

	Year Ended December 31,
	2012						2011						2010
	Interest-bearing demand deposits			Time deposits			Interest-bearing demand deposits			Time deposits			Interest-bearing demand deposits			Time deposits
	(Dollars in thousands)
Average Balance	$	219,747		$	486,647		$	205,175		$	548,048		$	191,661		$	570,757
Average Rate		0.60	%		1.90	%		0.81	%		2.29	%		0.94	%		2.73	%

26

The following table sets forth the change in dollar amount of deposits in the various types of accounts offered by the Bank between the dates indicated.

	Balance at December 31, 2012		% of Deposits			Increase (Decrease) from December  31, 2011			Balance at December 31, 2011		% of Deposits			Increase (Decrease) from December  31, 2010
	(Dollars in thousands)
Non-interest bearing	$	94,083		12.4	%	$	14,533		$	79,550		9.9	%	$	10,411
Demand & Now		147,047		19.4	%		16,933			130,114		16.3	%		(8,822	)
Savings & MMDA		81,643		10.7	%		11,200			70,443		8.8	%		6,595
Time deposits		437,092		57.5	%		(82,896	)		519,988		65.0	%		(35,018	)
Total	$	759,865		100.0	%	$	(40,230	)	$	800,095		100.0	%	$	(26,834	)

	Balance at December 31, 2010		% of Deposits			Increase (Decrease) from December  31, 2009			Balance at December 31, 2009		% of Deposits
	(Dollars in thousands)
Non-interest bearing	$	69,139		8.4	%	$	608		$	68,531		8.6	%
Demand & NOW		138,936		16.8	%		33,115			105,821		13.3	%
Savings & MMDA		63,848		7.7	%		3,439			60,409		7.6	%
Time deposits		555,006		67.1	%		(4,377	)		559,383		70.5	%
Total	$	826,929		100.0	%	$	32,785		$	794,144		100.0	%

The following table sets forth the time deposits in the Bank classified by rates at the dates indicated.

	At December 31,
	2012		2011		2010
	(In thousands)
0.01 - 2.00%	$	276,231	$	273,950	$	206,126
2.01 - 4.00%		159,664		228,255		280,943
4.01 - 6.00%		1,197		17,783		67,370
6.01 - 8.00%		—		—		567
Total	$	437,092	$	519,988	$	555,006

The following table sets forth the amount and maturities of time deposits at December 31, 2012.

	Amount Due
	Less Than One Year		1-2 Years		2-3 Years		After 3 Years		Total
	(In thousands)
0.00 - 2.00%	$	148,677	$	70,289	$	23,663	$	33,602	$	276,231
2.01 - 4.00%		70,516		7,836		18,998		62,314		159,664
4.01 - 6.00%		989		208		—		—		1,197
6.01 - 8.00%		—		—		—		—		—
Total	$	220,182	$	78,333	$	42,661	$	95,916	$	437,092

27

The following table indicates the amount of the Bank’s certificates of deposit of $100,000 or more by time remaining until maturity as of December 31, 2012.

Maturity Period	Certificates of Deposit
	(In millions)
Three months or less	$	21.1
Over three through six months		31.8
Over six through 12 months		53.1
Over 12 months		116.0
Total	$	222.0

Certificates of deposit at December 31, 2012, included approximately $222.0 million of deposits with balances of $100,000 or more, compared to $272.5 million and $289.1 million at December 31, 2011, and December 31, 2010, respectively. Such time deposits may be risky because their continued presence in the Bank is dependent partially upon the rates paid by the Bank rather than any customer relationship and, therefore, may be withdrawn upon maturity if another institution offers higher interest rates. The Bank may be required to resort to other funding sources such as borrowings or sales of its securities available for sale if the Bank believes that increasing its rates to maintain such deposits would adversely affect its operating results. At this time, the Bank does not believe that it will need to significantly increase its deposit rates to maintain such certificates of deposit and, therefore, does not anticipate resorting to alternative funding sources. See Note 6 of Notes to Consolidated Financial Statements.

The following table sets forth the deposit activities of the Bank for the periods indicated.

	Year Ended December 31,
	2012			2011			2010
	(In thousands)
Deposits	$	174,825		$	320,208		$	321,997
Withdrawals		222,546			355,868			299,929
Net increase (decrease) before interest credited		(47,721	)		(35,660	)		22,068
Interest credited		7,491			8,826			10,717
Net increase (decrease) in deposits	$	(40,230	)	$	(26,834	)	$	32,785

Borrowings. Savings deposits historically have been the primary source of funds for the Bank’s lending, investments and general operating activities. The Bank is authorized, however, to use advances from the FHLB of Cincinnati to supplement its supply of lendable funds and to meet deposit withdrawal requirements. The FHLB of Cincinnati functions as a central reserve bank providing credit for savings institutions and certain other member financial institutions.

As a member of the FHLB System, the Bank is required to own stock in the FHLB of Cincinnati and is authorized to apply for advances. Advances are pursuant to several different programs, each of which has its own interest rate and range of maturities. The Bank has entered into a Cash Management Advance program with FHLB. See Note 7 of Notes to Consolidated Financial Statements. Advances from the FHLB of Cincinnati were $43.7 million at December 31, 2012, and are secured by a blanket security agreement in which the Bank has pledged its 1-4 family first mortgage loans held in the Bank’s loan portfolio.

On September 25, 2003, the Company issued $10,310,000 in floating rate junior subordinated debentures with a thirty year maturity and callable at the Company’s discretion quarterly after September 25, 2008. The subordinated debentures are priced at a variable rate equal to the three month Libor (London Inter Bank Offering Rate) plus 3.10%. At December 31, 2012, the three-month Libor rate was 0.31%. The securities are immediately callable in the event of a change in tax or accounting law that has a significant negative impact to issuing these securities.

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For regulatory purposes, subordinated debentures may be treated as Tier I capital. Federal regulations limit the use of subordinated debentures to 25% of total Tier I capital. Discussions among regulatory agencies are underway that may limit the current and future use of subordinated debentures as Tier I capital. The Company’s decision to issue subordinated debentures was in part influenced by potential regulatory actions in the future. The Company anticipates above average growth to continue and anticipates a time in the future when capital ratios are lower and additional capital may be need.

In October of 2008, the Bank entered into an interest rate swap agreement. The agreement calls for the Bank to pay a fixed rate of 7.27% until October 8, 2015, on $10 million and receive payment equal to the three month libor plus 3.10%. The Bank then completed an intercompany transaction that transferred the swap to the Company, providing an effective hedge for its variable rate subordinated debentures. At December 31, 2012, the cost to the Bank to terminate the swap is approximately $1,126,000.

Repurchase Agreements

The Company offers cash management customers an automated sweep account of excess funds from checking accounts into repurchase accounts. Prior to 2011, this product was the preferred method to provide commercial deposit customers the opportunity to earn interest income on demand deposit accounts. Repurchase balances are overnight borrowings from customers and are not FDIC insured but are fully collateralized by specific securities in the Company’s investment portfolio. In addition to customer repurchase agreements, the Company has two long term repurchase agreements with large money center banks that are secured by individual investment securities. At December 31, 2012, the Company’s retail repurchase agreements total $27.5 million and total long term repurchase agreements of $16.0 million.

Subsidiary Activities

As a federally chartered savings bank, the Bank is permitted to invest an amount equal to 2% of its assets in subsidiaries, with an additional investment of 1% of assets where such investment serves primarily community, inner-city and community development purposes. The Bank’s has two subsidiary organizations. The Bank’s insurance subsidiary, Fall and Fall Insurance Agency (“Fall and Fall”) of Fulton, Kentucky was acquired in the Fulton acquisition on September 5, 2002. The Bank’s investment in the agency is approximately $830,000.

The Company is a limited partner and owns a 99% interest in an LLLP for the Fort Webb project, a low income senior citizen housing facility in Bowling Green, Kentucky. The facility offers apartments for rent for those senior citizens who qualify and is managed by the Bowling Green, Kentucky Housing Authority. The Company receives tax credits and Community Reinvestment Credits for its $420,000 investment.

Competition

The Bank faces significant competition both in originating mortgage and other loans and in attracting deposits. The Bank competes for loans principally on the basis of interest rates, the types of loans it originates, the deposit products it offers and the quality of services it provides to borrowers. The Bank also competes by offering products which are tailored to the local community. Its competition in originating real estate loans comes primarily from other savings institutions, commercial banks and mortgage bankers making loans secured by real estate located in the Bank’s market area. Commercial banks, credit unions and finance companies provide vigorous competition in consumer lending. Competition may increase as a result of the continuing reduction of restrictions on the interstate operations of financial institutions.

At June 30, 2012, the Bank had a 14.2% share of the deposit market in its combined markets. The Bank’s most significant competition across its entire market area was Planters Bank of Kentucky with a 9.2% deposit market share, Branch Bank & Trust of North Carolina with a 8.4% deposit market share and Regions Bank of Birmingham, Alabama with an 8.3% deposit market share. In addition, each market contains other community banks that provide competitive products and services within individual markets.

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The Bank attracts its deposits through its eighteen offices primarily from the local community. Consequently, competition for deposits is principally from other savings institutions, commercial banks and brokers in the local community as well as from credit unions. The Bank competes for deposits and loans by offering what it believes to be a variety of deposit accounts at competitive rates, convenient business hours, a commitment to outstanding customer service and a well-trained staff. The Bank believes it has developed strong relationships with local realtors and the community in general.

The Bank is a community and retail-oriented financial institution. Management considers the Bank’s branch network and reputation for financial strength and quality customer service as its major competitive advantage in attracting and retaining customers in its market area. A number of the Bank’s competitors have been acquired by statewide/nationwide banking organizations. While the Bank is subject to competition from other financial institutions which may have greater financial and marketing resources, management believes the Bank benefits by its community orientation and its long-standing relationship with many of its customers.

Employees

As of December 31, 2012, the Company and the Bank had 270 full-time and 11 part-time employees, none of whom were represented by a collective bargaining agreement. Management considers the Bank’s relationships with its employees to be good.

Executive Officers of the Registrant

John E. Peck. Mr. Peck has served as President and Chief Executive Officer of both the Company and the Bank since July 2000. Prior to that, Mr. Peck was President and Chief Executive Officer of United Commonwealth Bank and President of Firstar Bank-Calloway County. Mr. Peck was a past Board Member and Chairman of the Christian County Chamber of Commerce, Jennie Stuart Hospital and Murray-Calloway County Hospital. Mr. Peck holds a Bachelor of Science of Business Administration with a concentration in Finance from the University of Louisville. Mr. Peck is a graduate of the Louisiana State University School of Banking. Mr. Peck is a member and serves on the finance committee of the First Baptist Church of Hopkinsville.

Michael L. Woolfolk. Mr. Woolfolk has served as Executive Vice President and Chief Operations Officer of the Bank since August 2000. Mr. Woolfolk was appointed to the Board of Directors of the Company on August 15, 2012. Prior to that, he was President of First-Star Bank-Marshall County, President and Chief Executive Officer of Bank of Marshall County and President of Mercantile Bank. Mr. Woolfolk is a member of First Baptist Church of Hopkinsville.

Billy C. Duvall. Mr. Duvall has served as Senior Vice President, Chief Financial Officer and Treasurer of the Company and the Bank since June 1, 2001. Prior to that, he was an Auditor with Rayburn, Betts & Bates, P.C., independent public accountants and nine years as a Principal Examiner with the National Credit Union Administration. Mr. Duvall holds a Bachelor of Business Administration from Austin Peay State University in Accounting and Finance. Mr. Duvall is a Certified Public Accountant of Virginia. Mr. Duvall is the current Board Chairman for the Pennyroyal Mental Health Center, a member of the Hopkinsville Kiwanis club, and a member of Southside Church of Christ in Hopkinsville.

P. Michael Foley. Mr. Foley was hired in December 2011 to serve as Senior Vice President, Chief Credit Officer of the Bank. Prior to that, from January 2011 to December 2011, he served as Senior Vice President, Senior Credit Officer in the Special Assets Group of Old National Bank of Evansville, Indiana. From July 2006 through December 2010, Mr. Foley served as Senior Vice President, Senior Credit Officer and Chicago Market Manager for Integra Bank of Evansville, Indiana.

Keith Bennett. Mr. Bennett has served as Montgomery County, Tennessee Market President for the Bank since November 2005. Prior to that, Mr. Bennett was Vice President of Commercial Lending for Farmers and Merchants Bank and First Federal Savings and Loan, both of Clarksville, Tennessee. Mr. Bennett served seven years as a field examiner with the Office of Thrift Supervision. Mr. Bennett holds a Bachelor of Business Administration in Accounting from the University of Tennessee at Martin.

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Seasonality of Revenues and Expenses

The Company’s business is not materially affected by seasonality fluctuations in our business cycle. The Company financial health is substantially affected by the overall business cycle and market interest rates.

Dodd-Frank Wall Street Reform and Consumer Protection Act

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) was signed into law. The Dodd-Frank Act is intended to affect a fundamental restructuring of federal banking regulation. Among other things, the Dodd-Frank Act created a new Financial Stability Oversight Council to identify systemic risks in the financial system and gives federal regulators new authority to take control of and liquidate financial firms. The Dodd-Frank Act eliminated our current primary federal regulator and subjects savings and loan holding companies to greater regulation. The Dodd-Frank Act additionally creates a new independent federal regulator to administer federal consumer protection laws. The Dodd-Frank Act is expected to have a significant impact on our business operations as its provisions take effect. Among the provisions that are likely to affect us are the following:

Elimination of OTS. The Dodd-Frank Act resulted in the elimination of the OTS, which was our primary federal regulator and the primary federal regulator of the Bank until July 21, 2011. The current primary federal regulator of HopFed Bancorp, Inc. is the Board of Governors of the Federal Reserve System (the “FRB”), and the primary federal regulator for the Bank is the Office of the Comptroller of the Currency (“OCC”). The FRB and OCC have rulemaking, examination, supervision and oversight authority over our operations and the FDIC will retain secondary authority over the Bank. OTS guidance, orders, interpretations, policies and similar items under which we and other savings and loan holding companies and federal savings associations operate will continue to remain in effect until they are superseded by new guidance and policies from the OCC or Federal Reserve.

Holding Company Capital Requirements. Effective as of the transfer date, the Federal Reserve is authorized to establish capital requirements for savings and loan holding companies. These capital requirements must be countercyclical so that the required amount of capital increases in times of economic expansion and decreases in times of economic contraction, consistent with safety and soundness. Savings and loan holding companies are now required to serve as a source of financial strength for their depository institution subsidiaries. The Dodd-Frank Act requires the Federal Reserve to apply consolidated capital requirements that are no less stringent than those currently applied to depository institutions to depository institution holding companies that were not supervised by the Federal Reserve as of May 19, 2009.

Leverage capital requirements and risk-based capital requirements applicable to depository institutions and banking holding companies will be extended to thrift holding companies. However, the FRB has not yet issued regulations regarding the levels of these capital requirements or when they apply to the Company.

Under these standards, trust preferred securities will be excluded from Tier 1 capital unless such securities were issued prior to May 19, 2010, by a bank or savings and loan holding company with less than $15 billion in assets. The Company has trust preferred securities, but is exempt from these standards. However, discussions on the proposal of BASEL III include the phase out of the capital treatment of trust preferred securities. Management anticipates that the final version of BASEL III may include a ten year phase out of capital treatment. In such an event, the Company would seek to reduce its balance of trust preferred securities in a time frame consistent with the phase out periods. At December 31, 2012, we estimate that the complete removal of trust preferred securities would have resulted in the Tier 1 Leverage Ratio of the Bank being 9.6%, as compared to the actual Tier 1 Leverage Ratio of 10.6%.

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Federal Preemption. A major benefit of the federal thrift charter has been the strong preemptive effect of the Home Owners’ Loan Act (“HOLA”), under which we are chartered. Historically, the courts have interpreted the HOLA to “occupy the field” with respect to the operations of federal thrifts, leaving no room for conflicting state regulation. The Dodd-Frank Act, however, amends the HOLA to specifically provide that it does not occupy the field in any area of state law. Henceforth, any preemption determination must be made in accordance with the standards applicable to national banks, which have themselves been scaled back to require case-by-case determinations of whether state consumer protection laws discriminate against national banks or interfere with the exercise of their powers before these laws may be pre-empted.

Deposit Insurance. The Dodd-Frank Act permanently increases the maximum deposit insurance amount for banks, savings institutions and credit unions to $250,000 per depositor, retroactive to January 1, 2009, and extended unlimited deposit insurance to non-interest bearing transaction accounts through December 31, 2012. The Dodd-Frank Act also broadens the base for FDIC insurance assessments. Assessments will now be based on the average consolidated total assets less tangible equity capital of a financial institution. The Dodd-Frank Act requires the FDIC to increase the reserve ratio of the Deposit Insurance Fund from 1.15% to 1.35% of insured deposits by 2020 and eliminates the requirement that the FDIC pay dividends to insured depository institutions when the reserve ratio exceeds certain thresholds. The Dodd-Frank Act eliminates the federal statutory prohibition against the payment of interest on business checking accounts. The Company anticipates that the removal of unlimited deposit insurance for non-interest bearing accounts will not have a material impact on the Company’s level of liquidity.

Qualified Thrift Lender Test. Under the Dodd-Frank Act, a savings association that fails the qualified thrift lender test is prohibited from paying dividends, except for dividends that: (i) would be permissible for a national bank; (ii) are necessary to meet obligations of a company that controls the savings association; and (iii) are specifically approved by the OCC and the Federal Reserve. In addition, a savings association that fails the qualified thrift lender test is deemed to have violated Section 5 of the Home Owners’ Loan Act and is subject to enforcement actions thereunder.

Corporate Governance. The Dodd-Frank Act requires publicly traded companies to give stockholders a non-binding vote on executive compensation at their first annual meeting taking place six months after the date of enactment and at least every three years thereafter and on so-called “golden parachute” payments in connection with approvals of mergers and acquisitions. The new legislation also authorizes the SEC to promulgate rules that would allow stockholders to nominate their own candidates using a company’s proxy materials. Additionally, the Dodd-Frank Act directs the federal banking regulators to promulgate rules prohibiting excessive compensation paid to executives of depository institutions and their holding companies with assets in excess of $1.0 billion, regardless of whether the company is publicly traded or not. The Dodd-Frank Act gives the SEC authority to prohibit broker discretionary voting on elections of directors and executive compensation matters.

Pursuant to the Dodd-Frank Act, the SEC adopted “say-on-pay” rules. Under these rules, smaller reporting companies such as the Company are not required to conduct say-on-pay and frequency votes until annual meetings occurring on or after January 21, 2013. In adopting the two- year deferral period, the SEC stated that it may adjust the rule before it applies to smaller issuers.

Also pursuant to the Dodd-Frank Act, the SEC proposed a so-called “proxy access rule.” However, in July 2011, the U.S. Court of Appeals for the District of Columbia rejected the SEC’s proposed rule, and the SEC subsequently announced that it would not dispute the Court’s decision.

Transactions with Affiliates and Insiders. The Dodd-Frank Act expanded the definition of affiliate for purposes of quantitative and qualitative limitations of Section 23A of the Federal Reserve Act to include mutual funds advised by a depository institution or its affiliates. The Dodd-Frank Act applies to Section 23A and Section 22(h) of the Federal Reserve Act (governing transactions with insiders) to derivative transactions, repurchase agreements and securities lending and borrowing transaction that create credit exposure to an affiliate or an insider. Any such transactions with affiliates must be fully secured. The current exemption from Section 23A for transactions with financial subsidiaries is eliminated. The Dodd-Frank Act prohibits an insured depository institution from purchasing an asset from or selling an asset to an insider unless the transaction is on market terms and, if representing more than 10% of capital, is approved in advance by the disinterested directors.

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Consumer Financial Protection Bureau. The Dodd-Frank Act created a new, independent federal agency called the Consumer Financial Protection Bureau (“CFPB”), which has been granted broad rulemaking, supervisory and enforcement powers under various federal consumer financial protection laws, including the Equal Credit Opportunity Act, Truth in Lending Act, Real Estate Settlement Procedures Act, Fair Credit Reporting Act, Fair Debt Collection Act, the Consumer Financial Privacy provisions of the Gramm-Leach-Bliley Act and certain other statutes. The CFPB has examination and primary enforcement authority with respect to depository institutions with $10 billion or more in assets. Smaller institutions will be subject to rules promulgated by the CFPB but are examined and supervised by federal banking regulators for consumer compliance purposes.

The CFPB has the authority to prevent unfair, deceptive or abusive practices in connection with the offering of consumer financial products. The Dodd-Frank Act authorizes the CFPB to establish certain minimum standards for the origination of residential mortgages including a determination of the borrower’s ability to repay.

In addition, the Dodd-Frank Act allows borrowers to raise certain defenses to foreclosure if they receive any loan other than a “qualified mortgage” as defined by the CFPB. The Dodd-Frank Act permits states to adopt consumer protection laws and standards that are more stringent than those adopted at the federal level and, in certain circumstances, permits state attorneys general to enforce compliance with both the state and federal laws and regulations. Federal preemption of state consumer protection law requirements, traditionally an attribute of the federal savings association charter, has also been modified by the Dodd-Frank Act and now requires a case-by-case determination of preemption by the OCC and eliminates preemption for subsidiaries of a bank. Depending on the implementation of this revised federal preemption standard, the operations of the Bank are subject to additional compliance burdens in the states in which it operates.

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Ratio of Earnings to Fixed Charges.

The table below is a Company’s computation of earnings to fixed charges for the years ended December 31, 2012, through December 31, 2008 (All dollars in thousands).

	2012		2011		2010		2009		2008
Including interest on deposits
Earnings
Pre-tax income	$	4,886	$	3,404		9,129		2,372		6,567
Add: fixed charges from below		14,877		18,415		22,246		26,312		26,420
	$	19,763	$	21,819		31,375		28,684		32,987
Fixed Charges:
Total interest expense	$	14,877	$	18,415		22,246		26,312		26,420
Preference security dividend		1,526		1,394		1,394		1,394		56
Including preference security dividend	$	16,403	$	19,809		23,640		27,706		26,476
Ratio of earnings to fixed charges	$	1.33		1.18		1.41		1.09		1.25
Including preference security dividend	$	1.20		1.10		1.33		1.04		1.25
Excluding interest on deposits
Earnings
Pre-tax income	$	4,886	$	3,404		9,129		2,372		6,567
Add: fixed charges from below		4,306		4,208		4,862		5,479		5,631
	$	9,192	$	7,612		13,991		7,851		12,198
Fixed Charges:
Total interest expense excluding interest paid on deposits	$	4,306	$	4,208		4,862		5,479		5,631
Preferred security dividend		1,526		1,394		1,394		1,394		56
Including preference security dividend	$	5,832	$	5,602		6,256		6,873		5,687
Ratio of earnings to fixed charges	$	2.13		1.81		2.88		1.43		2.17
Including preference security dividend	$	1.58		1.36		2.24		1.14		2.14

Limitations on Capital Distributions. The FRB regulations impose limitations upon capital distributions by savings institutions, such as cash dividends, payments to repurchase or otherwise acquire its shares, payments to stockholders of another institution in a cash-out merger and other distributions charged against capital. Under the FRB capital distribution regulations, a savings institution that (i) qualifies for expedited treatment of applications by maintaining one of the two highest supervisory examination ratings, (ii) will be at least adequately capitalized after the proposed capital distribution and (iii) and is not otherwise restricted by applicable law in making capital distributions may, without prior approval by the FRB, make capital distributions during a calendar year equal to its net income for such year plus its retained net income for the preceding two years. Capital distributions in excess of such amount would require prior Fed approval. However, given the current economic climate, FRB has publically stated that it is carefully reviewing every dividend request and has informed the Company that it must seek approval prior to any future declaration of dividends to common shareholders.

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As a participant in the United States Treasury’s Capital Purchase Program, the Company was required to obtain prior written approval before it increased the amount of dividends paid to common shareholders prior to December 12, 2011. In the event that the Company failed to make a scheduled dividend payment to preferred shareholders or interest payments on trust preferred securities, the Company was prohibited from paying any dividends to common shareholders. The Company repurchased all preferred shares sold to the Treasury at par on December 19, 2012.

As a condition in the Company’s MOU signed April 30, 2010, the Company was required to make a request to the FRB prior to the payment of any dividends from either the Bank to the Company or from the Company to its common shareholders. At December 31, 2012, the Company has no restriction on dividend payments. However, as a thrift holding Company regulated by the FRB, the Company is required by Dodd Frank to make a request to the FRB before it pays a dividend from the Bank to the Company. In 2012, the Bank made a $6.0 million dividend payment to the Company for the purpose of facilitating the repurchase of preferred shares from the Treasury. At December 31, 2012, the Bank’s Tangible Capital Ratio and Total Risk Based Capital Ratios were 10.6% and 19.1%, respectively.

Future earnings of the Bank appropriated to bad debt reserves and deducted for federal income tax purposes are not available for payment of dividends or other distributions to the Company without payment of taxes at the then current tax rate by the Bank on the amount of earnings removed from the reserves for such distributions.

Transactions with Affiliates and Insiders. Generally, transactions between a savings bank or its subsidiaries and its affiliates are required to be on terms as favorable to the savings bank as transactions with non-affiliates. In addition, certain of these transactions, such as loans to an affiliate, are restricted to a percentage of the savings bank’s capital. Affiliates of the Bank include the Company and any company that is under common control with the Bank. In addition, a savings bank may not lend to any affiliate engaged in activities not permissible for a bank holding company or acquire the securities of most affiliates. The OCC has the discretion to treat subsidiaries of savings banks as affiliates on a case-by-case basis.

Certain transactions with directors, officers or controlling persons are also subject to conflict of interest regulations enforced by the OCC. These conflict of interest regulations and other statutes also impose restrictions on loans to such persons and their related interests. Among other things, such loans must generally be made on terms that are substantially the same as for loans to unaffiliated individuals.

Reserve Requirements. Pursuant to regulations of the FRB, all FDIC-insured depository institutions must maintain average daily reserves at specified levels against their transaction accounts. The Bank met these reserve requirements at December 31, 2012.

Federal Home Loan Bank System. The Federal Home Loan Bank System consists of 12 district Federal Home Loan Banks subject to supervision and regulation by the Federal Housing Finance Board (“FHFB”). The Federal Home Loan Banks provide a central credit facility primarily for member institutions. As a member of the FHLB, the Bank is required to acquire and hold shares of capital stock in the FHLB in an amount at least equal to 1% of the aggregate unpaid principal of its home mortgage loans, home purchase contracts, and similar obligations at the beginning of each year, or 5% of its advances (borrowings) from the FHLB, whichever is greater. The Bank was in compliance with this requirement, with a $4.4 million investment in FHLB stock at December 31, 2012.

Emergency Economic Stabilization Act of 2008, Federal Deposit Insurance Corporation, Financial Stability Plan, American Recovery and Reinvestment Act of 2009, Homeowner Affordability and Stability Plan, and Other Regulatory Developments

Emergency Economic Stabilization Act of 2008

On October 3, 2008, the EESA was enacted, enabling the federal government to insure troubled assets of financial institutions and collect fees from institutions participating in this program under the terms and conditions set forth by the Secretary of the Treasury. EESA includes, among other provisions: (a) the $700 billion Troubled Asset Relief Program (“TARP”), under which the Secretary of the Treasury is authorized to purchase, insure, hold, and sell a wide variety of financial instruments, particularly those that are based on or related to residential or commercial mortgages originated or issued on or before March 14, 2008; and (b) an increase in the amount of deposit insurance provided by the FDIC.

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Troubled Assets Relief Program (TARP)

Under TARP, the United States Department of the Treasury authorized a voluntary capital purchase program (“CPP”) to purchase up to $250 billion of senior preferred shares of qualifying financial institutions that elected to participate. Participating companies must adopt certain standards for executive compensation, including prohibiting “golden parachute” payments as defined in EESA to senior Executive Officers; (b) requiring recovery of any compensation paid to senior Executive Officers based on criteria that is later proven to be materially inaccurate; and (c) prohibiting incentive compensation that encourages unnecessary and excessive risks that threaten the value of the financial institution. The terms of the CPP also limit certain uses of capital by the issuer, including repurchases of company stock and increases in dividends paid to common shareholders.

On December 12, 2008, the Company agreed to participate in the CPP and issued and sold 18,400 shares of preferred stock for $18.4 million. The preferred stock paid a cash dividend of 5% per year for the first five years and was set to increase to 9% per year thereafter. In addition, the Company issued the United States Treasury a Warrant, allowing the Treasury to immediately purchase 243,816 shares of the Company’s common stock at a strike price of $11.32 per share. The Warrant had a ten year final maturity. The Warrant amount was adjusted to 253,667 shares and the strike price was adjusted to $10.88 per share as a result of a 2% stock dividends paid to shareholders of record at September 30, 2010 and October 3, 2011. The Company repurchased on 100% of the Preferred stock issued to the Treasury on December 19, 2012. On January 16, 2013, the Company repurchased the Warrant previously held by the Treasury for $256,257.

Financial Stability Plan

The Financial Stability Plan (“FSP”) is a comprehensive set of measures intended to improve the health of the financial system. The key elements of the FSP include making additional capital injections into financial institutions, creating a private – public investment fund to buy troubled assets, establishing guidelines for loan modification programs and expanding the Federal Reserve lending program.

American Recovery and Reinvestment Act of 2009

On February 17, 2009, the American Recovery and Reinvestment Act of 2009 (“ARRA”) was enacted. ARRA is intended to provide a stimulus to the United States economy in the wake of the economic downturn brought about by the subprime mortgage crisis and resulting liquidity and credit crunch. The bill includes federal tax cuts, expansion of unemployment benefits and other social welfare provisions, and domestic spending in education, healthcare, and infrastructure, including the energy structure. The new law also includes numerous non-economic recovery related items, including a limitation on executive compensation in federally aided banks.

Under ARRA, an institution will be subject to the following restrictions and standards through out the period of which any obligation arising from the financial assistance provide under TARP remains outstanding:

• Limits on incentive compensation for risk taking by senior executive officers.

• “Claw Back” provisions for compensation paid based or inaccurate financial information.

• Prohibition on “Golden Parachute Payments”.

• Limitations on luxury expenditures.

• TARP recipients are required to permit a separate shareholder vote to approve the compensation of executives, as disclosed pursuant to the SEC’s compensation disclosure rules.

• Publically registered TARP recipients must establish a board compensation committee comprised entirely of independent directors, for the purpose of reviewing employee compensation plans.

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Sarbanes–Oxley Act of 2002

The Sarbanes-Oxley Act provided for sweeping changes with respect to corporate governance, accounting policies and disclosure requirements for public companies, and also for their directors and officers. The Sarbanes-Oxley Act required the SEC to adopt new rules to implement the Act’s requirements. These requirements include new financial reporting requirements and rules concerning the chief executive and chief financial officers to certify certain financial and other information included in the company’s quarterly and annual reports. The rules also require these officers to certify that they are responsible for establishing, maintaining and regularly evaluating the effectiveness of the company’s disclosure controls and procedures; and that they have included information in their quarterly and annual filings about their evaluation and whether there have been significant changes to the controls and procedures or other factors which would significantly impact these controls subsequent to their evaluation. The certifications by the Company’s Chief Executive Officer and Chief Financial Officer of the financial statements and other information included in this Annual Report on Form 10-K have been filed as exhibits to this Form 10-K. See Item 9A (“Controls and Procedures”) hereof for the Company’s evaluation of disclosure controls and procedures.

Pursuant to Section 404 of the Sarbanes-Oxley Act, the Company is required under rules adopted by the SEC to include in its annual reports a report by management on the Company’s internal control over financial reporting and an accompanying auditor’s report. In September 2005, the SEC extended the Section 404 compliance date for the Company and other non-accelerated filers. Under the extension, the Company is required to comply with these requirements.

USA Patriot Act

The USA Patriot Act authorizes new regulatory powers to combat international terrorism. The provisions that affect financial institutions most directly provide the federal government with enhanced authority to identify, deter, and punish international money laundering and other crimes. Among other things, the USA Patriot Act prohibits financial institutions from doing business with foreign “shell” banks and requires increased due diligence for private banking transactions and correspondent accounts for foreign banks. In addition, financial institutions have to follow minimum verification of identity standards for all new accounts and are permitted to share information with law enforcement authorities under circumstances that were not previously permitted.

Community Reinvestment Act

The Community Reinvestment Act requires federal bank regulatory agencies to encourage financial institutions to meet the credit needs of low and moderate-income borrowers in their local communities. An institution’s size and business strategy determines the type of examination that it will receive. Large, retail-oriented institutions are examined using a performance-based lending, investment and service test. Small institutions are examined using a streamlined approach. All institutions may opt to be evaluated under a strategic plan formulated with community input and pre-approved by the bank regulatory agency.

The Community Reinvestment Act regulations provide for certain disclosure obligations. Each institution must post a notice advising the public of its right to comment to the institution and its regulator on the institution’s Community Reinvestment Act performance and to review the institution’s Community Reinvestment Act public file. Each lending institution must maintain for public inspection a file that includes a listing of branch locations and services, a summary of lending activity, a map of its communities and any written comments from the public on its performance in meeting community credit needs. The Community Reinvestment Act requires public disclosure of a financial institution’s written Community Reinvestment Act evaluations. This promotes enforcement of Community Reinvestment Act requirements by providing the public with the status of a particular institution’s community reinvestment record.

The Gramm-Leach-Bliley Act made various changes to the Community Reinvestment Act. Among other changes, Community Reinvestment Act agreements with private parties must be disclosed and annual Community Reinvestment Act reports must be made available to a bank’s primary federal regulator. A bank holding company will not be permitted to become a financial holding company and no new activities authorized under the Gramm-Leach-Bliley Act may be commenced by a holding company or by a bank financial subsidiary if any of its bank subsidiaries received less than a satisfactory Community Reinvestment Act rating in its latest Community Reinvestment Act examination.

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Forward-Looking Statements

This Annual Report on Form 10-K, including all documents incorporated herein by reference, contains forward-looking statements. Additional written or oral forward-looking statements may be made by the Company from time to time in filings with the Securities and Exchange Commission or otherwise. The words “believe,” “expect,” “seek,” and “intend” and similar expressions identify forward-looking statements, which speak only as of the date the statement is made. Such forward-looking statements are within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements may include, but are not limited to, projections of income or loss, expenditures, acquisitions, plans for future operations, financing needs or plans relating to services of the Company, as well as assumptions relating to the foregoing. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results could differ materially from those set forth in, contemplated by or underlying the forward-looking statements.

The Company does not undertake, and specifically disclaims, any obligation to publicly release the results of revisions which may be made to forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

Item 1A. RISK FACTORS

The Company could experience an increase in loan losses, which would reduce the Company’s earnings.

As the nation continues to suffer from an economic recession, real estate prices remain under pressure in the Company’s market. Furthermore, elevated levels of unemployment have made it difficult for many consumers to meet their monthly obligations. The deployment of military personnel out of Fort Campbell to the Middle East may reduce both demand for and pricing of all types of real estate in the Company’s largest market. As a lender, we are exposed to the risk that our customers will be unable to repay their loans according to their terms and that any collateral securing the payment of their loans may not be sufficient to assure repayment. As discussed in Footnote 3 of the Notes to Consolidated Financial Statements, the Company has significant exposure to various types of real estate loans, including commercial real estate, land and land development loans, construction loans, multi-family real estate and loans for residential homes. Credit losses are inherent in the business of making loans and our industry has seen above average loan loss levels for approximately eighteen months. While the Company believes that its loan underwriting standards have been and remain sound, the Company has experienced an increase in charge offs and non-performing loans. To the extent charge offs exceed our financial models, increased amounts charged to the provision for loan losses would reduce net income.

Rapidly changing interest rate environments could reduce our net interest margin, net interest income, fee income and net income.

Interest and fees on loans and securities, net of interest paid on deposits and borrowings, are a large part of our net income. Interest rates are the key drivers of the Company’s net interest margin and subject to many factors beyond the control of management. As interest rates change, net interest income is affected. Rapid increases in interest rates in the future could result in interest expense increasing faster than interest income because of mismatches in the maturities of the Company’s assets and liabilities. Furthermore, substantially higher rates generally reduce loan demand and may result in slower loan growth. Decreases or increases in interest rates could have a negative effect on the spreads between interest rates earned on assets and the rates of interest paid on liabilities, and therefore decrease net interest income. See “Quantitative and Qualitative Disclosures about Market Risk”.

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Liquidity needs could adversely affect the Company’s results of operations and financial condition.

The Company relies on dividends from the Bank as a primary source of funds. The Bank’s primary source of funds is customer deposits and cash flows from investment instruments and loan repayments. While scheduled loan repayments are a relatively stable source, they are subject to the ability of the borrowers to repay their loans. The ability of the borrowers to repay their loans can be adversely affected by a number of factors, including changes in the economic conditions, adverse trends or events affecting the business environment, natural disasters and various other factors. Cash flows from the investment portfolio may be affected by changes in interest rates, resulting in excessive levels of cash flow during periods of declining interest rates and lower levels of cash flow during periods of rising interest rates. Deposit levels may be affected by a number of factors, including both the national market and local competitive interest rate environment, local and national economic conditions, natural disasters and other various events. Accordingly, the Company may be required from time to time to rely on secondary sources of liquidity to meet withdrawal demands or otherwise fund operations. Such sources include the FHLB advances, brokered deposits and federal funds lines of credit from correspondent banks.

The Company may also pledge investments as collateral to borrow money from third parties. In certain cases, the Company may sell investment instruments for sizable losses to meet liquidity needs, hurting net income. While the Company believes that these sources are currently adequate, there can be no assurance they will be sufficient to meet future liquidity needs.

The financial industry is very competitive.

We face competition in attracting and retaining deposits, making loans, and providing other financial services throughout our market area. Our competitors include other community banks, regional and super-regional banking institutions, national banking institutions, and a wide range of other financial institutions such as credit unions, government-sponsored enterprises, mutual fund companies, insurance companies, brokerage companies, and other non-bank businesses. Many of these competitors have substantially greater resources than HopFed Bancorp, Inc.

Inability to hire or retain certain key professionals, management and staff could adversely affect our revenues and net income.

We rely on key personnel to manage and operate our business, including major revenue generating functions such as our loan and deposit portfolios. The loss of key staff may adversely affect our ability to maintain and manage these portfolios effectively, which could negatively affect our revenues. In addition, loss of key personnel could result in increased recruiting, hiring, and training expenses, resulting in lower net income.

The Company is subject to extensive regulation that could limit or restrict its activities.

The Company operates in a highly regulated industry and is subject to examination, supervision, and comprehensive regulation by various federal agencies, including the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation. The Company’s regulatory compliance is costly and certain types of activities, including the payment of dividends, mergers and acquisitions, investments, loans and interest rates charged and interest rates paid on deposits and locations of offices are subject to regulatory approval and may be limited by regulation. The Company is also subject to capitalization guidelines established by its regulators, which require it and the Bank to maintain adequate capital to support its and the Bank’s growth.

The laws and regulations applicable to the banking industry could change at any time, and the Company cannot predict the effects of these changes on its business and profitability. The Sarbanes-Oxley Act of 2002, and the related rules and regulations promulgated by the Securities and Exchange Commission and NASDAQ National Market that are now and will be applicable to the Company, have increased the scope, complexity, and cost of corporate governance, reporting and disclosure practices. As a result, the Company has experienced, and may continue to experience, greater compliance cost.

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Legislation was enacted on July 21, 2010 that will implement sweeping changes to the current bank regulatory structure. The Dodd-Frank Act eliminated the OTS. The Comptroller of the Currency (the primary federal regulator for national banks) will become the primary federal regulator of the Bank. The Board of Governors of the Federal Reserve System (the ^“Federal Reserve^”) now has exclusive authority to regulate all bank and thrift holding companies. As a result, the Company is now subject to supervision by the FRB as opposed to the OTS. These changes occurred July 21, 2011.

Among the many requirements in the Dodd-Frank Act for new banking regulations is a requirement for new capital regulations to be adopted within 18 months. These regulations must be at least as stringent as, and may call for higher levels of capital than, current regulations. Generally, trust preferred securities will no longer be eligible as Tier 1 capital, but the Company’s currently outstanding trust preferred securities will be grandfathered. Savings and loan holding companies like the Company have not previously been subject to capital requirements, but under the Dodd-Frank Act, five years from the date of enactment, savings and loan holding companies will become subject to the same capital requirements as bank holding companies. Savings and loan holding companies are immediately subject to the source of strength doctrine, under which a holding company must serve as a source of financial strength for its depository institution subsidiaries.

The Dodd-Frank Act also establishes a new minimum reserve ratio for the deposit insurance fund of 1.35%, and requires the FDIC to take steps to reach this ratio by September 30, 2020. It is expected that this will result in relatively higher assessments for larger institutions (with assets greater than $10 billion).

Even though the Company’s common stock is currently traded on The NASDAQ National Market, the trading volume in the Company’s common stock has been low and the sale of substantial amounts of its common stock in the public market could depress the price of the Company’s common stock.

The trading volume of the Company’s common stock on The NASDAQ National Market has been relatively low when compared with larger companies listed on The NASDAQ National Market or other stock exchanges. Thinly traded stocks, such as the Company’s, can be more volatile than stocks trading in an active public market. Because of this, the Company stockholders may not be able to sell their shares at the volumes, prices, or times that they desire.

The Company cannot predict the effect, if any, that future sales of its common stock in the market, or availability of shares of its common stock for sale in the market, will have on the market prices of the Company’s common stock. The Company, therefore, can give no assurance that sales of substantial amounts of its common stock in the market, or the potential for large amounts of sale in the market, would not cause the price of its common stock to decline or impair the Company’s ability to raise capital through sales of its common stock.

The market price of the Company’s common stock may fluctuate in the future, and these fluctuations may be unrelated to its performance. General market prices declines or overall market volatility in the future could adversely affect the price of the Company’s common stock, and the current market price may not be indicative of future market prices.

The current banking crisis, including the enactment of Emergency Economic Stabilization Action (EESA) and American Recovery and Reinvestment Act (ARRA), have significantly affected our financial condition, results of operations, liquidity or stock price.

The capital and credit markets have been experiencing volatility and disruption for more than a year. In recent months, the volatility and disruption has reached unprecedented levels. In some cases, the markets have produced downward pressure on stock prices and credit availability for certain issuers seeming without regard to that issuer’s underlying financial strength.

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EESA, which established the TARP, was signed into law in October 2008. As part of TARP, the Treasury established the Capital Purchase Program (CPP) to provide up to $700 billion of funding to eligible financial institutions through the purchase of preferred shares and other financial instruments with the stated purpose of stabilizing and providing liquidity to the U.S. financial markets.

On February 17, 2009, President Obama signed ARRA, an economic recovery package intended to stimulate the economy and provide for a broad range of infrastructure, energy, health and educational needs. There can be no assurance as to the actual impact that EESA or its programs, including the CPP, and the ARRA or its programs, will have on the national economy or financial markets. The failure of these significant legislative measures to help stabilize the financial markets and the continuation or worsening of current financial market conditions may materially and adversely affect our business, financial condition, results of operations, access to credit or the trading price of our common shares.

The Company conducts virtually all of its business activities in a geographically concentrated area of Middle and West Tennessee and Western Kentucky.

The Company operates eighteen offices located in Middle Tennessee and Western Kentucky. The Company maintains significant business relationships in the markets in which it operates as well as the communities adjoining our offices. Therefore, the Company’s success is directly tied to the economic viability of our markets which may not be representative of the country as a whole. In 2012, the Company’s market had unemployment rates ranging from 8% to 24%. While the Company believes that its credit quality has been strong given the current environment, continued economic stress in the market may result in an increase in non-performing loans and charge offs. Given the limited geographic footprint of our Company, the economic conditions in our marketplace may not be reflective of the entire nation.

Management’s analysis of the necessary funding for the allowance for loan loss account may be incorrect or may suddenly change, resulting in lower earnings.

The funding of the allowance for loan loss account is the most significant estimate made by management in its financial reporting to shareholders and regulators. If negative changes to the performance of the Company’s loan portfolio were to occur, management may find it necessary or be required to funding the allowance for loan loss account through additional charges to the Company’s provision for loan loss expense. These changes may occur suddenly and be dramatic in nature. These changes are likely to affect the Company’s financial performance, capital levels and stock price.

The December 31, 2012 expiration of the FDIC’s Transaction Account Guarantee Program could negatively impact our liquidity and cost of funds.

Under the FDIC’s Transaction Account Guarantee Program, certain non-interest bearing transaction accounts, including those of consumers and businesses, were insured by the FDIC even if their balances were over and above the customary $250,000 limit. This program expired on December 31, 2012, and deposits held in such non-interest bearing accounts are now aggregated with any interest bearing deposits the owner may hold in the same ownership category. We currently have a significant amount of our deposits that exceed the customary $250,000 limit. Although we have not experienced a large number of withdrawals with respect to these deposits, a withdrawal of these deposits could negatively impact the Company’s liquidity. Furthermore, the withdrawal of these deposits could negatively impact the Company’s cost of funds by potentially reducing its levels of core deposits and increasing its need to rely on more expensive funding sources.

If the federal funds and interbank funding rates remain at current extremely low levels, our net interest margin, and consequently our net earnings, may be negatively impacted.

Because of significant competitive pressures in our market and the negative impact of these pressures on our deposit and loan pricing, coupled with the fact that a significant portion of our loan portfolio has variable rate pricing that moves in concert with changes to the Federal Reserve Board of Governors’ federal funds rate or the London Interbank Offered Rate (LIBOR) (both of which are at extremely low levels as a result of current economic conditions), our net interest margin may be negatively impacted. Additionally, the amount of non-accrual loans and other real estate owned has been and may continue to be elevated.

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We also expect loan pricing to remain competitive in 2013 and believe that economic factors affecting broader markets will likely result in reduced yields for our investment securities portfolio. As a result, our net interest margin, and consequently our profitability, may continue to be negatively impacted in 2013 and beyond.

Holders of HopFed Capital Trust I have rights that are senior to those of the Company’s common shareholders.

The Company has issued trust preferred securities from special purpose trusts and accompanying junior subordinated debentures. At December 31, 2012, HopFed had outstanding trust preferred securities $10.3 million. Payments of the principal and interest on the trust preferred securities of these trusts are conditionally guaranteed by the Company. Further, the accompanying junior subordinated debentures HopFed issued to the trusts are senior to our common stock. As a result, we must make payments on the junior subordinated debentures before any dividends can be paid on common stock and, in the event of the Company’s , dissolution or liquidation, the holders of the junior subordinated debentures must be satisfied before any distributions can be made to HopFed’s common shareholders. The Company has the right to defer distributions on its junior subordinated debentures (and the related trust preferred securities) for up to five years, during which time no dividends may be paid on its common stock. If our financial condition deteriorates or if we do not receive required regulatory approvals, we may be required to defer distributions on our junior subordinated debentures.

Currently proposed changes to capital requirements for bank holding companies and depository institutions may negatively impact our results of operations.

On June 7, 2012, the Federal Reserve, FDIC and OCC approved proposed rules that would substantially amend the regulatory risk-based capital rules applicable to HopFed Bancorp and Heritage Bank. The proposed rules implement the Basel III regulatory capital reforms and changes required by the Dodd-Frank Act.

Various provisions of the Dodd-Frank Act increase the capital requirements of bank and thrift holding companies, such as HopFed Bancorp. The leverage and risk-based capital ratios of these entities may not be lower than the leverage and risk-based capital ratios for insured depository institutions. The proposed rules that seek to implement the Basel III regulatory capital reforms include new minimum risk-based capital and leverage ratios, which were initially expected to be phased in during 2013 and 2014. These rules if implemented would refine the definition of what constitutes “capital” for purposes of calculating those ratios. The proposed new minimum capital level requirements applicable to HopFed Bancorp and Heritage Bank under the proposals would be: (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); and (iv) a Tier 1 leverage ratio of 4% for all institutions. The proposed rules would also establish a “capital conservation buffer” of 2.5% above the new regulatory minimum capital ratios, and would result in the following minimum ratios: (i) a common equity Tier 1 risk-based capital ratio of 7.0%, (ii) a Tier 1 risk-based capital ratio of 8.5%, and (iii) a total risk-based capital ratio of 10.5%. As currently proposed, the capital conservation buffer requirement would be phased in beginning in January 2016 at 0.625% of risk-weighted assets and would increase each year until fully implemented in January 2019. An institution would be subject to limitations on paying dividends, engaging in share repurchases and paying discretionary bonuses if its capital levels fall below the buffer amounts. These limitations would establish a maximum percentage of eligible retained income that could be utilized for such actions. While the proposed Basel III changes and other regulatory capital requirements will likely result in generally higher regulatory capital standards, it is difficult at this time to predict when or how any new standards will ultimately be applied to HopFed Bancorp or Heritage Bank as the federal regulatory agencies that have proposed the rules have announced that they are indefinitely delaying the implementation of the rules.

The application of more stringent capital requirements for HopFed Bancorp and Heritage Bank, like those proposed to implement the Basel III reforms, could, among other things, result in lower returns on invested capital, require the raising of additional capital, and result in regulatory actions if we were to be unable to comply with such requirements. Furthermore, the imposition of liquidity requirements in connection with the implementation of Basel III could result in our having to lengthen the term of our funding, restructure our business models and/or increase our holdings of liquid assets. Implementation of changes to asset risk weightings for risk based capital calculations, items included or deducted in calculating regulatory capital and/or additional capital conservation buffers could result in management modifying its business strategy and could limit our ability to make distributions, including paying dividends or buying back shares.

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A failure in our operational systems or infrastructure, or those of third parties, could impair our liquidity, disrupt our businesses, result in the unauthorized disclosure of confidential information, damage our reputation and cause financial losses.

Our businesses are dependent on their ability to process and monitor, on a daily basis, a large number of transactions, many of which are highly complex, across numerous and diverse markets. These transactions, as well as the information technology services we provide to clients, often must adhere to client-specific guidelines, as well as legal and regulatory standards. Due to the breadth of our client base and our geographical reach, developing and maintaining our operational systems and infrastructure is challenging, particularly as a result of rapidly evolving legal and regulatory requirements and technological shifts. Our financial, accounting, data processing or other operating systems and facilities may fail to operate properly or become disabled as a result of events that are wholly or partially beyond our control, such as a spike in transaction volume, cyber-attack or other unforeseen catastrophic events, which may adversely affect our ability to process these transactions or provide services.

In addition, our operations rely on the secure processing, storage and transmission of confidential and other information on our computer systems and networks. Although we take protective measures to maintain the confidentiality, integrity and availability of our and our clients’ information across all geographic and product lines, and endeavor to modify these protective measures as circumstances warrant, the nature of the threats continues to evolve. As a result, our computer systems, software and networks may be vulnerable to unauthorized access, loss or destruction of data (including confidential client information), account takeovers, unavailability of service, computer viruses or other malicious code, cyber-attacks and other events that could have an adverse security impact. Despite the defensive measures we take to manage our internal technological and operational infrastructure, these threats may originate externally from third parties such as foreign governments, organized crime and other hackers, and outsource or infrastructure-support providers and application developers, or may originate internally from within our organization. Given the increasingly high volume of our transactions, certain errors may be repeated or compounded before they can be discovered and rectified.

We also face the risk of operational disruption, failure, termination or capacity constraints of any of the third parties that facilitate our business activities, including exchanges, clearing agents, clearing houses or other financial intermediaries. Such parties could also be the source of an attack on, or breach of, our operational systems, data or infrastructure. In addition, as interconnectivity with our clients grows, we increasingly face the risk of operational failure with respect to our clients’ systems.

Although we have not experienced a cyber-incident, if one or more of these events occurs, it could potentially jeopardize the confidential, proprietary and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our, as well as our clients’ or other third parties’, operations, which could result in damage to our reputation, substantial costs, regulatory penalties and/or client dissatisfaction or loss. Potential costs of a cyber-incident may include, but would not be limited to, remediation costs, increased protection costs, lost revenue from the unauthorized use of proprietary information or the loss of current and/or future customers, and litigation.

We maintain an insurance policy which we believe provides sufficient coverage at a manageable expense for an institution of our size and scope with similar technological systems. However, we cannot assure that this policy would be sufficient to cover all financial losses, damages, penalties, including lost revenues, should we experience any one or more of our or a third party’s systems failing or experiencing attack.

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Our loan portfolio includes loans with a higher risk of loss which could lead to higher loan losses and non- accrual assets.

We originate commercial real estate loans, construction and development loans, consumer loans, and residential mortgage loans primarily within our market area. Commercial real estate, commercial, and construction and development loans tend to involve larger loan balances to a single borrower or groups of related borrowers and are most susceptible to a risk of loss during a downturn in the business cycle. These loans also have historically had greater credit risk than other loans for the following reasons:

• Commercial Real Estate Loans. Repayment is dependent on income being generated in amounts sufficient to cover operating expenses and debt service. These loans also involve greater risk because they may not be fully amortizing over a loan period, but may have a balloon payment due at maturity. A borrower’s ability to make a balloon payment typically will depend on being able to either refinance the loan or timely sell the underlying property. As of December 31, 2012, commercial real estate loans and multi-family loans comprised approximately 37.8% of our total loan portfolio, or 165.7% of the Company’s total risk based capital. At December 31, 2012, the Company had $25.2 million of its commercial real estate and multi-family real estate loans classified as substandard which equaled 12.4% of that portfolio. At December 31, 2012, the Company’s allowance for loan losses included $4.2 million allocated to this portfolio.

• Commercial Loans. Repayment is generally dependent upon the successful operation of the borrower’s business. In addition, the collateral securing the loans may depreciate over time, be difficult to appraise, be illiquid, or fluctuate in value based on the success of the business. As of December 31, 2012, commercial loans comprised approximately 9.5% of our total loan portfolio, or 41.4% of the Company’s consolidated total risk based capital. At December 31, 2012, the Company had $5.8 million of its commercial loan portfolio classified as substandard which equaled 11.6% of that portfolio. At December 31, 2012, the Company’s allowance for loan losses included $619,000 allocated to this portfolio.

• Construction and Development Loans. The risk of loss is largely dependent on our initial estimate of whether the property’s value at completion equals or exceeds the cost of property construction and the availability of take-out financing. During the construction phase, a number of factors can result in delays or cost overruns. If our estimate is inaccurate or if actual construction costs exceed estimates, the value of the property securing our loan may be insufficient to ensure full repayment when completed through a permanent loan, sale of the property, or by seizure of collateral. As of December 31, 2012, construction, land and land development loans comprised approximately 12.1% of our total loan portfolio and approximately 53.0% of the Company’s consolidated total risk based capital. At December 31, 2012, the Company had $28.7 million of its construction and development loans classified as substandard which equaled 44.3% of that portfolio. At December 31, 2012, the Company’s allowance for loan losses included $2.4 million allocated to this portfolio.

The increased risks associated with these types of loans result in a correspondingly higher probability of default on such loans (as compared to single-family real estate loans). Loan defaults would likely increase our loan losses and non-accrual assets and could adversely affect our allowance for loan losses.

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Since we engage in lending secured by real estate and may be forced to foreclose on the collateral property and own the underlying real estate, we may be subject to the increased costs associated with the ownership of real property, which could result in reduced net income.

Since we originate loans secured by real estate, we may have to foreclose on the collateral property to protect our investment and may thereafter own and operate such property, in which case we are exposed to the risks inherent in the ownership of real estate.

The amount that we, as mortgagee, may realize after a default is dependent upon factors outside of our control, including, but not limited to general and local economic conditions, changing values of property, interest rates, unpaid real estate taxes, environmental issues, operating expenses involved with managing other real estate owned, and the supply and demand for units held for sale as well as other unforeseen cost and delays.

Certain expenditures associated with the ownership of real estate, principally real estate taxes and maintenance costs, may adversely affect the income from the real estate. Therefore, the cost of operating real property may exceed the rental income earned from such property, and we may have to advance funds in order to protect our investment or we may be required to dispose of the real property at a loss.

The downgrade of the U.S. credit rating and Europe’s debt crisis could have a material adverse effect on our business, financial condition and liquidity.

Standard & Poor’s lowered its long term sovereign credit rating on the United States of America from AAA to AA+ on August 5, 2011. A further downgrade or a downgrade by other rating agencies could have a material adverse impact on financial markets and economic conditions in the United States and worldwide. Any such adverse impact could have a material adverse effect on our liquidity, financial condition and results of operations.

In addition, the possibility that certain European Union (“EU”) member states will default on their debt obligations has negatively impacted economic conditions and global markets. The continued uncertainty over the outcome of international and the EU’s financial support programs and the possibility that other EU member states may experience similar financial troubles could further disrupt global markets. The negative impact on economic conditions and global markets could also have a material adverse effect on our liquidity, financial condition and results of operations.

We face risks arising from acquisitions of either other financial institutions or branch locations.

We have announced the acquisition of another financial institution and may continue to do so in the future. We face a number of risks arising from acquisition transactions, including difficulties in integrating the acquired business into our operations, difficulties in assimilating and retaining employees and intermediaries, difficulties in retaining the existing customers of the acquired entity, unforeseen liabilities that arise in connection with the acquired business and unfavorable market conditions that could negatively impact our growth expectations for the acquired business. These risks may prevent us from realizing the expected benefits from acquisitions and could result in the impairment of goodwill and/or intangible assets recognized at the time of acquisition.

ITEM 1B. UNRESOLVED STAFF COMMENTS

There are no unresolved staff comments from the Securities and Exchange Commission.

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ITEM 2. PROPERTIES

The following table sets forth information regarding the Bank’s offices at December 31, 2012:

	Year Opened		Owned or Leased		Book Value(1)		Approximate Square Footage of Office
					(In thousands)
Main Office:
4155 Lafayette Road Hopkinsville, Kentucky		2006		Owned	$	4,575		24,072
Branch Offices:
2700 Fort Campbell Boulevard Hopkinsville, Kentucky		1995		Owned	$	1,960		17,625
Downtown Branch Office 605 South Virginia Street Hopkinsville, Kentucky		1997		Owned	$	135		756
Murray South Office 210 N. 12th Street Murray, Kentucky		2003		Owned	$	1,649		5,600
Murray North Office 1601 North 12th Street Murray, Kentucky		2007		Owned	$	1,204		3,400
Cadiz Branch Office 352 Main Street Cadiz, Kentucky		1998		Owned	$	418		2,200
Elkton Branch Office 536 W. Main Street Elkton, Kentucky		1976		Owned	$	112		3,400
Benton Branch Office 105 W. 5th Street Benton, Kentucky		2003		Owned	$	528		4,800
Calvert City Office 35 Oak Plaza Drive Calvert City, Kentucky		2003		Owned	$	1,126		3,400
Carr Plaza Office 607 N. Highland Drive Fulton, Kentucky		2002		Owned	$	184		800
Lake Street Office 306 Lake Street Fulton, Kentucky		2002		Owned	$	1,023		15,000
Fall & Fall Insurance Office 101 Main Street Fulton, Kentucky		2002		Owned	$	—		3,200
Clarksville Main Street 322 Main Street Clarksville, Tennessee		2007		Owned	$	1,504		10,000
Trenton Road Branch 3845 Trenton Road Clarksville, Tennessee		2006		Owned	$	2,380		3,362
Madison Street Office 2185 Madison Street Clarksville, Tennessee		2007		Owned	$	1,585		3,950
Houston County Office 1102 West Main Street Erin, Tennessee		2006		Owned	$	524		2,390
Ashland City Office 108 Cumberland Street Ashland City, Tennessee		2006		Owned	$	1,327		7,058
Pleasant View Office 2556 Highway 49 East Pleasant View, Tennessee		2006		Owned	$	713		2,433
Kingston Springs Office 104 West Kingston Springs Road Kingston Springs, Tennessee		2006		Owned	$	1,610		9,780
Total					$	22,557

(1) Represents the book value of land, building, furniture, fixtures and equipment owned by the Bank.

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ITEM 3. LEGAL PROCEEDINGS

From time to time, the Company or the Bank is a party to various legal proceedings incident to its business. At March 29, 2013, there were no legal proceedings to which the Company or the Bank was a party, or to which any of their property was subject, which were expected by management to result in a material loss to the Company or the Bank. There are no pending regulatory proceedings to which the Company or the Bank is a party or to which any of their properties is subject which are currently expected to result in a material loss.

ITEM 4. MINE SAFETY DISCLOSURE

None

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERS PURCHASES OF EQUITY SECURITIES.

A cash dividend of $0.08 per share was declared in first and second quarter of 2011. A cash dividend of $0.02 per share was declared in the third and fourth quarter of 2011 and all four quarters of 2012. The Company paid a 2% common stock dividend during the third quarter of 2011. The Company paid a 5% preferred cash dividend in 2011 and 2012, respectively. The high and low price range of the Company’s common stock for 2012 and 2011 is set forth below and has been adjusted to reflect the 2% stock dividend paid to shareholders of record at October 3, 2011:

	Year Ended December 31, 2012				Year Ended December 31, 2011
	High		Low		High		Low
First Quarter	$	9.04	$	6.54	$	9.58	$	8.82
Second Quarter	$	9.05	$	6.81	$	9.11	$	7.42
Third Quarter	$	7.80	$	6.92	$	8.98	$	5.08
Fourth Quarter	$	8.84	$	7.44	$	6.89	$	5.32

At March 29, 2013, the Company estimates that is has approximately 2,400 shareholders, with approximately 980 reported in the name of the shareholder and the remainder recorded in street name.

The Company’s participation in the United States Treasury’s Capital Purchase Program precluded it from repurchasing additional treasury shares for a three year period. The Company issued 112,639 shares of treasury stock as part of its common equity offering in June 2010. The Company currently has 402,916 shares of common treasury stock and 18,400 shares of preferred treasury stock.

The Federal Reserve Bank has issued a policy statement regarding the payment of dividends and the repurchase of common stock by thrift holding companies. In general, dividends should be paid out of current earnings and only if the prospective rate of earnings retention by the holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. These regulatory policies may affect the ability of the Company to pay dividends, repurchase shares of common stock or otherwise engage in capital distributions.

ITEM 6. SELECTED FINANCIAL DATA

The information set forth under the caption “Selected Financial Information and Other Data” in the Company’s Annual Report to Stockholders for the year ended December 31, 2012, (Exhibit No. 13.1) is incorporated herein by reference. See Note 22 of Notes of Consolidated Financial Statements which is incorporated herein by reference.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information set forth under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report to Stockholders for the year ended December 31, 2012, (Exhibit No. 13.1) is incorporated herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information set forth under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Interest Rate Sensitivity Analysis” in the Company’s Annual Report to Stockholders for the year ended December 31, 2012, (Exhibit No. 13.1) is incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Company’s Consolidated Financial Statements together with the related notes and the report of Rayburn, Bates & Fitzgerald, P.C., independent registered public accounting firm, all as set forth in the Company’s Annual Report to Stockholders for the year ended December 31, 2012, (Exhibit No. 13.1) are incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

ITEM 9A. CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”) that are designed to insure that information required to be disclosed by it in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified under the SEC’s rules and forms and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decision making regarding required disclosure. The Company, under the supervision and participation of its management, including the Company’s Chief Executive Officer and the Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report pursuant to the Exchange Act. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in ensuring that all material information required to be disclosed is this annual report has been accumulated and communicated to them in a manner appropriate to allow timely decisions regarding required disclosures.

48

Management Report on Internal Control

The management of HopFed Bancorp, Inc. and its subsidiaries (collectively referred to as the Company) is responsible for the preparation, integrity and fair presentation of published financial statements and all other information presented in this annual report. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and, as such, include amounts based on informed judgments and estimates made by management.

Management is responsible for establishing and maintaining adequate internal control over financial reporting for financial presentations in conformity with GAAP. Pursuant to the rules and regulations of the Securities and Exchange Commission, internal control over financial reporting is a process designed by, or under the supervision of, the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and included those policies and procedures that:

• Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company.

• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and Directors of the Company; and

• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls. Accordingly, even effective internal control can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, or that the degree of compliance with the policies and procedures include in such controls may deteriorate.

Management has evaluated the effectiveness of its internal control over financial reporting as of December 31, 2012 based on the control criteria established in a report entitled Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on such evaluation, we have concluded that HopFed Bancorp’s internal control over financial reporting is effective as of December 31, 2012.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only managements report in this annual report.

