10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2016

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  ☒

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  ☒

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  ☒    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	☐	Small Reporting Company	☐

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

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 ($11.59 per share) at which the stock was sold on June 30, 2016, was approximately $74,901,029. 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 6, 2017, 6,716,679 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, 2016.

Part III:

Portions of the definitive proxy statement for the 2017 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 “Savings Bank”) from a federal mutual savings bank to a federal stock savings bank and the issuance of the Savings Bank’s capital stock to the Corporation. The conversion of the Savings Bank, the acquisition of all of the outstanding capital stock of the Savings 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.

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 to serve 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. On June 5, 2013, the Corporation’s bank subsidiary, Heritage Bank, changed its name to Heritage Bank USA, Inc., (the “Bank”), converting its charter from a federal thrift to a Kentucky state chartered commercial bank. Likewise, the Corporation converted its charter to a Federal Reserve non-member commercial bank holding company. 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. 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. The consolidated results of the Bank and the Corporation are referred to as 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 USA, Inc.

The Bank is a Kentucky state chartered commercial 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. In October 2014, the Bank opened a loan production office in Nashville, Tennessee. In October 2016, the Bank opened a loan production office in Brentwood, Tennessee. 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. On June 5, 2013, the Bank changed its legal name to Heritage Bank USA, Inc. 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, Davidson, Obion and Weakley counties located in Tennessee.

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 (CMOs), 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 commercial and real estate loans.

2

Subsidiary Activities

The Bank owns JBMM, LLC, a wholly owned, limited liability company, owns and manages the Bank’s other real estate and other assets owned. The Bank owns Heritage Interim Corporation, a Tennessee corporation established to facilitate the acquisition of a bank in Tennessee. The proposed acquisition was terminated in August of 2013. The Bank owns Heritage USA Title, LLC, which sells title insurance to the Bank’s real estate loan customers.

The Bank owns Fort Webb LP, LLC, which owns a limited partnership interest in Fort Webb LP, LLC, 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 original $420,000 investment. At December 31, 2016, the Company has no remaining balance on its books related to Fort Webb, LP, LLC. However, we anticipate that the Company will continue to receive tax benefits in the form of partnership depreciation expense for several years.

The following chart outlines the Bank’s market share in our six largest markets at June 30, 2012, 2013, 2014, 2015 and 2016, according to information provided by the FDIC Market Share Report:

	At June 30
	2012			2013			2014			2015			2016
Calloway		15.3	%		14.1	%		13.7	%		13.2	%		12.8	%
Christian		22.5	%		22.1	%		22.6	%		20.0	%		17.9	%
Fulton		53.9	%		52.0	%		51.0	%		49.1	%		47.5	%
Marshall		14.9	%		12.9	%		11.9	%		10.6	%		9.4	%
Cheatham		17.8	%		18.9	%		20.0	%		23.4	%		23.1	%
Montgomery		3.0	%		2.6	%		2.5	%		2.7	%		2.1	%

Growth Opportunities

For the year ended December 31, 2016, the Company’s net loan portfolio balance was $604.3 million, representing an increase of $47.9 million, or 8.6%, as compared to December 31, 2015. For the six month period ended June 30, 2016, net loan growth was $4.4 million. For the six month period beginning July 1, 2016, and ended December 31, 2016, loan growth was approximately $43.5 million.

In 2016, the Company’s loan growth largely occurred in two markets. For the year ended December 31, 2016, the Company’s Christian County, Kentucky, market experienced loan growth of $31.4 million, or 30.6%. The Company’s loan growth in its home market was the result of improving sentiment on the future of the economy and long term marketing efforts by our loan officers. At December 31, 2016, the Christian County, Kentucky, market had loan balances of $127.0 million. The Nashville, Tennessee, loan production office (“Nashville LPO”) experienced loan growth of $26.3 million for the year ended December 31, 2016. At December 31, 2016, the Nashville LPO had loan balances of $42.5 million.

3

For the year ended December 31, 2016, the Company’s non-residential loan portfolio grew by $40.2 million, or approximately 18.7%, as compared to December 31, 2015. At December 31, 2016, the Company’s non-owner occupied non-residential loan portfolio (“NOOCRE”) was $104.3 million, representing an increase of $36.9 million, as compared to December 31, 2015. At December 31, 2016, the Company’s growth in NOOCRE largely occurred in the following asset categories:

Asset category	2016 Growth
Retail	$	12.6 million
Hotel	$	3.3 million
Office building	$	5.0 million
Warehouse / Other	$	8.5 million
Construction	$	4.3 million
Farmland	$	5.6 million

For the year ended December 31, 2016, the Company’s multi-family and construction loan portfolios grew by $9.6 million and $4.3 million, respectively, as compared to the year ended December 31, 2015. At December 31, 2016, total consumer loans and loans secured by deposits totaled $8.7 million, a decline of $11.6 million as compared to December 31, 2015. The reduction in consumer loans for the year ended December 31, 2016, was largely the result of the liquidation of collateral on one large loan relationship.

The Company has chosen not to seek land loans to augment loan growth. At December 31, 2009, total land loans were $64.5 million, as compared to $23.8 million at December 31, 2016. At December 31, 2016, the Company has $8.2 million in land loans classified as substandard, representing 28.0% of all substandard loans and 34.4% of total land loans. At December 31, 2016, $7.7 million of land loans are in non-accrual status, representing 84.6% of total non-accrual loan balances. At December 31, 2016, the Company has chosen not to incur the additional risk associated with these types of lending relationships and remains committed to resolving the small number of adversely classified loans in our portfolio.

In October 2014, the Company opened a loan production office in Nashville, Tennessee (“Nashville”). Nashville is approximately 70 miles from the Company’s headquarters and one of the fastest growing markets in the country. The Company’s goal was to establish a successful loan production office and use that success to build a modest branch network into the suburban areas surrounding Nashville. As the demographic information on the following pages suggest, the Nashville MSA provides the Company with an unlimited amount of growth opportunities not found in our more rural markets. In October of 2016, the Company opened a second loan production office in the Nashville suburb of Brentwood, Tennessee (“Brentwood LPO”). The purpose of the Brentwood LPO is to enhance our ability to originate residential home mortgages sold on the secondary market.

For the year ended December 31, 2015, the Company’s loan portfolio grew by $17.0 million, or 3.2%. Prior to the year ended December 31, 2015, the Company’s loan growth was negative in four of the last five years. The negative loan growth was the result of several factors, including the deployment of more than 15,000 troops from nearby Fort Campbell, Kentucky to Afghanistan, which 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 response to the decline in loan demand, the Company sought to reduce the size of its balance sheet and its cost of interest bearing liabilities. At April 30, 2010, the Company had brokered deposits totaling $103.4 million as compared to $33.4 million at December 31, 2016. The Company has also reduced the balance of Federal Home Loan Bank (“FHLB”) borrowings from $81.9 million at December 31, 2010, to $11.0 million at December 31, 2016. The reduction of FHLB borrowings include early repayments of $35.9 million in borrowings on December 30, 2014, resulting in $2.5 million prepayment penalty.

In addition to reducing the level of wholesale funding, the Company’s funding mix has significantly improved, resulting in a lower level of interest expenses. At December 31, 2016, total time deposits (including brokered) were $293.1 million, a decline of $21.6 million and $38.8 million as compared to December 31, 2015, and December 31, 2014, respectively. At December 31, 2016, the Company’s time deposit balances accounted for 40.0% of total deposits as compared to 42.6% of total deposits at December 31, 2015, and 45.4% at December 31, 2014.

4

The Company’s opportunities for improved profitability are believed to lie in a balanced growth of loans and lower cost deposits while maintaining acceptable credit standards. The Company views its core markets of Western Kentucky and Middle Tennessee as important foundations to our future. The Nashville MSA appears to provide the Company with the best opportunity for meaningful loan growth.

Western Kentucky

Small manufacturing and agri-business interests are the largest drivers of the local economy in our Western Kentucky markets. In Western Kentucky, small manufacturing typically revolves around the automotive, transportation, and chemical industries. The manufacturing sector is reasonably strong in the immediate area with most factories operating near capacity. Unemployment rates are low in many counties in Western Kentucky due largely to the rebound in automobile sales.

In 2016, local farmers enjoyed strong yields on their crops. However, the continued weak level of commodity prices has made it difficult for all those involved in the agri-business sector. Agri-business profitability remains marginal at best. In 2017, the agri-business community anticipates the operating conditions will remain challenging without a meaningful increase in commodity prices, which are projected to remain weak into 2018. Weak commodity prices have resulted in a stabilization of the price of agricultural land, which remain near historical highs.

The tables below are a summary of selected information from the 2010 U.S. Census related to the Company’s current market areas. The source of our future growth projections was the 2011 Kentucky State Data Center at the University of Louisville. At December 31, 2016, Kentucky’s unemployment rate was 4.8%. The unemployment data by market was obtained from the U.S. Bureau of Labor Statistics (www.bls.gov/LAU):

	Unemployment		2010 Median		Median Values
	Rate at		Household		Owner Occupied		2010		2020		2030
	Dec-16		Income		Housing Units		Census		Estimated		Estimated
Calloway		4.0%	$	39,194	$	105,300		37,191		40,411		43,618
Christian		5.2%	$	37,061	$	95,500		73,955		77,840		81,015
Marshall		5.7%	$	43,326	$	96,900		31,448		33,023		33,787
Todd		3.6%	$	36,989	$	79,700		12,460		12,958		13,292
Trigg		5.4%	$	41,825	$	98,300		14,339		16,244		17,913
Fulton		6.3%	$	31,965	$	55,300		6,813		6,223		5,535
Total population								176,206		186,699		195,160
Estimated ten year population growth								8,542		10,493		8,461
Estimated population growth rate								5.1%		6.0%		4.5%

5

Clarksville, Montgomery County, Tennessee (“Clarksville”)

The Clarksville market is the largest market in which the Company has a significant retail banking presence. The Clarksville economy has several large employers and economic drivers including the United States (“U.S.”) Army’s 101^st Airborne Division with approximately 29,000 active duty military personnel and 3,900 civilian employees assigned to the division. Fort Campbell supports the third largest military population in the U.S. Army and the seventh largest in the U.S. Department of Defense. The many services available on the army installation and the community’s modest cost of living have resulted in a sizable military retirement population in the area. Clarksville is also home to Austin Peay State University, a 10,000 student public university as well as a diverse manufacturing sector. The unemployment rate for Montgomery County, Tennessee in December 2016 was 5.2%.

In October of 2013, Hankook Tires announced the construction of its U.S. manufacturing facility in Clarksville. Hankook, a South Korean tire company, has invested approximately $800 million in a new facility. Hankook anticipates that tire production will begin in 2017 and will result in approximately 1,800 full time jobs for the local economy. Hankook chose Clarksville due to its ideal location, strong transportation network and its proximity to automotive assembly plants owned by Nissan, Volkswagen, Toyota and General Motors.

The Clarksville market exhibits stronger growth and income demographics as compared to the communities in Western Kentucky. The 2010 census noted that Clarksville had a median household income of $48,930 and a $129,400 median value of owner occupied housing units. Clarksville’s demographics benefit by its proximity to the Fort Campbell Army base; its proximity to Nashville, Tennessee; and the absence of a state income tax.

	2010		2020		2030		2040
	Census		Estimated		Estimated		Estimated
Clarksville MSA		172,331		221,620		264,680		311,239
Ten year growth rate		27.9%		28.6%		19.4%		17.6%

Source: Center for Business and Economic Research, University of Tennessee, Knoxville

Middle Tennessee and Nashville MSA

Cheatham County (“Cheatham”) and Houston County (“Houston”) are located in Middle Tennessee. Both communities are rural and residents of both communities typically rely on employment opportunities in neighboring communities, as neither county has a sizeable base of manufacturing jobs. However, Cheatham is located within the Nashville MSA, and its three largest communities are an easy commute to downtown Nashville. Cheatham’s proximity to Nashville has resulted in higher levels of income and population growth as compared to Houston. In December of 2016, the unemployment rates in Cheatham and Houston were 4.0% and 7.2%, respectively. In December of 2016, the unemployment rates in the state of Tennessee and the Nashville MSA are 4.9% and 3.8%, respectively.

6

The Company believes that the tables below support their views that the Clarksville and Nashville MSA provide the greatest opportunities for growth within our existing market area. The Company opened our Nashville LPO in October of 2014 and our Brentwood LPO (located in Williamson County, Tennessee) in October of 2016. The Nashville MSA has a population of approximately 1.6 million (includes Cheatham County, Tennessee) 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		39,105	9.0%	$	52,585	$	155,900

Source: United State Census – 2010

	2010		2020		2030		2040
	Census		Estimated		Estimated		Estimated
Nashville MSA		1,582,315		2,001,143		2,355,605		2,715,231
Ten year growth rate				26.5%		17.7%		15.3%

Source: Center for Business and Economic Research, University of Tennessee, Knoxville

7

In addition to the Clarksville and Nashville MSA markets, 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, and Louisville, Kentucky. 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 65 miles from the Company’s corporate headquarters. The tables below include the two largest counties by population in Kentucky and other communities in Kentucky within a two-hour drive of the Company’s headquarters:

Kentucky	Census 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

Equity Transactions

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 expense) 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.

On March 2, 2015, the Company issued 600,000 shares of treasury stock to the Company’s ESOP in a transaction as discussed below.

Stock Repurchases

On October 31, 2014, the Company announced that it intended to purchase an additional 300,000 shares of common stock. The Company added that it authorized the purchase of up to 1.0 million shares for general corporate purchases or employee benefit plans. The repurchase program expired on October 31, 2015. On November 16, 2015, the Company announced a new repurchase program of an additional 300,000 shares of common stock that is set to expire December 31, 2017. At December 31, 2016, the Company may purchase 92,550 shares of treasury stock under the currently active repurchase program. For the year ended December 31, 2016, the Company purchased 160,248 shares of common stock at a weighted average price of $11.70 per share. At December 31, 2016, the Company holds a total of 1,246,136 shares of the Company’s common stock as treasury stock at a weighted average price of $12.32 per share.    

8

2015 HopFed Bancorp, Inc. Employee Stock Ownership Plan

On March 2, 2015, the Company implemented the HopFed Bancorp, Inc. 2015 Employee Stock Ownership Plan (the “ESOP”) which covers substantially all employees who are at least 21 years old with at least one year of employment with the Company and the Bank. Bank contributions to the ESOP replaced matching and profit sharing contributions to the Heritage Bank 401(k) Plan sponsored by the Bank. All employees of the Company and its subsidiaries meeting the required service requirements participate in the ESOP. The Company’s Board of Directors selected three individuals to serve as trustees. The Company has hired a directed corporate trustee to assist with the administration of the plan. The ESOP will be administered by a committee (the “Committee”) comprised of eleven employees approved by the Bank’s Board of Directors.

On March 2, 2015, the ESOP entered into a loan agreement with the Company to borrow up to $13.5 million to purchase up to 1.0 million shares common stock (“ESOP loan”). On the same date, the ESOP purchased an initial block of 600,000 shares from the Company at a cost of $7,884,000 using the proceeds of the ESOP Loan. In accordance with the ESOP loan documents, the common stock purchased by the ESOP serves as collateral for the ESOP loan. The ESOP loan is being repaid from discretionary contributions by the Bank to the ESOP and by dividends paid on unearned shares held in the trust over a period ending no later than December 9, 2026. The interest rate on the ESOP Loan is 3.0%. The administrative trustee has custody of the common shares owned by the ESOP. Common shares are allocated among participants as the ESOP loan is repaid. The ESOP shares receive dividend payments and dividends on unearned shares are used to make the ESOP loan payment. For the years ended December 31, 2016, and December 31, 2015, the Company incurred compensation expense of $553,000 and $652,000, respectively, to fund the ESOP loan payment. For the years ended December 31, 2016, and December 31, 2015, the Company’s ESOP released 48,067 and 53,587 shares of stock, respectively, to individual employees participating in the plan at December 31, 2016 and December 31, 2015, respectively.

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.

Lending Activities

General. The total gross loans, net of deferred loan fees of $439,000, totaled $610.4 million at December 31, 2016, representing 68.5% of total assets at that date. Substantially all loans are originated in the Bank’s market area. At December 31, 2016, $185.1 million, or 30.3% of the loan portfolio, consisted of one-to-four family, residential mortgage loans. Non-residential real estate loans total $254.6 million, or 41.7% of the loan portfolio at December 31, 2016. At December 31, 2016, multi-family residential loans were $34.3 million, or 5.6% of the loan portfolio. At December 31, 2016, construction loans were $39.3 million, or 6.4% of the loan portfolio, and total consumer and commercial loans totaled $97.6 million, or 16.0% of the loan portfolio.

9

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, 2016, there were no concentrations of loans exceeding 10% of total loans other than as disclosed below.

	2016						2015						2014						2013						2012
	Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent
	(Dollars in thousands)
Type of Loan:
Real estate loans:
One-to-four family residential	$	185,098			30.3	%		181,414			32.3	%		186,891			34.2	%		192,603			34.9	%		203,754			38.0	%
Multi-family residential		34,284			5.6	%		24,725			4.4	%		25,991			4.8	%		29,736			5.4	%		33,056			6.2	%
Construction		39,255			6.4	%		34,878			6.2	%		24,241			4.4	%		10,618			1.9	%		18,900			3.5	%
Non-residential (1)		254,576			41.7	%		214,410			38.1	%		220,124			40.3	%		244,241			44.2	%		215,342			40.2	%
Total real estate loans		513,213			84.0	%		455,427			81.0	%		457,247			83.7	%		477,198			86.4	%		471,052			87.9	%
Other loans:
Secured by deposits		2,160			0.3	%		14,134			2.5	%		8,136			1.5	%		3,048			0.6	%		3,768			0.7	%
Other consumer loans		6,557			1.1	%		6,190			1.1	%		6,302			1.2	%		8,119			1.4	%		10,118			1.9	%
Commercial loans		88,907			14.6	%		86,743			15.4	%		74,154			13.6	%		64,041			11.6	%		50,549			9.5	%
Total other loans		97,624			16.0	%		107,067			19.0	%		88,592			16.3	%		75,208			13.6	%		64,435			12.1	%
		610,837			100.0	%		562,494			100.0	%		545,839			100.0	%		552,406			100.0	%		535,487			100.0	%
Deferred loan cost, net		(439	)					(445	)					(286	)					(92	)					146
Allowance for loan losses		(6,112	)					(5,700	)					(6,289	)					(8,682	)					(10,648	)
Total	$	604,286						556,349						539,264						543,632						524,985

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

Loan Maturity Schedule. The following table sets forth certain information at December 31, 2016, 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, loans having no stated maturity, and overdrafts are due in one year or less.

							3 through 5		5 through 10		10 through 15		Due 15
			Due the year				years after		years after		years after		years after
			ending December 31,				December 31,		December 31,		December 31,		December 31,
	2017		2018		2019		2017		2017		2017		2017		Total
	(Dollars In Thousands)
One-to-four family residential	$	4,925		2,585		10,869		24,724		38,156		27,718		76,121		185,098
Multi-family residential		6,622		528		848		7,741		11,096		3,490		3,959		34,284
Construction		9,656		5,161		10,056		10,529		3,146		707		—		39,255
Non-residential		30,054		20,695		18,715		55,763		61,249		37,109		30,991		254,576
Secured by deposits		557		736		255		612		—		—		—		2,160
Other		33,267		5,751		20,204		14,021		19,445		2,693		83		95,464
Total	$	85,081		35,456		60,947		113,390		133,092		71,717		111,154		610,837

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The following table sets forth at December 31, 2016, the dollar amount of all loans due after December 31, 2017, 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	$	65,471	$	114,702
Multi-family residential		20,869		6,793
Construction		21,467		8,132
Non-residential		116,690		107,832
Other		51,270		12,530
Total	$	275,767	$	249,989

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 total consolidated risk based capital:

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 heightened level of concern 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 excluded from the guidance. The Bank has used the FDIC’s call report instructions to calculate that $201.6 million of our loan portfolio, or 206.2% of the Bank’s risk based capital, consists of properties classified as non-owner occupied commercial real estate. Non-owner occupied commercial real estate loans include 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. Included in the definition of commercial real estate are $39.3 million in construction loans and $23.8 million in land development loans, representing 40.2% and 24.4% of the Bank’s risk based capital, respectively. Both of our concentration categories are within regulatory guidelines and appear reasonable to management at this time.

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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 inside its market area. The following table sets forth certain information with respect to loan origination activity for the periods indicated.

	Year Ended December 31,
	2016		2015			2014
	(Dollars In Thousands)
Loan originations:
One-to-four family residential	$	91,122	$	67,905		$	52,357
Multi-family residential		11,480		5,971			6,717
Construction		25,464		29,939			31,344
Non-residential		108,537		38,810			46,426
Other		53,021		39,097			69,300
Total loans originated		289,624		181,722			206,144
Loan reductions:
Transfer to other real estate owned		2,935		869			1,579
(Increase) decrease in deferred loan origination fees, net of income		6		(159	)		194
Increase (decrease) in allowance for loan losses		412		(589	)		(2,393	)
Loans sold		56,309		44,020			33,096
Transfer to loan held for sale		—		—			6,987
Loan principal payments		182,025		120,496			171,049
Net increase (decrease) in the loan portfolio	$	47,937	$	17,085		($	4,368	)

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 may receive additional compensation on a commission basis based on achieving certain performance goals. 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 Chief Credit Officer, Chief Executive Officer, the executive loan committee of the Board of Directors or the entire 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. 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 and Tennessee counsel who provides that the property is free of prior encumbrances and other possible title defects. Title Insurance is generally required on all real estate loans with balances exceeding $100,000 and all one-to-four family loans that are to be sold in the secondary market.

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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.

The Bank offers a residential fixed rate loan program with maturities of 15, 20, and 30 years. The majority of our fixed rate single-family loans are underwritten and closed in accordance with secondary market standards. The Bank originates these loans with intent to sell on the secondary market. However, the Bank may choose to maintain a certain percentage of these loans in our portfolio. The Bank offers both servicing retained and servicing released products in an attempt to meet the needs of our customers. Due to the increasing level of regulatory burden imposed on companies that provide servicing for single family home loans, our pricing strategy provides incentives for the vast majority of our customers to select a servicing released loan product. At December 31, 2016, the Bank’s 1-4 family loan servicing portfolio was approximately $19.7 million.

The Bank may 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. At December 31, 2016, the Bank held approximately $2.5 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, 2016, no loans with a loan to value exceeding 90% without private mortgage insurance is in non-accrual status and $24,000 of loans with a loan to value exceeding 90% without private mortgage insurance are 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 commercial bank 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. Under these limits, the Bank’s loans to one borrower were limited to approximately $14.7 million at December 31, 2016. 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, 2016, one-to-four family residential mortgage loans totaled approximately $185.1 million, or 30.3% of the Bank’s loan portfolio. The Bank originated approximately $54.7 million in loans that the Bank sold in the secondary market with servicing released. At December 31, 2016, the Bank had approximately $672,000 in one-to-four family residential real estate loans past due more than ninety days or in non-accrual status. At December 31, 2016, the Company’s allowance for loan loss included $1.1 million for one-to-four family residential lending.

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As of December 31, 2016, 64.6% 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, 2016, approximately $149.4 million of the Bank’s residential mortgage portfolio consisted of closed end first and junior liens. Such loans are originated 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 adjustable rate 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. All adjustable rate first mortgage loans use the one-year Treasury bill constant maturity (“One Year CMT”). In 2004, the Bank increased its margin on its adjustable rate loans to 3.00% from 2.75%.

The Bank also originates fixed-rate loans for terms up to 30 years. Fixed rate loans are secured by first mortgages on one-to-four family 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 prioritize fixed-rate mortgage loans. At December 31, 2016, $65.5 million of the Bank’s loan portfolio consisted of fixed-rate one-to-four family first mortgage loans that will mature after December 31, 2017.

At December 31, 2016, the Bank had $35.7 million in home equity lines of credit outstanding and $31.8 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 2.0% 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 1.0% 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 1.0% 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.

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. 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.

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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 involves 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, 2016, the Bank’s loan portfolio included $39.3 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, 2016, approximately $6.5 million of construction loans were for one-to-four family dwellings, approximately $8.1 million of construction loans were for multi-family dwellings and $24.7 million were for non-residential real estate. At December 31, 2016, there were no construction loans past due more than ninety days or in non-accrual status. At December 31, 2016, the Bank’s allowance for loan loss included $277,000 in the reserve for construction loans.

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, 2016, the Bank had $34.3 million of multi-family residential loans, which amounted to 5.6% 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, farmland, and raw land. In most cases, such property is located in the Bank’s market area. At December 31, 2016, the Bank had approximately $254.6 million of such loans, which comprised 41.7% of its loan portfolio.