Date: March 29, 2013	By:	(signed) John E. Peck
		John E. Peck
		President and Chief Executive Officer
	By:	(signed) Billy C. Duvall
		Billy C. Duvall
		Senior Vice President and Treasurer
		(Principal Financial Officer)

49

ITEM 9B. OTHER INFORMATION

Not Applicable

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE OF THE REGISTRANT

Information regarding directors of the Company is omitted from this Report as the Company will file a definitive proxy statement (the “Proxy Statement”) not later than 120 days after December 31, 2012, and the information included therein under “Proposal I – Election of Directors” is incorporated herein by reference. Information regarding the executive officers of the Company is included under separate caption in Part I of this Form 10-K

Information regarding Section 16(a) beneficial ownership reporting compliance is omitted from this Report as the Company will file the Proxy Statement not later than 120 days after December 31, 2012, and the information included therein under “Section 16(a) Beneficial Ownership Reporting Compliance” is incorporated herein by reference.

Information regarding audit committee financial expert compliance is omitted from this Report as the Company will file the Proxy Statement not later than 120 days after December 31, 2012, and the information contained therein under “Committees of the Board of Directors” is incorporated herein by reference.

The Company has adopted a code of ethics that applies to all directors and employees, including without exception, the principal executive officer, principal financial officer, principal accounting officer and controller, or persons performing similar functions.

ITEM 11. EXECUTIVE COMPENSATION

Information regarding executive compensation is omitted from this Report as the Company will file the Proxy Statement not later than 120 days after December 31, 2012, and the information included therein under “Proposal I – Election of Directors” is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information required by this Item is omitted from this Report as the Company will file the Proxy Statement not later than 120 days after December 31, 2012, and the information included therein under “Voting Securities and Principal Holders Thereof” and “Proposal I – Election of Directors” is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

Information required by this Item is omitted from this Report as the Company will file the Proxy Statement, not later than 120 days after December 31, 2012, and the information included therein under “Proposal I – Election of Directors” is incorporated herein by reference.

50

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information required by this item is omitted from this report as the Company will file the Proxy Statement not later than 120 days after December 31, 2012, and the information included therein under “Independent Registered Public Accounting Firm” is incorporated herein by reference.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The following consolidated financial statements of the Company included in the Annual Report to Stockholders for the year ended December 31, 2012, are incorporated herein by reference in Item 8 of this Report. The remaining information appearing in the Annual Report to Stockholders is not deemed to be filed as part of this Report, except as expressly provided herein.

1. Report of Independent Registered Public Accounting Firm.

2. Consolidated Balance Sheets – December 31, 2012 and 2011.

3. Consolidated Statements of Income for the Years Ended December 31, 2012, 2011 and 2010.

4. Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2012, 2011 and 2010.

5. Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2012, 2011 and 2010.

6. Consolidated Statements of Cash Flows for the Years Ended December 31, 2012, 2011 and 2010.

7. Notes to Consolidated Financial Statements.

(b) The following exhibits either are filed as part of this Report or are incorporated herein by reference:

Exhibit No. 2.1. Plan of Conversion of Hopkinsville Federal Savings Bank. Incorporated herein by reference to Exhibit No. 2 to Registrant’s Registration Statement on Form S-1 (File No. 333-30215).

Exhibit No. 3.1. Certificate of Incorporation. Incorporated herein by reference to Exhibit No. 3.1 to Registrant’s Registration Statement on Form S-1 (File No. 333-30215).

Exhibit No. 3.2 Certificate of Amendment to the Certificate of Incorporation, Incorporated herein by reference to Exhibit No. 3.1 to the Registrant’s Current Report on Form 8-K dated May 28, 2010 (filed on May 28, 2010).

Exhibit No. 3.3 Certificate of Designations with respect to Fixed Rate Cumulative Perpetual Preferred Stock, Series A. Incorporated herein by reference to Exhibit No. 3.1 to Registrant’s Current Report on Form 8-K dated December 12, 2008 (filed on December 17, 2008).

Exhibit No. 3.4 Bylaws, as amended. Incorporated herein by reference to Exhibit No. 3.2 to Registrant’s Current Report on Form 8-K dated December 5, 2007 (filed on December 6, 2007).

Exhibit No. 4.1. Form of Common Stock Certificate incorporated herein by reference to Exhibit No. 4.1 to Registrant’s Registration Statement on Form S-1 (File No. 333-30215).

51

Exhibit No. 4.2 Warrant to Purchase up to 243,816 shares of Common Stock. Incorporated herein by reference to Exhibit No. 3.2 to Registrant’s Current Report on Form 8-K dated December 12, 2008 (filed December 17, 2008).

Exhibit No. 10.1. HopFed Bancorp, Inc. Management Recognition Plan. Incorporated herein by reference to Exhibit 99.1 to Registration Statement on Form S-8 (File No. 333-79391).

Exhibit No. 10.2. HopFed Bancorp, Inc. 1999 Stock Option Plan. Incorporated herein by reference to Exhibit 99.2 to Registration Statement on Form S-8 (File No. 333-79391).

Exhibit No. 10.3. Employment Agreement by and between Hopkinsville Federal Savings Bank and John E. Peck. Incorporated herein by reference to Exhibit No. 10.2 to Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2000.

Exhibit No. 10.4. Employment Agreement by and between Registrant and John E. Peck. Incorporated herein by reference to Exhibit No. 10.2 to Registrant’s Current Report on Form 8-K dated April 17, 2008 (filed April 22, 2008).

Exhibit No. 10.5. HopFed Bancorp, Inc. 2000 Stock Option Plan. Incorporated herein by reference to Exhibit 10.10 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000.

Exhibit No. 10.6. Employment Agreement by and between Registrant and Billy C. Duvall. Incorporated herein by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated February 12, 2008 (filed February 19, 2008).

Exhibit No. 10.7. Employment Agreement by and between Heritage Bank and Billy C. Duvall. Incorporated herein by reference to Exhibit 10.2 to Registrant’s Current Report on Form 8-K dated February 12, 2008 (filed February 19, 2008).

Exhibit No. 10.8. Employment Agreement by and between Registrant and Michael L. Woolfolk. Incorporated herein by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated April 17, 2008 (filed April 22, 2008).

Exhibit No. 10.9. Employment Agreement by and between Heritage Bank and Michael L. Woolfolk. Incorporated herein by reference to Exhibit 10.2 to Registrant’s Current Report on Form 8-K dated April 17, 2008 (filed April 22, 2008).

Exhibit No. 10.10. Fulton Division Acquisition Agreement dated as of March 1, 2002, by and between Old National Bank and Hopkinsville Federal Bank. Incorporated herein by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated March 1, 2002.

Exhibit No. 10.11 HopFed Bancorp, Inc. 2004 Long Term Incentive Plan. Incorporated herein by reference to Exhibit 99.3 to Registration Statement on Form S-8 (File No. 333-117956) dated August 5, 2004.

Exhibit No. 10.13 Employment Agreement by and between Heritage Bank and P. Michael Foley. Incorporated herein by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated December 6, 2011 (filed December 7, 2011).

Exhibit No. 10.17 Form of Letter Agreement, executed by each of Messrs. John E. Peck, Michael L. Woolfolk, Michael F. Stalls, Billy C. Duvall, P. Michael Foley and Keith Bennett with Registrant. Incorporated herein by reference to Exhibit No. 10.3 to Registrant’s Current Report on Form 8-K dated December 12, 2008 (filed December 17, 2008).

52

Exhibit No. 13.1. Annual Report to Stockholders Except for those portions of the Annual Report to Stockholders for the year ended December 31, 2012, which are expressly incorporated herein by reference, such Annual Report is furnished for the information of the Commission and is not to be deemed “filed” as part of this Report.

Exhibit No. 14.1. Code of Ethics. Incorporated herein by reference to Exhibit 14 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003.

Exhibit No. 21.1 Subsidiaries of the Registrant.

Exhibit No. 23.1. Consent of Independent Registered Public Accounting Firm.

Exhibit No. 31.1 Certification of Principal Executive Officer pursuant to Exchange Act Rule

13a – 14(a) or 15d – 14(a).

Exhibit No. 31.2 Certification of Principal Financial Officer pursuant to Exchange Act Rule

13a – 14(a) or 15d – 14(a).

Exhibit No 32.1. Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes – Oxley Act of 2002.

Exhibit No 32.2. Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes – Oxley Act of 2002.

99.1 Certification of principal executive officer pursuant to Section 111(b)(4) of the Emergency Economic Stabilization Act of 2008.

99.2 Certification of principal financial officer pursuant to Section 111(b)(4) of the Emergency Economic Stabilization Act of 2008.

Exhibit 101. The following materials from the Company’s annual report on Form 10-K for the years ended December 31, 2012 and December 31, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statement of Financial Condition as of December 31, 2012 and December 31, 2011, (ii) Condensed Consolidated Statements of Income for the years ended December 31, 2012, 2011 and 2010, respectively (iii)Condensed Consolidated Statements of Cash Flows, for the years ended December 31, 2012, 2011 and 2010, respectively, and (iv) Notes to Condensed Consolidated Financial Statements (unaudited), tagged as blocks of text.

(c) All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.

53

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on behalf by the undersigned, thereunto duly authorized.

	HOPFED BANCORP, INC.
	(Registrant)
Date: March 29, 2013	By:	(signed) John E. Peck
		John E. Peck
		President and
		Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated and on the dates indicated.

DATE: SIGNATURE AND TITLE:
(signed) John E. Peck	March 29, 2013
John E. Peck
Director, President and Chief Executive Officer
(Principal Executive Officer)
(signed) Billy C. Duvall	March 29, 2013
Billy C. Duvall
Senior Vice President, Chief
Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
(signed) Gilbert E. Lee	March 29, 2013
Gilbert E. Lee
Chairman of the Board
(signed) Thomas I. Miller	March 29, 2013
Thomas I. Miller
Vice-Chairman of the Board
(signed) Michael Woolfolk	March 29, 2013
Michael Woolfolk
Director, Board Secretary and Executive Vice
President and Chief Operating Officer
(signed) Steve Hunt	March 29, 2013
Steve Hunt
Director
(signed) Harry J. Dempsey	March 29, 2013
Harry J. Dempsey
Director
(signed) Ted Kinsey	March 29, 2013
Ted Kinsey
Director
(signed) Clay Smith	March 29, 2013
Clay Smith
Director

54

EX-13

Exhibit 13

SELECTED FINANCIAL INFORMATION AND OTHER DATA

The following summary of selected financial information and other data does not purport to be complete and is qualified in its entirety by reference to the detailed information and Consolidated Financial Statements and accompanying Notes appearing elsewhere in this Report.

Financial Condition and Other Data

	At December 31,
	2012		2011		2010		2009		2008
	(Dollars in thousands)
Total amount of:
Assets	$	967,689	$	1,040,820	$	1,082,591	$	1,029,876	$	967,560
Loans receivable, net		524,985		556,360		600,215		642,355		628,356
Federal funds sold		—		—		—		—		16,080
Cash and due from banks		31,563		44,389		54,042		37,938		15,268
Federal Home Loan Bank stock		4,428		4,428		4,378		4,281		4,050
Securities available for sale		356,345		383,782		357,738		289,691		246,952
Securities held to maturity:
Mortgage-backed Securities		—		—		—		—		454
Deposits		759,865		800,095		826,929		794,144		713,005
Repurchase agreements		43,508		43,080		45,110		36,060		28,680
FHLB advances Subordinated debentures		43,741 10,310		63,319 10,310		81,905 10,310		102,465 10,310		130,012 10,310
Total stockholders’ equity		104,999		118,483		111,444		79,949		78,284
Number of active:
Real estate loans Outstanding(1)		4,212		4,383		4,715		5,886		6,313
Deposit accounts(1)		40,770		42,140		40,359		40,783		94,171
Offices open		18		18		18		18		18

	Year Ended December 31,
Operating Data
	2012		2011		2010		2009		2008
	(Dollars in thousands)
Interest and dividend income	$	40,840	$	46,240	$	52,417	$	53,141	$	49,477
Interest expense		14,877		18,415		22,246		26,312		26,420
Net interest income before provision for loan losses		25,963		27,825		30,171		26,829		23,057
Provision for loan losses		2,275		5,921		5,970		4,199		2,417
Net interest income		23,688		21,904		24,201		22,630		20,640
Non-interest income		9,639		10,193		11,106		10,225		8,344
Non-interest expense		28,441		28,693		26,178		30,483		22,417
Income before income taxes		4,886		3,404		9,129		2,372		6,567
Provision for income taxes		817		484		2,613		397		1,952
Net income	$	4,069	$	2,920	$	6,516	$	1,975	$	4,615
Preferred stock dividend and accretion of stock warrants		1,229		1,031		1,031		1,031		56
Net income available to common shareholders	$	2,840	$	1,889	$	5,485	$	944	$	4,559

(1) In 2009, the Bank purged all closed deposit accounts from its system, significantly reducing the amount of deposit accounts. Prior to 2009, the total amount of deposit accounts included closed accounts.

1

Selected Quarterly Information (Unaudited)

	First Quarter			Second Quarter		Third Quarter		Fourth Quarter
	( Dollars in thousands)
Year Ended December 31, 2012:
Interest and dividend income	$	10,759		$	10,400	$	9,996	$	9,685
Net interest income after provision for losses on loans		5,998			6,262		5,412		6,016
Non-interest income		1,917			2,639		2,897		2,186
Non-interest expense		7,099			7,439		6,971		6,932
Net income available common shareholder		470			903		819		648
Year Ended December 31, 2011:
Interest and dividend income	$	11,787		$	11,766	$	11,450	$	11,237
Net interest income after provision for losses on loans		2,280			6,551		6,383		6,690
Non-interest income		2,365			2,118		3,281		2,429
Non-interest expense		7,449			7,436		7,127		6,681
Net income (loss) available to (attributable to) common shareholders		(2,098	)		550		1,368		2,069

2

Key Operating Ratios

	At or for the Year Ended December 31,
	2012			2011			2010
Performance Ratios
Return on average assets (net income available to common shareholders divided by average total assets)		0.28	%		0.18	%		0.51	%
Return on average equity (net income available to common shareholders divided by average total equity)		2.49	%		1.64	%		5.38	%
Interest rate spread (combined weighted average interest rate earned less combined weighted average interest rate cost)		2.62	%		2.83	%		3.01	%
Net interest margin		2.86	%		3.02	%		3.19	%
Ratio of average interest-earning assets to average interest-bearing liabilities		114.65	%		109.55	%		108.19	%
Ratio of non-interest expense to average total assets		2.79	%		2.69	%		2.42	%
Ratio of net interest income after provision for loan losses to non-interest expense		87.10	%		80.17	%		96.96	%
Efficiency ratio (non-interest expense divided by sum of net interest income plus non-interest income)		77.52	%		73.35	%		61.65	%
Asset Quality Ratios
Non-performing assets to total assets at end of period		0.95	%		0.81	%		1.37	%
Non-accrual loans to total loans at end of period		1.43	%		1.08	%		0.82	%
Allowance for loan losses to total loans at end of period		1.99	%		1.98	%		1.61	%
Allowance for loan losses to non-performing loans at end of period		138.99	%		183.62	%		195.35	%
Provision for loan losses to total loans receivable, net		0.43	%		1.06	%		0.98	%
Net charge-offs to average loans outstanding		0.52	%		0.76	%		0.79	%
Capital Ratios
Total equity to total assets at end of period		10.85	%		11.38	%		10.29	%
Average total equity to average assets		11.18	%		10.78	%		9.41	%

Regulatory Capital

	December 31, 2012
	(Dollars in thousands)
	Company		Bank
Tangible capital	$	104,984	$	102,375
Less: Tangible capital requirement		14,508		14,463
Excess		90,476		87,912
Core capital	$	104,984	$	102,375
Less: Core capital requirement		38,689		38,569
Excess		66,295		63,806
Total risk-based capital	$	112,204	$	109,602
Less: Risk-based capital requirement		45,966		45,981
Excess	$	66,238	$	63,621

3

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

This discussion relates to the financial condition and results of operations of the Company, which consist of the consolidation of Heritage Bank (“the Bank”) and HopFed Bancorp, Inc. (“the Corporation”) Fall and Fall Insurance (“Fall and Fall”), HopFed Capital Trust 1 and Fort Webb, LLC. The Corporation became the holding company for the Bank in February 1998. The principal business of the Bank consists of accepting deposits from the general public and investing these funds primarily in loans and in investment securities and mortgage-backed securities. The Bank’s loan portfolio consists primarily of loans secured by residential real estate located in its market area.

In 2012, the Company continued to suffer the negative effects of the most recent recession and the painfully slow recovery that has followed. In addition to a slow economy, the Corporation and its Bank subsidiary began the year under a Memorandum of Understanding (“MOU”) issued by its former regulator, the Office of Thrift Supervision. In response to the MOU, an increasing amount federal regulations and a weak economy, management increased its staffing the areas of compliance, risk management, credit analysis and information technology. With opportunities for loan growth limited by both the MOU and economy, the Company established the following goals for 2012:

• Continue to fully comply with the MOU for both the Corporation and the Bank with a goal of their termination in 2012.

• Repurchase all Preferred Stock and the associated Warrant issued to the United States Treasury (“Treasury”) in December of 2008 as part of the Treasury’s Capital Purchase Program.

• Reduce the Company’s classified loan to capital ratio.

• Reduce the Company’s cost of interest bearing liabilities.

In October of 2012, the Office of the Comptroller of the Currency (“OCC”) completed its first examination of the Company’s Bank subsidiary and terminated the outstanding MOU related to the Bank. In November 2012, the Federal Reserve Bank of St. Louis (“FED”) likewise terminated the Corporation’s MOU. These actions allowed the Company to repurchase all Preferred Stock issued to the United States Treasury (“Treasury”) in December of 2008 under the Treasury’s Capital Purchase Program. The repurchase of Preferred Stock was completed on December 19, 2012. The Company repurchased the outstanding Warrant from the Treasury on January 16, 2013.

In the first six months of 2012, the Company experienced a significant increase in its level of classified loans, those loans risk graded as either substandard or doubtful. The Company’s level of classified loans increased from $49.3 million at December 31, 2011, to $82.2 million at March 31, 2012, and $90.4 million at June 30, 2012. The increase in classified loans resulted from a combination of factors, including updated financial analysis that indicated that some customer’s ability to service their debt was weakening, a lack of current financial information on specific customers and slower than anticipated sales of both new homes and developed subdivision lots.

In response to this negative trend, management is undertaking aggressive actions in dealing with the increase in classified loans. These actions included additional customer contact with problem credits, the review of interim financial statements to more closely monitor developing trends in customer’s finances and the establishment of a special assets department. The special assets department (“special assets”) assume the responsibility for a smaller number of loan relationships that were adversely classified, had negative cash flow trends developing, appeared headed to foreclosure and management of the Company’s property taking into foreclosure. The purpose of special assets is to determine if a customer relationship can be saved by improved financial reporting and performance. If the Company determines that the customer’s finances are not likely to improve in the future, the special assets officer develops a strategy for the Company to exit the relationship.

For the three months periods ended September 30, 2012, and December 31, 2012, the Company experienced a decline in classified loans to $75.8 million and $66.6 million, respectively. The decline in classified loans has been accomplished by the improved financial performance of specific customers, an increased monitoring of customer financial statements, the sale of certain classified loans, the restructuring of development loans into amortizing loans, and the liquidation of other problem loans. It is the intent of the Company to continue to place a heavy emphasis on this strategy, which may result in the reduction of total loans outstanding.

4

At December 31, 2012, the Company’s level of classified loans to risk based capital is 59.4%. The Company seeks to reduce the level of classified loans to approximately 40% of risk based capital. To make further reductions in the level of classified assets, management will focus on loans secured by land and commercial real estate. At December 31, 2012, approximately $23.8 million, or 52.0% of the Company’s land portfolio (non-agricultural related) is classified as substandard. At December 31, 2012, the Company has no land loans under development. The inventory of land loans includes 418 lots available for sale with an aggregate loan balance of $15.0 million. The average lot has a loan balance of approximately $36,000. Also at December 31, 2012, the Company has $23.8 million in land loans on property that is designated for future development in which no meaningful infrastructure has been started until market conditions improve. These loans represent approximately 1,585 acres of land with an average price per acre of approximately $15,000. The reduction of land loans classified as substandard is a high priority of management. Without the sales history to support full repayment in a timely manner, management’s expectations of these customers are to begin to making scheduled principal and interest payments. The Company’s level of classified loans remains elevated and reducing classified loans is a priority in 2013.

For the year ended December 31, 2012, the Company recorded net income available for common shareholders of $2.8 million, a return on average assets of 0.28% and a return on average equity of 2.49%. Company results for the year ended December 31, 2012, were negatively affected by the continued presence of $18.4 million of Preferred Stock and the issuance of a Common Stock Warrant to the United States Treasury on December 12, 2008, as part of the Treasury Capital Purchase Program. For the years ended December 31, 2012, December 31, 2011 and December 31, 2010, the Company’s net income available to common shareholders was reduced by 1,229,000, $1,031,001 and $1,031,000, respectively, as a result of our issuance of preferred stock to the United States Treasury. In December 2012, the Company repurchased all shares of Preferred Stock from the Treasury, eliminating the negative effects to future shareholder income. On January 16, 2013, the Company repurchased the Warrant from the Treasury for $256,257.

For the year ended December 31, 2011, the Company recorded net income available for common shareholders of $1,889,000, a return on average assets of 0.18% and a return on average equity of 1.64%. The Company’s results of operations for the year ended December 31, 2011, was negatively affected by the continued presence of $18.4 million of preferred stock and the issuance of common stock warrants to the United States Treasury on December 12, 2008, as part of the Treasury Capital Purchase Program. For the years ended December 31, 2011, December 31, 2010, and December 31, 2009, the Company’s net income available to common shareholders was reduced by $1,031,000 as a result of its issuance of preferred stock to the United States Treasury. For the year ended December 31, 2011, net income was also negatively influenced by $5.9 million in provision for loan loss expense and $2.0 million in losses and expenses related to other real estate owned.

For the year ended December 31, 2010, the Company recorded net income available for common shareholders of $5,485,000, a return on average assets of 0.51% and a return on average equity of 5.38%. In June and July of 2010, the Company issued 3,583,334 shares of common stock, receiving net proceeds of $30.4 million. The additional capital improved the Company’s capital position but resulted in a lower return on average equity.

The Company’s net income is dependent primarily on its net interest income, which is the difference between interest income earned on its loans, investment securities and mortgage-backed securities portfolios and interest paid on interest-bearing liabilities. Net interest income is determined by (i) the difference between yields earned on interest-earning assets and rates paid on interest-bearing liabilities (“interest rate spread”) and (ii) the relative amounts of interest-earning assets and interest-bearing liabilities. The Company’s interest rate spread is affected by regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flows. To a lesser extent, the level of non-interest expenses such as compensation, employee benefits, data processing expenses, local deposit and federal income taxes also affect the Company’s net income.

The operations of the Company and the entire financial services are significantly affected by prevailing economic conditions, competition and the monetary, fiscal and regulatory policies of governmental agencies. Lending activities are influenced by the demand for and supply of housing, competition among lenders, the level of interest rates and the availability of funds. Deposit flows and costs of funds are influenced by prevailing market rates of interest, primarily on competing investments, account maturities and the levels of personal income and savings in the Company’s market area.

5

Aggregate Contractual Obligations

	Maturity by Period
December 31, 2012 (In thousands)	Less than 1 year		Greater than 1 year to 3 years		Greater than 3 year to 5 years		Greater than 5 years		Total
Deposits	$	542,955		120,994		95,882		34		759,865
FHLB borrowings		—		—		31,000		12,741		43,741
Repurchase agreements		27,508		10,000		6,000		—		43,508
Subordinated debentures		—		—		—		10,310		10,310
Lease commitments		200		377		308		—		885
Purchase obligations		2,049		1,832		374		—		4,255
Total	$	572,712		133,203		133,564		23,085		862,564

Deposits represent non-interest bearing, money market, savings, NOW, certificates of deposit and all other deposits held by the Company. Amounts that have an indeterminate maturity period are included in the less than one-year category.

FHLB borrowings represent the amounts that are due to FHLB of Cincinnati. All amounts have fixed maturity dates. The Company has three callable FHLB advances, totaling $27.0 million. All of the Company’s callable advances may be called quarterly. With a weighted average cost of 4.37%, management’s analysis indicates that overnight rates would have to increase to approximately 4.00% before the advances would be subject to being called. The Company’s callable advances have a final maturity in 2017.

Subordinated debentures represent the amount borrowed in a private pool trust preferred issuance group on September 25, 2003. The debentures are priced at the three-month LIBOR plus 3.10%. At December 31, 2012, the three-month Libor rate was 0.30%. The debentures re-price and pay interest quarterly and have a thirty-year final maturity. The debentures may be called at the issuer’s discretion on a quarterly basis after five years. The interest rate of the debentures reset on the 8^th day of January, April, August and November of each year.

Lease commitments represent the total minimum lease payments under non-cancelable operating leases.

The most significant operating contract is for the Company’s data processing services, which re-prices monthly based on the number of accounts and other operational factors. Estimates have been made to include reasonable growth projections. In December 2010, the Company renewed the operating contract with the current data processing provider for a period not to exceed five years. The Company anticipates only a minor increase in fixed and variable cost rates with this contract.

Off Balance Sheet Arrangements

	Maturity by Period
December 31, 2012 (In thousands)	Less than 1 year		Greater than 1 year to 3 years		Greater than 3 years to 5 years		Greater than 5 years		Total
Commercial lines of credit	$	494		30,621		10		472		31,597
Commitments to extend credit		189		22,776		2,196		2,133		27,294
Standby letters of credit		700		499		12		—		1,211
Home equity lines of credit		338		399		1,394		27,057		29,188
Total	$	1,721		54,295		3,612		29,662		89,290

6

Standby letters of credit represent commitments by the Company to repay a third party beneficiary when a customer fails to repay a loan or debt instrument. The terms and risk of loss involved in issuing standby letters of credit are similar to those involved in issuing loan commitments and extending credit. In addition to credit risk, the Company also has liquidity risk associated with stand-by letters of credit because funding for these obligations could be required immediately. Unused lines of credit represent commercial and residential equity lines of credit with maturities ranging from one to fifteen years.

Accounting for Derivative Instruments and Hedging Activities

In October 2008, the Bank entered into a receive fixed pay variable swap transaction in the amount of $10 million with Compass Bank of Birmingham in which Heritage Bank will pay Compass a fixed rate of 7.27% quarterly for seven years while Compass will pay Heritage Bank a rate equal to the three month London Interbank Offering Rate (“LIBOR”) plus 3.10%, the rate banks in London charge one another for overnight borrowings. The Bank has signed an inter-company transfer with the Company that allows the Company to convert its variable rate subordinated debenture issuance to a fixed rate. The critical terms of the interest rate swap match the term of the corresponding variable rate subordinated debt issuance. The Company considers the interest rate swap a cash flow hedge and conducts a quarterly analysis to ensure that the hedge is effective. At December 31, 2012, the Company’s review indicates that the cash flow hedge is effective. At December 31, 2012, the approximate market loss on the cash flow hedge is $1,126,000.

Quantitative and Qualitative Disclosure about Market Risk

Quantitative Aspects of Market Risk. The principal market risk affecting the Company is risk associated with interest rate volatility (interest rate risk). The Company does not maintain a trading account for investment securities. The Company is not subject to foreign currency exchange rate risk or commodity price risk. Substantially all of the Company’s interest rate risk is derived from the Bank’s lending, deposit taking, and investment activities. This risk could result in reduced net income, loss in fair values of assets and/or increases in fair values of liabilities due to changes in interest rates.

Qualitative Aspects of Market Risk. The Company’s principal financial objective is to achieve long-term profitability while reducing its exposure to fluctuating market interest rates. The Company has sought to reduce the exposure of its earnings to changes in market interest rates by attempting to manage the mismatch between assets and liabilities maturities and interest rates. The principal element in achieving this objective is to increase the interest-rate sensitivity of the Company’s interest-earning assets by retaining for its portfolio loans with interest rates subject to periodic adjustment to market conditions. The Company relies on retail deposits as its primary source of funds. However, management is utilizing brokered deposits, wholesale repurchase agreements and FHLB borrowings as sources of liquidity. As part of its interest rate risk management strategy, the Bank promotes demand accounts, overnight repurchase agreements and certificates of deposit with primarily terms of up to five years.

Asset / Liability Management

Key components of a successful asset/liability strategy are the monitoring and managing of interest rate sensitivity of both the interest-earning asset and interest-bearing liability portfolios. The Company has employed various strategies intended to minimize the adverse affect of interest rate risk on future operations by providing a better match between the interest rate sensitivity between its assets and liabilities. In particular, the Company’s strategies are intended to stabilize net interest income for the long-term by protecting its interest rate spread against increases in interest rates. Such strategies include the origination of adjustable-rate mortgage loans secured by one-to-four family residential real estate, and, to a lesser extent, multi-family real estate loans and the origination of other loans with interest rates that are more sensitive to adjustment based upon market conditions than long-term, fixed-rate residential mortgage loans. At December 31, 2012, approximately $170.5 million of the $203.8 million of one-to-four family residential loans originated by the Company (comprising 83.7% of such loans) had adjustable rates or will mature within one year.

7

The U.S. government agency securities generally are purchased for a term of fifteen years or less. Securities may or may not have call options. A security with call options improves the yield on the security but also has little or no positive price convexity. Non-callable securities or securities with one time calls offer a lower yield but more positive price convexity and an improved predictability of cash flow. Generally, securities with the greater call options (continuous and quarterly) are purchased only during times of extremely low interest rates. The reasons for purchasing these securities generally focus on the fact that a non callable or one time call is of little value if rates are exceptionally low.

In 2011, Standard and Poor, Inc. issued a rating downgrade on all debt issued or guaranteed by the U.S. government. This downgrade has had little impact on the liquidity and yields associated with any form of U.S. guaranteed debt. The Company remains heavily invested in U.S. agency debt and the Company has not experienced any negative effects due to the rating change. The Company has no exposure of the rating downgrades.

At December 31, 2012, the Company’s agency security portfolio consisted of $3.0 million in unsecured debt issued by Federal National Mortgage Corporation (FNMA), $2.3 million issued by Federal Home Loan Mortgage Corporation (FHLMC), $5.1 million issued by the Federal Home Loan Bank (FHLB) and $2.0 issued by the Federal Farm Credit Bank (FFCB). All U.S. Agency debt securities have a credit rating of AA+ and continue to maintain the implicit backing of the United States of America.

At December 31, 2012, no agency securities were due within five years, approximately $5.1 million were due in five to ten years and approximately $7.3 million were due after ten years. At December 31, 2012, $9.3 million of these securities had a call provision, which authorizes the issuing agency to prepay the securities at face value in 2013. If, prior to their maturity dates, market interest rates decline below the rates paid on the securities, the issuing agency may elect to exercise its right to prepay the securities. At December 31, 2012, the non-amortizing agency portfolio has an estimated weighted average maturity is 10.4 years, a weighted average life of 2.6 years and an effective duration of 2.3 years. By March 5, 2013, all agencies securities with call features had been called by their respective agencies.

The Company owns significant positions in agency securities issued by the Small Business Administration. These securities are classified as SBAPs, SBICs and SBA Pools. The SBAP notes have a twenty year maturity, pay interest monthly and principal semi-annually. The SBIC notes have a ten year final maturity and pay principal and interest quarterly. SBA pools are floating rate securities tied to prime that have twenty five and thirty year maturities and pay interest monthly. The interest rate on SBA pools reset either on a quarterly or monthly basis, providing the Company with lower price volatility as compared to fixed rate securities. In 2011, the Company shifted a significant portion of its new investment purchases into SBA Pools due to the lower yields available on fixed rate investment products. The purchase of variable rate securities with low price volatility provides the Company with a source of lower risk liquidity should loan demand improve or interest rates increase. The risk in purchasing SBA Pools is that they are typically purchased at significant premiums and provide lower yields as compared to many long term fixed rate investment products. To help alleviate this risk, the Company typically purchases newly issued securities and amortizes the premiums at faster long term historic speeds.

All SBA securities, SBAP, SBIC’s and SBA Pools are backed by the full faith and credit of the United States Government and classified by the Company’s regulators as zero risk based assets. SBIC notes are ten year notes that typically behave similar to a ten year mortgage backed security, with slow prepayments in their first two or three years and then experiencing an acceleration of payments. SBAP notes typically experience slower prepayment speeds as compared to 20 year GNMA mortgage backed securities as SBAP notes typically have prepayment penalties that make it cost prohibitive for many borrowers to prepay during the first five years of the loan. Current SBA pools are experiencing abnormally slow prepayment speeds as the loans tied to the prime rate provide relatively inexpensive financing for businesses requiring an SBA guarantee to meet their credit needs. In 2012, SBIC pools more than four years old experienced significant increases in prepayment speeds. This increase worked to lower the Company’s investment yield as higher cash flows required a greater amount of premium amortization and the new investment opportunities on the cash flow received were at a lower return.

8

At December 31, 2012, the Company’s agency bond portfolio includes approximately $50.5 million in SBAP securities, $31.1 million in SBIC securities and $56.3 million in SBA Pools. At December 31, 2012, the weighted average maturity of the Company’s SBAP and SBIC portfolio is 11.1 years, its weighted average life is 3.9 years and its effective duration is 2.6 years. At December 31, 2012, the estimated average maturity of the Company’s SBA Pool portfolio is 21.3 years, has a weighted average life of 6.2 years and an effective duration is 3.2 years.

The Company maintains a significant municipal bond portfolio. The majority of the municipal portfolio was purchased during 2008 and 2009 as municipal bond yields increased to levels not seen in the last ten years despite record low Treasury rates. The municipal bond portfolio largely consists of local school district and county courthouse bonds with guarantees from both the local counties and the State of Kentucky and general obligations bonds issued by municipalities in Tennessee and Kentucky. The Company’s municipal portfolio consists of the following (Dollars in Thousands):

•     Kentucky School Bonds	$	39,183
•     Kentucky Courthouse and Judicial Bonds		10,176
•     Kentucky General Obligation Bonds		19,626
•     Tennessee General Obligation Bonds		8,849
•     General Obligation Bonds – Out of market		3,717
•     Kentucky and Tennessee Revenue Bonds		6,232
Total	$	87,783

At December 31, 2012, the Company has $74.1 million in tax free municipal bonds and $13.7 million in taxable municipal bonds. Municipal bonds were purchased to provide long-term income stability and higher tax equivalent yields as compared to other portions of the Company’s investment portfolio. The Company’s investment policy limits municipal concentrations to 125% of the Bank’s Tier 1 Capital, currently $102.3 million. The investment policy places a concentration limit on the amounts of municipal bonds per issuer in Tennessee and Kentucky to 15% of the Bank’s Tier 1 Capital and out of market issuers to 10% of Tier 1 Capital. At December 31, 2012, the largest municipal bond concentration for one issuer was $4.8 million. The investment policy limits concentrations in the amounts a single state guarantee program can provide to a bond at 75% of Tier 1 Capital. The Company is currently within policy guidelines on all concentration limits.

At December 31, 2012, $346,000 in municipal bonds were due in less than one year, $11.7 million were due within one to five years, $27.2 million were due in five to ten years, $24.4 million were due in ten to fifteen years and approximately $24.2 million were due after fifteen years. At December 31, 2012, approximately $65.1 million of the Company’s municipal bond portfolio is callable with call dates ranging from June 2013 to October 2020. The call dates are staggered to eliminate the excessive cash flows within any one-year period. At December 31, 2012, approximately $2.1 million of municipal bonds had a call date of less than one year; approximately $7.8 million had a call date from one to five years and approximately $55.3 million in more than five years but less than ten years. At December 31, 2012, the weighted average maturity of the municipal bond portfolio is 10.8 years, its average life is 5.5 years and its modified duration is 3.5 years.

Mortgage-backed securities entitle the Company to receive a pro-rata portion of the cash flow from an identified pool of mortgages. Although mortgage-backed securities generally offer lesser yields than the loans for which they are exchanged, mortgage-backed securities present lower credit risk by virtue of the guarantees that back them, are more liquid than individual mortgage loans, and may be used to collateralize borrowings or other obligations of the Company. Further, mortgage-backed securities provide a monthly stream of both interest and principal, thereby providing the Company with a cash flow to reinvest at current market rates and limit the Company’s interest rate risk. Mortgage backed securities may be collateralized by either single family or multi-family properties. At December 31, 2012, the Company holds approximately $28.4 million of mortgage backed securities collateralized by multi-family properties insured by FNMA and approximately $64.0 million of mortgage backed securities secured by single family homes.

9

In 2012, single family mortgage backed securities has incurred higher than normal levels of prepayments due to the large amount of refinancing activity generated by historically low long term interest rates. All multi-family mortgage backed securities contain substantial prepayment penalties for a significant portion of their life. Unlike single family mortgage backed securities, multi-family mortgage backed securities have a five, seven or ten year balloon payment. At December 31, 2012, the Company held approximately $87.9 million in fixed rate mortgage backed securities and approximately $4.5 million in adjustable rate mortgage backed securities. The weighted average maturity of the mortgage backed security portfolio is 4.4 years, the average life of the portfolio is approximately 2.9 years and a modified duration is approximately 2.1 years.

At December 31, 2012, the Company held approximately $16.4 million in Collateral Mortgage Obligations (CMO) issued by various agencies of the United States government and $5.5 million in floating rate SLMA CMOs secured by federally guaranteed student loans. A CMO is a mortgage-backed security that has a structured payment stream based on various factors and does not necessarily remit monthly principal and interest on a pro-rata basis. At December 31, 2012, the Company’s CMO portfolio had an weighted average maturity of 22.6 years, an average life of approximately 2.3 years and a modified duration of approximately 2.0 years.

In June of 2008, the Company purchased $2.0 million par value of a private placement subordinated debenture issued by First Financial Services Corporation (“FFKY”), the holding company for First Federal Savings Bank (“First Fed”). The debenture is a thirty year security with a coupon rate of 8.00%. FFKY is a NASDAQ listed commercial bank holding company located in Elizabethtown, Kentucky. In October of 2010, FFKY informed the owners of its subordinated trust, including the Company, that it was deferred dividend payments for up to five years as prescribed by the trust. FFKY and First Fed have significant asset quality issues that have resulted in negative earnings since 2009.

Currently, FFKY is under a Consent Order issued jointly by the Kentucky State Department of Bank and the FDIC. The consent order requires First Fed to increase its Tier 1 Capital to Average Asset Ratio to 8.00% and its Total Risk Based Capital to Risk Weighted Asset Ratio to 12.00%. At December 31, 2012, FFKY had not met the capital goals established by their regulators but is “Well Capitalized” in accordance to FDIC guidelines. At December 31, 2012, First Fed has a Tier 1 Capital to Average Asset Ratio of 6.69% and a Total Risk Based Capital to Weighted Asset Ratio of 12.45%.

The Company continues to monitor all quarterly reports issued by both FFKY and its bank subsidiary to determine if the investment in the subordinated trust is other than temporarily impaired. At December 31, 2012, the Company has determined, based on the suspension of the dividend, that the investment is temporally impaired and has reduced the estimated market value of the security by $511,000 due to the lack of current cash flow from the debenture. The Company has further determined, based on the financial trends and capital position of FFKY and its bank subsidiary, that the Company’s investment in the subordinated debenture is not permanently impaired at this time. The Company will continue to monitor all available public information as well as maintain a dialogue with the management team of FFKY to ascertain the future business prospects of FFKY and the Company’s investment.

Interest Rate Sensitivity Analysis

The Company’s profitability is affected by fluctuations in interest rates. A sudden and substantial increase or decrease in interest rates may adversely impact the Company’s earnings to the extent that the interest rates on interest earning assets and interest bearing liabilities do not change at the same speed, to the same extent or on the same basis. As part of its effort to manage interest rate risk, the Bank monitors its net economic value of capital (“EVE”) by using our asset liability software to assist in modeling how changes in interest rates affect the values of various assets and liabilities on the Company’s balance sheet. By calculating our EVE, the Company is able to construct models that show the effect of different interest rate changes on its total capital. This risk analysis is a key tool that allows banks to prepare against constantly changing interest rates.

Generally, EVE is a cash flow calculation that takes the present value of all asset cash flows and subtracts the present value of all liability cash flows. The application of the methodology attempts to quantify interest rate risk as the change in the EVE, which would result from a theoretical 200 basis point (1 basis point equals .01%) change in market rates. Both a 300 basis point increase in market interest rates and a 100 basis point decrease in market interest rates are considered.

10

The following table presents the Company’s EVE at December 31, 2012, as calculated by the Company’s asset liability model for the twelve month period ending December 31, 2013.

Change		Net Portfolio Value
In Rates		$ Amount		$ Change			% Change
		(Dollars in thousands)
	+300 bp	$	87,098	$	(31,996	)		(27	)%
	+200 bp		98,973		(20,121	)		(17	)%
	+100 bp		109,604		(9,490	)		(8	)%
	0 bp		119,094		—			—
	–100 bp		130,037		10,943			9	%

Interest Rate Risk Measures: 200 Basis Point (bp) Rate Shock

Tangible Common Equity Ratio at December 31, 2012	10.2	%
Pre-Shock Tier 1 Capital Ratio at December 31, 2013	11.5	%
Exposure Measure: 2% Increase in Rates	7.6	%

The computation of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments and deposit decay rates, and should not be relied upon as indicative of actual results. The computations do not contemplate any actions the Company could undertake in response to changes in interest rates. The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest rate sensitive” and by monitoring an institution’s interest rate sensitivity “gap.” An asset or liability is said to be interest rate sensitive within a specific period if it will mature or re-price within that period.

11

Interest Income Analysis

As a part of the Company’s asset liability management process, an emphasis is placed on the effect that changes in interest rates have on the net interest income of the Company and the resulting change in the net present value of capital. As a part of its analysis, the Company uses third party software and analytical tools derived from the Company’s regulatory reporting models to analyze the re-pricing characteristics of both assets and liabilities and the resulting net present value of the Company’s capital given various changes in interest rates. The model also uses mortgage prepayment assumptions obtained from third party vendors to anticipate prepayment speeds on both loans and investments. The Company’s model uses incremental changes in interest rates. For example, a 3.0% change in annual rates includes a 75 basis point change in each of the next four quarters.

For the year ended December 31, 2012, the Company’s previous efforts to increase duration had a positive effect on its results of operations. At December 31, 2012, the extended duration remains in effect. However, the purchase of SBA pools in late 2011 and 2012 were taken as an effort to limit the effects of the longer duration in the municipal bond portfolio. The monthly and quarterly re-pricing of the SBA Pools provides a first source of liquidity should interest rates increase or loan demand improve. In an effort to improve future net interest margins, management reduced the amounts of both retail and brokered time deposits and prepaid selected FHLB borrowings. These efforts, in the face of negative loan growth, worked to reduce our interest expense and maintain our current net interest margins.

During 2013, it is the intent of management to attempt to grow the loan portfolio with high quality commercial and owner occupied commercial real estate loans. However, growth may be hindered as we continue to focus on reducing our classified loan to capital ratio. In many cases, the only alternative management has in addressing a problem lending relationship is to foreclose, charge off, or attempt to convince the borrower to seek financing at another institution. It may be difficult for management to accomplish both goals in the same years.

In the absence of meaningful loan growth, the Company will look to continue to contract the balance sheet when appropriate by continuing to reduce high cost liabilities. The reduction of these liabilities will be funded by the selective sale of investment securities. The potential reduction in assets represents the reality the investment alternatives do not allow the Company to maintain acceptable interest rate margins. If completed, the proposed acquisition of Sumner discussed earlier will work to improve our loan to deposit ratio and improve our net interest margin.

The amount of change in interest rate sensitivity eventually achieved by management will be largely dependent on its ability to make changes at a reasonable cost. The reduction of interest rate in the one to two year time frame can dramatically reduce the Company’s net income due to the severe upward slope of the interest rate yield curve. To the extent possible, management will reduce its balances in FHLB deposits to ensure greater flexibility in the event of a sudden change of interest rates.

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

	Down 1.00%		No change		Up 1.00%		Up 2.00%		Up 3.00%
	(Dollars in Thousands)
Net interest income	$	27,174	$	27,815	$	28,262	$	28,576	$	29,576

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Gap Analysis

The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or re-pricing within a specific time period and the amount of interest-bearing liabilities maturing or re-pricing within that time period. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities, and is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets.

At December 31, 2012, the Company had a negative one year or less interest rate sensitivity gap of 10.83% of total interest-earning assets. Generally, during a period of rising interest rates, a negative gap position would be expected to adversely affect net interest income while a positive gap position would be expected to result in an increase in net interest income. Conversely during a period of falling interest rates, a negative gap would be expected to result in an increase in net interest income and a positive gap would be expected to adversely affect net interest income. This analysis is considered less reliable as compared to the Company’s ALM models as changes in various interest rate spreads are not incorporated in Gap Analysis. Furthermore, the presence of non-interest bearing liabilities does not factor in the Company’s Gap Analysis but provides an additional source of funds that can offset the negative impact of changing interest rates. Gap Analysis does not give considerations to how much the yield on assets and the cost of liabilities may change in any given period. In the current rate environment, loans yields often re-price more quickly and more substantially as opposed to short term deposits, which are currently priced a much lower levels.

13

The following table sets forth the amounts of interest-earning assets and interest-bearing liabilities outstanding at December 31, 2012, which are expected to mature, are likely to be called or re-priced in each of the time periods shown.

	One Year or Less			Over one Through Five Years			Over Five Through Ten Years			Over Ten Through Fifteen Years			Over Fifteen Years			Total
Interest-earning assets
Loans:
1 - 4 family residential	$	119,330			57,578			21,123			3,629			2,094			203,754
Multi-family		16,637			15,335			—			—			1,084			33,056
Construction		14,956			116			3,828			—			—			18,900
Non-residential		54,628			49,799			11,737			5,094			1,379			122,637
Land		40,448			5,157			301			—			—			45,906
Farmland		10,276			22,836			4,228			9,116			343			46,799
Consumer		7,449			2,659			3,169			609			—			13,886
Commercial		25,290			20,858			3,007			1,394			—			50,549
Interest bearing deposits		5,613			—			—			—			—			5,613
Non-amortizing securities		11,691			18,773			67,709			—			3,461			101,634
Amortizing securities		60,085			11,882			45,704			17,691			5,054			140,416
Mortgage backed securities		23,070			53,030			13,769			17,098			7,328			114,295
Total		389,473			258,023			174,575			54,631			20,743			897,445
Interest bearing liabilities:
Deposits		448,872			216,876			34			—			—			665,782
Borrowed funds		37,818			47,000			12,741			—			—			97,559
Total		486,690			263,876			12,775			—			—			763,341
Interest sensitivity gap	($	97,217	)	($	5,853	)	$	161,800		$	54,631		$	20,743		$	134,104
Cumulative interest senitivity gap	($	97,217	)	($	103,070	)	$	58,730		$	113,361		$	134,104		$	134,104
Ratio of interest-earning assets to interest bearing liabilities		80.02	%		97.78	%		1366.54	%		—			—			117.57	%
Ratio of cumulative gap to total interest-earning assets		(10.83	%)		(11.48	%)		6.54	%		12.63	%		14.94	%		14.94	%

The preceding table was prepared based upon the assumption that loans will not be repaid before their respective contractual maturities, except for adjustable rate loans, which are classified, based upon their next re-pricing date. Further, it is assumed that fixed maturity deposits are not withdrawn prior to maturity and other deposits are withdrawn or re-priced within one year. Mortgage-backed securities are classified based on their three month prepayment speeds. In 2012, record low mortgage rates have spurred a wave of refinancing that has increased the cash flow on mortgage backed securities. Any future legislation to help homeowners refinance their mortgages is likely to result in faster mortgage prepayments and reinvestment yields. However, management does not have enough information specific to its portfolio to model the changes on prepayment speeds that may result. As a result, the preceding table does not reflect possible changes in cash flows that may result from this change in Fannie Mae and Freddie Mac portfolio servicing practices. The actual interest rate sensitivity of the Company’s assets and liabilities could vary significantly from the information set forth in the table due to market and other factors. The retention of adjustable-rate mortgage loans in the Company’s investment and loan portfolios helps reduce the Company’s exposure to changes in interest rates. However, there are unquantifiable credit risks resulting from potential increased costs to borrowers as a result of re-pricing adjustable-rate mortgage loans. It is possible that during periods of rising interest rates, the risk of default on adjustable-rate mortgage loans may increase due to the upward adjustment of interest costs to the borrowers.

14

Average Balance, Interest and Average Yields and Rates

The following table sets forth certain information relating to the Company’s average interest-earning assets and average interest-bearing liabilities and reflects the average yield on assets and average cost of liabilities for the periods and at the date indicated. Such yields and costs are derived by dividing income or expense by the average monthly balance of assets or liabilities, respectively, for the periods presented. Average balances are derived from month-end balances. Management does not believe that the use of month-end balances instead of daily balances has caused any material difference in the information presented.

The table also presents information for the periods and at the date indicated with respect to the difference between the average yield earned on interest-earning assets and average rate paid on interest-bearing liabilities, or “interest rate spread,” which savings institutions have traditionally used as an indicator of profitability. Another indicator of an institution’s net interest income is its “net yield on interest-earning assets,” which is its net interest income divided by the average balance of interest-earning assets. Net interest income is affected by the interest rate spread and by the relative amounts of interest-earning assets and interest-bearing liabilities. When interest-earning assets approximate or exceed interest-bearing liabilities, any positive interest rate spread will generate net interest income.

	December 2012 Averages
	Balance			Weighted Average Yield/Cost
	(Dollars in thousands)
Interest-earning assets:
Loans receivable, net	$	534,624			5.26	%
Non taxable securities available for sale		72,830			4.51	%*
Taxable securities available for sale		287,352			2.73	%
Federal Home Loan Bank stock		4,428			4.00	%
Total interest-earning assets		899,234			4.39	%
Non-interest-earning assets		82,495
Total assets	$	981,729
Interest-bearing liabilities:
Deposits	$	673,290			1.29	%
FHLB borrowings		43,876			4.08	%
Repurchase agreements		43,326			2.26	%
Subordinated debentures		10,310			6.97	%
Total interest-bearing liabilities		770,802			1.56	%
Non-interest-bearing liabilities		95,548
Total liabilities		866,350
Common stock		79
Common stock warrants		556
Additional paid-in capital		76,270
Retained earnings		41,700
Treasury stock		(14,276	)
Accumulated other comprehensive income		11,050
Total liabilities and equity	$	981,729
Interest rate spread					2.83	%
Net interest margin					3.05	%
Ratio of interest-earning assets to interest-bearing liabilities					116.66	%

* Tax equivalent yield at the Company’s 34% tax bracket and the Company’s year to date cost of funds rate of 1.70%.

15

	Years Ended December 31,
	2012								2011								2010
									(Dollars in Thousands)
	Average Balance			Interest		Average Yield/Cost			Average Balance			Interest		Average Yield/Cost			Average Balance			Interest		Average Yield /Cost
Interest-earning assets:
Loans receivable, net(a)	$	542,292			29,837		5.50	%	$	575,133			33,527		5.83	%	$	629,633			38,089		6.05	%
Taxable securities AFS		313,347			8,722		2.78	%		308,022			10,465		3.40	%		289,556			11,923		4.12	%
Non-taxable securities AFS		68,428			2,982		4.36	%		66,104			3,328		5.03	%		63,179			3,587		5.68	%
Time deposits and other interest-bearing cash deposits		9,850			24		0.24	%		9,075			19		0.21	%		—			—		—
Total interest-earning assets	$	933,917			41,565		4.45	%	$	958,334			47,339		4.94	%	$	982,368			53,599		5.46	%
Non-interest-earning assets		85,560								108,997								101,119
Total assets		1,019,477								1,067,331								1,083,487
Interest-bearing liabilities:
Deposits	$	706,394			10,571		1.50	%	$	753,223			14,207		1.89	%	$	762,418			17,384		2.28	%
Borrowings		108,215			4,306		3.98	%		121,556			4,208		3.46	%		145,582			4,862		3.34	%
Total interest-bearing liabilities		814,609			14,877		1.83	%		874,779			18,415		2.11	%		908,000			22,246		2.45	%
Non-interest-bearing liabilities		90,863								77,523								73,552
Total liabilities		905,472								952,302								981,552
Common stock		79								79								59
Common stock warrants		556								556								556
Additional paid-in capital		76,072								75,444								61,949
Retained earnings		38,710								40,298								39,119
Treasury stock		(6,609	)							(5,076	)							(5,786	)
Accumulated other comprehensive income		5,197								3,728								6,038
Total liabilities and equity		1,019,477								1,067,331								1,083,487
Net interest income					26,688								28,924								31,353
Interest rate spread							2.62	%							2.83	%							3.01	%
Net interest margin							2.86	%							3.02	%							3.19	%
Ratio of average interest-earning assets to average interest-bearing liabilities							114.65	%							109.55	%							108.19	%

(a) Average loans include non-performing loans.

(b) Interest income and yields are presented on a fully tax equivalent basis.

16

Rate Volume Analysis

The following table sets forth certain information regarding changes in interest income and interest expense of the Company for the periods indicated. For each category of interest-earning asset and interest-bearing liability, information is provided on changes attributable to: (i) changes in volume (changes in volume from year to year multiplied by the average rate for the prior year) and (ii) changes in rate (changes in the average rate from year to year multiplied by the prior year’s volume). All amounts are quoted on a tax equivalent basis using a cost of funds rate of 2.25% for 2011 and a 1.80% rate for 2012.

	Year Ended December 31,
	2012 vs. 2011									2011 vs. 2010
	Increase (Decrease) due to									Increase (Decrease) due to
	Rate			Volume			Total Increase (Decrease)			Rate			Volume			Total Increase (Decrease)
	(Dollars in thousands)
Interest-earning assets:
Loans receivable	$	(1,995	)		(1,695	)		(3,690	)	$	(1,385	)		(3,177	)		(4,562	)
Securities available for sale, taxable		(1,891	)		148			(1,743	)		(2,086	)		628			(1,458	)
Securities available for sale, non-taxable		(447	)		101			(346	)		(406	)		147			(259	)
Other interest-earning assets		3			2			5			19			—			19
Total interest-earning assets		(4,330	)		(1,444	)		(5,774	)		(3,858	)		(2,402	)		(6,260	)
Interest-bearing liabilities:
Deposits		(2,559	)		(1,077	)		(3,636	)		(2,763	)		(414	)		(3,177	)
Borrowings		731			(633	)		98			174			(828	)		(654	)
Total interest-bearing liabilities		(1,828	)		(1,710	)		(3,538	)		(2,589	)		(1,242	)		(3,831	)
Increase (decrease) in net interest income	$	(2,502	)		266			(2,236	)	$	(1,269	)		(1,160	)		(2,429	)

Critical Accounting Policies and Estimates

The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The financial information contained within these statements is, to a significant extent, financial information that is based on appropriate measures of the financial effects of transactions and events that have already occurred. Based on its consideration of accounting policies that involved the most complex and subjective decisions and assessments, management has identified its most critical accounting policy to be that related to the allowance for loan losses. The Company’s allowance for loan loss methodology incorporates a variety of risk considerations, both quantitative and qualitative; in establishing an allowance for loan loss that management believes is appropriate at each reporting date. Quantitative factors included the Company’s historical loss experience, delinquency and charge-off trends, collateral values, changes in non-performing loans, and other factors. Quantitative factors also incorporate known information about individual loans, including borrower’s sensitivity to economic conditions throughout the southeast and particular, the state of certain industries. Size and complexity of individual credits in relation to loan structure, existing loan policies and pace of portfolio growth are other qualitative factors that are considered in the methodology.

17

As the Company adds new products and increases the complexity of the loan portfolio, its methodology accordingly may change. In addition, it may report materially different amounts for the provision for loan losses in the statement of operations if management’s assessment of the above factors changes in future periods. This discussion and analysis should be read in conjunction with the Company’s consolidated financial statements and the accompanying notes presented elsewhere herein. Although management believes the levels of the allowance for loan losses as of both December 31, 2012 and 2011 were adequate to absorb inherent losses in the loan portfolio, a decline in local economic conditions, or other factors, could result in increasing losses that cannot be reasonably predicted at this time. The Company also considers its policy on non-accrual loans as a critical accounting policy. Loans are placed on non-accrual when a loan is specifically determined to be impaired or when principal or interest is delinquent for 91 days or more.

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

For the twelve month period ended December 31, 2012, the Company’s total assets decreased by $73.1 million, from $1.04 billion to $967.7 billion. The decline in assets was the result of management’s decision to reduce FHLB borrowings and brokered deposit balances given the current lack of economically viable uses for these funds. The available for sale portfolio declined $27.5 million, from $383.8 million at December 31, 2011, to $356.3 million at December 31, 2012. At December 31, 2012, the Company’s investment in Federal Home Loan Bank stock was carried at an amortized cost of $4.4 million. See Note 2 of Notes to Consolidated Financial Statements.

The Company’s net loan portfolio declined by $31.4 million during the year ended December 31, 2012. Net loans totaled $556.4 million and $525.0 million at December 31, 2011, and December 31, 2012, respectively. The decline in the loan activity during the year ended December 31, 2012, was primarily the result of weak loan demand and limitations placed on the Company by its former regulator, Office of Thrift Supervision (OTS), on certain types of lending deemed most profitable to the Company as well as the implementation of more conservative loan underwriting standards. In October 2012, the Company’s current regulators, the Office of the Comptroller of the Currency (“OCC”) and the Federal Reserve Bank of St. Louis (“FED”) removed all regulatory orders previously issued to the Company and its Thrift subsidiary. In 2012, economic activity remained subdued in the majority of the Company’s markets.

The allowance for loan losses totaled $10.6 million at December 31, 2012, a decline of approximately $614,000 from the allowance for loan losses of $11.3 million at December 31, 2011. The ratio of the allowance for loan losses to total loans was 1.99% and 1.98% at December 31, 2012, and December 31, 2011, respectively. Also, at December 31, 2012, the Company’s non-accrual loans were approximately $7.7 million or 1.43% of total loans, compared to $6.1 million, or 1.08% of total loans, at December 31, 2011. The Company’s ratio of allowance for loan losses to non-accrual loans at December 31, 2012 and 2011 was 138.99% and 183.62%, respectively.

In December of 2012, the Company repurchased at par $18.4 million in Preferred Stock originally issued to the United States Treasury in 2008 under the Capital Purchase Program.

Comparison of Operating Results for the Years Ended December 31, 2012 and 2011

Net Income. The Company’s net income available for common shareholders for the year ended December 31, 2012, was $2.8 million compared to $1.9 million for the year ended December 31, 2011. In 2012, the slight improvement in net income available for common shareholders was largely the result of a $3.6 million reduction in the Company’s provision for loan loss and $1.4 million reduction in losses on the sale of other assets owned. The improvement in the Company’s net income was adversely affected by lower balances and yields on our loan and investment portfolios.

Net Interest Income. Net interest income for the year ended December 31, 2012, was $26.0 million, compared to $27.8 million for the year ended December 31, 2011. The decrease in net interest income for the year ended December 31, 2012, was the result of Company’s declining average balance of loans outstanding and the re-pricing of all assets as interest rates remain at historically low levels. The Company’s level of average interest bearing assets declined $24.4 million during 2012 and the average balance of loans receivable declined by $32.8 million.

18

For the year ended December 31, 2012, the Company’s tax equivalent average yield on total interest-earning assets was 4.45% compared to 4.94% for the year ended December 31, 2011, and its average cost of interest-bearing liabilities was 1.83%, compared to 2.11% for the year ended December 31, 2011. As a result, the Company’s tax equivalent interest rate spread for the year ended December 31, 2012, was 2.62%, compared to 2.83% for the year ended December 31, 2011, and its tax equivalent net interest margin was 2.86% for the year ended December 31, 2012, compared to 3.02% for the year ended December 31, 2011. For the year ended December 31, 2012, FHLB prepayment penalties of $480,000 paid in September 2012 increased the Company’s overall cost of funds and reduced the Company’s net interest spread and net margin by 0.06%.

Interest Income. Interest income declined $5.4 million from $46.2 million to $40.8 million, or 11.7% during the year ended December 31, 2012, compared to 2011. The decline in interest income was attributable to a decline in yields on assets as well as a sharp decline in the average balance of loans outstanding. The average balance on taxable securities available for sale increased $5.3 million, from $308.0 million for the year ended December 31, 2011, to $313.3 million for the year ended December 31, 2012. The average balance of non-taxable securities available for sale increased approximately $2.3 million, from $66.1 million for the year ended December 31, 2011, to $68.4 million for the year ended December 31, 2012.

Interest Expense. Interest expense declined to $14.9 million for the year ended December 31, 2012, compared to $18.4 million for 2011. The decline in interest expense was attributable to a decline in the average cost interest bearing deposits and decline in interest-bearings liabilities. The average cost of average interest-bearing deposits declined to 1.50% for the year ended December 31, 2012, from 1.89% for the year ended December 31, 2011. Over the same period, the average balance of interest bearing deposits declined from $753.2 million for the year ended December 31, 2011, to $706.4 million for the year ended December 31, 2012. The average balance of FHLB borrowings declined from $71.4 million for the year ended December 31, 2011, to $57.0 million for the year ended December 31, 2012. The average cost of FHLB borrowings increased from 3.58% for the year ended December 31, 2011, to 4.09% for the year ended December 31, 2012, due to the prepayment of FHLB advances. Management’s decision to prepay selected FHLB advances and incur $480,000 in penalties increased the Company’s cost of borrowings by 0.45% in 2012. The Company chose not to prepay longer dated FHLB advances due to the excessively high payments cost. The Company does not have additional FHLB advances maturing until March of 2016.

Provision for Loan Losses. The Company determined that an additional $2.3 million and $5.9 million in provision for loan losses was required for the years ended December 31, 2012, and December 31, 2011, respectively. The decline in the Company’s provision for loan loss expense is largely the result of an improving level of asset quality. For the year ended December 31, 2012, the Company incurred net charge offs of $2.9 million as compared to $4.5 million for the year ended December 31, 2011 and $5.0 million in the year ended December 31, 2010. Furthermore, the Company’s analysis of customer financial information indicates that many customers have noted improved levels of cash flow and business activity, a positive factor in considering loans for future removal from our list of classified assets.

Non-Interest Income. Non-interest income declined by $554,000 for the year ended December 31, 2012, to $9.6 million, compared to $10.2 million for the year ended December 31, 2011. The decline in non-interest income is largely the result of a $1.2 million decrease on gains taken on the sale of investments. For the year ended December 31, 2012, financial services income increased by approximately $177,000 and mortgage origination income increased by $236,000 due to increased refinancing activity. Service charge income was relatively flat as the Company offset the negative effects of new regulations with the opening of more than 4,000 checking accounts in 2012. The increase of income related to bank owned life insurance was the result of the payment of a death benefit.

Non-Interest Expense. Total non-interest expense for the year ended December 31, 2012, was $28.4 million, compared to $28.7 million in 2011. The slight decline in non-interest expenses was largely the result of a $1.4 million reduction in the losses on Other Real Estate Owned. For the year ended December 31, 2012, the Company’s professional services expense increased by $233,000 and occupancy expense increased by $262,000 as compared to the year ended December 31, 2011. For the year ended December 31, 2012, other operating expenses were $1.7 million as compared to $894,000 for the year ended December 31, 2011 due to an increase in regulatory cost.

Income Taxes. The effective tax rates for the years ended December 31, 2012, and December 31, 2011, was 16.7% and 14.2%, respectively. The Company’s effective tax rate remains well below historical levels due to a higher percentage of pre-tax income that is not subject to federal income tax. The Company’s sizable holdings in municipal bonds and certain tax credits earned have lowered our effective tax rate.

19

Comparison of Operating Results for the Years Ended December 31, 2011 and 2010

Net Income. The Company’s net income available for common shareholders for the year ended December 31, 2011, was $1.9 million compared to $5.5 million for the year ended December 31, 2010. In 2011, net income available for common shareholders was adversely affected by a $2.0 million loss and related expenses on other real estate owned. In addition, the average balance and yields on interest bearing assets fell sharply.