At December 31, 2016, non-residential real estate loans consisted of $47.8 million in farmland, $104.2 million in non-owner occupied properties, and $78.8 million in owner occupied commercial real estate and $23.8 million in raw land. The Company currently has no land under development and all lots are completed and available for sale. At December 31, 2016, approximately $8.2 million, or 34.5% of the Company’s land portfolio, are substandard. At December 31, 2016, $2.3 million, or 4.8% of the Company’s farmland portfolio are substandard and $10.5 million, or 5.8% of the Company’s commercial real estate portfolio, are substandard.

At December 31, 2016, there were $208,000 in non-residential real estate loans past due more than ninety days or in non-accrual status. At December 31, 2016, there were $7.7 million in land loans past due more than ninety days or in non-accrual status. At December 31, 2016, the Company’s allowance for loan loss included $1.8 million in the reserve for land loans, $964,000 in the reserve for non-residential real estate loans and $778,000 in the reserve for loans secured by farmland.

At December 31, 2016, the Company has no land loans currently under development. At December 31, 2016, the inventory of land loans includes 84 fully developed lots available for sale with an aggregate loan balance of $2.2 million. The average lot had an average loan balance of approximately $26,700. Also at December 31, 2016, the Company’s loan portfolio includes $14.4 million of land loans for future development currently without meaningful infrastructure in place. The Company’s portfolio of land loans designated for future development represent approximately 1,198 acres of land with an average price per acre of approximately $12,000. The remaining $7.2 million in land loans are for personal and recreational purposes.

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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, 2016, there were no multi-family loans past due more than 90 days or classified as non-accrual. At December 31, 2016, there were $208,000 in loans secured by non-residential real estate or farmland that were past due by 90 days or more or classified as non-accrual and $7.7 million in loans secured by raw land that were past due by 90 days or more or classified as non-accrual. At December 31, 2016, the Company’s allowance for loan loss included $412,000 in the reserve for multi-family loans, $1.8 million in the reserve for loans secured by raw land, $778,000 in the reserve for loans secured by farmland and $964,000 in reserve for non-residential real estate loans.

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 100% 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 on deposit secured loans are payable quarterly. At December 31, 2016, loans on deposit accounts totaled $2.2 million, or 0.3% of the Bank’s loan portfolio. Other consumer loans include automobile loans, the amount and terms of which are determined by management, and closed end home equity and home improvement loans, which are made for up to 100% of the value of the property. At December 31, 2016, all other consumer loans accounts totaled $6.6 million, or 1.1% of total loans.

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 bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans. At December 31, 2016, $3,000 in consumer loans are delinquent 90 days or more or classified as non-accrual and $335,000 of deposit overdrafts that re-classified as consumer loans. At December 31, 2016, the Company’s allowance for loan loss included $208,000 for consumer loans.

In 2013, the Company instituted a centralized lending function for all residential real estate and consumer loans. The centralized process allows for a more standardized and consistent credit decision, a more efficient use of Company resources and provides for the concentration of the Company’s compliance and documentation expertise. In 2015, the Company expanded the centralized documentation process to include all loan originations.

16

Commercial Lending. The Bank originates commercial loans on a secured and, to a lesser extent, unsecured basis. At December 31, 2016, the Bank’s commercial loans amounted to $88.9 million, or 14.6% of the Bank’s loan portfolio. The Bank’s commercial loans are secured by business assets or agricultural inventory. In addition, the Bank generally obtains guarantees from the principals of the borrower with respect to all commercial loans. At December 31, 2016, $19.8 million of the Bank’s commercial loan portfolio were loans to finance agricultural production or other loans to farmers. At December 31, 2016, there was $516,000 in commercial loans delinquent 90 days or more or classified as non-accrual. At December 31, 2016, the Company’s allowance for loan loss included $593,000 in reserve for commercial loans.

In 2016, net charge offs totaled $829,000, or 0.15% of average loans. In 2016, the Company charged off $764,000 on one lending relationship that resulted in a foreclosure of numerous properties. The Company has placed the related assets as other real estate owned and is now actively marketing the properties. In 2015, the Company experienced an increase in net charge offs as compared to 2014. In 2015, the Company’s net charge offs were $1.6 million, or 0.29% of average loan balances. In 2014, the Company’s net charge offs were $120,000, which included a $1.1 million in recoveries of previously charged off loans.

At December 31, 2016, the Company’s level of classified loans to risk based capital is 29.7%. The Company seeks to maintain a level of classified assets at or below 30% of risk based capital. We will continue to focus our efforts to reduce the level of classified assets on our land portfolio, in which two land development loans account for 28.0% of the total dollar amount of our total classified assets and 8.3% of our risk based capital.

Non-accrual Loans and Other Problem Assets

The Bank’s non-accrual loans totaled 1.49% of total loans at December 31, 2016. 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 1.49% at December 31, 2016.

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

	At December 31,
	2016			2015			2014			2013			2012
	(Dollars In Thousands)
Accruing loans which are contractually past due 90 days or more:
Residential real estate	$	—		$	—		$	—		$	—		$	—
Non-residential real estate		—			—			—			—			—
Consumer		—			—			—			—			—
Commercial		—			—			—			—			—
Total		—			—			—			—			—
Non-Accrual Loans:
Construction		—			—			—			175			—
Multi-family		—			1,968			95			—			38
Residential real estate		672			2,282			1,501			948			2,313
Land		7,675			1,553			215			1,218			2,768
Non-residential real estate		208			247			1,159			6,546			1,134
Farmland		—			166			115			703			648
Consumer		3			8			—			13			145
Commercial		516			1,198			90			463			617
Total non-accrual loans	$	9,074		$	7,422		$	3,175		$	10,066		$	7,663
Percentage of total loans		1.49	%		1.32	%		0.58	%		1.82	%		1.43	%

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Federal regulations require commercial banks to classify their assets based on credit 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 attempts to determine 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.

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 an 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 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 establish a specific reserve for 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.

State and 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 appropriate supervisory examiner with the Kentucky Department of Financial Institutions (“KDFI”) and the FDIC. Management regularly reviews its assets to determine whether any assets require classification or re-classification. At December 31, 2016, the Bank had $29.3 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, 2016, and including our most recent examination, there were no material disagreements between examiners and management regarding risk grading or the funding of the allowance for loan loss account.

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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, 2016, and December 31, 2015. 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						Specific Allowance
December 31, 2016	Mention		Substandard		Doubtful		for Impairment
One-to-four family residential	$	744		1,253		—		—
Home equity line of credit		25		550		—		—
Junior lien		30		11		—		—
Multi-family		—		3,004		—		—
Construction		—		—		—		—
Land		35		8,224		—		1,036
Non-residential real estate		3		10,542		—		—
Farmland		674		2,290		—		—
Consumer		—		335		—		84
Commercial		603		3,130		—		28
Total	$	2,114		29,339		—		1,148

December 31, 2015	Special Mention		Substandard		Doubtful		Specific Allowance for Impairment
One-to-four family residential	$	41		3,229		—		60
Home equity line of credit		—		169		—		—
Junior lien		35		16		—		—
Multi-family		—		3,081		—		138
Construction		—		—		—		—
Land		41		10,618		—		69
Non-residential real estate		2,489		8,357		—		134
Farmland		—		329		—		—
Consumer		—		201		—		49
Commercial		352		2,074		—		180
Total	$	2,958		28,074		—		630

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 TDRs. The classification of a loan as a 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.

19

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, 2016, the Company had $5.6 million in non-residential real estate loans classified as TDR and $815,000 in multi-family loans classified as TDRs, with all such loans reported as TDRs performing as agreed by the loans modified terms. At December 31, 2015, the Company had $5.5 million in non-residential real estate loans classified as performing TDRs. Loans classified as TDRs in both 2016 and 2015 are the result of the borrower’s cash flow and the Company’s concession to temporarily allow interest only payments on balances outstanding. At December 31, 2016, all non-residential real estate loans are now making monthly principal and interest payments. Of the loans classified as TDRs at December 31, 2016, $815,000 in multi-family loans are currently making interest only payments.

The table below provides a summary of the activity of loans classified for the year ended December 31, 2016:

	Balance at December 31, 2015		New TDR		Loss on Foreclosure		Loan Amortization			Balance at December 31,2016
					(Dollars in Thousands)
Multi-family real estate		—		816		—		(1	)		815
Non-residential real estate	$	5,536		228		—		(118	)		5,646
Total TDR	$	5,536		1,044		—		(119	)		6,461

The table below provides a summary of the activity of loans classified for the year ended December 31, 2015:

	Balance at December 31, 2014		New TDR		Loss on Foreclosure		Loan Amortization			Balance at December 31,2015
					(Dollars in Thousands)
Non-residential real estate	$	3,284		2,265		—		(13	)		5,536
Total TDR	$	3,284		2,265		—		(13	)		5,536

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.

Subsequent to foreclosure, in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), 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 are recognized as an expense through a charge to losses on real estate owned. At December 31, 2016, the Bank’s real estate and other assets owned totaled $2.4 million.

20

The following table sets forth information with respect to the Bank’s real estate and other assets owned at December 31, 2016, December 31, 2015, and December 31, 2014:

	2016		2015		2014
	(Dollars in Thousands)
One-to-four family first mortgages	$	135		55		159
Home equity line of credit		28		—		—
Multi-family		1,775		—		—
Land		—		943		1,768
Non-residential real estate		459		738		—
Total real estate and other assets owned	$	2,397		1,736		1,927

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 have occurred in the last twelve quarters. 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.

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.

21

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 quarterly losses, then 14.1% for the prior quarter’s losses, 12.8% for the 2^nd prior quarter’s 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 regulatory guidance. Financial institutions regulated by the KDFI 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,
	2016			2015			2014			2013			2012
	(Dollars in thousands)
Balance at beginning of period	$	5,700			6,289			8,682			10,648			11,262
Loans charged off:
Commercial loans		(1,016	)		(1,334	)		(501	)		(2,802	)		(2,727	)
Consumer loans and overdrafts		(422	)		(298	)		(415	)		(649	)		(510	)
Residential real estate		(30	)		(235	)		(316	)		(993	)		(447	)
Total charge-offs		(1,468	)		(1,867	)		(1,232	)		(4,444	)		(3,684	)
Recoveries		639			227			1,112			874			795
Net loans charged off		(829	)		(1,640	)		(120	)		(3,570	)		(2,889	)
Provision for loan losses		1,241			1,051			(2,273	)		1,604			2,275
Balance at end of period	$	6,112			5,700			6,289			8,682			10,648
Ratio of net charge-offs to average loans outstanding during the period		0.15	%		0.29	%		0.03	%		0.66	%		0.52	%

22

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,
	2016					2015					2014					2013
	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	$	1,120		30.3	%	$	1,239		32.3	%	$	1,393		34.2	%	$	2,305		34.9	%
Construction		277		6.4	%		377		6.2	%		146		4.4	%		88		1.9	%
Multi-family residential		412		5.6	%		227		4.4	%		85		4.8	%		466		5.4	%
Non-residential		3,502		41.7	%		2,876		38.1	%		3,667		40.3	%		4,534		44.2	%
Secured by deposits		—		0.3	%		—		2.5	%		—		1.5	%		—		0.6	%
Other loans		801		15.7	%		981		16.5	%		998		14.8	%		1,289		13.0	%
Total allowance for loan losses	$	6,112		100.0	%	$	5,700		100.0	%	$	6,289		100.0	%		8,682		100.0	%

	At December 31, 2012
	Amount		Percent of Loans in Each Category to Total Loans
	(Dollars In Thousands)
One-to-four family	$	3,094		38.0	%
Construction		256		3.5	%
Multi-family residential		524		6.2	%
Non-residential		5,817		40.2	%
Secured by deposits		—		0.7	%
Other consumer loans		957		11.4	%
Total allowance for loan losses	$	10,648		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 and the Investment Committee conducts are more detailed analysis on a quarterly basis.

At December 31, 2016, securities with an amortized cost of $208.7 million and an approximate market value of $209.5 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.

23

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. At December 31, 2016, the Company has $67.1 million in U.S. Government Agency mortgage-backed securities and $14.8 million in U.S. Agency CMO securities. At December 31, 2016, this portfolio has approximately $21.9 million that were originated through GNMA, approximately $52.8 million that were originated through FNMA, and approximately $6.8 million that were originated through FHLMC.

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.

The yield on mortgage backed securities 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.

The Company owns $3.4 million in securities collateralized by federally insured student loans. These securities are floating rate and are indexed to one-month libor and reset each quarter. The collateral provides approximately 97% guarantee of SLMA and current have a weighted average book value equal to 95.5% of par. Beginning January 1, 2015, Basel III placed new and excessive risk weighting requirements on specific support bonds, of which the Company sold in the first quarter of 2015. The risk weightings on the $3.4 million in bonds owned by the Company are currently 20%.

The Company currently owns a trust preferred security originally issued as a private placement by First Financial Services Corporation of Elizabethtown, Kentucky (“FFKY”). The security has a $2.0 million par value, a book value of $1.6 million and a market value of $1.8 million. On January 1, 2015, FFKY was purchased by Community Bank Shares of Indiana (“CBIN”). In 2015, CBIN changed its name to Your Community Bank and its NASDAQ ticker symbol to YCB.    In September 2016, Wesbanco (‘WSBC”), a $9.8 billion commercial bank headquartered in West Virginia, purchased YCB. At December 31, 2016, all interest payments on this security are current. See Note 2 of the Consolidated Financial Statements for more information concerning this security.

24

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) have a twenty year maturity and are 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. At December 31, 2016, the Company owns $6.1 million in SBIC notes, $2.5 million in floating rate SBA pools and $48.8 million at SBAP notes.

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

	At December 31,
	2016		2015		2014
	(In thousands)
FHLB stock, restricted	$	4,428		4,428		4,428
Securities available for sale:
U.S. Treasury securities		2,001		2,000		3,980
U.S. Agency securities, non-amortizing		26,573		30,484		24,172
U.S. Agency securities, amortizing		57,439		62,449		79,080
Mortage-backed securities		66,668		66,379		82,172
Agency CMO		14,766		19,510		27,995
Tax free municipal bonds		33,911		44,659		61,047
Taxable municipal bonds		2,727		6,177		12,043
Corporate bonds		—		—		2,007
Non-Agency CMO		3,578		3,654		9,643
Trust preferred security		1,817		1,865		1,489
Total investment securities	$	213,908	$	241,605	$	308,056

The following table sets forth information on the scheduled maturities, amortized cost, market values and average yields for non-amortizing U.S. Government agency securities, taxable municipal bonds, tax free municipal bonds, trust preferred securities and U.S. Treasury bonds in the investment portfolio at December 31, 2016. At such date, $9.7 million of the non-amortizing agency securities were callable and $4.1 million will mature on or before June 8, 2018, and $12.8 million were not callable and mature after June 9, 2018. In addition, approximately $57.4 million in small business administration amortizing bonds require periodic principal payments. At December 31, 2016, $24.4 million of tax free municipals and $1.1 million of taxable all municipal securities were callable between January 2017 and December 2022. The average yield for tax-free municipal bonds are quoted as a tax 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	$	3,071		1.11	%	$	3,926		2.19	%	$	17,570		2.05	%	$	2,006		4.00	%	$	26,573	$	26,573		2.11	%
Taxable municipal bonds	$	—		—		$	1,099		3.61	%	$	861		1.80	%	$	767		3.12	%	$	2,727	$	2,727		2.92	%
Tax-free municipal bonds	$	1,543		6.10	%	$	9,042		4.15	%	$	14,313		5.10	%	$	9,013		6.11	%	$	33,911	$	33,911		5.16	%
Trust preferred		—		—			—		—			—		—		$	1,817		10.90	%	$	1,817	$	1,817		10.90	%
U.S. Treasury bonds	$	2,001		0.84	%		—		—			—		—			—		——		$	2,001	$	2,001		0.84	%

25

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 influenced by general interest rates, and money market conditions and business cycles. Borrowings may be used on a short-term basis to compensate for reductions in the availability of funds, or on a long-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 2015 and 2014, weak loan demand and high levels of liquidity made it difficult to maintain a desirable level of profitability. Therefore, management placed an emphasis on reducing the Bank’s interest expense. The reduction in interest expense resulted from a change in our deposit mix and overall funding mix of the Bank. First, we placed a strong marketing emphasis on non-interest bearing checking accounts. In each of the last five years, we opened more than 4,000 non-interest checking accounts. For the years ended December 31, 2016, 2015, and 2014, the average balance of non-interest checking accounts has increased by $12.4 million, $8.5 million and $12.5 million, respectively.

In 2016, the Bank has experienced meaningful loan demand for the first time in several years. In 2017, the Bank will seek to grow its interest earning assets and interest bearing liabilities in a balanced manner. Loan growth above 5% will require us to increase the volumes of time deposits and other non-traditional funding sources as compared to interest bearing and non-interest bearing checking accounts.

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.

At December 31, 2016, the Bank had $33.4 million in brokered deposits, or 4.6% of total deposits. At December 31, 2015, the Bank had $34.4 million in brokered deposits, or 4.7% of total deposits, The Bank utilizes brokered deposits to fill in maturity gaps in an effort to balance the amount of time deposits maturing in any one period and as an alternative source of funding. 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 meet 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.

26

At December 31, 2016, the Bank had deposit programs and balances as described below:

Interest Rate*	Minimum Term	Category	Minimum Amount		Balance		Percentage of Total Deposits
			(In thousands)
—  %	None	Non-interest bearing	$	100	$	131,145		17.9	%
0.05%	None	Interest checking accounts		1,500		209,347		28.6	%
0.10%	None	Savings and money market		10		99,312		13.5	%
						439,804		60.0	%
		Certificates of Deposit
0.35%	3 months or less	Fixed-term, fixed rate		1,000		33,657		4.6	%
0.65%	3 to 12 months	Fixed-term, fixed-rate		1,000		104,250		14.2	%
0.99%	12 to 24-months	Fixed-term, fixed-rate		1,000		97,986		13.4	%
1.20%	24 to 36-months	Fixed-term, fixed-rate		1,000		29,945		4.1	%
1.31%	36 to 48-months	Fixed-term, fixed-rate		1,000		16,811		2.3	%
1.60%	48 to 60-months	Fixed-term, fixed rate		1,000		10,429		1.4	%
						293,078		40.0	%
					$	732,882		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,
	2016						2015						2014
	Interest-bearing demand deposits			Time deposits			Interest-bearing demand deposits			Time deposits			Interest-bearing demand deposits			Time deposits
	(Dollars in thousands)
Average Balance	$	301,231		$	294,478		$	291,927		$	320,889		$	284,607		$	356,069
Average Rate		0.45	%		0.98	%		0.44	%		1.16	%		0.51	%		1.16	%

27

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, 2016		% of Deposits			Increase (Decrease) from December 31, 2015			Balance at December 31, 2015		% of Deposits			Increase (Decrease) from December 31, 2014
	(Dollars in thousands)
Non-interest bearing	$	131,145		17.9	%		6,075			125,070		16.9	%		10,019
Interest checking		209,347		28.6	%		5,568			203,779		27.5	%		17,163
Savings and MMDA		99,312		13.5	%		3,419			95,893		13.0	%		(1,833	)
Time deposits		293,078		40.0	%		(21,586	)		314,664		42.6	%		(17,251	)
Total	$	732,882		100.0	%		(6,524	)		739,406		100.0	%		8,098

	Balance at December 31, 2014		% of Deposits			Increase (Decrease) from December 31, 2013			Balance at December 31, 2013		% of Deposits
	(Dollars in thousands)
Non-interest bearing		115,051		15.7	%		9,799			105,252		13.8	%
Interest checking		186,616		25.5	%		2,973			183,643		24.1	%
Savings and MMDA.		97,726		13.4	%		5,620			92,106		12.1	%
Time deposits		331,915		45.4	%		(50,081	)		381,996		50.0	%
Total		731,308		100.0	%		(31,689	)		762,997		100.0	%

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

	At December 31,
	2016		2015		2014
	(In thousands)
0.01 - 2.00%	$	291,516		251,085		252,416
2.01 - 4.00%		1,562		63,579		79,408
4.01 - 6.00%		—		—		91
Total	$	293,078		314,664		331,915

The following table sets forth the amount and maturities of time deposits at December 31, 2016.

	Amount Due
	Less Than One Year		1-2 Years		2-3 Years		After 3 Years		Total
	(In thousands)
0.00 - 2.00%	$	137,907		97,986		29,945		25,678		291,516
2.01 - 4.00%		—		—		—		1,562		1,562
4.01 - 6.00%		—		—		—		—		—
Total	$	137,907		97,986		29,945		27,240		293,078

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The following table indicates the amount of the Bank’s certificates of deposit of $250,000 or more by time remaining until maturity as of December 31, 2016.

Maturity Period	Certificates of Deposit
	(In thousands)
Three months or less	$	11,312
Over three through six months		11,119
Over six through 12 months		19,150
Over 12 months		38,133
Total	$	79,714

At December 31, 2016, certificates of deposits included approximately $157.0 million of deposits greater than $100,000, as compared to $163.9 million and $169.3 million at December 31, 2015, and December 31, 2014, respectively. Certificates of deposit at December 31, 2016, included approximately $79.7 million of deposits with balances of $250,000 or more, compared to $78.8 million and $100.1 million at December 31, 2015, and December 31, 2014, 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 pay above market rates to maintain such certificates of deposit. See Note 5 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,
	2016			2015			2014
	(In thousands)
Deposits	$	210,672		$	144,381		$	155,837
Withdrawals		(220,595	)		(140,277	)		(191,863	)
Net increase (decrease) before interest credited		(9,923	)		4,104			(36,026	)
Interest credited		3,399			3,994			4,337
Net increase (decrease) in deposits	($	6,524	)	$	8,098		($	31,689	)

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 6 of Notes to Consolidated Financial Statements. Advances from the FHLB of Cincinnati were $11.0 million at December 31, 2016. Also at December 31, 2016, the FHLB has issued letters of credit totaling $45.6 million for the benefit of municipalities to collateralize deposits. All FHLB advances and letters of credit 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%. The most recent reset date for the interest rate on the subordinated debentures was January 12, 2017. On January 12, 2017, the three-month Libor rate was 1.02%. Therefore, the rate of the security is 4.12%. 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. Otherwise, the securities are callable on a quarterly basis.

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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 called 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. The interest rate swap matured on October 8, 2015.

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. At December 31, 2016, the Company’s retail repurchase agreements total $47.7 million.

Federal Taxation

The Corporation and the Bank file a consolidated federal income tax return on a calendar year basis. The Company is subject to the federal tax laws and regulations that apply to corporations generally.

Kentucky Taxation

Kentucky corporations, such as the Corporation, are subject to the Kentucky corporation income tax and the Kentucky corporation license (‘franchise”) tax. The income tax is imposed based on the following rates: 4% of the first $50,000 of net taxable income allocated or apportioned to Kentucky; 5% of the next $50,000; and 6% of taxable net income over $100,000. All dividend income received by a corporation is excluded for purposes of arriving at taxable net income.

Tennessee Taxation

The Company and all subsidiaries are subject to Tennessee Franchise and Excise tax on apportioned capital and apportioned income.

Heritage Bank USA, Inc.

State banks are not subject to the Kentucky corporation tax.

The Commonwealth of Kentucky imposes both a “Kentucky Bank Franchise Tax” and “Local Deposits Franchise Tax”. The Kentucky Bank Franchise Tax is an annual tax equal to 1.1% of net capital after apportionment, if applicable. The value of the net capital is calculated annually by deducting from total capital an amount equal to the same percentage of total as the book value of Unites States obligations bears to the book value of the total assets of the financial institution. The Bank, as a financial institution, is exempt from both corporate income and license taxes.

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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, 2016, the Bank had a 11.5% share of the deposit market in its combined markets. The Bank’s most significant competition across its entire market area was Community Financial Services Bank with a 10.0% deposit market share and Planters Bank of Kentucky with a 10.4% deposit market share. At June 30, 2016, U.S. Bank N/A had a 8.5% deposit market share, Branch Bank & Trust of North Carolina had a 7.5% deposit market share and Regions Bank of Birmingham, Alabama with a 7.1% deposit market share. In addition, each market contains other community banks that provide competitive products and services within individual markets.

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, 2016, the Company and the Bank had 236 full-time equivalent 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.

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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 past 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.

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.