Net Interest Income. Net interest income for the year ended December 31, 2011, was $27.8 million, compared to $30.2 million for the year ended December 31, 2010. The decrease in net interest income for the year ended December 31, 2011, was the result of Company’s declining average balance of loans outstanding and the re-pricing of all assets to lower levels as interest rates remain at historically low levels. The Company’s level of average interest bearing assets declined $24.0 million during 2011 and the average balance of loans receivable declined by $54.5 million. An increase in the average balance of investments insufficient to make up the difference in interest income as investment yields continue to decline.

For the year ended December 31, 2011, the Company’s tax equivalent average yield on total interest-earning assets was 4.94% compared to 5.46% for the year ended December 31, 2010, and its average cost of interest-bearing liabilities was 2.11%, compared to 2.45% for the year ended December 31, 2010. As a result, the Company’s tax equivalent interest rate spread for the year ended December 31, 2011, was 2.83%, compared to 3.01% for the year ended December 31, 2010, and its tax equivalent net interest margin was 3.02% for the year ended December 31, 2011, compared to 3.19% for the year ended December 31, 2010.

Interest Income. Interest income declined $6.2 million from $52.4 million to $46.2 million, or 11.8% during the year ended December 31, 2011, compared to 2010. The decline in interest income was attributable to a decline in yields on assets as well as a sharp decline in the average balance of loans outstanding. The average balance on taxable securities available for sale increased $18.4 million, from $289.6 million for the year ended December 31, 2010, to $308.0 million for the year ended December 31, 2011. The average balance of non-taxable securities available for sale increased approximately $2.9 million, from $63.2 million for the year ended December 31, 2010, to $66.1 million for the year ended December 31, 2010.

Interest Expense. Interest expense declined to $18.4 million for the year ended December 31, 2011, compared to $22.2 million for 2010. The decline in interest expense was attributable to a decline in the average cost interest bearing deposits. The average cost of average interest-bearing deposits declined to 1.89% for the year ended December 31, 2011, from 2.28% for the year ended December 31, 2010. Over the same period, the average balance of interest bearing deposits declined from $762.4 million for the year ended December 31, 2010, to $753.2 million for the year ended December 31, 2011. The average balance of FHLB borrowings declined from $92.8 million for the year ended December 31, 2010, to $71.4 million for the year ended December 31, 2011. The average cost of FHLB borrowings increased from 3.55% for the year ended December 31, 2010, to 3.58% for the year ended December 31, 2011, due to the maturity of lower costing advances. The Company’s recent practice is to allow FHLB advances to mature and not renew.

Provision for Loan Losses. The Company determined that an additional $5.9 million and $6.0 million in provision for loan losses was required for the years ended December 31, 2011, and December 31, 2010, respectively. The higher than normal levels of provision expense in 2011 and 2010 was the result of both local and national economic conditions, including an increase in the unemployment rate in the communities served by the Company, higher levels of non-performing assets and lower appraised values for problem loans secured by real estate.

Non-Interest Income. Non-interest income declined by $900,000 for the year ended December 31, 2011, to $10.2 million, compared to $11.1 million for the year ended December 31, 2010. The decline in non-interest income is largely the result of a $600,000 decrease on gains taken on the sale of investments. For the year ended December 31, 2011, financial services income declined by approximately $80,000 and service charge income on deposit accounts declined by approximately $110,000. Non-interest income for the year ended December 31, 2011, included a $155,000 other than temporary impairment charge on two Private Label CMOs.

20

Non-Interest Expense. Total non-interest expense for the year ended December 31, 2011, was $28.7 million, compared to $26.2 million in 2010. The increase in non-interest expenses was largely the result of the Company’s $1.7 million in losses on the sale of other real estate owned as compared to a $321,000 gain on the sale of other real estate loans in 2010. The Company incurred an additional $145,000 in losses on the disposal of equipment. For the year ended December 31, 2011, the Company’s salaries and benefits expense increased by approximately $500,000 as compared to the year ended December 31, 2010, due to higher staffing levels. Excluding the losses and expenses incurred on other real estate owned and equipment disposal, total non-interest expenses increased by $346,000 in 2011 as compared to 2010, an increase of 2.17%.

Income Taxes. The effective tax rates for the years ended December 31, 2011, and December 31, 2010, was 14.2% and 28.6%, respectively. The Company’s effective tax rate declined sharply due to lower levels of pre-tax income. In 2011, non-taxable income declined by approximately 8% as compared to 2010 while net income before taxes declined by approximately 62% during the same period.

Liquidity and Capital Resources

The Company’s primary business is that of the Bank. Management believes dividends that may be paid from the Bank to the Company will provide sufficient funds for the Company’s current and anticipated 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.

Capital Resources. At December 31, 2012, the Bank exceeded all regulatory minimum capital requirements. For a detailed discussion of the OCC regulatory capital requirements, and for a tabular presentation of the Bank’s compliance with such requirements, see Note 16 of Notes to Consolidated Financial Statements.

Liquidity. Liquidity management is both a daily and long-term function of business management. If the Bank requires funds beyond its ability to generate them internally, the Bank believes that it could borrow funds from the FHLB. At December 31, 2012, the Bank had outstanding advances of $43.7 million from the FHLB and $15.5 million of letters of credit issued by the FHLB to secure municipal deposits. The Bank can immediately borrow an additional $46.2 million from the FHLB and has the ability to pledge another $99.1 million in agency bonds to the FHLB for additional borrowing capacity. See Note 7 of Notes to Consolidated Financial Statements.

Subordinated Debentures Issuance. On September 25, 2003, the Company issued $10,310,000 of subordinated debentures in a private placement offering. The securities have a thirty-year maturity and are callable at the issuer’s discretion on a quarterly basis beginning five years after issuance. The securities are priced at a variable rate equal to the three-month LIBOR (London Interbank Offering Rate) plus 3.10%. Interest is paid and the rate of interest may change on a quarterly basis. The Company’s subsidiary, a federal chartered thrift supervised by the Office of Comptroller of the Currency “OCC” may recognize the proceeds of trust preferred securities as capital. OCC regulations provide that 25% of Tier I capital may consist of trust preferred proceeds. See Note 10 of Notes to Consolidated Financial Statements. Proposals outlined in BASEL 3 would systematically eliminate the use of subordinated debentures as capital for all financial institutions. The full implementation of Basel III would result in a reduction in our regulatory capital ratios and would likely entice the Company to call the debenture.

The Bank’s primary sources of funds consist of deposits, repayment of loans and mortgage-backed securities, maturities of investments and interest-bearing deposits, and funds provided from operations. While scheduled repayments of loans and mortgage-backed securities and maturities of investment securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by the general level of interest rates, economic conditions and competition. The Bank uses its liquidity resources principally to fund existing and future loan commitments, to fund maturing certificates of deposit and demand deposit withdrawals, to invest in other interest-earning assets, to maintain liquidity, and to meet operating expenses.

21

Management believes that loan repayments and other sources of funds will be adequate to meet the Bank’s liquidity needs for the immediate future. A portion of the Bank’s liquidity consists of cash and cash equivalents. At December 31, 2012, cash and cash equivalents totaled $37.2 million. The level of these assets depends upon the Bank’s operating, investing and financing activities during any given period.

Cash flows from operating activities for the years ended December 31, 2012, 2011 and 2010 were $9.3 million, $11.2 million, and $12.4 million, respectively.

Cash flows from (used in) investing activities were $58.2 million, $26.9 million and were ($41.0) million in 2012, 2011 and 2010, respectively. A principal use of cash in this area has been purchases of securities available for sale of $114.3 million, offset by proceeds from sales, calls and maturities of securities of $143.4 million during 2012. At the same time the loan portfolio provided cash of $24.7 million in 2010, $34.2 in 2011 and $26.8 million in 2012. Purchases of securities available for sale exceeded maturities and sales by $15.9 million in 2011, $68.9 million in 2010 while sales and maturities of such securities exceeded purchases by $29.2 million in 2012.

At December 31, 2012, the Bank had $27.3 million in outstanding commitments to originate loans and unused lines of credit of $60.8 million. The Bank anticipates that it will have sufficient funds available to meet its current loan origination and lines of credit commitments. The Bank has certificates of deposit maturing in one year or less of $220.1 million at December 31, 2012. Based on historical experience, management believes that a significant portion of such deposits will remain with the Bank.

Impact of Inflation and Changing Prices

The consolidated financial statements and notes thereto presented herein have been prepared in accordance with accounting principles generally accepted in the United States of America, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time and due to inflation. The impact of inflation is reflected in the increased cost of the Company’s operations.

Unlike most industrial companies, nearly all the assets and liabilities of the Company are monetary in nature. As a result, changes in interest rates have a greater impact on the Company’s performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the price of goods and services.

22

Forward-Looking Statements

Management’s discussion and analysis includes certain forward-looking statements addressing, among other things, the Bank’s prospects for earnings, asset growth and net interest margin. Forward-looking statements are accompanied by, and identified with, such terms as “anticipates,” “believes,” “expects,” “intends,” and similar phrases. Management’s expectations for the Company’s future involve a number of assumptions and estimates. Factors that could cause actual results to differ from the expectations expressed herein include: substantial changes in interest rates, and changes in the general economy; changes in the Company’s strategies for credit-risk management, interest-rate risk management and investment activities. Accordingly, any forward-looking statements included herein do not purport to be predictions of future events or circumstances and may not be realized.

Stock Performance Comparison

The following graph, which was prepared by SNL Financial LC (“SNL”), shows the cumulative total return of the Common Stock of the Company since December 31, 2007, compared with the (1) NASDAQ Composite Index, comprised of all U.S. Companies quoted on NASDAQ, (2) the SNL Midwest Thrift Index, comprised of publically traded thrifts and thrift holding companies operating in the Midwestern United States. Cumulative total return on the Common Stock or the index equals the total increase in the value since December 31, 2007, assuming reinvestment of all dividends paid into the Common Stock or the index, respectively. The graph was prepared assuming that $100 was invested on December 31, 2007, in the Common Stock, the securities included in the indices. The stock price performance included in this graph is not necessarily indicative of future stock price performance.

	Period Ending
Index	12/31/07		12/31/08		12/31/09		12/31/10		12/31/11		12/31/12
HopFed Bancorp, Inc.		100.00		70.49		69.24		71.19		53.16		71.76
NASDAQ COMPOSITE		100.00		60.02		87.24		103.08		102.26		120.42
SNL Midwest Thrift		100.00		88.86		74.85		60.68		53.52		69.20

23

Consolidated Financial Statements

HopFed Bancorp, Inc.

and Subsidiaries

December 31, 2012, 2011 and 2010

Table of Contents

	Page
	Number
Report of Independent Registered Public Accounting Firm	1
Consolidated Balance Sheets as of December 31, 2012 and 2011	2-3
Consolidated Statements of Income for the Years ended December 31, 2012, 2011 and 2010	4-5
Consolidated Statements of Comprehensive Income for the Years ended December  31, 2012, 2011 and 2010	6
Consolidated Statements of Changes in Stockholders’ Equity for the Years ended December  31, 2012, 2011 and 2010	7-8
Consolidated Statements of Cash Flows for the Years ended December 31, 2012, 2011 and 2010	9-10
Notes to Consolidated Financial Statements	11-78

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

    of HopFed Bancorp, Inc.

Hopkinsville, Kentucky

We have audited the accompanying consolidated balance sheets of HopFed Bancorp, Inc. and subsidiaries (the “Company”) as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2012. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of HopFed Bancorp, Inc. and subsidiaries as of December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2012, in conformity with accounting principles generally accepted in the United States of America.

(signed) Rayburn, Bates & Fitzgerald, P.C.

Brentwood, Tennessee

March 29, 2013

HopFed Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

December 31, 2012 and 2011

(Dollars in Thousands)

	2012		2011
Assets
Cash and due from banks	$	31,563		44,389
Interest-earning deposits		5,613		4,371
Cash and cash equivalents		37,176		48,760
Federal Home Loan Bank stock, at cost (note 2)		4,428		4,428
Securities available for sale (notes 2 and 8)		356,345		383,782
Loans receivable, net of allowance for loan losses of $10,648 at December 31, 2012, and $11,262 at December 31, 2011 (notes 3 and 7)		524,985		556,360
Accrued interest receivable		5,398		6,183
Real estate and other assets owned (note 14)		1,548		2,267
Bank owned life insurance		9,323		9,135
Premises and equipment, net (note 4)		22,557		23,431
Deferred tax assets (note 13)		—		1,132
Intangible asset (note 5)		292		519
Other assets		5,637		4,823
Total assets	$	967,689		1,040,820
Liabilities and Stockholders’ Equity
Liabilities:
Deposits: (note 6)
Non-interest-bearing accounts	$	94,083		79,550
Interest-bearing accounts:
NOW accounts		147,047		130,114
Savings and money market accounts		81,643		70,443
Other time deposits		437,092		519,988
Total deposits		759,865		800,095
Advances from Federal Home Loan Bank (note 7)		43,741		63,319
Repurchase agreements (note 8)		43,508		43,080
Subordinated debentures (note 10)		10,310		10,310
Advances from borrowers for taxes and insurance		396		153
Dividends payable		180		176
Deferred tax liability (note 13)		568		—
Accrued expenses and other liabilities		4,122		5,204
Total liabilities		862,690		922,337

See accompanying notes to consolidated financial statements.

2

HopFed Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets, Continued

December 31, 2012 and 2011

(Dollars in Thousands)

	2012			2011
Stockholders’ equity
Preferred stock, par value $0.01 per share; authorized - 500,000 shares; 18,400 shares issued and no shares outstanding at December 31, 2012; and 18,400 shares issued and outstanding with a liquidation preference of $18,400,000 at December 31, 2011	$	—			—
Common stock, par value $.01 per share; authorized 15,000,000 shares; 7,905,728 issued and 7,502,812 outstanding at December 31, 2012, and 7,895,336 issued and 7,492,420 outstanding at December 31, 2011		79			79
Common stock warrant		556			556
Additional paid-in-capital		76,288			75,967
Retained earnings		41,829			39,591
Treasury stock- preferred (at cost 18,400 shares at December 31, 2012, none at December 31, 2011)		(18,400	)		—
Treasury stock- common (at cost, 402,916 shares at December 31, 2012, and December 31, 2011)		(5,076	)		(5,076	)
Accumulated other comprehensive income, net of taxes		9,723			7,366
Total stockholders’ equity		104,999			118,483
Total liabilities and stockholders’ equity	$	967,689			1,040,820

Commitments and contingencies (notes 11 and 15)

See accompanying notes to consolidated financial statements.

3

HopFed Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income

For the Years ended December 31, 2012, 2011 and 2010

(Dollars in Thousands)

	2012		2011			2010
Interest and dividend income
Loans receivable	$	29,828		33,493			38,037
Securities available for sale		8,722		10,465			11,911
Nontaxable securities available for sale		2,266		2,263			2,457
Interest-earning deposits		24		19			12
Total interest and dividend income		40,840		46,240			52,417
Interest expense:
Deposits (note 6)		10,571		14,207			17,384
Advances from Federal Home loan Bank		2,609		2,557			3,292
Repurchase agreements		963		909			831
Subordinated debentures		734		742			739
Total interest expense		14,877		18,415			22,246
Net interest income		25,963		27,825			30,171
Provision for loan losses (note 3)		2,275		5,921			5,970
Net interest income after provision for loan losses		23,688		21,904			24,201
Non-interest income:
Service charges		3,840		3,813			3,922
Merchant card income		842		768			698
Mortgage origination income		956		720			590
Realized gain from sale of securities available for sale, net (note 2)		1,671		2,897			3,504
Other than temporary impairment on investments		—		(155	)		—
Income from bank owned life insurance		399		316			344
Financial services commission		1,071		894			971
Other operating income		860		940			1,077
Total non-interest income		9,639		10,193			11,106

See accompanying notes to consolidated financial statements.

4

HopFed Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income, Continued

For the Years ended December 31, 2012, 2011 and 2010

(Dollars in Thousands, Except Per Share Amounts)

	2012		2011		2010
Non-interest expenses:
Salaries and benefits (note 12)		13,979		13,266		12,762
Occupancy expense (note 4)		3,531		3,269		3,158
Data processing expense		2,494		2,645		2,807
State deposit tax		647		627		640
Intangible amortization		227		291		358
Professional services		1,605		1,372		1,225
Advertising expense		1,357		1,235		1,115
Postage and communications expense		562		549		557
Supplies expense		355		399		404
Deposit insurance and examination fees		1,539		2,021		2,107
Loss on sale of assets		13		145		—
Loss (gain) on sale of real estate owned		266		1,703		(321	)
Expenses related to real estate owned		123		276		264
Other operating expenses		1,743		895		1,102
Total non-interest expense		28,441		28,693		26,178
Income before income tax expense		4,886		3,404		9,129
Income tax expense (note 13)		817		484		2,613
Net income		4,069		2,920		6,516
Less: Dividend on preferred shares		1,007		920		920
Accretion dividend on preferred shares		222		111		111
Net income available for common shareholders	$	2,840	$	1,889		5,485
Earnings per share available to common stockholders (note 18):
Basic	$	0.38		0.25		0.96
Fully diluted	$	0.38		0.25		0.96
Weighted average shares outstanding - basic		7,486,445		7,460,294		5,732,495	(1)
Weighted average shares outstanding - diluted		7,486,445		7,460,294		5,732,495	(1)

(1) Weighted average shares outstanding (basic and diluted) for 2010 adjusted to reflected 2% stock dividend paid to shareholders of record on October 3, 2011.

See accompanying notes to consolidated financial statements.

5

HopFed Bancorp, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

For the Years ended December 31, 2012, 2011 and 2010

(Dollars in Thousands)

	2012			2011			2010
Net income	$	4,069			2,920			6,516
Other comprehensive income, net of tax:
Unrealized holding gain arising during the year, net of tax effect		3,348			8,443			431
Unrealized gain (loss) on derivatives, net of tax effect		113			(138	)		(293	)
Reclassification adjustment for gains included in net income, net of tax effect		(1,104	)		(1,912	)		(2,313	)
Comprehensive income	$	6,426			9,313			4,341

See accompanying notes to consolidated financial statements.

6

HopFed Bancorp, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

For the Years ended December 31, 2012, 2011 and 2010

(Dollars in Thousands, Except Share Amounts)

	Common Shares		Preferred Shares		Common Stock		Common Stock Warrants		Additional Paid-in Capital		Retained Earnings			Preferred Treasury Stock		Common Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total Equity
Balance December 31, 2009		3,594,620		18,400	$	41		556		44,455		38,244			—		(6,495	)		3,148			79,949
Net income		—		—		—		—		—		6,516			—		—			—			6,516
Restricted stock awards		9,751		—		—		—		—		—			—		—			—			—
Net change in unrealized (losses) on securities available for sale, net of taxes of $969		—		—		—		—		—		—			—		—			(1,882	)		(1,882	)
Net change in unrealized (losses) on derivatives, net of taxes of $151		—		—		—		—		—		—			—		—			(293	)		(293	)
Preferred stock dividend of 5%		—		—		—		—		—		(920	)		—		—			—			(920	)
Common stock issuance at $8.55 share, net and includes 112,639 of treasury stock with an average cost of $12.60 share		3,583,334		—		35		—		28,917		—			—		1,419			—			30,371
Exercise of options, net		3,800		—		—		—		—		—			—		—			—			—
Stock dividend to common stockholders’		143,458		—		1		—		1,303		(1,304	)		—		—			—			—
Cash dividend to common stockholders’ ($0.40 per share)		—		—		—		—		—		(2,431	)		—		—			—			(2,431	)
Compensation expense, restricted stock awards		—		—		—		—		134		—			—		—			—			134
Accretion of preferred stock discount		—		—		—		—		111		(111	)		—		—			—			—
Balance December 31, 2010		7,334,963		18,400	$	77		556		74,920		39,994			—		(5,076	)		973			111,444

See accompanying notes to consolidated financial statements.

7

HopFed Bancorp, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

For the Years ended December 31, 2012, 2011 and 2010 (Continued)

(Dollars in Thousands, Except Share Amounts)

	Common Shares		Preferred Shares		Common Stock		Common Stock Warrants		Additional Paid-in Capital			Retained Earnings			Preferred Treasury Stock			Common Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total Equity
Brought Forward, December 31, 2010		7,334,963		18,400	$	77		556		74,920			39,994			—			(5,076	)		973			111,444
Net income		—		—		—		—		—			2,920			—			—			—			2,920
Restricted stock awards		10,972		—		1		—		(1	)		—			—			—			—			—
Net change in unrealized gain on securities available for sale, net of taxes of ($3,364)		—		—		—		—		—			—			—			—			6,531			6,531
Net change in unrealized losses on derivatives, net of taxes of $71		—		—		—		—		—			—			—			—			(138	)		(138	)
Preferred stock dividend of 5%		—		—		—		—		—			(920	)		—			—			—			(920	)
Stock dividend to common stockholders		146,485		—		1		—		819			(820	)		—			—			—			—
Cash dividend to common stockholders’ ($0.20 per share)		—		—		—		—		—			(1,472	)		—			—			—			(1,472	)
Compensation expense, restricted stock awards		—		—		—		—		118			—			—			—			—			118
Accretion of preferred stock discount		—		—		—		—		111			(111	)		—			—			—			—
Balance December 31, 2011		7,492,420		18,400	$	79		556		75,967			39,591			—			(5,076	)		7,366			118,483
Net income		—		—		—		—		—			4,069			—			—			—			4,069
Restricted stock awards		10,392		—		—		—		—			—			—			—			—			—
Net change in unrealized gain on securities available for sale, net of taxes of ($1,156)		—		—		—		—		—			—			—			—			2,244			2,244
Net change in unrealized gain (losses) on derivatives, net of taxes of $58		—		—		—		—		—			—			—			—			113			113
Preferred stock dividend of 5%		—		—		—		—		—			(1,007	)		—			—			—			(1,007	)
Cash dividend to common stockholders’ ($0.08 per share)		—		—		—		—		—			(602	)		—			—			—			(602	)
Repurchase preferred stock		—		—		—		—		—			—			(18,400	)		—			—			(18,400	)
Compensation expense, restricted stock awards		—		—		—		—		99			—			—			—			—			99
Accretion of preferred stock discount		—		—		—		—		222			(222	)		—			—			—			—
Balance December 31, 2012		7,502,812		18,400	$	79		556		76,288			41,829			(18,400	)		(5,076	)		9,723			104,999

See accompanying notes to consolidated financial statements.

8

HopFed Bancorp, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

For the Years ended December 31, 2012, 2011 and 2010

(Dollars in Thousands)

	2012			2011			2010
Cash flows from operating activities:
Net income	$	4,069		$	2,920			6,516
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		2,275			5,921			5,970
Depreciation		1,587			1,569			1,586
Amortization of intangible assets		227			291			358
Amortization of investment premiums and discounts, net		3,327			2,538			1,496
Other than temporary impairment charge on available for sale securities		—			155			—
Expense (benefit) for deferred income taxes		487			(637	)		(210	)
Compensation expense, restricted stock grants and options		99			118			134
Income from bank owned life insurance		(399	)		(316	)		(344	)
Gain on sale of securities available for sale		(1,671	)		(2,897	)		(3,504	)
Gain on sales of loans		(956	)		(720	)		(590	)
Loss on sale of premises and equipment		13			145			6
Proceeds from sales of loans		48,705			36,367			43,456
(Gain) loss on sale of foreclosed assets		266			1,703			(321	)
Originations of loans sold		(47,749	)		(35,647	)		(42,866	)
(Increase) decrease in:
Accrued interest receivable		785			487			(893	)
Other assets (increase)		(815	)		265			2,261
Decrease in accrued expenses and other liabilities		(911	)		(1,046	)		(661	)
Net cash provided by operating activities		9,339			11,216			12,394
Cash flows from investing activities
Proceeds from sales, calls and maturities of securities available for sale		143,434			179,795			221,875
Purchase of securities available for sale		(114,253	)		(195,740	)		(290,765	)
Net decrease in loans		26,815			34,186			24,665
Purchase of Federal Home Loan Bank stock		—			(50	)		(97	)
Proceeds from sale of foreclosed assets		2,738			9,590			3,897
Proceeds from bank owned life insurance		211			—			—
Purchase of premises and equipment		(726	)		(856	)		(553	)
Net cash provided by (used in) investing activities		58,219			26,925			(40,978	)

See accompanying notes to consolidated financial statements.

9

HopFed Bancorp, Inc. and Subsidiaries

Consolidated Statements of Cash Flows, Continued

For the Years ended December 31, 2012, 2011 and 2010

(Dollars in Thousands)

	2012			2011			2010
Cash flows from financing activities:
Net increase (decrease) in deposits	($	40,230	)	($	26,834	)		32,785
Increase (decrease) in advance payments by borrowers for taxes and insurance		243			(86	)		3
Advances from Federal Home Loan Bank		3,000			30,000			39,000
Repayment of advances from Federal Home Loan Bank		(22,578	)		(48,586	)		(59,560	)
Increase (decrease) in repurchase agreements		428			(2,030	)		9,050
Sale of common stock		—			—			28,952
Sale of treasury stock Repurchase of preferred stock		—   (18,400	)		—   —			1,419 —
Dividends paid on preferred stock		(1,007	)		(920	)		(920	)
Dividends paid on common stock		(598	)		(1,909	)		(2,272	)
Net cash provided by (used in) financing activities		(79,142	)		(50,365	)		48,457
Increase (decrease) in cash and cash equivalents		(11,584	)		(12,224	)		19,873
Cash and cash equivalents, beginning of period		48,760			60,984			41,111
Cash and cash equivalents, end of period	$	37,176		$	48,760		$	60,984
Supplemental disclosures of cash flow information:
Interest paid	$	7,564			9,589			11,826
Income taxes paid	$	1,990			2,105			4,110
Supplemental disclosures of non-cash investing and financing activities:
Loans charged off	$	3,684			4,875			5,290
Foreclosures and in substance foreclosures of loans during year	$	2,285			3,748			11,505
Net unrealized gains (losses) on investment securities classified as available for sale	$	3,400			9,895			(2,851	)
Increase (decrease) in deferred tax asset related to unrealized gain (losses) on investments	($	1,156	)		(3,364	)		969
Dividends declared and payable	$	180			176			613
Issue of unearned restricted stock	$	74			87			92

See accompanying notes to consolidated financial statements.

10

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012, 2011 and 2010

(1) Summary of Significant Accounting Policies:

Nature of Operations and Customer Concentration

HopFed Bancorp, Inc. (the Corporation) is a bank holding company incorporated in the state of Delaware. The Company’s principal business activities are conducted through it’s wholly-owned subsidiary, Heritage Bank (the Bank), which is a federally chartered savings bank engaged in the business of accepting deposits and providing mortgage, consumer, construction and commercial loans to the general public through its retail banking offices. The Bank’s business activities are primarily limited to western Kentucky and middle and western Tennessee. The Bank is subject to competition from other financial institutions. Deposits at the Bank are insured up to the applicable limits by the Federal Deposit Insurance Corporation (FDIC).

As part of the enactment of the Dodd-Frank Financial Reform Act of 2010, the Corporation and Bank’s former regulator, the Office of Thrift Supervision, was eliminated on July 21, 2011. The Bank is currently subject to comprehensive regulation, examination and supervision by the Office of Comptroller of the Currency (OCC) and the FDIC. Supervision of the Corporation is conducted by the Federal Reserve.

A substantial portion of the Bank’s loans are secured by real estate in the western Kentucky and middle and west Tennessee markets. In addition, foreclosed real estate is located in this same market. Accordingly, the ultimate ability to collect on a substantial portion of the Bank’s loan portfolio and the recovery of a substantial portion of the carrying amount of foreclosed real estate is susceptible to changes in local market conditions.

Principles of Consolidation

The consolidated financial statements include the accounts of the Corporation, the Bank and its wholly-owned subsidiary Fall & Fall Insurance (collectively the Company) for all periods. Significant inter-company balances and transactions have been eliminated in consolidation.

Accounting

The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted in the United States of America and conform to general practices in the banking industry.

11

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(1) Summary of Significant Accounting Policies: (Continued)

Accounting: (Continued)

The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity or a variable interest entity (VIE) under accounting principles generally accepted in the United States. Voting interest entities are entities which the total equity investment is a risk is sufficient to enable the entity to finance itself independently and provides the equity holders with the obligation to absorb losses, the right to receive residual returns and the right to make decision about the entity’s activities. The Company consolidates voting interest entities in which it has all, or at least a majority of, the voting interest. As defined in applicable accounting standards, VIE’s are entities in which it has all, or at least a majority of, the voting interest. A controlling financial interest in a VIE is present when an enterprise has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. The subsidiary Fort Webb LLC is a VIE for which the Company is not the primary beneficiary. Accordingly, its accounts are not included in the Company’s consolidated financial statements.

Estimates

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheets and revenues and expenses for each year. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowances for loan losses and foreclosed real estate, management obtains independent appraisals for significant properties.

Cash and Cash Equivalents

Cash and cash equivalents are defined as cash on hand, amounts due on demand from commercial banks, interest-earning deposits in other financial institutions and federal funds sold with maturities of three months or less.

Securities

The Company reports debt, readily-marketable equity, mortgage-backed and mortgage related securities in one of the following categories: (i) “trading” (held for current resale) which are to be reported at fair value, with unrealized gains and losses included in earnings; and (ii) “available for sale” (all other debt, equity, mortgage-backed and mortgage related securities) which are to be reported at fair value, with unrealized gains and losses reported net of tax as a separate component of stockholders’ equity. At the time of new security purchases, a determination is made as to the appropriate classification. Realized and unrealized gains and losses on trading securities are included in net income. Unrealized gains and losses on securities available for sale are recognized as direct increases or decreases in stockholders’ equity, net of any tax effect. Cost of securities sold is recognized using the specific identification method.

12

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(1) Summary of Significant Accounting Policies: (Continued)

Securities: (Continued)

Interest income on securities is recognized as earned. The Company purchases many agency bonds at either a premium or discount to its par value. Premiums and discounts on agency bonds are amortized using the net interest method. For callable bonds purchased at a premium, the premium is amortized to the first call date. If the bond is not called on that date, the premium is fully amortized and the Company recognizes an increase in the net yield of the investment. The Company has determined that callable bonds purchased at a premium have a high likelihood of being called, and the decision to amortize premiums to their first call is a more conservative method of recognizing income and any variance from amortizing to contractual maturity is not material to the consolidated financial statements. For agency bonds purchased at a discount, the discount is accreted to the final maturity date. For callable bonds purchased at discount and called before maturity, the Company recognizes a gain on the sale of securities. The Company amortizes premiums and accretes discounts on mortgage back securities and collateralized mortgage obligations based on the securities three month average prepayment speed.

Other Than Temporary Impairment

A decline in the fair value of any available-for-sale security below cost that is deemed to be other-than-temporary results in a reduction in the carrying amount to fair value. To determine whether impairment is other-than-temporary, management considers whether the entity expects to recover the entire amortized cost basis of the security by reviewing the present value of the future cash flows associated with the security. The shortfall of the present value of the cash flows expected to be collected in relation to the amortized cost basis is referred to as a credit loss. If a credit loss is identified, management then considers whether it is more-likely-than-not that the Company will be required to sell the security prior to recovery. If management concludes that it is not more-likely-than-not that it will be required to sell the security, then the security is not other-than-temporarily impaired and the shortfall is recorded as a component of equity. If the security is determined to be other-than-temporarily impaired, the credit loss is recognized as a charge to earnings and a new cost basis for the security is established.

Other Securities

Other securities which are not actively traded and may be restricted, such as Federal Home Loan Bank (FHLB) stock are recognized at cost, as the value is not considered impaired.

Loans Receivable

Loans receivable are stated at unpaid principal balances, less the allowance for loan losses and deferred loan cost. The Statement of Financial Accounting Standards ASC 310-20, Nonrefundable Fees and Other Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases, requires the recognition of loan origination fee income over the life of the loan and the recognition of certain direct loan origination costs over the life of the loan.

13

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(1) Summary of Significant Accounting Policies: (Continued)

Loans Receivable (Continued)

Uncollectible interest on loans that are contractually past due is charged off, or an allowance is established based on management’s periodic evaluation. The Company charges off loans after, in management’s opinion, the collection of all or a large portion of the principal or interest is not collectable. The allowance is established by a charge to interest income equal to all interest previously accrued, and income is subsequently recognized only to the extent that cash payments are received while the loan is classified as non-accrual, when the loan is ninety days past due. Loans may be returned to accrual status when all principal and interest amounts contractually due (including arrearages) are reasonably assured of repayment within an acceptable period of time, and there is a sustained period of repayment performance by the borrower in accordance with the contractual terms of interest and principal.

The Company provides an allowance for loan losses and includes in operating expenses a provision for loan losses determined by management. Management’s periodic evaluation of the adequacy of the allowance is based on the Company’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, and current economic conditions. Management’s estimate of the adequacy of the allowance for loan loss can be classified as either a reserve for currently classified loans or estimates of future losses in the current loan portfolio.

Loans are considered to be impaired when, in management’s judgment, principal or interest is not collectible according to the contractual terms of the loan agreement. When conducting loan evaluations, management considers various factors such as historical loan performance, the financial condition of the borrower and adequacy of collateral to determine if a loan is impaired. Impaired loans and loans classified as TDR’s may be classified as either substandard or doubtful and reserved for based on individual loans risk for loss. Loans not considered impaired may be classified as either special mention or watch and may be reserved for. Typically, unimpaired classified loans exhibit some form of weakness in either industry trends, collateral, or cash flow that result in a default risk greater than that of the Company’s typical loan. All classified amounts include all unpaid interest and fees as well as the principal balance outstanding.

The measurement of impaired loans generally may be based on the present value of future cash flows discounted at the historical effective interest rate. However, the majority of the Company’s problem loans become collateral dependent at the time they are judged to be impaired. Therefore, the measurement of impaired requires the Company to obtain a new appraisal to obtain the fair value of the collateral. The appraised value is then discounted to an estimated of the Company’s net realizable value, reducing the appraised value by the amount of holding and selling cost. When the measured amount of an impaired loan is less than the recorded investment in the loan, the impairment is recorded as a charge to income and a valuation allowance, which is included as a component of the allowance for loan losses.

For loans not individually classified, Management considers the Company’s recent charge off history, the Company’s current past due and non-accrual trends, banking industry trends and both local and national economic conditions when making an estimate as to the amount to reserve for losses. Management believes it has established the allowance in accordance with accounting principles generally accepted in the United States of America and has taken into account the views of its regulators and the current economic environment.

14

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(1) Summary of Significant Accounting Policies: (Continued)

Fixed Rate Mortgage Originations

The Company operates a mortgage division that originates mortgage loans in the name of assorted investors, including Federal Home Loan Mortgage Corporation (Freddie Mac). Originations for Freddie Mac are sold through the Bank while originations to other investors are processed for a fee. On a limited basis, loans sold to Freddie Mac may result in the Bank retaining loan servicing rights. In recent years, customers have chosen lower origination rates over having their loan locally serviced; thereby limiting the amount of new loans sold with servicing retained. At December 31, 2012, the Bank maintained a servicing portfolio of one to four family real estate loans of approximately $26.3 million. For the years ended December 31, 2012, and December 31, 2011, the Bank has reviewed the value of the servicing asset as well as the operational cost associated with servicing the portfolio. The Bank has determined that the values of its servicing rights are not material to the Company’s consolidated financial statements.

Real Estate and Other Assets Owned

Assets acquired through, or in lieu of, loan foreclosure or repossession carried at the lower of cost or fair value less selling expenses. Costs of improving the assets are capitalized, whereas costs relating to holding the property are expensed. Management conducts periodic valuations (no less than annually) and any adjustments to value are recognized in the current period’s operations.

Brokered Deposits

The Company may choose to attract deposits from several sources, including using outside brokers to assist in obtaining time deposits using national distribution channels. Brokered deposits offer the Company an alternative to Federal Home Loan Bank advances and local retail time deposits.

Repurchase Agreements

The Company sells investments from its portfolio to business and municipal customers with a written agreement to repurchase those investments on the next business day. The repurchase product gives business customers the opportunity to earn income on liquid cash reserves. These funds are overnight borrowings of the Company secured by Company assets and are not FDIC insured. The Company has also entered into two long-term repurchase agreements with third parties as discussed in Note 8.

Revenue Recognition

Mortgage loans held for sale are generally delivered to secondary market investors under best efforts sales commitments entered into prior to the closing of the individual loan. Loan sales and related gains or losses are recognized at settlement. Loan fees earned for the servicing of secondary market loans are recognized as earned.

Interest income on loans receivable is reported on the interest method. Interest income is not reported when full loan repayment is in doubt, typically when the loan is impaired, placed in non-accrual status, or payments are past due more than 90 days. Interest earned as reported as income is reversed on any loans classified as non-accrual or past due more than 90 days. Interest may continue to accrue on loans over 90 days past due if they are well secured and in the process of collection.

15

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(1) Summary of Significant Accounting Policies: (Continued)

Income Taxes

Income taxes are accounted for through the use of the asset and liability method. Under the asset and liability method, deferred taxes are recognized for the tax consequences of temporary differences by applying enacted statutory rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The effect on deferred taxes of a change in tax rates would be recognized in income in the period that includes the enactment date. The Company files its federal income tax return on a consolidated basis with its subsidiaries. The Company files its Tennessee state income tax return on a consolidated basis. All taxes are accrued on a separate entity basis.

Operating Segments

The Company’s continuing operations include one primary segment, retail banking. The retail banking segment involves the origination of commercial, residential and consumer loans as well as the collections of deposits in eighteen branch offices.

Premises and Equipment

Land, land improvements, buildings, and furniture and equipment are carried at cost, less accumulated depreciation and amortization. Buildings and land improvements are depreciated generally by the straight-line method, and furniture and equipment are depreciated under various methods over the estimated useful lives of the assets. The Company capitalizes interest expense on construction in process at a rate equal to the Company’s cost of funds. The estimated useful lives used to compute depreciation are as follows:

Land improvements	5-15 years
Buildings	40 years
Furniture and equipment	5-15 years

Intangible Assets

The intangible assets for insurance contracts and core deposits related to the Fulton acquisition of September 2002 was amortized using the straight-line method over the estimated period of benefit of seven years and was fully amortized in July of 2009. The core deposit intangible asset related to the middle Tennessee acquisition of June 2006 is amortized using the sum of the year’s digits method over an estimated period of nine years. The Company periodically evaluates the recoverability of the intangible assets and takes into account events or circumstances that warrant a revised estimate of the useful lives or indicates that impairment exists.

Bank Owned Life Insurance

Bank owned life insurance policies (BOLI) are recorded at the cash surrender value or the amount to be realized upon current redemption. The realization of the redemption value is evaluated for each insuring entity that holds insurance contracts annually by management.

16

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(1) Summary of Significant Accounting Policies: (Continued)

Advertising

The Company expenses the production cost of advertising as incurred.

Financial Instruments

The Company has entered into off-balance-sheet financial instruments consisting of commitments to extend credit and commercial letters of credit. Such financial instruments are recorded in the consolidated financial statements when they are funded or related fees are incurred or received.

Derivative Instruments:

Under guidelines ASC 815, Accounting for Derivative Instruments and Hedging Activities, as amended, all derivative instruments are required to be carried at fair value on the consolidated balance sheet. ASC 815 provides special hedge accounting provisions, which permit the change in fair value of the hedge item related to the risk being hedged to be recognized in earnings in the same period and in the same income statement line as the change in the fair value of the derivative.

A derivative instrument designated in a hedge relationship to mitigate exposure to changes in the fair value of an asset, liability or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges under ASC 815. Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Cash value hedges are accounted for by recording the fair value of the derivative instrument and the fair value related to the risk being hedged of the hedged asset or liability on the consolidated balance sheet with corresponding offsets recorded in the consolidated balance sheet. The adjustment to the hedged asset or liability is included in the basis of the hedged item, while the fair value of the derivative is recorded as a freestanding asset or liability. Actual cash receipts or payments and related amounts accrued during the period on derivatives included in a fair value hedge relationship are recorded as adjustments to the income or expense recorded on the hedged asset or liability.

Under both the fair value and cash flow hedge methods, derivative gains and losses not effective in hedging the change in fair value or expected cash flows of the hedged item are recognized immediately in the income statement. At the hedge’s inception and at least quarterly thereafter, a formal assessment is performed to determine whether changes in the fair values or cash flows of the derivative instrument has been highly effective in offsetting changes in the fair values or cash flows of the hedged items and whether they are expected to be highly effective in the future. If it is determined a derivative instrument has not been, or will not continue to be highly effective as a hedge, hedged accounting is discontinued. ASC 815 basis adjustments recorded on hedged assets and liabilities are amortized over the remaining life of the hedged item beginning no later than when hedge accounting ceases. There were no fair value hedging gains or losses, as a result of hedge ineffectiveness, recognized for the years ended December 31, 2012, 2011 and 2010.

17

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(1) Summary of Significant Accounting Policies: (Continued)

Fair Values of Financial Instruments

In October of 2008, the Company entered into an interest rate swap agreement for a term of seven years and an amount of $10 million. The Bank will pay a fixed rate of 7.27% for seven years and receive an amount equal to the three-month London Interbank Lending Rate (Libor) plus 3.10%. The interest rate swap is classified as a cash flow hedge by the Bank and will be tested quarterly for effectiveness. At December 31, 2012, the cost of the Bank to terminate the cash flow hedge is approximately $1,126,000. The Bank, in the normal course of business, originates fixed rate mortgages that are sold to Freddie Mac. Upon tentative underwriting approval by Freddie Mac, the Bank issues a best effort commitment to originate a fixed rate first mortgage under specific terms and conditions that the Bank intends to sell to Freddie Mac. The Bank no longer assumes a firm commitment to originate fixed rate loans, thus eliminating the risk of having to deliver loans they did not close or pay commitment fees to make Freddie Mac whole.

ASC 825, Disclosures about Fair Value of Financial Instruments, requires disclosure of fair value information about financial instruments, whether or not recognized in the consolidated balance sheets for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. Fair value estimates are made at a point in time, based on relevant market information and information about the financial instrument. Accordingly, such estimates involve uncertainties and matters of judgment and therefore cannot be determined with precision. ASC 825 excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

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

Cash and cash equivalents

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 earning deposits

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.

18

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(1) Summary of Significant Accounting Policies: (Continued)

Fair Values of Financial Instruments (Continued)

Available-for-sale securities

Fair values for investment securities available-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.

Loans receivable

The fair values for of fixed-rate loans and variable rate loans that re-price on an infrequent basis is estimated using discounted cash flow analysis which considers future re-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 that re-price frequently and with have no significant change in credit risk is approximately the carrying value of the loan.

Letters of credit

The fair value of standby letters of credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the likelihood of the counter parties drawing on such financial instruments and the present creditworthiness of such counter parties. Such commitments have been made on terms which are competitive in the markets in which the Company operates, thus, the fair value of standby letters of credit equals the carrying value for the purposes of this disclosure.

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.

Repurchase agreements

Overnight repurchase agreements have a fair value at book, given that they mature overnight. The fair values for 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.

Bank owned life insurance

The fair value of bank owned life insurance is the cash surrender value of the policy less redemption charges. By surrendering the policy, the Company is also subject to federal income taxes on all earnings previously recognized.

19

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(1) Summary of Significant Accounting Policies: (Continued)

Fair Values of Financial Instruments (Continued)

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 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.

FHLB stock

The fair value of FHLB stock is recognized at cost.

Subordinated debentures

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

Off-Balance-Sheet Instruments

Off-balance-sheet lending commitments approximate their fair values due to the short period of time before the commitment expires.

Dividend Restrictions

The Company is not permitted to pay a dividend to common shareholders if it fails to make a quarterly interest payment to the holders of the Company’s subordinated debentures. Furthermore, the Bank may be restricted in the payment of dividends to the Company by the Bank’s primary regulator, the Office of Comptroller of the Currency (OCC). Any restrictions imposed by the OCC would effectively limit the Company’s ability to pay a dividend to its common stockholders as discussed in note 17.

Earnings Per Share

Earnings per share (EPS) consists of two separate components, basic EPS and diluted EPS. Basic EPS is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for each period presented. Diluted EPS is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding plus dilutive common stock equivalents (CSE). CSE consists of dilutive stock options granted through the Company’s stock option plan. Restricted stock awards represent future compensation expense and are dilutive. Common stock equivalents which are considered anti-dilutive are not included for the purposes of this calculation. Common stock warrants issued in December 2008 and all stock options outstanding are currently anti-dilutive and are not included for the purposes of this calculation.

20

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(1) Summary of Significant Accounting Policies: (Continued)

Earnings Per Share (Continued)

Both EPS and diluted EPS are reduced by the amount of dividend payments on preferred stock and the accretion of the discount on the preferred stock. The effect of the Company’s dividend payment on preferred stock and accretion of the preferred stock is as provided for the years ended December 31, 2012, 2011 and 2010:

	2012		2011		2010
Dividend on preferred shares	$	1,006,886		920,000		920,000
Accretion dividend on preferred shares		222,360		111,180		111,180
Total cost of preferred stock	$	1,229,246		1,031,180		1,031,180
Reduction in earnings per share to common stockholders:
Basic	$	0.16	$	0.14	$	0.18
Fully diluted	$	0.16	$	0.14	$	0.18
Weighted average shares outstanding -basic		7,486,445		7,460,294		5,732,495
Weighted average shares outstanding -diluted		7,486,445		7,460,294		5,732,495

Stock Compensation

The Company utilized the Black-Sholes valuation model to determine the fair value of stock options on the date of grant. The model derives the fair value of stock options based on certain assumptions related to the expected stock prices volatility, expected option life, risk-free rate of return and the dividend yield of the stock. The expected life of options granted is estimated based on historical employee exercise behavior. The risk free rate of return coincides with the expected life of the options and is based on the ten year Treasury note rate at the time the options are issued. The historical volatility levels of the Company’s common stock are used to estimate the expected stock price volatility. The set dividend yield is used to estimate the expected dividend yield of the stock.

21

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(1) Summary of Significant Accounting Policies: (Continued)

Effect of New Accounting Pronouncements

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

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

22

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(1) Summary of Significant Accounting Policies: (Continued)

Effect of New Accounting Pronouncements (Continued)

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

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

In December 2011, the FASB issued ASU 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards update No. 2011-05. This update to Comprehensive Income (Topic 220) defers the requirement to present items that are reclassified from accumulated other comprehensive income to net income separately with their respective components of net income and other comprehensive income. The deferral supersedes only the paragraphs pertaining to how and where reclassification adjustments are presented. The amendments in this update were effective for public entities for reporting periods beginning after December 15, 2011. The implementation of ASU 2011-12 did not have a material impact on our consolidated financial statements of income, condition and cash flows.

23

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(1) Summary of Significant Accounting Policies: (Continued)

Effect of New Accounting Pronouncements (Continued)

ASU 2011-11, “Balance Sheet (Topic 210) - “Disclosures about Offsetting Assets and Liabilities.” ASU 2011-11 amends Topic 210, “Balance Sheet,” to require an entity to disclose both gross and net information about financial instruments, such as sales and repurchase agreements and reverse sale and repurchase agreements and securities borrowing/lending arrangements, and derivative instruments that are eligible for offset in the statement of financial position and/or subject to a master netting arrangement or similar agreement. ASU No. 2013-01, “Balance Sheet (Topic 210)—Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities,” clarifies that ordinary trade receivables are not within the scope of ASU 2011-11. ASU 2011-11 is effective for annual and interim periods beginning on January 1, 2013, and is not expected to have a significant impact on the Company’s financial statements.

ASU 2012-02, “Intangibles – Goodwill and Other (Topic 350) - Testing Indefinite-Lived Intangible Assets for Impairment.” ASU 2012-02 give entities the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that an indefinite-lived intangible asset is impaired. If, after assessing the totality of events or circumstances, an entity determines it is more likely than not that an indefinite-lived intangible asset is impaired, then the entity must perform the quantitative impairment test. If, under the quantitative impairment test, the carrying amount of the intangible asset exceeds its fair value, an entity should recognize an impairment loss in the amount of that excess. Permitting an entity to assess qualitative factors when testing indefinite-lived intangible assets for impairment results in guidance that is similar to the goodwill impairment testing guidance in ASU 2011-08. ASU 2012-02 is effective for the Company’s beginning January 1, 2013 (early adoption permitted) and is not expected to have a significant impact on the Company’s financial statements.

24

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(1) Summary of Significant Accounting Policies: (Continued)

Effect of New Accounting Pronouncements (Continued)

ASU 2012-06, “Business Combinations (Topic 805) - Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution (a consensus of the FASB Emerging Issues Task Force).” ASU 2012-06 clarifies the applicable guidance for subsequently measuring an indemnification asset recognized as a result of a government-assisted acquisition of a financial institution. Under ASU 2012-06, when a reporting entity recognizes an indemnification asset as a result of a government-assisted acquisition of a financial institution and, subsequently, a change in the cash flows expected to be collected on the indemnification asset occurs (as a result of a change in cash flows expected to be collected on the assets subject to indemnification), the reporting entity should subsequently account for the change in the measurement of the indemnification asset on the same basis as the change in the assets subject to indemnification. Any amortization of changes in value should be limited to the contractual term of the indemnification agreement (that is, the lesser of the term of the indemnification agreement and the remaining life of the indemnified assets). ASU 2012-06 is effective for the Company beginning January 1, 2013 (early adoption permitted) and is not expected to have a significant impact on the Company’s 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.

Reclassifications:

Certain items in prior financial statements have been reclassified to conform to the current presentation.

25

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(Table Amounts in Thousands)

(2) Securities:

Securities, which consist of debt and equity investments, have been classified in the consolidated balance sheets according to management’s intent. The carrying amount of securities and their estimated fair values follow:

	December 31, 2012
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Restricted:
FHLB stock	$	4,428		—		—			4,428
Unrestricted:
U.S. government and agency securities:	$	147,659		5,202		(83	)		152,778
Tax free municipal bonds		68,331		5,756		(40	)		74,047
Taxable municipal bonds		12,535		1,209		(8	)		13,736
Trust preferred securities		2,000		—		(511	)		1,489
Mortgage-backed securities:
GNMA		19,172		1,244		(19	)		20,397
FNMA		64,805		2,558		(58	)		67,305
FHLMC		4,519		153		—			4,672
SLMA CMOs		5,412		80		—			5,492
AGENCY CMOs		16,055		426		(52	)		16,429
	$	340,488		16,628		(771	)		356,345

26

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(Table Amounts in Thousands)

(2) Securities: (Continued)

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

The scheduled maturities of debt securities available for sale at December 31, 2012, and December 31, 2011, were as follows:

2012	Amortized Cost		Estimated Fair Value
Due within one year	$	345		346
Due in one to five years		11,499		11,682
Due in five to ten years		30,007		32,316
Due after ten years		53,222		57,290
		95,073		101,634
Amortizing agency bonds		135,452		140,416
Mortgage-backed securities		109,963		114,295
Total unrestricted securities available for sale	$	340,488		356,345

27

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(Table Amounts in Thousands)

(2) Securities: (Continued)

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

The FHLB stock is an equity interest in the Federal Home Loan Bank. FHLB stock does not have a readily determinable fair value because ownership is restricted and a market is lacking. FHLB stock is classified as a restricted investment security, carried at cost and evaluated for impairment.

The estimated fair value and unrealized loss amounts of temporarily impaired investments as of December 31, 2012 and December 31, 2011, are as follows:

	Less than 12 months					12 months or longer					Total
	Estimated					Estimated					Estimated
December 31, 2012	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Available for sale
U.S. government and agency securities:
Agency debt securities	$	12,317		(83	)		—		—			12,317		(83	)
Taxable municipals		885		(8	)		—		—			885		(8	)
Tax free municipals		5,315		(40	)		—		—			5,315		(40	)
Trust preferred securities		—		—			1,489		(511	)		1,489		(511	)
Mortgage-backed securities:
GNMA		—		—			1,415		(19	)		1,415		(19	)
FNMA		7,077		(58	)		—		—			7,077		(58	)
FHLMC		—		—			—		—			—		—
NON-AGENCY CMOs		—		—			—		—			—		—
AGENCY CMOs		3,691		(52	)		—		—			3,691		(52	)
Total Available for Sale	$	29,285		(241	)		2,904		(530	)		32,189		(771	)

28

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(Table Amounts in Thousands)

(2) Securities: (Continued)

	Less than 12 months					12 months or longer					Total
	Estimated					Estimated					Estimated
December 31, 2011	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Available for sale
U.S. government and agency securities:
Agency debt securities	$	20,422		(54	)		2,007		(11	)		22,429		(65	)
Taxable municipals		—		—			—		—			—		—
Tax free municipals		—		—			—		—			—		—
Trust preferred securities		—		—			993		(1,007	)		993		(1,007	)
Mortgage-backed securities:
GNMA		1,925		(19	)		—		—			1,925		(19	)
FNMA		—		—			81		(1	)		81		(1	)
FHLMC		—		—			—		—			—		—
NON-AGENCY CMOs		—		—			1,494		(223	)		1,494		(223	)
AGENCY CMOs		—		—			—		—			—		—
Total Available for Sale	$	22,347		(73	)		4,575		(1,242	)		26,922		(1,315	)

29

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(2) Securities: (Continued)

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 December 31, 2012, the Company has 26 securities with unrealized losses. With the exception of a subordinated debenture discussed below, Management believes these unrealized losses relate to changes in interest rates and not credit quality. Management also believes the Company has the ability to hold these securities until maturity or for the foreseeable future and therefore no declines are deemed to be other than temporary.

The carrying value of the Company’s investment securities may decline in the future if the financial condition of issuers deteriorates and management determines it is probable that the Company will not recover the entire amortized cost bases of the securities. As a result, there is a risk that other-than-temporary impairment charges may occur in the future.

In June of 2008, the Company purchased $2 million par value of a private placement subordinated debenture issued by First Financial Services Corporation (“FFKY”), the holding Company for First Federal Savings Bank (“First Fed”). The debenture is a thirty year security with a coupon rate of 8.00%. FFKY is a NASDAQ listed commercial bank holding company located in Elizabethtown, Kentucky. In October of 2010, FFKY informed the owners of its subordinated trust, including the Company, that it was deferring the dividend payments for up to five years as prescribed by the trust. FFKY has suffered significant asset quality issues that have resulted in negative earnings since 2009 and have negatively impacted FFKY’s capital position.

In July 2012, FFKY closed on the previously announced sale of four branch offices located in Indiana to a local financial institution. FFKY realized a net gain of approximately $3.4 million. The transaction increased the Tier 1 Capital to Average Assets Ratio and Total Risk Based Capital to Risk Weighted Assets Ratio of First Fed to 6.51% and 11.90%, respectively.

Currently, FFKY and First Fed are under a Consent Order issued jointly by the Kentucky State Department of Financial Institutions and the FDIC. Among other things, the consent order requires First Fed to increase its Tier 1 Capital to Average Assets Ratio to 8.00% and its Total Risk Based Capital to Risk Weighted Asset Ratio to 12.00%. At December 31, 2012, First Fed has not met the capital goals established by their regulators but achieved a Tier 1 Capital to Average Assets Ratio of 6.69% and a Total Risk Based Capital to Weighted Asset Ratio of 12.45%.

30

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(2) Securities: (Continued)

The Company continues to monitor all quarterly reports issued by both FFKY and First Fed subsidiary to determine if the investment in the subordinated trust is other than temporarily impaired. At December 31, 2012, the Company has determined, based on the suspension of the dividend, that the investment is not other than temporarily impaired and has taken a $511,000 reduction in other comprehensive income related to the lack of current cash flow from the debenture. The Company has further determined, based on the financial trends and capital position of FFKY and its First Fed, that the Company’s investment in the subordinated debenture is not permanently impaired at this time.

During 2012, the Company sold investment securities classified as available for sale for proceeds of $69.0 million resulting in gross gains of $1.8 million and gross losses of $115,000. During 2011, the Company sold investment securities classified as available for sale for proceeds of $115.2 million resulting in gross gains of $3.2 million and gross losses of $335,000. During 2010, the Company sold investment securities classified as available for sale for proceeds of $103.8 million resulting in gross gains of $3.5 million and gross losses of $30,000.

As part of its normal course of business, the Bank holds significant balances of municipal and other deposits that require the Bank to pledge investment instruments as collateral. At December 31, 2012, the Bank pledged investments with a book value of $145.1 million and a market value of approximately $149.4 million to various municipal entities as required by law. The Bank has pledged two investment securities with a market value of $617,500 to the Federal Home Loan Bank of Cincinnati to provide for a higher level of available borrowings. In addition, the Bank has provided $15.5 million of letters of credit issued by the Federal Home Loan Bank of Cincinnati to collateralize municipal deposits. The collateral for these letters of credit are the Bank’s one to four family loan portfolio, commercial real estate portfolio and its multi-family loan portfolio.

31

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(Table Amounts in Thousands, Except Percentages)

(3) Loans Receivable, Net:

The components of loans receivable in the consolidated balance sheets as of December 31, 2012, and December 31, 2011, were as follows:

	December 31, 2012						December 31, 2011
	Amount			Percent			Amount			Percent
Real estate loans:
One-to-four family (closed end) first mortgages	$	162,335			30.3	%	$	171,192			30.2	%
Second mortgages (closed end)		4,336			0.8	%		6,209			1.1	%
Home equity lines of credit		37,083			6.9	%		38,694			6.8	%
Multi-family		33,056			6.2	%		33,739			5.9	%
Construction		18,900			3.5	%		11,931			2.1	%
Land		45,906			8.6	%		52,338			9.2	%
Non-residential real estate		169,436			31.6	%		183,485			32.3	%
Total mortgage loans		471,052			87.9	%		497,588			87.6	%
Consumer loans		13,886			2.6	%		15,110			2.7	%
Commercial loans		50,549			9.5	%		54,673			9.7	%
Total other loans		64,435			12.1	%		69,783			12.4	%
Total loans, gross		535,487			100.0	%		567,371			100.0	%
Deferred loan cost, net of income		146						251
Less allowance for loan losses		(10,648	)					(11,262	)
Total loans	$	524,985					$	556,360

The Company’s loan portfolio balance has declined in each of the last two years. The decline is the result of a combination of factors, including a weak economy, both locally and nationally. Currently, unemployment in the Company’s market area ranged from 8% to 18%. The Company’s MOU previously in place by our former regulator, the OTS, restricted the Company’s ability to grow its owner occupied commercial real estate loan portfolio. The Bank’s and Corporation current regulator, the Office of the Comptroller of the Currency and the Federal Reserve, respectively, terminated all outstanding Memorandums in October 2012 and November 2012.

The Company’s loan portfolio includes a significant amount of loans secured by raw land and commercial real estate. These loans have come under increased regulatory scrutiny due to the potential for higher levels of losses. At December 31, 2012, the Company has approximately $66.6 million loans classified as substandard. At December 31, 2012, the Company has $23.8 million of loans secured by land classified as substandard, or 52.0% of our land loan portfolio and $21.1 million in loans secured by commercial real estate classified as substandard, or 12.4% of the Company’s non-residential real estate loan portfolio.

32

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(3) Loans Receivable, Net (Continued):

Loans serviced for the benefit of others totaled approximately $40.3 million, $59.2 million and $56.3 million at December 31, 2012, 2011 and 2010, respectively. At December 31, 2012, approximately $26.3 million of the $40.3 million in loans serviced by the Company are serviced for the benefit of Freddie Mac. Servicing loans for others generally consists of collecting mortgage payments, maintaining escrow amounts, disbursing payments to investors and foreclosure processing. The servicing rights associated with these loans are not material to the Company’s consolidated financial statements. Qualified one-to-four family first mortgage loans, non-residential real estate loans, multi-family loans and commercial real estate loans are pledged to the Federal Home Loan Bank of Cincinnati as discussed in note 7.

The Company originates most fixed rate loans for immediate sale to the Federal Home Loan Mortgage Corporation (FHLMC) or other investors. Generally, the sale of such loans is arranged shortly after the loan application is tentatively approved through commitments.

The Company conducts annual reviews on all loan relationships above $1.0 million to ascertain the borrowers continued ability to service their debt as agreed. In addition to the credit relationships mentioned above, management may classify any credit relationship once it becomes aware of adverse credit trends for that customer. Typically, the annual review consists of updated financial statements for borrowers and any guarantors, a review of the borrower’s credit history with the Company and other creditors, and current income tax information. As a result of this review, management will classify loans based on their credit risk. Additionally, the Company provides a risk grade for all loans past due more than sixty days. The Company uses the following risk definitions for risk grades:

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

Watch loans are acceptable credits: (1) that need continual monitoring, such as out-of territory or asset-based loans (since the Company does not have an asset-based lending department), or (2) with a marginal risk level to business concerns and individuals that; (a) have exhibited favorable performance in the past, though currently experiencing negative trends; (b) are in an industry that is experiencing volatility or is declining, and their performance is less than industry norms; and (c) are experiencing unfavorable trends in their financial position, such as one-time net losses or declines in asset values. These marginal borrowers may have early warning signs of problems such as occasional overdrafts and minor delinquency.

33

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(3) Loans Receivable, Net (Continued):

If considered marginal, a loan would be a “watch” until financial data demonstrated improved performance or further deterioration to a “substandard” grade usually within a 12-month period. In the table on page 33, Watch loans are included with satisfactory loans and classified as Pass.

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

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

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

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

34

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(3) Loans Receivable, Net (Continued):

Loan Origination/Risk Management

The Corporation has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies and non-performing and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions.

Commercial and industrial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and prudently expand its business. Underwriting standards are designed to promote relationship banking rather than transactional banking. Once it is determined that the borrower’s management possesses sound ethics and solid business acumen, the Corporation’s management examines current and projected cash flows to determine the ability of the borrower to repay their obligations as agreed. Commercial and industrial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial and industrial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

Commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans, in addition to those of real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Corporation’s commercial real estate portfolio are diverse in terms of type and geographic location. This diversity helps reduce the Corporation’s exposure to adverse economic events that affect any single market or industry. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. As a general rule, the Corporation avoids financing single-purpose projects unless other underwriting factors are present to help mitigate risk. The Corporation also utilizes third-party experts to provide insight and guidance about economic conditions and trends affecting market areas it serves. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans. At December 31, 2012, approximately $70.5 million of the outstanding principal balance of the Corporation’s non-residential real estate loans were secured by owner-occupied properties, approximately $52.1 million was secured by non-owner occupied properties and $46.8 million was secured by property used in agricultural production.

35

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(3) Loans Receivable, Net (Continued):

Loan Origination/Risk Management (Continued)

With respect to loans to developers and builders that are secured by non-owner occupied properties that the Corporation may originate from time to time, the Corporation generally requires the borrower to have had an existing relationship with the Corporation and have a proven record of success. Construction loans are underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analysis of absorption and lease rates and financial analysis of the developers and property owners. Construction loans are generally based upon estimates of costs and value associated with the completed project. These estimates may be inaccurate. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Corporation until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.

The Corporation maintains an independent loan review function that is typically outsourced to firms that specialize in conducting loan reviews. Results of these reviews are presented to management. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Corporation’s policies and procedures.

Most of the Corporation’s lending activity occurs in Western Kentucky and middle and western Tennessee. The majority of the Corporation’s loan portfolio consists of non-residential real estate loans and one-to-four family residential real estate loans.