Bailey “Chip” Knight. Mr. Knight was promoted to Chief Credit Officer on January 15, 2016. Mr. Knight has served as a Market President and Senior Lender of the Company since April 2, 2012. In his position as Market President, Mr. Knight was responsible for all retail and lending functions in the three office Cheatham County, Tennessee market. As Senior Lender, Mr. Knight’s responsibilities included relationships with the Company’s largest commercial lending clients as well as assisting other commercial loan officers in the calling and structuring of loan agreements. Prior to April 2012, Mr. Knight was the Regional Executive and Team Lead with Capital Bank and GreenBank, where he was responsible for all retail and lending functions in eight offices located in Northern Middle Tennessee. Mr. Knight has over 25 years of commercial banking experience, all in Middle Tennessee and is a lifelong resident of Montgomery County, Tennessee.

Limitations on Capital Distributions. The FRB has issued a policy statement on the payment of cash dividends by bank holding companies, which provides that a bank holding company should pay cash dividends only to the extent that the holding company’s net income for the past year is sufficient to cover both the cash dividends and a rate of earnings retention that is consistent with the holding company’s capital needs, asset quality and overall financial condition. The FRB also indicated that it would be inappropriate for a company experiencing serious financial problems to borrow funds to pay dividends. In a recent Supervisory Letter, the FRB staff has stated that, as a general matter, bank holding companies should eliminate cash dividends if net income available to shareholders for the past four quarters, net of dividends previously paid, is not sufficient to fully fund the dividend. Furthermore, under the federal prompt corrective action regulations, the FRB may prohibit a bank holding company from paying any dividends if the holding company’s bank subsidiary is classified as “undercapitalized.”

Seasonality of Revenues and Expenses

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

Supervision and Regulation

Set forth below is a brief description of certain laws that relate to the regulation of the Company and the Bank. The description does not purport to be complete and is qualified in its entirety by reference to applicable laws and regulations.

Regulation of the Company

Under the BHCA, the Company must obtain the prior approval of the FRB before it may acquire control of another bank or bank holding company, merge or consolidate with another bank holding company, acquire all or substantially all of the assets of another bank or bank holding company, or acquire direct or indirect ownership or control of any voting shares of any bank or bank holding company if, after such acquisition, the Company would directly or indirectly own or control more than 5% of such shares.

Non-Banking Activities. In general, the BHCA and the FRB’s regulations limit the nonbanking activities permissible for bank holding companies to those activities that the FRB has determined to be so closely related to banking or managing or controlling banks to be a proper incident thereto. A bank holding company that elects to be treated as a financial holding company, however, may engage in, and acquire companies engaged in, activities that are considered “financial in nature,” as defined by the Gramm-Leach-Bliley Act and FRB regulations. These activities include, among other things, securities underwriting, dealing and market-making, sponsoring mutual funds and investment companies, insurance underwriting and agency activities, and merchant banking.

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Source of Strength Doctrine. As a matter of policy, which has been codified by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), a bank holding company registered with the Board of Governors of the FRB System (the “FRB”). We are subject to examination and supervision by the FRB pursuant to the Bank Holding Company Act of 1956, as amended (the “BHCA”), and are required to file reports and other information regarding our business operations and the business operations of our subsidiaries with the FRB.

A bank holding company is required to serve as a source of financial and managerial strength to its subsidiary banks and may not conduct its operations in an unsafe or unsound manner. In addition, it is the policy of the FRB that a bank holding company should stand ready to use available resources to provide adequate capital to its subsidiary banks during periods of financial stress or adversity and should maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks. A bank holding company’s failure to meet its obligations to serve as a source of strength to its subsidiary banks will generally be considered by the FRB to be an unsafe and unsound banking practice or a violation of the FRB regulations, or both.

Regulatory Capital Requirements. The FRB has adopted regulatory capital regulations pursuant to which it assesses the adequacy of capital in examining and supervising a bank holding company and in analyzing applications to it under the BHCA. The Federal Reserve’s regulatory capital requirements are similar to those imposed on the Bank by the FDIC. See “Regulation of the Bank – Regulatory Capital Requirements.” The FRB, however, has adopted a policy statement that exempts bank holding companies with less than $1.0 billion in consolidated assets that are not engaged in significant non-banking or off-balance sheet activities and that do not have a material amount of debt or equity securities registered with the SEC from its regulatory capital requirements. As long as their bank subsidiaries are well capitalized, such bank holding companies need only maintain a pro forma debt to equity ratio of less than 1.0 in order to pay dividends and repurchase stock and to be eligible for expedited treatment on applications.

Regulation of the Bank

General

As a Kentucky-chartered commercial bank, the Bank is subject to regulation, supervision and examination by the Kentucky Department of Financial Institutions (“KDFI”) and by the Federal Deposit Insurance Corporation (“FDIC”), which insures its deposits to the maximum extent permitted by law. The federal and state laws and regulations applicable to banks regulate, among other things, the scope of their business, their investments, the reserves required to be kept against deposits, the timing of the availability of deposited funds and the nature and amount of and collateral for certain loans. The laws and regulations governing the Bank generally have been promulgated to protect depositors and not for the purpose of protecting stockholders. This regulatory structure also gives the federal and state banking agencies extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Any change in such regulation, whether by the KDFI, the FDIC or the United States Congress, could have a material impact on the Company, the Bank and their operations.

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Regulatory Capital Requirements. The FDIC has promulgated capital adequacy requirements for state-chartered banks that, like the Bank, are not members of the Federal Reserve System. Effective January 1, 2015, the regulatory capital rules were substantially revised to conform to the international regulatory standards agreed to by the Basel Committee on Banking Supervision in the accord often referred to as “Basel III”. The final Basel III capital rule applies to all depository institutions as well as to all top-tier bank and savings and loan holding companies that are not subject to the FRB’s Small Bank Holding Company Policy Statement.

Under the FDIC’s revised regulatory capital regulations, the Bank is required to meet four minimum capital standards: (1) a “Tier 1” or “core” capital leverage ratio equal to at least 4% of total adjusted assets, (2) a common equity Tier 1 (or CET1) capital ratio equal to 4.5% of risk-weighted assets, (3) a Tier 1 risk-based ratio equal to 6% of risk-weighted assets, and (4) a total capital ratio equal to 8% of total risk-weighted assets. CET1 capital is defined as common stock instruments, retained earnings, any common equity Tier 1 minority interest and, unless the bank has made an “opt-out” election, accumulated other comprehensive income, net of goodwill and certain other intangible assets. Tier 1 or core capital is defined as CET1 capital plus certain qualifying subordinated interests and grandfathered capital instruments. Total capital consists of Tier 1 capital plus Tier 2 or supplementary capital items, which include allowances for loan losses in an amount of up to 1.25% of risk-weighted assets, qualifying subordinated instruments and certain grandfathered capital instruments. An institution’s risk-based capital requirements are measured against risk-weighted assets, which equal the sum of each on-balance-sheet asset and the credit-equivalent amount of each off-balance-sheet item after being multiplied by an assigned risk weight.

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In addition to higher capital requirements, the Basel III capital rule requires banking organizations to maintain a capital conservation buffer of at least 2.5% of risk-weighted assets over and above the minimum risk-based capital requirements. Institutions that do not maintain the required capital buffer will become subject to progressively more stringent limitations on the percentage of earnings that can be paid out in dividends or used for stock repurchases and on the payment of discretionary bonuses to senior executive management. The capital buffer requirement will be phased in over four years beginning January 1, 2016. The fully phased-in capital buffer requirement will effectively raise the minimum required risk-based capital ratios to 7% CET1 capital, 8.5% Tier 1 capital and 10.5% total capital on a fully phased-in basis. The capital conservation buffer at December 31, 2016 is 0.625%.

In assessing an institution’s capital adequacy, the FDIC takes into consideration not only the above numeric factors but also qualitative factors, and has the authority to establish higher capital requirements for individual institutions where necessary.

Prompt Correction Action. Under applicable Federal statue, the federal bank regulatory agencies are required to take “prompt corrective action” with respect to institutions that do not beet specified minimum capital requirements.

The prompt corrective action regulations provide for the imposition of a variety of requirements and limitations on institutions that fail to meet the above capital requirements. In particular, the FDIC may require any savings institution that is not “adequately capitalized” to take certain action to increase its capital ratios. If the savings institution’s capital is significantly below the minimum required levels of capital or if it is unsuccessful in increasing its capital ratios, the institution’s activities may be restricted.

Prompt Correction Action. Under applicable Federal statue, the federal bank regulatory agencies are required to take “prompt corrective action” with respect to institutions that do not beet specified minimum capital requirements. Under the FDIC’s prompt corrective action regulations, as amended to incorporate the new regulatory capital standards implemented by the final Basel III capital rule, an institution is deemed to be “well-capitalized” if it has a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 8% or greater, a Tier 1 leverage ratio of 5% or greater, and a CET1 risk-based ratio of 6.5% or greater and is not subject to a regulatory order, agreement, or directive to meet and maintain a specific capital level for any capital measure. An institution is “adequately capitalized” if it has a total risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital ratio of 6% or greater, a Tier 1 leverage ratio of 4% or greater, and a CET1 risk-based ratio of 4.5% or greater and the institution does not meet the definition of a “well-capitalized” institution. An institution is “under-capitalized” if it does not meet one or more of the “adequately-capitalized” tests. An institution is deemed to be “significantly under-capitalized” if it has a total risk-based capital ratio that is less than 6%, a Tier 1 risk-based capital ratio that is less than 4%, a Tier 1 leverage ratio that is less than 3%, or a CET1 risk-based ratio of less than 3%. An institution is deemed to be “critically under-capitalized” if it has a ratio of tangible equity, as defined in the regulations, to total assets that is equal to or less than 2%.

Deposit Insurance. The Bank’s deposits are insured to applicable limits by the FDIC. Under the Dodd-Frank Act, the maximum deposit insurance amount is $250,000. The Dodd-Frank Act increased the minimum target Deposit Insurance Fund ratio from 1.15% of estimated insured deposits to 1.35% of estimated insured deposits. The FDIC must seek to achieve the 1.35% ratio by June 30, 2020. It is intended that insured institutions with assets of $10 billion or more will fund the increase.

The FDIC has adopted a risk-based premium system that provides for quarterly assessments based on an insured institution’s risk rating. The assessment base is the institution’s average consolidated assets less average tangible equity. Prior to July 1, 2016, insured institutions were assigned to one of four risk categories based on their examination ratings and capital ratios, and annual assessment rates ranged from 2.5 to 45 basis points of an insured institution’s assessment base.

Effective July 1, 2016, the FDIC amended its assessment regulations for banks with less than $10 billion in assets to replace the previous risk categories with updated financial ratios that are designed to better predict the risk of failure of insured institutions. The amended rules became effective during the first quarter after the reserve ratio of the Deposit Insurance Fund reached 1.15% and will remain in effect until the reserve ratio reaches 2.0%. The base deposit insurance rates for institutions with assets of less than $10 billion now range from 1.5 to 30 basis points of an institution’s assessment base. Under the amended rules, the FDIC uses an institution’s weighted average CAMELS component ratings and the following financial measures to determine deposit insurance assessments: Tier 1 leverage ratio; ratio of net income before taxes to total assets; ratio of non-performing loans to gross assets; and ratio of other real estate owned to gross assets. In addition, assessments take into consideration an institution’s brokered deposit ratio, one-year asset growth and a loan mix index, which measures the extent to which an institution’s total assets include higher risk loans.

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Dividends. The KDFI limits the amount of dividends that can be paid by a state chartered commercial bank to its holding company. The limit is established by adding the current year’s net income plus the prior two years net income. The Bank must reduce the amount of accumulated net income over the last two years plus the current year by the amount of dividends paid to the Corporation during the same period of time. At December 31, 2016, the Bank could not pay an additional cash dividend to the Corporation without the prior approval of the KDFI.

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 commercial banks or its subsidiaries and its affiliates are required to be on terms as favorable to the commercial 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 commercial bank may not acquire the securities of most affiliates. The KDFI and FDIC have the discretion to treat subsidiaries of commercial 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 KDFI and FDIC. 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, 2016.

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, 2016.

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Bank Secrecy Act. The Bank Secrecy Act, as amended by the USA Patriot Act of 2001 and its related regulations, requires insured depository institutions to have policies, procedures, and controls to detect, prevent, and report money laundering and terrorist financing. The statute and regulations also provide for information sharing, subject to conditions, between federal law enforcement agencies and financial institutions, as well as among financial institutions, for counter-terrorism purposes. Federal banking regulators are required, when reviewing bank holding company acquisition and bank merger applications, to take into account the effectiveness of the anti-money laundering activities of the applicants. The bank regulatory agencies have increased the regulatory scrutiny of Bank Secrecy Act and anti-money laundering programs maintained by financial institutions. Significant penalties and fines, as well as other supervisory enforcement action, may be imposed on a financial institution for non-compliance with these requirements.

Consumer Protection Laws. In connection with our deposit-taking lending and other activities, the Bank is subject to a number of federal and state laws designed to protect consumers and promote lending and other financial services to various sectors of the economy and population. The Consumer Financial Protection Bureau issues regulations and standards under these federal consumer protection laws, which include, among others, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, the Equal Credit Opportunity Act, the Truth in Lending Act, the Electronic Fund Transfer Act, the Truth in Savings Act, and the Fair Credit Reporting Act. The Bank is examined by the FDIC for compliance with these consumer protection rules.

In addition, customer privacy statutes and regulations limit the ability of the Bank to disclose nonpublic consumer information to non-affiliated third parties. These laws require the Bank to provide notice to our customers regarding privacy policies and practices and to give our customers an option to prevent their non-public personal information from being shared with non-affiliated third parties or with our affiliates.

Community Reinvestment Act. All insured depository institutions have a responsibility under the Community Reinvestment Act (the “CRA”) and related federal regulations to help meet the credit needs of their communities, including low- and moderate-income neighborhoods. In connection with its examination of the Bank, the FDIC is required to assess our record of compliance with the CRA. Such assessment is reviewed by the FRB and/or the FDIC when the Company or the Bank makes application for approval of an expansionary proposal, such as a merger or other acquisition of another bank or the opening of a new branch office. The Bank received a “satisfactory” CRA rating in its most recent assessment by the FDIC.

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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. 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, loans secured by farmland, multi-family properties and residential mortgage loans primarily within our market area. Commercial real estate, commercial, farmland, 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:

• Non-residential 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, 2016, commercial real estate loans comprised approximately 30.0% of our total loan portfolio, or 219.6% of the Company’s total risk based capital. At December 31, 2016, the Company had $10.5 million of its non-residential real estate loans classified as substandard which equaled 5.7% of that portfolio and 35.9% of total substandard loans. At December 31, 2016, the Company’s allowance for loan losses included $964,000 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, 2016, commercial loans comprised approximately 14.6% of our total loan portfolio, or 89.9% of the Company’s consolidated total risk based capital. At December 31, 2016, the Company had $3.1 million, or 3.5% of the commercial loan portfolio and 10.7% of total substandard loans, classified as substandard. At December 31, 2016, the Company’s allowance for loan losses included $593,000 allocated to this portfolio.

• Construction and Land 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 phrase, a number of factors can result in delays or cost overruns. If our estimate is inaccurate or if actual construction cost 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 property, or by seizure of collateral. As of December 31, 2016,

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construction and land loans totaled $63.1 million, or 10.3% of the Company’s total loan portfolio and approximately 63.8% of the Company’s consolidated total risk based capital. At December 31, 2016, the Company had $8.2 million of its construction and land loans classified as substandard which equaled 13.0% of the Company’s total loan portfolio and 28.0% of all substandard loans. At December 31, 2016, the Company’s allowance for loan losses included $2.0 million allocated to this portfolio.

• Farmland. Repayment is generally dependent upon the successful operation of the borrower’s farming operation. The typical risk to a farming operation include adverse weather conditions, changes to the operation’s farm insurance subsides, changes in commodity prices, sudden increases in the cost of farm production, sudden changes in the level of worldwide agricultural production and sudden changes in the value of the U.S. Dollar. In addition, the value of collateral securing the loans often fluctuates with the long-term trends of commodity prices, and may rise and fall significantly and may be illiquid in times of declining values. In the last two years, commodity prices have remained exceptionally low, making it difficult for farmers to make a profit despite favorable weather conditions. As of December 31, 2016, loans secured by farmland comprised approximately 7.8% of the Company’s total loan portfolio, or 48.3% of the Company’s consolidated total risk based capital. At December 31, 2016, the Company had $2.3 million of its farmland portfolio classified as substandard, equaling 4.8% of the Company’s farmland portfolio and 7.8% of total substandard loans. At December 31, 2016, The Company’s allowance for loan losses included $778,000 allocated to this portfolio.

• Multi-family Real Estate Loans. Repayment is dependent on rental income 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. The success of these relationship is dependent on the operator’s ability to maintain high levels of occupancy, adequately maintain the property and to collect rents when due. At December 31, 2016, multi-family loans comprised approximately 5.6% of the Company’s loan portfolio and 34.7% of the Company’s consolidated risk based capital. At December 31, 2016, the Company had $3.0 million, or 8.8% of the multi-family portfolio classified as substandard. At December 31, 2016, substandard multi-family loans account for 10.2% of all substandard loans. At December 31, 2016, the Company’s allowance for loan losses included $412,000 allocated to the multi-family real estate loan 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.

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.

We could face risk from our inability to diversify into high growth markets.

The Company’s management considers growth in the nearby Nashville, Tennessee, market critical for our future success. With the potential for our largest current market to experience an economic downturn, market diversification is vital to the future prosperity of our Company.

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 the Company.

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.

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 fund 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.

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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 Kentucky Department of Financial Institutions 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 regulatory capital rules 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.

On July 21, 2010, the Dodd-Frank Act was signed into law. The Dodd-Frank Act is having a broad impact on the financial services industry, including significant regulatory and compliance changes. Many of the requirements called for in the Dodd-Frank Act are being implemented over time and most are subject to implementing regulations over the course of several years. Given the uncertainty associated with the manner in which the provisions of the Dodd-Frank Act are implemented by the various regulatory agencies and through regulations, the full extent of the impact such requirements will have on our operations is unclear. The regulatory changes resulting from the Dodd-Frank Act may impact the profitability of our business activities, require changes to certain of our business practices, impose upon us more stringent capital, liquidity and leverage requirements, increase our regulatory compliance burden or otherwise adversely affect our business.

Further, we may be required to invest significant management attention and resources to evaluate and make any changes necessary to comply with new statutory and regulatory requirements under the Dodd-Frank Act. Failure to comply with the new requirements may negatively impact our results of operations and financial condition. While we cannot predict what effect any presently contemplated or future changes in the laws or regulations or their interpretations would have on us, these changes could be materially adverse to our investors.

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.

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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. 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.

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. We also expect loan pricing to remain competitive in 2016 despite the first increase in the federal funds rates in many years and believe that economic factors affecting broader markets will likely result in historically low yields for our investment securities portfolio. As a result, our net interest margin, and consequently our profitability, may continue to be negatively impacted in 2016 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 a special purpose trust and accompanying junior subordinated debentures. At December 31, 2016, HopFed had outstanding trust preferred securities of $10.3 million. Payments of the principal and interest on the trust preferred securities 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 the Company’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 consolidated financial condition deteriorates or if we do not receive required regulatory approvals, we may be required to defer distributions on our junior subordinated debentures.

New capital requirements for bank holding companies and depository institutions may negatively impact our results of operations.

In July 2013, the Board of Governors of the Federal Reserve Bank approved the final rule for BASEL III capital requirements for all commercial banks charted in the United States of America. The rule will implement in the U.S. the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. Under the final rule, minimum requirements have increased for both the quantity and quality of capital held by banking organizations. Consistent with the international Basel framework, the rule includes a new minimum ratio of common equity tier 1 capital to risk-weighted assets of 4.5% and a common equity tier 1 capital conservation buffer of 2.5% of risk-weighted assets that will apply to all supervised financial institutions. The rule also raises the minimum ratio of tier 1 capital to risk-weighted assets from 4.0% percent to 6.0% percent and includes a minimum leverage ratio of 4.0% for all banking organizations. The transition period for implementation of Basel III was January 1, 2015, through December 31, 2018. At December 31, 2016, the Company met all capital requirements set forth by Basel III as required at the final implementation date of December 31, 2018.

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The application of more stringent capital requirements for HopFed Bancorp and Heritage Bank, may, 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 and increase the cost 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.

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 party 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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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.

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

From time to time, we may acquire another financial institution. 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.

We face risk from further reductions in the size and makeup of the U.S. Army staffing at Fort Campbell, Kentucky.

The U.S. Army has provided a revised assessment of future staffing cuts that indicates that Fort Campbell may lose approximately a small portion of its active duty military personnel by 2020. In November of 2014, the U.S. Army announced that it was de-activating a combat battalion at Fort Campbell, Kentucky, sending its 2,400 members to other duty stations within the U.S. Army system.

At December 31, 2016, the Company’s loan portfolio has approximately $160.1 million in loans originated from its three Montgomery County, Tennessee offices and $127.0 million in loans originated in its Christian County, Kentucky offices. The Fort Campbell military installation in the largest employer in the region and a significant reduction in the staffing of the base would have a major negative affect on the economies of Montgomery County, Tennessee and Christian County, Kentucky. The annual cost to the local economy is estimated at nearly $1 billion.

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Stockholder activists could cause a disruption to our business.

Certain institutional investors have indicated that they disagree with the strategic direction of our Company. Our business, operating results or financial condition could be adversely affected by these activists. Any such disruption may result in, among other things:

• Increased operating costs, including increased legal expenses, insurance, administrative expenses and associated costs;

• Affect the market price and volatility of our securities;

• Uncertainties as to our future direction could result in the loss of potential business opportunities, make it more difficult to attract, retain, or motivate qualified personnel, strain relationships with investors and customers; and

• Activist investors may reduce or delay our ability to effectively execute our current business strategies and the implementation of new strategies.

Our cash availability at the holding company level may limit the Company’s ability to continue to pay a cash dividend to common shareholders and/or repurchase treasury stock.

At December 31, 2016, the Corporation has approximately $1.1 million in cash on hand available to pay common dividends and repurchase treasury stock. At December 31, 2016, the Bank may not pay an additional cash dividend to the Company without regulatory approval. The Bank may not receive regulatory approval to pay the Corporation a dividend, which would limit the Company’s ability to repurchase treasury stock and to continue to pay a cash dividend to common shareholders.

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, 2016:

	Year Opened		Owned or Leased	Book Value (1)		Approximate Square Footage of Office
Main Office:				(In thousands)
4155 Lafayette Road
Hopkinsville, Kentucky		2006	Owned	$	4,078		24,072
Branch Offices:
2700 Fort Campbell Boulevard
Hopkinsville, Kentucky		1995	Owned	$	1,163		17,625
Downtown Branch Office
605 South Virginia Street
Hopkinsville, Kentucky		1997	Owned	$	143		756
Murray South Office
210 N. 12th Street
Murray, Kentucky		2003	Owned	$	1,452		5,600
Murray North Office
1601 North 12th Street
Murray, Kentucky		2007	Owned	$	1,027		3,400
Cadiz Branch Office
352 Main Street
Cadiz, Kentucky		1998	Owned	$	355		2,200
Elkton Branch Office
536 W. Main Street
Elkton, Kentucky		1976	Owned	$	77		3,400
Benton Branch Office
105 W. 5th Street
Benton, Kentucky		2003	Owned	$	464		4,800
Benton Branch Office
660 Main Street
Benton, Kentucky		2015	Owned	$	3,431		n/a
Calvert City Office
35 Oak Plaza Drive
Calvert City, Kentucky		2003	Owned	$	975		3,400
Carr Plaza Office
607 N. Highland Drive
Fulton, Kentucky		2002	Owned	$	174		800
Lake Street Office
306 Lake Street
Fulton, Kentucky		2002	Leased	$	886		400
Nashville Loan Production Office
3200 West End Avenue, Suite 500
Nashville, Tennessee		2014	Owned	$	2		3,200
Clarksville Main Street
322 Main Street
Clarksville, Tennessee		2007	Owned	$	1,325		10,000
Brentwood Loan Production Office
214 Overlook Circle, Suite 105
Brentwood, Tennessee		2016	Leased	$	81		1,800
Trenton Road Branch
3845 Trenton Road
Clarksville, Tennessee		2006	Owned	$	2,146		3,362
Madison Street Office
2185 Madison Street
Clarksville, Tennessee		2007	Owned	$	1,333		3,950
Houston County Office
1102 West Main Street
Erin, Tennessee		2006	Owned	$	480		2,390
Ashland City Office
108 Cumberland Street
Ashland City, Tennessee		2006	Owned	$	1,385		7,058
Pleasant View Office
2556 Highway 49 East
Pleasant View, Tennessee		2006	Owned	$	817		2,433
Kingston Springs Office
104 West Kingston Springs Road
Kingston Springs, Tennessee		2006	Owned	$	1,667		9,780
Total				$	23,461

(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 1, 2017, 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.

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 $0.04 per share was declared in all four quarters in 2015 and 2016. The high and low price range of the Company’s common stock for 2016 and 2015 is set forth below:

	Year Ended December 31, 2016		Year Ended December 31, 2015
	High	Low	High	Low
First Quarter	$12.03	$11.39	$13.86	$12.50
Second Quarter	$12.40	$10.85	$13.09	$11.37
Third Quarter	$11.94	$11.20	$12.14	$10.81
Fourth Quarter	$14.01	$11.05	$12.24	$11.50

At February 28, 2017, the Company estimates that is has approximately 1,200 shareholders, with approximately 770 reported in the name of the shareholder and the remainder recorded in street name.

On March 2, 2015, the Company issued 600,000 shares of treasury stock to establish the Company’s ESOP. At December 31, 2016, the Company has 1,085,888 shares of common treasury stock and has an active repurchase plan in which we may purchase up to 92,550 shares of our common stock on the open market or in negotiated transactions.

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The following table provides information with respect to purchases made by or on behalf of the Company or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of the Company’s common stock during the three month period ended December 31, 2016:

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total number of shares Purchased as part of Publically Announced Programs		Maximium Number of Shares that Yet may be Purchased Under the Program at the end of the period
October 1, 2016, to October 31, 2016		5,110	$	11.25		1,845,245		93,441
November 1, 2016, to November 30, 2016		414	$	11.00		1,845,659		93,027
December 1, 2016, to December 31, 2016		477	$	12.60		1,846,136		92,550
Total		6,001	$	11.34		1,846,136		92,550

The Federal Reserve Bank has issued a policy statement regarding the payment of dividends and the repurchase of common stock by commercial bank 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 requirements, 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, 2016, (Exhibit No. 13.1) is incorporated herein by reference. See Note 13 of Notes of Consolidated Financial Statements which is incorporated herein by reference.

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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, 2016, (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, 2016, (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 Carr, Riggs & Ingram, LLC, independent registered public accounting firm, all as set forth in the Company’s Annual Report to Stockholders for the year ended December 31, 2016, (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.

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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, 2016, based on the control criteria established in a report entitled Internal Control – Integrated Framework (2013), 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, 2016.

Carr, Riggs & Ingram, LLC, the independent registered public accounting firm that audited the consolidated financial statements of the Company included in this Annual Report on Form 10-K, has issued an attestation report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2016. The report, which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2016, is included in this Item under the heading “Report of Independent Registered Public Accounting Firm.”

Date: March 15, 2017	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)

50

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

    of HopFed Bancorp, Inc.

Hopkinsville, Kentucky

We have audited HopFed Bancorp, Inc. and subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control – Integrated Framework (2013 Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) 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 (3) 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.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the criteria established in Internal Control – Integrated Framework (2013 Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows of the Company, and our report dated March 15, 2017, expressed an unqualified.

/s/ Carr, Riggs & Ingram, LLC

Nashville, Tennessee

March 15, 2017

51

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, 2016, 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, 2016, 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, 2016, 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, 2016, 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, 2016, 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, 2016, and the information included therein under “Proposal I — Election of Directors” is incorporated herein by reference.

52

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, 2016, 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, 2016, 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, 2016 and December 31, 2015.

3. Consolidated Statements of Income for the Years Ended December 31, 2016, 2015 and 2014.

4. Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2016, 2015 and 2014.

5. Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2016, 2015 and 2014.

6. Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015 and 2014.

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 3.1 to Registrant’s Current Report on Form 10-K for the fiscal year ended December 31, 2013.

Exhibit No. 3.2 Bylaws, as amended. Incorporated herein by reference to Exhibit No. 3.1 to Registrant’s Current Report on Form 8-K dated March 1, 2015 (filed on March 4, 2015).

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).

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).

53

Exhibit No. 10.3. 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. 10.4 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. 10.5 HopFed Bancorp, Inc. 2013 Long Term Incentive Plan Incorporated herein by reference to Exhibit 99.3 to Registration Statement on Form S-8 (File No. 333-117956) dated June 28, 2013.

Exhibit No. 10.6. 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. 10.7. Employment Agreement by and between Heritage Bank and John E. Peck. Incorporated herein by reference to Exhibit No. 10.2 to Registrant’s Current Report on Form 8-K dated April 1, 2008 (filed April 22, 2008).

Exhibit No. 10.8. 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 July 1, 2013 (filed July 1, 2013).

Exhibit No. 10.9. 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 July 1, 2013 (filed July 1, 2013).

Exhibit No. 10.10. Employment Agreement by and between Registrant and Michael L. Woolfolk. Incorporated herein by reference to Exhibit 10.3 to Registrant’s Current Report on Form 8-K dated April 17, 2008 (filed April 22, 2008).

Exhibit No. 10.11. Employment Agreement by and between Heritage Bank and Michael L. Woolfolk. Incorporated herein by reference to Exhibit 10.4 to Registrant’s Current Report on Form 8-K dated March 18, 2015 (filed March 18, 2015).

Exhibit No. 10.12 Employment Agreement by and between Heritage Bank and Keith Bennett. Incorporated herein by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated April 25, 2013 (filed April 25, 2013).

Exhibit No. 10.13 Restricted Share Award Agreement with John E. Peck. Incorporated herein by reference to Registrant’s Current Report on Form 8-k dated June 23, 2010 (filed June 28, 2010).

Exhibit No. 10.14 Restricted Share Award Agreement with John E. Peck. Incorporated herein by reference to Exhibits 10.1 and 10.2, respectively, to Registrant’s Current Report on Form 8-k dated June 23, 2012 (filed June 25, 2012).

Exhibit No. 10.15 Employee Stock Ownership Plan. Incorporated herein by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated February 27, 2015 (filed March 3, 2015).

Exhibit No. 10.16 Employee Stock Ownership Trust. Incorporated herein by reference to Exhibit 10.2 to Registrant’s Current Report on Form 8-K dated February 27, 2015 (filed March 3, 2015).

Exhibit No. 99.1 Stock Purchase Agreement with Maltese Capital Management. Incorporated herein by reference to Exhibit 99.1 to Registrant’s Current Report on 8-K dated February 2, 2015 (filed February 3, 2015)

54

Exhibit No. 13.1. Annual Report to Stockholders. Except for those portions of the Annual Report to Stockholders for the year ended December 31, 2016, 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.

Exhibit 101. The following materials from the Company’s annual report on Form 10-K for the years ended December 31, 2016 and December 31, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statement of Financial Condition as of December 31, 2016 and December 31, 2015, (ii) Condensed Consolidated Statements of Income for the years ended December 31, 2016, 2015 and 2014, respectively (iii) Condensed Statements of Comprehensive Income (Loss) for the years ended December 31, 2016, 2015, and 2014, respectively (iv) Condensed Consolidated Statements of Cash Flows, for the years ended December 31, 2016, 2015 and 2014 respectively, and (v) 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.

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 15, 2017	By:	(signed) John E. Peck
		John E. Peck
		President and Chief Executive Officer

55

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 15, 2017
John E. Peck
Director, President and Chief Executive Officer (Principal Executive Officer)
(signed) Billy C. Duvall	March 15, 2017
Billy C. Duvall
Senior Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
(signed) Dr. Harry J. Dempsey	March 15, 2017
Dr. Harry J. Dempsey
Chairman of the Board
(signed) Steve Hunt	March 15, 2017
Steve Hunt
Vice-Chairman of the Board
(signed) Michael Woolfolk	March 15, 2017
Michael Woolfolk
Director, Board Secretary and Executive Vice President and Chief Operating Officer
(signed) Dr. Thomas I. Miller	March 15, 2017
Dr. Thomas I. Miller
Director
(signed) Ted Kinsey	March 15, 2017
Ted Kinsey
Director
(signed) Clay Smith	March 15, 2017
Clay Smith
Director
(signed) Richard Perkins	March 15, 2017
Richard Perkins
Director

56

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,
	2016		2015		2014		2013		2012
	(Dollars in thousands)
Total amount of:
Assets	$	891,486	$	903,154	$	935,785	$	973,649	$	967,689
Loans receivable, net		604,286		556,349		539,264		543,632		524,985
Cash and due from banks		21,779		46,926		34,389		37,229		31,563
Federal Home Loan Bank stock		4,428		4,428		4,428		4,428		4,428
Securities available for sale		209,480		237,177		303,628		318,910		356,345
Deposits		732,882		739,406		731,308		762,997		759,865
Repurchase agreements		47,655		45,770		57,358		52,759		43,508
FHLB advances		11,000		15,000		34,000		46,780		43,741
Subordinated debentures		10,310		10,310		10,310		10,310		10,310
Total stockholders’ equity		86,428		87,630		98,402		95,717		104,999
Number of active:
Real estate loans Outstanding		4,359		4,089		4,527		4,730		4,212
Deposit accounts		38,584		44,174		44,183		44,792		40,770
Offices open		18		18		18		18		18

Operating Data

	Year Ended December 31,
	2016		2015		2014			2013		2012
	(Dollars in thousands)
Interest and dividend income	$	31,727	$	33,122	$	34,680		$	35,857	$	40,840
Interest expense		5,299		6,550		8,879			10,581		14,877
Net interest income before provision for loan losses		26,428		26,572		25,801			25,276		25,963
Provision for loan losses		1,241		1,051		(2,273	)		1,604		2,275
Net interest income		25,187		25,521		28,074			23,672		23,688
Non-interest income		7,935		7,602		7,840			9,372		9,639
Non-interest expense		29,856		30,445		33,916			28,638		28,441
Income before income taxes		3,266		2,678		1,998			4,406		4,886
Provision for income taxes		362		274		(201	)		644		817
Net income	$	2,904	$	2,404	$	2,199		$	3,762	$	4,069
Preferred stock dividend and accretion of stock warrants		—		—		—			—		1,229
Net income available to common stockholders	$	2,904	$	2,404	$	2,199		$	3,762	$	2,840

1

Selected Quarterly Information (Unaudited)

	First Quarter		Second Quarter			Third Quarter		Fourth Quarter
	(Dollars in thousands)
Year Ended December 31, 2016:
Interest and dividend income	$	8,081	$	7,691		$	8,004	$	7,951
Net interest income after provision for losses on loans		6,218		5,958			6,434		6,577
Non-interest income		2,020		1,970			1,945		2,000
Non-interest expense		7,683		7,609			7,353		7,211
Net income		509		304			985		1,106
Year Ended December 31, 2015:
Interest and dividend income	$	9,195	$	7,919		$	8,012	$	7,996
Net interest income after provision for losses on loans		7,347		6,037			6,104		6,033
Non-interest income		1,913		1,868			1,936		1,885
Non-interest expense		7,470		8,234			7,553		7,188
Net income (loss)		1,355		(117	)		510		656

2

Key Operating Ratios

	At or for the Year Ended December 31,
	2016			2015			2014
Performance Ratios
Return on average assets (net income available to common shareholders divided by average total assets)		0.33	%		0.27	%		0.23	%
Return on average equity (net income available to common shareholders divided by average total equity)		3.26	%		2.65	%		2.20	%
Interest rate spread (combined weighted average interest rate earned less combined weighted average interest rate cost)		3.21	%		3.20	%		2.90	%
Net interest margin		3.35	%		3.36	%		3.08	%
Ratio of average interest-earning assets to average interest-bearing liabilities on a tax equivalent basis		121.98	%		119.43	%		117.88	%
Ratio of non-interest expense to average total assets on a tax equivalent basis		3.45	%		3.41	%		3.57	%
Ratio of net interest income after provision for loan losses to non-interest expense on a tax equivalent basis		85.11	%		86.68	%		85.81	%
Tax equivalent efficiency ratio (non-interest expense divided by sum of net interest income plus non-interest income)		86.72	%		86.85	%		97.83	%
Asset Quality Ratios
Non-performing assets to total assets at end of period		1.29	%		1.02	%		0.55	%
Non-accrual loans to total loans at end of period		1.49	%		1.32	%		0.58	%
Allowance for loan losses to total loans at end of period		1.00	%		1.01	%		1.15	%
Allowance for loan losses to non-performing loans at end of period		67.36	%		76.80	%		198.08	%
Provision for loan losses to total loans receivable, net		0.20	%		0.19	%		(0.42	%)
Net charge-offs to average loans outstanding		0.15	%		0.29	%		0.02	%
Capital Ratios
Total equity to total assets at end of period		9.69	%		9.72	%		10.52	%
Average total equity to average assets		10.11	%		10.17	%		10.55	%

Regulatory Capital

	December 31, 2016
	(Dollars in thousands)
	Corporation		Bank
Tier 1 Leverage capital to adjusted total assets	$	92,803	$	91,617
Less: Tier 1 Leverage capital requirement		34,392		34,315
Excess		58,411		57,302
Tier 1 Risk Based capital to risk weighted assets	$	92,803	$	91,617
Less: Tier 1 Risk Based capital requirement		40,466		40,373
Excess		52,337		51,244
Total risk-based capital to risk weighted assets	$	98,915	$	97,729
Less: Risk-based capital requirement		52,682		52,561
Excess		46,233		45,168
Common equity tier 1 capital to risk weighted assets	$	92,803	$	91,617
Less: Common equity tier 1 capital requirement		31,304		31,232
Excess		61,499		60,385

3

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

This discussion relates to the consolidated financial condition and results of operations of the Company, which consist of the consolidation of Heritage Bank USA, Inc. (“the Bank”) and HopFed Bancorp, Inc. (“the Corporation”), JBMM LLC, Heritage Interim Corporation, Heritage USA Title LLC, 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 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.

The Company’s consolidated financial performance improved significantly during the six month period beginning July 1, 2016, and ended December 31, 2016, as compared to the six month period ended June 30, 2016. The improved performance over the six month period of July 1, 2016, to December 31, 2016, was largely the result of significant loan growth and lower levels of interest expense. At June 30, 2016, net loans were $560.8 million, representing an increase of $4.4 million, or an annualized growth rate of 1.6%, as compared to December 31, 2015. The Company’s weak loan growth during the first six months of 2016 was strongly influenced by the volume of payoffs during the period. During the six month period beginning July 1, 2016, and ending December 31, 2016, loan demand improved significantly and payoffs abated. In the six month period ended December 31, 2016, the Company experienced net loan growth of $43.5 million. At December 31, 2016, the Company’s net loan balances are $604.3 million, representing net loan growth of $47.9 million, or 8.6%, as compared to December 31, 2015.

A significant portion of the Company’s loan growth occurred in two key markets. At December 31, 2016, the Company’s loan production office (“Nashville LPO”) had loan balances totaling $42.5 million, compared to $15.4 million at December 31, 2015. Christian County, Kentucky, the Company’s home market, experienced loan growth of $24.2 million, or 23.5%, during the year ended December 31, 2016. At December 31, 2016, the Company has approximately $22.3 million in unfunded commitments on construction loans. We anticipate that a significant amount of the unfunded loan commitments will be utilized in the upcoming year, enhancing the possibilities for loan growth in 2017.

At December 31, 2016, the Company’s non-performing assets total $11.5 million, or 1.29% of total assets, as compared to $9.2 million, or 1.02% of assets, at December 31, 2015. At December 31, 2016, the Company has two significant credit relationships that combine for a large portion of our non-performing assets. At December 31, 2016, these relationships include $1.9 million in other real estate owned and $6.7 million in non-accrual loans. The Company is actively marketing our other real estate owned properties and recognized charge offs of $675,760 in November 2016 related to the properties currently listed in other real estate owned. The Company incurred legal and other expenses of more than $400,000 in both 2016 and 2015 related to this loan relationship.

The Company’s level of classified loans peeked at $90.4 million in June 2012. In response to the high level of classified loans, management undertook aggressive action to remediate this issue. These actions included additional customer contact with problem credits, the review of interim financial statements to monitor developing trends in customers’ finances and the establishment of a special assets department. The Bank’s special assets department (“special assets”) assumes the responsibility for a small number of loan relationships that are adversely classified. The adverse classification may be the result of negative cash flow trends, declining collateral values, or specific customer circumstances that make it more difficult for the customer to continue to make timely scheduled payments. The purpose of special assets is to determine if a customer has the willingness and ability to correct their current financial problems. If the Company determines that the customers’ finances are not likely to improve in the near future, the special assets officer develops a strategy for the Company to exit the relationship.

4

The Company’s classified loan level has stabilized. At December 31, 2016, the Company has $29.3 million in loans classified as substandard, representing 29.6% of the Company’s risk based capital as compared to $28.1 million in loans classified as substandard at December 31, 2015. It is the intent of the Company to continue to place a heavy emphasis on maintaining our level of classified asset to risk based capital ratio at less than or equal to 30%. In 2017, the Company’s most significant area of concern remains our relationships related to agricultural. Agricultural commodity prices remain weak and, despite strong crop yields, continue to damage the profitability of the agricultural industry. The Company will closely monitor customer financial statements for signs of financial problems.

Substandard loan balances of the Company’s land loan portfolio (non-agricultural) and non-residential real estate portfolio remain elevated. At December 31, 2016, the Company’s land portfolio totaled $23.8 million. At December 31, 2016, $8.2 million of land loans, or 34.5% of the land loan portfolio, are substandard. At December 31, 2016, the Company’s total land loans are 3.9% of our total loan portfolio. However, substandard land loans equal approximately 28% of our total substandard loan balances. At December 31, 2016, the Company’s non-residential real estate portfolio totaled $182.9 million, or 30.0% of our loan portfolio. At December 31, 2016, approximately 5.8% of the non-residential real estate portfolio, or $10.5 million, are classified as substandard. At December 31, 2016, substandard non-residential real estate loans account for 35.9% of all substandard loans.

At December 31, 2016, the inventory of land loans includes 84 fully developed lots available for sale with an aggregate loan balance of $2.2 million. The average lot had an average loan balance of approximately $26,700. Also at December 31, 2016, the Company’s loan portfolio includes $14.4 million of land loans for future development currently without meaningful infrastructure in place. The Company’s portfolio of land loans designated for future development represent approximately 1,198 acres of land with an average price per acre of approximately $12,000. The remaining $7.2 million in land loans are for personal and recreational purposes.

At December 31, 2015, the Company classified approximately $10.6 million, or 47.3% of land portfolio as substandard. At December 31, 2015, the Company had no land loans under development. At December 31, 2015, the inventory of land loans included 84 lots available for sale with an aggregate loan balance of $2.7 million. The average lot had a loan balance of approximately $32,700. At December 31, 2015, the Company had one land loan, totaling $1.6 million, in non-accrual status. The loan had 33 unsold lots that are a mixture of commercial and residential with an average balance per lot of approximately $39,000. Also at December 31, 2015, the Company had $15.5 million land loans on property for future development. These loans represented 1,234 acres of land with an average price per acre of approximately $12,200.

The Company was successful in reducing our cost of funds during the year ended December 31, 2016. During the first two months of 2016, the Company successfully repriced more than $52.4 million of time deposits that had a weighted average cost of 2.52%. The Company retained a reasonable portion of these deposits at significantly lower interest rates. However, at December 31, 2015, the Company increased its cash balance to $54.7 million as compared to $40.4 million at December 31, 2014, to ensure we maintained acceptable levels of liquidity to meet potential deposit outflows.

For the year ended December 31, 2016, the Company’s net income was $2.9 million, or $0.47 per share, as compared to $2.4 million, or $0.38 per share, for the year ended December 31, 2015. During the course of 2016, the Company’s net income production improved significantly as a result of loan growth that occurred in the six month period beginning July 1, 2016 and ending December 31, 2016. For the six month period ended June 30, 2016, net income was $813,000, or $0.13 per share, basic and diluted. For the six month period beginning July 1, 2016, and ended December 31, 2016, net income was $2.1 million, or $0.34 per share, basic and diluted. For the twelve month period ended December 31, 2016, the average cost of retail time deposits was 0.96%, as compared to 1.39% for the twelve month period ended December 31, 2015. For the twelve month period ended December 31, 2016, the average balance of retail time deposit was $258.1 million, compared to $287.6 million for the twelve month period ended December 31, 2015. For the year ended December 31, 2016, the average cost of all deposits was 0.59%, compared to 0.69% for the year ended December 31, 2015.

5

For the year ended December 31, 2015, the Company recorded net income available for common shareholders of $2.4 million, a return on average assets of 0.27% and a return on average equity of 2.65%. The Company’s small improvement in net income was the result of lower FHLB borrowing cost. Lower FHLB borrowing cost were largely offset by lower yields on interest earning assets, a lower volume of interest earning assets, the opening of the LPO and higher core operating expenses.

For the year ended December 31, 2015, the Company’s net loan portfolio increased by $17.1 million, or 3.2%, as compared to the balance at December 31, 2014. Loan portfolio growth was strong during the first half of the year and declined slightly during last quarter of the year. The majority of the growth in the loan portfolio was the result of our opening of the first Nashville LPO. The Nashville LPO had approximately $15.4 million in loans outstanding at December 31, 2015.

For the year ended December 31, 2014, the Company recorded net income available for common shareholders of $2.2 million, a return on average assets of 0.23% and a return on average equity of 2.2%. The Company’s decisions to prepay $35.9 million in FHLB advances and incur a prepayment penalty of $2.5 million and sell a substandard credit relationship for a $1.8 million loss limited our net income in 2014.

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.

6

Aggregate Contractual Obligations

	Maturity by Period
			Greater		Greater		Greater
December 31, 2016 (In thousands)	Less than		than 1 year		than 3 year		than
	1 year		to 3 years		to 5 years		5 years		Total
Deposits	$	577,711		127,931		27,240		—		732,882
FHLB borrowings		5,000		6,000		—		—		11,000
Repurchase agreements		47,655		—		—		—		47,655
Subordinated debentures		—		—		—		10,310		10,310
Lease commitments		273		193		101		—		567
Purchase obligations		2,038		2,837		—		—		4,875
Total	$	632,677		136,961		27,341		10,310		807,289

Deposits represent non-interest bearing, money market, savings, interest bearing checking accounts and certificates of 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. At December 31, 2016, the Company has two advances at the FHLB, a $5.0 million advance due October 6, 2017, at a rate of 0.88% and a $6.0 million advance due July 6, 2018, at a rate of 1.18%.

Repurchase agreements represent both overnight retail repurchase accounts. Retail repurchase agreements mature daily and pay interest based on their account balances.

Subordinated debentures represent the amount borrowed in a private pool trust preferred issuance group on September 25, 2003. The Company’s rate of interest on the debentures is equal to the three-month LIBOR plus 3.10%. At December 31, 2016, the three-month LIBOR rate was 1.00%. The debentures re-price and pay interest quarterly and have a thirty-year final maturity. The Company may call the debentures on a quarterly basis. 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. The Company’s operating contract with the current data processing provider is currently set to expire September 30, 2019.

Off Balance Sheet Arrangements    

	Maturity by Period
			Greater		Greater		Greater
December 31, 2016 (In thousands)	Less than		than 1 year		than 3 year		than
	1 year		to 3 years		to 5 years		5 years		Total
Commercial lines of credit	$	46,650		13,078		28		35		59,791
Commitments to extend credit		40,489		11,334		2,962		7,137		61,922
Standby letters of credit		260		9		1		—		270
Home equity lines of credit		833		3,337		5,276		22,371		31,817
Total	$	88,232		27,758		8,267		29,543		153,800

7

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 $10.0 million receive fixed pay variable swap transaction with Compass Bank of Birmingham. The Bank agreed to Compass a fixed rate of 7.27% quarterly for seven years while Compass paid Heritage Bank a rate equal to the three month LIBOR plus 3.10%, the rate banks in London charge one another for overnight borrowings. The Bank signed an inter-company transfer with the Company that allowed the Company to convert its variable rate subordinated debenture issuance to a fixed rate. The critical terms of the interest rate swap matched the term of the corresponding variable rate subordinated debt issuance. The Company considered the interest rate swap a cash flow hedge and conducted a quarterly analysis to ensure that the hedge was effective. The derivative matured on October 8, 2015.

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 results 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 adjustable rate loans in our portfolio. 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 attempt 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, 2016, approximately $122.1 million of the $185.1 million of one-to-four family residential loans originated by the Company (comprising 66.0% of such loans) had adjustable rates or will mature within one year.

8

The Company purchases U.S. government agency securities for terms 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, the Company choses to purchase securities with greater call options (continuous and quarterly) 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.

At December 31, 2016, the Company’s agency security portfolio consisted of $2.0 million of unsecured debt issued by Tennessee Valley Authority (“TVA”), $12.7 million issued by the Federal Home Loan Bank (“FHLB”) and $11.9 million 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 U.S. with the exception of TVA debt, which maintains the full faith and credit of the U.S. At December 31, 2016, the Company owns one U.S. Treasury security with a market value of $2.0 million maturing on April 15, 2017. U.S. Treasury securities have the full faith and credit guarantee of the United States government.