36

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(Table Amounts in Thousands)

(3) Loans Receivable, Net (Continued):

Loans by classification type and the related valuation allowance amounts at December 31, 2012, were as follows:

					Impaired Loans
	Pass		Special Mention		Substandard		Doubtful		Total		Specific Allowance for  Impairment		Allowance for Loans not Impaired
December 31, 2012
One-to-four family mortgages	$	156,961		779		4,595		—		162,335		754		1,736
Home equity line of credit		34,737		1,109		1,237		—		37,083		68		306
Junior lien		3,821		47		468		—		4,336		196		34
Multi-family		27,463		1,478		4,115		—		33,056		38		486
Construction		14,052		—		4,848		—		18,900		—		256
Land		14,374		7,683		23,849		—		45,906		932		1,252
Non-residential real estate		146,443		1,899		21,094		—		169,436		1,424		2,209
Consumer loans		13,330		—		556		—		13,886		121		217
Commercial loans		44,191		516		5,842		—		50,549		308		311
Total	$	455,372		13,511		66,604		—		535,487		3,841		6,807

Loans by classification type and the related valuation allowance amounts at December 31, 2011, were as follows:

					Impaired Loans
	Pass		Special Mention		Substandard		Doubtful		Total		Specific Allowance for Impairment		Allowance for Loans not Impaired
December 31, 2011
One-to-four family mortgages	$	153,375		9,434		8,153		230		171,192		728		1,912
Home equity line of credit		36,528		1,694		233		239		38,694		131		277
Junior lien		4,778		622		809		—		6,209		180		97
Multi-family		20,715		7,073		5,951		—		33,739		26		1,175
Construction		9,943		213		1,775		—		11,931		14		125
Land		17,570		24,714		9,055		999		52,338		924		408
Non-residential real estate		142,190		25,077		16,101		117		183,485		1,374		2,297
Consumer loans		14,399		268		423		20		15,110		80		182
Commercial loans		45,509		4,009		5,034		121		54,673		623		709
Total	$	445,007		73,104		47,534		1,726		567,371		4,080		7,182

37

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(Table Amounts in Thousands)

(3) Loans Receivable, Net (Continued):

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

							For the year ended
	At December 31, 2012						12/31/12
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
Impaired loans with no recorded reserve	Investment		Balance		Allowance		Investment		Recognized
One-to-four family mortgages	$	1,759		1,759		—		5,279		107
Home equity line of credit		1,169		1,169		—		869		50
Junior liens		—		—		—		281		3
Multi-family		4,077		4,077		—		3,626		219
Construction		4,848		4,848		—		3,133		174
Land		20,279		20,279		—		19,857		504
Non-residential real estate		15,363		15,363		—		19,936		855
Consumer loans		81		81		—		66		5
Commercial loans		1,617		1,617		—		2,701		165
Total		49,193		49,193		—		55,748		2,082

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
Impaired loans with recorded reserve	Investment		Balance		Allowance		Investment		Recognized
One-to-four family mortgages	$	2,836		2,836		754		3,135		145
Home equity line of credit		68		68		68		162		3
Junior liens		468		468		196		365		38
Multi-family		38		38		38		2,640		4
Construction		—		—		—		1,095		—
Land		3,570		3,570		932		4,848		213
Non-residential real estate		5,731		5,731		1,424		6,578		323
Consumer loans		475		475		121		281		1
Commercial loans		4,225		4,225		308		4,470		28
Total		17,411		17,411		3,841		23,574		755
Total impaired loans	$	66,604		66,604		3,841		79,322		2,837

38

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(Table Amounts in Thousands)

(3) Loans Receivable, Net (Continued):

Impaired loans by classification type and the related valuation allowance amounts at December 31, 2011, were as follows:

	At December 31, 2011						For the year ended December 31, 2011
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
Impaired loans with no recorded allowance	Investment		Balance		Allowance		Investment		Recognized
One-to-four family mortgages	$	5,144		5,300		—		5,814		220
Home equity line of credit		181		181		—		312		5
Junior lien		469		469		—		287		14
Multi-family		5,059		5,059		—		2,797		242
Construction		1,589		1,589		—		1,437		63
Land		7,513		7,513		—		10,777		446
Non-residential real estate		9,458		11,530		—		10,410		312
Consumer loans		75		75		—		92		4
Commercial loans		480		584		—		2,244		33
Total	$	29,968		32,300		—		34,170		1,339

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
Impaired loans with recorded allowance:	Investment		Balance		Allowance		Investment		Recognized
One-to-four family mortgages	$	3,239		3,239		728		3,563		183
Home equity line of credit		291		291		131		399		13
Junior lien		340		340		180		703		16
Multi-family		892		892		26		1,962		15
Construction		186		186		14		1,222		11
Land		2,541		2,541		924		3,261		157
Non-residential real estate		6,760		6,760		1,374		10,833		360
Consumer loans		368		368		80		344		3
Commercial loans		4,675		4,675		623		2,671		27
Total	$	19,292		19,292		4,080		24,958		785
Total impaired loans	$	49,260		51,592		4,080		59,128		2,124

39

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(Table Amounts in Thousands)

(3) Loans Receivable, Net (Continued):

The average recorded investment in impaired loans for the years ended December 31, 2012, 2011 and 2010 was $79.3 million, $59.1 million and $43.2 million, respectively. Interest income recognized on impaired loans for the years ended December 31, 2012 and December 31, 2011 was $2.8 million and $2.1 million, respectively. The following table provides a detail of the Company’s activity in the allowance for loan loss account allocated by loan type for the year ended December 31, 2012:

								General			Specific			Ending
Year ended	Balance		Charge off			Recovery		Provision			Provision			Balance
December 31, 2012	12/31/2011		2012			2012		2012			2012			12/31/2012
One-to-four family mortgages	$	2,640		(379	)		81		324			(176	)		2,490
Home equity line of credit		408		(67	)		6		6			21			374
Junior liens		277		(1	)		4		—			(50	)		230
Multi-family		1,201		(417	)		—		429			(689	)		524
Construction		139		—			—		117			—			256
Land		1,332		(1,033	)		405		635			845			2,184
Non-residential real estate		3,671		(1,120	)		137		1,033			(88	)		3,633
Consumer loans		262		(510	)		150		404			32			338
Commercial loans		1,332		(157	)		12		(171	)		(397	)		619
	$	11,262		(3,684	)		795		2,777			(502	)		10,648

The following table provides a detail of the Company’s activity in the allowance for loan loss account allocated by loan type for the year ended December 30, 2011:

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

40

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(Table Amounts in Thousands)

(3) Loans Receivable, Net (Continued):

Non-accrual loans totaled $7.7 million and $6.1 million at December 31, 2012, and December 31, 2011, respectively. All non-accrual loans noted below are classified as either substandard or doubtful. Interest income foregone on such loans totaled $271,000 at December 31, 2012, $246,000 at December 31, 2011, and $243,000 at December 31, 2010, respectively. The Company is not committed to lend additional funds to borrowers whose loans have been placed on a non-accrual basis. There were no loans past due more than three months and still accruing interest as of December 31, 2012 and December 31, 2011. For the years ended December 31, 2012, and December 31, 2011, the components of the Company’s balances of non-accrual loans are as follows:

	12/31/2012		12/31/2011
One-to-four family first mortgages	$	2,243		2,074
Home equity lines of credit		66		134
Junior liens		4		101
Multi-family		38		—
Construction		—		—
Land		2,768		1,330
Non-residential real estate		1,134		2,231
Farmland		648		—
Consumer loans		145		9
Commercial loans		617		254
Total non-accrual loans	$	7,663		6,133

41

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(Table Amounts in Thousands)

(3) Loans Receivable, Net (Continued):

The table below presents past due balances at December 31, 2012, by loan classification allocated between performing and non-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	$	155,936		1,339		2,243		779		2,038		—		162,335
Home equity line of credit		34,732		5		66		1,109		1,171		—		37,083
Junior liens		3,584		237		4		47		464		—		4,336
Multi-family		27,463		—		38		1,478		4,077		—		33,056
Construction		13,876		176		—		—		4,848		—		18,900
Land		14,237		137		2,768		7,683		21,081		—		45,906
Non-residential real estate		146,150		293		1,782		1,899		19,312		—		169,436
Consumer loans		13,266		74		145		—		401		—		13,886
Commercial loans		43,961		230		617		516		5,225		—		50,549
Total	$	453,205		2,491		7,663		13,511		58,617		—		535,487

The table below presents past due balances at December 31, 2011, by loan classification allocated between performing and non-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	$	153,375		628		2,074		9,163		5,722		230		171,192
Home equity line of credit		36,528		5		134		1,664		134		229		38,694
Junior liens		4,778		312		101		521		497		—		6,209
Multi-family		20,715		—		—		7,073		5,951		—		33,739
Construction		9,943		107		—		213		1,668		—		11,931
Land		17,570		237		1,330		24,714		7,488		999		52,338
Non-residential real estate		142,190		487		2,231		24,782		13,678		117		183,485
Consumer loans		14,399		28		9		268		386		20		15,110
Commercial loans		45,509		506		254		4,003		4,385		16		54,673
Total	$	445,007		2,310		6,133		72,401		39,909		1,611		567,371

42

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(Table Amounts in Thousands)

(3) Loans Receivable, Net (Continued):

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

Troubled Debt Restructuring

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

• The restructuring constitutes a concession

• The debtor is experiencing financial difficulties

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

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

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

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

43

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(Table Amounts in Thousands)

(3) Loans Receivable, Net (Continued):

Troubled Debt Restructurings (Continued)

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

	2012			2011
Total TDR:
One-to-four family mortgages	$	1,888			2,521
Home equity line of credit		—			—
Junior lien		196			857
Multi-family		234			—
Construction		4,112			—
Land		3,424			941
Non-residential real estate		3,173			3,367
Farmland Consumer loans		909 5			—   33
Commercial loans		128			125
		14,069			7,844
Less:
TDR in non-accrual status
One-to-four family mortgages		—			(1,410	)
Home equity line of credit		—			—
Junior lien		(100	)		(100	)
Multi-family		—			—
Construction		—			—
Land		(2,768	)		—
Farmland Non-residential real estate		(44 —	)		—   (1	)
Consumer loans		—			(1	)
Commercial loans		(119	)		(105	)
Total performing TDR	$	11,038			6,227

44

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(Table Amounts in Thousands)

(3) Loans Receivable, Net (Continued):

The Company originates loans to officers and directors and their affiliates at terms substantially identical to those available to other borrowers. Loans to officers and directors at December 31, 2012 and December 31, 2011, were approximately $8,846,000 and $10,917,000, respectively. At December 31, 2012, funds committed that were undisbursed to officers and directors approximated $1.4 million.

The following summarizes activity of loans to officers and directors and their affiliates for the years ended December 31, 2012, and December 31, 2011:

	2012			2011
Balance at beginning of period	$	10,917			11,641
New loans		2,463			2,940
Principal repayments		(4,534	)		(3,664	)
Balance at end of period	$	8,846		$	10,917

(4) Premises and Equipment:

Components of premises and equipment included in the consolidated balance sheets as of December 31, 2012 and December 31, 2011, consisted of the following:

	2012		2011
Land	$	5,560		5,560
Land improvements		558		558
Buildings		20,257		20,206
Furniture and equipment		7,427		6,765
		33,802		33,089
Less accumulated depreciation		11,245		9,658
Premises and equipment, net	$	22,557		23,431

Depreciation expense was approximately $1,587,000, $1,569,000 and $1,586,000 for the years ended December 31, 2012, 2011 and 2010, respectively.

45

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(Table Amounts in Thousands)

(5) Intangible Assets:

Goodwill is tested for impairment on an annual basis and as events or circumstances change that would more likely than not reduce fair value below its carrying amount. In 2009, the Company determined that its goodwill was other than temporarily impaired, and as a result, the Company determined that goodwill was impaired and charged off $4,989,000 on September 30, 2009.

The amount of other intangible assets and the changes in the carrying amounts of other intangible assets for the years ended December 31, 2012, December 31, 2011 and December 31, 2010:

	Core Deposits
	Intangible
Balance, December 31, 2009	$	1,168
Amortization		(358	)
Balance December 31, 2010		810
Amortization		(291	)
Balance December 31, 2011		519
Amortization		(227	)
Balance, December 31, 2012	$	292

The estimated amortization expense for intangible assets for the subsequent years at December 31, 2012, is as follows:

	Core
	Deposit Intangible
2013	$	162
2014		97
2015		33
Total	$	292

46

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(Table Amounts in Thousands)

(6) Deposits:

At December 31, 2012, the scheduled maturities of other time deposits were as follows:

Years Ending December 31,
2013	$	220,182
2014		78,333
2015		42,661
2016		78,036
2017 2018 and thereafter		17,846 34
	$	437,092

The amount of other time deposits with a minimum denomination of $100,000 was approximately $222.0 million and $272.5 million at December 31, 2012, and December 31, 2011, respectively. At December 31, 2012, directors, members of senior management and their affiliates had deposits in the Bank of approximately $2.9 million.

Interest expense on deposits for the years ended December 31, 2012, December 31, 2011 and December 31, 2010 is summarized as follows:

	2012		2011		2010
Demand and NOW accounts	$	1,180		1,435		1,553
Money market accounts		58		108		113
Savings		71		114		130
Other time deposits		9,262		12,550		15,588
	$	10,571		14,207		17,384

The Bank maintains clearing arrangements for its demand, NOW and money market accounts with BBVA Compass Bank. The Bank is required to maintain certain cash reserves in its account to cover average daily clearings. At December 31, 2012, average daily clearings were approximately $6.6 million.

At December 31, 2012, the Company had approximately $469,000 of deposit accounts in overdraft status and thus has been reclassified to loans on the accompanying consolidated balance sheet. At December 31, 2011, the Company had approximately $358,000 of deposit accounts in overdraft status and thus has been reclassified to loans on the accompanying consolidated balance sheet. At December 31, 2012, and December 31, 2011, the Company had deposits classified as brokered deposits totaling $44.5 million and $56.3 million, respectively. At December 31, 2012 and December 31, 2011, the Company had CDARS deposits totaling $2.1 million.

47

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(Table Amounts in Thousands, Except Percentages)

(7) Advances from Federal Home Loan Bank:

Federal Home Loan Bank advances are summarized as follows:

	December 31,
	2012					2011
Types of Advances	Amount		Weighted Average Rate			Amount		Weighted Average Rate
Fixed-rate	$	43,741		4.09	%	$	63,319		3.64	%

Scheduled maturities of FHLB advances as of December 31, 2012 are as follows:

Years Ending December 31,	Fixed Rate		Average Cost
2013	$	—		—
2014		—		—
2015		—		—
2016		4,000		5.34	%
2017		27,000		4.37	%
Thereafter		12,741		3.13	%
Total	$	43,741		4.09	%

All FHLB advances maturing in 2017 allow the FHLB of Cincinnati the right to call the borrowing at par. The investment maturing in 2019 requires monthly principal payments based on a ten year amortization with a 5% constant prepayment rate.

The Bank has an approved line of credit of $30.0 million at the FHLB of Cincinnati, which is secured by a blanket agreement to maintain residential first mortgage loans and non-residential real estate loans with a principal value of 125% of the outstanding advances and has a variable interest rate. At December 31, 2012, the Bank could borrow an additional $46.2 million from the FHLB of Cincinnati without pledging additional collateral. The Bank has an $8 million unsecured line of credit with BVA Compass Bank of Birmingham, Alabama. The Company’s overnight lines of credit with both the Federal Home Loan Bank of Cincinnati and Compass Bank had a zero balance at December 31, 2012.

48

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(Table Amounts in Thousands, Except Percentages)

(8) Repurchase Agreements:

In 2006, the Company enhanced its cash management product line to include an automated sweep of excess funds from checking accounts to repurchase accounts, allowing interest to be paid on excess funds remaining in checking accounts of business and municipal customers. Repurchase balances are overnight borrowings from customers and are not FDIC insured. In addition, the Company has entered into two long term repurchase agreements with third parties.

At December 31, 2012, the Company provided investment securities with a market value and book value of $44.6 million as collateral for repurchase agreements. The maximum repurchase balances outstanding during the twelve month periods ending December 31, 2012, and December 31, 2011, was $52.5 million and $46.7 million, respectively.

At December 31, 2012, and December 31, 2011, the respective cost and maturities of the Company’s repurchase agreements are as follows:

2012
Third Party	Balance		Average Cost			Maturity		Comments
Deutsch Bank	$	10,000		4.28	%		9/05/2014	Quarterly callable
Merrill Lynch		6,000		4.36	%		9/18/2016	Quarterly callable
Various customers		27,508		1.08	%			Overnight
Total	$	43,508		2.35	%
2011
Third Party	Balance		Average Cost			Maturity		Comments
Deutsch Bank	$	10,000		4.28	%		9/05/2014	Quarterly callable
Merrill Lynch		6,000		4.36	%		9/18/2016	Quarterly callable
Various customers		27,080		0.88	%			Overnight
Total	$	43,080		2.15	%

49

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(9) Fair Value Measurement:

In September 2006, FASB issued ASC Topic 820, Fair Value Measurements and Disclosures. ASC 820 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. Although ASC 820 provides for fair value accounting, the Company did not elect the fair value option for any financial instrument not presently required to be accounted for at fair value.

HopFed Bancorp has developed a process for determining fair values. Fair value is based upon quoted market prices, where available. If listed prices or quotes are not available, fair value is based upon internally developed models or processes that use primarily market based or based on third party market data, including interest rate yield curves, option volatilities and other third party information. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies, or assumptions, to determine the fair value of certain financials instruments could result in a different estimate of fair value at the reporting date.

ASC 820 establishes a three-level valuation hierarchy for disclosure of fair value measurement. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date.

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

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

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

The fair value of securities available for sale are determined by a matrix pricing, which is a mathematical technique what is widely used in the industry to value debt securities without relying exclusively on quoted prices for the individual securities in the Company’s portfolio but relying on the securities relationship to other benchmark quoted securities. Impaired loans are valued at the net present value of expected payments and considering the fair value of any assigned collateral.

50

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(Table Amounts in Thousands)

(9) Fair Value Measurement: (Continued)

The fair value of bank owned life insurance is determined by reducing the annual stated dividend payments of each insurance company by the annual cost of life insurance provided. The Company has certain liabilities carried at fair value including interest rate swap agreements. The fair value of these liabilities is based on information obtained from a third party bank and is reflected within level 2 of the valuation hierarchy.

Assets and Liabilities Measured on a Recurring Basis

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

December 31, 2012 Description	Total carrying value in the consolidated balance sheet at December 31, 2012		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Available for sale securities	$	356,345		—		354,856		1,489
Bank owned life insurance		9,323		—		9,323		—
Liabilities
Interest rate swap		1,126		—		1,126		—
December 31, 2011 Description	Total carrying value in the consolidated balance sheet at December 31, 2011		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Available for sale securities	$	383,782		—		382,789		993
Bank owned life insurance		9,135		—		9,135		—
Liabilities
Interest rate swap		1,297		—		1,297		—

51

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(Table Amounts in Thousands)

(9) Fair Value Measurement: (Continued)

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

December 31, 2012 Description	Total carrying value in the consolidated balance sheet at 12/31/2012		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Other real estate owned	$	1,544		—		—	$	1,544
Other assets owned	$	4		—		—	$	4
Impaired loans, net of reserve of $3,841	$	62,763		—		—	$	62,763
December 31, 2011 Description	Total carrying value in the consolidated balance sheet at December 31, 2011		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Other real estate owned	$	2,258		—		—	$	2,258
Other assets owned	$	9		—		—	$	9
Impaired loans, net of reserve of $4,080	$	45,180		—		—	$	45,180

52

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(Table Amounts in Thousands)

(9) Fair Value Measurement: (Continued)

Change in level 3 fair value measurements

The table below includes a roll-forward of the balance sheet items for the years ended December 31, 2012 and 2011, (including the change in fair value) for assets and liabilities classified by HopFed Bancorp, Inc. within level 3 of the valuation hierarchy for assets and liabilities measured at fair value on a recurring basis. When a determination is made to classify a financial instrument 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 financial instruments 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.

	Year ended December 31,
	2012				2011
	Other		Other		Other			Other
	Assets		Liabilities		Assets			Liabilities
Fair value, December 31,	$	993		—	$	1,277			—
Change in unrealized gains (losses) included in other comprehensive income for assets and liabilities still held at December 31,		496		—		(284	)		—
Purchases, issuances and settlements, net		—		—		—			—
Transfers in and/or out of Level 3		—		—		—			—
Fair value, December 31,	$	1,489		—	$	993			—

53

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(Table Amounts in Thousands)

(9) Fair Value Measurement: (Continued)

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

	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
Financial Assets:
Cash and due from banks	$	31,563		31,563	$	31,563		—		—
Interest-earning deposits		5,613		5,613		5,613		—		—
Securities available for sale		356,345		356,345		—		354,856		1,489
Federal Home Loan Bank stock		4,428		4,428		—		4,428		—
Loans receivable		524,985		532,040		—		—		532,040
Accrued interest receivable		5,398		5,398		—		5,398		—
Bank owned life insurance		9,323		9,323		—		9,323		—
Financial liabilities:
Deposits		759,865		756,426		—		756,426		—
Advances from borrowers for taxes and insurance		396		396		—		396		—
Advances from Federal Home Loan Bank		43,741		49,293		—		49,293		—
Repurchase agreements		43,508		44,779		—		44,779		—
Subordinated debentures		10,310		10,092		—		—		10,092
Off-balance-sheet liabilities:										—
Commitments to extend credit		—		—		—		—		—
Commercial letters of credit		—		—		—		—		—
Market value of interest rate swap		1,126		1,126		—		1,126		—

54

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(Table Amounts in Thousands)

(9) Fair Value Measurement: (Continued)

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

	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
Financial Assets:
Cash and due from banks	$	44,389		44,389	$	44,389		—		—
Interest-earning deposits		4,371		4,371		4,371
Securities available for sale		383,782		383,782		—		382,789		993
Federal Home Loan Bank stock		4,428		4,428		—		4,428		—
Loans receivable		556,360		585,734		—		—		585,734
Accrued interest receivable		6,183		6,183		—		6,183		—
Bank owned life insurance		9,135		9,135		—		9,135		—
Financial liabilities:
Deposits		800,095		811,415		—		811,415		—
Advances from borrowers for taxes and insurance		153		153		—		153		—
Advances from Federal Home Loan Bank		63,319		69,206		—		69,206		—
Repurchase agreements		43,080		44,969		—		44,969		—
Subordinated debentures		10,310		10,099		—		—		10,099
Off-balance-sheet liabilities:										—
Commitments to extend credit		—		—		—		—		—
Commercial letters of credit		—		—		—		—		—
Market value of interest rate swap		1,297		1,297		—		1,297		—

55

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(Table Amounts in Thousands)

(9) Fair Value Measurement: (Continued)

Non-Financial Assets and Non-Financial Liabilities:

The Company has no non-financial assets or non-financial liabilities measured at fair value on a recurring basis. Certain non-financial assets measured at fair value on a non-recurring basis include foreclosed assets (upon initial recognition or subsequent impairment), non-financial assets and intangible assets and other non-financial long-lived assets measured at fair value for impairment assessment. Non-financial assets measured at fair value on a non-recurring basis during the reported periods include certain foreclosed assets which, upon initial recognition, were re-measured and reported at fair value through a charge-off to the allowance for loan losses and certain foreclosed assets which, subsequent to their initial recognition, were re-measured at fair value through a write-down included in other non-interest expense. The fair value of a foreclosed asset is estimated using Level 2 inputs based on observable market data or Level 3 inputs based on customized discounting criteria. During the reported periods, all fair value measurements for foreclosed assets utilized Level 2 inputs.

The following table presents foreclosed assets that were re-measured and reported at fair value:

	2012			2011			2010
Beginning balance	$	2,267			9,812			1,883
Foreclosed assets measured at initial recognition:
Carrying value of foreclosed assets prior to acquisition		2,634			4,591			15,848
Proceeds from sale of foreclosed assets		(2,738	)		(9,590	)		(3,897	)
Charge-offs recognized in the allowance for loan loss		(349	)		(843	)		(4,343	)
Gains (losses) on REO included in non-interest expense		(266	)		(1,703	)		321
Fair value	$	1,548			2,267			9,812

56

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(10) Subordinated Debentures:

On September 25, 2003, the Company formed HopFed Capital Trust I (the Trust). The Trust is a statutory trust formed under the laws of the state of Delaware. In September 2003, the Trust issued variable rate capital securities with an aggregate liquidation amount of $10,000,000 ($1,000 per preferred security) to a third-party investor. The Company then issued floating rate junior subordinated debentures aggregating $10,310,000 to the Trust. The junior subordinated debentures are the sole assets of the Trust. The junior subordinated debentures and the capital securities pay interest and dividends, respectively, on a quarterly basis. The variable interest rate is the three-month LIBOR plus 3.10% adjusted quarterly (3.41% at December 31, 2012). These junior subordinated debentures mature in 2033, at which time the capital securities must be redeemed. The junior subordinated debentures and capital securities became redeemable contemporaneously, in whole or in part, beginning October 8, 2008 at a redemption price of $1,000 per capital security.

The Company has provided a full-irrevocable and unconditional guarantee on a subordinated basis of the obligations of the Trust under the capital securities in the event of the occurrence of an event of default, as defined in such guarantee. Debt issuance cost and underwriting fees of $190,000 were capitalized related to the offering and are fully amortized at December 31, 2012.

(11) Concentrations of Credit Risk:

Most of the Bank’s business activity is with customers located within the western part of the Commonwealth of Kentucky and middle and western Tennessee. One-to-four family residential and non residential real estate collateralize the majority of the loans. The Bank requires collateral for the majority of loans.

The distribution of commitments to extend credit approximates the distribution of loans outstanding. The contractual amounts of credit-related financial instruments such as commitments to extend credit and commercial letters of credit represent the amounts of potential accounting loss should the contract be fully drawn upon, the customer default, and the value of any existing collateral become worthless. In October of 2008, the FDIC increased its deposit coverage on all accounts to $250,000. In addition, financial institutions could choose to pay a higher premium to have all non-interest demand deposit balances insured. Compass Bank of Birmingham, Alabama, the Heritage Bank correspondent banker, elected to accept this additional coverage. Therefore, uninsured deposits are limited to those balances transferred to an overnight federal funds account. During 2012 and 2011, Heritage Bank chose not to transfer balances to an overnight federal funds account. Unlimited FDIC insurance on non-interest bearing deposits ended December 31, 2012.

At December 31, 2012, all cash and cash equivalents are deposited with Compass Bank, the Federal Reserve Bank or the Federal Home Loan Bank of Cincinnati (FHLB). Compass Bank is a participant in the FDIC’s TALC program that provided 100% insurance for all funds in non-interest bearing accounts through close of business at December 31, 2012. All funds deposited into Compass Bank were placed in non-interest bearing accounts and are fully insured by the FDIC. All deposits at the FHLB are liabilities of the individual bank and were not federally insured. The FHLB is a government sponsored enterprise (GSE) and has the second highest rating available by all rating agencies. At December 31, 2012, total FHLB deposits were approximately $3.9 million and total deposits at the Federal Reserve were $5.6 million, none of which is insured by the FDIC.

57

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(12) Employee Benefit Plans:

Stock Option Plan

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

Exercise Price	Weighted Average Remaining Life (Years)		Outstanding Options		Options Exercisable
$16.67		1.4		20,808		20,808

The total amount of options outstanding and the exercise price of options were adjusted to reflect a 2% stock dividend paid to stockholders’ of record on September 30, 2010, and October 3, 2011.

On February 24, 1999, the Board of Directors of the Company adopted the HopFed Bancorp, Inc. 1999 Stock Option Plan (Option Plan), which was subsequently approved at the 1999 Annual Meeting of Stockholders. Under the Option Plan, the Option Committee has discretionary authority to grant stock options and stock appreciation rights to such employees, directors and advisory directors, as the committee shall designate. The Option Plan reserved 403,360 shares of common stock for issuance upon the exercise of options or stock appreciation rights. At December 31, 2012, the Company can no longer issue options under this plan. The remaining 20,808 options are fully vested and outstanding until their maturity date.

On May 31, 2000, the Board of Directors of the Company adopted the HopFed Bancorp, Inc. 2000 Stock Option Plan (the “2000 Option Plan”). Under the 2000 Option Plan, the option committee has discretionary authority to grant stock options to such employees as the committee shall designate. The 2000 Option Plan reserves 40,000 shares of common stock for issuance upon the exercise of options. The Company will receive the exercise price for shares of common stock issued to 2000 Option Plan participants upon the exercise of their option. The Board of Directors has granted options to purchase 40,000 shares of common stock under the 2000 Option Plan at an exercise price of $10.00 per share, which was the fair market value on the date of the grant. At December 31, 2012, all options having been granted under the 2000 Option Plan have been exercised.

58

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(12) Employee Benefit Plans: (Continued)

Stock Option Plan (Continued)

The following summary represents the activity under the stock option plans:

	Number of Shares			Weighted Average Exercise Price
Options outstanding, December 2009		110,000		$	12.61
Granted		—
Exercised		(30,000	)		10.00
Forfeited		—			—
Adjusted for 2% stock dividend		1,600			—
Options outstanding, December 2010		81,600			13.32
Granted		—			—
Exercised		—			—
Forfeited		(51,000	)		12.10
Adjusted for 2% stock dividend		612			—
Options outstanding, December 2011		31,212			15.06
Granted		—			—
Exercised		—			—
Forfeited		(10,404	)		11.85
Options outstanding, December 2012		20,808		$	16.67

Stock options vest and become exercisable annually over a four-year period from the date of the grant. All options are fully vested.

The fair value at the grant date of the vested options outstanding at December 31, 2012, is $91,000 for options issued under the 1999 plan.

At December 31, 2012, the strike price for all outstanding options exceeds the current trading price of the Company’s stock.

59

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(Table Amounts in Thousands)

(12) Employee Benefit Plans: (Continued)

2004 HopFed Bancorp Long Term Incentive Plan

On February 18, 2004, the Board of Directors of the Company adopted the HopFed Bancorp, Inc. 2004 Long Term Incentive Plan (the Plan), which was subsequently approved at the 2004 Annual Meeting of Stockholders. Under the Plan, the Compensation Committee has discretionary authority to grant up to 200,000 shares in the form of restricted stock grants, options, and stock appreciation rights to such employees, directors and advisory directors as the committee shall designate. The grants vest in equal installments over a four-year period. Grants may vest immediately upon specific events, including a change of control of the Company, death or disability of award recipient, and termination of employment of the recipient by the Company without cause.

Awards are recognized as an expense to the Company in accordance with the vesting schedule. Awards in which the vesting is accelerated must be recognized as an expense immediately. Awards are valued at the closing stock price on the day the award is granted. For the year ended December 31, 2012, the Compensation Committee granted 10,392 shares of restricted stock with a market value of $73,800. For the year ended December 31, 2011, the Compensation Committee granted 10,972 shares of restricted stock with a market value of $87,000. For the year ended December 31, 2010, the Compensation Committee granted a total of 9,571 shares with a market value of $92,600. The Company recognized $99,000, $118,000, and $134,000 in compensation expense in 2012, 2011 and 2010, respectively.

The remaining compensation expense to be recognized at December 31, 2012 is as follows:

Year Ending December 31,	Approximate Future Compensation  Expense
	(Dollars in thousands)
2013	$	74
2014		50
2015		28
2016		8

The Compensation Committee may make additional awards of restricted stock, thereby increasing the future expense related to this plan. The early vesting of restricted stock awards due to factors outlined in the award agreement may accelerate future compensation expenses related to the plan. However, the total amount of future compensation expense would not change as a result of an accelerated vesting of shares. At December 31, 2012, the Company has 107,565 restricted shares available from the HopFed Bancorp, Inc. 2004 Long Term Incentive Plan that may be awarded.

60

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(Table Amounts in Thousands)

(12) Employee Benefit Plans: (Continued)

401(K) Plan

The Company has a 401(k) retirement program that is available to all employees who meet minimum eligibility requirements. Participants may generally contribute up to 15% of earnings, and in addition, management will match employee contributions up to 4%. In addition, the Company has chosen to provide all eligible employees an additional 4% of compensation without regards to the amount of the employee contribution. Expense related to Company contributions amounted to $627,000, $532,000, and $611,000 in 2012, 2011 and 2010, respectively. The reduction in expense related to the 401K program in 2012 and 2011 was the offset of approximately $59,000 and $100,000, respectively, in Company contributions forfeited by employees who are no longer employed at the bank and have not met the full vesting requirements of the plan.

Deferred Compensation Plan

During the third quarter of 2002, the Company purchased assets and assumed the liabilities relating to a nonqualified deferred compensation plan for certain employees of the Fulton division. The Company owns single premium life insurance policies on the life of each participant and is the beneficiary of the policy value. When a participant retires, the benefits accrued for each participant will be distributed to the participant in equal installments for 15 years. The expense recognized by the Company for 2010 amounted to $19,000. The plan is now fully funded and no additional expenses will be recognized. The Deferred Compensation Plan also provides the participant with life insurance coverage, which is a percentage of the net death proceeds for the policy, if any, applicable to the participant. The original face value of all deferred compensation contracts was approximately $668,000. At December 31, 2012, the accrued value of all deferred compensation contacts is approximately $348,000. The Company is currently making cash remittances of approximately $29,000 per year on deferred compensation contracts.

(13) Income Taxes:

The provision for income tax expense (benefit) for the years ended December 31, 2012, 2011 and 2010 consisted of the following:

	2012		2011			2010
Current
Federal	$	210		1,011			2,613
State		120		110			210
		330		1,121			2,823
Deferred
Federal		487		(637	)		(210	)
State		—		—			—
		487		(637	)		(210	)
	$	817		484			2,613

61

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(Table Amounts in Thousands, Except Percentages)

(13) Income Taxes (Continued):

Total income tax expense for the years ended December 31, 2012, 2011, and 2010 differed from the amounts computed by applying the federal income tax rate of 34 percent to income before income taxes as follows:

	2012			2011			2010
Expected federal income tax expense at statutory tax rate	$	1,661			1,157			3,104
Effect of nontaxable interest income		(575	)		(547	)		(695	)
Effect of nontaxable bank owned life insurance income		(136	)		(107	)		(117	)
Effect of QSCAB credit		(220	)		(220	)		—
State taxes on income, net of federal benefit		79			73			139
Other tax credits		(64	)		—			—
Non deductible expenses		72			128			182
Total income tax expense	$	817			484			2,613
Effective rate		16.7	%		14.2	%		28.6	%

The components of deferred taxes as of December 31, 2012, and December 31, 2011, are summarized as follows:

	2012			2011
Deferred tax assets:
Allowance for loan loss	$	3,620		$	3,829
Accrued expenses		297			679
Intangible amortization		1,365			1,534
AMT credit		110			—
Other real estate owned		34			—
		5,426			6,042
Deferred tax liabilities:
FHLB stock dividends		(787	)		(787	)
Unrealized gain on securities available for sale		(5,007	)		(3,794	)
Depreciation and amortization		(200	)		(244	)
Unearned loan cost and fees, net		—			(85	)
		(5,994	)		(4,910	)
Net deferred tax asset (liability)	($	568	)	$	1,132

62

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(Table Amounts in Thousands)

(13) Income Taxes: (Continued)

The Small Business Protection Act of 1996, among other things, repealed the tax bad debt reserve method for thrifts effective for taxable years beginning after December 31, 1995. Thrifts may now only use the same tax bad debt reserve method that is allowed for commercial banks. Thrifts with assets greater than $500 million can no longer use the reserve method and may only deduct loan losses as they actually arise (i.e., the specific charge-off method).

The portion of a thrift’s tax bad debt reserve that is not recaptured (generally pre-1988 bad debt reserves) under the 1996 law is only subject to recapture at a later date under certain circumstances. These include stock repurchase redemptions by the thrift or if the thrift converts to a type of institution (such as a credit union) that is not considered a bank for tax purposes. However, no further recapture would be required if the thrift converted to a commercial bank charter or was acquired by a bank. The Bank does not anticipate engaging in any transactions at this time that would require the recapture of its remaining tax bad debt reserves. Therefore, retained earnings at December 31, 2012 and 2011 includes approximately $4,027,000 which represents such bad debt deductions for which no deferred income taxes have been provided.

No valuation allowance for deferred tax assets was recorded at December 31, 2012 and 2011 as management believes it is more likely than not that all of the deferred tax assets will be realized because they were supported by recoverable taxes paid in prior years. There were not unrecognized tax benefits during any of the reported periods. The Corporation files income tax returns in the U.S. federal jurisdiction. The Company is no longer subject to U.S. federal income tax examinations by tax authorities for years before 2009.

(14) Real Estate and Other Assets Owned:

The Company’s real estate and other assets owned balances at December 31, 2012, and December 31, 2011, represent properties and personal collateral acquired by the Bank through customer loan defaults. The property is recorded at the lower of cost or fair value less estimated cost of to sell at the date acquired with any loss recognized as a charge off through the allowance for loan loss account. Additional real estate and other asset losses may be determined on individual properties at specific intervals or at the time of disposal. Additional losses are recognized as a non-interest expense. For the years ended December 31, 2012, and December 31, 2011, the composition of the Company’s balance in both real estate and other assets owned are as follows:

	December 31,
	2012		2011
One-to-four family mortgages	$	258		480
Multi-family		—		905
Construction		130		465
Land		1,112		248
Non-residential real estate		44		160
Consumer assets owned by bank		4		9
Total other assets owned	$	1,548		2,267

63

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(15) Commitments and Contingencies:

In the ordinary course of business, the Bank has various outstanding commitments and contingent liabilities that are not reflected in the accompanying consolidated financial statements.

The Bank had open loan commitments at December 31, 2012 and 2011 of approximately $27.3 million and $23.4 million, respectively. At December 31, 2012 and 2011, the Bank had no fixed rate loan commitments. Unused lines of credit were approximately $60.8 million and $62.9 million at December 31, 2012 and 2011, respectively.

The Company and the Bank have agreed to enter into employment agreements with certain officers, which provide certain benefits in the event of their termination following a change in control of the Company or the Bank. The employment agreements provide for an initial term of three years. On each anniversary of the commencement date of the employment agreements, the term of each agreement may be extended for an additional year at the discretion of the Board. In the event of a change in control of the Company or the Bank, as defined in the agreement, the officers shall be paid an amount equal to two times the officer’s base salary as defined in the employment agreement.

The Company and the Bank have entered into commitments to rent facilities and lease operating equipment that are non-cancelable. At December 31, 2012, future minimal lease and rental commitments were as follows:

Years Ending December 31,	Amount
2013	$	200,122
2014		197,104
2015		179,461
2016		153,996
2017		153,996
Total	$	884,679

The Company incurred rental expenses of approximately $61,000, $55,000 and $62,000 for the years ended December 31, 2012, 2011, and 2010, respectively.

In the normal course of business, the Bank and Company have entered into operating contracts necessary to conduct the Company’s daily business. The most significant operating contract is for the Bank’s data processing services. The monthly cost associated with this contract is variable based on the number of accounts and usage but averages approximately $197,000 per month. The Bank has three outstanding ATM branding agreements with local convenience stores. These agreements allow the Bank to maintain a cash machine and signage in various locations for an annual cost of approximately $128,000.

64

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(Table Amounts in Thousands)

(15) Commitments and Contingencies: (Continued)

The Company is partially self-insured for medical benefits provided to employees. Heritage Bank is named as the plan administrator for this plan and has retained Blue Cross Blue Shield of Kentucky to process claims and handle other duties of the plan. Blue Cross Blue Shield does not assume any liabilities as a third party administrator. Heritage Bank purchased two stop-loss insurance policies to limit total medical claims from Blue Cross Blue Shield of Kentucky. The first specific stop-loss policy limits the Company’s cost in any one year to $75,000 per covered individual. The Company has purchased a second stop-loss policy that limits the aggregate claims for the Company in a given year at $1,651,964 based upon the Company’s current enrollment. The Company has established a liability for outstanding claims as well as incurred but unreported claims. While management uses what it believes are pertinent factors in estimating the plan liability, the actual liability is subject to change based upon unexpected claims experience and fluctuations in enrollment during the plan year. At December 31, 2012, and December 31, 2011, the Company recognized a liability for self-insured medical expenses of approximately $438,000 and $506,000, respectively.

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit, standby letters of credit, and financial guarantees. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

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

	December 31,
	2012		2011
Commitments to extend credit	$	27,294		23,422
Standby letters of credit		1,211		1,459
Unused commercial lines of credit		31,597		32,329
Unused home equity lines of credit		29,188		30,536

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counter-party. Collateral held varies but may include property, plant, and equipment and income-producing commercial properties.

65

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(15) Commitments and Contingencies: (Continued)

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. Most guarantees extend from one to two years. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

The Company is subject to various claims and legal actions that have arisen in the course of conducting business. Management does not expect the ultimate disposition of these matters to have a material adverse impact on the Company’s financial statements.

(16) Regulatory Matters:

The Corporation is a unitary thrift holding company and, as such, is subject to regulation, examination and supervision by the Federal Reserve Bank. The Corporation’s wholly owned bank subsidiary is a federally chartered savings and loan supervised by the Office of the Comptroller of the Currency (OCC). Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Corporation’s and the Bank’s financial statements.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

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). Management believes, as of December 31, 2012, and 2011, that the Bank meets all capital adequacy requirements to which it is subject.

On April 30, 2010, the Corporation and the Bank, and the Office of Thrift Supervision (OTS), since merged into the OCC, signed a Memorandum of Understanding and Agreement. Included in the agreement was a requirement that the Bank maintain a Core Capital to adjusted total assets ratio of no less than 8.00% and a Total Risk Based Capital to Risk Weighted Assets ratio of no less than 12.00%. If the Bank did not meet these guidelines, the Bank would have to make a capital distribution request to the OTS (now OCC) prior to the payment of preferred stock dividends or interest payments to HopFed Capital Trust 1. In October 2012, the OCC terminated the Bank’s MOU. In November 2012, the Federal Reserve terminated the Corporation’s MOU.

66

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(Table Amounts in Thousands, Except Percentage)

(16) Regulatory Matters (Continued)

The Company’s and the Bank’s actual capital amounts and ratios as of December 31, 2012, and December 31, 2011, are presented below:

																Required to be Categorized as Well Capitalized Under
	Company Actual					Bank Actual					Required for Capital Adequacy  Purposes					Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2012
Tangible capital to adjusted total assets	$	104,984		10.9	%	$	102,375		10.6	%	$	14,463		1.50	%		N/A		N/A
Core capital to adjusted total assets	$	104,984		10.9	%	$	102,375		10.6	%	$	38,569		4.00	%	$	48,202		5.00	%
Total capital to risk weighted assets	$	112,204		19.4	%	$	109,602		19.1	%	$	45,981		8.00	%	$	57,458		10.00	%
Tier 1 capital to risk weighted assets	$	104,984		18.2	%	$	102,375		17.8	%		N/A		N/A		$	37,548		6.00	%
As of December 31, 2011
Tangible capital to adjusted total assets	$	120,908		11.7	%	$	103,173		10.2	%	$	15,205		1.50	%		N/A		N/A
Core capital to adjusted total assets	$	120,908		11.7	%	$	103,173		10.2	%	$	40,545		4.00	%	$	50,682		5.00	%
Total capital to risk weighted assets	$	128,089		20.3	%	$	110,355		17.6	%	$	50,064		8.00	%	$	62,580		10.00	%
Tier 1 capital to risk weighted assets	$	120,908		19.1	%	$	103,172		16.5	%		N/A		N/A		$	37,548		6.00	%

67

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(17) Stockholders’ Equity:

The Company’s sources of income and funds for dividends to its stockholders are earnings on its investments and dividends from the Bank. The Bank’s primary regulator, the OCC, has regulations that impose certain restrictions on payment of dividends to the Corporation. Current regulations of the OCC allow the Bank (based upon its current capital level and supervisory status assigned by the OCC) to pay a dividend as long as the Bank subsidiary maintains an appropriate Tier 1 Capital ratio. Given the prospects for the approval of Basel III, the Company anticipates that in practice it will need to maintain a Tier 1 Capital ratio of 8.50% at its bank subsidiary to continue to pay dividends to common shareholders.

Federal Reserve regulations also place restrictions after the conversion on the Company with respect to repurchases of its common stock. With prior notice to the Federal Reserve, the Company is allowed to repurchase its outstanding shares. In August 2006, under the supervision of the OTS, the Company announced that it replaced a previously announced stock buyback plan with a new plan to purchase up to 125,000 shares of common stock over the next two years. Under the plan that expired September 30, 2008, the Company purchased 106,647 shares of common stock at an average price of $15.36 per share. The Company reissued 112,639 shares of Treasury Stock as part of the stock offering discussed below. At December 31, 2012, the Company holds 402,916 shares of treasury stock at an average price of $12.60 per share.

On December 12, 2008, HopFed Bancorp issued 18,400 shares of preferred stock to the United States Treasury (Treasury) for $18,400,000 pursuant to the Capital Purchase Program. The Company issued a Warrant to the Treasury as a condition to its participation in the Capital Purchase Program. The Warrant had an exercise price of $11.32 each and was immediately exercisable, giving the Treasury the right to purchase 243,816 shares of the Company’s Common Stock. The warrants expired ten years from the date of issuance. The Preferred Stock has no stated maturity and was non-voting, other than having class voting rights on certain matters, and pays cumulative dividends quarterly at a rate of 5% per year for the first five years and 9% thereafter. As a result of a 2% stock dividend paid to shareholders of record at September 30, 2010, total warrants issued was adjusted to 248,692 and the warrant strike price was adjusted to $11.098. As a result of a 2% stock dividend paid to shareholders of record at October 3, 2011, total warrants issued was adjusted to 253,667 and the warrant strike price was adjusted to $10.88.

On December 19, 2012, HopFed Bancorp repurchased the 18,400 shares of Preferred Stock previously sold to the Treasury at par plus accrued dividends. The repurchase was accomplished with the assistance of a $6.0 million dividend paid to the Company from its Bank subsidiary.

68

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(17) Stockholders’ Equity: (Continued)

In June and July of 2010, the Company sold a total of 3,583,334 shares of common stock in a public offering with net proceeds of $30.4 million. In June 2010, the Company invested $10.0 million into the Bank.

On September 16, 2010, and September 21, 2011, respectively, the Company declared a 2% stock dividend payable to shareholders of record on September 30, 2010 and October 3, 2011. The stock dividend was paid on October 18, 2010, and October 18, 2011, resulting in the issuance of 143,458 shares of common stock in October of 2010 and 146,485 shares of common stock in October 2011. As discussed earlier, both the price and amount of all outstanding options and common stock warrants were adjusted accordingly.

Based on the binomial method, the common stock warrants have been assigned a value of $2.28 per warrant, or $555,900. As a result, the value of the warrants has been recorded as a discount on the preferred stock and will be accreted as a reduction in net income available for common shareholders over the next five years at $111,180 per year. In 2012, the Company accelerated the last year of our warrant accretion, recognizing $222,360 of accretion, due to the repurchase of all preferred stock from the Treasury and our stated plans to attempt to repurchase the warrant. For the purposes of these calculations, the fair value of the common stock warrants was estimated using the following assumptions:

•    Risk free rate		2.60	%
•    Expected life of warrants		10 years
•    Expected dividend yield		3.50	%
•    Expected volatility		26.5	%
•    Weighted average fair value	$	2.28

The Company’s computation of expected volatility is based on the weekly historical volatility. The risk free rate was the approximate rate of the ten year treasury at the end of November 2008.

By participating in the Capital Purchase Program, the Company agreed to not increase its dividend paid to common shareholders for a period of three years without prior approval of the United States Treasury. If the Company failed to make all dividend payments due to preferred shareholders, the Company was prohibited from paying any dividend to common shareholders. In addition, the United States Treasury placed certain restrictions on the amount and type of compensation that can be paid to certain senior level executives of the Company. The Company has paid all interest payments due on HopFed Capital Trust 1. If interest payments to HopFed Capital Trust 1 are not made in a timely manner, the Company is prohibited from making cash dividend payments to its common shareholders.

69

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(18) Earnings Per Share:

Earnings per share of common stock are based on the weighted average number of basic shares and dilutive shares outstanding during the year. Common stock warrants outstanding are not included in the dilutive earnings per share computations because they would be anti-dilutive. Earnings per share numbers in 2010 were adjusted to reflect a 2% stock dividend paid in 2010 and 2011.

The following is a reconciliation of weighted average common shares for the basic and dilutive earnings per share computations:

	Years Ended December 31,
	2012		2011		2010
Basic earnings per share:
Weighted average common shares		7,486,445		7,460,294		5,620,093
Adjustment for stock dividend		—		—		112,402
Weighted average common shares		7,486,445		7,460,294		5,732,495
Dilutive effect of stock options		—		—		—
Adjustment for stock dividend		—		—		—
Weighted average common and incremental shares		7,486,445		7,460,294		5,732,495

(19) Variable Interest Entities

Under ASC 810, the Company is deemed to be the primary beneficiary and required to consolidate a variable interest entity (VIE) if it has a variable interest in the VIE that provides it with a controlling financial interest. For such purposes, the determination of whether a controlling financial interest exists is based on whether a single party has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. ASC 810 requires continual reconsideration of conclusions reached regarding which interest holder is a VIE’s primary beneficiary and disclosures surrounding those VIE’s which have not been consolidated. The consolidation methodology provided in this footnote as of December 31, 2012 and 2011 has been prepared in accordance with ASC 810. At December 31, 2012, the Company did not have any consolidated variable interest entities to disclose but did have a commitment to a low income housing partnership and issued trust preferred securities.

The Company has made a $1.5 million commitment as a limited partner to the Housing Equity Fund of Kentucky II, L.L.C. Furthermore, the Company has committed $480,000 as a limited partner to a low income housing project in Bowling Green, Kentucky named Fort Webb, LLLP.

70

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(Table Amounts in Thousands)

(20) Condensed Parent Company Only Financial Statements:

The following condensed balance sheets as of December 31, 2012, and December 31, 2011 and condensed statements of income and cash flows for the years ended December 31, 2012, 2011 and 2010 of the parent company only should be read in conjunction with the consolidated financial statements and the notes thereto.

Condensed Balance Sheets:

	2012			2011
Assets:
Cash and due from banks	$	2,863			17,602
Investment in subsidiary		113,131			111,912
Prepaid expenses and other assets		707			841
Total assets	$	116,701			130,355
Liabilities and equity
Liabilities
Unrealized loss on derivative	$	1,126			1,297
Dividends payable - common		180			176
Interest payable		86			89
Subordinated debentures		10,310			10,310
Total liabilities		11,702			11,872
Equity:
Preferred stock		—			—
Common stock		79			79
Common stock warrants		556			556
Additional paid-in capital		76,288			75,967
Retained earnings		41,829			39,591
Treasury stock - preferred stock Treasury stock- common stock		(18,400 (5,076	)  )		—   (5,076	)
Accumulated other comprehensive income		9,723			7,366
Total equity		104,999			118,483
Total liabilities and equity	$	116,701			130,355

71

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(Table Amounts in Thousands)

(20) Condensed Parent Company Only Financial Statements: (Continued)

Condensed Statements of Income:

	2012			2011			2010
Interest and dividend income:
Dividend income	$	6,000			—			750
Income on agency securities		56			—			—
Total interest and dividend income		6,056			—			750
Interest expense		745			742			739
Non-interest expenses		584			423			448
Total expenses		1,329			1,165			1,187
Income (loss) before income taxes and equity in undistributed earnings of subsidiary		4,727			(1,165	)		(437	)
Income tax benefits		(367	)		(316	)		(342	)
Income (loss) before equity in undistributed earnings of subsidiary		5,094			(849	)		(95	)
Equity in undistributed earnings of subsidiary		(1,025	)		3,769			6,611
Net income		4,069			2,920			6,516
Preferred stock dividend and warrant accretion		(1,229	)		(1,031	)		(1,031	)
Income available to common shareholders	$	2,840			1,889			5,485

72

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(Table Amounts in Thousands)

(20) Condensed Parent Company Only Financial Statements: (Continued)

Condensed Statement of Cash Flows:

	2012			2011			2010
Cash flows from operating activities
Net income	$	4,069			2,920			6,516
Adjustments to reconcile net income to net cash (used in) provided by operating activities
Equity in undistributed earnings of subsidiary		1,025			(3,769	)		(6,611	)
Amortization of restricted stock		99			118			134
Increase (decrease) in:
Current income taxes payable		74			—			358
Accrued expenses		3			438			18
Net cash (used in) provided by operating activities:		5,270			(293	)		415
Cash flows for investing activities:
Investment in subsidiary		—			—			(10,000	)
Net cash used in investing activities		—			—			(10,000	)
Cash flows from financing activities:
Proceeds from sale of treasury stock		—			—			1,419
Proceeds from sale of common stock		—			—			28,952
Purchase of preferred stock - treasury		(18,400	)		—			—
Dividends paid on preferred stock		(1,007	)		(920	)		(920	)
Dividends paid on common stock		(602	)		(1,909	)		(2,272	)
Net cash (used in) provided by financing activities		(20,009	)		(2,829	)		27,179
Net increase (decrease) in cash		(14,739	)		(3,122	)		17,594
Cash and due from banks at beginning of year		17,602			20,724			3,130
Cash and due from banks at end of year	$	2,863			17,602			20,724

73

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(Table Amounts in Thousands)

(21) Investments in Affiliated Companies (Unaudited):

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

Summary Balance Sheets

	December. 31, 2012		December. 31, 2011
Asset – investment in subordinated debentures issued by HopFed Bancorp, Inc.	$	10,310		10,310
Liabilities	$	—		—
Stockholders’ equity:
Trust preferred securities		10,000		10,000
Common stock (100% owned by HopFed Bancorp, Inc.)		310		310
Total stockholder’s equity		10,310		10,310
Total liabilities and stockholder’s equity	$	10,310		10,310

Summary Statements of Income

	Years Ended December. 31,
	2012		2011
Income – interest income from subordinated debentures issued by HopFed Bancorp, Inc.	$	372		367
Net income	$	372		367

Summary Statements of Stockholder’s Equity

	Trust Preferred Securities		Common Stock		Retained Earnings			Total Stockholder’s Equity
Beginning balances, January 1, 2012	$	10,000		310		—			10,310
Retained earnings:
Net income		—		—		372			372
Dividends:
Trust preferred securities		—		—		(361	)		(361	)
Common dividends paid to HopFed Bancorp, Inc.		—		—		(11	)		(11	)
Total retained earnings		—		—		—			—
Ending balances, December 31, 2012	$	10,000		310		—			10,310

74

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(Table Amounts in Thousands, Except Share Amounts)

(22) Quarterly Results of Operations: (Unaudited)

Summarized unaudited quarterly operating results for the year ended December 31, 2012:

	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
December 31, 2012:
Interest and dividend income	$	10,759		10,400		9,996		9,685
Interest expense		3,892		3,738		4,078		3,169
Net interest income		6,867		6,662		5,918		6,516
Provision for loan losses		869		400		506		500
Net interest income after provision for loan losses		5,998		6,262		5,412		6,016
Noninterest income		1,917		2,639		2,897		2,186
Noninterest expense		7,099		7,439		6,971		6,932
Income before income taxes		816		1,462		1,338		1,270
Income taxes		89		300		263		165
Net income	$	727		1,162		1,075		1,105
Net income available to common shareholders		470		903		819		648
Basic earnings per share	$	0.06		0.12		0.11		0.09
Diluted earnings per share	$	0.06		0.12		0.11		0.09
Weighted average shares outstanding:
Basic		7,484,475		7,485,283		7,487,283		7,487,726
Diluted		7,484,475		7,485,283		7,487,283		7,487,726

75

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(Table Amounts in Thousands, Except Share Amounts)

(22) Quarterly Results of Operations: (Unaudited)

Summarized unaudited quarterly operating results for the year ended December 31, 2011:

	First			Second		Third		Fourth
	Quarter			Quarter		Quarter		Quarter
December 31, 2011:
Interest and dividend income	$	11,787			11,766		11,450		11,237
Interest expense		4,989			4,763		4,592		4,071
Net interest income		6,798			7,003		6,858		7,166
Provision for loan losses		4,518			452		475		476
Net interest income after provision for loan losses		2,280			6,551		6,383		6,690
Noninterest income		2,365			2,118		3,281		2,429
Noninterest expense		7,449			7,436		7,127		6,681
Income (loss) before income taxes		(2,804	)		1,233		2,537		2,438
Income taxes expense (benefit)		(960	)		426		909		109
Net income (loss)	($	1,844	)		807		1,628		2,329
Net income (loss) available to (attributable to) common shareholders	($	2,098	)		550		1,368		2,069
Basic earnings (loss) per share	($	0.28	)		0.07		0.18		0.28
Diluted earnings (loss) per share	($	0.28	)		0.07		0.18		0.28
Weighted average shares outstanding:
Basic		7,465,077			7,467,438		7,481,448		7,484,420
Diluted		7,465,077			7,467,438		7,481,448		7,484,420

76

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(Table Amounts in Thousands)

(23) Comprehensive Income:

FASB ASC 220, Comprehensive Income, established standards for reporting comprehensive income. Comprehensive income includes net income and other comprehensive net income which is defined as non-owner related transactions in equity. The following table sets forth the amounts of other comprehensive income included in stockholders’ equity along with the related tax effect for the years ended December 31, 2012, 2011 and 2010.

	Pre-Tax Amount			Tax Benefit (Expense)			Net of Tax Amount
December 31, 2012:
Unrealized holding gains on:
Available for sale securities	$	5,071			(1,723	)		3,348
Derivatives		171			(58	)		113
Reclassification adjustments for gains on:
Available for sale securities		(1,671	)		567			(1,104	)
	$	3,571			(1,214	)		2,357
December 31, 2011:
Unrealized holding gains on:
Available for sale securities	$	12,792			(4,349	)		8,443
Derivatives		(209	)		71			(138	)
Reclassification adjustments for gains on:
Available for sale securities		(2,897	)		985			(1,912	)
	$	9,686			(3,293	)		6,393
December 31, 2010:
Unrealized holding gains on:
Available for sale securities	$	653			(222	)		431
Derivatives		(444	)		151			(293	)
Reclassification adjustments for gains on:
Available for sale securities		(3,504	)		1,191			(2,313	)
	($	3,295	)		1,120			(2,175	)

77

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2012, 2011 and 2010

(24) Subsequent Events

As part of the Company’s participation in the Treasury’s Capital Purchase Program, we issued a Warrant to the Treasury on December 12, 2008. The Warrant allowed the holder to purchase 243,816 shares of the Company’s common stock at $11.32 per share. The Warrant was immediately exercisable and had a ten year maturity. The total number of shares and strike price of the Warrant were adjusted to 253,667 shares at $10.88 as a result of 2% stock dividends paid in 2010 and 2011. On January 16, 2013, the Company repurchased the Warrant from the Treasury for $256,257.

On February 12, 2013, the Company announced the acquisition of Sumner Bank & Trust (“Sumner”) in Gallatin, Tennessee for approximately $14.3 million in cash, or $10.04 per share. At December 31, 2012, Sumner had assets of $184.0 million, deposits of $157.6 million and loans outstanding of $121.6 million. Sumner has two full service banking locations in Gallatin, Tennessee and one full service location in Hendersonville, Tennessee. Sumner has three loan production offices in the Tennessee communities of Franklin and Lebanon in middle Tennessee and Jackson in west Tennessee. The acquisition of Sumner will provide us with greater access to the Nashville, Tennessee market as well as an entry into the west Tennessee market. The Sumner acquisition is subject to approval by shareholders of Sumner Bank and Trust and regulatory approval and is expected to close in the third quarter of 2013.

78

EX-21.1

EXHIBIT 21.1

SUBSIDIARIES OF THE REGISTRANT

	Percentage Owned			Jurisdiction of Incorporation
Heritage Bank		100	%	United States
HopFed Capital Trust I		100	%	Delaware

SUBSIDIARIES OF HERITAGE BANK

	Percentage Owned			Jurisdiction of Incorporation
Fall & Fall Insurance, Inc.		100	%	Kentucky
Fort Webb LLC		100	%	Kentucky

EX-23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in registration statements No. 333-117956 and 333-79391 on Form S-8 and No. 333-156652 on Form S-3 of HopFed Bancorp, Inc. and subsidiaries of our report dated March 29, 2013, relating to the consolidated balance sheets of HopFed Bancorp, Inc., and subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2012, which report appears in the December 31, 2012 Annual Report on Form 10-K of HopFed Bancorp, Inc and subsidiaries.

(signed) Rayburn, Bates & Fitzgerald, P.C.

Brentwood, Tennessee

Date: March 29, 2013

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, John E. Peck, certify that:

(1) I have reviewed this annual report on Form 10-K of HopFed Bancorp, Inc.;

(2) Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3) Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined by Exchange Act Rules 13a-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation: and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrants internal control over financial reporting; and

(5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 29, 2013	(signed) John. E. Peck
	John E. Peck, Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Billy C. Duvall, certify that:

(1) I have reviewed this annual report on Form 10-K of HopFed Bancorp, Inc.;

(2) Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3) Based on my knowledge, the financial statement, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4) The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined by Exchange Act Rules 13a-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation: and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an Annual Report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and

(5) The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonable likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 29, 2013	(signed) Billy C. Duvall
	Billy C. Duvall, Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C SECTION 1350, AS ADOPTED

PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of HopFed Bancorp, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John E. Peck, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1) The Report fully complies with the requirements of section 13(a) or 15 (d) of the Securities Exchange Act of 1934; and

2) The information contained in the Report fairly presents, in all material respects, the financial condition and the results of operations of the Company.

Date: March 29, 2013

(signed) John E. Peck

John E. Peck, Chief Executive Officer

A signed original of this written statement required by Section 906 has been provided to HopFed Bancorp, Inc. and will be retained by HopFed Bancorp, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. The information furnished herein shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C SECTION 1350, AS ADOPTED

PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of HopFed Bancorp, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Billy C. Duvall, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1) The Report fully complies with the requirements of section 13(a) or 15 (d) of the Securities Exchange Act of 1934; and

2) The information contained in the Report fairly presents, in all material respects, the financial condition and the results of operations of the Company.

Date: March 29, 2013

(signed) Billy C. Duvall

Billy C. Duvall, Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to HopFed Bancorp, Inc. and will be retained by HopFed Bancorp, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. The information furnished herein shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933.

EX-99.1

Exhibit 99.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT

TO SECTION 111(b) (4) OF THE EMERGENCY ECONOMIC STABILIZATION ACT OF 2008

I, John E. Peck, President and Chief Executive Officer of HopFed Bancorp, Inc. (the “Company”), certify, based on my knowledge, that:

(i) the Executive Compensation Committee of the Board of Directors of the Company (the “compensation committee”) has discussed, reviewed, and evaluated with senior risk officers at least every six months during any part of the most recently completed fiscal year that was a TARP period, senior executive officer (“SEO”) compensation plans and the employee compensation plans and the risks these plans pose to the Company;

(ii) the compensation committee has identified and limited during any part of the most recently completed fiscal year that was a TARP period any features of the SEO compensation plans that could lead SEOs to take unnecessary and excessive risks that could threaten the value of the Company, and has identified any features of the employee compensation plans that pose risks to the Company and has limited during any part of the most recently completed fiscal year that was a TARP period those features to ensure that the Company is not unnecessarily exposed to risks;

(iii) the compensation committee has reviewed, at least every six months during any part of the most recently completed fiscal year that was a TARP period, the terms of each employee compensation plan and identified any features of the plan that could encourage the manipulation of reported earnings of the Company to enhance the compensation of an employee, and has limited any such features;

(iv) the compensation committee will certify to the reviews of the SEO compensation plans and employee compensation plans required under (i) and (iii) above;

(v) the compensation committee will provide a narrative description of how it limited during any part of the most recently completed fiscal year that was a TARP period the features in:

(A) SEO compensation plans that could lead SEOs to take unnecessary and excessive risks that could threaten the value of the Company;

(B) Employee compensation plans that unnecessarily expose the Company to risks; and

(C) Employee compensation plans that could encourage the manipulation of reported earnings of the Company to enhance the compensation of an employee;

(vi) the Company has required that bonus payments to SEOs or any of the next twenty most highly compensated employees, as defined in the regulations and guidance established under section 111 of EESA (bonus payments), be subject to a recovery or “clawback” provision during any part of the most recently completed fiscal year that was a TARP period if the bonus payments were based on materially inaccurate financial statements or any other materially inaccurate performance metric criteria;

(vii) the Company has prohibited any golden parachute payment, as defined in the regulations and guidance established under section 111 of EESA, to a SEO or any of the next five most highly compensated employees during any part of the most recently completed fiscal year that was a TARP period;

(viii) the Company has limited bonus payments to its applicable employees in accordance with section 111 of EESA and the regulations and guidance established there-under during any part of the most recently completed fiscal year that was a TARP period;

(ix) the Company and its employees have complied with the excessive or luxury expenditures policy, as defined in the regulations and guidance established under section 111 of EESA, during any part of the most recently completed fiscal year that was a TARP period; and any expenses that, pursuant to this policy, required approval of the Board of Directors, a committee of the Board of Directors, an SEO, or an executive officer with a similar level of responsibility were properly approved;

(x) the Company will permit a non-binding shareholder resolution in compliance with any applicable federal securities rules and regulations on the disclosures provided under the federal securities laws related to SEO compensation paid or accrued during any part of the most recently completed fiscal year that was a TARP period;

(xi) the Company will disclose the amount, nature, and justification for the offering, during any part of the most recently completed fiscal year that was a TARP period, of any perquisites, as defined in the regulations and guidance established under section 111 of EESA, whose total value exceeds $25,000 for any employee who is subject to the bonus payment limitations identified in paragraph (viii);

(xii) the Company will disclose whether the Company, the Board of Directors of the Company, or the compensation committee of the Company has engaged during any part of the most recently completed fiscal year that was a TARP period, a compensation consultant; and the services the compensation consultant or any affiliate of the compensation consultant provided during this period;

(xiii) the Company has prohibited the payment of any gross-ups, as defined in the regulations and guidance established under section 111 of EESA, to the SEOs and the next twenty most highly compensated employees during any part of the most recently completed fiscal year that was a TARP period;

(xiv) the Company has substantially complied with all other requirements related to employee compensation that are provided in the agreement between the Company and Treasury, including any amendments, during any part of the most recently completed fiscal year that was a TARP period;

(xv) Effective December 19, 2012, the Company is no longer a TARP recipient and is not required to submit to Treasury a complete and accurate list of the SEOs and the twenty next most highly compensated employees for the current fiscal year after December 19, 2012; and

(xvi) I understand that a knowing and willful false or fraudulent statement made in connection with this certification may be punished by fine, imprisonment, or both.

Date: March 29, 2013	/s/ JOHN E. PECK
	John E. Peck
	President and Chief Executive Officer

EX-99.2

Exhibit 99.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT

TO SECTION 111(b) (4) OF THE EMERGENCY ECONOMIC STABILIZATION ACT OF 2008

I, Billy C. Duvall, Treasurer and Chief Financial Officer of HopFed Bancorp, Inc. (the “Company”), certify, based on my knowledge, that:

(i) the Executive Compensation Committee of the Board of Directors of the Company (the “compensation committee”) has discussed, reviewed, and evaluated with senior risk officers at least every six months during any part of the most recently completed fiscal year that was a TARP period, senior executive officer (“SEO”) compensation plans and the employee compensation plans and the risks these plans pose to the Company;

(ii) the compensation committee has identified and limited during any part of the most recently completed fiscal year that was a TARP period any features of the SEO compensation plans that could lead SEOs to take unnecessary and excessive risks that could threaten the value of the Company, and has identified any features of the employee compensation plans that pose risks to the Company and has limited during any part of the most recently completed fiscal year that was a TARP period those features to ensure that the Company is not unnecessarily exposed to risks;

(iii) the compensation committee has reviewed, at least every six months during any part of the most recently completed fiscal year that was a TARP period, the terms of each employee compensation plan and identified any features of the plan that could encourage the manipulation of reported earnings of the Company to enhance the compensation of an employee, and has limited any such features;

(iv) the compensation committee will certify to the reviews of the SEO compensation plans and employee compensation plans required under (i) and (iii) above;

(v) the compensation committee will provide a narrative description of how it limited during any part of the most recently completed fiscal year that was a TARP period the features in:

(A) SEO compensation plans that could lead SEOs to take unnecessary and excessive risks that could threaten the value of the Company;

(B) Employee compensation plans that unnecessarily expose the Company to risks; and

(C) Employee compensation plans that could encourage the manipulation of reported earnings of the Company to enhance the compensation of an employee;

(vi) the Company has required that bonus payments to SEOs or any of the next twenty most highly compensated employees, as defined in the regulations and guidance established under section 111 of EESA (bonus payments), be subject to a recovery or “clawback” provision during any part of the most recently completed fiscal year that was a TARP period if the bonus payments were based on materially inaccurate financial statements or any other materially inaccurate performance metric criteria;

(vii) the Company has prohibited any golden parachute payment, as defined in the regulations and guidance established under section 111 of EESA, to a SEO or any of the next five most highly compensated employees during any part of the most recently completed fiscal year that was a TARP period;

(viii) the Company has limited bonus payments to its applicable employees in accordance with section 111 of EESA and the regulations and guidance established there-under during any part of the most recently completed fiscal year that was a TARP period;

(ix) the Company and its employees have complied with the excessive or luxury expenditures policy, as defined in the regulations and guidance established under section 111 of EESA, during any part of the most recently completed fiscal year that was a TARP period; and any expenses that, pursuant to this policy, required approval of the Board of Directors, a committee of the Board of Directors, an SEO, or an executive officer with a similar level of responsibility were properly approved;

(x) the Company will permit a non-binding shareholder resolution in compliance with any applicable federal securities rules and regulations on the disclosures provided under the federal securities laws related to SEO compensation paid or accrued during any part of the most recently completed fiscal year that was a TARP period;

(xi) the Company will disclose the amount, nature, and justification for the offering, during any part of the most recently completed fiscal year that was a TARP period, of any perquisites, as defined in the regulations and guidance established under section 111 of EESA, whose total value exceeds $25,000 for any employee who is subject to the bonus payment limitations identified in paragraph (viii);

(xii) the Company will disclose whether the Company, the Board of Directors of the Company, or the compensation committee of the Company has engaged during any part of the most recently completed fiscal year that was a TARP period, a compensation consultant; and the services the compensation consultant or any affiliate of the compensation consultant provided during this period;

(xiii) the Company has prohibited the payment of any gross-ups, as defined in the regulations and guidance established under section 111 of EESA, to the SEOs and the next twenty most highly compensated employees during any part of the most recently completed fiscal year that was a TARP period;

(xiv) the Company has substantially complied with all other requirements related to employee compensation that are provided in the agreement between the Company and Treasury, including any amendments, during any part of the most recently completed fiscal year that was a TARP period;

(xv) Effective December 19, 2012, the Company is no longer a TARP recipient and is not required to submit to Treasury a complete and accurate list of the SEOs and the twenty next most highly compensated employees for the current fiscal year after December 19, 2012; and

(xvi) I understand that a knowing and willful false or fraudulent statement made in connection with this certification may be punished by fine, imprisonment, or both.

Date: March 29, 2013	/s/ BILLY C. DUVALL
	Billy C. Duvall
	Treasurer and Chief Financial Officer

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Intangible Assets: (Tables)

12 Months Ended

Dec. 31, 2012

Intangible Assets: [Abstract]

Amount of other intangible assets and the changes in the carrying amounts of other intangible assets

	Core Deposits
	Intangible
Balance, December 31, 2009	$	1,168
Amortization		(358	)
Balance December 31, 2010		810
Amortization		(291	)
Balance December 31, 2011		519
Amortization		(227	)
Balance, December 31, 2012	$	292

Estimated amortization expense for intangible assets

	Core
	Deposit Intangible
2013	$	162
2014		97
2015		33
Total	$	292

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Condensed Parent Company Only Financial Statements: (Details 1) (USD $)	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Interest and dividend income:
Total interest and dividend income	$ 9,685,000	$ 9,996,000	$ 10,400,000	$ 10,759,000	$ 11,237,000	$ 11,450,000	$ 11,766,000	$ 11,787,000	$ 40,840,000	$ 46,240,000	$ 52,417,000
Interest expense	3,169,000	4,078,000	3,738,000	3,892,000	4,071,000	4,592,000	4,763,000	4,989,000	14,877,000	18,415,000	22,246,000
Non-interest expenses	6,932,000	6,971,000	7,439,000	7,099,000	6,681,000	7,127,000	7,436,000	7,449,000	28,441,000	28,693,000	26,178,000
Income (Loss) before income tax benefit and equity in undistributed earnings of subsidiary	1,270,000	1,338,000	1,462,000	816,000	2,438,000	2,537,000	1,233,000	(2,804,000)	4,886,000	3,404,000	9,129,000
Income tax benefits	165,000	263,000	300,000	89,000	109,000	909,000	426,000	(960,000)	817,000	484,000	2,613,000
Net income	1,105,000	1,075,000	1,162,000	727,000	2,329,000	1,628,000	807,000	(1,844,000)	4,069,000	2,920,000	6,516,000
Preferred stock dividend and warrant accretion									1,229,246	1,031,180	1,031,180
Net income available for common shareholders	648,000	819,000	903,000	470,000	2,069,000	1,368,000	550,000	(2,098,000)	2,840,000	1,889,000	5,485,000
HopFed [Member]
Interest and dividend income:
Dividend income									6,000,000		750,000
Income on agency securities									56,000
Total interest and dividend income									6,056,000		750,000
Interest expense									745,000	742,000	739,000
Non-interest expenses									584,000	423,000	448,000
Total expenses									1,329,000	1,165,000	1,187,000
Income (Loss) before income tax benefit and equity in undistributed earnings of subsidiary									4,727,000	(1,165,000)	(437,000)
Income tax benefits									(367,000)	(316,000)	(342,000)
Income (Loss) before equity in undistributed earnings of subsidiary									5,094,000	(849,000)	(95,000)
Equity in undistributed earnings of subsidiary									(1,025,000)	3,769,000	6,611,000
Net income									4,069,000	2,920,000	6,516,000
Preferred stock dividend and warrant accretion									(1,229,000)	(1,031,000)	(1,031,000)
Net income available for common shareholders									$ 2,840,000	$ 1,889,000	$ 5,485,000

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Comprehensive Income: (Tables)

12 Months Ended

Dec. 31, 2012

Comprehensive Income: [Abstract]

Other comprehensive income included in stockholders' equity

	Pre-Tax Amount			Tax Benefit (Expense)			Net of Tax Amount
December 31, 2012:
Unrealized holding gains on:
Available for sale securities	$	5,071			(1,723	)		3,348
Derivatives		171			(58	)		113
Reclassification adjustments for gains on:
Available for sale securities		(1,671	)		567			(1,104	)
	$	3,571			(1,214	)		2,357
December 31, 2011:
Unrealized holding gains on:
Available for sale securities	$	12,792			(4,349	)		8,443
Derivatives		(209	)		71			(138	)
Reclassification adjustments for gains on:
Available for sale securities		(2,897	)		985			(1,912	)
	$	9,686			(3,293	)		6,393
December 31, 2010:
Unrealized holding gains on:
Available for sale securities	$	653			(222	)		431
Derivatives		(444	)		151			(293	)
Reclassification adjustments for gains on:
Available for sale securities		(3,504	)		1,191			(2,313	)
	($	3,295	)		1,120			(2,175	)

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Regulatory Matters: (Tables)

12 Months Ended

Dec. 31, 2012

Regulatory Matters: [Abstract]

The Company's and the Bank's actual capital amounts and ratios

																Required to be Categorized as Well Capitalized Under
	Company Actual					Bank Actual					Required for Capital Adequacy  Purposes					Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2012
Tangible capital to adjusted total assets	$	104,984		10.9	%	$	102,375		10.6	%	$	14,463		1.50	%		N/A		N/A
Core capital to adjusted total assets	$	104,984		10.9	%	$	102,375		10.6	%	$	38,569		4.00	%	$	48,202		5.00	%
Total capital to risk weighted assets	$	112,204		19.4	%	$	109,602		19.1	%	$	45,981		8.00	%	$	57,458		10.00	%
Tier 1 capital to risk weighted assets	$	104,984		18.2	%	$	102,375		17.8	%		N/A		N/A		$	37,548		6.00	%
As of December 31, 2011
Tangible capital to adjusted total assets	$	120,908		11.7	%	$	103,173		10.2	%	$	15,205		1.50	%		N/A		N/A
Core capital to adjusted total assets	$	120,908		11.7	%	$	103,173		10.2	%	$	40,545		4.00	%	$	50,682		5.00	%
Total capital to risk weighted assets	$	128,089		20.3	%	$	110,355		17.6	%	$	50,064		8.00	%	$	62,580		10.00	%
Tier 1 capital to risk weighted assets	$	120,908		19.1	%	$	103,172		16.5	%		N/A		N/A		$	37,548		6.00	%

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Loans Receivable, Net: (Details Textual) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Loan Receivable Net (Textual) [Abstract]
Estimated loans classified as substandard	$ 535,487,000	$ 567,371,000
Loan Receivable Net (Additional Textual) [Abstract]
Mortgage loans service for benefit of others	40,300,000	59,200,000	56,300,000
Minimum amount of loans to conduct annual reviews	1,000,000
Loans past due period for classify to risk grade	60 days
Loans past due period for classify to substandard grade	12 months
Average recorded investment in impaired loans	79,322,000	59,128,000	43,200,000
Interest income recognized on impaired loans	755,000	785,000
Non-accrual Loans	7,663,000	6,133,000
Interest income foregone on non accrual loans	271,000	246,000	243,000
Loans past due more than three months and still accruing interest	0	0
Loans to officers and directors	8,846,000	10,917,000
Funds undisbursed to officers and directors	1,400,000
Owner-occupied properties [Member]
Loan Receivable Net (Textual) [Abstract]
Secured non-residential real estate loans	70,500,000
Non-owner occupied properties [Member]
Loan Receivable Net (Textual) [Abstract]
Secured non-residential real estate loans	52,100,000
Agricultural production [Member]
Loan Receivable Net (Textual) [Abstract]
Secured non-residential real estate loans	46,800,000
Land [Member]
Loan Receivable Net (Textual) [Abstract]
Estimated loans classified as substandard	45,906,000	52,338,000
Non-residential real estate [Member]
Loan Receivable Net (Textual) [Abstract]
Estimated loans classified as substandard	169,436,000	183,485,000
Loan Receivable Net (Additional Textual) [Abstract]
Interest income recognized on impaired loans	323,000	360,000
Non-accrual Loans	1,134,000	2,231,000
Substandard [Member]
Loan Receivable Net (Textual) [Abstract]
Estimated loans classified as substandard	66,604,000	47,534,000
Substandard [Member] | Land [Member]
Loan Receivable Net (Textual) [Abstract]
Estimated loans classified as substandard	23,849,000	9,055,000
Secured loans classified as substandard	23,800,000
Percentage of secured loans classified as substandard	52.00%
Substandard [Member] | Non-residential real estate [Member]
Loan Receivable Net (Textual) [Abstract]
Estimated loans classified as substandard	21,094,000	16,101,000
Percentage of secured loans classified as substandard	12.40%
Substandard [Member] | Commercial real estate [Member]
Loan Receivable Net (Textual) [Abstract]
Secured loans classified as substandard	21,100,000
Freddie Mac [Member]
Loan Receivable Net (Textual) [Abstract]
Mortgage loans service for benefit of Freddie Mac	$ 26,300,000
Maximum [Member]
Loan Receivable Net (Textual) [Abstract]
Unemployment in the Company's market area	18.00%
Minimum [Member]
Loan Receivable Net (Textual) [Abstract]
Unemployment in the Company's market area	8.00%

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Summary of Significant Accounting Policies: (Details)	12 Months Ended
	Dec. 31, 2012
Land Improvements [Member] | Maximum [Member]
Schedule of useful life of property, plant and equipment
Useful lives of property, plant and equipment	15 years
Land Improvements [Member] | Minimum [Member]
Schedule of useful life of property, plant and equipment
Useful lives of property, plant and equipment	5 years
Buildings [Member]
Schedule of useful life of property, plant and equipment
Useful lives of property, plant and equipment	40 years
Furniture and equipment [Member] | Maximum [Member]
Schedule of useful life of property, plant and equipment
Useful lives of property, plant and equipment	15 years
Furniture and equipment [Member] | Minimum [Member]
Schedule of useful life of property, plant and equipment
Useful lives of property, plant and equipment	5 years

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Deposits: (Details Textual) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Deposits (Textual) [Abstract]
Brokered and CDARS Deposits	$ 759,865,000	$ 800,095,000
Deposits (Additional Textual) [Abstract]
Other time deposits	222,000,000	272,500,000
Deposits of Directors, Members of Senior Management and their Affiliates	2,900,000
Average daily clearings	6,600,000
Deposit with overdraft status	469,000	358,000
Brokered Deposits [Member]
Deposits (Textual) [Abstract]
Brokered and CDARS Deposits	44,500,000	56,300,000
CDARS [Member]
Deposits (Textual) [Abstract]
Brokered and CDARS Deposits	$ 2,100,000	$ 2,100,000

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Regulatory Matters: (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
The Company's and the Bank's actual capital amounts and ratios
Tier 1 capital to risk weighted assets, Actual Ratio	8.50%
Tangible capital to adjusted total assets, Required for Capital Adequacy Purposes, Amount	$ 14,463	$ 15,205
Core capital to adjusted total assets, Required for Capital Adequacy Purposes, Amount	38,569	40,545
Total capital to risk weighted assets, Required for Capital Adequacy Purposes, Amount	45,981	50,064
Tangible capital to adjusted total assets, Required for Capital Adequacy Purposes, Ratio	1.50%	1.50%
Core capital to adjusted total assets, Required for Capital Adequacy Purposes, Ratio	4.00%	4.00%
Total capital to risk weighted assets, Required for Capital Adequacy Purposes, Ratio	8.00%	8.00%
Core capital to adjusted total assets, Required to be Categorized as Well Capitalized Under Prompt Corrective Action Provisions, Amount	48,202	50,682
Total capital to risk weighted assets, Required to be Categorized as Well Capitalized Under Prompt Corrective Action Provisions, Amount	57,458	62,580
Tier 1 capital to risk weighted assets, Required to be Categorized as Well Capitalized Under Prompt Corrective Action Provisions, Amount	37,548	37,548
Core capital to adjusted total assets, Required to be Categorized as Well Capitalized Under Prompt Corrective Action Provisions, Ratio	5.00%	5.00%
Total capital to risk weighted assets, Required to be Categorized as Well Capitalized Under Prompt Corrective Action Provisions, Ratio	10.00%	10.00%
Tier 1 capital to risk weighted assets, Required to be Categorized as Well Capitalized Under Prompt Corrective Action Provisions, Ratio	6.00%	6.00%
HopFed [Member]
The Company's and the Bank's actual capital amounts and ratios
Tangible capital to adjusted total assets, Actual Amount	104,984	120,908
Core capital to adjusted total assets, Actual Amount	104,984	120,908
Total capital to risk weighted assets, Actual Amount	112,204	128,089
Tier 1 capital to risk weighted assets, Actual Amount	104,984	120,908
Tangible capital to adjusted total assets, Actual Ratio	10.90%	11.70%
Core capital to adjusted total assets, Actual Ratio	10.90%	11.70%
Total capital to risk weighted assets, Actual Ratio	19.40%	20.30%
Tier 1 capital to risk weighted assets, Actual Ratio	18.20%	19.10%
Bank [Member]
The Company's and the Bank's actual capital amounts and ratios
Tangible capital to adjusted total assets, Actual Amount	102,375	103,173
Core capital to adjusted total assets, Actual Amount	102,375	103,173
Total capital to risk weighted assets, Actual Amount	109,602	110,355
Tier 1 capital to risk weighted assets, Actual Amount	$ 102,375	$ 103,172
Tangible capital to adjusted total assets, Actual Ratio	10.60%	10.20%
Core capital to adjusted total assets, Actual Ratio	10.60%	10.20%
Total capital to risk weighted assets, Actual Ratio	19.10%	17.60%
Tier 1 capital to risk weighted assets, Actual Ratio	17.80%	16.50%

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Real Estate and Other Assets Owned: (Tables)

12 Months Ended

Dec. 31, 2012

Real Estate and Other Assets Owned: [Abstract]

Company's balance in both real estate and other assets owned

	December 31,
	2012		2011
One-to-four family mortgages	$	258		480
Multi-family		—		905
Construction		130		465
Land		1,112		248
Non-residential real estate		44		160
Consumer assets owned by bank		4		9
Total other assets owned	$	1,548		2,267

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Subsequent Events

12 Months Ended

Dec. 31, 2012

Subsequent Events [Abstract]

Subsequent Events

(24) Subsequent Events

As part of the Company’s participation in the Treasury’s Capital Purchase Program, we issued a Warrant to the Treasury on December 12, 2008. The Warrant allowed the holder to purchase 243,816 shares of the Company’s common stock at $11.32 per share. The Warrant was immediately exercisable and had a ten year maturity. The total number of shares and strike price of the Warrant were adjusted to 253,667 shares at $10.88 as a result of 2% stock dividends paid in 2010 and 2011. On January 16, 2013, the Company repurchased the Warrant from the Treasury for $256,257.

On February 12, 2013, the Company announced the acquisition of Sumner Bank & Trust (“Sumner”) in Gallatin, Tennessee for approximately $14.3 million in cash, or $10.04 per share. At December 31, 2012, Sumner had assets of $184.0 million, deposits of $157.6 million and loans outstanding of $121.6 million. Sumner has two full service banking locations in Gallatin, Tennessee and one full service location in Hendersonville, Tennessee. Sumner has three loan production offices in the Tennessee communities of Franklin and Lebanon in middle Tennessee and Jackson in west Tennessee. The acquisition of Sumner will provide us with greater access to the Nashville, Tennessee market as well as an entry into the west Tennessee market. The Sumner acquisition is subject to approval by shareholders of Sumner Bank and Trust and regulatory approval and is expected to close in the third quarter of 2013.

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Advances from Federal Home Loan Bank: (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Summarized Federal Home Loan Bank advances as follows
Fixed-rate	$ 43,741	$ 63,319
Weighted Average Rate	4.09%	3.64%

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Quarterly Results of Operations: (Unaudited) (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Summarized unaudited quarterly operating results
Interest and dividend income	$ 9,685	$ 9,996	$ 10,400	$ 10,759	$ 11,237	$ 11,450	$ 11,766	$ 11,787	$ 40,840	$ 46,240	$ 52,417
Interest expense	3,169	4,078	3,738	3,892	4,071	4,592	4,763	4,989	14,877	18,415	22,246
Net interest income	6,516	5,918	6,662	6,867	7,166	6,858	7,003	6,798	25,963	27,825	30,171
Provision for loan losses	500	506	400	869	476	475	452	4,518	2,275	5,921	5,970
Net interest income after provision for loan losses	6,016	5,412	6,262	5,998	6,690	6,383	6,551	2,280	23,688	21,904	24,201
Noninterest income	2,186	2,897	2,639	1,917	2,429	3,281	2,118	2,365	9,639	10,193	11,106
Noninterest expense	6,932	6,971	7,439	7,099	6,681	7,127	7,436	7,449	28,441	28,693	26,178
Income before income taxes	1,270	1,338	1,462	816	2,438	2,537	1,233	(2,804)	4,886	3,404	9,129
Income tax expense (note 13)	165	263	300	89	109	909	426	(960)	817	484	2,613
Net income (loss)	1,105	1,075	1,162	727	2,329	1,628	807	(1,844)	4,069	2,920	6,516
Net income (loss) available to (attributable to) common shareholders	$ 648	$ 819	$ 903	$ 470	$ 2,069	$ 1,368	$ 550	$ (2,098)	$ 2,840	$ 1,889	$ 5,485
Basic earnings (loss) per share	$ 0.09	$ 0.11	$ 0.12	$ 0.06	$ 0.28	$ 0.18	$ 0.07	$ (0.28)	$ 0.38	$ 0.25	$ 0.96
Diluted earnings (loss) per share	$ 0.09	$ 0.11	$ 0.12	$ 0.06	$ 0.28	$ 0.18	$ 0.07	$ (0.28)	$ 0.38	$ 0.25	$ 0.96
Weighted average shares outstanding:
Basic	7,487,726	7,487,283	7,485,283	7,484,475	7,484,420	7,481,448	7,467,438	7,465,077	7,486,445	7,460,294	5,732,495	[1]
Diluted	7,487,726	7,487,283	7,485,283	7,484,475	7,484,420	7,481,448	7,467,438	7,465,077	7,486,445	7,460,294	5,732,495	[1]

[1] Weighted average shares outstanding (basic and diluted) for 2010 adjusted to reflected 2% stock dividend paid to shareholders of record on October 3, 2011.

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Intangible Assets: (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Intangible Assets
Intangible Assets, beginning balance	$ 519
Amortization	(227)	(291)	(358)
Intangible Assets, ending balance	292	519
Other Intangible Assets [Member]
Intangible Assets
Intangible Assets, beginning balance	519	810	1,168
Amortization	(227)	(291)	(358)
Intangible Assets, ending balance	$ 292	$ 519	$ 810

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Fair Value Measurement: (Details Textual) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012 Assets Liabilities	Dec. 31, 2011
Fair Value Measurement (Textual) [Abstract]
Related Allowance	$ 3,841	$ 4,080
Number of non-financial assets	0
Number of non-financial liabilities	0

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Summary of Significant Accounting Policies: (Details Textual) (USD $)	1 Months Ended		12 Months Ended
	Oct. 31, 2008	Jun. 30, 2006 Agreement	Dec. 31, 2012 Agreement Branches	Dec. 31, 2011	Dec. 31, 2010
Summary of Significant Accounting Policies (Additional Textual) [Abstract]
Maturity period of federal funds			3 months
Average prepayment speed period of securities to amortize premiums and accretes discount			3 months
Servicing portfolio of real estate loan			$ 26,300,000
Number of long term repurchase agreements with third parties		2	2
Number of branch offices involved in origination of loans and collections of deposits			18
Hedging gains or losses, fair value			0	0	0
Duration of interest rate swap agreement	7 years
Interest rate swap amount	10,000,000
Fixed rate of interest rate swap agreement to be paid	7.27%
Interest rate to be received under swap agreement	Three-month London Interbank Lending Rate (LIBOR) plus 3.10%		Three-month LIBOR plus 3.10% adjusted quarterly
Percentage above LIBOR	3.10%		3.10%
Cost of termination of cash flow hedge			$ 1,126,000
Maturity period of cash and cash equivalents			90 days
Accrued interest receivable maximum recovery period			90 days
Treasury note redemption period			10 years
Insurance contracts [Member]
Summary of Significant Accounting Policies (Textual) [Abstract]
Intangible assets useful lives			7 years
Core deposits [Member]
Summary of Significant Accounting Policies (Textual) [Abstract]
Intangible assets useful lives			9 years

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Earnings Per Share: (Details Textual)	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010
Earnings Per Share (Textual) [Abstract]
Percentage of common stock dividend	2.00%	2.00%

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Deposits: (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Scheduled maturities of other time deposits
2013	$ 220,182
2014	78,333
2015	42,661
2016	78,036
2017	17,846
2018 and thereafter	34
Total	$ 437,092	$ 519,988

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Fair Value Measurement: (Details 2) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Other Assets [Member]
Roll-forward of the consolidated condensed statement of financial condition items
Fair value, December 31,	$ 993	$ 1,277
Change in unrealized gains (losses) included in other comprehensive income for assets and liabilities still held at December 31,	496	(284)
Purchases, issuances and settlements, net
Transfers in and/or out of Level 3
Fair value, December 31,	1,489	993
Other Liabilities [Member]
Roll-forward of the consolidated condensed statement of financial condition items
Fair value, December 31,
Change in unrealized gains (losses) included in other comprehensive income for assets and liabilities still held at December 31,
Purchases, issuances and settlements, net
Transfers in and/or out of Level 3
Fair value, December 31,

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Advances from Federal Home Loan Bank: (Details Textual) (USD $)	12 Months Ended
	Dec. 31, 2012
Advances from Federal Home Loan Bank (Additional Textual) [Abstract]
Maturity year of borrowings with right to call at par	2017
Maturity year of investment with monthly principal payment	2019
Amortization period of principal balance	10 years
Percentage of prepayment rate	5.00%
Additional borrowing capacity	$ 46,200,000
Agreement of first mortgage loan and non-residential real estate loan	125.00%
BVA Compass Bank [Member]
Advances from Federal Home Loan Bank (Textual) [Abstract]
Approved line of credit	8,000,000
BVA Compass Bank and Cincinnati [Member] | Overnight line of credit [Member]
Advances from Federal Home Loan Bank (Textual) [Abstract]
Overnight lines of credit outstanding amount	0
FHLB [Member]
Advances from Federal Home Loan Bank (Textual) [Abstract]
Approved line of credit	$ 30,000,000

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Fair Value Measurement: (Details 3) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Quoted Prices In Active Markets for Identical Assets (Level 1) [Member]
Financial assets:
Cash and due from banks	$ 31,563	$ 44,389
Interest-earning deposits	5,613	4,371
Off-balance sheet liabilities:
Commitments to extend credit
Commercial letters of credit
Using Significant Other Observable Inputs (Level 2) [Member]
Financial assets:
Securities available for sale	354,856	382,789
Federal Home Loan Bank stock	4,428	4,428
Accrued interest receivable	5,398	6,183
Bank owned life insurance	9,323	9,135
Financial liabilities:
Deposits	756,426	811,415
Advances from borrowers for taxes and insurance	396	153
Advances from Federal Home Loan Bank	49,293	69,206
Repurchase agreements	44,779	44,969
Off-balance sheet liabilities:
Commitments to extend credit
Commercial letters of credit
Market value of interest rate swap	1,126	1,297
Significant Unobservable Inputs (Level 3) [Member]
Financial assets:
Securities available for sale	1,489	993
Loans receivable	532,040	585,734
Financial liabilities:
Subordinated debentures	10,092	10,099
Off-balance sheet liabilities:
Commitments to extend credit
Commercial letters of credit
Carrying Amount [Member]
Financial assets:
Cash and due from banks	31,563	44,389
Interest-earning deposits	5,613	4,371
Securities available for sale	356,345	383,782
Federal Home Loan Bank stock	4,428	4,428
Loans receivable	524,985	556,360
Accrued interest receivable	5,398	6,183
Bank owned life insurance	9,323	9,135
Financial liabilities:
Deposits	759,865	800,095
Advances from borrowers for taxes and insurance	396	153
Advances from Federal Home Loan Bank	43,741	63,319
Repurchase agreements	43,508	43,080
Subordinated debentures	10,310	10,310
Off-balance sheet liabilities:
Commitments to extend credit
Commercial letters of credit
Market value of interest rate swap	1,126	1,297
Estimated Fair Value [Member]
Financial assets:
Cash and due from banks	31,563	44,389
Interest-earning deposits	5,613	4,371
Securities available for sale	356,345	383,782
Federal Home Loan Bank stock	4,428	4,428
Loans receivable	532,040	585,734
Accrued interest receivable	5,398	6,183
Bank owned life insurance	9,323	9,135
Financial liabilities:
Deposits	756,426	811,415
Advances from borrowers for taxes and insurance	396	153
Advances from Federal Home Loan Bank	49,293	69,206
Repurchase agreements	44,779	44,969
Subordinated debentures	10,092	10,099
Off-balance sheet liabilities:
Commitments to extend credit
Commercial letters of credit
Market value of interest rate swap	$ 1,126	$ 1,297

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Deposits: (Details 1) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Interest expense on deposits
Demand and NOW accounts	$ 1,180	$ 1,435	$ 1,553
Money market accounts	58	108	113
Savings	71	114	130
Other time deposits	9,262	12,550	15,588
Total	$ 10,571	$ 14,207	$ 17,384

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Premises and Equipment: (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Components of premises and equipment included in the consolidated balance sheets
Total	$ 33,802	$ 33,089
Less accumulated depreciation	11,245	9,658
Premises and equipment, net	22,557	23,431
Land [Member]
Components of premises and equipment included in the consolidated balance sheets
Total	5,560	5,560
Land Improvements [Member]
Components of premises and equipment included in the consolidated balance sheets
Total	558	558
Buildings [Member]
Components of premises and equipment included in the consolidated balance sheets
Total	20,257	20,206
Furniture and equipment [Member]
Components of premises and equipment included in the consolidated balance sheets
Total	$ 7,427	$ 6,765

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Regulatory Matters:

12 Months Ended

Dec. 31, 2012

Regulatory Matters: [Abstract]

Regulatory Matters:

(16) Regulatory Matters:

The Corporation is a unitary thrift holding company and, as such, is subject to regulation, examination and supervision by the Federal Reserve Bank. The Corporation’s wholly owned bank subsidiary is a federally chartered savings and loan supervised by the Office of the Comptroller of the Currency (OCC). Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Corporation’s and the Bank’s financial statements.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

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). Management believes, as of December 31, 2012, and 2011, that the Bank meets all capital adequacy requirements to which it is subject.

On April 30, 2010, the Corporation and the Bank, and the Office of Thrift Supervision (OTS), since merged into the OCC, signed a Memorandum of Understanding and Agreement. Included in the agreement was a requirement that the Bank maintain a Core Capital to adjusted total assets ratio of no less than 8.00% and a Total Risk Based Capital to Risk Weighted Assets ratio of no less than 12.00%. If the Bank did not meet these guidelines, the Bank would have to make a capital distribution request to the OTS (now OCC) prior to the payment of preferred stock dividends or interest payments to HopFed Capital Trust 1. In October 2012, the OCC terminated the Bank’s MOU. In November 2012, the Federal Reserve terminated the Corporation’s MOU.

The Company’s and the Bank’s actual capital amounts and ratios as of December 31, 2012, and December 31, 2011, are presented below:

																Required to be Categorized as Well Capitalized Under
	Company Actual					Bank Actual					Required for Capital Adequacy  Purposes					Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2012
Tangible capital to adjusted total assets	$	104,984		10.9	%	$	102,375		10.6	%	$	14,463		1.50	%		N/A		N/A
Core capital to adjusted total assets	$	104,984		10.9	%	$	102,375		10.6	%	$	38,569		4.00	%	$	48,202		5.00	%
Total capital to risk weighted assets	$	112,204		19.4	%	$	109,602		19.1	%	$	45,981		8.00	%	$	57,458		10.00	%
Tier 1 capital to risk weighted assets	$	104,984		18.2	%	$	102,375		17.8	%		N/A		N/A		$	37,548		6.00	%
As of December 31, 2011
Tangible capital to adjusted total assets	$	120,908		11.7	%	$	103,173		10.2	%	$	15,205		1.50	%		N/A		N/A
Core capital to adjusted total assets	$	120,908		11.7	%	$	103,173		10.2	%	$	40,545		4.00	%	$	50,682		5.00	%
Total capital to risk weighted assets	$	128,089		20.3	%	$	110,355		17.6	%	$	50,064		8.00	%	$	62,580		10.00	%
Tier 1 capital to risk weighted assets	$	120,908		19.1	%	$	103,172		16.5	%		N/A		N/A		$	37,548		6.00	%

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Earnings Per Share: (Tables)

12 Months Ended

Dec. 31, 2012

Earnings Per Share: [Abstract]

Summary of Reconciliation of weighted average common shares

	Years Ended December 31,
	2012		2011		2010
Basic earnings per share:
Weighted average common shares		7,486,445		7,460,294		5,620,093
Adjustment for stock dividend		—		—		112,402
Weighted average common shares		7,486,445		7,460,294		5,732,495
Dilutive effect of stock options		—		—		—
Adjustment for stock dividend		—		—		—
Weighted average common and incremental shares		7,486,445		7,460,294		5,732,495

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Repurchase Agreements: (Tables)

12 Months Ended

Dec. 31, 2012

Repurchase Agreements: [Abstract]

Cost and maturities of the Company's repurchase agreements

2012
Third Party	Balance		Average Cost			Maturity		Comments
Deutsch Bank	$	10,000		4.28	%		9/05/2014	Quarterly callable
Merrill Lynch		6,000		4.36	%		9/18/2016	Quarterly callable
Various customers		27,508		1.08	%			Overnight
Total	$	43,508		2.35	%
2011
Third Party	Balance		Average Cost			Maturity		Comments
Deutsch Bank	$	10,000		4.28	%		9/05/2014	Quarterly callable
Merrill Lynch		6,000		4.36	%		9/18/2016	Quarterly callable
Various customers		27,080		0.88	%			Overnight
Total	$	43,080		2.15	%

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Intangible Assets: (Details Textual) (USD $)	12 Months Ended
	Dec. 31, 2009
Intangible Assets (Textual) [Abstract]
Goodwill impairment charge	$ 4,989,000

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Income Taxes: (Details 1) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Reconciliation of Federal Income Tax Rate
Expected federal income tax expense at statutory tax rate									$ 1,661	$ 1,157	$ 3,104
Effect of nontaxable interest income									(575)	(547)	(695)
Effect of nontaxable bank owned life insurance income									(136)	(107)	(117)
Effect of QSCAB credit									(220)	(220)
State taxes on income, net of federal benefit									79	73	139
Other tax credits									(64)
Non deductible expenses									72	128	182
Total income tax expense	$ 165	$ 263	$ 300	$ 89	$ 109	$ 909	$ 426	$ (960)	$ 817	$ 484	$ 2,613
Effective rate									16.70%	14.20%	28.60%

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Loans Receivable, Net: (Tables)

12 Months Ended

Dec. 31, 2012

Loans Receivable, Net: [Abstract]

Composition of the loan portfolio by type of loan

	December 31, 2012						December 31, 2011
	Amount			Percent			Amount			Percent
Real estate loans:
One-to-four family (closed end) first mortgages	$	162,335			30.3	%	$	171,192			30.2	%
Second mortgages (closed end)		4,336			0.8	%		6,209			1.1	%
Home equity lines of credit		37,083			6.9	%		38,694			6.8	%
Multi-family		33,056			6.2	%		33,739			5.9	%
Construction		18,900			3.5	%		11,931			2.1	%
Land		45,906			8.6	%		52,338			9.2	%
Non-residential real estate		169,436			31.6	%		183,485			32.3	%
Total mortgage loans		471,052			87.9	%		497,588			87.6	%
Consumer loans		13,886			2.6	%		15,110			2.7	%
Commercial loans		50,549			9.5	%		54,673			9.7	%
Total other loans		64,435			12.1	%		69,783			12.4	%
Total loans, gross		535,487			100.0	%		567,371			100.0	%
Deferred loan cost, net of income		146						251
Less allowance for loan losses		(10,648	)					(11,262	)
Total loans	$	524,985					$	556,360

Summary of the Company's impaired loans

					Impaired Loans
	Pass		Special Mention		Substandard		Doubtful		Total		Specific Allowance for  Impairment		Allowance for Loans not Impaired
December 31, 2012
One-to-four family mortgages	$	156,961		779		4,595		—		162,335		754		1,736
Home equity line of credit		34,737		1,109		1,237		—		37,083		68		306
Junior lien		3,821		47		468		—		4,336		196		34
Multi-family		27,463		1,478		4,115		—		33,056		38		486
Construction		14,052		—		4,848		—		18,900		—		256
Land		14,374		7,683		23,849		—		45,906		932		1,252
Non-residential real estate		146,443		1,899		21,094		—		169,436		1,424		2,209
Consumer loans		13,330		—		556		—		13,886		121		217
Commercial loans		44,191		516		5,842		—		50,549		308		311
Total	$	455,372		13,511		66,604		—		535,487		3,841		6,807

					Impaired Loans
	Pass		Special Mention		Substandard		Doubtful		Total		Specific Allowance for Impairment		Allowance for Loans not Impaired
December 31, 2011
One-to-four family mortgages	$	153,375		9,434		8,153		230		171,192		728		1,912
Home equity line of credit		36,528		1,694		233		239		38,694		131		277
Junior lien		4,778		622		809		—		6,209		180		97
Multi-family		20,715		7,073		5,951		—		33,739		26		1,175
Construction		9,943		213		1,775		—		11,931		14		125
Land		17,570		24,714		9,055		999		52,338		924		408
Non-residential real estate		142,190		25,077		16,101		117		183,485		1,374		2,297
Consumer loans		14,399		268		423		20		15,110		80		182
Commercial loans		45,509		4,009		5,034		121		54,673		623		709
Total	$	445,007		73,104		47,534		1,726		567,371		4,080		7,182

Impaired loans by classification type

							For the year ended
	At December 31, 2012						12/31/12
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
Impaired loans with no recorded reserve	Investment		Balance		Allowance		Investment		Recognized
One-to-four family mortgages	$	1,759		1,759		—		5,279		107
Home equity line of credit		1,169		1,169		—		869		50
Junior liens		—		—		—		281		3
Multi-family		4,077		4,077		—		3,626		219
Construction		4,848		4,848		—		3,133		174
Land		20,279		20,279		—		19,857		504
Non-residential real estate		15,363		15,363		—		19,936		855
Consumer loans		81		81		—		66		5
Commercial loans		1,617		1,617		—		2,701		165
Total		49,193		49,193		—		55,748		2,082

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
Impaired loans with recorded reserve	Investment		Balance		Allowance		Investment		Recognized
One-to-four family mortgages	$	2,836		2,836		754		3,135		145
Home equity line of credit		68		68		68		162		3
Junior liens		468		468		196		365		38
Multi-family		38		38		38		2,640		4
Construction		—		—		—		1,095		—
Land		3,570		3,570		932		4,848		213
Non-residential real estate		5,731		5,731		1,424		6,578		323
Consumer loans		475		475		121		281		1
Commercial loans		4,225		4,225		308		4,470		28
Total		17,411		17,411		3,841		23,574		755
Total impaired loans	$	66,604		66,604		3,841		79,322		2,837

	At December 31, 2011						For the year ended December 31, 2011
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
Impaired loans with no recorded allowance	Investment		Balance		Allowance		Investment		Recognized
One-to-four family mortgages	$	5,144		5,300		—		5,814		220
Home equity line of credit		181		181		—		312		5
Junior lien		469		469		—		287		14
Multi-family		5,059		5,059		—		2,797		242
Construction		1,589		1,589		—		1,437		63
Land		7,513		7,513		—		10,777		446
Non-residential real estate		9,458		11,530		—		10,410		312
Consumer loans		75		75		—		92		4
Commercial loans		480		584		—		2,244		33
Total	$	29,968		32,300		—		34,170		1,339

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
Impaired loans with recorded allowance:	Investment		Balance		Allowance		Investment		Recognized
One-to-four family mortgages	$	3,239		3,239		728		3,563		183
Home equity line of credit		291		291		131		399		13
Junior lien		340		340		180		703		16
Multi-family		892		892		26		1,962		15
Construction		186		186		14		1,222		11
Land		2,541		2,541		924		3,261		157
Non-residential real estate		6,760		6,760		1,374		10,833		360
Consumer loans		368		368		80		344		3
Commercial loans		4,675		4,675		623		2,671		27
Total	$	19,292		19,292		4,080		24,958		785
Total impaired loans	$	49,260		51,592		4,080		59,128		2,124

Allowance for loan loss account by loan

								General			Specific			Ending
Year ended	Balance		Charge off			Recovery		Provision			Provision			Balance
December 31, 2012	12/31/2011		2012			2012		2012			2012			12/31/2012
One-to-four family mortgages	$	2,640		(379	)		81		324			(176	)		2,490
Home equity line of credit		408		(67	)		6		6			21			374
Junior liens		277		(1	)		4		—			(50	)		230
Multi-family		1,201		(417	)		—		429			(689	)		524
Construction		139		—			—		117			—			256
Land		1,332		(1,033	)		405		635			845			2,184
Non-residential real estate		3,671		(1,120	)		137		1,033			(88	)		3,633
Consumer loans		262		(510	)		150		404			32			338
Commercial loans		1,332		(157	)		12		(171	)		(397	)		619
	$	11,262		(3,684	)		795		2,777			(502	)		10,648

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

Non-accrual loans

	12/31/2012		12/31/2011
One-to-four family first mortgages	$	2,243		2,074
Home equity lines of credit		66		134
Junior liens		4		101
Multi-family		38		—
Construction		—		—
Land		2,768		1,330
Non-residential real estate		1,134		2,231
Farmland		648		—
Consumer loans		145		9
Commercial loans		617		254
Total non-accrual loans	$	7,663		6,133

Past due and non-accrual balances by loan classification

			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	$	155,936		1,339		2,243		779		2,038		—		162,335
Home equity line of credit		34,732		5		66		1,109		1,171		—		37,083
Junior liens		3,584		237		4		47		464		—		4,336
Multi-family		27,463		—		38		1,478		4,077		—		33,056
Construction		13,876		176		—		—		4,848		—		18,900
Land		14,237		137		2,768		7,683		21,081		—		45,906
Non-residential real estate		146,150		293		1,782		1,899		19,312		—		169,436
Consumer loans		13,266		74		145		—		401		—		13,886
Commercial loans		43,961		230		617		516		5,225		—		50,549
Total	$	453,205		2,491		7,663		13,511		58,617		—		535,487

			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	$	153,375		628		2,074		9,163		5,722		230		171,192
Home equity line of credit		36,528		5		134		1,664		134		229		38,694
Junior liens		4,778		312		101		521		497		—		6,209
Multi-family		20,715		—		—		7,073		5,951		—		33,739
Construction		9,943		107		—		213		1,668		—		11,931
Land		17,570		237		1,330		24,714		7,488		999		52,338
Non-residential real estate		142,190		487		2,231		24,782		13,678		117		183,485
Consumer loans		14,399		28		9		268		386		20		15,110
Commercial loans		45,509		506		254		4,003		4,385		16		54,673
Total	$	445,007		2,310		6,133		72,401		39,909		1,611		567,371

Company's loans classified as Troubled Debt Restructurings (TDR's)

	2012			2011
Total TDR:
One-to-four family mortgages	$	1,888			2,521
Home equity line of credit		—			—
Junior lien		196			857
Multi-family		234			—
Construction		4,112			—
Land		3,424			941
Non-residential real estate		3,173			3,367
Farmland Consumer loans		909 5			—   33
Commercial loans		128			125
		14,069			7,844
Less:
TDR in non-accrual status
One-to-four family mortgages		—			(1,410	)
Home equity line of credit		—			—
Junior lien		(100	)		(100	)
Multi-family		—			—
Construction		—			—
Land		(2,768	)		—
Farmland Non-residential real estate		(44 —	)		—   (1	)
Consumer loans		—			(1	)
Commercial loans		(119	)		(105	)
Total performing TDR	$	11,038			6,227

Summary of loans to Officers, Directors and their Affiliates

	2012			2011
Balance at beginning of period	$	10,917			11,641
New loans		2,463			2,940
Principal repayments		(4,534	)		(3,664	)
Balance at end of period	$	8,846		$	10,917

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Investments in Affiliated Companies (Unaudited): (Tables)

12 Months Ended

Dec. 31, 2012

Investments in Affiliated Companies: [Abstract]

Summary of Balance Sheets

	December. 31, 2012		December. 31, 2011
Asset – investment in subordinated debentures issued by HopFed Bancorp, Inc.	$	10,310		10,310
Liabilities	$	—		—
Stockholders’ equity:
Trust preferred securities		10,000		10,000
Common stock (100% owned by HopFed Bancorp, Inc.)		310		310
Total stockholder’s equity		10,310		10,310
Total liabilities and stockholder’s equity	$	10,310		10,310

Summary of Statement of Income

	Years Ended December. 31,
	2012		2011
Income – interest income from subordinated debentures issued by HopFed Bancorp, Inc.	$	372		367
Net income	$	372		367

Summary of Statement of Stockholders' Equity

	Trust Preferred Securities		Common Stock		Retained Earnings			Total Stockholder’s Equity
Beginning balances, January 1, 2012	$	10,000		310		—			10,310
Retained earnings:
Net income		—		—		372			372
Dividends:
Trust preferred securities		—		—		(361	)		(361	)
Common dividends paid to HopFed Bancorp, Inc.		—		—		(11	)		(11	)
Total retained earnings		—		—		—			—
Ending balances, December 31, 2012	$	10,000		310		—			10,310

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Loans Receivable, Net: (Details 5) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Past due and non-accrual balances by loan classification
Currently Performing	$ 453,205	$ 445,007
30-89 Days Past Due	2,491	2,310
Non-accrual Loans	7,663	6,133
Special Mention	13,511	72,401
Impaired Loans Currently Performing Substandard	58,617	39,909
Impaired Loans Currently Performing Doubtful		1,611
Total loans, gross	535,487	567,371
One-to-four family mortgages [Member]
Past due and non-accrual balances by loan classification
Currently Performing	155,936	153,375
30-89 Days Past Due	1,339	628
Non-accrual Loans	2,243	2,074
Special Mention	779	9,163
Impaired Loans Currently Performing Substandard	2,038	5,722
Impaired Loans Currently Performing Doubtful		230
Total loans, gross	162,335	171,192
Home equity line of credit [Member]
Past due and non-accrual balances by loan classification
Currently Performing	34,732	36,528
30-89 Days Past Due	5	5
Non-accrual Loans	66	134
Special Mention	1,109	1,664
Impaired Loans Currently Performing Substandard	1,171	134
Impaired Loans Currently Performing Doubtful		229
Total loans, gross	37,083	38,694
Junior liens [Member]
Past due and non-accrual balances by loan classification
Currently Performing	3,584	4,778
30-89 Days Past Due	237	312
Non-accrual Loans	4	101
Special Mention	47	521
Impaired Loans Currently Performing Substandard	464	497
Impaired Loans Currently Performing Doubtful
Total loans, gross	4,336	6,209
Multi-family [Member]
Past due and non-accrual balances by loan classification
Currently Performing	27,463	20,715
30-89 Days Past Due
Non-accrual Loans	38
Special Mention	1,478	7,073
Impaired Loans Currently Performing Substandard	4,077	5,951
Impaired Loans Currently Performing Doubtful
Total loans, gross	33,056	33,739
Construction [Member]
Past due and non-accrual balances by loan classification
Currently Performing	13,876	9,943
30-89 Days Past Due	176	107
Non-accrual Loans
Special Mention		213
Impaired Loans Currently Performing Substandard	4,848	1,668
Impaired Loans Currently Performing Doubtful
Total loans, gross	18,900	11,931
Land [Member]
Past due and non-accrual balances by loan classification
Currently Performing	14,237	17,570
30-89 Days Past Due	137	237
Non-accrual Loans	2,768	1,330
Special Mention	7,683	24,714
Impaired Loans Currently Performing Substandard	21,081	7,488
Impaired Loans Currently Performing Doubtful		999
Total loans, gross	45,906	52,338
Non-residential real estate [Member]
Past due and non-accrual balances by loan classification
Currently Performing	146,150	142,190
30-89 Days Past Due	293	487
Non-accrual Loans	1,134	2,231
Special Mention	1,899	24,782
Impaired Loans Currently Performing Substandard	19,312	13,678
Impaired Loans Currently Performing Doubtful		117
Total loans, gross	169,436	183,485
Consumer loans [Member]
Past due and non-accrual balances by loan classification
Currently Performing	13,266	14,399
30-89 Days Past Due	74	28
Non-accrual Loans	145	9
Special Mention		268
Impaired Loans Currently Performing Substandard	401	386
Impaired Loans Currently Performing Doubtful		20
Total loans, gross	13,886	15,110
Commercial loans [Member]
Past due and non-accrual balances by loan classification
Currently Performing	43,961	45,509
30-89 Days Past Due	230	506
Non-accrual Loans	617	254
Special Mention	516	4,003
Impaired Loans Currently Performing Substandard	5,225	4,385
Impaired Loans Currently Performing Doubtful		16
Total loans, gross	$ 50,549	$ 54,673

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Condensed Parent Company Only Financial Statements: (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Assets:
Cash and due from banks	$ 31,563	$ 44,389
Total assets	967,689	1,040,820
Liabilities
Dividends payable - common	180	176
Subordinated debentures	10,310	10,310
Total liabilities	862,690	922,337
Equity:
Preferred stock
Common stock	79	79
Common stock warrants	556	556
Additional paid-in capital	76,288	75,967
Retained earnings	41,829	39,591
Accumulated other comprehensive income	9,723	7,366
Total stockholders' equity	104,999	118,483	111,444	79,949
Total liabilities and stockholders' equity	967,689	1,040,820
Preferred stock [Member]
Equity:
Treasury stock	(18,400)
Common stock [Member]
Equity:
Treasury stock	(5,076)	(5,076)
Total stockholders' equity	79	79	77	41
HopFed [Member]
Assets:
Cash and due from banks	2,863	17,602
Investment in subsidiary	113,131	111,912
Prepaid expenses and other assets	707	841
Total assets	116,701	130,355
Liabilities
Unrealized loss on derivative	1,126	1,297
Dividends payable - common	180	176
Interest payable	86	89
Subordinated debentures	10,310	10,310
Total liabilities	11,702	11,872
Equity:
Preferred stock
Common stock	79	79
Common stock warrants	556	556
Additional paid-in capital	76,288	75,967
Retained earnings	41,829	39,591
Accumulated other comprehensive income	9,723	7,366
Total stockholders' equity	104,999	118,483
Total liabilities and stockholders' equity	116,701	130,355
HopFed [Member] | Preferred stock [Member]
Equity:
Treasury stock	(18,400)
HopFed [Member] | Common stock [Member]
Equity:
Treasury stock	$ (5,076)	$ (5,076)

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Securities: (Details Textual) (USD $)	1 Months Ended		12 Months Ended
	Jul. 31, 2012	Jun. 30, 2008	Dec. 31, 2012 securities	Dec. 31, 2011	Dec. 31, 2010
Securities (Textual) [Abstract]
Tier one risk based capital percentage			6.69%
Total risk based capital ratio			12.45%
Securities (Additional Textual) [Abstract]
Number of securities with unrealized losses			26
Investment par value		$ 2,000,000
FFKY anticipated realized net gain	3,400,000
Reduction in other comprehensive income			511,000
Available for sale for proceeds			69,000,000	115,200,000	103,800,000
Gross gains in available for sale for proceeds			1,800,000	3,200,000	3,500,000
Gross loss in available for sale for proceeds			115,000	335,000	30,000
Securities pledged to municipalities for deposits in excess of FDIC limits, book value			145,100,000
Securities pledged to municipalities for deposits in excess of FDIC limits, market value			149,400,000
Number of pledged investment securities			2
Securities pledged as collateral with FHLB, market value			617,500
Letter of credit issued by FHLB			$ 15,500,000
Indiana [Member]
Securities (Textual) [Abstract]
Number of branches	4
Subordinated debt [Member]
Securities (Textual) [Abstract]
Period of security			30 years
Investment interest percentage			8.00%
FDIC [Member]
Securities (Textual) [Abstract]
Tier one risk based capital percentage			8.00%
Total risk based capital ratio			12.00%
FFKY [Member]
Securities (Textual) [Abstract]
Period of deferring dividend payments			5 years
Tier one risk based capital percentage	6.51%
Total risk based capital ratio	11.90%

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Commitments and Contingencies: (Tables)

12 Months Ended

Dec. 31, 2012

Commitments and Contingencies: [Abstract]

Future minimal lease and rental commitments

Years Ending December 31,	Amount
2013	$	200,122
2014		197,104
2015		179,461
2016		153,996
2017		153,996
Total	$	884,679

Commitments and conditional obligations

	December 31,
	2012		2011
Commitments to extend credit	$	27,294		23,422
Standby letters of credit		1,211		1,459
Unused commercial lines of credit		31,597		32,329
Unused home equity lines of credit		29,188		30,536

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Cash flows from operating activities:
Net income	$ 4,069	$ 2,920	$ 6,516
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	2,275	5,921	5,970
Depreciation	1,587	1,569	1,586
Amortization of intangible assets	227	291	358
Amortization of investment premiums and discounts, net	3,327	2,538	1,496
Other than temporary impairment charge on available for sale securities		155
Expense (benefit) for deferred income taxes	487	(637)	(210)
Compensation expense, restricted stock grants and options	99	118	134
Income from bank owned life insurance	(399)	(316)	(344)
Gain on sale of securities available for sale	(1,671)	(2,897)	(3,504)
Gain on sales of loans	(956)	(720)	(590)
Loss on sale of premises and equipment	13	145	6
Proceeds from sales of loans	48,705	36,367	43,456
(Gain) loss on sale of foreclosed assets	266	1,703	(321)
Originations of loans sold	(47,749)	(35,647)	(42,866)
(Increase) decrease in:
Accrued interest receivable	785	487	(893)
Other assets (increase)	(815)	265	2,261
Decrease in accrued expenses and other liabilities	(911)	(1,046)	(661)
Net cash provided by operating activities	9,339	11,216	12,394
Cash flows from investing activities
Proceeds from sales, calls and maturities of securities available for sale	143,434	179,795	221,875
Purchase of securities available for sale	(114,253)	(195,740)	(290,765)
Net decrease in loans	26,815	34,186	24,665
Purchase of Federal Home Loan Bank stock		(50)	(97)
Proceeds from sale of foreclosed assets	2,738	9,590	3,897
Proceeds from bank owned life insurance	211
Purchase of premises and equipment	(726)	(856)	(553)
Net cash provided by (used in) investing activities	58,219	26,925	(40,978)
Cash flows from financing activities:
Net increase (decrease) in deposits	(40,230)	(26,834)	32,785
Increase (decrease) in advance payments by borrowers for taxes and insurance	243	(86)	3
Advances from Federal Home Loan Bank	3,000	30,000	39,000
Repayment of advances from Federal Home Loan Bank	(22,578)	(48,586)	(59,560)
Increase (decrease) in repurchase agreements	428	(2,030)	9,050
Sale of common stock			28,952
Sale of treasury stock			1,419
Repurchase of preferred stock	(18,400)
Dividends paid on preferred stock	(1,007)	(920)	(920)
Dividends paid on common stock	(598)	(1,909)	(2,272)
Net cash provided by (used in) financing activities	(79,142)	(50,365)	48,457
Increase (decrease) in cash and cash equivalents	(11,584)	(12,224)	19,873
Cash and cash equivalents, beginning of period	48,760	60,984	41,111
Cash and cash equivalents, end of period	37,176	48,760	60,984
Supplemental disclosures of cash flow information:
Interest paid	7,564	9,589	11,826
Income taxes paid	1,990	2,105	4,110
Supplemental disclosures of non-cash investing and financing activities:
Loans charged off	3,684	4,875	5,290
Foreclosures and in substance foreclosures of loans during year	2,285	3,748	11,505
Net unrealized gains (losses) on investment securities classified as available for sale	3,400	9,895	(2,851)
Increase (decrease) in deferred tax asset related to unrealized gain (losses) on investments	(1,156)	(3,364)	969
Dividends declared and payable	180	176	613
Issue of unearned restricted stock	$ 74	$ 87	$ 92

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Investments in Affiliated Companies (Unaudited): (Details 2) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Summary of Statement of Stockholders' Equity
Beginning balance	$ 118,483	$ 111,444	$ 79,949
Dividends:
Trust preferred securities	(1,007)	(920)	(920)
Common dividends paid to HopFed Bancorp, Inc.	(602)	(1,472)	(2,431)
Ending balance	104,999	118,483	111,444
Subsidiaries [Member]
Summary of Statement of Stockholders' Equity
Beginning balance	10,310
Retained earnings :
Net income	372
Dividends:
Trust preferred securities	(361)
Common dividends paid to HopFed Bancorp, Inc.	(11)
Total retained earnings
Ending balance	10,310
Trust preferred securities [Member]
Dividends:
Total retained earnings
Ending balance	10,000	10,000
Common stock [Member]
Dividends:
Total retained earnings
Ending balance	310	310
Retained earnings [Member]
Retained earnings :
Net income	372
Dividends:
Trust preferred securities	(361)
Common dividends paid to HopFed Bancorp, Inc.	(11)
Total retained earnings

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Loans Receivable, Net: (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Composition of the loan portfolio by type of loan
Loans and Leases Receivable in Percentage	100.00%	100.00%
Total loans, gross	$ 535,487	$ 567,371
Deferred loan cost, net of income	146	251
Less allowance for loan losses	(10,648)	(11,262)
Total loans	524,985	556,360
Real estate loans [Member]
Composition of the loan portfolio by type of loan
Loans and Leases Receivable in Percentage	87.90%	87.60%
Total loans, gross	471,052	497,588
Consumer loans [Member]
Composition of the loan portfolio by type of loan
Loans and Leases Receivable in Percentage	2.60%	2.70%
Total loans, gross	13,886	15,110
Commercial loans [Member]
Composition of the loan portfolio by type of loan
Loans and Leases Receivable in Percentage	9.50%	9.70%
Total loans, gross	50,549	54,673
Total other loans [Member]
Composition of the loan portfolio by type of loan
Loans and Leases Receivable in Percentage	12.10%	12.40%
Total loans, gross	64,435	69,783
One-to-four family first mortgages [Member]
Composition of the loan portfolio by type of loan
Total loans, gross	162,335	171,192
One-to-four family first mortgages [Member] | Real estate loans [Member]
Composition of the loan portfolio by type of loan
Loans and Leases Receivable in Percentage	30.30%	30.20%
Total loans, gross	162,335	171,192
Second mortgages (closed end) [Member] | Real estate loans [Member]
Composition of the loan portfolio by type of loan
Loans and Leases Receivable in Percentage	0.80%	1.10%
Total loans, gross	4,336	6,209
Home equity line of credit [Member]
Composition of the loan portfolio by type of loan
Total loans, gross	37,083	38,694
Home equity line of credit [Member] | Real estate loans [Member]
Composition of the loan portfolio by type of loan
Loans and Leases Receivable in Percentage	6.90%	6.80%
Total loans, gross	37,083	38,694
Multi-family [Member]
Composition of the loan portfolio by type of loan
Total loans, gross	33,056	33,739
Multi-family [Member] | Real estate loans [Member]
Composition of the loan portfolio by type of loan
Loans and Leases Receivable in Percentage	6.20%	5.90%
Total loans, gross	33,056	33,739
Construction [Member]
Composition of the loan portfolio by type of loan
Total loans, gross	18,900	11,931
Construction [Member] | Real estate loans [Member]
Composition of the loan portfolio by type of loan
Loans and Leases Receivable in Percentage	3.50%	2.10%
Total loans, gross	18,900	11,931
Land [Member]
Composition of the loan portfolio by type of loan
Total loans, gross	45,906	52,338
Land [Member] | Real estate loans [Member]
Composition of the loan portfolio by type of loan
Loans and Leases Receivable in Percentage	8.60%	9.20%
Total loans, gross	45,906	52,338
Non-residential real estate [Member]
Composition of the loan portfolio by type of loan
Total loans, gross	169,436	183,485
Non-residential real estate [Member] | Real estate loans [Member]
Composition of the loan portfolio by type of loan
Loans and Leases Receivable in Percentage	31.60%	32.30%
Total loans, gross	$ 169,436	$ 183,485

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Fair Value Measurement: (Tables)

12 Months Ended

Dec. 31, 2012

Fair Value Measurement: [Abstract]

Assets and liabilities measured at fair value on recurring basis

December 31, 2012 Description	Total carrying value in the consolidated balance sheet at December 31, 2012		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Available for sale securities	$	356,345		—		354,856		1,489
Bank owned life insurance		9,323		—		9,323		—
Liabilities
Interest rate swap		1,126		—		1,126		—
December 31, 2011 Description	Total carrying value in the consolidated balance sheet at December 31, 2011		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Available for sale securities	$	383,782		—		382,789		993
Bank owned life insurance		9,135		—		9,135		—
Liabilities
Interest rate swap		1,297		—		1,297		—

Assets measured at fair value on non-recurring basis

December 31, 2012 Description	Total carrying value in the consolidated balance sheet at 12/31/2012		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Other real estate owned	$	1,544		—		—	$	1,544
Other assets owned	$	4		—		—	$	4
Impaired loans, net of reserve of $3,841	$	62,763		—		—	$	62,763
December 31, 2011 Description	Total carrying value in the consolidated balance sheet at December 31, 2011		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Other real estate owned	$	2,258		—		—	$	2,258
Other assets owned	$	9		—		—	$	9
Impaired loans, net of reserve of $4,080	$	45,180		—		—	$	45,180

Roll-forward of consolidated condensed statement of financial condition items

	Year ended December 31,
	2012				2011
	Other		Other		Other			Other
	Assets		Liabilities		Assets			Liabilities
Fair value, December 31,	$	993		—	$	1,277			—
Change in unrealized gains (losses) included in other comprehensive income for assets and liabilities still held at December 31,		496		—		(284	)		—
Purchases, issuances and settlements, net		—		—		—			—
Transfers in and/or out of Level 3		—		—		—			—
Fair value, December 31,	$	1,489		—	$	993			—

Estimated fair values of financial instruments

	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
Financial Assets:
Cash and due from banks	$	31,563		31,563	$	31,563		—		—
Interest-earning deposits		5,613		5,613		5,613		—		—
Securities available for sale		356,345		356,345		—		354,856		1,489
Federal Home Loan Bank stock		4,428		4,428		—		4,428		—
Loans receivable		524,985		532,040		—		—		532,040
Accrued interest receivable		5,398		5,398		—		5,398		—
Bank owned life insurance		9,323		9,323		—		9,323		—
Financial liabilities:
Deposits		759,865		756,426		—		756,426		—
Advances from borrowers for taxes and insurance		396		396		—		396		—
Advances from Federal Home Loan Bank		43,741		49,293		—		49,293		—
Repurchase agreements		43,508		44,779		—		44,779		—
Subordinated debentures		10,310		10,092		—		—		10,092
Off-balance-sheet liabilities:										—
Commitments to extend credit		—		—		—		—		—
Commercial letters of credit		—		—		—		—		—
Market value of interest rate swap		1,126		1,126		—		1,126		—

	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
Financial Assets:
Cash and due from banks	$	44,389		44,389	$	44,389		—		—
Interest-earning deposits		4,371		4,371		4,371
Securities available for sale		383,782		383,782		—		382,789		993
Federal Home Loan Bank stock		4,428		4,428		—		4,428		—
Loans receivable		556,360		585,734		—		—		585,734
Accrued interest receivable		6,183		6,183		—		6,183		—
Bank owned life insurance		9,135		9,135		—		9,135		—
Financial liabilities:
Deposits		800,095		811,415		—		811,415		—
Advances from borrowers for taxes and insurance		153		153		—		153		—
Advances from Federal Home Loan Bank		63,319		69,206		—		69,206		—
Repurchase agreements		43,080		44,969		—		44,969		—
Subordinated debentures		10,310		10,099		—		—		10,099
Off-balance-sheet liabilities:										—
Commitments to extend credit		—		—		—		—		—
Commercial letters of credit		—		—		—		—		—
Market value of interest rate swap		1,297		1,297		—		1,297		—

Foreclosed assets that were re-measured and reported at fair value

	2012			2011			2010
Beginning balance	$	2,267			9,812			1,883
Foreclosed assets measured at initial recognition:
Carrying value of foreclosed assets prior to acquisition		2,634			4,591			15,848
Proceeds from sale of foreclosed assets		(2,738	)		(9,590	)		(3,897	)
Charge-offs recognized in the allowance for loan loss		(349	)		(843	)		(4,343	)
Gains (losses) on REO included in non-interest expense		(266	)		(1,703	)		321
Fair value	$	1,548			2,267			9,812

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Condensed Parent Company Only Financial Statements:

12 Months Ended

Dec. 31, 2012

Condensed Parent Company Only Financial Statements: [Abstract]

Condensed Parent Company Only Financial Statements:

(20) Condensed Parent Company Only Financial Statements:

The following condensed balance sheets as of December 31, 2012, and December 31, 2011 and condensed statements of income and cash flows for the years ended December 31, 2012, 2011 and 2010 of the parent company only should be read in conjunction with the consolidated financial statements and the notes thereto.