At December 31, 2016, $3.1 million in agency securities were due in one year, $3.9 million in agency securities were due within five years, approximately $17.6 million were due in five to ten years and approximately $2.0 million were due in more than ten years. At December 31, 2016, $9.7 million of these securities had a call provision, which authorizes the issuing agency to prepay the securities at face value on or before March 1, 2018. 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, 2016, the non-amortizing agency portfolio has an estimated weighted average maturity is 5.1 years and an effective duration of 4.7 years.

The Company owns significant positions in agency securities issued by the SBA. The SBA may issue securities known as SBAPs, SBICs and SBA Pools. 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.

SBAP notes have a maturity of twenty years, pays interest monthly and principal semi-annually. SBAP notes finance commercial real estate. SBAP typically experience slower prepayment speeds as compared to 20 year GNMA mortgage backed securities due to a ten year prepayment penalty on SBAP loans. SBIC notes are ten-year notes used to finance equipment for businesses. SBIC notes behave somewhat similar to a ten-year mortgage backed security, with slow prepayments in their first two or three years and then an acceleration of principal prepayments. SBIC notes pay interest and principal quarterly. SBA pools are floating rate securities, indexed to either the prime rate, one month Libor rate or three month Libor rate, with final maturities of ten, twenty-five or thirty years and pay principal and interest monthly. The interest rates on SBA pools reset either on a quarterly or monthly basis, providing the Company with lower price volatility as compared to fixed rate securities. 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 large premiums and therefore carry a greater than higher level of prepayment risk while providing lower yields as compared to many long term fixed rate investment products.

At December 31, 2016, the Company’s agency bond portfolio includes approximately $48.8 million in SBAP securities, $6.1 million in SBIC securities and $2.5 million in SBA Pools. At December 31, 2016, the weighted average life of our amortizing U.S. Agency portfolio is 4.6 years and the portfolio has an effective duration of 4.1 years.

The Company maintains a significant municipal bond portfolio. The Company purchased the majority of the municipal bond portfolio 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 Commonwealth of Kentucky and general obligations bonds issued by municipalities in Kentucky. As outlined below, the Company’s exposure to municipal securities outside the Commonwealth of Kentucky is limited to $1.7 million at December 31, 2016.

9

At December 31, 2016, the Company’s municipal portfolio consists of the following types of securities:

	Market Value
	(Dollars in Thousands)
•    Kentucky secondary school bonds	$	16.9
•    Kentucky courts and facilities		5.4
•    Kentucky general obligations		8.0
•    Other Kentucky bonds		4.6
•    Out of state bonds		1.7
Total	$	36.6

At December 31, 2016, the Company has $33.9 million in tax free municipal bonds and $2.7 million in taxable municipal bonds. Tax free 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 the Company’s total municipal bond portfolio to 125% of the Bank’s Tier 1 Capital. 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, 2016, the largest municipal bond concentration for one issuer was $2.9 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, 2016, $1.5 million in municipal bonds were due in less than one year, $10.1 million were due within one to five years, $15.2 million were due in five to ten years, $6.0 million were due in ten to fifteen years and $3.8 million were due in fifteen years. At December 31, 2016, approximately $24.4 million of the Company’s municipal bond portfolio is callable with call dates ranging from January 2017 to January 2023. The majority of callable municipal bonds purchased by the Company were originally scheduled to have a call ten years after issuance. At December 31, 2016, approximately $3.7 million of municipal bonds had a call date of less than one year, approximately $16.3 million had a call date from one to five years and approximately $4.4 million had a call date in more than five years but less than ten years. At December 31, 2016, the weighted average life of the tax free municipal bond portfolio is 3.1 years and its modified duration is 2.9 years. At December 31, 2016, the weighted average life of the taxable municipal bond portfolio is 4.0 years and its modified duration is 3.6 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, 2016, the Company held approximately $14.8 million in Collateral Mortgage Obligations (CMO) issued by various agencies of the U.S. government, including $2.3 million by GNMA and $12.5 million by FNMA. 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, 2016, the Company’s U.S. Agency CMO portfolio had a weighted average life of approximately 1.6 years and a modified duration of approximately 1.5 years.

At December 31, 2016, the Company’s mortgage backed security portfolio consisted of $6.8 million issued by the FHLMC, $40.4 million issued by the FNMA and $19.5 million issued by the Government National Mortgage Agency (GNMA). GNMA securities offer the full faith and credit guarantee of the U.S. Government while FHLMC and FHLB mortgage backed securities maintain the implicit backing of the U.S.

10

At December 31, 2016, approximately $10.7 million of the Company’s mortgage back security portfolio consisted of adjustable rate mortgages. These mortgages are fixed for a period of one, three or five years and then revert to a one year adjustable rate mortgage. At December 31, 2016, the weighted average life of the fixed rate mortgage loan portfolio is approximately 4.5 years and an effective duration is approximately 4.1 years. At December 31, 2016, the weighted average life of the adjustable rate mortgage loan portfolio is approximately 2.3 years and an effective duration is approximately 2.2 years.

At December 31, 2016, the Company held $91,000 of a private label CMO and $3.4 million in floating rate SLMA collateralized debt obligation (“CDO”) secured by federally guaranteed student loans. The CDO owned by the Company utilizes a pool of government guaranteed student loans as collateral and not mortgage loans. The CDO’s secured by SLMA collateral are floating rate securities tied to the one month LIBOR rate and re-price on a monthly basis.

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 was 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 would defer future 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. In 2013, the Company recognized a $400,000 other than temporary impairment loss on the subordinated debenture issued by FFKY. The recognition of a loss was the result of the Company’s analysis that, despite a slowly improving financial condition, FFKY was not likely to resume dividend payments prior to the end of the five year interest rate extension period.

On January 1, 2015, FFKY was sold and merged into Community Bank Shares of Indiana, (“CBIN”). On January 12, 2015, the Company was notified by Wilmington Trust that its investment in First Federal Statutory Trust III, (“FFKY Trust”), had elected to terminate the extension period of interest payments effective January 1, 2015. All accrued interest due and payable to all owners of securities through March 15, 2015, was paid to the Trustee in January 2015 and remains current at December 31, 2015. On January 21, 2015, the Company determined that FFKY Trust is no longer impaired and has placed the investment back into accrual status. On July 1, 2015, CBIN changed its NASDAQ ticker symbol to YCB. In September of 2016, YCB was sold and merged into Wesbanco of West Virginia (‘WSBC”). WSBC has approximately $9.8 billion in assets and is located in West Virginia. WSBC is well capitalized, highly profitable and appears to maintain strong asset quality.

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.

11

The following table presents the Company’s EVE at December 31, 2016, as calculated by the Company’s asset liability model for the year period ending December 31, 2016.

Change	Net Portfolio Value
In Rates	$ Amount		$ Change			% Change
	(Dollars in thousands)
+300 bp	$	83,632	($	16,933	)		(16.8	%)
+200 bp		90,135		(10,430	)		(10.4	%)
+100 bp		95,993		(4,572	)		(4.6	%)
0 bp		100,565		—			—
-100 bp		104,695		4,130			4.1	%

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

Tangible Common Equity Ratio at December 31, 2016	9.7	%
Pre-Shock Tier 1 Capital Ratio at December 31, 2016	10.7	%
Exposure Measure: 2% Increase in Rates	8.6	%

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.

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, 2016, the Company’s previous efforts to increase duration in our investment portfolio had a positive effect on its results of operations. In 2015, the Company reduced the size and duration of its investment portfolio and used the proceeds to reduce our borrowings at the FHLB.

The Company purchased a large volume of municipal bonds in 2008 and 2009 and those bonds are approaching their call dates. The Company’s current models indicate that a large percentage of these bonds will be called in 2019 even with a 2% increase in interest rates. The Company continues to analyze our municipal portfolio for future sale candidates given the amount of anticipated calls. Other factors also play in the Company’s decisions to sell significant portions of our municipal bond portfolio. The Commonwealth of Kentucky has the largest percentage of unfunded liabilities in its pension plans in the U.S. Furthermore, proposed changes to the U.S. corporate tax structure may reduce the future value of our municipal bond portfolio.

12

Management continues to focus on reducing the Company’s cost of interest bearing liabilities by reducing both the cost and dependency on time deposit funding and FHLB advances. The average balance and weighted average cost of time deposits has declined in each of the last three years. The average balance of time deposits for the year ended December 31, 2016, was $294.5 million, as compared to $320.9 million for the year ended December 31, 2015, and $407.0 million for the year ended December 31, 2014, respectively. The average balance of FHLB borrowings for the years December 31, 2016, 2015, and 2014, were $12.4 million, $17.3 million and $42.4 million, respectively.

The average cost of time deposits for the years ended December 31, 2016, December 31, 2015, and December 31, 2014, was 0.98%, 1.16%, and 1.17% respectively. See Note 5 of the Consolidated Financial Statements for more details.

The average cost of FHLB borrowings for the years ended December 31, 2016, December 31, 2015, and December 31, 2014, was 1.31%, 1.67%, and 3.92%, respectively. At December 31, 2016, the Company has two FHLB borrowings totaling $11.0 million. See Note 6 of the Consolidated Financial Statements for more details.

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, 2016, indicates that changes in interest rates are likely to result in modest changes in the Company’s annual net interest income. A summary of the Company’s analysis at December 31, 2016, for the year ending December 31, 2017, is as follows:

	Down 1.00%		No Change		Up 1.00%		Up 2.00%		Up 3.00%
	(Dollars in Thousands)
Net interest income	$	27,479	$	28,939	$	30,036	$	30,884	$	31,611

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, 2016, the Company had a negative one year or less interest rate sensitivity gap of 27.23% 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 at much lower levels.

13

The following table sets forth the amounts of interest-earning assets and interest-bearing liabilities outstanding at December 31, 2016, 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:
Loans held for sale	$	1,094			—			—			—			—			1,094
1 - 4 family residential		91,550			48,322			21,536			10,538			13,152			185,098
Multi-family		7,900			13,837			11,676			871			—			34,284
Construction		15,892			22,726			59			578			—			39,255
Non-residential		51,985			92,578			34,682			3,695			—			182,940
Land		15,891			7,544			370			35			—			23,840
Farmland		11,015			13,638			13,048			5,970			4,125			47,796
Consumer		2,025			6,501			191			—			—			8,717
Commercial		44,533			26,096			16,668			717			83			88,097
Interest bearing deposits		3,970			—			—			—			—			3,970
Non-amortizing securities		6,615			14,067			32,744			7,981			5,622			67,029
Amortizing securities		18,612			24,555			12,977			1,295			—			57,439
Mortgage backed securities		13,915			26,850			41,632			2,615			—			85,012
Total		284,997			296,714			185,583			34,295			22,982			824,571
Interest bearing liabilities:
Deposits		446,566			155,171			—			—			—			601,737
Borrowed funds		62,965			6,000			—			—			—			68,965
Total		509,531			161,171			—			—			—			670,702
Interest sensitivity gap	($	224,534	)		135,543			185,583			34,295			22,982			153,869
Cumulative interest senitivity gap	($	224,534	)		(88,991	)		96,592			130,887			153,869			153,869
Ratio of interest-earning assets to interest bearing liabilities		55.93	%		184.10	%		—			—			—			122.94	%
Ratio of cumulative gap to total interest-earning assets		(27.23	%)		(10.79	%)		11.71	%		15.87	%		18.66	%		18.66	%

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. Prepayment speeds on mortgage backed securities have slowed considerably as many outstanding mortgage loans have low coupons and are not prone to future refinancing. We anticipate that the majority of mortgage pools will exhibit historically low prepayment speeds for several years. 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 or SBA lending 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 commercial banks 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. The following table is for the month of December 31, 2016.

	December 2016 Monthly Averages
	Balance			Weighted Average Yield/Cost
	(Dollars in thousands)
Interest-earning assets:
Loans receivable, net	$	601,645			4.40	%
Non taxable securities available for sale		34,455			4.88	%*
Taxable securities available for sale		175,594			2.08	%
Federal Home Loan Bank stock		4,428			4.00	%
Interest bearing deposits		7,291			0.48	%
Total interest-earning assets		823,413			3.88	%
Non-interest-earning assets		59,873
Total assets	$	883,286
Interest-bearing liabilities:
Deposits	$	607,310			0.73	%
FHLB borrowings		11,000			1.07	%
Repurchase agreements		42,834			0.81	%
Subordinated debentures		10,310			3.88	%
Total interest-bearing liabilities		671,454			0.80	%
Non-interest-bearing liabilities		125,404
Total liabilities		796,858
Common stock		80
Additional paid-in capital		58,660
Retained earnings		49,035
Treasury stock		(15,347	)
Unearned ESOP shares		(6,548	)
Accumulated other comprehensive income		548
Total liabilities and equity	$	883,286
Interest rate spread					3.08	%
Net interest margin					3.30	%
Ratio of interest-earning assets to interest-bearing liabilities					122.63	%

* Tax equivalent yield at the Company’s 34% tax bracket and the Company’s month to date cost of funds rate of 0.80%.

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	Years Ended December 31,
	2016								2015								2014
	Average Balance			Interest		Average Yield/Cost			Average Balance			Interest		Average Yield/Cost			Average Balance			Interest		Average Yield / Cost
	(Dollars in Thousands)
Interest-earning assets:
Loans receivable, net (a)	$	570,674			25,801		4.52	%	$	552,265			25,322		4.59	%	$	534,404			26,038		4.87	%
Taxable securities AFS		190,843			4,595		2.41	%		203,160			6,149		3.03	%		262,154			6,548		2.50	%
Non-taxable securities AFS		38,981			1,958		5.02	%		52,836			2,464		4.66	%		64,393			3,097		4.81	%
Other interest-bearing deposits		7,512			46		0.61	%		8,528			22		0.26	%		10,461			26		0.25	%
Total interest-earning assets	$	808,010			32,400		4.01	%	$	816,789			33,957		4.16	%	$	871,412			35,709		4.10	%
Non-interest-earning assets		72,407								75,032								77,716
Total assets	$	880,417							$	891,821							$	949,128
Interest-bearing liabilities:
Deposits	$	596,109			4,240		0.71	%	$	612,816			5,031		0.82	%	$	640,676			5,603		0.87	%
Borrowings		66,280			1,059		1.60	%		71,084			1,519		2.14	%		98,574			3,276		3.32	%
Total interest-bearing liabilities		662,389			5,299		0.80	%		683,900			6,550		0.96	%		739,250			8,879		1.20	%
Non-interest-bearing liabilities		128,983								117,215								109,766
Total liabilities		791,372								801,115								849,016
Common stock		79								79								79
Additional paid-in capital		58,630								58,544								58,384
Retained earnings		48,678								46,305								45,211
Treasury stock		(14,409	)							(11,449	)							(5,998	)
Unearned ESOP shares		(6,864	)							(5,709	)							—
Accumulated other comprehensive income		2,931								2,936								2,436
Total liabilities and equity	$	880,417							$	891,821							$	949,128
Net interest income					27,101								27,407								26,830
Interest rate spread							3.21	%							3.20	%							2.90	%
Net interest margin							3.35	%							3.36	%							3.08	%
Ratio of average interest-earning assets to average interest-bearing liabilities							121.98	%							119.43	%							117.88	%

(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 0.80% for 2016 and a 0.96% rate for 2015.

	Year Ended December 31,
	2016 vs. 2015									2015 vs. 2014
	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	$	(353	)		832			479		$	(1,535	)		819			(716	)
Securities available for sale, taxable		(1,257	)		(297	)		(1,554	)		1,387			(1,786	)		(399	)
Securities available for sale, non-taxable		190			(696	)		(506	)		(94	)		(539	)		(633	)
Other interest- earning assets		30			(6	)		24			1			(5	)		(4	)
Total interest- earning assets		(1,390	)		(167	)		(1,557	)		(241	)		(1,511	)		(1,752	)
Interest-bearing liabilities:
Deposits		(592	)		(199	)		(791	)		(197	)		(375	)		(572	)
Borrowings		(397	)		(63	)		(460	)		(1,310	)		(447	)		(1,757	)
Total interest- bearing liabilities		(989	)		(262	)		(1,251	)		(1,507	)		(822	)		(2,329	)
Increase (decrease) in net interest income	$	(401	)		95			(306	)	$	1,266			(689	)		577

Critical Accounting Policies and Estimates

The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). 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, 2016, and December 31, 2015, 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, 2016 and December 31, 2015

For the year ended December 31, 2016, the Company’s total assets declined by $11.7 million, to $891.5 million as compared to $903.2 million for the year ended December 31, 2015. At December 31, 2016, the Company’s non-interest checking account balances were $131.1 million, as compared to $125.1 million at December 31, 2015. The Company has sought to lower its cost of deposits for several years by placing a greater emphasis on growing our transaction account balances, making the transition away from a heavy dependence on time deposits and FHLB borrowings for the bulk of our funding needs. As a result, we have experienced a decline in the balances of time deposits and FHLB borrowings. The Company’s time deposit balances declined from $314.7 million at December 31, 2015, to $293.1 million at December 31, 2016. At December 31, 2016, the Company’s balance of borrowing from the FHLB declined to $11.0 million, as compared to $15.0 million at December 31, 2015.

The available for sale investment portfolio declined $27.7 million, from $237.2 million at December 31, 2015, to $209.5 million at December 31, 2016. The Company used cash flows from the investment portfolio to fund a reduction in time deposits, reduction in FHLB borrowings, purchases of treasury stock and loan growth.

The Company’s net loan portfolio increased by $47.9 million, or 8.6%, during the year ended December 31, 2016, to $604.3 million. In 2016, the majority of the Company’s loan portfolio growth occurred in two markets. The loan portfolio in the Christian County, Kentucky market grew by $24.2 million, or 23.5%. The loan portfolio in the Company’s Nashville, Tennessee loan production office grew by $26.3 million, or 162.0%. At December 31, 2016, the Nashville loan production office had outstanding loans of $42.5 million.

The allowance for loan losses totaled $6.1 million at December 31, 2016, an increase of $412,000 from the allowance for loan losses of $5.7 million at December 31, 2015. The ratio of the allowance for loan losses to total loans was 1.00% and 1.01% at December 31, 2016, and December 31, 2015, respectively. At December 31, 2016, the Company’s non-accrual loans were approximately $9.1 million, or 1.49% of total loans, as compared to $7.4 million, or 1.32% of total loans, at December 31, 2015. The Company’s ratio of allowance for loan losses to non-accrual loans at December 31, 2016, and December 31, 2015, was 67.36% and 76.80%, respectively.

18

Comparison of Operating Results for the Years Ended December 31, 2016 and 2015

Net Income. The Company’s net income available for common shareholders for the year ended December 31, 2016, was $2.9 million compared to $2.4 million for the year ended December 31, 2015. The improvement in net income for the year ended December 31, 2016, as compared to December 31, 2015, was largely the result of loan growth that occurred in the second half of the year combined with a $1.3 million decline in interest expense.

Net Interest Income. Net interest income for the year ended December 31, 2016, was $26.4 million, compared to $26.6 million for the year ended December 31, 2015. The small decline in net interest income for the year ended December 31, 2016, was largely the result of the collection of $830,000 in previously non-accrual investment interest income in March of 2015 as well as decline in the average balance of available for sale securities.

For the year ended December 31, 2016, the Company’s tax equivalent average yield on total interest-earning assets was 4.01% compared to 4.16% for the year ended December 31, 2015, and its average cost of interest-bearing liabilities was 0.80%, compared to 0.96% for the year ended December 31, 2015. As a result, the Company’s tax equivalent interest rate spread for the year ended December 31, 2016, was 3.21%, compared to 3.20% for the year ended December 31, 2015, and its tax equivalent net interest margin was 3.35% for the year ended December 31, 2016, compared to 3.36% for the year ended December 31, 2015.

Interest Income. Interest income declined $1.4 million from $33.1 million to $31.7 million, or approximately 4.2% during the year ended December 31, 2016, compared to the year ended December 31, 2015. The decline in interest income was largely attributable to a decline in yields on assets, the collection of $830,000 in non-accrual interest in 2015 and a decline in the average balance of our available for sale portfolio. The average balance on taxable securities available for sale declined $12.4 million, from $203.2 million for the year ended December 31, 2015, to $190.8 million for the year ended December 31, 2016. The average yield on taxable securities available for sale was 2.41% and 3.03%, respectively, for the years ended December 31, 2016, and December 31, 2015, respectively. For the year ended December 31, 2015, the collection of non-accrual income on securities increased the yield on taxable securities available for sale by 0.41%. The average balance of non-taxable securities available for sale declined by approximately $13.8 million, from $52.8 million for the year ended December 31, 2015, to $39.0 million for the year ended December 31, 2016. The average yield on non-taxable securities available for sale increased from 4.66% for the year ended December 31, 2015, to 5.02% for the year ended December 31, 2016. For the year ended December 31, 2016, the average balance of loans was $570.7 million, an increase of $18.4 million as compared to the year ended December 31, 2015. The average yield on loans declined from 4.59% for the year ended December 31, 2015, to 4.52% for the year ended December 31, 2016.

Interest Expense. Interest expense declined to $5.3 million for the year ended December 31, 2016, compared to $6.6 million for 2015. The decline in interest expense was largely attributable to the $791,000 decline in interest expense on deposits and a $351,000 decline on interest expense on subordinated debentures. The average cost of average interest-bearing deposits declined from 0.82% for the year ended December 31, 2015, to 0.71% for the year ended December 31, 2016. Over the same period, the average balance of interest bearing deposits declined from $612.8 million for the year ended December 31, 2015, to $596.1 million for the year ended December 31, 2016. The Company’s cost structure has benefited from its growth of non-interest bearing deposits. For the year ended December 31, 2016, the average balance of non-interest bearing deposits was $125.7 million, an increase of $12.3 million, or 10.9%, over the average balance of non-interest bearing deposits for the year ended December 31, 2015. The average balance of FHLB borrowings declined from $17.3 million for the year ended December 31, 2015, to $12.4 million for the year ended December 31, 2016. The average cost of FHLB borrowings decreased from 1.67% for the year ended December 31, 2015, to 1.31% for the year ended December 31, 2016.

Provision for Loan Losses. The Company determined that an additional $1.2 million and $1.1 million in provision for loan losses was required for the years ended December 31, 2016, and December 31, 2015, respectively. Management uses a number of factors in determining the amount of provision for loan loss expense that is necessary. These factors include the amounts of current periods loan charge offs and recoveries, our perceived trends of asset quality, and the Company’s current growth prospects of its loan portfolio.

19

Non-Interest Income. Non-interest income increased by $333,000 for the year ended December 31, 2016, to $7.9 million, compared to $7.6 million for the year ended December 31, 2015. For the year ended December 31, 2016, the Company’s service charge income was $2.8 million, representing a decline of $137,000 as compared to the year ended December 31, 2015. The decline in service charge income for 2016 is a part of a multi-year trend trigged by changes in federal regulations and occurred despite notable increases in both the number and balances of transaction accounts. For the year ended December 31, 2016, merchant card income was $1.2 million, an increase of $94,000 as compared to the year ended December 31, 2015. For the year ended December 31, 2016, the Company’s financial services income declined by $71,000 as compared to the year ended December 31, 2015, largely due to customer concern over the volatility in the stock market. For the year ended December 31, 2016, gains on the sale of securities were $612,000, as compared to $691,000 for the year ended December 31, 2015. For the year ended December 31, 2016, income from mortgage origination income was $1.6 million, as compared to $1.2 million for the year ended December 31, 2015. The increase in mortgage origination revenue for 2016 was the result of an active home market due to the continued low level of mortgage interest rates that were in place in 2016. In 2016, more than 80% of all mortgage origination business was purchase money. In October of 2016, in response to the continued strong economic growth in Middle Tennessee, the Company opened a second loan production office in Brentwood, Tennessee. The Brentwood loan production office will focus almost exclusively on secondary market mortgage lending.

Non-Interest Expense. Total non-interest expense for the year ended December 31, 2016, was $29.9 million, compared to $30.4 million in 2015, a decline of $589,000, or approximately 1.9%. For the year ended December 31, 2016, the Company’s salaries and benefits expense declined by $410,000, or 2.6%, as compared to the year ended December 31, 2015. For the year ended December 31, 2016, data processing expenses increased by $115,000, or 4.1%, as compared to the year ended December 31, 2015, due to a higher number of active accounts. For the year ended December 31, 2016, occupancy expenses increased $96,000, or 3.1%, as compared to the year ended December 31, 2015, due to renovations to a limited number of offices and the construction of one new office. For the year ended December 31, 2016, other operating expenses were $2.3 million, an increase of $375,000, as compared to the year ended December 31, 2015, due to higher legal expenses. For the year ended December 31, 2016, expenses related to other real estate owned were $469,000, as compared to $511,000 for the year ended December 31, 2015.

Income Taxes. The effective tax rates for the years ended December 31, 2016, and December 31, 2015, were 11.1% and 10.2%, 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, life insurance contracts and certain tax credits earned have lowered our effective tax rate.

20

Comparison of Operating Results for the Years Ended December 31, 2015 and 2014

Net Income. The Company’s net income available for common shareholders for the year ended December 31, 2015, was $2.4 million compared to $2.2 million for the year ended December 31, 2014. The slight improvement in net income for the year ended December 31, 2015, as compared to December 31, 2014, was largely the result the collection of $800,000 of past due interest on a previously impaired investment security.

Net Interest Income. Net interest income for the year ended December 31, 2015, was $26.6 million, compared to $25.8 million for the year ended December 31, 2014. The increase in net interest income for the year ended December 31, 2015, was largely the result of a $2.3 million reduction in interest expense, offsetting a $1.6 million decline in interest income.

For the year ended December 31, 2015, the Company’s tax equivalent average yield on total interest-earning assets was 4.16% compared to 4.10% for the year ended December 31, 2014, and its average cost of interest-bearing liabilities was 0.96%, compared to 1.20% for the year ended December 31, 2014. As a result, the Company’s tax equivalent interest rate spread for the year ended December 31, 2015, was 3.20%, compared to 2.90% for the year ended December 31, 2014, and its tax equivalent net interest margin was 3.36% for the year ended December 31, 2015, compared to 3.08% for the year ended December 31, 2014.

Interest Income. Interest income declined $1.6 million from $34.7 million to $33.1 million, or approximately 4.5% during the year ended December 31, 2015, compared to the year ended December 31, 2014. The decline in interest income was largely attributable to a decline in yields on assets and a decline in the average balance of our available for sale portfolio. The average balance on taxable securities available for sale declined $59.0 million, from $262.2 million for the year ended December 31, 2014, to $203.2 million for the year ended December 31, 2015. The average yield on taxable securities available for sale was 3.03% and 2.50%, respectively, for the years ended December 31, 2015, and December 31, 2014, respectively. The average balance of non-taxable securities available for sale declined by approximately $11.6 million, from $64.4 million for the year ended December 31, 2014, to $52.8 million for the year ended December 31, 2015. The average yield on non-taxable securities available for sale decreased from 4.81% for the year ended December 31, 2014, to 4.66% for the year ended December 31, 2015. For the year ended December 31, 2015, the average balance of loans was $552.3 million, an increase of $17.9 million as compared to the year ended December 31, 2014. The average yield on loans declined from 4.87% for the year ended December 31, 2014, to 4.59% for the year ended December 31, 2015.

Interest Expense. Interest expense declined to $6.6 million for the year ended December 31, 2015, compared to $8.9 million for 2014. The decline in interest expense was largely attributable to the $1.8 million decline in interest expense on borrowed funds. The average cost of average interest-bearing deposits declined from 0.87% for the year ended December 31, 2014, to 0.82% for the year ended December 31, 2015. Over the same period, the average balance of interest bearing deposits declined from $640.7 million for the year ended December 31, 2014, to $612.8 million for the year ended December 31, 2015. The Company’s cost structure has benefited from its growth of non-interest bearing deposits. For the year ended December 31, 2015, the average balance of non-interest bearing deposits was $113.3 million, an increase of $8.4 million, or 8.0%, over the average balance of non-interest bearing deposits for the year ended December 31, 2014. The average balance of FHLB borrowings declined from $42.4 million for the year ended December 31, 2014, to $17.3 million for the year ended December 31, 2015, as the Company paid off a sizable portion of its FHLB borrowings. The average cost of FHLB borrowings decreased from 3.92% for the year ended December 31, 2014, to 1.67% for the year ended December 31, 2015.

Provision for Loan Losses. The Company determined that an additional $1.1 million in provision for loan losses was required for the year ended December 31, 2015. For the year ended December 31, 2014, the Company determined that significant improvements in our credit quality provided the opportunity to reduce the allowance for loan loss account by $2.3 million. The reduction in the allowance for loan loss account was the result of lower levels of past due loans, improving appraisal values on collateral securing loans classified as substandard, and a continued reduction in the amount of problem assets.

21

Non-Interest Income. Non-interest income declined by $238,000 for the year ended December 31, 2015, to $7.6 million, compared to $7.8 million for the year ended December 31, 2014. The decline in non-interest income is largely the result of a $429,000 decline in service charge income. The decline in service charge income was partially offset by a $55,000 increase in merchant card income. For the year ended December 31, 2015, the Company’s financial services income declined by $295,000 as compared to the year ended December 31, 2014. For the year ended December 31, 2015, income from mortgage origination income was $1.2 million, as compared to $719,000 for the year ended December 31, 2014. For the year ended December 31, 2015, gains on the sale of securities were $691,000, as compared to $578,000 for the year ended December 31, 2014.

Non-Interest Expense. Total non-interest expense for the year ended December 31, 2015, was $30.4 million, compared to $33.9 million in 2014, a decline of $3.5 million, or approximately 10.3%. The decline in non-interest expense was heavily influenced by a $1.8 million loss on the sale of an adversely classified commercial real estate loan and the $2.5 million FHLB prepayment penalty during the year ended December 31, 2014. For the year ended December 31, 2015, the Company’s salaries and benefits expense increased by $588,000, or 3.9%, as compared to the year ended December 31, 2014. For the year ended December 31, 2015, professional services expenses increased by $175,000, or 13.1% as compared to the year ended December 31, 2014, due to changes implemented for disaster recovery purposes required by regulators. For the year ended December 31, 2015, losses on the sale of other real estate owned increased by $508,000, or 244.2% as compared to the year ended December 31, 2014. For the year ended December 31, 2015, expenses related to other real estate owned increased by $245,000, or 92.1%, due to an increase in the Company’s activities in acquiring and disposing of properties. For the year ended December 31, 2015, no other non-interest expense increased by more than $150,000 as compared to the year ended December 21, 2014.

Income Taxes. The effective tax rates for the years ended December 31, 2015, and December 31, 2014, were 10.2% and (10.1%), 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, life insurance contracts and certain tax credits earned have lowered our effective tax rate.

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, 2016, the Bank exceeded all regulatory minimum capital requirements. For a detailed discussion of the Kentucky Department of Financial Institutions (“KDFI”) and FDIC capital requirements, and for a tabular presentation of the Bank’s compliance with such requirements, see Note 15 of Notes to Consolidated Financial Statements. See the Company’s Risk Factors, located in our Annual Report filed on SEC form 10-K as of and for the year ended December 31, 2016, for comments related to effects that the implementation of Basel III will have on the Company’s future operations.

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, 2016, the Bank had outstanding advances of $11.0 million from the FHLB and $45.6 million of letters of credit issued by the FHLB to secure municipal deposits. The Bank can immediately borrow an additional $51.3 million from the FHLB and the Company has the ability to pledge another $6.8 million in securities to the FHLB for additional borrowing capacity. The Bank can immediately borrow $12.0 million from its correspondent bank. See Note 6 of Notes to Consolidated Financial Statements.

22

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 state chartered commercial bank supervised by the KDFI and the FDIC may recognize the proceeds of trust preferred securities as capital. KDFI and FDIC regulations provide that 25% of Tier I capital may consist of trust preferred proceeds. See Note 9 of Notes to Consolidated Financial Statements.

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.

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, 2016, cash and cash equivalents totaled $25.7 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, 2016, 2015 and 2014 were $4.8 million, $6.4 million, and $10.1 million, respectively.

Cash flows provided by (used in) investment activities were ($23.1) million, $42.5 million and $19.0 million for the years ended December 31, 2016, and December 31, 2015, and December 31, 2014, respectively. A principal use of cash in this area has been purchases of securities available for sale of $43.8 million, offset by proceeds from sales, calls and maturities of securities of $67.7 million during 2016. The Company invested $47.9 million, $19.0 million and $1.9 million of cash in loans in 2016, 2015 and 2014, respectively. Sales and maturities of available for sale securities exceeded purchases by $23.9 million in 2016, $63.5 million in 2015 and $21.0 million in 2014.

At December 31, 2016, the Bank had $43.4 million in outstanding commitments to originate loans and unused lines of credit of $110.4 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 $137.9 million at December 31, 2016. Based on historical experience, management believes that a significant portion of such deposits will remain with the Bank.

23

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.

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, 2011, 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, and (3) the SNL Midwest Bank Index, comprised of publically traded commercial banks and bank 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, 2011, 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, 2011, 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.

24

On June 5, 2013, the Company became a Kentucky state chartered commercial bank holding company. As such, the Company will compare the SNL Midwest Bank index in the current and in future periods.

	Period Ending
Index	12/31/11		12/31/12		12/31/13		12/31/14		12/31/15		12/31/16
HopFed Bancorp, Inc.		100.00		134.99		180.30		204.08		195.07		221.76
NASDAQ COMPOSITE		100.00		117.45		164.57		188.84		201.98		219.89
SNL Midwest Bank		100.00		120.36		164.78		179.14		181.86		242.99

25

Consolidated Financial Statements

HopFed Bancorp, Inc.

and Subsidiaries

December 31, 2016, 2015 and 2014

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

HopFed Bancorp, Inc.

We have audited the accompanying consolidated balance sheet of HopFed Bancorp, Inc. and subsidiaries (the “Company”) as of December 31, 2016, and the related consolidated statement of income, comprehensive income, changes in stockholders’ equity, and cash flows for the year ended December 31, 2016. The Company’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2016, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control—Integrated Framework (2013 Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 15, 2017, expressed an unqualified opinion.

/s/ CARR, RIGGS, & INGRAM, LLC

Nashville, Tennessee

March 15, 2017

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 sheet of HopFed Bancorp, Inc. and subsidiaries (the “Company”) as of December 31, 2015, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2015. 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 audit.

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 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, 2015, and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America.

/S/ RAYBURN | FITZGERALD PC

Brentwood, Tennessee

March 3, 2016

HopFed Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

December 31, 2016 and 2015

(Dollars in Thousands)

	2016		2015
Assets
Cash and due from banks	$	21,779		46,926
Interest-bearing deposits in banks		3,970		7,772
Cash and cash equivalents		25,749		54,698
Federal Home Loan Bank stock, at cost		4,428		4,428
Securities available for sale		209,480		237,177
Loans held for sale		1,094		2,792
Loans receivable, net of allowance for loan losses of $6,112 at December 31, 2016, and $5,700 at December 31, 2015		604,286		556,349
Accrued interest receivable		3,799		4,139
Foreclosed assets		2,397		1,736
Bank owned life insurance		10,662		10,319
Premises and equipment, net		23,461		24,034
Deferred tax assets		3,052		2,642
Other assets		3,078		4,840
Total assets	$	891,486		903,154
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest-bearing accounts	$	131,145		125,070
Interest-bearing accounts:
Interest bearing checking accounts		209,347		203,779
Savings and money market accounts		99,312		95,893
Other time deposits		293,078		314,664
Total deposits		732,882		739,406
Advances from Federal Home Loan Bank		11,000		15,000
Repurchase agreements		47,655		45,770
Subordinated debentures		10,310		10,310
Advances from borrowers for taxes and insurance		766		614
Dividends payable		288		287
Accrued expenses and other liabilities		2,157		4,137
Total liabilities		805,058		815,524

See accompanying notes to consolidated financial statements.

29

HopFed Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets, Continued

December 31, 2016 and 2015

(Dollars in Thousands)

	2016			2015
Stockholders’ equity
Preferred stock, par value $0.01 per share; authorized 500,000 shares; no shares issued or outstanding at December 31, 2016 and December 31, 2015	$	—			—
Common stock, par value $.01 per share; authorized 15,000,000 shares; 7,963,378 issued and 6,717,242 outstanding at December 31, 2016, and 7,951,699 issued and 6,865,811 outstanding at December 31, 2015		80			79
Additional paid-in-capital		58,660			58,604
Retained earnings		49,035			47,124
Treasury stock, at cost (1,246,136 shares at December 31, 2016 and 1,085,888 shares at December 31, 2015)		(15,347	)		(13,471	)
Unearned ESOP Shares (at cost 498,346 at December 31, 2016 and 546,413 at December 31, 2015)		(6,548	)		(7,180	)
Accumulated other comprehensive income		548			2,474
Total stockholders’ equity		86,428			87,630
Total liabilities and stockholders’ equity	$	891,486			903,154

See accompanying notes to consolidated financial statements

30

HopFed Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income

For the Years ended December 31, 2016, 2015 and 2014

(Dollars in Thousands)

	2016		2015		2014
Interest and dividend income
Loans	$	25,778		25,300		26,025
Taxable securities available for sale		4,595		6,149		6,548
Nontaxable securities available for sale		1,308		1,651		2,081
Interest-bearing deposits in banks		46		22		26
Total interest and dividend income		31,727		33,122		34,680
Interest expense:
Deposits		4,240		5,031		5,603
Advances from Federal Home Loan Bank		163		289		1,665
Repurchase agreements		508		491		874
Subordinated debentures		388		739		737
Total interest expense		5,299		6,550		8,879
Net interest income		26,428		26,572		25,801
Provision for loan losses		1,241		1,051		(2,273	)
Net interest income after
provision for loan losses		25,187		25,521		28,074
Non-interest income:
Service charges		2,788		2,925		3,354
Merchant card		1,224		1,130		1,075
Mortgage origination		1,585		1,175		719
Realized gains from sale of securities available for sale, net		612		691		578
Income from bank owned life insurance		343		335		307
Financial services commission		614		685		980
Other operating		769		661		827
Total non-interest income		7,935		7,602		7,840

See accompanying notes to consolidated financial statements.

31

HopFed Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income, Continued

For the Years ended December 31, 2016, 2015 and 2014

(Dollars in Thousands, Except Per Share Amounts)

	2016			2015		2014
Non-interest expenses:
Salaries and employee benefits		15,400			15,810		15,222
Occupancy		3,173			3,077		3,217
Data processing		2,942			2,827		2,887
State deposit tax		990			1,018		1,336
Intangible amortization		—			33		97
Professional services		1,404			1,506		1,331
Advertising		1,401			1,302		1,341
Postage and communications		625			577		577
Supplies		607			527		627
Deposit insurance and examination fees		609			586		724
(Gain) loss on sale of premises and equipment		(72	)		1		25
Foreclosed assets, net		448			1,227		474
Loss on sale of loan note		—			—		1,781
Loss on early debt extinguishment		—			—		2,510
Other operating		2,329			1,954		1,767
Total non-interest expense		29,856			30,445		33,916
Income before income tax expense		3,266			2,678		1,998
Income tax expense (benefit)		362			274		(201	)
Net income	$	2,904			2,404		2,199
Earnings per share available to common stockholders:
Basic	$	0.47			0.38		0.30
Diluted	$	0.47			0.38		0.30
Weighted average shares outstanding - basic		6,233,860			6,372,277		7,306,078
Weighted average shares outstanding - diluted		6,233,860			6,372,277		7,306,078

See accompanying notes to consolidated financial statements.

32

HopFed Bancorp, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

For the Years ended December 31, 2016, 2015 and 2014

(Dollars in Thousands)

	2016			2015			2014
Net income	$	2,904			2,404			2,199
Other comprehensive income, net of tax:
Unrealized gain (loss) on non – other than temporary impaired investment securities (“OTTI”) available for sale, net of taxes		(1,351	)		(1,121	)		5,130
Unrealized gain (loss) on OTTI securities, net of taxes		(170	)		237			—
Unrealized gain on derivatives, net of taxes		—			257			237
Reclassification adjustment for gains and accretion included in net income, net of taxes		(405	)		(456	)		(381	)
Total other comprehensive income (loss)		(1,926	)		(1,083	)		4,986
Comprehensive income	$	978			1,321			7,185

See accompanying notes to consolidated financial statements.

33

HopFed Bancorp, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

For the Years ended December 31, 2016, 2015 and 2014

(Dollars in Thousands, Except Share Amounts)

	Common Shares			Common Stock		Additional Paid-in Capital			Retained Earnings			Common Treasury Stock			Unearned ESOP Shares			Accumulated Other Comprehensive Income (Loss)			Total Equity
Balance December 31, 2013		7,447,903			79		58,302			44,694			(5,929	)		—			(1,429	)		95,717
Net Income		—			—		—			2,199			—			—			—			2,199
Restricted stock awards		22,378			—		—			—			—			—			—			—
Net change in unrealized loss on securities available for sale, net of taxes of ($2,446)		—			—		—			—			—			—			4,749			4,749
Net change in unrealized losses on derivatives, net of taxes of ($122)		—			—		—			—			—			—			237			237
Cash dividend to common stockholders ($0.16 per share)		—			—		—			(1,164	)		—			—			—			(1,164	)
Common stock repurchase		(298,999	)		—		—			—			(3,500	)		—			—			(3,500	)
Compensation expense, restricted stock awards		—			—		164			—			—			—			—			164
Balance December 31, 2014		7,171,282			79		58,466			45,729			(9,429	)		—			3,557			98,402
Net Income		—			—		—			2,404			—			—			—			2,404
Restricted stock awards		2,034			—		—			—			—			—			—			—
Net change in unrealized gain on securities available for sale, net of taxes of $690		—			—		—			—			—			—			(1,340	)		(1,340	)
Net change in unrealized losses on derivatives, net of taxes of ($132)		—			—		—			—			—			—			257			257
Cash dividend to common stockholders ($0.16 per share)		—			—		—			(1,009	)		—			—			—			(1,009	)
Common stock repurchase		(907,505	)		—		—			—			(11,926	)		—			—			(11,926	)
Common stock issued		600,000			—		—			—			7,884			(7,884	)		—			—
ESOP Shares Earned		—			—		(52	)		—			—			704			—			652
Compensation expense, restricted stock awards		—			—		190			—			—			—			—			190
Balance December 31, 2015		6,865,811			79		58,604			47,124			(13,471	)		(7,180	)		2,474			87,630

34

HopFed Bancorp, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

For the Years ended December 31, 2016, 2015 and 2014

(Dollars in Thousands, Except Share Amounts)

	Common Shares			Common Stock		Additional Paid-in Capital			Retained Earnings			Common Treasury Stock			Unearned ESOP Shares			Accumulated Other Comprehensive Income (Loss)			Total Equity
December 31, 2015		6,865,811			79		58,604			47,124			(13,471	)		(7,180	)		2,474			87,630
Net Income		—			—		—			2,904			—			—			—			2,904
Restricted stock awards		11,679			1		—			—			—			—			—			1
Net change in unrealized gain on securities available for sale, net of taxes of $992		—			—		—			—			—			—			(1,926	)		(1,926	)
Cash dividend to common stockholders ($0.16 per share)		—			—		—			(993	)		—			—			—			(993	)
Common stock repurchase		(160,248	)		—		—			—			(1,876	)		—			—			(1,876	)
ESOP Shares Earned		—			—		(79	)		—			—			632			—			553
Compensation expense, restricted stock awards		—			—		135			—			—			—			—			135
Balance December 31, 2016		6,717,242		$	80		58,660			49,035			(15,347	)		(6,548	)		548			86,428

See accompanying notes to consolidated financial statements.

35

HopFed Bancorp, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

For the Years ended December 31, 2016, 2015 and 2014

(Dollars in Thousands)

	2016			2015			2014
Cash flows from operating activities:
Net income	$	2,904			2,404			2,199
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		1,241			1,051			(2,273	)
Depreciation		1,320			1,266			1,336
Amortization of intangible assets		—			33			97
Amortization of investment premiums and discounts, net		1,515			1,650			2,076
Other than temporary impairment recovery on available for sale securities		(17	)		(17	)		—
Expense (benefit) for deferred income taxes		267			177			(231	)
Stock compensation expense		135			138			164
Income from bank owned life insurance		(343	)		(335	)		(307	)
Gain on sale of securities available for sale		(612	)		(691	)		(578	)
Gain on sale of mortgage loans		(1,585	)		(1,175	)		(719	)
Loss on sale of loan note		—			—			1,781
(Gain) loss on sale of premises and equipment		(72	)		1			25
Proceeds from sale of mortgage loans		56,309			43,847			37,300
(Gain) loss on sale of foreclosed assets		(21	)		716			208
Originations of mortgage loans sold		(53,026	)		(44,020	)		(32,835	)
(Increase) decrease in:
Accrued interest receivable		340			437			657
Other assets		145			21			1,513
Increase (decrease) in accrued expenses and other liabilities		(1,980	)		933			(277	)
Net cash provided by operating activities		6,520			6,436			10,136
Cash flows from investing activities:
Proceeds from sales, calls and maturities of securities available for sale		67,671			120,354			112,235
Purchase of securities available for sale		(43,778	)		(56,875	)		(91,257	)
Net increase in loans		(49,586	)		(19,005	)		(1,908	)
Proceeds from sale of foreclosed assets		1,623			344			1,118
Proceeds from sale of premises and equipment		100			—			—
Purchase of premises and equipment		(775	)		(2,361	)		(1,168	)
Net cash provided by (used in) investing activities		(24,745	)		42,457			19,020

See accompanying notes to consolidated financial statements.

36

HopFed Bancorp, Inc. and Subsidiaries

Consolidated Statements of Cash Flows, Continued

For the Years ended December 31, 2016, 2015 and 2014

(Dollars in Thousands)

	2016			2015			2014
Cash flows from financing activities:
Net increase (decrease) in deposits	($	6,524	)		8,098			(31,689	)
Increase (decrease) in advance payments by borrowers for taxes and insurance		152			101			(8	)
Advances from Federal Home Loan Bank		26,000			41,000			57,000
Repayment of advances from Federal Home Loan Bank		(30,000	)		(60,000	)		(69,780	)
Increase (decrease) in repurchase agreements		1,885			(11,588	)		4,599
Acquisition of treasury stock		(1,876	)		(11,926	)		(3,500	)
Proceeds from repayment of ESOP loan		632			704			—
Dividends paid on common stock		(993	)		(1,023	)		(1,187	)
Net cash used in financing activities		(10,724	)		(34,634	)		(44,565	)
Increase (decrease) in cash and cash equivalents		(28,949	)		14,259			(15,409	)
Cash and cash equivalents, beginning of period		54,698			40,439			55,848
Cash and cash equivalents, end of period	$	25,749			54,698			40,439
Supplemental disclosures of cash flow information:
Interest paid	$	5,354			6,587			8,977
Income taxes refund		(564	)		(900	)		(718	)
Supplemental disclosures of non-cash investing and financing activities:
Loans charged off	$	1,468			1,867			1,232
Loan transferred to held for sale		—			—			6,987
Foreclosures and in substance foreclosures of loans during year		2,263			869			1,579
Net unrealized gains (losses) on investment securities classified as available for sale		(2,918	)		(2,030	)		7,195
Increase (decrease) in deferred tax asset related to unrealized gains (losses) on investments		992			691			(2,446	)
Dividends declared and payable		288			287			301
Sale and financing of stock to ESOP		—			7,884			—
Issue of unearned restricted stock		145			25			260

See accompanying notes to consolidated financial statements.

37

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016, 2015 and 2014

(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 and headquartered in Hopkinsville, Kentucky. The Corporation’s principal business activities are conducted through its wholly-owned subsidiary, Heritage Bank USA, Inc. (the “Bank”), a Kentucky state chartered commercial 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).

The Bank is a Kentucky commercial chartered bank and is supervised by the Kentucky Department of Financial Institutions (“KDFI”) and the FDIC. Supervision of the Corporation is conducted by the Federal Reserve Bank of Saint Louis (“FED”).

The Bank owns JBMM, LLC, a wholly owned, limited liability company, which owns and manages the Bank’s foreclosed assets. The Bank owns Heritage Interim Corporation, a Tennessee corporation established to facilitate the acquisition of a bank in Tennessee. The proposed acquisition was terminated in August of 2013. The Bank owns Heritage USA Title, LLC, which sells title insurance to the Bank’s real estate loan customers.

The Bank owns Fort Webb LP, LLC, which owns a limited partnership interest in Fort Webb Elderly Housing LP, LLC, 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.

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 subsidiaries (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 (“U.S. GAAP”) and conform to general practices in the banking industry. U.S. GAAP is generally defined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), as amended by Accounting Standards Updates (“ASUs”). Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) are also sources of authoritative U.S. GAAP for SEC registrants.

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HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(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 U.S. GAAP. Voting interest entities in 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 subsidiaries, HopFed Capital Trust I and Fort Webb LP, LLC are VIEs for which the Company is not the primary beneficiary. Accordingly, these accounts are not included in the Company’s consolidated financial statements.