Condensed Balance Sheets:

	2012			2011
Assets:
Cash and due from banks	$	2,863			17,602
Investment in subsidiary		113,131			111,912
Prepaid expenses and other assets		707			841
Total assets	$	116,701			130,355
Liabilities and equity
Liabilities
Unrealized loss on derivative	$	1,126			1,297
Dividends payable - common		180			176
Interest payable		86			89
Subordinated debentures		10,310			10,310
Total liabilities		11,702			11,872
Equity:
Preferred stock		—			—
Common stock		79			79
Common stock warrants		556			556
Additional paid-in capital		76,288			75,967
Retained earnings		41,829			39,591
Treasury stock - preferred stock Treasury stock- common stock		(18,400 (5,076	)  )		—   (5,076	)
Accumulated other comprehensive income		9,723			7,366
Total equity		104,999			118,483
Total liabilities and equity	$	116,701			130,355

Condensed Statements of Income:

	2012			2011			2010
Interest and dividend income:
Dividend income	$	6,000			—			750
Income on agency securities		56			—			—
Total interest and dividend income		6,056			—			750
Interest expense		745			742			739
Non-interest expenses		584			423			448
Total expenses		1,329			1,165			1,187
Income (loss) before income taxes and equity in undistributed earnings of subsidiary		4,727			(1,165	)		(437	)
Income tax benefits		(367	)		(316	)		(342	)
Income (loss) before equity in undistributed earnings of subsidiary		5,094			(849	)		(95	)
Equity in undistributed earnings of subsidiary		(1,025	)		3,769			6,611
Net income		4,069			2,920			6,516
Preferred stock dividend and warrant accretion		(1,229	)		(1,031	)		(1,031	)
Income available to common shareholders	$	2,840			1,889			5,485

Condensed Statement of Cash Flows:

	2012			2011			2010
Cash flows from operating activities
Net income	$	4,069			2,920			6,516
Adjustments to reconcile net income to net cash (used in) provided by operating activities
Equity in undistributed earnings of subsidiary		1,025			(3,769	)		(6,611	)
Amortization of restricted stock		99			118			134
Increase (decrease) in:
Current income taxes payable		74			—			358
Accrued expenses		3			438			18
Net cash (used in) provided by operating activities:		5,270			(293	)		415
Cash flows for investing activities:
Investment in subsidiary		—			—			(10,000	)
Net cash used in investing activities		—			—			(10,000	)
Cash flows from financing activities:
Proceeds from sale of treasury stock		—			—			1,419
Proceeds from sale of common stock		—			—			28,952
Purchase of preferred stock - treasury		(18,400	)		—			—
Dividends paid on preferred stock		(1,007	)		(920	)		(920	)
Dividends paid on common stock		(602	)		(1,909	)		(2,272	)
Net cash (used in) provided by financing activities		(20,009	)		(2,829	)		27,179
Net increase (decrease) in cash		(14,739	)		(3,122	)		17,594
Cash and due from banks at beginning of year		17,602			20,724			3,130
Cash and due from banks at end of year	$	2,863			17,602			20,724

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Variable Interest Entities

12 Months Ended

Dec. 31, 2012

Variable Interest Entities [Abstract]

Variable Interest Entities

(19) Variable Interest Entities

Under ASC 810, the Company is deemed to be the primary beneficiary and required to consolidate a variable interest entity (VIE) if it has a variable interest in the VIE that provides it with a controlling financial interest. For such purposes, the determination of whether a controlling financial interest exists is based on whether a single party has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. ASC 810 requires continual reconsideration of conclusions reached regarding which interest holder is a VIE’s primary beneficiary and disclosures surrounding those VIE’s which have not been consolidated. The consolidation methodology provided in this footnote as of December 31, 2012 and 2011 has been prepared in accordance with ASC 810. At December 31, 2012, the Company did not have any consolidated variable interest entities to disclose but did have a commitment to a low income housing partnership and issued trust preferred securities.

The Company has made a $1.5 million commitment as a limited partner to the Housing Equity Fund of Kentucky II, L.L.C. Furthermore, the Company has committed $480,000 as a limited partner to a low income housing project in Bowling Green, Kentucky named Fort Webb, LLLP.

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Real Estate and Other Assets Owned: (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Company's balance in both real estate and other assets owned
Total other assets owned	$ 1,548	$ 2,267
One-to-four family mortgages [Member]
Company's balance in both real estate and other assets owned
Total other assets owned	258	480
Multi-family [Member]
Company's balance in both real estate and other assets owned
Total other assets owned		905
Construction [Member]
Company's balance in both real estate and other assets owned
Total other assets owned	130	465
Land [Member]
Company's balance in both real estate and other assets owned
Total other assets owned	1,112	248
Non-residential real estate [Member]
Company's balance in both real estate and other assets owned
Total other assets owned	44	160
Consumer assets owned by bank [Member]
Company's balance in both real estate and other assets owned
Total other assets owned	$ 4	$ 9

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Summary of Significant Accounting Policies: (Details 1) (USD $)	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Reduction in earnings per share
Dividend on preferred shares									$ 1,006,886	$ 920,000	$ 920,000
Accretion dividend on preferred shares									222,360	111,180	111,180
Total cost of preferred stock									$ 1,229,246	$ 1,031,180	$ 1,031,180
Reduction in earnings per share to common stockholders:
Basic									$ 0.16	$ 0.14	$ 0.18
Fully diluted									$ 0.16	$ 0.14	$ 0.18
Weighted average shares outstanding - basic	7,487,726	7,487,283	7,485,283	7,484,475	7,484,420	7,481,448	7,467,438	7,465,077	7,486,445	7,460,294	5,732,495	[1]
Weighted average shares outstanding - diluted	7,487,726	7,487,283	7,485,283	7,484,475	7,484,420	7,481,448	7,467,438	7,465,077	7,486,445	7,460,294	5,732,495	[1]

[1] Weighted average shares outstanding (basic and diluted) for 2010 adjusted to reflected 2% stock dividend paid to shareholders of record on October 3, 2011.

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Employee Benefit Plans: (Table)

12 Months Ended

Dec. 31, 2012

Employee Benefit Plans: [Abstract]

Summary of stock options outstanding

Exercise Price	Weighted Average Remaining Life (Years)		Outstanding Options		Options Exercisable
$16.67		1.4		20,808		20,808

Summary represents the activity under the stock option plans

	Number of Shares			Weighted Average Exercise Price
Options outstanding, December 2009		110,000		$	12.61
Granted		—
Exercised		(30,000	)		10.00
Forfeited		—			—
Adjusted for 2% stock dividend		1,600			—
Options outstanding, December 2010		81,600			13.32
Granted		—			—
Exercised		—			—
Forfeited		(51,000	)		12.10
Adjusted for 2% stock dividend		612			—
Options outstanding, December 2011		31,212			15.06
Granted		—			—
Exercised		—			—
Forfeited		(10,404	)		11.85
Options outstanding, December 2012		20,808		$	16.67

Compensation expense to be recognized

Year Ending December 31,	Approximate Future Compensation  Expense
	(Dollars in thousands)
2013	$	74
2014		50
2015		28
2016		8

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Investments in Affiliated Companies (Unaudited):

12 Months Ended

Dec. 31, 2012

Investments in Affiliated Companies: [Abstract]

Investments in Affiliated Companies (Unaudited):

(21) Investments in Affiliated Companies (Unaudited):

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

Summary Balance Sheets

	December. 31, 2012		December. 31, 2011
Asset – investment in subordinated debentures issued by HopFed Bancorp, Inc.	$	10,310		10,310
Liabilities	$	—		—
Stockholders’ equity:
Trust preferred securities		10,000		10,000
Common stock (100% owned by HopFed Bancorp, Inc.)		310		310
Total stockholder’s equity		10,310		10,310
Total liabilities and stockholder’s equity	$	10,310		10,310

Summary Statements of Income

	Years Ended December. 31,
	2012		2011
Income – interest income from subordinated debentures issued by HopFed Bancorp, Inc.	$	372		367
Net income	$	372		367

Summary Statements of Stockholder’s Equity

	Trust Preferred Securities		Common Stock		Retained Earnings			Total Stockholder’s Equity
Beginning balances, January 1, 2012	$	10,000		310		—			10,310
Retained earnings:
Net income		—		—		372			372
Dividends:
Trust preferred securities		—		—		(361	)		(361	)
Common dividends paid to HopFed Bancorp, Inc.		—		—		(11	)		(11	)
Total retained earnings		—		—		—			—
Ending balances, December 31, 2012	$	10,000		310		—			10,310

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Quarterly Results of Operations: (Unaudited)

12 Months Ended

Dec. 31, 2012

Quarterly Results of Operations: [Abstract]

Quarterly Results of Operations: (Unaudited)

(22) Quarterly Results of Operations: (Unaudited)

Summarized unaudited quarterly operating results for the year ended December 31, 2012:

	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
December 31, 2012:
Interest and dividend income	$	10,759		10,400		9,996		9,685
Interest expense		3,892		3,738		4,078		3,169
Net interest income		6,867		6,662		5,918		6,516
Provision for loan losses		869		400		506		500
Net interest income after provision for loan losses		5,998		6,262		5,412		6,016
Noninterest income		1,917		2,639		2,897		2,186
Noninterest expense		7,099		7,439		6,971		6,932
Income before income taxes		816		1,462		1,338		1,270
Income taxes		89		300		263		165
Net income	$	727		1,162		1,075		1,105
Net income available to common shareholders		470		903		819		648
Basic earnings per share	$	0.06		0.12		0.11		0.09
Diluted earnings per share	$	0.06		0.12		0.11		0.09
Weighted average shares outstanding:
Basic		7,484,475		7,485,283		7,487,283		7,487,726
Diluted		7,484,475		7,485,283		7,487,283		7,487,726

Summarized unaudited quarterly operating results for the year ended December 31, 2011:

	First			Second		Third		Fourth
	Quarter			Quarter		Quarter		Quarter
December 31, 2011:
Interest and dividend income	$	11,787			11,766		11,450		11,237
Interest expense		4,989			4,763		4,592		4,071
Net interest income		6,798			7,003		6,858		7,166
Provision for loan losses		4,518			452		475		476
Net interest income after provision for loan losses		2,280			6,551		6,383		6,690
Noninterest income		2,365			2,118		3,281		2,429
Noninterest expense		7,449			7,436		7,127		6,681
Income (loss) before income taxes		(2,804	)		1,233		2,537		2,438
Income taxes expense (benefit)		(960	)		426		909		109
Net income (loss)	($	1,844	)		807		1,628		2,329
Net income (loss) available to (attributable to) common shareholders	($	2,098	)		550		1,368		2,069
Basic earnings (loss) per share	($	0.28	)		0.07		0.18		0.28
Diluted earnings (loss) per share	($	0.28	)		0.07		0.18		0.28
Weighted average shares outstanding:
Basic		7,465,077			7,467,438		7,481,448		7,484,420
Diluted		7,465,077			7,467,438		7,481,448		7,484,420

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Consolidated Statements of Changes in Stockholder's Equity (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Consolidated Statements of Changes in Stockholders' Equity [Abstract]
Net change in unrealized gain (losses) on securities available for sale, income taxes	$ (1,156)	$ (3,364)	$ 969
Net change in unrealized gain (losses) on derivatives, net of income taxes	$ 58	$ 71	$ 151
Preferred stock dividend	5.00%	5.00%	5.00%
Cash dividend to common stockholders'	$ 0.08	$ 0.20	$ 0.40
Common stock issuance price per share			$ 8.55
Common stock issuance, treasury stock shares used for issuance			112,639
Common stock issuance, treasury stock average cost per share	$ 15.36		$ 12.60

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Comprehensive Income:

12 Months Ended

Dec. 31, 2012

Comprehensive Income: [Abstract]

Comprehensive Income:

(23) Comprehensive Income:

FASB ASC 220, Comprehensive Income, established standards for reporting comprehensive income. Comprehensive income includes net income and other comprehensive net income which is defined as non-owner related transactions in equity. The following table sets forth the amounts of other comprehensive income included in stockholders’ equity along with the related tax effect for the years ended December 31, 2012, 2011 and 2010.

	Pre-Tax Amount			Tax Benefit (Expense)			Net of Tax Amount
December 31, 2012:
Unrealized holding gains on:
Available for sale securities	$	5,071			(1,723	)		3,348
Derivatives		171			(58	)		113
Reclassification adjustments for gains on:
Available for sale securities		(1,671	)		567			(1,104	)
	$	3,571			(1,214	)		2,357
December 31, 2011:
Unrealized holding gains on:
Available for sale securities	$	12,792			(4,349	)		8,443
Derivatives		(209	)		71			(138	)
Reclassification adjustments for gains on:
Available for sale securities		(2,897	)		985			(1,912	)
	$	9,686			(3,293	)		6,393
December 31, 2010:
Unrealized holding gains on:
Available for sale securities	$	653			(222	)		431
Derivatives		(444	)		151			(293	)
Reclassification adjustments for gains on:
Available for sale securities		(3,504	)		1,191			(2,313	)
	($	3,295	)		1,120			(2,175	)

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Repurchase Agreements: (Details Textual) (USD $) In Millions, unless otherwise specified	1 Months Ended	12 Months Ended
	Jun. 30, 2006 Agreement	Dec. 31, 2012 Agreement	Dec. 31, 2011
Repurchase Agreements (Textual) [Abstract]
Number of long term repurchase agreements	2	2
Investment securities for repurchase agreements		$ 44.6
Maximum repurchase balances outstanding		$ 52.5	$ 46.7

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Investments in Affiliated Companies (Unaudited): (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Stockholders' equity
Total liabilities and stockholders' equity	$ 967,689	$ 1,040,820
Subsidiaries [Member]
Summary of Balance Sheets
Asset - investment in subordinated debentures issued by HopFed Bancorp, Inc.	10,310	10,310
Liabilities
Stockholders' equity
Total stockholders' equity	10,310	10,310
Total liabilities and stockholders' equity	10,310	10,310
Common stock [Member] | Subsidiaries [Member]
Stockholders' equity
Total stockholders' equity	310	310
Trust preferred securities [Member] | Subsidiaries [Member]
Stockholders' equity
Total stockholders' equity	$ 10,000	$ 10,000

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Deposits: (Tables)

12 Months Ended

Dec. 31, 2012

Deposits and Advances from Federal Home loan Bank: [Abstract]

Scheduled maturities of other time deposits

Years Ending December 31,
2013	$	220,182
2014		78,333
2015		42,661
2016		78,036
2017 2018 and thereafter		17,846 34
	$	437,092

Interest expense on deposits

	2012		2011		2010
Demand and NOW accounts	$	1,180		1,435		1,553
Money market accounts		58		108		113
Savings		71		114		130
Other time deposits		9,262		12,550		15,588
	$	10,571		14,207		17,384

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Quarterly Results of Operations: (Unaudited) (Tables)

12 Months Ended

Dec. 31, 2012

Quarterly Results of Operations: [Abstract]

Summarized unaudited quarterly operating results

	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
December 31, 2012:
Interest and dividend income	$	10,759		10,400		9,996		9,685
Interest expense		3,892		3,738		4,078		3,169
Net interest income		6,867		6,662		5,918		6,516
Provision for loan losses		869		400		506		500
Net interest income after provision for loan losses		5,998		6,262		5,412		6,016
Noninterest income		1,917		2,639		2,897		2,186
Noninterest expense		7,099		7,439		6,971		6,932
Income before income taxes		816		1,462		1,338		1,270
Income taxes		89		300		263		165
Net income	$	727		1,162		1,075		1,105
Net income available to common shareholders		470		903		819		648
Basic earnings per share	$	0.06		0.12		0.11		0.09
Diluted earnings per share	$	0.06		0.12		0.11		0.09
Weighted average shares outstanding:
Basic		7,484,475		7,485,283		7,487,283		7,487,726
Diluted		7,484,475		7,485,283		7,487,283		7,487,726

	First			Second		Third		Fourth
	Quarter			Quarter		Quarter		Quarter
December 31, 2011:
Interest and dividend income	$	11,787			11,766		11,450		11,237
Interest expense		4,989			4,763		4,592		4,071
Net interest income		6,798			7,003		6,858		7,166
Provision for loan losses		4,518			452		475		476
Net interest income after provision for loan losses		2,280			6,551		6,383		6,690
Noninterest income		2,365			2,118		3,281		2,429
Noninterest expense		7,449			7,436		7,127		6,681
Income (loss) before income taxes		(2,804	)		1,233		2,537		2,438
Income taxes expense (benefit)		(960	)		426		909		109
Net income (loss)	($	1,844	)		807		1,628		2,329
Net income (loss) available to (attributable to) common shareholders	($	2,098	)		550		1,368		2,069
Basic earnings (loss) per share	($	0.28	)		0.07		0.18		0.28
Diluted earnings (loss) per share	($	0.28	)		0.07		0.18		0.28
Weighted average shares outstanding:
Basic		7,465,077			7,467,438		7,481,448		7,484,420
Diluted		7,465,077			7,467,438		7,481,448		7,484,420

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Premises and Equipment: (Details Textual) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Property Plant and Equipment (Textual) [Abstract]
Depreciation	$ 1,587	$ 1,569	$ 1,586

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Assets
Cash and due from banks	$ 31,563	$ 44,389
Interest-earning deposits	5,613	4,371
Cash and cash equivalents	37,176	48,760
Federal Home Loan Bank stock, at cost (note 2)	4,428	4,428
Securities available for sale (notes 2 and 8)	356,345	383,782
Loans receivable, net of allowance for loan losses of $10,648 at December 31, 2012, and $11,262 at December 31, 2011 (notes 3 and 7)	524,985	556,360
Accrued interest receivable	5,398	6,183
Real estate and other assets owned (note 14)	1,548	2,267
Bank owned life insurance	9,323	9,135
Premises and equipment, net (note 4)	22,557	23,431
Deferred tax assets (note 13)	(568)	1,132
Intangible asset (note 5)	292	519
Other assets	5,637	4,823
Total assets	967,689	1,040,820
Deposits: (note 6)
Non-interest-bearing accounts	94,083	79,550
Interest-bearing accounts:
NOW accounts	147,047	130,114
Savings and money market accounts	81,643	70,443
Other time deposits	437,092	519,988
Total deposits	759,865	800,095
Advances from Federal Home Loan Bank (note 7)	43,741	63,319
Repurchase agreements (note 8)	43,508	43,080
Subordinated debentures (note 10)	10,310	10,310
Advances from borrowers for taxes and insurance	396	153
Dividends payable	180	176
Deferred tax liability (note 13)	568	(1,132)
Accrued expenses and other liabilities	4,122	5,204
Total liabilities	862,690	922,337
Stockholders' equity
Preferred stock, par value $0.01 per share; authorized - 500,000 shares; 18,400 shares issued and no shares outstanding at December 31, 2012; and 18,400 shares issued and outstanding with a liquidation preference of $18,400,000 at December 31, 2011.
Common stock, par value $.01 per share; authorized 15,000,000 shares; 7,905,728 issued and 7,502,812 outstanding at December 31, 2012 and 7,895,336 issued and 7,492,420 outstanding at December 31, 2011	79	79
Common stock warrant	556	556
Additional paid-in capital	76,288	75,967
Retained earnings	41,829	39,591
Accumulated other comprehensive income, net of taxes	9,723	7,366
Total stockholders' equity	104,999	118,483
Total liabilities and stockholders' equity	967,689	1,040,820
Commitments and contingencies (notes 11 and 15)
Preferred Shares
Stockholders' equity
Treasury stock	(18,400)
Common Shares
Stockholders' equity
Treasury stock	(5,076)	(5,076)
Total stockholders' equity	$ 79	$ 79

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Income Taxes: (Tables)

12 Months Ended

Dec. 31, 2012

Income Tax: [Abstract]

Provision for income tax expense

	2012		2011			2010
Current
Federal	$	210		1,011			2,613
State		120		110			210
		330		1,121			2,823
Deferred
Federal		487		(637	)		(210	)
State		—		—			—
		487		(637	)		(210	)
	$	817		484			2,613

Reconciliation of Federal Income Tax Rate

	2012			2011			2010
Expected federal income tax expense at statutory tax rate	$	1,661			1,157			3,104
Effect of nontaxable interest income		(575	)		(547	)		(695	)
Effect of nontaxable bank owned life insurance income		(136	)		(107	)		(117	)
Effect of QSCAB credit		(220	)		(220	)		—
State taxes on income, net of federal benefit		79			73			139
Other tax credits		(64	)		—			—
Non deductible expenses		72			128			182
Total income tax expense	$	817			484			2,613
Effective rate		16.7	%		14.2	%		28.6	%

Components of deferred taxes

	2012			2011
Deferred tax assets:
Allowance for loan loss	$	3,620		$	3,829
Accrued expenses		297			679
Intangible amortization		1,365			1,534
AMT credit		110			—
Other real estate owned		34			—
		5,426			6,042
Deferred tax liabilities:
FHLB stock dividends		(787	)		(787	)
Unrealized gain on securities available for sale		(5,007	)		(3,794	)
Depreciation and amortization		(200	)		(244	)
Unearned loan cost and fees, net		—			(85	)
		(5,994	)		(4,910	)
Net deferred tax asset (liability)	($	568	)	$	1,132

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Income Taxes: (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Current
Federal									$ 210	$ 1,011	$ 2,613
State									120	110	210
Current income tax expenses									330	1,121	2,823
Deferred
Federal									487	(637)	(210)
State
Deferred income taxes expenses									487	(637)	(210)
Total income tax expense	$ 165	$ 263	$ 300	$ 89	$ 109	$ 909	$ 426	$ (960)	$ 817	$ 484	$ 2,613

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Condensed Parent Company Only Financial Statements: (Details 2) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Cash flows from operating activities
Net income	$ 1,105	$ 1,075	$ 1,162	$ 727	$ 2,329	$ 1,628	$ 807	$ (1,844)	$ 4,069	$ 2,920	$ 6,516
Increase (decrease) in:
Net cash provided by operating activities									9,339	11,216	12,394
Cash flows for investing activities:
Net cash provided by (used in) investing activities									58,219	26,925	(40,978)
Cash flows from financing activities:
Proceeds from sale of treasury stock											1,419
Proceeds from sale of common stock											28,952
Purchase of preferred stock - treasury									(18,400)
Dividends paid on preferred stock									(1,007)	(920)	(920)
Dividends paid on common stock									(598)	(1,909)	(2,272)
Net cash provided by (used in) financing activities									(79,142)	(50,365)	48,457
Net increase (decrease) in cash									(11,584)	(12,224)	19,873
Cash and cash equivalents, beginning of period				48,760				60,984	48,760	60,984	41,111
Cash and cash equivalents, end of period	37,176				48,760				37,176	48,760	60,984
HopFed [Member]
Cash flows from operating activities
Net income									4,069	2,920	6,516
Adjustments to reconcile net income to net cash (used in) provided by operating activities
Equity in undistributed earnings of subsidiary									1,025	(3,769)	(6,611)
Amortization of restricted stock									99	118	134
Increase (decrease) in:
Current income taxes payable									74		358
Accrued expenses									3	438	18
Net cash provided by operating activities									5,270	(293)	415
Cash flows for investing activities:
Investment in subsidiary											(10,000)
Net cash provided by (used in) investing activities											(10,000)
Cash flows from financing activities:
Proceeds from sale of treasury stock											1,419
Proceeds from sale of common stock											28,952
Purchase of preferred stock - treasury									(18,400)
Dividends paid on preferred stock									(1,007)	(920)	(920)
Dividends paid on common stock									(602)	(1,909)	(2,272)
Net cash provided by (used in) financing activities									(20,009)	(2,829)	27,179
Net increase (decrease) in cash									(14,739)	(3,122)	17,594
Cash and cash equivalents, beginning of period				17,602				20,724	17,602	20,724	3,130
Cash and cash equivalents, end of period	$ 2,863				$ 17,602				$ 2,863	$ 17,602	$ 20,724

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Consolidated Statements of Comprehensive Income (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Consolidated Statements of Comprehensive Income [Abstract]
Net income	$ 4,069	$ 2,920	$ 6,516
Other comprehensive income, net of tax:
Unrealized holding gain arising during the year, net of tax effect	3,348	8,443	431
Unrealized gain (loss) on derivatives, net of tax effect	113	(138)	(293)
Reclassification adjustment for gains included in net income, net of tax effect	(1,104)	(1,912)	(2,313)
Comprehensive income	$ 6,426	$ 9,313	$ 4,341

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Employee Benefit Plans: (Details 2) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012
Compensation expense to be recognized
2013	$ 74
2014	50
2015	28
2016	$ 8

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Securities: (Details 1) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Maturities of debt securities available for sale
Due within one year, Amortized Cost	$ 345	$ 461
Due in one to five years, Amortized Cost	11,499	6,844
Due in five to ten years, Amortized Cost	30,007	24,471
Due after ten years, Amortized Cost	53,222	72,460
Total, Amortized Cost	95,073	104,236
Total Unrestricted securities available for sale, Amortized Cost	340,488	371,324
Due within one year, Estimated Fair Value	346	464
Due in one to five years, Estimated Fair Value	11,682	6,929
Due in five to ten years, Estimated Fair Value	32,316	26,153
Due after ten years, Estimated Fair Value	57,290	75,804
Total, Estimated Fair Value	101,634	109,350
Total Unrestricted securities available for sale, Estimated Fair Value	356,345	383,782
Amortizing agency bonds [Member]
Maturities of debt securities available for sale
Total, Amortized Cost	135,452	142,183
Total, Estimated Fair Value	140,416	145,190
Mortgage-backed securities [Member]
Maturities of debt securities available for sale
Total, Amortized Cost	109,963	124,905
Total, Estimated Fair Value	$ 114,295	$ 129,242

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Income Taxes: (Details Textual) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Income Tax (Textual) [Abstract]
Federal Income Tax Rate	34.00%
Amount of thrift which no longer use reserve method	$ 500,000,000
Amount of bad debt deductions included retained earnings	4,027,000	4,027,000
Valuation allowance for deferred tax assets	$ 0	$ 0

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Summary of Significant Accounting Policies: (Tables)

12 Months Ended

Dec. 31, 2012

Summary of Significant Accounting Policies: [Abstract]

Schedule of useful life of property, plant and equipment

Land improvements	5-15 years
Buildings	40 years
Furniture and equipment	5-15 years

Reduction in earnings per share

	2012		2011		2010
Dividend on preferred shares	$	1,006,886		920,000		920,000
Accretion dividend on preferred shares		222,360		111,180		111,180
Total cost of preferred stock	$	1,229,246		1,031,180		1,031,180
Reduction in earnings per share to common stockholders:
Basic	$	0.16	$	0.14	$	0.18
Fully diluted	$	0.16	$	0.14	$	0.18
Weighted average shares outstanding -basic		7,486,445		7,460,294		5,732,495
Weighted average shares outstanding -diluted		7,486,445		7,460,294		5,732,495

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Loans Receivable, Net: (Details 3) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Allowance for loan loss account by loan
Beginning balance	$ 11,262	$ 9,830
Charge off	(3,684)	(4,875)
Recovery	795	386
General Provision	2,777	4,143
Specific Provision	(502)	1,778
Ending balance	10,648	11,262
One-to-four family mortgages [Member]
Allowance for loan loss account by loan
Beginning balance	2,640	1,097
Charge off	(379)	(758)
Recovery	81	139
General Provision	324	1,687
Specific Provision	(176)	475
Ending balance	2,490	2,640
Home equity line of credit [Member]
Allowance for loan loss account by loan
Beginning balance	408	212
Charge off	(67)	(123)
Recovery	6
General Provision	6	245
Specific Provision	21	74
Ending balance	374	408
Junior liens [Member]
Allowance for loan loss account by loan
Beginning balance	277	146
Charge off	(1)	(27)
Recovery	4	1
General Provision		79
Specific Provision	(50)	78
Ending balance	230	277
Multi-family [Member]
Allowance for loan loss account by loan
Beginning balance	1,201	2,022
Charge off	(417)	(89)
General Provision	429	26
Specific Provision	(689)	(758)
Ending balance	524	1,201
Construction [Member]
Allowance for loan loss account by loan
Beginning balance	139	657
Charge off		(353)
General Provision	117	(91)
Specific Provision		(74)
Ending balance	256	139
Land [Member]
Allowance for loan loss account by loan
Beginning balance	1,332	865
Charge off	(1,033)	(308)
Recovery	405	30
General Provision	635	353
Specific Provision	845	392
Ending balance	2,184	1,332
Non-residential real estate [Member]
Allowance for loan loss account by loan
Beginning balance	3,671	4,025
Charge off	(1,120)	(2,645)
Recovery	137	84
General Provision	1,033	1,114
Specific Provision	(88)	1,093
Ending balance	3,633	3,671
Consumer loans [Member]
Allowance for loan loss account by loan
Beginning balance	262	108
Charge off	(510)	(371)
Recovery	150	112
General Provision	404	425
Specific Provision	32	(12)
Ending balance	338	262
Commercial loans [Member]
Allowance for loan loss account by loan
Beginning balance	1,332	698
Charge off	(157)	(201)
Recovery	12	20
General Provision	(171)	305
Specific Provision	(397)	510
Ending balance	$ 619	$ 1,332

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Income Taxes:

12 Months Ended

Dec. 31, 2012

Income Tax: [Abstract]

Income Taxes:

(13) Income Taxes:

The provision for income tax expense (benefit) for the years ended December 31, 2012, 2011 and 2010 consisted of the following:

	2012		2011			2010
Current
Federal	$	210		1,011			2,613
State		120		110			210
		330		1,121			2,823
Deferred
Federal		487		(637	)		(210	)
State		—		—			—
		487		(637	)		(210	)
	$	817		484			2,613

Total income tax expense for the years ended December 31, 2012, 2011, and 2010 differed from the amounts computed by applying the federal income tax rate of 34 percent to income before income taxes as follows:

	2012			2011			2010
Expected federal income tax expense at statutory tax rate	$	1,661			1,157			3,104
Effect of nontaxable interest income		(575	)		(547	)		(695	)
Effect of nontaxable bank owned life insurance income		(136	)		(107	)		(117	)
Effect of QSCAB credit		(220	)		(220	)		—
State taxes on income, net of federal benefit		79			73			139
Other tax credits		(64	)		—			—
Non deductible expenses		72			128			182
Total income tax expense	$	817			484			2,613
Effective rate		16.7	%		14.2	%		28.6	%

The components of deferred taxes as of December 31, 2012, and December 31, 2011, are summarized as follows:

	2012			2011
Deferred tax assets:
Allowance for loan loss	$	3,620		$	3,829
Accrued expenses		297			679
Intangible amortization		1,365			1,534
AMT credit		110			—
Other real estate owned		34			—
		5,426			6,042
Deferred tax liabilities:
FHLB stock dividends		(787	)		(787	)
Unrealized gain on securities available for sale		(5,007	)		(3,794	)
Depreciation and amortization		(200	)		(244	)
Unearned loan cost and fees, net		—			(85	)
		(5,994	)		(4,910	)
Net deferred tax asset (liability)	($	568	)	$	1,132

The Small Business Protection Act of 1996, among other things, repealed the tax bad debt reserve method for thrifts effective for taxable years beginning after December 31, 1995. Thrifts may now only use the same tax bad debt reserve method that is allowed for commercial banks. Thrifts with assets greater than $500 million can no longer use the reserve method and may only deduct loan losses as they actually arise (i.e., the specific charge-off method).

The portion of a thrift’s tax bad debt reserve that is not recaptured (generally pre-1988 bad debt reserves) under the 1996 law is only subject to recapture at a later date under certain circumstances. These include stock repurchase redemptions by the thrift or if the thrift converts to a type of institution (such as a credit union) that is not considered a bank for tax purposes. However, no further recapture would be required if the thrift converted to a commercial bank charter or was acquired by a bank. The Bank does not anticipate engaging in any transactions at this time that would require the recapture of its remaining tax bad debt reserves. Therefore, retained earnings at December 31, 2012 and 2011 includes approximately $4,027,000 which represents such bad debt deductions for which no deferred income taxes have been provided.

No valuation allowance for deferred tax assets was recorded at December 31, 2012 and 2011 as management believes it is more likely than not that all of the deferred tax assets will be realized because they were supported by recoverable taxes paid in prior years. There were not unrecognized tax benefits during any of the reported periods. The Corporation files income tax returns in the U.S. federal jurisdiction. The Company is no longer subject to U.S. federal income tax examinations by tax authorities for years before 2009.

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Securities: (Tables)

12 Months Ended

Dec. 31, 2012

Securities: [Abstract]

Amortized cost of securities and their estimated fair values

	December 31, 2012
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Restricted:
FHLB stock	$	4,428		—		—			4,428
Unrestricted:
U.S. government and agency securities:	$	147,659		5,202		(83	)		152,778
Tax free municipal bonds		68,331		5,756		(40	)		74,047
Taxable municipal bonds		12,535		1,209		(8	)		13,736
Trust preferred securities		2,000		—		(511	)		1,489
Mortgage-backed securities:
GNMA		19,172		1,244		(19	)		20,397
FNMA		64,805		2,558		(58	)		67,305
FHLMC		4,519		153		—			4,672
SLMA CMOs		5,412		80		—			5,492
AGENCY CMOs		16,055		426		(52	)		16,429
	$	340,488		16,628		(771	)		356,345

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

Maturities of debt securities available for sale

2012	Amortized Cost		Estimated Fair Value
Due within one year	$	345		346
Due in one to five years		11,499		11,682
Due in five to ten years		30,007		32,316
Due after ten years		53,222		57,290
		95,073		101,634
Amortizing agency bonds		135,452		140,416
Mortgage-backed securities		109,963		114,295
Total unrestricted securities available for sale	$	340,488		356,345

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

Estimated fair value and unrealized loss amounts of temporarily impaired investments

	Less than 12 months					12 months or longer					Total
	Estimated					Estimated					Estimated
December 31, 2012	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Available for sale
U.S. government and agency securities:
Agency debt securities	$	12,317		(83	)		—		—			12,317		(83	)
Taxable municipals		885		(8	)		—		—			885		(8	)
Tax free municipals		5,315		(40	)		—		—			5,315		(40	)
Trust preferred securities		—		—			1,489		(511	)		1,489		(511	)
Mortgage-backed securities:
GNMA		—		—			1,415		(19	)		1,415		(19	)
FNMA		7,077		(58	)		—		—			7,077		(58	)
FHLMC		—		—			—		—			—		—
NON-AGENCY CMOs		—		—			—		—			—		—
AGENCY CMOs		3,691		(52	)		—		—			3,691		(52	)
Total Available for Sale	$	29,285		(241	)		2,904		(530	)		32,189		(771	)

	Less than 12 months					12 months or longer					Total
	Estimated					Estimated					Estimated
December 31, 2011	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Available for sale
U.S. government and agency securities:
Agency debt securities	$	20,422		(54	)		2,007		(11	)		22,429		(65	)
Taxable municipals		—		—			—		—			—		—
Tax free municipals		—		—			—		—			—		—
Trust preferred securities		—		—			993		(1,007	)		993		(1,007	)
Mortgage-backed securities:
GNMA		1,925		(19	)		—		—			1,925		(19	)
FNMA		—		—			81		(1	)		81		(1	)
FHLMC		—		—			—		—			—		—
NON-AGENCY CMOs		—		—			1,494		(223	)		1,494		(223	)
AGENCY CMOs		—		—			—		—			—		—
Total Available for Sale	$	22,347		(73	)		4,575		(1,242	)		26,922		(1,315	)

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Income Taxes: (Details 2) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Deferred tax assets:
Allowance for loan loss	$ 3,620	$ 3,829
Accrued expenses	297	679
Intangible amortization	1,365	1,534
AMT credit	110
Other real estate owned	34
Deferred tax assets Net	5,426	6,042
Deferred tax liabilities:
FHLB stock dividends	(787)	(787)
Unrealized gain on securities available for sale	(5,007)	(3,794)
Depreciation and amortization	(200)	(244)
Unearned loan cost and fees, net		(85)
Deferred Tax Liabilities, Gross, Total	(5,994)	(4,910)
Net deferred tax asset (liability)	$ (568)	$ 1,132

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Commitments and Contingencies:

12 Months Ended

Dec. 31, 2012

Commitments and Contingencies: [Abstract]

Commitments and Contingencies:

(15) Commitments and Contingencies:

In the ordinary course of business, the Bank has various outstanding commitments and contingent liabilities that are not reflected in the accompanying consolidated financial statements.

The Bank had open loan commitments at December 31, 2012 and 2011 of approximately $27.3 million and $23.4 million, respectively. At December 31, 2012 and 2011, the Bank had no fixed rate loan commitments. Unused lines of credit were approximately $60.8 million and $62.9 million at December 31, 2012 and 2011, respectively.

The Company and the Bank have agreed to enter into employment agreements with certain officers, which provide certain benefits in the event of their termination following a change in control of the Company or the Bank. The employment agreements provide for an initial term of three years. On each anniversary of the commencement date of the employment agreements, the term of each agreement may be extended for an additional year at the discretion of the Board. In the event of a change in control of the Company or the Bank, as defined in the agreement, the officers shall be paid an amount equal to two times the officer’s base salary as defined in the employment agreement.

The Company and the Bank have entered into commitments to rent facilities and lease operating equipment that are non-cancelable. At December 31, 2012, future minimal lease and rental commitments were as follows:

Years Ending December 31,	Amount
2013	$	200,122
2014		197,104
2015		179,461
2016		153,996
2017		153,996
Total	$	884,679

The Company incurred rental expenses of approximately $61,000, $55,000 and $62,000 for the years ended December 31, 2012, 2011, and 2010, respectively.

In the normal course of business, the Bank and Company have entered into operating contracts necessary to conduct the Company’s daily business. The most significant operating contract is for the Bank’s data processing services. The monthly cost associated with this contract is variable based on the number of accounts and usage but averages approximately $197,000 per month. The Bank has three outstanding ATM branding agreements with local convenience stores. These agreements allow the Bank to maintain a cash machine and signage in various locations for an annual cost of approximately $128,000.

The Company is partially self-insured for medical benefits provided to employees. Heritage Bank is named as the plan administrator for this plan and has retained Blue Cross Blue Shield of Kentucky to process claims and handle other duties of the plan. Blue Cross Blue Shield does not assume any liabilities as a third party administrator. Heritage Bank purchased two stop-loss insurance policies to limit total medical claims from Blue Cross Blue Shield of Kentucky. The first specific stop-loss policy limits the Company’s cost in any one year to $75,000 per covered individual. The Company has purchased a second stop-loss policy that limits the aggregate claims for the Company in a given year at $1,651,964 based upon the Company’s current enrollment. The Company has established a liability for outstanding claims as well as incurred but unreported claims. While management uses what it believes are pertinent factors in estimating the plan liability, the actual liability is subject to change based upon unexpected claims experience and fluctuations in enrollment during the plan year. At December 31, 2012, and December 31, 2011, the Company recognized a liability for self-insured medical expenses of approximately $438,000 and $506,000, respectively.

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit, standby letters of credit, and financial guarantees. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

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

	December 31,
	2012		2011
Commitments to extend credit	$	27,294		23,422
Standby letters of credit		1,211		1,459
Unused commercial lines of credit		31,597		32,329
Unused home equity lines of credit		29,188		30,536

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counter-party. Collateral held varies but may include property, plant, and equipment and income-producing commercial properties.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. Most guarantees extend from one to two years. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

The Company is subject to various claims and legal actions that have arisen in the course of conducting business. Management does not expect the ultimate disposition of these matters to have a material adverse impact on the Company’s financial statements.

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Loans Receivable, Net: (Details 6) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Company's loans classified as troubled debt restructurings (TDR's)
Total TDR	$ 14,069	$ 7,844
Total performing TDR	11,038	6,227
One-to-four family mortgages [Member]
Company's loans classified as troubled debt restructurings (TDR's)
Total TDR	1,888	2,521
TDR in non-accrual status		(1,410)
Home equity line of credit [Member]
Company's loans classified as troubled debt restructurings (TDR's)
Total TDR
TDR in non-accrual status
Junior lien [Member]
Company's loans classified as troubled debt restructurings (TDR's)
Total TDR	196	857
TDR in non-accrual status	(100)	(100)
Multi-family [Member]
Company's loans classified as troubled debt restructurings (TDR's)
Total TDR	234
TDR in non-accrual status
Construction [Member]
Company's loans classified as troubled debt restructurings (TDR's)
Total TDR	4,112
TDR in non-accrual status
Land [Member]
Company's loans classified as troubled debt restructurings (TDR's)
Total TDR	3,424	941
TDR in non-accrual status	(2,768)
Non-residential real estate [Member]
Company's loans classified as troubled debt restructurings (TDR's)
Total TDR	3,173	3,367
TDR in non-accrual status		(1)
Farmland [Member]
Company's loans classified as troubled debt restructurings (TDR's)
Total TDR	909
TDR in non-accrual status	(44)
Consumer loans [Member]
Company's loans classified as troubled debt restructurings (TDR's)
Total TDR	5	33
TDR in non-accrual status		(1)
Commercial loans [Member]
Company's loans classified as troubled debt restructurings (TDR's)
Total TDR	128	125
TDR in non-accrual status	$ (119)	$ (105)

XML

Earnings Per Share: (Details)	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Basic earnings per share:
Weighted average common shares									7,486,445	7,460,294	5,620,093
Adjustment for stock dividend											112,402
Weighted average common shares	7,487,726	7,487,283	7,485,283	7,484,475	7,484,420	7,481,448	7,467,438	7,465,077	7,486,445	7,460,294	5,732,495	[1]
Dilutive effect of stock options
Adjustment for stock dividend
Weighted average common and incremental shares	7,487,726	7,487,283	7,485,283	7,484,475	7,484,420	7,481,448	7,467,438	7,465,077	7,486,445	7,460,294	5,732,495	[1]

[1] Weighted average shares outstanding (basic and diluted) for 2010 adjusted to reflected 2% stock dividend paid to shareholders of record on October 3, 2011.

XML

Consolidated Statements of Changes in Stockholders' Equity (USD $) In Thousands, except Share data	Total USD ($)	Common Shares USD ($)	Preferred Shares	Common Stock Warrants USD ($)	Additional Paid-in Capital USD ($)	Retained Earnings USD ($)	Preferred Treasury Stock USD ($)	Common Treasury Stock USD ($)	Accumulated Other Comprehensive Income (Loss) USD ($)
Beginning balance at Dec. 31, 2009	$ 79,949	$ 41		$ 556	$ 44,455	$ 38,244		$ (6,495)	$ 3,148
Beginning balance, Shares at Dec. 31, 2009		3,594,620	18,400
Net income	6,516					6,516
Restricted stock awards, Shares		9,751
Net change in unrealized gain (losses) on securities available for sale, net of taxes of $969, ($3,364), ($1,156) respectively for 31 December 2010, 2011, 2012	(1,882)								(1,882)
Net change in unrealized gain (losses) on derivatives, net of taxes of $151, $71, $58 for 31 December 2010, 2011, 2012	(293)								(293)
Preferred stock dividend of 5%	(920)					(920)
Common stock issuance at $8.55 share, net and includes 112,639 of treasury stock with an average cost of $12.60 share, Shares		3,583,334
Common stock issuance at $8.55 share, net and includes 112,639 of treasury stock with an average cost of $12.60 share, Value	30,371	35			28,917			1,419
Exercise of options, net	30,000	3,800
Stock dividend to common stockholders'		143,458
Stock dividend to common stockholders', value		1			1,303	(1,304)
Cash dividend to common stockholders' $0.40, $0.20, $0.08 per share respectively for 31 December 2010, 2011, 2012	(2,431)					(2,431)
Compensation expense, restricted stock awards	134				134
Accretion of preferred stock discount					111	(111)
Ending balance at Dec. 31, 2010	111,444	77		556	74,920	39,994		(5,076)	973
Ending balance, Shares at Dec. 31, 2010		7,334,963	18,400
Net income	2,920					2,920
Restricted stock awards		1			(1)
Restricted stock awards, Shares		10,972
Net change in unrealized gain (losses) on securities available for sale, net of taxes of $969, ($3,364), ($1,156) respectively for 31 December 2010, 2011, 2012	6,531								6,531
Net change in unrealized gain (losses) on derivatives, net of taxes of $151, $71, $58 for 31 December 2010, 2011, 2012	(138)								(138)
Preferred stock dividend of 5%	(920)					(920)
Exercise of options, net
Stock dividend to common stockholders'		146,485
Stock dividend to common stockholders', value		1			819	(820)
Cash dividend to common stockholders' $0.40, $0.20, $0.08 per share respectively for 31 December 2010, 2011, 2012	(1,472)					(1,472)
Compensation expense, restricted stock awards	118				118
Accretion of preferred stock discount					111	(111)
Ending balance at Dec. 31, 2011	118,483	79		556	75,967	39,591		(5,076)	7,366
Ending balance, Shares at Dec. 31, 2011		7,492,420	18,400
Net income	4,069					4,069
Restricted stock awards, Shares		10,392
Net change in unrealized gain (losses) on securities available for sale, net of taxes of $969, ($3,364), ($1,156) respectively for 31 December 2010, 2011, 2012	2,244								2,244
Net change in unrealized gain (losses) on derivatives, net of taxes of $151, $71, $58 for 31 December 2010, 2011, 2012	113								113
Preferred stock dividend of 5%	(1,007)					(1,007)
Exercise of options, net
Cash dividend to common stockholders' $0.40, $0.20, $0.08 per share respectively for 31 December 2010, 2011, 2012	(602)					(602)
Repurchase preferred stock	(18,400)						(18,400)
Compensation expense, restricted stock awards	99				99
Accretion of preferred stock discount					222	(222)
Ending balance at Dec. 31, 2012	$ 104,999	$ 79		$ 556	$ 76,288	$ 41,829	$ (18,400)	$ (5,076)	$ 9,723
Ending balance, Shares at Dec. 31, 2012		7,502,812	18,400

XML

Consolidated Balance Sheets (Parenthetical) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Loans receivable, allowance for loan losses	$ 10,648,000	$ 11,262,000
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	500,000	500,000
Preferred stock, shares issued	18,400	18,400
Preferred stock, shares outstanding	0	18,400
Preferred stock liquidation preference		$ 18,400,000
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	15,000,000	15,000,000
Common stock, shares issued	7,905,728	7,895,336
Common stock, shares outstanding	7,502,812	7,492,420
Preferred Shares
Treasury stock, shares	18,400	0
Common Shares
Treasury stock, shares	402,916	402,916

XML

Repurchase Agreements:

12 Months Ended

Dec. 31, 2012

Repurchase Agreements: [Abstract]

Repurchase Agreements:

(8) Repurchase Agreements:

In 2006, the Company enhanced its cash management product line to include an automated sweep of excess funds from checking accounts to repurchase accounts, allowing interest to be paid on excess funds remaining in checking accounts of business and municipal customers. Repurchase balances are overnight borrowings from customers and are not FDIC insured. In addition, the Company has entered into two long term repurchase agreements with third parties.

At December 31, 2012, the Company provided investment securities with a market value and book value of $44.6 million as collateral for repurchase agreements. The maximum repurchase balances outstanding during the twelve month periods ending December 31, 2012, and December 31, 2011, was $52.5 million and $46.7 million, respectively.

At December 31, 2012, and December 31, 2011, the respective cost and maturities of the Company’s repurchase agreements are as follows:

2012
Third Party	Balance		Average Cost			Maturity		Comments
Deutsch Bank	$	10,000		4.28	%		9/05/2014	Quarterly callable
Merrill Lynch		6,000		4.36	%		9/18/2016	Quarterly callable
Various customers		27,508		1.08	%			Overnight
Total	$	43,508		2.35	%
2011
Third Party	Balance		Average Cost			Maturity		Comments
Deutsch Bank	$	10,000		4.28	%		9/05/2014	Quarterly callable
Merrill Lynch		6,000		4.36	%		9/18/2016	Quarterly callable
Various customers		27,080		0.88	%			Overnight
Total	$	43,080		2.15	%

XML

Commitments and Contingencies: (Details Textual) (USD $)	12 Months Ended
	Dec. 31, 2012 Agreement	Dec. 31, 2011	Dec. 31, 2010
Commitments and Contingencies (Additional Textual) [Abstract]
Amount of fixed rate loan commitments	$ 0	$ 0
Initial term of employment agreements	3 years
Rental expenses	61,000	55,000	62,000
Variable monthly cost associated with contract, average	197,000
Number of ATM branding agreements with local convenience stores	3
Annual cost under branding agreements	128,000
Amount of annual cost per covered individual under first specific stop loss policy limits	75,000
Amount of annual cost per covered individual under second specific stop loss policy limits	1,651,964
Liability related to self insured medical expenses	438,000	506,000
Maximum [Member]
Commitments and Contingencies (Textual) [Abstract]
Period of most guarantees	2 years
Minimum [Member]
Commitments and Contingencies (Textual) [Abstract]
Period of most guarantees	1 year
Commitments to extend credit [Member]
Commitments and Contingencies (Textual) [Abstract]
Contractual notional amount of instruments	27,294,000	23,422,000
Unused lines of credit [Member]
Commitments and Contingencies (Textual) [Abstract]
Contractual notional amount of instruments	$ 60,800,000	$ 62,900,000

XML

Employee Benefit Plans: (Details 1) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Summary represents the activity under the stock option plans
Beginning Balance, Number of Shares	31,212	81,600	110,000
Beginning Balance, Weighted Average Exercise Price	$ 15.06	$ 13.32	$ 12.61
Granted, Number of Shares
Granted, Weighted Average Exercise Price
Exercised, Number of Shares			(30,000)
Exercised, Weighted Average Exercise Price			$ 10.00
Forfeited, Number of Shares	(10,404)	(51,000)
Forfeited, Weighted Average Exercise Price	$ 11.85	$ 12.10
Adjusted for 2% stock dividend, Number of shares		612	1,600
Ending Balance, Number of Shares	20,808	31,212	81,600
Ending Balance, Weighted Average Exercise Price	$ 16.67	$ 15.06	$ 13.32

XML

Concentrations of Credit Risk: (Details) (USD $)	Dec. 31, 2012
Concentrations of Credit Risk (Textual) [Abstract]
FDIC increased its deposit coverage on all accounts	$ 250,000
FDIC's TALC program that provides insurance for all funds in non-interest bearing accounts	100.00%
Total FHLB deposits	3,900,000
Total deposits at federal reserve	$ 5,600,000

XML

Comprehensive Income: (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Unrealized holding gains on:
Available for sale securities	$ 5,071	$ 12,792	$ 653
Derivatives	171	(209)	(444)
Reclassification adjustments for gains on available for sale securities, pre tax	(1,671)	(2,897)	(3,504)
Other comprehensive income, pre tax	3,571	9,686	(3,295)
Available for sale securities, tax	(1,723)	(4,349)	(222)
Derivatives, tax	(58)	71	151
Reclassification adjustments for gains on available for sale securities, tax	567	985	1,191
Other comprehensive income, tax	(1,214)	(3,293)	1,120
Available for sale securities, net of tax	3,348	8,443	431
Unrealized gain (loss) on derivatives, net of tax effect	113	(138)	(293)
Reclassification adjustments for gains on available for sale securities, net of tax effect	(1,104)	(1,912)	(2,313)
Other comprehensive income, net of tax	$ 2,357	$ 6,393	$ (2,175)

XML

Document and Entity Information (USD $)	12 Months Ended
	Dec. 31, 2012	Mar. 25, 2013	Jun. 29, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	HOPFED BANCORP INC
Entity Central Index Key	0001041550
Document Type	10-K
Document Period End Date	Dec. 31, 2012
Amendment Flag	false
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	FY
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	Yes
Entity Current Reporting Status	No
Entity Filer Category	Smaller Reporting Company
Entity Public Float			$ 51,961,946
Entity Common Stock, Shares Outstanding		7,503,039

XML

Fair Value Measurement:

12 Months Ended

Dec. 31, 2012

Fair Value Measurement: [Abstract]

Fair Value Measurement:

(9) Fair Value Measurement:

In September 2006, FASB issued ASC Topic 820, Fair Value Measurements and Disclosures. ASC 820 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. Although ASC 820 provides for fair value accounting, the Company did not elect the fair value option for any financial instrument not presently required to be accounted for at fair value.

HopFed Bancorp has developed a process for determining fair values. Fair value is based upon quoted market prices, where available. If listed prices or quotes are not available, fair value is based upon internally developed models or processes that use primarily market based or based on third party market data, including interest rate yield curves, option volatilities and other third party information. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies, or assumptions, to determine the fair value of certain financials instruments could result in a different estimate of fair value at the reporting date.

ASC 820 establishes a three-level valuation hierarchy for disclosure of fair value measurement. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date.

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

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

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

The fair value of securities available for sale are determined by a matrix pricing, which is a mathematical technique what is widely used in the industry to value debt securities without relying exclusively on quoted prices for the individual securities in the Company’s portfolio but relying on the securities relationship to other benchmark quoted securities. Impaired loans are valued at the net present value of expected payments and considering the fair value of any assigned collateral.

The fair value of bank owned life insurance is determined by reducing the annual stated dividend payments of each insurance company by the annual cost of life insurance provided. The Company has certain liabilities carried at fair value including interest rate swap agreements. The fair value of these liabilities is based on information obtained from a third party bank and is reflected within level 2 of the valuation hierarchy.

Assets and Liabilities Measured on a Recurring Basis

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

December 31, 2012 Description	Total carrying value in the consolidated balance sheet at December 31, 2012		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Available for sale securities	$	356,345		—		354,856		1,489
Bank owned life insurance		9,323		—		9,323		—
Liabilities
Interest rate swap		1,126		—		1,126		—
December 31, 2011 Description	Total carrying value in the consolidated balance sheet at December 31, 2011		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Available for sale securities	$	383,782		—		382,789		993
Bank owned life insurance		9,135		—		9,135		—
Liabilities
Interest rate swap		1,297		—		1,297		—

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

December 31, 2012 Description	Total carrying value in the consolidated balance sheet at 12/31/2012		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Other real estate owned	$	1,544		—		—	$	1,544
Other assets owned	$	4		—		—	$	4
Impaired loans, net of reserve of $3,841	$	62,763		—		—	$	62,763
December 31, 2011 Description	Total carrying value in the consolidated balance sheet at December 31, 2011		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Other real estate owned	$	2,258		—		—	$	2,258
Other assets owned	$	9		—		—	$	9
Impaired loans, net of reserve of $4,080	$	45,180		—		—	$	45,180

Change in level 3 fair value measurements

The table below includes a roll-forward of the balance sheet items for the years ended December 31, 2012 and 2011, (including the change in fair value) for assets and liabilities classified by HopFed Bancorp, Inc. within level 3 of the valuation hierarchy for assets and liabilities measured at fair value on a recurring basis. When a determination is made to classify a financial instrument 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 financial instruments 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.

	Year ended December 31,
	2012				2011
	Other		Other		Other			Other
	Assets		Liabilities		Assets			Liabilities
Fair value, December 31,	$	993		—	$	1,277			—
Change in unrealized gains (losses) included in other comprehensive income for assets and liabilities still held at December 31,		496		—		(284	)		—
Purchases, issuances and settlements, net		—		—		—			—
Transfers in and/or out of Level 3		—		—		—			—
Fair value, December 31,	$	1,489		—	$	993			—

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

	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
Financial Assets:
Cash and due from banks	$	31,563		31,563	$	31,563		—		—
Interest-earning deposits		5,613		5,613		5,613		—		—
Securities available for sale		356,345		356,345		—		354,856		1,489
Federal Home Loan Bank stock		4,428		4,428		—		4,428		—
Loans receivable		524,985		532,040		—		—		532,040
Accrued interest receivable		5,398		5,398		—		5,398		—
Bank owned life insurance		9,323		9,323		—		9,323		—
Financial liabilities:
Deposits		759,865		756,426		—		756,426		—
Advances from borrowers for taxes and insurance		396		396		—		396		—
Advances from Federal Home Loan Bank		43,741		49,293		—		49,293		—
Repurchase agreements		43,508		44,779		—		44,779		—
Subordinated debentures		10,310		10,092		—		—		10,092
Off-balance-sheet liabilities:										—
Commitments to extend credit		—		—		—		—		—
Commercial letters of credit		—		—		—		—		—
Market value of interest rate swap		1,126		1,126		—		1,126		—

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

	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
Financial Assets:
Cash and due from banks	$	44,389		44,389	$	44,389		—		—
Interest-earning deposits		4,371		4,371		4,371
Securities available for sale		383,782		383,782		—		382,789		993
Federal Home Loan Bank stock		4,428		4,428		—		4,428		—
Loans receivable		556,360		585,734		—		—		585,734
Accrued interest receivable		6,183		6,183		—		6,183		—
Bank owned life insurance		9,135		9,135		—		9,135		—
Financial liabilities:
Deposits		800,095		811,415		—		811,415		—
Advances from borrowers for taxes and insurance		153		153		—		153		—
Advances from Federal Home Loan Bank		63,319		69,206		—		69,206		—
Repurchase agreements		43,080		44,969		—		44,969		—
Subordinated debentures		10,310		10,099		—		—		10,099
Off-balance-sheet liabilities:										—
Commitments to extend credit		—		—		—		—		—
Commercial letters of credit		—		—		—		—		—
Market value of interest rate swap		1,297		1,297		—		1,297		—

Non-Financial Assets and Non-Financial Liabilities:

The Company has no non-financial assets or non-financial liabilities measured at fair value on a recurring basis. Certain non-financial assets measured at fair value on a non-recurring basis include foreclosed assets (upon initial recognition or subsequent impairment), non-financial assets and intangible assets and other non-financial long-lived assets measured at fair value for impairment assessment. Non-financial assets measured at fair value on a non-recurring basis during the reported periods include certain foreclosed assets which, upon initial recognition, were re-measured and reported at fair value through a charge-off to the allowance for loan losses and certain foreclosed assets which, subsequent to their initial recognition, were re-measured at fair value through a write-down included in other non-interest expense. The fair value of a foreclosed asset is estimated using Level 2 inputs based on observable market data or Level 3 inputs based on customized discounting criteria. During the reported periods, all fair value measurements for foreclosed assets utilized Level 2 inputs.

The following table presents foreclosed assets that were re-measured and reported at fair value:

	2012			2011			2010
Beginning balance	$	2,267			9,812			1,883
Foreclosed assets measured at initial recognition:
Carrying value of foreclosed assets prior to acquisition		2,634			4,591			15,848
Proceeds from sale of foreclosed assets		(2,738	)		(9,590	)		(3,897	)
Charge-offs recognized in the allowance for loan loss		(349	)		(843	)		(4,343	)
Gains (losses) on REO included in non-interest expense		(266	)		(1,703	)		321
Fair value	$	1,548			2,267			9,812

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Advances from Federal Home Loan Bank: (Details 1) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Scheduled maturities of FHLB advances as follows
2013, Fixed rate
2014, Fixed rate
2015, Fixed rate
2016, Fixed rate	4,000
2017, Fixed rate	27,000
Thereafter, Fixed rate	12,741
Total, Fixed rate	$ 43,741
2013, Average cost
2014, Average cost
2015, Average cost
2016, Average cost	5.34%
2017, Average cost	4.37%
Thereafter, Average cost	3.13%
Average cost	4.09%	3.64%

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Subordinated Debentures: (Details Textual) (USD $)	1 Months Ended		12 Months Ended
	Oct. 31, 2008	Sep. 30, 2003	Dec. 31, 2012
Subordinated Debentures (Textual) [Abstract]
Variable rate capital securities with an aggregate liquidation amount		$ 10,000,000
Preferred security, Aggregate liquidation amount		1,000
Floating rate junior subordinated debentures			10,310,000
Percentage above LIBOR	3.10%		3.10%
Variable interest rate	Three-month London Interbank Lending Rate (LIBOR) plus 3.10%		Three-month LIBOR plus 3.10% adjusted quarterly
Quarterly variable interest rate			3.41%
Junior subordinated debentures maturity			2033
Junior subordinated debentures and capital securities redemption price	1,000
Debt issuance cost and underwriting fees			$ 190,000

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Consolidated Statements of Income (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Interest and dividend income
Loans receivable	$ 29,828	$ 33,493	$ 38,037
Securities available for sale	8,722	10,465	11,911
Nontaxable securities available for sale	2,266	2,263	2,457
Interest-earning deposits	24	19	12
Total interest and dividend income	40,840	46,240	52,417
Interest expense:
Deposits (note 6)	10,571	14,207	17,384
Advances from Federal Home Loan Bank	2,609	2,557	3,292
Repurchase agreements	963	909	831
Subordinated debentures	734	742	739
Total interest expense	14,877	18,415	22,246
Net interest income	25,963	27,825	30,171
Provision for loan losses (note 3)	2,275	5,921	5,970
Net interest income after provision for loan losses	23,688	21,904	24,201
Non-interest income:
Service charges	3,840	3,813	3,922
Merchant card income	842	768	698
Mortgage origination income	956	720	590
Realized gain from sale of securities available for sale, net (note 2)	1,671	2,897	3,504
Other than temporary impairment on investments		(155)
Income from bank owned life insurance	399	316	344
Financial services commission	1,071	894	971
Other operating income	860	940	1,077
Total non-interest income	9,639	10,193	11,106
Non-interest expenses:
Salaries and benefits (note 12)	13,979	13,266	12,762
Occupancy expense (note 4)	3,531	3,269	3,158
Data processing expense	2,494	2,645	2,807
State deposit tax	647	627	640
Intangible amortization	227	291	358
Professional services	1,605	1,372	1,225
Advertising expense	1,357	1,235	1,115
Postage and communications expense	562	549	557
Supplies expense	355	399	404
Deposit insurance and examination fees	1,539	2,021	2,107
Loss on sale of assets	13	145
Loss (gain) on sale of real estate owned	266	1,703	(321)
Expenses related to real estate owned	123	276	264
Other operating expenses	1,743	895	1,102
Total non-interest expense	28,441	28,693	26,178
Income before income tax expense	4,886	3,404	9,129
Income tax expense (note 13)	817	484	2,613
Net income	4,069	2,920	6,516
Less: Dividend on preferred shares	1,007	920	920
Accretion dividend on preferred shares	222	111	111
Net income available for common shareholders	$ 2,840	$ 1,889	$ 5,485
Earnings per share available to common stockholders (note 18):
Basic	$ 0.38	$ 0.25	$ 0.96
Fully diluted	$ 0.38	$ 0.25	$ 0.96
Weighted average shares outstanding - basic	7,486,445	7,460,294	5,732,495	[1]
Weighted average shares outstanding - diluted	7,486,445	7,460,294	5,732,495	[1]

[1] Weighted average shares outstanding (basic and diluted) for 2010 adjusted to reflected 2% stock dividend paid to shareholders of record on October 3, 2011.

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Loans Receivable, Net:

12 Months Ended

Dec. 31, 2012

Loans Receivable, Net: [Abstract]

Loans Receivable, Net:

(3) Loans Receivable, Net:

The components of loans receivable in the consolidated balance sheets as of December 31, 2012, and December 31, 2011, were as follows:

	December 31, 2012						December 31, 2011
	Amount			Percent			Amount			Percent
Real estate loans:
One-to-four family (closed end) first mortgages	$	162,335			30.3	%	$	171,192			30.2	%
Second mortgages (closed end)		4,336			0.8	%		6,209			1.1	%
Home equity lines of credit		37,083			6.9	%		38,694			6.8	%
Multi-family		33,056			6.2	%		33,739			5.9	%
Construction		18,900			3.5	%		11,931			2.1	%
Land		45,906			8.6	%		52,338			9.2	%
Non-residential real estate		169,436			31.6	%		183,485			32.3	%
Total mortgage loans		471,052			87.9	%		497,588			87.6	%
Consumer loans		13,886			2.6	%		15,110			2.7	%
Commercial loans		50,549			9.5	%		54,673			9.7	%
Total other loans		64,435			12.1	%		69,783			12.4	%
Total loans, gross		535,487			100.0	%		567,371			100.0	%
Deferred loan cost, net of income		146						251
Less allowance for loan losses		(10,648	)					(11,262	)
Total loans	$	524,985					$	556,360

The Company’s loan portfolio balance has declined in each of the last two years. The decline is the result of a combination of factors, including a weak economy, both locally and nationally. Currently, unemployment in the Company’s market area ranged from 8% to 18%. The Company’s MOU previously in place by our former regulator, the OTS, restricted the Company’s ability to grow its owner occupied commercial real estate loan portfolio. The Bank’s and Corporation current regulator, the Office of the Comptroller of the Currency and the Federal Reserve, respectively, terminated all outstanding Memorandums in October 2012 and November 2012.

The Company’s loan portfolio includes a significant amount of loans secured by raw land and commercial real estate. These loans have come under increased regulatory scrutiny due to the potential for higher levels of losses. At December 31, 2012, the Company has approximately $66.6 million loans classified as substandard. At December 31, 2012, the Company has $23.8 million of loans secured by land classified as substandard, or 52.0% of our land loan portfolio and $21.1 million in loans secured by commercial real estate classified as substandard, or 12.4% of the Company’s non-residential real estate loan portfolio.

Loans serviced for the benefit of others totaled approximately $40.3 million, $59.2 million and $56.3 million at December 31, 2012, 2011 and 2010, respectively. At December 31, 2012, approximately $26.3 million of the $40.3 million in loans serviced by the Company are serviced for the benefit of Freddie Mac. Servicing loans for others generally consists of collecting mortgage payments, maintaining escrow amounts, disbursing payments to investors and foreclosure processing. The servicing rights associated with these loans are not material to the Company’s consolidated financial statements. Qualified one-to-four family first mortgage loans, non-residential real estate loans, multi-family loans and commercial real estate loans are pledged to the Federal Home Loan Bank of Cincinnati as discussed in note 7.

The Company originates most fixed rate loans for immediate sale to the Federal Home Loan Mortgage Corporation (FHLMC) or other investors. Generally, the sale of such loans is arranged shortly after the loan application is tentatively approved through commitments.

The Company conducts annual reviews on all loan relationships above $1.0 million to ascertain the borrowers continued ability to service their debt as agreed. In addition to the credit relationships mentioned above, management may classify any credit relationship once it becomes aware of adverse credit trends for that customer. Typically, the annual review consists of updated financial statements for borrowers and any guarantors, a review of the borrower’s credit history with the Company and other creditors, and current income tax information. As a result of this review, management will classify loans based on their credit risk. Additionally, the Company provides a risk grade for all loans past due more than sixty days. The Company uses the following risk definitions for risk grades:

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

Watch loans are acceptable credits: (1) that need continual monitoring, such as out-of territory or asset-based loans (since the Company does not have an asset-based lending department), or (2) with a marginal risk level to business concerns and individuals that; (a) have exhibited favorable performance in the past, though currently experiencing negative trends; (b) are in an industry that is experiencing volatility or is declining, and their performance is less than industry norms; and (c) are experiencing unfavorable trends in their financial position, such as one-time net losses or declines in asset values. These marginal borrowers may have early warning signs of problems such as occasional overdrafts and minor delinquency.

If considered marginal, a loan would be a “watch” until financial data demonstrated improved performance or further deterioration to a “substandard” grade usually within a 12-month period. In the table on page 33, Watch loans are included with satisfactory loans and classified as Pass.

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

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

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

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

Loan Origination/Risk Management

The Corporation has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies and non-performing and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions.

Commercial and industrial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and prudently expand its business. Underwriting standards are designed to promote relationship banking rather than transactional banking. Once it is determined that the borrower’s management possesses sound ethics and solid business acumen, the Corporation’s management examines current and projected cash flows to determine the ability of the borrower to repay their obligations as agreed. Commercial and industrial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial and industrial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

Commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans, in addition to those of real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Corporation’s commercial real estate portfolio are diverse in terms of type and geographic location. This diversity helps reduce the Corporation’s exposure to adverse economic events that affect any single market or industry. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. As a general rule, the Corporation avoids financing single-purpose projects unless other underwriting factors are present to help mitigate risk. The Corporation also utilizes third-party experts to provide insight and guidance about economic conditions and trends affecting market areas it serves. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans. At December 31, 2012, approximately $70.5 million of the outstanding principal balance of the Corporation’s non-residential real estate loans were secured by owner-occupied properties, approximately $52.1 million was secured by non-owner occupied properties and $46.8 million was secured by property used in agricultural production.

With respect to loans to developers and builders that are secured by non-owner occupied properties that the Corporation may originate from time to time, the Corporation generally requires the borrower to have had an existing relationship with the Corporation and have a proven record of success. Construction loans are underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analysis of absorption and lease rates and financial analysis of the developers and property owners. Construction loans are generally based upon estimates of costs and value associated with the completed project. These estimates may be inaccurate. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Corporation until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.

The Corporation maintains an independent loan review function that is typically outsourced to firms that specialize in conducting loan reviews. Results of these reviews are presented to management. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Corporation’s policies and procedures.

Most of the Corporation’s lending activity occurs in Western Kentucky and middle and western Tennessee. The majority of the Corporation’s loan portfolio consists of non-residential real estate loans and one-to-four family residential real estate loans.

Loans by classification type and the related valuation allowance amounts at December 31, 2012, were as follows:

					Impaired Loans
	Pass		Special Mention		Substandard		Doubtful		Total		Specific Allowance for  Impairment		Allowance for Loans not Impaired
December 31, 2012
One-to-four family mortgages	$	156,961		779		4,595		—		162,335		754		1,736
Home equity line of credit		34,737		1,109		1,237		—		37,083		68		306
Junior lien		3,821		47		468		—		4,336		196		34
Multi-family		27,463		1,478		4,115		—		33,056		38		486
Construction		14,052		—		4,848		—		18,900		—		256
Land		14,374		7,683		23,849		—		45,906		932		1,252
Non-residential real estate		146,443		1,899		21,094		—		169,436		1,424		2,209
Consumer loans		13,330		—		556		—		13,886		121		217
Commercial loans		44,191		516		5,842		—		50,549		308		311
Total	$	455,372		13,511		66,604		—		535,487		3,841		6,807

Loans by classification type and the related valuation allowance amounts at December 31, 2011, were as follows:

					Impaired Loans
	Pass		Special Mention		Substandard		Doubtful		Total		Specific Allowance for Impairment		Allowance for Loans not Impaired
December 31, 2011
One-to-four family mortgages	$	153,375		9,434		8,153		230		171,192		728		1,912
Home equity line of credit		36,528		1,694		233		239		38,694		131		277
Junior lien		4,778		622		809		—		6,209		180		97
Multi-family		20,715		7,073		5,951		—		33,739		26		1,175
Construction		9,943		213		1,775		—		11,931		14		125
Land		17,570		24,714		9,055		999		52,338		924		408
Non-residential real estate		142,190		25,077		16,101		117		183,485		1,374		2,297
Consumer loans		14,399		268		423		20		15,110		80		182
Commercial loans		45,509		4,009		5,034		121		54,673		623		709
Total	$	445,007		73,104		47,534		1,726		567,371		4,080		7,182

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

							For the year ended
	At December 31, 2012						12/31/12
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
Impaired loans with no recorded reserve	Investment		Balance		Allowance		Investment		Recognized
One-to-four family mortgages	$	1,759		1,759		—		5,279		107
Home equity line of credit		1,169		1,169		—		869		50
Junior liens		—		—		—		281		3
Multi-family		4,077		4,077		—		3,626		219
Construction		4,848		4,848		—		3,133		174
Land		20,279		20,279		—		19,857		504
Non-residential real estate		15,363		15,363		—		19,936		855
Consumer loans		81		81		—		66		5
Commercial loans		1,617		1,617		—		2,701		165
Total		49,193		49,193		—		55,748		2,082

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
Impaired loans with recorded reserve	Investment		Balance		Allowance		Investment		Recognized
One-to-four family mortgages	$	2,836		2,836		754		3,135		145
Home equity line of credit		68		68		68		162		3
Junior liens		468		468		196		365		38
Multi-family		38		38		38		2,640		4
Construction		—		—		—		1,095		—
Land		3,570		3,570		932		4,848		213
Non-residential real estate		5,731		5,731		1,424		6,578		323
Consumer loans		475		475		121		281		1
Commercial loans		4,225		4,225		308		4,470		28
Total		17,411		17,411		3,841		23,574		755
Total impaired loans	$	66,604		66,604		3,841		79,322		2,837

Impaired loans by classification type and the related valuation allowance amounts at December 31, 2011, were as follows:

	At December 31, 2011						For the year ended December 31, 2011
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
Impaired loans with no recorded allowance	Investment		Balance		Allowance		Investment		Recognized
One-to-four family mortgages	$	5,144		5,300		—		5,814		220
Home equity line of credit		181		181		—		312		5
Junior lien		469		469		—		287		14
Multi-family		5,059		5,059		—		2,797		242
Construction		1,589		1,589		—		1,437		63
Land		7,513		7,513		—		10,777		446
Non-residential real estate		9,458		11,530		—		10,410		312
Consumer loans		75		75		—		92		4
Commercial loans		480		584		—		2,244		33
Total	$	29,968		32,300		—		34,170		1,339

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
Impaired loans with recorded allowance:	Investment		Balance		Allowance		Investment		Recognized
One-to-four family mortgages	$	3,239		3,239		728		3,563		183
Home equity line of credit		291		291		131		399		13
Junior lien		340		340		180		703		16
Multi-family		892		892		26		1,962		15
Construction		186		186		14		1,222		11
Land		2,541		2,541		924		3,261		157
Non-residential real estate		6,760		6,760		1,374		10,833		360
Consumer loans		368		368		80		344		3
Commercial loans		4,675		4,675		623		2,671		27
Total	$	19,292		19,292		4,080		24,958		785
Total impaired loans	$	49,260		51,592		4,080		59,128		2,124

The average recorded investment in impaired loans for the years ended December 31, 2012, 2011 and 2010 was $79.3 million, $59.1 million and $43.2 million, respectively. Interest income recognized on impaired loans for the years ended December 31, 2012 and December 31, 2011 was $2.8 million and $2.1 million, respectively. The following table provides a detail of the Company’s activity in the allowance for loan loss account allocated by loan type for the year ended December 31, 2012:

								General			Specific			Ending
Year ended	Balance		Charge off			Recovery		Provision			Provision			Balance
December 31, 2012	12/31/2011		2012			2012		2012			2012			12/31/2012
One-to-four family mortgages	$	2,640		(379	)		81		324			(176	)		2,490
Home equity line of credit		408		(67	)		6		6			21			374
Junior liens		277		(1	)		4		—			(50	)		230
Multi-family		1,201		(417	)		—		429			(689	)		524
Construction		139		—			—		117			—			256
Land		1,332		(1,033	)		405		635			845			2,184
Non-residential real estate		3,671		(1,120	)		137		1,033			(88	)		3,633
Consumer loans		262		(510	)		150		404			32			338
Commercial loans		1,332		(157	)		12		(171	)		(397	)		619
	$	11,262		(3,684	)		795		2,777			(502	)		10,648

The following table provides a detail of the Company’s activity in the allowance for loan loss account allocated by loan type for the year ended December 30, 2011:

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

Non-accrual loans totaled $7.7 million and $6.1 million at December 31, 2012, and December 31, 2011, respectively. All non-accrual loans noted below are classified as either substandard or doubtful. Interest income foregone on such loans totaled $271,000 at December 31, 2012, $246,000 at December 31, 2011, and $243,000 at December 31, 2010, respectively. The Company is not committed to lend additional funds to borrowers whose loans have been placed on a non-accrual basis. There were no loans past due more than three months and still accruing interest as of December 31, 2012 and December 31, 2011. For the years ended December 31, 2012, and December 31, 2011, the components of the Company’s balances of non-accrual loans are as follows:

	12/31/2012		12/31/2011
One-to-four family first mortgages	$	2,243		2,074
Home equity lines of credit		66		134
Junior liens		4		101
Multi-family		38		—
Construction		—		—
Land		2,768		1,330
Non-residential real estate		1,134		2,231
Farmland		648		—
Consumer loans		145		9
Commercial loans		617		254
Total non-accrual loans	$	7,663		6,133

The table below presents past due balances at December 31, 2012, by loan classification allocated between performing and non-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	$	155,936		1,339		2,243		779		2,038		—		162,335
Home equity line of credit		34,732		5		66		1,109		1,171		—		37,083
Junior liens		3,584		237		4		47		464		—		4,336
Multi-family		27,463		—		38		1,478		4,077		—		33,056
Construction		13,876		176		—		—		4,848		—		18,900
Land		14,237		137		2,768		7,683		21,081		—		45,906
Non-residential real estate		146,150		293		1,782		1,899		19,312		—		169,436
Consumer loans		13,266		74		145		—		401		—		13,886
Commercial loans		43,961		230		617		516		5,225		—		50,549
Total	$	453,205		2,491		7,663		13,511		58,617		—		535,487

The table below presents past due balances at December 31, 2011, by loan classification allocated between performing and non-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	$	153,375		628		2,074		9,163		5,722		230		171,192
Home equity line of credit		36,528		5		134		1,664		134		229		38,694
Junior liens		4,778		312		101		521		497		—		6,209
Multi-family		20,715		—		—		7,073		5,951		—		33,739
Construction		9,943		107		—		213		1,668		—		11,931
Land		17,570		237		1,330		24,714		7,488		999		52,338
Non-residential real estate		142,190		487		2,231		24,782		13,678		117		183,485
Consumer loans		14,399		28		9		268		386		20		15,110
Commercial loans		45,509		506		254		4,003		4,385		16		54,673
Total	$	445,007		2,310		6,133		72,401		39,909		1,611		567,371

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

Troubled Debt Restructuring

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

• The restructuring constitutes a concession

• The debtor is experiencing financial difficulties

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

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

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

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

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

	2012			2011
Total TDR:
One-to-four family mortgages	$	1,888			2,521
Home equity line of credit		—			—
Junior lien		196			857
Multi-family		234			—
Construction		4,112			—
Land		3,424			941
Non-residential real estate		3,173			3,367
Farmland Consumer loans		909 5			—   33
Commercial loans		128			125
		14,069			7,844
Less:
TDR in non-accrual status
One-to-four family mortgages		—			(1,410	)
Home equity line of credit		—			—
Junior lien		(100	)		(100	)
Multi-family		—			—
Construction		—			—
Land		(2,768	)		—
Farmland Non-residential real estate		(44 —	)		—   (1	)
Consumer loans		—			(1	)
Commercial loans		(119	)		(105	)
Total performing TDR	$	11,038			6,227

The Company originates loans to officers and directors and their affiliates at terms substantially identical to those available to other borrowers. Loans to officers and directors at December 31, 2012 and December 31, 2011, were approximately $8,846,000 and $10,917,000, respectively. At December 31, 2012, funds committed that were undisbursed to officers and directors approximated $1.4 million.

The following summarizes activity of loans to officers and directors and their affiliates for the years ended December 31, 2012, and December 31, 2011:

	2012			2011
Balance at beginning of period	$	10,917			11,641
New loans		2,463			2,940
Principal repayments		(4,534	)		(3,664	)
Balance at end of period	$	8,846		$	10,917

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Securities:

12 Months Ended

Dec. 31, 2012

Securities: [Abstract]

Securities:

(2) Securities:

Securities, which consist of debt and equity investments, have been classified in the consolidated balance sheets according to management’s intent. The carrying amount of securities and their estimated fair values follow:

	December 31, 2012
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Restricted:
FHLB stock	$	4,428		—		—			4,428
Unrestricted:
U.S. government and agency securities:	$	147,659		5,202		(83	)		152,778
Tax free municipal bonds		68,331		5,756		(40	)		74,047
Taxable municipal bonds		12,535		1,209		(8	)		13,736
Trust preferred securities		2,000		—		(511	)		1,489
Mortgage-backed securities:
GNMA		19,172		1,244		(19	)		20,397
FNMA		64,805		2,558		(58	)		67,305
FHLMC		4,519		153		—			4,672
SLMA CMOs		5,412		80		—			5,492
AGENCY CMOs		16,055		426		(52	)		16,429
	$	340,488		16,628		(771	)		356,345

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

The scheduled maturities of debt securities available for sale at December 31, 2012, and December 31, 2011, were as follows:

2012	Amortized Cost		Estimated Fair Value
Due within one year	$	345		346
Due in one to five years		11,499		11,682
Due in five to ten years		30,007		32,316
Due after ten years		53,222		57,290
		95,073		101,634
Amortizing agency bonds		135,452		140,416
Mortgage-backed securities		109,963		114,295
Total unrestricted securities available for sale	$	340,488		356,345

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

The FHLB stock is an equity interest in the Federal Home Loan Bank. FHLB stock does not have a readily determinable fair value because ownership is restricted and a market is lacking. FHLB stock is classified as a restricted investment security, carried at cost and evaluated for impairment.

The estimated fair value and unrealized loss amounts of temporarily impaired investments as of December 31, 2012 and December 31, 2011, are as follows:

	Less than 12 months					12 months or longer					Total
	Estimated					Estimated					Estimated
December 31, 2012	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Available for sale
U.S. government and agency securities:
Agency debt securities	$	12,317		(83	)		—		—			12,317		(83	)
Taxable municipals		885		(8	)		—		—			885		(8	)
Tax free municipals		5,315		(40	)		—		—			5,315		(40	)
Trust preferred securities		—		—			1,489		(511	)		1,489		(511	)
Mortgage-backed securities:
GNMA		—		—			1,415		(19	)		1,415		(19	)
FNMA		7,077		(58	)		—		—			7,077		(58	)
FHLMC		—		—			—		—			—		—
NON-AGENCY CMOs		—		—			—		—			—		—
AGENCY CMOs		3,691		(52	)		—		—			3,691		(52	)
Total Available for Sale	$	29,285		(241	)		2,904		(530	)		32,189		(771	)

	Less than 12 months					12 months or longer					Total
	Estimated					Estimated					Estimated
December 31, 2011	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Available for sale
U.S. government and agency securities:
Agency debt securities	$	20,422		(54	)		2,007		(11	)		22,429		(65	)
Taxable municipals		—		—			—		—			—		—
Tax free municipals		—		—			—		—			—		—
Trust preferred securities		—		—			993		(1,007	)		993		(1,007	)
Mortgage-backed securities:
GNMA		1,925		(19	)		—		—			1,925		(19	)
FNMA		—		—			81		(1	)		81		(1	)
FHLMC		—		—			—		—			—		—
NON-AGENCY CMOs		—		—			1,494		(223	)		1,494		(223	)
AGENCY CMOs		—		—			—		—			—		—
Total Available for Sale	$	22,347		(73	)		4,575		(1,242	)		26,922		(1,315	)

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 December 31, 2012, the Company has 26 securities with unrealized losses. With the exception of a subordinated debenture discussed below, Management believes these unrealized losses relate to changes in interest rates and not credit quality. Management also believes the Company has the ability to hold these securities until maturity or for the foreseeable future and therefore no declines are deemed to be other than temporary.

The carrying value of the Company’s investment securities may decline in the future if the financial condition of issuers deteriorates and management determines it is probable that the Company will not recover the entire amortized cost bases of the securities. As a result, there is a risk that other-than-temporary impairment charges may occur in the future.

In June of 2008, the Company purchased $2 million par value of a private placement subordinated debenture issued by First Financial Services Corporation (“FFKY”), the holding Company for First Federal Savings Bank (“First Fed”). The debenture is a thirty year security with a coupon rate of 8.00%. FFKY is a NASDAQ listed commercial bank holding company located in Elizabethtown, Kentucky. In October of 2010, FFKY informed the owners of its subordinated trust, including the Company, that it was deferring the dividend payments for up to five years as prescribed by the trust. FFKY has suffered significant asset quality issues that have resulted in negative earnings since 2009 and have negatively impacted FFKY’s capital position.

In July 2012, FFKY closed on the previously announced sale of four branch offices located in Indiana to a local financial institution. FFKY realized a net gain of approximately $3.4 million. The transaction increased the Tier 1 Capital to Average Assets Ratio and Total Risk Based Capital to Risk Weighted Assets Ratio of First Fed to 6.51% and 11.90%, respectively.

Currently, FFKY and First Fed are under a Consent Order issued jointly by the Kentucky State Department of Financial Institutions and the FDIC. Among other things, the consent order requires First Fed to increase its Tier 1 Capital to Average Assets Ratio to 8.00% and its Total Risk Based Capital to Risk Weighted Asset Ratio to 12.00%. At December 31, 2012, First Fed has not met the capital goals established by their regulators but achieved a Tier 1 Capital to Average Assets Ratio of 6.69% and a Total Risk Based Capital to Weighted Asset Ratio of 12.45%.

The Company continues to monitor all quarterly reports issued by both FFKY and First Fed subsidiary to determine if the investment in the subordinated trust is other than temporarily impaired. At December 31, 2012, the Company has determined, based on the suspension of the dividend, that the investment is not other than temporarily impaired and has taken a $511,000 reduction in other comprehensive income related to the lack of current cash flow from the debenture. The Company has further determined, based on the financial trends and capital position of FFKY and its First Fed, that the Company’s investment in the subordinated debenture is not permanently impaired at this time.

During 2012, the Company sold investment securities classified as available for sale for proceeds of $69.0 million resulting in gross gains of $1.8 million and gross losses of $115,000. During 2011, the Company sold investment securities classified as available for sale for proceeds of $115.2 million resulting in gross gains of $3.2 million and gross losses of $335,000. During 2010, the Company sold investment securities classified as available for sale for proceeds of $103.8 million resulting in gross gains of $3.5 million and gross losses of $30,000.

As part of its normal course of business, the Bank holds significant balances of municipal and other deposits that require the Bank to pledge investment instruments as collateral. At December 31, 2012, the Bank pledged investments with a book value of $145.1 million and a market value of approximately $149.4 million to various municipal entities as required by law. The Bank has pledged two investment securities with a market value of $617,500 to the Federal Home Loan Bank of Cincinnati to provide for a higher level of available borrowings. In addition, the Bank has provided $15.5 million of letters of credit issued by the Federal Home Loan Bank of Cincinnati to collateralize municipal deposits. The collateral for these letters of credit are the Bank’s one to four family loan portfolio, commercial real estate portfolio and its multi-family loan portfolio.

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Real Estate and Other Assets Owned:

12 Months Ended

Dec. 31, 2012

Real Estate and Other Assets Owned: [Abstract]

Real Estate and Other Assets Owned:

(14) Real Estate and Other Assets Owned:

The Company’s real estate and other assets owned balances at December 31, 2012, and December 31, 2011, represent properties and personal collateral acquired by the Bank through customer loan defaults. The property is recorded at the lower of cost or fair value less estimated cost of to sell at the date acquired with any loss recognized as a charge off through the allowance for loan loss account. Additional real estate and other asset losses may be determined on individual properties at specific intervals or at the time of disposal. Additional losses are recognized as a non-interest expense. For the years ended December 31, 2012, and December 31, 2011, the composition of the Company’s balance in both real estate and other assets owned are as follows:

	December 31,
	2012		2011
One-to-four family mortgages	$	258		480
Multi-family		—		905
Construction		130		465
Land		1,112		248
Non-residential real estate		44		160
Consumer assets owned by bank		4		9
Total other assets owned	$	1,548		2,267

XML

Subordinated Debentures:

12 Months Ended

Dec. 31, 2012

Subordinated Debentures: [Abstract]

Subordinated Debentures:

(10) Subordinated Debentures:

On September 25, 2003, the Company formed HopFed Capital Trust I (the Trust). The Trust is a statutory trust formed under the laws of the state of Delaware. In September 2003, the Trust issued variable rate capital securities with an aggregate liquidation amount of $10,000,000 ($1,000 per preferred security) to a third-party investor. The Company then issued floating rate junior subordinated debentures aggregating $10,310,000 to the Trust. The junior subordinated debentures are the sole assets of the Trust. The junior subordinated debentures and the capital securities pay interest and dividends, respectively, on a quarterly basis. The variable interest rate is the three-month LIBOR plus 3.10% adjusted quarterly (3.41% at December 31, 2012). These junior subordinated debentures mature in 2033, at which time the capital securities must be redeemed. The junior subordinated debentures and capital securities became redeemable contemporaneously, in whole or in part, beginning October 8, 2008 at a redemption price of $1,000 per capital security.

The Company has provided a full-irrevocable and unconditional guarantee on a subordinated basis of the obligations of the Trust under the capital securities in the event of the occurrence of an event of default, as defined in such guarantee. Debt issuance cost and underwriting fees of $190,000 were capitalized related to the offering and are fully amortized at December 31, 2012.

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Fair Value Measurement: (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Assets
Securities available for sale (notes 2 and 8)	$ 356,345	$ 383,782
Fair Value, Measurements, Recurring [Member]
Assets
Securities available for sale (notes 2 and 8)	356,345	383,782
Bank owned life insurance	9,323	9,135
Liabilities
Interest rate swap	1,126	1,297
Quoted Prices In Active Markets for Identical Assets (Level 1) [Member] | Fair Value, Measurements, Recurring [Member]
Assets
Securities available for sale (notes 2 and 8)
Bank owned life insurance
Liabilities
Interest rate swap
Significant Other Observable Inputs (Level 2) [Member] | Fair Value, Measurements, Recurring [Member]
Assets
Securities available for sale (notes 2 and 8)	354,856	382,789
Bank owned life insurance	9,323	9,135
Liabilities
Interest rate swap	1,126	1,297
Significant Unobservable Inputs (Level 3) [Member] | Fair Value, Measurements, Recurring [Member]
Assets
Securities available for sale (notes 2 and 8)	$ 1,489	$ 993

XML

Deposits:

12 Months Ended

Dec. 31, 2012

Deposits and Advances from Federal Home loan Bank: [Abstract]

Deposit:

(6) Deposits:

At December 31, 2012, the scheduled maturities of other time deposits were as follows:

Years Ending December 31,
2013	$	220,182
2014		78,333
2015		42,661
2016		78,036
2017 2018 and thereafter		17,846 34
	$	437,092

The amount of other time deposits with a minimum denomination of $100,000 was approximately $222.0 million and $272.5 million at December 31, 2012, and December 31, 2011, respectively. At December 31, 2012, directors, members of senior management and their affiliates had deposits in the Bank of approximately $2.9 million.

Interest expense on deposits for the years ended December 31, 2012, December 31, 2011 and December 31, 2010 is summarized as follows:

	2012		2011		2010
Demand and NOW accounts	$	1,180		1,435		1,553
Money market accounts		58		108		113
Savings		71		114		130
Other time deposits		9,262		12,550		15,588
	$	10,571		14,207		17,384

The Bank maintains clearing arrangements for its demand, NOW and money market accounts with BBVA Compass Bank. The Bank is required to maintain certain cash reserves in its account to cover average daily clearings. At December 31, 2012, average daily clearings were approximately $6.6 million.

At December 31, 2012, the Company had approximately $469,000 of deposit accounts in overdraft status and thus has been reclassified to loans on the accompanying consolidated balance sheet. At December 31, 2011, the Company had approximately $358,000 of deposit accounts in overdraft status and thus has been reclassified to loans on the accompanying consolidated balance sheet. At December 31, 2012, and December 31, 2011, the Company had deposits classified as brokered deposits totaling $44.5 million and $56.3 million, respectively. At December 31, 2012 and December 31, 2011, the Company had CDARS deposits totaling $2.1 million.

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Securities: (Details 2) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Estimated fair value and unrealized loss amounts of temporarily impaired investments
Estimated Fair Value, Less than 12 months	$ 29,285	$ 22,347
Unrealized Losses, Less than 12 months	(241)	(73)
Estimated fair value, 12 months or longer	2,904	4,575
Unrealized losses, 12 months or longer	(530)	(1,242)
Estimated fair value	32,189	26,922
Unrealized losses	(771)	(1,315)
Agency debt securities [Member] | U.S. government and agency securities [Member]
Estimated fair value and unrealized loss amounts of temporarily impaired investments
Estimated Fair Value, Less than 12 months	12,317	20,422
Unrealized Losses, Less than 12 months	(83)	(54)
Estimated fair value, 12 months or longer		2,007
Unrealized losses, 12 months or longer		(11)
Estimated fair value	12,317	22,429
Unrealized losses	(83)	(65)
Taxable municipals [Member] | U.S. government and agency securities [Member]
Estimated fair value and unrealized loss amounts of temporarily impaired investments
Estimated Fair Value, Less than 12 months	885
Unrealized Losses, Less than 12 months	(8)
Estimated fair value, 12 months or longer
Unrealized losses, 12 months or longer
Estimated fair value	885
Unrealized losses	(8)
Tax free municipals [Member] | U.S. government and agency securities [Member]
Estimated fair value and unrealized loss amounts of temporarily impaired investments
Estimated Fair Value, Less than 12 months	5,315
Unrealized Losses, Less than 12 months	(40)
Estimated fair value, 12 months or longer
Unrealized losses, 12 months or longer
Estimated fair value	5,315
Unrealized losses	(40)
Trust preferred securities [Member] | U.S. government and agency securities [Member]
Estimated fair value and unrealized loss amounts of temporarily impaired investments
Estimated fair value, 12 months or longer	1,489	993
Unrealized losses, 12 months or longer	(511)	(1,007)
Estimated fair value	1,489	993
Unrealized losses	(511)	(1,007)
GNMA [Member] | Mortgage-backed securities [Member]
Estimated fair value and unrealized loss amounts of temporarily impaired investments
Estimated Fair Value, Less than 12 months		1,925
Unrealized Losses, Less than 12 months		(19)
Estimated fair value, 12 months or longer	1,415
Unrealized losses, 12 months or longer	(19)
Estimated fair value	1,415	1,925
Unrealized losses	(19)	(19)
FNMA [Member] | Mortgage-backed securities [Member]
Estimated fair value and unrealized loss amounts of temporarily impaired investments
Estimated Fair Value, Less than 12 months	7,077
Unrealized Losses, Less than 12 months	(58)
Estimated fair value, 12 months or longer		81
Unrealized losses, 12 months or longer		(1)
Estimated fair value	7,077	81
Unrealized losses	(58)	(1)
FHLMC [Member] | Mortgage-backed securities [Member]
Estimated fair value and unrealized loss amounts of temporarily impaired investments
Estimated Fair Value, Less than 12 months
Unrealized Losses, Less than 12 months
Estimated fair value, 12 months or longer
Unrealized losses, 12 months or longer
Estimated fair value
Unrealized losses
NON-AGENCY CMOs [Member] | Mortgage-backed securities [Member]
Estimated fair value and unrealized loss amounts of temporarily impaired investments
Estimated Fair Value, Less than 12 months
Unrealized Losses, Less than 12 months
Estimated fair value, 12 months or longer		1,494
Unrealized losses, 12 months or longer		(223)
Estimated fair value		1,494
Unrealized losses		(223)
AGENCY CMOs [Member] | Mortgage-backed securities [Member]
Estimated fair value and unrealized loss amounts of temporarily impaired investments
Estimated Fair Value, Less than 12 months	3,691
Unrealized Losses, Less than 12 months	(52)
Estimated fair value, 12 months or longer
Unrealized losses, 12 months or longer
Estimated fair value	3,691
Unrealized losses	$ (52)

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Variable Interest Entities (Details) (USD $)	12 Months Ended
	Dec. 31, 2012
Housing Equity Fund [Member]
Variable Interest Entities (Textual) [Abstract]
Commitment as a limited partner	$ 1,500,000
Fort Webb, LLLP [Member]
Variable Interest Entities (Textual) [Abstract]
Commitment as a limited partner	$ 480,000

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Premises and Equipment:

12 Months Ended

Dec. 31, 2012

Premises and Equipment: [Abstract]

Premises and Equipment:

(4) Premises and Equipment:

Components of premises and equipment included in the consolidated balance sheets as of December 31, 2012 and December 31, 2011, consisted of the following:

	2012		2011
Land	$	5,560		5,560
Land improvements		558		558
Buildings		20,257		20,206
Furniture and equipment		7,427		6,765
		33,802		33,089
Less accumulated depreciation		11,245		9,658
Premises and equipment, net	$	22,557		23,431

Depreciation expense was approximately $1,587,000, $1,569,000 and $1,586,000 for the years ended December 31, 2012, 2011 and 2010, respectively.

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Intangible Assets:

12 Months Ended

Dec. 31, 2012

Intangible Assets: [Abstract]

Intangible Assets:

(5) Intangible Assets:

Goodwill is tested for impairment on an annual basis and as events or circumstances change that would more likely than not reduce fair value below its carrying amount. In 2009, the Company determined that its goodwill was other than temporarily impaired, and as a result, the Company determined that goodwill was impaired and charged off $4,989,000 on September 30, 2009.

The amount of other intangible assets and the changes in the carrying amounts of other intangible assets for the years ended December 31, 2012, December 31, 2011 and December 31, 2010:

	Core Deposits
	Intangible
Balance, December 31, 2009	$	1,168
Amortization		(358	)
Balance December 31, 2010		810
Amortization		(291	)
Balance December 31, 2011		519
Amortization		(227	)
Balance, December 31, 2012	$	292

The estimated amortization expense for intangible assets for the subsequent years at December 31, 2012, is as follows:

	Core
	Deposit Intangible
2013	$	162
2014		97
2015		33
Total	$	292

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Advances from Federal Home Loan Bank:

12 Months Ended

Dec. 31, 2012

Deposits and Advances from Federal Home loan Bank: [Abstract]

Advances from Federal Home Loan Bank:

(7) Advances from Federal Home Loan Bank:

Federal Home Loan Bank advances are summarized as follows:

	December 31,
	2012					2011
Types of Advances	Amount		Weighted Average Rate			Amount		Weighted Average Rate
Fixed-rate	$	43,741		4.09	%	$	63,319		3.64	%

Scheduled maturities of FHLB advances as of December 31, 2012 are as follows:

Years Ending December 31,	Fixed Rate		Average Cost
2013	$	—		—
2014		—		—
2015		—		—
2016		4,000		5.34	%
2017		27,000		4.37	%
Thereafter		12,741		3.13	%
Total	$	43,741		4.09	%

All FHLB advances maturing in 2017 allow the FHLB of Cincinnati the right to call the borrowing at par. The investment maturing in 2019 requires monthly principal payments based on a ten year amortization with a 5% constant prepayment rate.

The Bank has an approved line of credit of $30.0 million at the FHLB of Cincinnati, which is secured by a blanket agreement to maintain residential first mortgage loans and non-residential real estate loans with a principal value of 125% of the outstanding advances and has a variable interest rate. At December 31, 2012, the Bank could borrow an additional $46.2 million from the FHLB of Cincinnati without pledging additional collateral. The Bank has an $8 million unsecured line of credit with BVA Compass Bank of Birmingham, Alabama. The Company’s overnight lines of credit with both the Federal Home Loan Bank of Cincinnati and Compass Bank had a zero balance at December 31, 2012.

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Loans Receivable, Net: (Details 2) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Impaired loans with no recorded reserve
Recorded Investment	$ 49,193	$ 29,968
Unpaid Principal Balance	49,193	32,300
Average Recorded Investment	55,748	34,170
Interest Income Recognized	2,082	1,339
Impaired loans with recorded allowance:
Recorded Investment	17,411	19,292
Unpaid Principal Balance	17,411	19,292
Related Allowance	3,841	4,080
Average Recorded Investment	23,574	24,958
Interest Income Recognized	755	785
Total impaired loans Recorded Investment	66,604	49,260
Total impaired loans Unpaid Principal Balance	66,604	51,592
Total impaired loans Related Allowance	3,841	4,080
Total impaired loans Average Recorded Investment	79,322	59,128	43,200
Total impaired loans Interest Income Recognized	2,837	2,124
One-to-four family mortgages [Member]
Impaired loans with no recorded reserve
Recorded Investment	1,759	5,144
Unpaid Principal Balance	1,759	5,300
Average Recorded Investment	5,279	5,814
Interest Income Recognized	107	220
Impaired loans with recorded allowance:
Recorded Investment	2,836	3,239
Unpaid Principal Balance	2,836	3,239
Related Allowance	754	728
Average Recorded Investment	3,135	3,563
Interest Income Recognized	145	183
Total impaired loans Related Allowance	754	728
Home equity line of credit [Member]
Impaired loans with no recorded reserve
Recorded Investment	1,169	181
Unpaid Principal Balance	1,169	181
Average Recorded Investment	869	312
Interest Income Recognized	50	5
Impaired loans with recorded allowance:
Recorded Investment	68	291
Unpaid Principal Balance	68	291
Related Allowance	68	131
Average Recorded Investment	162	399
Interest Income Recognized	3	13
Total impaired loans Related Allowance	68	131
Junior liens [Member]
Impaired loans with no recorded reserve
Recorded Investment		469
Unpaid Principal Balance		469
Average Recorded Investment	281	287
Interest Income Recognized	3	14
Impaired loans with recorded allowance:
Recorded Investment	468	340
Unpaid Principal Balance	468	340
Related Allowance	196	180
Average Recorded Investment	365	703
Interest Income Recognized	38	16
Total impaired loans Related Allowance	196	180
Multi-family [Member]
Impaired loans with no recorded reserve
Recorded Investment	4,077	5,059
Unpaid Principal Balance	4,077	5,059
Average Recorded Investment	3,626	2,797
Interest Income Recognized	219	242
Impaired loans with recorded allowance:
Recorded Investment	38	892
Unpaid Principal Balance	38	892
Related Allowance	38	26
Average Recorded Investment	2,640	1,962
Interest Income Recognized	4	15
Total impaired loans Related Allowance	38	26
Construction [Member]
Impaired loans with no recorded reserve
Recorded Investment	4,848	1,589
Unpaid Principal Balance	4,848	1,589
Average Recorded Investment	3,133	1,437
Interest Income Recognized	174	63
Impaired loans with recorded allowance:
Recorded Investment		186
Unpaid Principal Balance		186
Related Allowance		14
Average Recorded Investment	1,095	1,222
Interest Income Recognized		11
Total impaired loans Related Allowance		14
Land [Member]
Impaired loans with no recorded reserve
Recorded Investment	20,279	7,513
Unpaid Principal Balance	20,279	7,513
Average Recorded Investment	19,857	10,777
Interest Income Recognized	504	446
Impaired loans with recorded allowance:
Recorded Investment	3,570	2,541
Unpaid Principal Balance	3,570	2,541
Related Allowance	932	924
Average Recorded Investment	4,848	3,261
Interest Income Recognized	213	157
Total impaired loans Related Allowance	932	924
Non-residential real estate [Member]
Impaired loans with no recorded reserve
Recorded Investment	15,363	9,458
Unpaid Principal Balance	15,363	11,530
Average Recorded Investment	19,936	10,410
Interest Income Recognized	855	312
Impaired loans with recorded allowance:
Recorded Investment	5,731	6,760
Unpaid Principal Balance	5,731	6,760
Related Allowance	1,424	1,374
Average Recorded Investment	6,578	10,833
Interest Income Recognized	323	360
Total impaired loans Related Allowance	1,424	1,374
Consumer loans [Member]
Impaired loans with no recorded reserve
Recorded Investment	81	75
Unpaid Principal Balance	81	75
Average Recorded Investment	66	92
Interest Income Recognized	5	4
Impaired loans with recorded allowance:
Recorded Investment	475	368
Unpaid Principal Balance	475	368
Related Allowance	121	80
Average Recorded Investment	281	344
Interest Income Recognized	1	3
Total impaired loans Related Allowance	121	80
Commercial loans [Member]
Impaired loans with no recorded reserve
Recorded Investment	1,617	480
Unpaid Principal Balance	1,671	584
Average Recorded Investment	2,701	2,244
Interest Income Recognized	165	33
Impaired loans with recorded allowance:
Recorded Investment	4,225	4,675
Unpaid Principal Balance	4,225	4,675
Related Allowance	308	623
Average Recorded Investment	4,470	2,671
Interest Income Recognized	28	27
Total impaired loans Related Allowance	$ 308	$ 623

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Subsequent Events (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Jan. 16, 2013	Feb. 12, 2013 Tennessee Office Location [Member] Location	Feb. 12, 2013 Sumner bank and trust [Member]	Dec. 31, 2012 Sumner bank and trust [Member]	Feb. 12, 2013 Sumner bank and trust [Member] Gallatin [Member] Location	Feb. 12, 2013 Sumner bank and trust [Member] Hendersonville [Member] Location
Subsequent Events (Textual) [Abstract]
Acquisition Amount In cash						$ 14,300,000
Acquisition paid by per share						$ 10.04
Assets acquired							184,000,000
Deposits acquired							157,600,000
Loan outstanding							121,600,000
Number of full service banking location								2	1
Number of loan production offices					3
Subsequent Events (Additional Textual) [Abstract]
Warrant holder to purchase common stock	243,816
Warrant holder to purchase common stock, per share	11.32
Warrant maturity period	10 years
Total number of shares of warrants adjusted	253,667
Adjusted Strike price of warrants	10.88
Percentage of stock dividends paid		2.00%	2.00%
Warrants repurchased				$ 256,257

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Fair Value Measurement: (Details 1) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Assets
Other real estate owned	$ 1,548	$ 2,267
Fair Value, Measurements, Nonrecurring [Member]
Assets
Other real estate owned	1,544	2,258
Other assets owned	4	9
Impaired loans, net of reserve	62,763	45,180
Quoted Prices In Active Markets for Identical Assets (Level 1) [Member] | Fair Value, Measurements, Nonrecurring [Member]
Assets
Other real estate owned
Other assets owned
Impaired loans, net of reserve
Significant Other Observable Inputs (Level 2) [Member] | Fair Value, Measurements, Nonrecurring [Member]
Assets
Other real estate owned
Other assets owned
Impaired loans, net of reserve
Significant Unobservable Inputs (Level 3) [Member] | Fair Value, Measurements, Nonrecurring [Member]
Assets
Other real estate owned	1,544	2,258
Other assets owned	4	9
Impaired loans, net of reserve	$ 62,763	$ 45,180

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Loans Receivable, Net: (Details 4) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Non-accrual loans
Total non-accrual loans	$ 7,663	$ 6,133
One-to-four family first mortgages [Member]
Non-accrual loans
Total non-accrual loans	2,243	2,074
Home equity line of credit [Member]
Non-accrual loans
Total non-accrual loans	66	134
Junior liens [Member]
Non-accrual loans
Total non-accrual loans	4	101
Multi-family [Member]
Non-accrual loans
Total non-accrual loans	38
Construction [Member]
Non-accrual loans
Total non-accrual loans
Land [Member]
Non-accrual loans
Total non-accrual loans	2,768	1,330
Non-residential real estate [Member]
Non-accrual loans
Total non-accrual loans	1,134	2,231
Farmland [Member]
Non-accrual loans
Total non-accrual loans	648
Consumer loans [Member]
Non-accrual loans
Total non-accrual loans	145	9
Commercial loans [Member]
Non-accrual loans
Total non-accrual loans	$ 617	$ 254

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Commitments and Contingencies: (Details 1) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Commitments to extend credit [Member]
Commitments and conditional obligations
Contractual notional amount of instruments	$ 27,294	$ 23,422
Standby letters of credit [Member]
Commitments and conditional obligations
Contractual notional amount of instruments	1,211	1,459
Unused commercial lines of credit [Member]
Commitments and conditional obligations
Contractual notional amount of instruments	31,597	32,329
Unused home equity lines of credit [Member]
Commitments and conditional obligations
Contractual notional amount of instruments	$ 29,188	$ 30,536

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Loans Receivable, Net: (Details 1) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Summary of the company's impaired loans
Total loans, gross	$ 535,487	$ 567,371
Specific Allowance for impairment	3,841	4,080
Allowance for Loans not Impaired	6,807	7,182
Pass [Member]
Summary of the company's impaired loans
Total loans, gross	455,372	445,007
Special Mention [Member]
Summary of the company's impaired loans
Total loans, gross	13,511	73,104
Substandard [Member]
Summary of the company's impaired loans
Total loans, gross	66,604	47,534
Doubtful [Member]
Summary of the company's impaired loans
Total loans, gross		1,726
One-to-four family mortgages [Member]
Summary of the company's impaired loans
Total loans, gross	162,335	171,192
Specific Allowance for impairment	754	728
Allowance for Loans not Impaired	1,736	1,912
One-to-four family mortgages [Member] | Pass [Member]
Summary of the company's impaired loans
Total loans, gross	156,961	153,375
One-to-four family mortgages [Member] | Special Mention [Member]
Summary of the company's impaired loans
Total loans, gross	779	9,434
One-to-four family mortgages [Member] | Substandard [Member]
Summary of the company's impaired loans
Total loans, gross	4,595	8,153
One-to-four family mortgages [Member] | Doubtful [Member]
Summary of the company's impaired loans
Total loans, gross		230
Home equity line of credit [Member]
Summary of the company's impaired loans
Total loans, gross	37,083	38,694
Specific Allowance for impairment	68	131
Allowance for Loans not Impaired	306	277
Home equity line of credit [Member] | Pass [Member]
Summary of the company's impaired loans
Total loans, gross	34,737	36,528
Home equity line of credit [Member] | Special Mention [Member]
Summary of the company's impaired loans
Total loans, gross	1,109	1,694
Home equity line of credit [Member] | Substandard [Member]
Summary of the company's impaired loans
Total loans, gross	1,237	233
Home equity line of credit [Member] | Doubtful [Member]
Summary of the company's impaired loans
Total loans, gross		239
Junior lien [Member]
Summary of the company's impaired loans
Total loans, gross	4,336	6,209
Specific Allowance for impairment	196	180
Allowance for Loans not Impaired	34	97
Junior lien [Member] | Pass [Member]
Summary of the company's impaired loans
Total loans, gross	3,821	4,778
Junior lien [Member] | Special Mention [Member]
Summary of the company's impaired loans
Total loans, gross	47	622
Junior lien [Member] | Substandard [Member]
Summary of the company's impaired loans
Total loans, gross	468	809
Junior lien [Member] | Doubtful [Member]
Summary of the company's impaired loans
Total loans, gross
Multi-family [Member]
Summary of the company's impaired loans
Total loans, gross	33,056	33,739
Specific Allowance for impairment	38	26
Allowance for Loans not Impaired	486	1,175
Multi-family [Member] | Pass [Member]
Summary of the company's impaired loans
Total loans, gross	27,463	20,715
Multi-family [Member] | Special Mention [Member]
Summary of the company's impaired loans
Total loans, gross	1,478	7,073
Multi-family [Member] | Substandard [Member]
Summary of the company's impaired loans
Total loans, gross	4,115	5,951
Multi-family [Member] | Doubtful [Member]
Summary of the company's impaired loans
Total loans, gross
Construction [Member]
Summary of the company's impaired loans
Total loans, gross	18,900	11,931
Specific Allowance for impairment		14
Allowance for Loans not Impaired	256	125
Construction [Member] | Pass [Member]
Summary of the company's impaired loans
Total loans, gross	14,052	9,943
Construction [Member] | Special Mention [Member]
Summary of the company's impaired loans
Total loans, gross		213
Construction [Member] | Substandard [Member]
Summary of the company's impaired loans
Total loans, gross	4,848	1,775
Construction [Member] | Doubtful [Member]
Summary of the company's impaired loans
Total loans, gross
Land [Member]
Summary of the company's impaired loans
Total loans, gross	45,906	52,338
Specific Allowance for impairment	932	924
Allowance for Loans not Impaired	1,252	408
Land [Member] | Pass [Member]
Summary of the company's impaired loans
Total loans, gross	14,374	17,570
Land [Member] | Special Mention [Member]
Summary of the company's impaired loans
Total loans, gross	7,683	24,714
Land [Member] | Substandard [Member]
Summary of the company's impaired loans
Total loans, gross	23,849	9,055
Land [Member] | Doubtful [Member]
Summary of the company's impaired loans
Total loans, gross		999
Non-residential real estate [Member]
Summary of the company's impaired loans
Total loans, gross	169,436	183,485
Specific Allowance for impairment	1,424	1,374
Allowance for Loans not Impaired	2,209	2,297
Non-residential real estate [Member] | Pass [Member]
Summary of the company's impaired loans
Total loans, gross	146,443	142,190
Non-residential real estate [Member] | Special Mention [Member]
Summary of the company's impaired loans
Total loans, gross	1,899	25,077
Non-residential real estate [Member] | Substandard [Member]
Summary of the company's impaired loans
Total loans, gross	21,094	16,101
Non-residential real estate [Member] | Doubtful [Member]
Summary of the company's impaired loans
Total loans, gross		117
Consumer loans [Member]
Summary of the company's impaired loans
Total loans, gross	13,886	15,110
Specific Allowance for impairment	121	80
Allowance for Loans not Impaired	217	182
Consumer loans [Member] | Pass [Member]
Summary of the company's impaired loans
Total loans, gross	13,330	14,399
Consumer loans [Member] | Special Mention [Member]
Summary of the company's impaired loans
Total loans, gross		268
Consumer loans [Member] | Substandard [Member]
Summary of the company's impaired loans
Total loans, gross	556	423
Consumer loans [Member] | Doubtful [Member]
Summary of the company's impaired loans
Total loans, gross		20
Commercial loans [Member]
Summary of the company's impaired loans
Total loans, gross	50,549	54,673
Specific Allowance for impairment	308	623
Allowance for Loans not Impaired	311	709
Commercial loans [Member] | Pass [Member]
Summary of the company's impaired loans
Total loans, gross	44,191	45,509
Commercial loans [Member] | Special Mention [Member]
Summary of the company's impaired loans
Total loans, gross	516	4,009
Commercial loans [Member] | Substandard [Member]
Summary of the company's impaired loans
Total loans, gross	5,842	5,034
Commercial loans [Member] | Doubtful [Member]
Summary of the company's impaired loans
Total loans, gross		$ 121

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Employee Benefit Plans: (Details) (USD $)	12 Months Ended
	Dec. 31, 2012
Summary of stock options outstanding
Exercise Price	$ 16.67
Weighted Average Remaining Life (Years)	1 year 4 months 24 days
Outstanding Options	20,808
Options Exercisable	20,808

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Summary of Significant Accounting Policies: (Policies)

12 Months Ended

Dec. 31, 2012

Summary of Significant Accounting Policies: [Abstract]

Nature of Operations and Customer Concentration

Nature of Operations and Customer Concentration

HopFed Bancorp, Inc. (the Corporation) is a bank holding company incorporated in the state of Delaware. The Company’s principal business activities are conducted through it’s wholly-owned subsidiary, Heritage Bank (the Bank), which is a federally chartered savings bank engaged in the business of accepting deposits and providing mortgage, consumer, construction and commercial loans to the general public through its retail banking offices. The Bank’s business activities are primarily limited to western Kentucky and middle and western Tennessee. The Bank is subject to competition from other financial institutions. Deposits at the Bank are insured up to the applicable limits by the Federal Deposit Insurance Corporation (FDIC).

As part of the enactment of the Dodd-Frank Financial Reform Act of 2010, the Corporation and Bank’s former regulator, the Office of Thrift Supervision, was eliminated on July 21, 2011. The Bank is currently subject to comprehensive regulation, examination and supervision by the Office of Comptroller of the Currency (OCC) and the FDIC. Supervision of the Corporation is conducted by the Federal Reserve.

A substantial portion of the Bank’s loans are secured by real estate in the western Kentucky and middle and west Tennessee markets. In addition, foreclosed real estate is located in this same market. Accordingly, the ultimate ability to collect on a substantial portion of the Bank’s loan portfolio and the recovery of a substantial portion of the carrying amount of foreclosed real estate is susceptible to changes in local market conditions.

Principles of Consolidation

Principles of Consolidation

The consolidated financial statements include the accounts of the Corporation, the Bank and its wholly-owned subsidiary Fall & Fall Insurance (collectively the Company) for all periods. Significant inter-company balances and transactions have been eliminated in consolidation.

Accounting

Accounting

The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted in the United States of America and conform to general practices in the banking industry.

The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity or a variable interest entity (VIE) under accounting principles generally accepted in the United States. Voting interest entities are entities which the total equity investment is a risk is sufficient to enable the entity to finance itself independently and provides the equity holders with the obligation to absorb losses, the right to receive residual returns and the right to make decision about the entity’s activities. The Company consolidates voting interest entities in which it has all, or at least a majority of, the voting interest. As defined in applicable accounting standards, VIE’s are entities in which it has all, or at least a majority of, the voting interest. A controlling financial interest in a VIE is present when an enterprise has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. The subsidiary Fort Webb LLC is a VIE for which the Company is not the primary beneficiary. Accordingly, its accounts are not included in the Company’s consolidated financial statements.

Estimates

Estimates

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheets and revenues and expenses for each year. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowances for loan losses and foreclosed real estate, management obtains independent appraisals for significant properties.

Cash and Cash Equivalents

Cash and Cash Equivalents

Cash and cash equivalents are defined as cash on hand, amounts due on demand from commercial banks, interest-earning deposits in other financial institutions and federal funds sold with maturities of three months or less.

Securities

Securities

The Company reports debt, readily-marketable equity, mortgage-backed and mortgage related securities in one of the following categories: (i) “trading” (held for current resale) which are to be reported at fair value, with unrealized gains and losses included in earnings; and (ii) “available for sale” (all other debt, equity, mortgage-backed and mortgage related securities) which are to be reported at fair value, with unrealized gains and losses reported net of tax as a separate component of stockholders’ equity. At the time of new security purchases, a determination is made as to the appropriate classification. Realized and unrealized gains and losses on trading securities are included in net income. Unrealized gains and losses on securities available for sale are recognized as direct increases or decreases in stockholders’ equity, net of any tax effect. Cost of securities sold is recognized using the specific identification method.

Interest income on securities is recognized as earned. The Company purchases many agency bonds at either a premium or discount to its par value. Premiums and discounts on agency bonds are amortized using the net interest method. For callable bonds purchased at a premium, the premium is amortized to the first call date. If the bond is not called on that date, the premium is fully amortized and the Company recognizes an increase in the net yield of the investment. The Company has determined that callable bonds purchased at a premium have a high likelihood of being called, and the decision to amortize premiums to their first call is a more conservative method of recognizing income and any variance from amortizing to contractual maturity is not material to the consolidated financial statements. For agency bonds purchased at a discount, the discount is accreted to the final maturity date. For callable bonds purchased at discount and called before maturity, the Company recognizes a gain on the sale of securities. The Company amortizes premiums and accretes discounts on mortgage back securities and collateralized mortgage obligations based on the securities three month average prepayment speed.

Other Than Temporary Impairment

Other Than Temporary Impairment

A decline in the fair value of any available-for-sale security below cost that is deemed to be other-than-temporary results in a reduction in the carrying amount to fair value. To determine whether impairment is other-than-temporary, management considers whether the entity expects to recover the entire amortized cost basis of the security by reviewing the present value of the future cash flows associated with the security. The shortfall of the present value of the cash flows expected to be collected in relation to the amortized cost basis is referred to as a credit loss. If a credit loss is identified, management then considers whether it is more-likely-than-not that the Company will be required to sell the security prior to recovery. If management concludes that it is not more-likely-than-not that it will be required to sell the security, then the security is not other-than-temporarily impaired and the shortfall is recorded as a component of equity. If the security is determined to be other-than-temporarily impaired, the credit loss is recognized as a charge to earnings and a new cost basis for the security is established.

Other Securities

Other Securities

Other securities which are not actively traded and may be restricted, such as Federal Home Loan Bank (FHLB) stock are recognized at cost, as the value is not considered impaired.

Loans Receivable

Loans Receivable

Loans receivable are stated at unpaid principal balances, less the allowance for loan losses and deferred loan cost. The Statement of Financial Accounting Standards ASC 310-20, Nonrefundable Fees and Other Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases, requires the recognition of loan origination fee income over the life of the loan and the recognition of certain direct loan origination costs over the life of the loan.

Uncollectible interest on loans that are contractually past due is charged off, or an allowance is established based on management’s periodic evaluation. The Company charges off loans after, in management’s opinion, the collection of all or a large portion of the principal or interest is not collectable. The allowance is established by a charge to interest income equal to all interest previously accrued, and income is subsequently recognized only to the extent that cash payments are received while the loan is classified as non-accrual, when the loan is ninety days past due. Loans may be returned to accrual status when all principal and interest amounts contractually due (including arrearages) are reasonably assured of repayment within an acceptable period of time, and there is a sustained period of repayment performance by the borrower in accordance with the contractual terms of interest and principal.

The Company provides an allowance for loan losses and includes in operating expenses a provision for loan losses determined by management. Management’s periodic evaluation of the adequacy of the allowance is based on the Company’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, and current economic conditions. Management’s estimate of the adequacy of the allowance for loan loss can be classified as either a reserve for currently classified loans or estimates of future losses in the current loan portfolio.

Loans are considered to be impaired when, in management’s judgment, principal or interest is not collectible according to the contractual terms of the loan agreement. When conducting loan evaluations, management considers various factors such as historical loan performance, the financial condition of the borrower and adequacy of collateral to determine if a loan is impaired. Impaired loans and loans classified as TDR’s may be classified as either substandard or doubtful and reserved for based on individual loans risk for loss. Loans not considered impaired may be classified as either special mention or watch and may be reserved for. Typically, unimpaired classified loans exhibit some form of weakness in either industry trends, collateral, or cash flow that result in a default risk greater than that of the Company’s typical loan. All classified amounts include all unpaid interest and fees as well as the principal balance outstanding.

The measurement of impaired loans generally may be based on the present value of future cash flows discounted at the historical effective interest rate. However, the majority of the Company’s problem loans become collateral dependent at the time they are judged to be impaired. Therefore, the measurement of impaired requires the Company to obtain a new appraisal to obtain the fair value of the collateral. The appraised value is then discounted to an estimated of the Company’s net realizable value, reducing the appraised value by the amount of holding and selling cost. When the measured amount of an impaired loan is less than the recorded investment in the loan, the impairment is recorded as a charge to income and a valuation allowance, which is included as a component of the allowance for loan losses.

For loans not individually classified, Management considers the Company’s recent charge off history, the Company’s current past due and non-accrual trends, banking industry trends and both local and national economic conditions when making an estimate as to the amount to reserve for losses. Management believes it has established the allowance in accordance with accounting principles generally accepted in the United States of America and has taken into account the views of its regulators and the current economic environment.

Fixed Rate Mortgage Originations

Fixed Rate Mortgage Originations

The Company operates a mortgage division that originates mortgage loans in the name of assorted investors, including Federal Home Loan Mortgage Corporation (Freddie Mac). Originations for Freddie Mac are sold through the Bank while originations to other investors are processed for a fee. On a limited basis, loans sold to Freddie Mac may result in the Bank retaining loan servicing rights. In recent years, customers have chosen lower origination rates over having their loan locally serviced; thereby limiting the amount of new loans sold with servicing retained. At December 31, 2012, the Bank maintained a servicing portfolio of one to four family real estate loans of approximately $26.3 million. For the years ended December 31, 2012, and December 31, 2011, the Bank has reviewed the value of the servicing asset as well as the operational cost associated with servicing the portfolio. The Bank has determined that the values of its servicing rights are not material to the Company’s consolidated financial statements.

Real Estate and Other Assets Owned

Real Estate and Other Assets Owned

Assets acquired through, or in lieu of, loan foreclosure or repossession carried at the lower of cost or fair value less selling expenses. Costs of improving the assets are capitalized, whereas costs relating to holding the property are expensed. Management conducts periodic valuations (no less than annually) and any adjustments to value are recognized in the current period’s operations.

Brokered Deposits

Brokered Deposits

The Company may choose to attract deposits from several sources, including using outside brokers to assist in obtaining time deposits using national distribution channels. Brokered deposits offer the Company an alternative to Federal Home Loan Bank advances and local retail time deposits.

Repurchase Agreements

Repurchase Agreements

The Company sells investments from its portfolio to business and municipal customers with a written agreement to repurchase those investments on the next business day. The repurchase product gives business customers the opportunity to earn income on liquid cash reserves. These funds are overnight borrowings of the Company secured by Company assets and are not FDIC insured. The Company has also entered into two long-term repurchase agreements with third parties as discussed in Note 8.

Revenue Recognition

Revenue Recognition

Mortgage loans held for sale are generally delivered to secondary market investors under best efforts sales commitments entered into prior to the closing of the individual loan. Loan sales and related gains or losses are recognized at settlement. Loan fees earned for the servicing of secondary market loans are recognized as earned.

Interest income on loans receivable is reported on the interest method. Interest income is not reported when full loan repayment is in doubt, typically when the loan is impaired, placed in non-accrual status, or payments are past due more than 90 days. Interest earned as reported as income is reversed on any loans classified as non-accrual or past due more than 90 days. Interest may continue to accrue on loans over 90 days past due if they are well secured and in the process of collection.

Income Taxes

Income Taxes

Income taxes are accounted for through the use of the asset and liability method. Under the asset and liability method, deferred taxes are recognized for the tax consequences of temporary differences by applying enacted statutory rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The effect on deferred taxes of a change in tax rates would be recognized in income in the period that includes the enactment date. The Company files its federal income tax return on a consolidated basis with its subsidiaries. The Company files its Tennessee state income tax return on a consolidated basis. All taxes are accrued on a separate entity basis.

Operating Segments

Operating Segments

The Company’s continuing operations include one primary segment, retail banking. The retail banking segment involves the origination of commercial, residential and consumer loans as well as the collections of deposits in eighteen branch offices.

Premises and Equipment

Premises and Equipment

Land, land improvements, buildings, and furniture and equipment are carried at cost, less accumulated depreciation and amortization. Buildings and land improvements are depreciated generally by the straight-line method, and furniture and equipment are depreciated under various methods over the estimated useful lives of the assets. The Company capitalizes interest expense on construction in process at a rate equal to the Company’s cost of funds. The estimated useful lives used to compute depreciation are as follows:

Land improvements	5-15 years
Buildings	40 years
Furniture and equipment	5-15 years

Intangible Assets

Intangible Assets

The intangible assets for insurance contracts and core deposits related to the Fulton acquisition of September 2002 was amortized using the straight-line method over the estimated period of benefit of seven years and was fully amortized in July of 2009. The core deposit intangible asset related to the middle Tennessee acquisition of June 2006 is amortized using the sum of the year’s digits method over an estimated period of nine years. The Company periodically evaluates the recoverability of the intangible assets and takes into account events or circumstances that warrant a revised estimate of the useful lives or indicates that impairment exists.