Subsequent Events

The Company has evaluated subsequent events for potential impact and disclosure through the issue date of these consolidated financial statements.

Estimates

In preparing the consolidated financial statements in conformity with U.S. GAAP, 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 collateral.

Cash and Cash Equivalents

Cash and cash equivalents are defined as cash on hand, amounts due on demand from commercial banks, interest-bearing deposits in other financial institutions and federal funds sold with maturities of three months or less. The Company is required to maintain reserve funds in either cash on hand or on deposit with the Federal Reserve Bank. At December 31, 2016, the Company’s reserve requirement was met with available cash on hand.

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HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

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

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. Gains and losses on sales are recorded on the trade date.

Other Than Temporary Impairment

Management evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic conditions warrant such evaluation. 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.

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HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

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

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. FHLB stock is periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.

Loans Receivable and Allowance for Loan Losses

Loans receivable are stated at unpaid principal balances, less the allowance for loan losses and deferred loan cost. 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. Subsequent recoveries, if any, are credited to the allowance. 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. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the most recent three years.

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 Troubled Debt Restructurings (“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 have an allowance established for it. 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.

41

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

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

Loans Receivable and Allowance for Loan Losses (Continued)

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 estimate 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 evaluated, 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 U.S. GAAP and has taken into account the views of its regulators and the current economic environment.

If an asset or portion thereof is classified as a loss, we establish a specific reserve for such amount. If the Company determines that a loan relationship is collateral dependent, the Company will charge off the portion of that loan that is deemed to be impaired against the allowance for loan loss account. 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. The Company will charge off a portion or all of a loan balance once it deems the collection of any remaining interest and principal due to be unlikely.

Loans held for sale

Mortgage loans originated and intended for sale are carried at the lower of cost or estimated fair value as determined on a loan-by-loan basis. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income. Realized gains and losses are recognized when legal title to the loans has been transferred to the purchaser and sales proceeds have been received and are reflected in the accompanying consolidated statement of operations in gains on mortgage loans sold, net of related costs such as compensation expenses. The Company does not securitize mortgage loans.

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, 2016, the Bank maintained a servicing portfolio of one to four family real estate loans of approximately $19.7 million and approximately $22.8 million at December 31, 2015. For the years ended December 31, 2016, December 31, 2015, and December 31, 2014, 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.

42

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

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

Foreclosed Assets

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.

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.

Treasury Stock

The Company may occasionally purchase its own common stock either in open market transactions or privately negotiated transactions. The value of the Company’s common stock held in treasury is listed at cost.

Unearned ESOP Shares

The Company offers an Employee Stock Ownership Plan (“ESOP”) to the employees of the Company. The unearned portion of common stock of the Company held in the ESOP Trust is recorded on the balance sheet at cost. Common stock is released from the ESOP Trust to the participants as the Bank makes payments on the loan to the Corporation on behalf of the ESOP Trust.

Comprehensive Income

Comprehensive income consists of net income and other comprehensive income, net of applicable income taxes. Other comprehensive income includes unrealized appreciation (depreciation) on available-for-sale securities, unrealized appreciation (depreciation) on available-for-sale securities for which a portion of an other than temporary impairment has been recognized in income, and unrealized appreciation (depreciation) on derivatives.

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HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

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

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales, when control over the assets have been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

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 and Kentucky income tax returns as well as its Kentucky and Tennessee franchise and excise tax returns on a consolidated basis with its subsidiaries. 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.

44

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

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

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 core deposit intangible asset related to the middle Tennessee acquisition of June 2006 was amortized using the sum of the year’s digits method over an estimated period of nine years. At December 31, 2015, the core deposit intangible was fully amortized.

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.

45

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

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

Derivative Instruments

Under the guidelines of 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. The Company’s derivative matured on October 8, 2015. There were no fair value hedging gains or losses, as a result of hedge ineffectiveness, recognized for the years ended December 31, 2015 or 2014.

46

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

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

Fair Values of Financial Instruments

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-bearing deposits in banks

The carrying amounts reported in the consolidated balance sheets for interest bearing deposits in banks is 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 held for sale

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

47

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

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

Fair Values of Financial Instruments (Continued)

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.

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.

48

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

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

Fair Values of Financial Instruments (Continued)

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%.

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 Corporation by the KDFI or FDIC. Any restrictions imposed by either regulator would effectively limit the Company’s ability to pay a dividend to its common stockholders as discussed in Note 16. At December 31, 2016, there were no such restrictions. At December 31, 2016, the Corporation has approximately $1.1 million in cash on hand available to pay common dividends and repurchase treasury stock as outlined in Note 19. At December 31, 2016, the Bank may not pay an additional cash dividend to the Corporation without regulatory approval.

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. Anti-dilutive common stock equivalents are not included for the purposes of this calculation. At December 31, 2016, the Company has no warrants or stock options outstanding.

49

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

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

Stock Compensation

Compensation cost is recognized for restricted stock awards issued to employees based on the fair value of these awards at the date of grant. The cost is recognized over the required service period, generally defined as the vesting period.

Effect of New Accounting Pronouncements

In May 2014, the FASB issued new guidance related to “Revenue from Contracts with Customers.” This guidance supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the ASC. The guidance requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This guidance is effective for interim and annual reporting periods beginning after December 15, 2016; however, the FASB has agreed to a one-year deferral of the effective date to December 15, 2017. The implementation of ASC Topic 605 will not have a material impact on the Company’s Consolidated Financial Statements.

50

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

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

Effect of New Accounting Pronouncements (Continued)

ASU No. 2015-02, “Amendments to the Consolidation Analysis.” This ASU affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. Specifically, the amendments: (1) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities; (2) eliminate the presumption that a general partner should consolidate a limited partnership; (3) affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; and (4) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. ASU No. 2015-02 was effective for interim and annual reporting periods beginning after December 15, 2015. The implementation of the provisions of ASU No. 2015-02 did not have a material impact on the Company’s Consolidated Financial Statements.

ASU 2015-05, “Intangibles – Goodwill and Other - Internal-Use Software (Subtopic 350-40) – Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” ASU 2015-05 addresses accounting for fees paid by a customer in cloud computing arrangements such as (i) software as a service, (ii) platform as a service, (iii) infrastructure as a service and (iv) other similar hosting arrangements. ASU 2015-05 provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The implementation of ASU 2015-05, which was effective on January 1, 2016, did not have a significant impact on the Company’s Consolidated Financial Statements.

51

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

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

Effect of New Accounting Pronouncements (Continued)

ASU 2015-15, “Interest – Imputation of Interest (Subtopic 835-30) – Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting.” ASU 2015-15 adds SEC paragraphs pursuant to an SEC Staff Announcement that given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to line-of-credit arrangements, the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The implementation of ASU 2015-15 did not have a significant impact on the Company’s Consolidated Financial Statements.

In September 2015, the FASB issued Accounting Standards Update No. 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments.” The guidance in this update eliminates the requirement to restate prior period financial statements for measurement period adjustments. The new guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. The new guidance is intended to reduce complexity in financial reporting. The elimination of the restatement requirement should simplify financial reporting for many entities. However, recognizing the entire impact of a measurement period adjustment in a single reporting period may introduce earnings volatility and reduce comparability between periods when the adjustments are material. The accounting changes in this update are effective for public companies for annual periods, and the interim periods within those annual periods, after December 15, 2015. The implementation of ASU 2015-16 did not have a material impact on the Company’s Consolidated Financial Statements.

52

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

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

Effect of New Accounting Pronouncements (Continued)

ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01, among other things, (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (iii) eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (v) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, (vi) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements and (vii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale. ASU 2016-01 will be effective on January 1, 2018, and is not expected to have a material effect on the Company’s Consolidated Financial Statements.

ASU 2016-02, “Leases (Topic 842).” ASU 2016-02 will, among other things, require lessees to recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model and ASC Topic 606, “Revenue from Contracts with Customers.” ASU 2016-02 will be effective for us on January 1, 2019, and will require transition using a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. We are currently evaluating the potential impact of ASU 2016-02 on the Company’s Consolidated Financial Statements.

ASU 2016-05 “Derivatives and Hedging (Topic 815) Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships.” ASU 2016-05 clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under ASC Topic 815 does not, in and of itself, require de-designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. ASU 2016-05 will be effective for us on January 1, 2017. The implementation of ASU 2016-05 is not expected to have a material impact on the Company’s Consolidated Financial Statements.

53

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

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

Effect of New Accounting Pronouncements (Continued)

ASU 2016-07, “Investments – Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting.” The amendments affect all entities that have an investment that becomes qualified for the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence. ASU 2016-07 simplifies the transition to the equity method of accounting by eliminating retroactive adjustment of the investment when an investment qualifies for use of the equity method, among other things. ASU 2016-07 will be effective for us on January 1, 2017. The implementation of ASU 2016-07 is not expected to have a material impact on the Company’s Consolidated Financial Statements.

ASU 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” Under ASU 2016-09 all excess tax benefits and tax deficiencies related to share-based payment awards should be recognized as income tax expense or benefit in the income statement during the period in which they occur. Previously, such amounts were recorded in the pool of excess tax benefits included in additional paid-in capital, if such pool was available. Because excess tax benefits are no longer recognized in additional paid-in capital, the assumed proceeds from applying the treasury stock method when computing earnings per share should exclude the amount of excess tax benefits that would have previously been recognized in additional paid-in capital. Additionally, excess tax benefits should be classified along with other income tax cash flows as an operating activity rather than a financing activity, as was previously the case. ASU 2016-09 also provides that an entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest (current GAAP) or account for forfeitures when they occur. ASU 2016-09 changes the threshold to qualify for equity classification (rather than as a liability) to permit withholding up to the maximum statutory tax rates (rather than the minimum as was previously the case) in the applicable jurisdictions. ASU 2016-09 is effective on January 1, 2017. The implementation of ASU 2016-09 is not expected to have a material effect on the Company’s Consolidated Financial Statements.

54

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

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

Effect of New Accounting Pronouncements (Continued)

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

ASU 2016-15 “Statement of Cash Flows (Topic 230)” (“ASU 2016-15”) is intended to reduce the diversity in practice around how certain transactions are classified within the statement of cash flows. ASU 2016-15 is effective for public companies for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted with retrospective application. We are evaluating the impact that the adoption of ASU 2016-15 will have on the Company’s Consolidated Financial Statements.

Other accounting standards that have been issued or proposed by the FASB or other standards 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. Reclassifications had no effect on prior year’s net income or shareholders’ equity.

55

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(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, 2016
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Restricted:
FHLB stock	$	4,428		—		—			4,428
Available for Sale:
U.S. Treasury securities	$	2,000		1		—			2,001
U.S. Agency securities		83,667		983		(638	)		84,012
Tax free municipal bonds		33,004		1,081		(174	)		33,911
Taxable municipal bonds		2,720		17		(10	)		2,727
Trust preferred securities		1,634		183		—			1,817
Mortgage-backed securities:
GNMA		19,490		175		(109	)		19,556
FNMA		40,754		176		(577	)		40,353
FHLMC		6,831		12		(84	)		6,759
Non-Agency CMOs		3,786		—		(208	)		3,578
AGENCY CMOs		14,765		74		(73	)		14,766
	$	208,651		2,702		(1,873	)		209,480

56

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(Table Amounts in Thousands)

(2) Securities: (Continued)

	December 31, 2015
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Restricted:
FHLB stock	$	4,428		—		—			4,428
Available for Sale:
U.S. Treasury Securities	$	2,001		—		(1	)		2,000
U.S. Agency Securities		91,694		1,727		(488	)		92,933
Tax free municipal bonds		42,237		2,481		(59	)		44,659
Taxable municipal bonds		6,190		52		(65	)		6,177
Trust preferred securities		1,617		248		—			1,865
Mortgage-backed securities:
GNMA		29,990		239		(239	)		29,990
FNMA		28,189		266		(152	)		28,303
FHLMC		8,113		24		(51	)		8,086
Non-Agency CMOs		3,828		—		(174	)		3,654
AGENCY CMOs		19,570		71		(131	)		19,510
	$	233,429		5,108		(1,360	)		237,177

The scheduled maturities of debt securities available for sale at December 31, 2016, were as follows:

			Estimated
	Amortized		Fair
	Cost		Value
Due within one year	$	6,605		6,615
Due in one to five years		13,913		14,067
Due in five to ten years		32,611		32,744
Due after ten years		13,022		13,603
		66,151		67,029
Amortizing agency bonds		56,874		57,439
Mortgage-backed securities		85,626		85,012
Total unrestricted securities available for sale	$	208,651		209,480

57

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(Table Amounts in Thousands)

(2) Securities: (Continued)

The scheduled maturities of debt securities available for sale at December 31, 2015, were as follows:

			Estimated
	Amortized		Fair
	Cost		Value
Due within one year	$	—		—
Due in one to five years		17,939		18,304
Due in five to ten years		42,151		42,793
Due after ten years		22,702		24,088
		82,792		85,185
Amortizing agency bonds		60,947		62,449
Mortgage-backed securities		89,690		89,543
Total unrestricted securities available for sale	$	233,429		237,177

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

	Less than 12 months					12 months or longer					Total
	Estimated		Unrealized			Estimated		Unrealized			Estimated		Unrealized
	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
Available for sale
U.S. Agency debt securities	$	41,963		(597	)		3,459		(41	)		45,422		(638	)
Taxable municipals		1,347		(10	)		—		—			1,347		(10	)
Tax free municipals		7,369		(174	)		—		—			7,369		(174	)
Mortgage-backed securities:
GNMA		6,151		(62	)		3,861		(47	)		10,012		(109	)
FNMA		28,950		(577	)		—		—			28,950		(577	)
FHLMC		6,217		(84	)		—		—			6,217		(84	)
Non-Agency CMOs		—		—			3,578		(208	)		3,578		(208	)
AGENCY CMOs		7,144		(73	)		—		—			7,144		(73	)
Total Available for Sale	$	99,141		(1,577	)		10,898		(296	)		110,039		(1,873	)

58

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(Table Amounts in Thousands)

(2) Securities: (Continued)

The estimated fair value and unrealized loss amounts of temporarily impaired investments as of December 31, 2015, are as follows:

	Less than 12 months					12 months or longer					Total
	Estimated		Unrealized			Estimated		Unrealized			Estimated		Unrealized
	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
Available for sale
U.S. Treasury securities	$	2,000		(1	)		—		—			2,000		(1	)
U.S. Agency debt securities		26,499		(203	)		16,224		(285	)		42,723		(488	)
Taxable municipals		2,159		(32	)		1,887		(33	)		4,046		(65	)
Tax free municipals		—		—			3,878		(59	)		3,878		(59	)
Mortgage-backed securities:
GNMA		10,840		(105	)		11,508		(134	)		22,348		(239	)
FNMA		11,484		(87	)		3,036		(65	)		14,520		(152	)
FHLMC		7,336		(51	)		—		—			7,336		(51	)
NON-AGENCY CMOs		—		—			3,654		(174	)		3,654		(174	)
AGENCY CMOs		9,781		(90	)		1,991		(41	)		11,772		(131	)
Total Available for Sale	$	70,099		(569	)		42,178		(791	)		112,277		(1,360	)

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. Management gives consideration 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, 2016, the Company has 73 securities with unrealized losses. 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.

59

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(2) Securities: (Continued)

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 $2.0 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 deferring the dividend payments for up to five years as prescribed by the trust agreement.

At September 30, 2013, the Company recognized a $400,000 impairment charge related to management’s financial analysis of the issuing institution, and our opinion that it would be unable to make dividend payments after the five-year extension expired. In January 2015, Your Community Bankshares (“YCB”) purchased FFKY. In September of 2016, Wesbanco (“WSBC”) closed on its purchase of YCB. WSBC is a $9.8 billion institution headquartered in West Virginia. WSBC has assumed the debt originally issued by FFKY, and all interest is now current. The Company is currently accreting the $400,000 impairment charge back into income.

During 2016, the Company sold investment securities classified as available for sale for proceeds of $19.0 million resulting in gross gains of $690,000 and gross losses of $78,000. During 2015, the Company sold investment securities classified as available for sale for proceeds of $84.9 million resulting in gross gains of $1,274,000 and gross losses of $583,000. During 2014, the Company sold investment securities classified as available for sale for proceeds of $75.3 million resulting in gross gains of $788,000 and gross losses of $210,000.

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, 2016, the Bank pledged investments with a book value of $125.6 million and a market value of approximately $128.4 million to various municipal entities as required by law. In addition, the Bank has provided $45.6 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.

60

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(Table Amounts in Thousands, Except Percentages)

(3) Loans Receivable, Net:

The components of loans receivable in the consolidated balance sheets as of December 31, 2016, and December 31, 2015, were as follows:

	December 31, 2016						December 31, 2015
	Amount			Percent			Amount			Percent
Real estate loans:
One-to-four family first mortgages	$	147,962			24.2	%	$	145,999			26.0	%
Home equity line of credit		35,684			5.8	%		33,644			6.0	%
Second mortgages		1,452			0.3	%		1,771			0.3	%
Multi-family		34,284			5.6	%		24,725			4.4	%
Construction		39,255			6.4	%		34,878			6.2	%
Land		23,840			3.9	%		22,453			4.0	%
Farmland		47,796			7.8	%		42,246			7.5	%
Non-residential real estate		182,940			30.0	%		149,711			26.6	%
Total mortgage loans		513,213			84.0	%		455,427			81.0	%
Consumer loans		8,717			1.4	%		20,324			3.6	%
Commercial loans		88,907			14.6	%		86,743			15.4	%
Total other loans		97,624			16.0	%		107,067			19.0	%
Total loans		610,837			100.0	%		562,494			100.0	%
Deferred loan cost, net of fees		(439	)					(445	)
Less allowance for loan losses		(6,112	)					(5,700	)
Total loans, net	$	604,286					$	556,349

61

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(3) Loans Receivable, Net: (Continued)

Loans serviced for the benefit of others totaled approximately $33.5 million and $36.9 million at December 31, 2016 and 2015, respectively. At December 31, 2016, approximately $19.7 million of the $33.5 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 are pledged to the Federal Home Loan Bank of Cincinnati as discussed in Note 6. At December 31, 2016, the carrying amount of loans eligible and pledged to the Federal Home Loan Bank of Cincinnati was $135.7 million.

The Company originates most fixed rate loans for immediate sale to outside investors, including Freddie Mac. Generally, the agreement to sell such loans occurs shortly after the loan application is tentatively approved through best effort commitments, not binding the Company to deliver a loan that does not close.

The Company uses the following risk definitions for commercial loan risk grades:

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

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

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

62

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(3) Loans Receivable, Net: (Continued)

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

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

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

Substandard - A substandard asset is inadequately protected by the current sound worth or paying capacity of the debtor or the collateral pledged. There exists one or more well defined weaknesses that jeopardize the liquidation of the debt. There is a distinct possibility the Bank will experience some loss if the deficiencies are not corrected. Generally, the asset is considered collectible as to both principal and interest primarily because of collateral coverage or enterprise value. Generally, the asset is current and marginally secured.

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

63

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(3) Loans Receivable, Net: (Continued)

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

The following credit risk standards are assigned to consumer loans:

Satisfactory - All consumer open-end and closed-end retail loans shall have an initial risk grade assigned of 3 - Satisfactory.

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

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

A loan is considered to be impaired when management determines that it is probable that the Company will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement. The value of individually impaired loans is measured based on the present value of expected payments or using the fair value of the collateral if the loan is collateral dependent. Currently, it is management’s practice to classify all substandard or doubtful loans as impaired.

64

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(3) Loans Receivable, Net: (Continued)

Loan Origination/Risk Management

The Company 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 Company’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 Company’s commercial real estate portfolio are diverse in terms of type and geographic location. This diversity helps reduce the Company’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 Company avoids financing single-purpose projects unless other underwriting factors are present to help mitigate risk. The Company 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, 2016, approximately $78.7 million of the outstanding principal balance of the Company’s non-residential real estate loans were secured by owner-occupied properties, approximately $104.2 million was secured by non-owner occupied properties.

65

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(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 Company may originate from time to time, the Company generally requires the borrower to have had an existing relationship with the Company 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 Company 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.

Most of the Company’s lending activity occurs in Western Kentucky and Middle and Western Tennessee. The majority of the Company’s loan portfolio consists of non-residential real estate loans, farmland and agri-business commercial loans and one-to-four family residential real estate loans.

66

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(Table Amounts in Thousands)

(3) Loans Receivable, Net: (Continued)

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

			Special		Impaired Loans						Specific Allowance for Impairment		Allowance for Loans not Impaired
	Pass		Mention		Substandard		Doubtful		Total
One-to-four family mortgages	$	145,965		744		1,253		—		147,962		—		852
Home equity line of credit		35,109		25		550		—		35,684		—		260
Junior liens		1,411		30		11		—		1,452		—		8
Multi-family		31,280		—		3,004		—		34,284		—		412
Construction		39,255		—		—		—		39,255		—		277
Land		15,581		35		8,224		—		23,840		1,036		724
Non-residential real estate		172,395		3		10,542		—		182,940		—		964
Farmland		44,832		674		2,290		—		47,796		—		778
Consumer loans		8,382		—		335		—		8,717		84		124
Commercial loans		85,174		603		3,130		—		88,907		28		565
Total	$	579,384		2,114		29,339		—		610,837		1,148		4,964

Loans by classification type and the related valuation allowance amounts at December 31, 2015 were as follows:

			Special		Impaired Loans						Specific Allowance for Impairment		Allowance for Loans not Impaired
	Pass		Mention		Substandard		Doubtful		Total
One-to-four family mortgages	$	142,729		41		3,229		—		145,999		60		970
Home equity line of credit		33,475		—		169		—		33,644		—		201
Junior liens		1,720		35		16		—		1,771		—		8
Multi-family		21,644		—		3,081		—		24,725		138		89
Construction		34,878		—		—		—		34,878		—		377
Land		11,794		41		10,618		—		22,453		69		1,310
Non-residential real estate		138,865		2,489		8,357		—		149,711		134		1,005
Farmland		41,917		—		329		—		42,246		—		358
Consumer loans		20,123		—		201		—		20,324		49		309
Commercial loans		84,317		352		2,074		—		86,743		180		443
Total	$	531,462		2,958		28,074		—		562,494		630		5,070

67

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(Table Amounts in Thousands)

(3) Loans Receivable, Net: (Continued)

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

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

68

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(Table Amounts in Thousands)

(3) Loans Receivable, Net: (Continued)

Impaired loans by classification type and the related valuation allowance amounts at December 31, 2015 were as follows:

	At December 31, 2015						For the year ended December 31, 2015
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
Impaired loans with no specific allowance
One-to-four family mortgages	$	2,526		2,526		—		2,389		80
Home equity line of credit		169		169		—		457		7
Junior liens		16		16		—		17		1
Multi-family		2,128		2,128		—		2,797		126
Construction		—		—		—		—		—
Land		10,038		10,998		—		8,520		671
Non-residential real estate		7,640		7,640		—		283		404
Farmland		329		329		—		7,774		19
Consumer loans		5		5		—		3		—
Commercial loans		1,274		1,274		—		1,599		73
Total		24,125		25,085		—		23,839		1,381
Impaired loans with a specific allowance
One-to-four family mortgages	$	703		703		60		709		40
Home equity line of credit		—		—		—		—		—
Junior liens		—		—		—		—		—
Multi-family		953		953		138		318		17
Construction		—		—		—		—		—
Land		580		580		69		1,707		46
Non-residential real estate		717		717		134		836		28
Farmland		—		—		—		—		—
Consumer loans		196		196		49		194		—
Commercial loans		800		800		180		514		15
Total		3,949		3,949		630		4,278		146
Total impaired loans	$	28,074		29,034		630		28,117		1,527

69

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(Table Amounts in Thousands)

(3) Loans Receivable, Net: (Continued)

The following table presents the balance in the allowance for loan losses and the recorded investment in loans as of December 31, 2016, and December 31, 2015, by portfolio segment and based on the impairment method as of December 31, 2016, and December 31, 2015.