Bank Owned Life Insurance

Bank Owned Life Insurance

Bank owned life insurance policies (BOLI) are recorded at the cash surrender value or the amount to be realized upon current redemption. The realization of the redemption value is evaluated for each insuring entity that holds insurance contracts annually by management.

Advertising

Advertising

The Company expenses the production cost of advertising as incurred.

Financial Instruments

Financial Instruments

The Company has entered into off-balance-sheet financial instruments consisting of commitments to extend credit and commercial letters of credit. Such financial instruments are recorded in the consolidated financial statements when they are funded or related fees are incurred or received.

Derivative Instruments

Derivative Instruments:

Under guidelines ASC 815, Accounting for Derivative Instruments and Hedging Activities, as amended, all derivative instruments are required to be carried at fair value on the consolidated balance sheet. ASC 815 provides special hedge accounting provisions, which permit the change in fair value of the hedge item related to the risk being hedged to be recognized in earnings in the same period and in the same income statement line as the change in the fair value of the derivative.

A derivative instrument designated in a hedge relationship to mitigate exposure to changes in the fair value of an asset, liability or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges under ASC 815. Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Cash value hedges are accounted for by recording the fair value of the derivative instrument and the fair value related to the risk being hedged of the hedged asset or liability on the consolidated balance sheet with corresponding offsets recorded in the consolidated balance sheet. The adjustment to the hedged asset or liability is included in the basis of the hedged item, while the fair value of the derivative is recorded as a freestanding asset or liability. Actual cash receipts or payments and related amounts accrued during the period on derivatives included in a fair value hedge relationship are recorded as adjustments to the income or expense recorded on the hedged asset or liability.

Under both the fair value and cash flow hedge methods, derivative gains and losses not effective in hedging the change in fair value or expected cash flows of the hedged item are recognized immediately in the income statement. At the hedge’s inception and at least quarterly thereafter, a formal assessment is performed to determine whether changes in the fair values or cash flows of the derivative instrument has been highly effective in offsetting changes in the fair values or cash flows of the hedged items and whether they are expected to be highly effective in the future. If it is determined a derivative instrument has not been, or will not continue to be highly effective as a hedge, hedged accounting is discontinued. ASC 815 basis adjustments recorded on hedged assets and liabilities are amortized over the remaining life of the hedged item beginning no later than when hedge accounting ceases. There were no fair value hedging gains or losses, as a result of hedge ineffectiveness, recognized for the years ended December 31, 2012, 2011 and 2010.

Fair Values of Financial Instruments

Fair Values of Financial Instruments

In October of 2008, the Company entered into an interest rate swap agreement for a term of seven years and an amount of $10 million. The Bank will pay a fixed rate of 7.27% for seven years and receive an amount equal to the three-month London Interbank Lending Rate (Libor) plus 3.10%. The interest rate swap is classified as a cash flow hedge by the Bank and will be tested quarterly for effectiveness. At December 31, 2012, the cost of the Bank to terminate the cash flow hedge is approximately $1,126,000. The Bank, in the normal course of business, originates fixed rate mortgages that are sold to Freddie Mac. Upon tentative underwriting approval by Freddie Mac, the Bank issues a best effort commitment to originate a fixed rate first mortgage under specific terms and conditions that the Bank intends to sell to Freddie Mac. The Bank no longer assumes a firm commitment to originate fixed rate loans, thus eliminating the risk of having to deliver loans they did not close or pay commitment fees to make Freddie Mac whole.

ASC 825, Disclosures about Fair Value of Financial Instruments, requires disclosure of fair value information about financial instruments, whether or not recognized in the consolidated balance sheets for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. Fair value estimates are made at a point in time, based on relevant market information and information about the financial instrument. Accordingly, such estimates involve uncertainties and matters of judgment and therefore cannot be determined with precision. ASC 825 excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

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

Cash and cash equivalents

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 earning deposits

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 securities available-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.

Loans receivable

The fair values for of fixed-rate loans and variable rate loans that re-price on an infrequent basis is estimated using discounted cash flow analysis which considers future re-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 that re-price frequently and with have no significant change in credit risk is approximately the carrying value of the loan.

Letters of credit

The fair value of standby letters of credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the likelihood of the counter parties drawing on such financial instruments and the present creditworthiness of such counter parties. Such commitments have been made on terms which are competitive in the markets in which the Company operates, thus, the fair value of standby letters of credit equals the carrying value for the purposes of this disclosure.

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.

Repurchase agreements

Overnight repurchase agreements have a fair value at book, given that they mature overnight. The fair values for 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.

Bank owned life insurance

The fair value of bank owned life insurance is the cash surrender value of the policy less redemption charges. By surrendering the policy, the Company is also subject to federal income taxes on all earnings previously recognized.

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 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.

FHLB stock

The fair value of FHLB stock is recognized at cost.

Subordinated debentures

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

Off-Balance-Sheet Instruments

Off-balance-sheet lending commitments approximate their fair values due to the short period of time before the commitment expires.

Dividend Restrictions

Dividend Restrictions

The Company is not permitted to pay a dividend to common shareholders if it fails to make a quarterly interest payment to the holders of the Company’s subordinated debentures. Furthermore, the Bank may be restricted in the payment of dividends to the Company by the Bank’s primary regulator, the Office of Comptroller of the Currency (OCC). Any restrictions imposed by the OCC would effectively limit the Company’s ability to pay a dividend to its common stockholders as discussed in note 17.

Earnings Per Share

Earnings Per Share

Earnings per share (EPS) consists of two separate components, basic EPS and diluted EPS. Basic EPS is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for each period presented. Diluted EPS is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding plus dilutive common stock equivalents (CSE). CSE consists of dilutive stock options granted through the Company’s stock option plan. Restricted stock awards represent future compensation expense and are dilutive. Common stock equivalents which are considered anti-dilutive are not included for the purposes of this calculation. Common stock warrants issued in December 2008 and all stock options outstanding are currently anti-dilutive and are not included for the purposes of this calculation.

Both EPS and diluted EPS are reduced by the amount of dividend payments on preferred stock and the accretion of the discount on the preferred stock. The effect of the Company’s dividend payment on preferred stock and accretion of the preferred stock is as provided for the years ended December 31, 2012, 2011 and 2010:

	2012		2011		2010
Dividend on preferred shares	$	1,006,886		920,000		920,000
Accretion dividend on preferred shares		222,360		111,180		111,180
Total cost of preferred stock	$	1,229,246		1,031,180		1,031,180
Reduction in earnings per share to common stockholders:
Basic	$	0.16	$	0.14	$	0.18
Fully diluted	$	0.16	$	0.14	$	0.18
Weighted average shares outstanding -basic		7,486,445		7,460,294		5,732,495
Weighted average shares outstanding -diluted		7,486,445		7,460,294		5,732,495

Stock Compensation

Stock Compensation

The Company utilized the Black-Sholes valuation model to determine the fair value of stock options on the date of grant. The model derives the fair value of stock options based on certain assumptions related to the expected stock prices volatility, expected option life, risk-free rate of return and the dividend yield of the stock. The expected life of options granted is estimated based on historical employee exercise behavior. The risk free rate of return coincides with the expected life of the options and is based on the ten year Treasury note rate at the time the options are issued. The historical volatility levels of the Company’s common stock are used to estimate the expected stock price volatility. The set dividend yield is used to estimate the expected dividend yield of the stock.

Effect of New Accounting Pronouncements

Effect of New Accounting Pronouncements

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

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

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

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

In December 2011, the FASB issued ASU 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards update No. 2011-05. This update to Comprehensive Income (Topic 220) defers the requirement to present items that are reclassified from accumulated other comprehensive income to net income separately with their respective components of net income and other comprehensive income. The deferral supersedes only the paragraphs pertaining to how and where reclassification adjustments are presented. The amendments in this update were effective for public entities for reporting periods beginning after December 15, 2011. The implementation of ASU 2011-12 did not have a material impact on our consolidated financial statements of income, condition and cash flows.

ASU 2011-11, “Balance Sheet (Topic 210) - “Disclosures about Offsetting Assets and Liabilities.” ASU 2011-11 amends Topic 210, “Balance Sheet,” to require an entity to disclose both gross and net information about financial instruments, such as sales and repurchase agreements and reverse sale and repurchase agreements and securities borrowing/lending arrangements, and derivative instruments that are eligible for offset in the statement of financial position and/or subject to a master netting arrangement or similar agreement. ASU No. 2013-01, “Balance Sheet (Topic 210)—Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities,” clarifies that ordinary trade receivables are not within the scope of ASU 2011-11. ASU 2011-11 is effective for annual and interim periods beginning on January 1, 2013, and is not expected to have a significant impact on the Company’s financial statements.

ASU 2012-02, “Intangibles – Goodwill and Other (Topic 350) - Testing Indefinite-Lived Intangible Assets for Impairment.” ASU 2012-02 give entities the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that an indefinite-lived intangible asset is impaired. If, after assessing the totality of events or circumstances, an entity determines it is more likely than not that an indefinite-lived intangible asset is impaired, then the entity must perform the quantitative impairment test. If, under the quantitative impairment test, the carrying amount of the intangible asset exceeds its fair value, an entity should recognize an impairment loss in the amount of that excess. Permitting an entity to assess qualitative factors when testing indefinite-lived intangible assets for impairment results in guidance that is similar to the goodwill impairment testing guidance in ASU 2011-08. ASU 2012-02 is effective for the Company’s beginning January 1, 2013 (early adoption permitted) and is not expected to have a significant impact on the Company’s financial statements.

ASU 2012-06, “Business Combinations (Topic 805) - Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution (a consensus of the FASB Emerging Issues Task Force).” ASU 2012-06 clarifies the applicable guidance for subsequently measuring an indemnification asset recognized as a result of a government-assisted acquisition of a financial institution. Under ASU 2012-06, when a reporting entity recognizes an indemnification asset as a result of a government-assisted acquisition of a financial institution and, subsequently, a change in the cash flows expected to be collected on the indemnification asset occurs (as a result of a change in cash flows expected to be collected on the assets subject to indemnification), the reporting entity should subsequently account for the change in the measurement of the indemnification asset on the same basis as the change in the assets subject to indemnification. Any amortization of changes in value should be limited to the contractual term of the indemnification agreement (that is, the lesser of the term of the indemnification agreement and the remaining life of the indemnified assets). ASU 2012-06 is effective for the Company beginning January 1, 2013 (early adoption permitted) and is not expected to have a significant impact on the Company’s 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.

Reclassifications

Reclassifications:

Certain items in prior financial statements have been reclassified to conform to the current presentation.

Troubled Debt Restructuring

Troubled Debt Restructuring

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

• The restructuring constitutes a concession

• The debtor is experiencing financial difficulties

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

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

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

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

Fair Value Measurements and Disclosures

ASC 820 establishes a three-level valuation hierarchy for disclosure of fair value measurement. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date.

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

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

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

The fair value of securities available for sale are determined by a matrix pricing, which is a mathematical technique what is widely used in the industry to value debt securities without relying exclusively on quoted prices for the individual securities in the Company’s portfolio but relying on the securities relationship to other benchmark quoted securities. Impaired loans are valued at the net present value of expected payments and considering the fair value of any assigned collateral.

Variable Interest Entities

Under ASC 810, the Company is deemed to be the primary beneficiary and required to consolidate a variable interest entity (VIE) if it has a variable interest in the VIE that provides it with a controlling financial interest. For such purposes, the determination of whether a controlling financial interest exists is based on whether a single party has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. ASC 810 requires continual reconsideration of conclusions reached regarding which interest holder is a VIE’s primary beneficiary and disclosures surrounding those VIE’s which have not been consolidated. The consolidation methodology provided in this footnote as of December 31, 2012 and 2011 has been prepared in accordance with ASC 810. At December 31, 2012, the Company did not have any consolidated variable interest entities to disclose but did have a commitment to a low income housing partnership and issued trust preferred securities.

Comprehensive Income

FASB ASC 220, Comprehensive Income, established standards for reporting comprehensive income. Comprehensive income includes net income and other comprehensive net income which is defined as non-owner related transactions in equity.

XML

Condensed Parent Company Only Financial Statements: (Tables)

12 Months Ended

Dec. 31, 2012

Summary of Condensed Statements of Income

	Years Ended December. 31,
	2012		2011
Income – interest income from subordinated debentures issued by HopFed Bancorp, Inc.	$	372		367
Net income	$	372		367

HopFed [Member]

Summary of Condensed Balance Sheets

	2012			2011
Assets:
Cash and due from banks	$	2,863			17,602
Investment in subsidiary		113,131			111,912
Prepaid expenses and other assets		707			841
Total assets	$	116,701			130,355
Liabilities and equity
Liabilities
Unrealized loss on derivative	$	1,126			1,297
Dividends payable - common		180			176
Interest payable		86			89
Subordinated debentures		10,310			10,310
Total liabilities		11,702			11,872
Equity:
Preferred stock		—			—
Common stock		79			79
Common stock warrants		556			556
Additional paid-in capital		76,288			75,967
Retained earnings		41,829			39,591
Treasury stock - preferred stock Treasury stock- common stock		(18,400 (5,076	)  )		—   (5,076	)
Accumulated other comprehensive income		9,723			7,366
Total equity		104,999			118,483
Total liabilities and equity	$	116,701			130,355

Summary of Condensed Statements of Income

	2012			2011			2010
Interest and dividend income:
Dividend income	$	6,000			—			750
Income on agency securities		56			—			—
Total interest and dividend income		6,056			—			750
Interest expense		745			742			739
Non-interest expenses		584			423			448
Total expenses		1,329			1,165			1,187
Income (loss) before income taxes and equity in undistributed earnings of subsidiary		4,727			(1,165	)		(437	)
Income tax benefits		(367	)		(316	)		(342	)
Income (loss) before equity in undistributed earnings of subsidiary		5,094			(849	)		(95	)
Equity in undistributed earnings of subsidiary		(1,025	)		3,769			6,611
Net income		4,069			2,920			6,516
Preferred stock dividend and warrant accretion		(1,229	)		(1,031	)		(1,031	)
Income available to common shareholders	$	2,840			1,889			5,485

Summary of Condensed Statement of Cash Flows

	2012			2011			2010
Cash flows from operating activities
Net income	$	4,069			2,920			6,516
Adjustments to reconcile net income to net cash (used in) provided by operating activities
Equity in undistributed earnings of subsidiary		1,025			(3,769	)		(6,611	)
Amortization of restricted stock		99			118			134
Increase (decrease) in:
Current income taxes payable		74			—			358
Accrued expenses		3			438			18
Net cash (used in) provided by operating activities:		5,270			(293	)		415
Cash flows for investing activities:
Investment in subsidiary		—			—			(10,000	)
Net cash used in investing activities		—			—			(10,000	)
Cash flows from financing activities:
Proceeds from sale of treasury stock		—			—			1,419
Proceeds from sale of common stock		—			—			28,952
Purchase of preferred stock - treasury		(18,400	)		—			—
Dividends paid on preferred stock		(1,007	)		(920	)		(920	)
Dividends paid on common stock		(602	)		(1,909	)		(2,272	)
Net cash (used in) provided by financing activities		(20,009	)		(2,829	)		27,179
Net increase (decrease) in cash		(14,739	)		(3,122	)		17,594
Cash and due from banks at beginning of year		17,602			20,724			3,130
Cash and due from banks at end of year	$	2,863			17,602			20,724

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Employee Benefit Plans:

12 Months Ended

Dec. 31, 2012

Employee Benefit Plans: [Abstract]

Employee Benefit Plans:

(12) Employee Benefit Plans:

Stock Option Plan

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

Exercise Price	Weighted Average Remaining Life (Years)		Outstanding Options		Options Exercisable
$16.67		1.4		20,808		20,808

The total amount of options outstanding and the exercise price of options were adjusted to reflect a 2% stock dividend paid to stockholders’ of record on September 30, 2010, and October 3, 2011.

On February 24, 1999, the Board of Directors of the Company adopted the HopFed Bancorp, Inc. 1999 Stock Option Plan (Option Plan), which was subsequently approved at the 1999 Annual Meeting of Stockholders. Under the Option Plan, the Option Committee has discretionary authority to grant stock options and stock appreciation rights to such employees, directors and advisory directors, as the committee shall designate. The Option Plan reserved 403,360 shares of common stock for issuance upon the exercise of options or stock appreciation rights. At December 31, 2012, the Company can no longer issue options under this plan. The remaining 20,808 options are fully vested and outstanding until their maturity date.

On May 31, 2000, the Board of Directors of the Company adopted the HopFed Bancorp, Inc. 2000 Stock Option Plan (the “2000 Option Plan”). Under the 2000 Option Plan, the option committee has discretionary authority to grant stock options to such employees as the committee shall designate. The 2000 Option Plan reserves 40,000 shares of common stock for issuance upon the exercise of options. The Company will receive the exercise price for shares of common stock issued to 2000 Option Plan participants upon the exercise of their option. The Board of Directors has granted options to purchase 40,000 shares of common stock under the 2000 Option Plan at an exercise price of $10.00 per share, which was the fair market value on the date of the grant. At December 31, 2012, all options having been granted under the 2000 Option Plan have been exercised.

The following summary represents the activity under the stock option plans:

	Number of Shares			Weighted Average Exercise Price
Options outstanding, December 2009		110,000		$	12.61
Granted		—
Exercised		(30,000	)		10.00
Forfeited		—			—
Adjusted for 2% stock dividend		1,600			—
Options outstanding, December 2010		81,600			13.32
Granted		—			—
Exercised		—			—
Forfeited		(51,000	)		12.10
Adjusted for 2% stock dividend		612			—
Options outstanding, December 2011		31,212			15.06
Granted		—			—
Exercised		—			—
Forfeited		(10,404	)		11.85
Options outstanding, December 2012		20,808		$	16.67

Stock options vest and become exercisable annually over a four-year period from the date of the grant. All options are fully vested.

The fair value at the grant date of the vested options outstanding at December 31, 2012, is $91,000 for options issued under the 1999 plan.

At December 31, 2012, the strike price for all outstanding options exceeds the current trading price of the Company’s stock.

2004 HopFed Bancorp Long Term Incentive Plan

On February 18, 2004, the Board of Directors of the Company adopted the HopFed Bancorp, Inc. 2004 Long Term Incentive Plan (the Plan), which was subsequently approved at the 2004 Annual Meeting of Stockholders. Under the Plan, the Compensation Committee has discretionary authority to grant up to 200,000 shares in the form of restricted stock grants, options, and stock appreciation rights to such employees, directors and advisory directors as the committee shall designate. The grants vest in equal installments over a four-year period. Grants may vest immediately upon specific events, including a change of control of the Company, death or disability of award recipient, and termination of employment of the recipient by the Company without cause.

Awards are recognized as an expense to the Company in accordance with the vesting schedule. Awards in which the vesting is accelerated must be recognized as an expense immediately. Awards are valued at the closing stock price on the day the award is granted. For the year ended December 31, 2012, the Compensation Committee granted 10,392 shares of restricted stock with a market value of $73,800. For the year ended December 31, 2011, the Compensation Committee granted 10,972 shares of restricted stock with a market value of $87,000. For the year ended December 31, 2010, the Compensation Committee granted a total of 9,571 shares with a market value of $92,600. The Company recognized $99,000, $118,000, and $134,000 in compensation expense in 2012, 2011 and 2010, respectively.

The remaining compensation expense to be recognized at December 31, 2012 is as follows:

Year Ending December 31,	Approximate Future Compensation  Expense
	(Dollars in thousands)
2013	$	74
2014		50
2015		28
2016		8

The Compensation Committee may make additional awards of restricted stock, thereby increasing the future expense related to this plan. The early vesting of restricted stock awards due to factors outlined in the award agreement may accelerate future compensation expenses related to the plan. However, the total amount of future compensation expense would not change as a result of an accelerated vesting of shares. At December 31, 2012, the Company has 107,565 restricted shares available from the HopFed Bancorp, Inc. 2004 Long Term Incentive Plan that may be awarded.

401(K) Plan

The Company has a 401(k) retirement program that is available to all employees who meet minimum eligibility requirements. Participants may generally contribute up to 15% of earnings, and in addition, management will match employee contributions up to 4%. In addition, the Company has chosen to provide all eligible employees an additional 4% of compensation without regards to the amount of the employee contribution. Expense related to Company contributions amounted to $627,000, $532,000, and $611,000 in 2012, 2011 and 2010, respectively. The reduction in expense related to the 401K program in 2012 and 2011 was the offset of approximately $59,000 and $100,000, respectively, in Company contributions forfeited by employees who are no longer employed at the bank and have not met the full vesting requirements of the plan.

Deferred Compensation Plan

During the third quarter of 2002, the Company purchased assets and assumed the liabilities relating to a nonqualified deferred compensation plan for certain employees of the Fulton division. The Company owns single premium life insurance policies on the life of each participant and is the beneficiary of the policy value. When a participant retires, the benefits accrued for each participant will be distributed to the participant in equal installments for 15 years. The expense recognized by the Company for 2010 amounted to $19,000. The plan is now fully funded and no additional expenses will be recognized. The Deferred Compensation Plan also provides the participant with life insurance coverage, which is a percentage of the net death proceeds for the policy, if any, applicable to the participant. The original face value of all deferred compensation contracts was approximately $668,000. At December 31, 2012, the accrued value of all deferred compensation contacts is approximately $348,000. The Company is currently making cash remittances of approximately $29,000 per year on deferred compensation contracts.

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Investments in Affiliated Companies (Unaudited): (Details 1) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Summary of Statement of Income
Income - interest income from subordinated debentures issued by HopFed Bancorp, Inc.	$ 9,685	$ 9,996	$ 10,400	$ 10,759	$ 11,237	$ 11,450	$ 11,766	$ 11,787	$ 40,840	$ 46,240	$ 52,417
Subsidiaries [Member]
Summary of Statement of Income
Income - interest income from subordinated debentures issued by HopFed Bancorp, Inc.									372	367
Net income									$ 372	$ 367

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Stockholders' Equity:

12 Months Ended

Dec. 31, 2012

Stockholders' Equity: [Abstract]

Stockholders' Equity:

(17) Stockholders’ Equity:

The Company’s sources of income and funds for dividends to its stockholders are earnings on its investments and dividends from the Bank. The Bank’s primary regulator, the OCC, has regulations that impose certain restrictions on payment of dividends to the Corporation. Current regulations of the OCC allow the Bank (based upon its current capital level and supervisory status assigned by the OCC) to pay a dividend as long as the Bank subsidiary maintains an appropriate Tier 1 Capital ratio. Given the prospects for the approval of Basel III, the Company anticipates that in practice it will need to maintain a Tier 1 Capital ratio of 8.50% at its bank subsidiary to continue to pay dividends to common shareholders.

Federal Reserve regulations also place restrictions after the conversion on the Company with respect to repurchases of its common stock. With prior notice to the Federal Reserve, the Company is allowed to repurchase its outstanding shares. In August 2006, under the supervision of the OTS, the Company announced that it replaced a previously announced stock buyback plan with a new plan to purchase up to 125,000 shares of common stock over the next two years. Under the plan that expired September 30, 2008, the Company purchased 106,647 shares of common stock at an average price of $15.36 per share. The Company reissued 112,639 shares of Treasury Stock as part of the stock offering discussed below. At December 31, 2012, the Company holds 402,916 shares of treasury stock at an average price of $12.60 per share.

On December 12, 2008, HopFed Bancorp issued 18,400 shares of preferred stock to the United States Treasury (Treasury) for $18,400,000 pursuant to the Capital Purchase Program. The Company issued a Warrant to the Treasury as a condition to its participation in the Capital Purchase Program. The Warrant had an exercise price of $11.32 each and was immediately exercisable, giving the Treasury the right to purchase 243,816 shares of the Company’s Common Stock. The warrants expired ten years from the date of issuance. The Preferred Stock has no stated maturity and was non-voting, other than having class voting rights on certain matters, and pays cumulative dividends quarterly at a rate of 5% per year for the first five years and 9% thereafter. As a result of a 2% stock dividend paid to shareholders of record at September 30, 2010, total warrants issued was adjusted to 248,692 and the warrant strike price was adjusted to $11.098. As a result of a 2% stock dividend paid to shareholders of record at October 3, 2011, total warrants issued was adjusted to 253,667 and the warrant strike price was adjusted to $10.88.

On December 19, 2012, HopFed Bancorp repurchased the 18,400 shares of Preferred Stock previously sold to the Treasury at par plus accrued dividends. The repurchase was accomplished with the assistance of a $6.0 million dividend paid to the Company from its Bank subsidiary.

In June and July of 2010, the Company sold a total of 3,583,334 shares of common stock in a public offering with net proceeds of $30.4 million. In June 2010, the Company invested $10.0 million into the Bank.

On September 16, 2010, and September 21, 2011, respectively, the Company declared a 2% stock dividend payable to shareholders of record on September 30, 2010 and October 3, 2011. The stock dividend was paid on October 18, 2010, and October 18, 2011, resulting in the issuance of 143,458 shares of common stock in October of 2010 and 146,485 shares of common stock in October 2011. As discussed earlier, both the price and amount of all outstanding options and common stock warrants were adjusted accordingly.

Based on the binomial method, the common stock warrants have been assigned a value of $2.28 per warrant, or $555,900. As a result, the value of the warrants has been recorded as a discount on the preferred stock and will be accreted as a reduction in net income available for common shareholders over the next five years at $111,180 per year. In 2012, the Company accelerated the last year of our warrant accretion, recognizing $222,360 of accretion, due to the repurchase of all preferred stock from the Treasury and our stated plans to attempt to repurchase the warrant. For the purposes of these calculations, the fair value of the common stock warrants was estimated using the following assumptions:

•    Risk free rate		2.60	%
•    Expected life of warrants		10 years
•    Expected dividend yield		3.50	%
•    Expected volatility		26.5	%
•    Weighted average fair value	$	2.28

The Company’s computation of expected volatility is based on the weekly historical volatility. The risk free rate was the approximate rate of the ten year treasury at the end of November 2008.

By participating in the Capital Purchase Program, the Company agreed to not increase its dividend paid to common shareholders for a period of three years without prior approval of the United States Treasury. If the Company failed to make all dividend payments due to preferred shareholders, the Company was prohibited from paying any dividend to common shareholders. In addition, the United States Treasury placed certain restrictions on the amount and type of compensation that can be paid to certain senior level executives of the Company. The Company has paid all interest payments due on HopFed Capital Trust 1. If interest payments to HopFed Capital Trust 1 are not made in a timely manner, the Company is prohibited from making cash dividend payments to its common shareholders.

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Employee Benefit Plans: (Details Textual) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Oct. 03, 2011	Sep. 30, 2010	Dec. 31, 2009
Employee Benefit Plans (Textual) [Abstract]
Percentage of common stock dividend				2.00%	2.00%
Fully vested options	20,808	31,212	81,600			110,000
Board of Directors granted options to purchase, Shares of common stock
Stock options vesting period	4 years
1999 Stock Option Plan [Member]
Employee Benefit Plans (Textual) [Abstract]
Shares of common stock, Authorized	403,360
Fully vested options	20,808
Fair value of vested options outstanding	91,000
2000 Stock Option Plan [Member]
Employee Benefit Plans (Textual) [Abstract]
Shares of common stock, Authorized	40,000
Exercise price per share	10.00
Board of Directors granted options to purchase, Shares of common stock	40,000
2004 Long Term Incentive Plan [Member]
Employee Benefit Plans (Textual) [Abstract]
Shares of common stock, Authorized	200,000
Stock options vesting period	4 years
Compensation expense	99,000	118,000	134,000
2004 Long Term Incentive Plan [Member] | HopFed [Member]
Employee Benefit Plans (Textual) [Abstract]
Restricted shares available from the HOPFED Bancorp	107,565
401(K) [Member]
Employee Benefit Plans (Textual) [Abstract]
Employee contributions of earnings in the plan	15.00%
Management matching contribution in the plan	4.00%
Additional compensation without regards to the employee contribution	4.00%
Company contributions, expense	627,000	532,000	611,000
Company contributions forfeited by employees	59,000	100,000
Deferred compensation plans [Member]
Employee Benefit Plans (Textual) [Abstract]
Deferred compensation arrangement number of installments related to distributions paid	15 years
Retirement expenses			19,000
Original face value of all deferred compensation contracts	668,000
Accrued value of all deferred compensation contracts	348,000
Cash remittances on deferred compensation contracts per year	29,000
Restricted stock [Member] | 2004 Long Term Incentive Plan [Member]
Employee Benefit Plans (Textual) [Abstract]
Shares of common stock, Authorized	10,392	10,972	9,571
Restricted stock granted by Compensation Committee, market value	73,800	87,000	92,600

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Stockholders' Equity: (Tables)

12 Months Ended

Dec. 31, 2012

Stockholders' Equity: [Abstract]

Assumptions for calculating fair value of the common stock warrants

•    Risk free rate		2.60	%
•    Expected life of warrants		10 years
•    Expected dividend yield		3.50	%
•    Expected volatility		26.5	%
•    Weighted average fair value	$	2.28

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Regulatory Matters: (Details Textual)	Apr. 30, 2010
Regulatory Matters (Textual) [Abstract]
Core capital to adjusted total assets ratio	8.00%
Total risk based capital to risk weighted assets ratio	12.00%

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Advances from Federal Home Loan Bank: (Tables)

12 Months Ended

Dec. 31, 2012

Deposits and Advances from Federal Home loan Bank: [Abstract]

Summarized Federal Home Loan Bank advances

	December 31,
	2012					2011
Types of Advances	Amount		Weighted Average Rate			Amount		Weighted Average Rate
Fixed-rate	$	43,741		4.09	%	$	63,319		3.64	%

Scheduled maturities of FHLB advances

Years Ending December 31,	Fixed Rate		Average Cost
2013	$	—		—
2014		—		—
2015		—		—
2016		4,000		5.34	%
2017		27,000		4.37	%
Thereafter		12,741		3.13	%
Total	$	43,741		4.09	%

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Stockholders' Equity: (Details Textual) (USD $)	12 Months Ended											2 Months Ended			1 Months Ended	12 Months Ended	1 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Oct. 31, 2011	Oct. 03, 2011	Sep. 21, 2011	Oct. 31, 2010	Sep. 30, 2010	Sep. 16, 2010	Jun. 30, 2010	Nov. 30, 2008	Jul. 31, 2010 I P O [Member]	Dec. 31, 2012 Preferred stock [Member]	Dec. 31, 2012 Common stock [Member]	Dec. 31, 2008 Parent [Member]	Dec. 31, 2012 Parent [Member]	Dec. 31, 2008 Parent [Member] Preferred stock [Member]
Stockholders' Equity (Textual) [Abstract]
Preferred stock shares issued and sold												3,583,334					18,400
Value of shares of preferred stock issued and sold			$ 30,371,000									$ 30,400,000					$ 18,400,000
Number of common stock warrants issued under Capital Purchase Program															243,816
Exercise price of common stock warrants issued under Capital Purchase Program															$ 11.32
Expiration period of common stock warrants issued under Capital Purchase Program															10 years
Preferred stock dividend	5.00%	5.00%	5.00%												5.00%
First specified period for cumulative dividends of preferred stock																5 years
Cumulative dividends quarterly thereafter															9.00%
Treasury stock, shares													18,400	402,916
Stockholders' Equity (Additional Textual) [Abstract]
Tier one capital ratio	8.50%
Number of shares authorized to purchase under plan	125,000
Shares repurchased	106,647
Average price of buyback	$ 15.36		$ 12.60
Treasury stock, Shares reissued	112,639
Average price of treasury stock	$ 12.60
Number of common stock warrants outstanding					253,667			248,692
Percentage of common stock dividend					2.00%			2.00%
Dividend record date		Oct. 03, 2011	Sep. 30, 2010
Number of common stock outstanding increased due to common stock dividends				146,485			143,458
Exercise price of common stock warrants					$ 10.88			$ 11.098
Value per common stock warrant	$ 2.28
Total value of common stock warrant	555,900,000
Reduction in net income available for common shareholders	222,000	111,000	111,000
Period for preferred stock accretion of redemption discount	5 years
Investment made in Bank										10,000,000
Dividend paid to the Company from its Bank subsidiary	$ 6,000,000
Dividend Common Stock Percentage						2.00%			2.00%
Period of Treasury as of Interest Free Rate											10 years
Period Agreed by Company Not to Increase Dividend for Common Shareholders Without Prior Approval	3 years

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Consolidated Statements of Income (Parenthetical)	12 Months Ended
	Dec. 31, 2010
Adjusted to reflect common stock dividend paid to shareholders	2.00%
Adjusted to reflect common stock dividend paid to share holders record date	Sep. 30, 2010
Dividend Paid
Adjusted to reflect common stock dividend paid to share holders record date	Oct. 03, 2011

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Fair Value Measurement: (Details 4) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Foreclosed assets that were re-measured and reported at fair value
Beginning balance	$ 2,267	$ 9,812	$ 1,883
Foreclosed assets measured at initial recognition:
Carrying value of foreclosed assets prior to acquisition	2,634	4,591	15,848
Proceeds from sale of foreclosed assets	(2,738)	(9,590)	(3,897)
Charge-offs recognized in the allowance for loan loss	(349)	(843)	(4,343)
Gains (losses) on REO included in non-interest expense	(266)	(1,703)	321
Fair value	$ 1,548	$ 2,267	$ 9,812

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Summary of Significant Accounting Policies:

12 Months Ended

Dec. 31, 2012

Summary of Significant Accounting Policies: [Abstract]

Summary of Significant Accounting Policies:

(1) Summary of Significant Accounting Policies:

Nature of Operations and Customer Concentration

HopFed Bancorp, Inc. (the Corporation) is a bank holding company incorporated in the state of Delaware. The Company’s principal business activities are conducted through it’s wholly-owned subsidiary, Heritage Bank (the Bank), which is a federally chartered savings bank engaged in the business of accepting deposits and providing mortgage, consumer, construction and commercial loans to the general public through its retail banking offices. The Bank’s business activities are primarily limited to western Kentucky and middle and western Tennessee. The Bank is subject to competition from other financial institutions. Deposits at the Bank are insured up to the applicable limits by the Federal Deposit Insurance Corporation (FDIC).

As part of the enactment of the Dodd-Frank Financial Reform Act of 2010, the Corporation and Bank’s former regulator, the Office of Thrift Supervision, was eliminated on July 21, 2011. The Bank is currently subject to comprehensive regulation, examination and supervision by the Office of Comptroller of the Currency (OCC) and the FDIC. Supervision of the Corporation is conducted by the Federal Reserve.

A substantial portion of the Bank’s loans are secured by real estate in the western Kentucky and middle and west Tennessee markets. In addition, foreclosed real estate is located in this same market. Accordingly, the ultimate ability to collect on a substantial portion of the Bank’s loan portfolio and the recovery of a substantial portion of the carrying amount of foreclosed real estate is susceptible to changes in local market conditions.

Principles of Consolidation

The consolidated financial statements include the accounts of the Corporation, the Bank and its wholly-owned subsidiary Fall & Fall Insurance (collectively the Company) for all periods. Significant inter-company balances and transactions have been eliminated in consolidation.

Accounting

The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted in the United States of America and conform to general practices in the banking industry.

The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity or a variable interest entity (VIE) under accounting principles generally accepted in the United States. Voting interest entities are entities which the total equity investment is a risk is sufficient to enable the entity to finance itself independently and provides the equity holders with the obligation to absorb losses, the right to receive residual returns and the right to make decision about the entity’s activities. The Company consolidates voting interest entities in which it has all, or at least a majority of, the voting interest. As defined in applicable accounting standards, VIE’s are entities in which it has all, or at least a majority of, the voting interest. A controlling financial interest in a VIE is present when an enterprise has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. The subsidiary Fort Webb LLC is a VIE for which the Company is not the primary beneficiary. Accordingly, its accounts are not included in the Company’s consolidated financial statements.

Estimates

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheets and revenues and expenses for each year. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowances for loan losses and foreclosed real estate, management obtains independent appraisals for significant properties.

Cash and Cash Equivalents

Cash and cash equivalents are defined as cash on hand, amounts due on demand from commercial banks, interest-earning deposits in other financial institutions and federal funds sold with maturities of three months or less.

Securities

The Company reports debt, readily-marketable equity, mortgage-backed and mortgage related securities in one of the following categories: (i) “trading” (held for current resale) which are to be reported at fair value, with unrealized gains and losses included in earnings; and (ii) “available for sale” (all other debt, equity, mortgage-backed and mortgage related securities) which are to be reported at fair value, with unrealized gains and losses reported net of tax as a separate component of stockholders’ equity. At the time of new security purchases, a determination is made as to the appropriate classification. Realized and unrealized gains and losses on trading securities are included in net income. Unrealized gains and losses on securities available for sale are recognized as direct increases or decreases in stockholders’ equity, net of any tax effect. Cost of securities sold is recognized using the specific identification method.

Interest income on securities is recognized as earned. The Company purchases many agency bonds at either a premium or discount to its par value. Premiums and discounts on agency bonds are amortized using the net interest method. For callable bonds purchased at a premium, the premium is amortized to the first call date. If the bond is not called on that date, the premium is fully amortized and the Company recognizes an increase in the net yield of the investment. The Company has determined that callable bonds purchased at a premium have a high likelihood of being called, and the decision to amortize premiums to their first call is a more conservative method of recognizing income and any variance from amortizing to contractual maturity is not material to the consolidated financial statements. For agency bonds purchased at a discount, the discount is accreted to the final maturity date. For callable bonds purchased at discount and called before maturity, the Company recognizes a gain on the sale of securities. The Company amortizes premiums and accretes discounts on mortgage back securities and collateralized mortgage obligations based on the securities three month average prepayment speed.

Other Than Temporary Impairment

A decline in the fair value of any available-for-sale security below cost that is deemed to be other-than-temporary results in a reduction in the carrying amount to fair value. To determine whether impairment is other-than-temporary, management considers whether the entity expects to recover the entire amortized cost basis of the security by reviewing the present value of the future cash flows associated with the security. The shortfall of the present value of the cash flows expected to be collected in relation to the amortized cost basis is referred to as a credit loss. If a credit loss is identified, management then considers whether it is more-likely-than-not that the Company will be required to sell the security prior to recovery. If management concludes that it is not more-likely-than-not that it will be required to sell the security, then the security is not other-than-temporarily impaired and the shortfall is recorded as a component of equity. If the security is determined to be other-than-temporarily impaired, the credit loss is recognized as a charge to earnings and a new cost basis for the security is established.

Other Securities

Other securities which are not actively traded and may be restricted, such as Federal Home Loan Bank (FHLB) stock are recognized at cost, as the value is not considered impaired.

Loans Receivable

Loans receivable are stated at unpaid principal balances, less the allowance for loan losses and deferred loan cost. The Statement of Financial Accounting Standards ASC 310-20, Nonrefundable Fees and Other Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases, requires the recognition of loan origination fee income over the life of the loan and the recognition of certain direct loan origination costs over the life of the loan.

Uncollectible interest on loans that are contractually past due is charged off, or an allowance is established based on management’s periodic evaluation. The Company charges off loans after, in management’s opinion, the collection of all or a large portion of the principal or interest is not collectable. The allowance is established by a charge to interest income equal to all interest previously accrued, and income is subsequently recognized only to the extent that cash payments are received while the loan is classified as non-accrual, when the loan is ninety days past due. Loans may be returned to accrual status when all principal and interest amounts contractually due (including arrearages) are reasonably assured of repayment within an acceptable period of time, and there is a sustained period of repayment performance by the borrower in accordance with the contractual terms of interest and principal.

The Company provides an allowance for loan losses and includes in operating expenses a provision for loan losses determined by management. Management’s periodic evaluation of the adequacy of the allowance is based on the Company’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, and current economic conditions. Management’s estimate of the adequacy of the allowance for loan loss can be classified as either a reserve for currently classified loans or estimates of future losses in the current loan portfolio.

Loans are considered to be impaired when, in management’s judgment, principal or interest is not collectible according to the contractual terms of the loan agreement. When conducting loan evaluations, management considers various factors such as historical loan performance, the financial condition of the borrower and adequacy of collateral to determine if a loan is impaired. Impaired loans and loans classified as TDR’s may be classified as either substandard or doubtful and reserved for based on individual loans risk for loss. Loans not considered impaired may be classified as either special mention or watch and may be reserved for. Typically, unimpaired classified loans exhibit some form of weakness in either industry trends, collateral, or cash flow that result in a default risk greater than that of the Company’s typical loan. All classified amounts include all unpaid interest and fees as well as the principal balance outstanding.

The measurement of impaired loans generally may be based on the present value of future cash flows discounted at the historical effective interest rate. However, the majority of the Company’s problem loans become collateral dependent at the time they are judged to be impaired. Therefore, the measurement of impaired requires the Company to obtain a new appraisal to obtain the fair value of the collateral. The appraised value is then discounted to an estimated of the Company’s net realizable value, reducing the appraised value by the amount of holding and selling cost. When the measured amount of an impaired loan is less than the recorded investment in the loan, the impairment is recorded as a charge to income and a valuation allowance, which is included as a component of the allowance for loan losses.

For loans not individually classified, Management considers the Company’s recent charge off history, the Company’s current past due and non-accrual trends, banking industry trends and both local and national economic conditions when making an estimate as to the amount to reserve for losses. Management believes it has established the allowance in accordance with accounting principles generally accepted in the United States of America and has taken into account the views of its regulators and the current economic environment.

Fixed Rate Mortgage Originations

The Company operates a mortgage division that originates mortgage loans in the name of assorted investors, including Federal Home Loan Mortgage Corporation (Freddie Mac). Originations for Freddie Mac are sold through the Bank while originations to other investors are processed for a fee. On a limited basis, loans sold to Freddie Mac may result in the Bank retaining loan servicing rights. In recent years, customers have chosen lower origination rates over having their loan locally serviced; thereby limiting the amount of new loans sold with servicing retained. At December 31, 2012, the Bank maintained a servicing portfolio of one to four family real estate loans of approximately $26.3 million. For the years ended December 31, 2012, and December 31, 2011, the Bank has reviewed the value of the servicing asset as well as the operational cost associated with servicing the portfolio. The Bank has determined that the values of its servicing rights are not material to the Company’s consolidated financial statements.

Real Estate and Other Assets Owned

Assets acquired through, or in lieu of, loan foreclosure or repossession carried at the lower of cost or fair value less selling expenses. Costs of improving the assets are capitalized, whereas costs relating to holding the property are expensed. Management conducts periodic valuations (no less than annually) and any adjustments to value are recognized in the current period’s operations.

Brokered Deposits

The Company may choose to attract deposits from several sources, including using outside brokers to assist in obtaining time deposits using national distribution channels. Brokered deposits offer the Company an alternative to Federal Home Loan Bank advances and local retail time deposits.

Repurchase Agreements

The Company sells investments from its portfolio to business and municipal customers with a written agreement to repurchase those investments on the next business day. The repurchase product gives business customers the opportunity to earn income on liquid cash reserves. These funds are overnight borrowings of the Company secured by Company assets and are not FDIC insured. The Company has also entered into two long-term repurchase agreements with third parties as discussed in Note 8.

Revenue Recognition

Mortgage loans held for sale are generally delivered to secondary market investors under best efforts sales commitments entered into prior to the closing of the individual loan. Loan sales and related gains or losses are recognized at settlement. Loan fees earned for the servicing of secondary market loans are recognized as earned.

Interest income on loans receivable is reported on the interest method. Interest income is not reported when full loan repayment is in doubt, typically when the loan is impaired, placed in non-accrual status, or payments are past due more than 90 days. Interest earned as reported as income is reversed on any loans classified as non-accrual or past due more than 90 days. Interest may continue to accrue on loans over 90 days past due if they are well secured and in the process of collection.

Income Taxes

Income taxes are accounted for through the use of the asset and liability method. Under the asset and liability method, deferred taxes are recognized for the tax consequences of temporary differences by applying enacted statutory rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The effect on deferred taxes of a change in tax rates would be recognized in income in the period that includes the enactment date. The Company files its federal income tax return on a consolidated basis with its subsidiaries. The Company files its Tennessee state income tax return on a consolidated basis. All taxes are accrued on a separate entity basis.

Operating Segments

The Company’s continuing operations include one primary segment, retail banking. The retail banking segment involves the origination of commercial, residential and consumer loans as well as the collections of deposits in eighteen branch offices.

Premises and Equipment

Land, land improvements, buildings, and furniture and equipment are carried at cost, less accumulated depreciation and amortization. Buildings and land improvements are depreciated generally by the straight-line method, and furniture and equipment are depreciated under various methods over the estimated useful lives of the assets. The Company capitalizes interest expense on construction in process at a rate equal to the Company’s cost of funds. The estimated useful lives used to compute depreciation are as follows:

Land improvements	5-15 years
Buildings	40 years
Furniture and equipment	5-15 years

Intangible Assets

The intangible assets for insurance contracts and core deposits related to the Fulton acquisition of September 2002 was amortized using the straight-line method over the estimated period of benefit of seven years and was fully amortized in July of 2009. The core deposit intangible asset related to the middle Tennessee acquisition of June 2006 is amortized using the sum of the year’s digits method over an estimated period of nine years. The Company periodically evaluates the recoverability of the intangible assets and takes into account events or circumstances that warrant a revised estimate of the useful lives or indicates that impairment exists.

Bank Owned Life Insurance

Bank owned life insurance policies (BOLI) are recorded at the cash surrender value or the amount to be realized upon current redemption. The realization of the redemption value is evaluated for each insuring entity that holds insurance contracts annually by management.

Advertising

The Company expenses the production cost of advertising as incurred.

Financial Instruments

The Company has entered into off-balance-sheet financial instruments consisting of commitments to extend credit and commercial letters of credit. Such financial instruments are recorded in the consolidated financial statements when they are funded or related fees are incurred or received.

Derivative Instruments:

Under guidelines ASC 815, Accounting for Derivative Instruments and Hedging Activities, as amended, all derivative instruments are required to be carried at fair value on the consolidated balance sheet. ASC 815 provides special hedge accounting provisions, which permit the change in fair value of the hedge item related to the risk being hedged to be recognized in earnings in the same period and in the same income statement line as the change in the fair value of the derivative.

A derivative instrument designated in a hedge relationship to mitigate exposure to changes in the fair value of an asset, liability or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges under ASC 815. Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Cash value hedges are accounted for by recording the fair value of the derivative instrument and the fair value related to the risk being hedged of the hedged asset or liability on the consolidated balance sheet with corresponding offsets recorded in the consolidated balance sheet. The adjustment to the hedged asset or liability is included in the basis of the hedged item, while the fair value of the derivative is recorded as a freestanding asset or liability. Actual cash receipts or payments and related amounts accrued during the period on derivatives included in a fair value hedge relationship are recorded as adjustments to the income or expense recorded on the hedged asset or liability.

Under both the fair value and cash flow hedge methods, derivative gains and losses not effective in hedging the change in fair value or expected cash flows of the hedged item are recognized immediately in the income statement. At the hedge’s inception and at least quarterly thereafter, a formal assessment is performed to determine whether changes in the fair values or cash flows of the derivative instrument has been highly effective in offsetting changes in the fair values or cash flows of the hedged items and whether they are expected to be highly effective in the future. If it is determined a derivative instrument has not been, or will not continue to be highly effective as a hedge, hedged accounting is discontinued. ASC 815 basis adjustments recorded on hedged assets and liabilities are amortized over the remaining life of the hedged item beginning no later than when hedge accounting ceases. There were no fair value hedging gains or losses, as a result of hedge ineffectiveness, recognized for the years ended December 31, 2012, 2011 and 2010.

Fair Values of Financial Instruments

In October of 2008, the Company entered into an interest rate swap agreement for a term of seven years and an amount of $10 million. The Bank will pay a fixed rate of 7.27% for seven years and receive an amount equal to the three-month London Interbank Lending Rate (Libor) plus 3.10%. The interest rate swap is classified as a cash flow hedge by the Bank and will be tested quarterly for effectiveness. At December 31, 2012, the cost of the Bank to terminate the cash flow hedge is approximately $1,126,000. The Bank, in the normal course of business, originates fixed rate mortgages that are sold to Freddie Mac. Upon tentative underwriting approval by Freddie Mac, the Bank issues a best effort commitment to originate a fixed rate first mortgage under specific terms and conditions that the Bank intends to sell to Freddie Mac. The Bank no longer assumes a firm commitment to originate fixed rate loans, thus eliminating the risk of having to deliver loans they did not close or pay commitment fees to make Freddie Mac whole.

ASC 825, Disclosures about Fair Value of Financial Instruments, requires disclosure of fair value information about financial instruments, whether or not recognized in the consolidated balance sheets for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. Fair value estimates are made at a point in time, based on relevant market information and information about the financial instrument. Accordingly, such estimates involve uncertainties and matters of judgment and therefore cannot be determined with precision. ASC 825 excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

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

Cash and cash equivalents

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 earning deposits

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 securities available-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.

Loans receivable

The fair values for of fixed-rate loans and variable rate loans that re-price on an infrequent basis is estimated using discounted cash flow analysis which considers future re-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 that re-price frequently and with have no significant change in credit risk is approximately the carrying value of the loan.

Letters of credit

The fair value of standby letters of credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the likelihood of the counter parties drawing on such financial instruments and the present creditworthiness of such counter parties. Such commitments have been made on terms which are competitive in the markets in which the Company operates, thus, the fair value of standby letters of credit equals the carrying value for the purposes of this disclosure.

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.

Repurchase agreements

Overnight repurchase agreements have a fair value at book, given that they mature overnight. The fair values for 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.

Bank owned life insurance

The fair value of bank owned life insurance is the cash surrender value of the policy less redemption charges. By surrendering the policy, the Company is also subject to federal income taxes on all earnings previously recognized.

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 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.

FHLB stock

The fair value of FHLB stock is recognized at cost.

Subordinated debentures

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

Off-Balance-Sheet Instruments

Off-balance-sheet lending commitments approximate their fair values due to the short period of time before the commitment expires.

Dividend Restrictions

The Company is not permitted to pay a dividend to common shareholders if it fails to make a quarterly interest payment to the holders of the Company’s subordinated debentures. Furthermore, the Bank may be restricted in the payment of dividends to the Company by the Bank’s primary regulator, the Office of Comptroller of the Currency (OCC). Any restrictions imposed by the OCC would effectively limit the Company’s ability to pay a dividend to its common stockholders as discussed in note 17.

Earnings Per Share

Earnings per share (EPS) consists of two separate components, basic EPS and diluted EPS. Basic EPS is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for each period presented. Diluted EPS is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding plus dilutive common stock equivalents (CSE). CSE consists of dilutive stock options granted through the Company’s stock option plan. Restricted stock awards represent future compensation expense and are dilutive. Common stock equivalents which are considered anti-dilutive are not included for the purposes of this calculation. Common stock warrants issued in December 2008 and all stock options outstanding are currently anti-dilutive and are not included for the purposes of this calculation.

Both EPS and diluted EPS are reduced by the amount of dividend payments on preferred stock and the accretion of the discount on the preferred stock. The effect of the Company’s dividend payment on preferred stock and accretion of the preferred stock is as provided for the years ended December 31, 2012, 2011 and 2010:

	2012		2011		2010
Dividend on preferred shares	$	1,006,886		920,000		920,000
Accretion dividend on preferred shares		222,360		111,180		111,180
Total cost of preferred stock	$	1,229,246		1,031,180		1,031,180
Reduction in earnings per share to common stockholders:
Basic	$	0.16	$	0.14	$	0.18
Fully diluted	$	0.16	$	0.14	$	0.18
Weighted average shares outstanding -basic		7,486,445		7,460,294		5,732,495
Weighted average shares outstanding -diluted		7,486,445		7,460,294		5,732,495

Stock Compensation

The Company utilized the Black-Sholes valuation model to determine the fair value of stock options on the date of grant. The model derives the fair value of stock options based on certain assumptions related to the expected stock prices volatility, expected option life, risk-free rate of return and the dividend yield of the stock. The expected life of options granted is estimated based on historical employee exercise behavior. The risk free rate of return coincides with the expected life of the options and is based on the ten year Treasury note rate at the time the options are issued. The historical volatility levels of the Company’s common stock are used to estimate the expected stock price volatility. The set dividend yield is used to estimate the expected dividend yield of the stock.

Effect of New Accounting Pronouncements

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

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

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

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

In December 2011, the FASB issued ASU 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards update No. 2011-05. This update to Comprehensive Income (Topic 220) defers the requirement to present items that are reclassified from accumulated other comprehensive income to net income separately with their respective components of net income and other comprehensive income. The deferral supersedes only the paragraphs pertaining to how and where reclassification adjustments are presented. The amendments in this update were effective for public entities for reporting periods beginning after December 15, 2011. The implementation of ASU 2011-12 did not have a material impact on our consolidated financial statements of income, condition and cash flows.

ASU 2011-11, “Balance Sheet (Topic 210) - “Disclosures about Offsetting Assets and Liabilities.” ASU 2011-11 amends Topic 210, “Balance Sheet,” to require an entity to disclose both gross and net information about financial instruments, such as sales and repurchase agreements and reverse sale and repurchase agreements and securities borrowing/lending arrangements, and derivative instruments that are eligible for offset in the statement of financial position and/or subject to a master netting arrangement or similar agreement. ASU No. 2013-01, “Balance Sheet (Topic 210)—Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities,” clarifies that ordinary trade receivables are not within the scope of ASU 2011-11. ASU 2011-11 is effective for annual and interim periods beginning on January 1, 2013, and is not expected to have a significant impact on the Company’s financial statements.

ASU 2012-02, “Intangibles – Goodwill and Other (Topic 350) - Testing Indefinite-Lived Intangible Assets for Impairment.” ASU 2012-02 give entities the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that an indefinite-lived intangible asset is impaired. If, after assessing the totality of events or circumstances, an entity determines it is more likely than not that an indefinite-lived intangible asset is impaired, then the entity must perform the quantitative impairment test. If, under the quantitative impairment test, the carrying amount of the intangible asset exceeds its fair value, an entity should recognize an impairment loss in the amount of that excess. Permitting an entity to assess qualitative factors when testing indefinite-lived intangible assets for impairment results in guidance that is similar to the goodwill impairment testing guidance in ASU 2011-08. ASU 2012-02 is effective for the Company’s beginning January 1, 2013 (early adoption permitted) and is not expected to have a significant impact on the Company’s financial statements.

ASU 2012-06, “Business Combinations (Topic 805) - Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution (a consensus of the FASB Emerging Issues Task Force).” ASU 2012-06 clarifies the applicable guidance for subsequently measuring an indemnification asset recognized as a result of a government-assisted acquisition of a financial institution. Under ASU 2012-06, when a reporting entity recognizes an indemnification asset as a result of a government-assisted acquisition of a financial institution and, subsequently, a change in the cash flows expected to be collected on the indemnification asset occurs (as a result of a change in cash flows expected to be collected on the assets subject to indemnification), the reporting entity should subsequently account for the change in the measurement of the indemnification asset on the same basis as the change in the assets subject to indemnification. Any amortization of changes in value should be limited to the contractual term of the indemnification agreement (that is, the lesser of the term of the indemnification agreement and the remaining life of the indemnified assets). ASU 2012-06 is effective for the Company beginning January 1, 2013 (early adoption permitted) and is not expected to have a significant impact on the Company’s 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.

Reclassifications:

Certain items in prior financial statements have been reclassified to conform to the current presentation.

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Securities: (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Amortized cost of securities and their estimated fair values
Amortized Cost	$ 340,488	$ 371,324
Gross Unrealized Gains	16,628	13,773
Gross Unrealized Losses	(771)	(1,315)
Estimated Fair Value	356,345	383,782
FHLB stock [Member] | Restricted [Member]
Amortized cost of securities and their estimated fair values
Amortized Cost	4,428	4,428
Estimated Fair Value	4,428	4,428
U.S. government and agency securities [Member] | Unrestricted [Member]
Amortized cost of securities and their estimated fair values
Amortized Cost	147,659	171,141
Gross Unrealized Gains	5,202	3,511
Gross Unrealized Losses	(83)	(65)
Estimated Fair Value	152,778	174,587
Tax free municipal bonds [Member] | Unrestricted [Member]
Amortized cost of securities and their estimated fair values
Amortized Cost	68,331	60,432
Gross Unrealized Gains	5,756	4,623
Gross Unrealized Losses	(40)
Estimated Fair Value	74,047	65,055
Taxable municipal bonds [Member] | Unrestricted [Member]
Amortized cost of securities and their estimated fair values
Amortized Cost	12,535	12,846
Gross Unrealized Gains	1,209	1,059
Gross Unrealized Losses	(8)
Estimated Fair Value	13,736	13,905
Trust preferred securities [Member] | Unrestricted [Member]
Amortized cost of securities and their estimated fair values
Amortized Cost	2,000	2,000
Gross Unrealized Losses	(511)	(1,007)
Estimated Fair Value	1,489	993
GNMA [Member] | Mortgage-backed securities [Member]
Amortized cost of securities and their estimated fair values
Amortized Cost	19,172	30,427
Gross Unrealized Gains	1,244	1,413
Gross Unrealized Losses	(19)	(19)
Estimated Fair Value	20,397	31,821
FNMA [Member] | Mortgage-backed securities [Member]
Amortized cost of securities and their estimated fair values
Amortized Cost	64,805	59,195
Gross Unrealized Gains	2,558	2,101
Gross Unrealized Losses	(58)	(1)
Estimated Fair Value	67,305	61,295
FHLMC [Member] | Mortgage-backed securities [Member]
Amortized cost of securities and their estimated fair values
Amortized Cost	4,519	15,108
Gross Unrealized Gains	153	491
Estimated Fair Value	4,672	15,599
SLMA CMOs [Member] | Mortgage-backed securities [Member]
Amortized cost of securities and their estimated fair values
Amortized Cost	5,412
Gross Unrealized Gains	80
Estimated Fair Value	5,492
NON-AGENCY CMOs [Member] | Mortgage-backed securities [Member]
Amortized cost of securities and their estimated fair values
Amortized Cost		2,012
Gross Unrealized Gains		7
Gross Unrealized Losses		(223)
Estimated Fair Value		1,796
AGENCY CMOs [Member] | Mortgage-backed securities [Member]
Amortized cost of securities and their estimated fair values
Amortized Cost	16,055	18,163
Gross Unrealized Gains	426	568
Gross Unrealized Losses	(52)
Estimated Fair Value	$ 16,429	$ 18,731

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Repurchase Agreements: (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Cost and maturities of company's repurchase agreements
Balance of Third Party	$ 43,508	$ 43,080
Average Cost	2.35%	2.15%
Overnight [Member] | Various customers [Member]
Cost and maturities of company's repurchase agreements
Balance of Third Party	27,508	27,080
Average Cost	1.08%	0.88%
Quarterly callable [Member] | Deutsch Bank [Member]
Cost and maturities of company's repurchase agreements
Balance of Third Party	10,000	10,000
Average Cost	4.28%	4.28%
Maturity	Sep. 05, 2014	Sep. 05, 2014
Quarterly callable [Member] | Merrill Lynch [Member]
Cost and maturities of company's repurchase agreements
Balance of Third Party	$ 6,000	$ 6,000
Average Cost	4.36%	4.36%
Maturity	Sep. 18, 2016	Sep. 18, 2016

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Stockholders' Equity: (Details) (Common stock warrants [Member], USD $)	12 Months Ended
	Dec. 31, 2012
Common stock warrants [Member]
Assumptions for calculating fair value of the common stock warrants
Risk free rate	2.60%
Expected life of warrants	10 years
Expected dividend yield	3.50%
Expected volatility	26.50%
Weighted average fair value	$ 2.28

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Loans Receivable, Net: (Details 7) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Summary of loans to Officers, Directors and their Affiliates
Balance at end of period	$ 8,846	$ 10,917
Officers and Directors [Member]
Summary of loans to Officers, Directors and their Affiliates
Balance at beginning of period	10,917	11,641
New loans	2,463	2,940
Principal repayments	(4,534)	(3,664)
Balance at end of period	$ 8,846	$ 10,917

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Earnings Per Share:

12 Months Ended

Dec. 31, 2012

Earnings Per Share: [Abstract]

Earnings Per Share:

(18) Earnings Per Share:

Earnings per share of common stock are based on the weighted average number of basic shares and dilutive shares outstanding during the year. Common stock warrants outstanding are not included in the dilutive earnings per share computations because they would be anti-dilutive. Earnings per share numbers in 2010 were adjusted to reflect a 2% stock dividend paid in 2010 and 2011.

The following is a reconciliation of weighted average common shares for the basic and dilutive earnings per share computations:

	Years Ended December 31,
	2012		2011		2010
Basic earnings per share:
Weighted average common shares		7,486,445		7,460,294		5,620,093
Adjustment for stock dividend		—		—		112,402
Weighted average common shares		7,486,445		7,460,294		5,732,495
Dilutive effect of stock options		—		—		—
Adjustment for stock dividend		—		—		—
Weighted average common and incremental shares		7,486,445		7,460,294		5,732,495

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Investments in Affiliated Companies (Unaudited): (Details Textual) (Subsidiaries [Member])	Dec. 31, 2012
Subsidiaries [Member]
Investments in Affiliated Companies (Textual) [Abstract]
Percent of common stock of HopFed Bancorp, Inc.	100.00%

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Intangible Assets: (Details 1) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Estimated amortization expense for intangible assets
Total	$ 292	$ 519
Core deposits [Member]
Estimated amortization expense for intangible assets
2013	162
2014	97
2015	33
Total	$ 292

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Premises and Equipment: (Table)

12 Months Ended

Dec. 31, 2012

Premises and Equipment: [Abstract]

Components of premises and equipment included in the consolidated balance sheets

	2012		2011
Land	$	5,560		5,560
Land improvements		558		558
Buildings		20,257		20,206
Furniture and equipment		7,427		6,765
		33,802		33,089
Less accumulated depreciation		11,245		9,658
Premises and equipment, net	$	22,557		23,431

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Concentrations of Credit Risk:

12 Months Ended

Dec. 31, 2012

Concentrations of Credit Risk: [Abstract]

Concentrations of Credit Risk:

(11) Concentrations of Credit Risk:

Most of the Bank’s business activity is with customers located within the western part of the Commonwealth of Kentucky and middle and western Tennessee. One-to-four family residential and non residential real estate collateralize the majority of the loans. The Bank requires collateral for the majority of loans.

The distribution of commitments to extend credit approximates the distribution of loans outstanding. The contractual amounts of credit-related financial instruments such as commitments to extend credit and commercial letters of credit represent the amounts of potential accounting loss should the contract be fully drawn upon, the customer default, and the value of any existing collateral become worthless. In October of 2008, the FDIC increased its deposit coverage on all accounts to $250,000. In addition, financial institutions could choose to pay a higher premium to have all non-interest demand deposit balances insured. Compass Bank of Birmingham, Alabama, the Heritage Bank correspondent banker, elected to accept this additional coverage. Therefore, uninsured deposits are limited to those balances transferred to an overnight federal funds account. During 2012 and 2011, Heritage Bank chose not to transfer balances to an overnight federal funds account. Unlimited FDIC insurance on non-interest bearing deposits ended December 31, 2012.

At December 31, 2012, all cash and cash equivalents are deposited with Compass Bank, the Federal Reserve Bank or the Federal Home Loan Bank of Cincinnati (FHLB). Compass Bank is a participant in the FDIC’s TALC program that provided 100% insurance for all funds in non-interest bearing accounts through close of business at December 31, 2012. All funds deposited into Compass Bank were placed in non-interest bearing accounts and are fully insured by the FDIC. All deposits at the FHLB are liabilities of the individual bank and were not federally insured. The FHLB is a government sponsored enterprise (GSE) and has the second highest rating available by all rating agencies. At December 31, 2012, total FHLB deposits were approximately $3.9 million and total deposits at the Federal Reserve were $5.6 million, none of which is insured by the FDIC.

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Commitments and Contingencies: (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012
Future minimal lease and rental commitments
2013	$ 200,122
2014	197,104
2015	179,461
2016	153,996
2017	153,996
Total	$ 884,679