	Commercial		Land Development / Construction		Commercial Real Estate		Residential Real Estate		Consumer		Total
December 31, 2016:
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	28		1,036		—		—		84		1,148
Collectively evaluated for impairment		565		1,001		2,154		1,120		124		4,964
Total ending allowance balance	$	593		2,037		2,154		1,120		208		6,112
Loans:
Loans individually evaluated for impairment	$	3,130		8,224		15,836		1,814		335		29,339
Loans collectively evaluated for impairment		85,777		54,871		249,184		183,284		8,382		581,498
Total ending loans balance	$	88,907		63,095		265,020		185,098		8,717		610,837
	Commercial		Land Development / Construction		Commercial Real Estate		Residential Real Estate		Consumer		Total
December 31, 2015:
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	180		69		272		60		49		630
Collectively evaluated for impairment		443		1,687		1,452		1,179		309		5,070
Total ending allowance balance	$	623		1,756		1,724		1,239		358		5,700
Loans:
Loans individually evaluated for impairment	$	2,074		10,618		11,767		3,414		201		28,074
Loans collectively evaluated for impairment		84,669		46,713		204,915		178,000		20,123		534,420
Total ending loans balance	$	86,743		57,331		216,682		181,414		20,324		562,494

70

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(Table Amounts in Thousands)

(3) Loans Receivable, Net: (Continued)

The average recorded investment in impaired loans for the years ended December 31, 2016 and 2015 was $31.6 million and $28.1 million, respectively. The Company recognized $1.5 million of interest income on impaired loans for the years ended December 31, 2016 and December 31, 2015, respectively, and $2.0 million for the year ended December 31, 2014. 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, 2016:

	Balance 12/31/2015		Charge off 2016			Recovery 2016		General Provision 2016			Specific Provision 2016			Ending Balance 12/31/2016
One-to-four family mortgages	$	1,030		—			167		(118	)		(227	)		852
Home equity line of credit		201		(30	)		14		59			16			260
Junior liens		8		—			14		—			(14	)		8
Multi-family		227		(421	)		—		323			283			412
Construction		377		—			—		(100	)		—			277
Land		1,379		—			—		(586	)		967			1,760
Non-residential real estate		1,139		—			10		(41	)		(144	)		964
Farmland		358		—			—		420			—			778
Consumer loans		358		(422	)		293		(187	)		166			208
Commercial loans		623		(595	)		141		122			302			593
	$	5,700		(1,468	)		639		(108	)		1,349			6,112

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, 2015:

	Balance 12/31/2014		Charge off 2015			Recovery 2015		General Provision 2015			Specific Provision 2015			Ending Balance 12/31/2015
One-to-four family mortgages	$	1,198		(143	)		39		(176	)		112			1,030
Home equity line of credit		181		(92	)		10		20			82			201
Junior liens		14		—			4		(6	)		(4	)		8
Multi-family		85		—			—		4			138			227
Construction		146		—			—		231			—			377
Land		1,123		(911	)		—		850			317			1,379
Non-residential real estate		2,083		(222	)		2		(944	)		220			1,139
Farmland		461		—			—		500			(603	)		358
Consumer loans		494		(298	)		118		(123	)		167			358
Commercial loans		504		(201	)		54		(61	)		327			623
	$	6,289		(1,867	)		227		295			756			5,700

71

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(Table Amounts in Thousands)

(3) Loans Receivable, Net: (Continued)

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, 2014:

	Balance 12/31/2013		Charge off 2014			Recovery 2014		General Provision 2014			Specific Provision 2014			Ending Balance 12/31/2014
One-to-four family mortgages	$	2,048		(233	)		24		(304	)		(337	)		1,198
Home equity line of credit		218		(83	)		3		(37	)		80			181
Junior liens		39		—			9		(25	)		(9	)		14
Multi-family		466		—			—		(381	)		—			85
Construction		88		(139	)		9		58			130			146
Land		1,305		—			—		(74	)		(108	)		1,123
Non-residential real estate		2,719		(66	)		864		(1,368	)		(66	)		2,083
Farmland		510		—			—		542			(591	)		461
Consumer loans		541		(415	)		109		(13	)		272			494
Commercial loans		748		(296	)		94		(244	)		202			504
	$	8,682		(1,232	)		1,112		(1,846	)		(427	)		6,289

Non-accrual loans totaled $9.1 million and $7.4 million at December 31, 2016, and December 31, 2015, respectively. All non-accrual loans noted below are classified as either substandard or doubtful. Interest income foregone on such loans totaled $108,000 at December 31, 2016, $337,000 at December 31, 2015, and $76,000 at December 31, 2014, 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, 2016, and December 31, 2015. For the years ended December 31, 2016, and December 31, 2015, the components of the Company’s balances of non-accrual loans are as follows:

	12/31/2016		12/31/2015
One-to-four family first mortgages	$	270		2,234
Home equity lines of credit		402		48
Multi-family		—		1,968
Land		7,675		1,553
Non-residential real estate		208		247
Farmland		—		166
Consumer loans		3		8
Commercial loans		516		1,198
Total non-accrual loans	$	9,074		7,422

72

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(Table Amounts in Thousands)

(3) Loans Receivable, Net: (Continued)

The table below presents gross loan balances excluding deferred loan fees of $439,000 at December 31, 2016, by loan classification allocated between past due, classified, performing and non-performing:

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

The table below presents gross loan balances excluding deferred loan fees of $445,000 at December 31, 2015, by loan classification allocated between past due, classified, performing and non-performing:

	Currently		30 - 89 Days		Non-accrual		Special		Impaired Loans Currently Performing
	Performing		Past Due		Loans		Mention		Substandard		Doubtful		Total
One-to-four family mortgages	$	142,058		671		2,234		41		995		—	$	145,999
Home equity line of credit		33,396		79		48		—		121		—		33,644
Junior liens		1,720		—		—		35		16		—		1,771
Multi-family		21,638		6		1,968		—		1,113		—		24,725
Construction		34,878		—		—		—		—		—		34,878
Land		11,047		747		1,553		41		9,065		—		22,453
Non-residential real estate		138,637		228		247		2,489		8,110		—		149,711
Farmland		41,853		64		166		—		163		—		42,246
Consumer loans		20,108		15		8		—		193		—		20,324
Commercial loans		84,272		45		1,198		352		876		—		86,743
Total	$	529,607		1,855		7,422		2,958		20,652		—		562,494

73

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(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 TDR, ASC 310; A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring, is determinative. In evaluating whether a restructuring constitutes a TDR, the Company must separately conclude that both of the following exist:

a.) The restructuring constitutes a concession

b.) The debtor is experiencing financial difficulties

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

If a debtor does not otherwise have access to funds at a market interest rate for debt with similar risk characteristics as the restructured debt, the restructured debt would be considered a below market rate, which may indicate that the 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.

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

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

74

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(Table Amounts in Thousands)

(3) Loans Receivable, Net: (Continued)

Troubled Debt Restructurings (Continued)

At December 31, 2016, the Company had three loan relationships with a total of eight loans classified as performing TDR. The largest loan relationship classified as a TDR is collateralized by non-owner occupied commercial real estate and was placed on interest only payments in 2014. At July 31, 2015, both loans were removed from interest only and are now paying monthly principal and interest payments in accordance with the Company’s loan policy. At December 31, 2016, the loan relationship has a balance of approximately $3.2 million.

The second TDR relationship includes two loans secured by a non-owner occupied commercial real estate property. For a period of one year beginning in the third quarter of 2015, this loan relationship was modified to allow the customer to make interest only payments. The owner has significant equity in the collateral and is attempting to the sell the asset to use the equity for unanticipated financial obligations. The aggregate loan balance of this relationship is $2.2 million. At December 31, 2016, the owner is making principal and interest payments on this loan.

The third TDR relationship consist of three multi-family properties and one non-residential real estate property in which the loans payments were modified as interest only beginning in January 2016. The aggregate loan balance of this relationship is $1.1 million.

There were no loans as of December 31, 2016 that have been modified as TDRs during 2016 and then subsequently defaulted in 2016 on their modified terms. At December 31, 2016, there are no commitments to lend additional funds to any borrower whose loan terms have been modified in a TDR.

A summary of the activity in loans classified as TDRs for the year ended December 31, 2016, is as follows:

	Balance at		New		Loss on		Transferred to		Loan			Balance at
	12/31/15		TDR		Foreclosure		Non-accrual		Amortization			12/31/16
Multi-family real estate	$	—		816		—		—		(1	)		815
Non-residential real estate		5,536		228		—		—		(118	)		5,646
Total performing TDR	$	5,536		1,044		—		—		(119	)		6,461

A summary of the activity in loans classified as TDRs for the year ended December 31, 2015, is as follows:

	Balance at		New		Loss on		Transferred to		Loan			Balance at
	12/31/14		TDR		Foreclosure		Held For Sale		Amortization			12/31/15
Non-residential real estate	$	3,284		2,265		—		—		(13	)		5,536
Total performing TDR	$	3,284		2,265		—		—		(13	)		5,536

75

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(Table Amounts in Thousands)

(3) Loans Receivable, Net: (Continued)

The Company originates loans to officers and directors and their affiliates at terms substantially equivalent to those available to other borrowers. Loans to officers and directors at December 31, 2016, and December 31, 2015, were approximately $4.9 million and $3.8 million, respectively. At December 31, 2016 and December 31, 2015, funds committed that were undisbursed to officers and directors approximated $380,000 and $493,000, respectively.

The following summarizes activity of loans to officers and directors and their affiliates for the years ended December 31, 2016, and December 31, 2015:

	2016			2015
Balance at beginning of period	$	3,844			4,022
New loans		1,651			682
Principal repayments		(601	)		(860	)
Balance at end of period	$	4,894			3,844

(4) Premises and Equipment:

Components of premises and equipment included in the consolidated balance sheets as of December 31, 2016 and December 31, 2015, consisted of the following:

	2016		2015
Land	$	6,555		6,579
Land improvements		1,132		1,097
Buildings		22,397		22,405
Furniture and equipment		6,932		6,488
		37,016		36,569
Less accumulated depreciation		13,555		12,535
Premises and equipment, net	$	23,461		24,034

Depreciation expense was approximately $1,320,000, $1,266,000 and $1,336,000 for the years ended December 31, 2016, 2015 and 2014, respectively.

76

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(Table Amounts in Thousands)

(5) Deposits:

At December 31, 2016, the scheduled maturities of other time deposits were as follows:

Years Ending December 31,
2017	$	137,907
2018		97,986
2019		29,945
2020		16,811
2021		10,429
	$	293,078

The amount of other time deposits with a minimum denomination greater of $250,000 or more was approximately $79.7 million and $78.8 million at December 31, 2016, and December 31, 2015, respectively. At December 31, 2016 and December 31, 2015, directors, members of senior management and their affiliates had deposits in the Bank of approximately $2.1 million and $6.2 million, respectively.

Interest expense on deposits for the years ended December 31, 2016, December 31, 2015 and December 31, 2014, is summarized as follows:

	2016		2015		2014
Interest bearing checking accounts	$	1,183		1,105		1,253
Money market accounts		76		88		86
Savings		95		103		109
Other time deposits		2,886		3,735		4,155
	$	4,240		5,031		5,603

The Bank maintains clearing arrangements for its demand, interest bearing checking accounts 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, 2016, average daily clearings were approximately $5.9 million.

At December 31, 2016, the Company had approximately $335,000 of deposit accounts in overdraft status and are reclassified to loans on the accompanying consolidated balance sheet. At December 31, 2015, the Company had approximately $196,000 of deposit accounts in overdraft status and are reclassified to loans on the accompanying consolidated balance sheet. At December 31, 2016, and December 31, 2015, the Company had deposits classified as brokered deposits totaling $33.4 million and $34.4 million, respectively.

77

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(Table Amounts in Thousands, Except Percentages)

(6) Advances from Federal Home Loan Bank:

Federal Home Loan Bank advances are summarized as follows:

	December 31,
	2016					2015
			Weighted					Weighted
Types of Advances	Amount		Average Rate			Amount		Average Rate
Fixed-rate	$	11,000		1.04	%	$	15,000		2.19	%

Scheduled maturities of FHLB advances as of December 31, 2016, are as follows:

Years Ending	Fixed		Average
December 31,	Rate		Cost
2017	$	5,000		0.88	%
2018		6,000		1.18	%
Total	$	11,000		1.04	%

The Bank has an approved line of credit of $30 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, 2016, the Bank could borrow an additional $51.3 million from the FHLB of Cincinnati without pledging additional collateral. At December 31, 2016, the Bank has an additional $6.8 million in additional collateral that could be pledged to the FHLB to secure additional advance requirements. The Bank has a $12 million unsecured line of credit with BBVA 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 no balance at December 31, 2016.

78

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(Table Amounts in Thousands, Except Percentages)

(7) Repurchase Agreements:

At December 31, 2016, the Company provided investment securities with a market value and book value of $47.7 million as collateral for repurchase agreements. The maximum repurchase balance outstanding during the year ended December 31, 2016, and December 31, 2015, was $54.8 million and $57.4 million, respectively.

At December 31, 2016, and December 31, 2015, the respective cost and maturities of the Company’s repurchase agreements are as follows:

2016
Third Party	Balance		Average Rate			Maturity
Various customers	$	47,655		0.91	%		Overnight
Total	$	47,655		0.91	%
2015
Third Party	Balance		Average Rate			Maturity		Comments
Merrill Lynch	$	6,000		4.36	%		9/18/2016		Quarterly callable
Various customers		39,770		0.61	%				Overnight
Total	$	45,770		1.13	%

79

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(8) Fair Value Measurement:

ASC Topic 820, Fair Value Measurements and Disclosures, 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.

The Company 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.

80

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(Table Amounts in Thousands)

(8) Fair Value Measurement: (Continued)

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, 2016	Total carrying value in the consolidated		Quoted Prices In Active Markets for		Significant Other Observable		Significant Unobservable
Description	balance sheet at December 31, 2016		Identical Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)
Assets
Available for sale securities	$	209,480		2,001		205,662		1,817

December 31, 2015	Total carrying value in the consolidated		Quoted Prices In Active Markets for		Significant Other Observable		Significant Unobservable
Description	balance sheet at December 31, 2015		Identical Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)
Assets
Available for sale securities	$	237,177		2,000		233,312		1,865

81

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(Table Amounts in Thousands)

(8) Fair Value Measurement: (Continued)

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

December 31, 2016	Total carrying value in the		Quoted Prices In Active		Significant Other		Significant
Description	consolidated balance sheet at 12/31/2016		Markets for Identical Assets (Level 1)		Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
Assets
Foreclosed assets	$	2,397		—		—		2,397
Impaired loans, net of allowance of $1,148	$	6,123		—		—		6,123

December 31, 2015	Total carrying value in the		Quoted Prices In Active		Significant Other		Significant
Description	consolidated balance sheet at 12/31/2015		Markets for Identical Assets (Level 1)		Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
Assets
Foreclosed assets	$	1,736		—		—		1,736
Impaired loans, net of allowance of $630	$	3,319		—		—		3,319

82

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(Table Amounts in Thousands)

8) Fair Value Measurement: (Continued)

The following table presents quantitative information about level 3 fair value measurements for assets measured at fair value on a reoccuring and non-reoccuring basis at December 31, 2016 and 2015:

Level 3 Significant Unobservable Input Assumptions
	Fair Value		Valuation Technique	Unobservable Input	Quantitative Range of Unobservable Inputs
December 31, 2016
Assets measured on a non-recurring basis
Foreclosed assets		2,397	Discount to appraised value of collateral	Appraisal comparability adjustments		30% to 55%
Impaired loans		7,271	Discount to appraised value of collateral	Appraisal comparability adjustments		10% to 25%
Asset measured on a recurring basis
Trust preferred securities		1,817	Discounted cash flow Spread to Libor swap curve	Compare to quotes for sale when available		One month libor 4% to 6%
December 31, 2015
Assets measured on a non-recurring basis
Foreclosed assets		1,736	Discount to appraised value of collateral	Appraisal comparability adjustments		10% to 15%
Impaired loans		3,949	Discount to appraised value of collateral	Appraisal comparability adjustments		10% to 15%
Asset measured on a recurring basis
Trust preferred securities		1,865	Discounted cash flow Spread to Libor swap curve	Compare to quotes for sale when available		One month libor 4% to 6%

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

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

83

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(Table Amounts in Thousands)

(8) 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, 2016 and 2015, (including the change in fair value) for assets and liabilities classified by the Company 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,
	2016			2015
	Other			Other
	Assets			Assets
Fair value, December 31,	$	1,865		$	1,489
Change in unrealized gains (losses) included in other comprehensive income for assets and liabilities still held at December 31,		(65	)		359
Other than temporary impairment charge		—			—
Recovery of prior impairment charge		17			17
Purchases, issuances and settlements, net		—			—
Transfers in and/or out of Level 3		—			—
Fair value, December 31,	$	1,817		$	1,865

84

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(Table Amounts in Thousands)

(8) Fair Value Measurement: (Continued)

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

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

85

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(Table Amounts in Thousands)

(8) Fair Value Measurement: (Continued)

The estimated fair values of financial instruments were as follows at December 31, 2015:

							Using
					Quoted Prices		Significant
					In Active Markets		Other		Significant
			Estimated		for Identical		Observable		Unobservable
	Carrying		Fair		Assets		Inputs		Inputs
	Amount		Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from banks	$	46,926		46,926		46,926		—		—
Interest-bearing deposits in banks		7,772		7,772		7,772		—		—
Securities available for sale		237,177		237,177		2,000		233,312		1,865
Federal Home Loan Bank stock		4,428		4,428		—		4,428		—
Loans held for sale		2,792		2,792		—		2,792		—
Loans receivable		556,349		552,981		—		—		552,981
Accounts receivable		4,139		4,139		—		4,139		—
Financial Liabilities:
Deposits		739,406		724,877		—		724,877		—
Advances from borrowers for taxes and insurance		614		614		—		614		—
Advances from Federal Home Loan Bank		15,000		14,985		—		14,985		—
Repurchase agreements		45,770		45,931		—		45,931		—
Subordinated debentures		10,310		10,099		—		—		10,099

86

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(Table Amounts in Thousands)

(8) 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 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.

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

	Years Ended December 31,
	2016			2015			2014
Beginning balance	$	1,736			1,927			1,674
Foreclosed assets measured at initial recognition:
Carrying value of foreclosed assets prior to acquisition		2,935			986			1,816
Proceeds from sale of foreclosed assets		(1,623	)		(344	)		(1,118	)
Charge-offs recognized in the allowance for loan loss		(672	)		(117	)		(237	)
Gains (losses) included in non-interest expense		21			(716	)		(208	)
Fair value	$	2,397			1,736			1,927

Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. There were no transfers between levels for the years ended December 31, 2016, 2015 and 2014.

87

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(9) 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. The most recent interest rate adjustment for the trust was effective January 12, 2017, which adjusted the total coupon rate to 4.12%. 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.

(10) 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.

At December 31, 2016, all cash and cash equivalents are deposited with BBVA Compass Bank, the Federal Reserve Bank or the Federal Home Loan Bank of Cincinnati (FHLB). Deposits at Compass BBVA Bank are insured to $250,000. 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, 2016, total FHLB deposits were approximately $826,000 and total deposits at the Federal Reserve were $4.7 million, none of which is insured by the FDIC. At December 31, 2016, total deposits at BBVA were $9.7 million, of which $250,000 were insured by the FDIC.

88

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(Table Amounts in Thousands)

(11) Employee Benefit Plans:

HopFed Bancorp Long Term Incentive Plans

On March 20, 2013, the Board of Directors of the Company adopted the HopFed Bancorp, Inc. 2013 Long Term Incentive Plan (the “Plan”), which was subsequently approved at the 2013 Annual Meeting of Stockholders. Under the Plan, the Compensation Committee has discretionary authority to grant up to 300,000 shares in the form of restricted stock grants and options to such employees, directors and advisory directors as the committee shall designate. The grants vest in equal installments over three or four year periods. 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, 2016, the Compensation Committee granted 12,342 shares of restricted stock with a market value of $145,000. For the year ended December 31, 2015, the Compensation Committee granted 2,034 shares of restricted stock with a market value of $25,000. For the year ended December 31, 2014, the Compensation Committee granted 22,378 shares of restricted stock with a market value of $260,000. The Company recognized $135,000, $190,000, and $164,000 in compensation expense in 2016, 2015 and 2014, respectively. The remaining compensation expense to be recognized at December 31, 2016, is as follows:

Year Ending December 31,	Approximate Future Compensation Expense
2017	$	88
2018		54
2019		9
2020		2
Total	$	153

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, 2016, the Company has 242,577 restricted shares available from the Plan that may be awarded.

89

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(11) 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. Prior to January 1, 2015, the Company matched employee contributions up to 4%. In addition, the Company chose to provide all eligible employees an additional 4% of compensation without regards to the amount of the employee contribution. In 2015, the Company discontinued all employer 401(K) contributions on behalf of employees while allowing employees to continue to make contributions to the 401(K) plan. The Company established a new retirement plan for all employees discussed below.

HopFed Bancorp, Inc. 2015 Employee Stock Ownership Plan

On March 2, 2015, the Company implemented the HopFed Bancorp, Inc. 2015 Employee Stock Ownership Plan which covers substantially all employees who are at least 21 years old with at least one year of employment with the Company and Heritage Bank USA, Inc., the Company’s commercial bank subsidiary. The ESOP has three individuals who have been selected by the Company to serve as trustees. A directed corporate trustee has also been appointed. The ESOP will be administered by a committee (the “Committee”) currently composed of eleven employees selected by the Company or its designee.

On March 2, 2015, the ESOP entered into a loan agreement with the Corporation to borrow up to $13,500,000 to purchase up to 1,000,000 shares common stock (“ESOP Loan”). On the same date, the ESOP purchased 600,000 shares from the Corporation at a cost of $7,884,000 using the proceeds of the ESOP Loan. In accordance with the ESOP Loan documents, the common stock purchased by the ESOP serves as collateral for the ESOP Loan. The ESOP Loan will be repaid principally from discretionary contributions by the Bank to the ESOP. The ESOP Loan was amended to provide for no future draws and a final maturity of December 9, 2026. The interest rate on the ESOP Loan is 3.0%. Shares purchased by the ESOP will be held in a suspense account for allocation among participants as the ESOP Loan is repaid. The ESOP shares are dividend paying. Dividends on unearned shares will be used to repay the ESOP Loan.

90

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(11) Employee Benefit Plans: (Continued)

HopFed Bancorp, Inc. 2015 Employee Stock Ownership Plan, (Continued)

For the year ended December 31, 2016, the Company recognized an expense of $553,000 related to the ESOP loan payment. At December 31, 2016, the Company released 48,067 shares from the ESOP trust to individual participants of the plan as a result of the loan payment. For the year ended December 31, 2015, the Company recognized an expense of $652,000 related to the ESOP loan payment. At December 31, 2015, the Company released 53,587 shares from the ESOP trust to individual employees of the plan as a result of the loan payment. At December 31, 2016, shares held by the ESOP were as follows:

	December 31, 2016
Earned ESOP shares		101,654
Unearned ESOP shares		498,346
Total ESOP shares		600,000
Share Price at December 31, 2016	$	13.46
Fair value of unearned shares	$	6,707,737

Deferred Compensation Plan

During 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 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, 2016, the accrued value of all deferred compensation contacts is approximately $253,000. The Company is currently making cash remittances of approximately $12,500 per year on deferred compensation contracts.

91

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(Table Amounts in Thousands)

(12) Income Taxes:

The provision for income tax expense (benefit) for the years ended December 31, 2016, December 31, 2015, and December 31, 2014, consisted of the following:

	2016		2015		2014
Current
Federal	$	—		—		—
State		95		97		30
		95		97		30
Deferred
Federal		267		177		(231	)
State		—		—		—
		267		177		(231	)
	$	362		274		(201	)

Total income tax expense for the years ended December 31, 2016, December 31, 2015, and December 31, 2014, differed from the amounts computed by applying the federal income tax rate of 34 percent to income before income taxes as follows:

	2016			2015			2014
Expected federal income tax expense at statutory tax rate	$	1,110			911			679
Effect of nontaxable interest income		(452	)		(458	)		(542	)
Effect of nontaxable bank owned life insurance income		(117	)		(114	)		(104	)
Effect of Qualified Zone Academy Bond (QZAB) credit		(114	)		(109	)		(220	)
State taxes on income, net of federal benefit		59			59			10
Other tax credits		(128	)		(80	)		(80	)
Non deductible expenses		4			65			56
Total income tax expense	$	362			274			(201	)
Effective tax rate (benefit)		11.1	%		10.2	%		(10.1%	)

92

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(Table Amounts in Thousands)

(12) Income Taxes: (Continued)

The components of deferred taxes as of December 31, 2016, and December 31, 2015, are summarized as follows:

	2016			2015
Deferred tax assets:
Allowance for loan loss	$	2,078			1,938
Accrued expenses		294			377
Net operating loss carry forward		454			1,182
Tax credit carry forward		568			258
Intangible amortization		548			784
Other		242			267
		4,184			4,806
Deferred tax liabilities:
FHLB stock dividends		(787	)		(787	)
Unrealized gain on securities available for sale		(240	)		(1,275	)
Depreciation and amortization		(105	)		(102	)
		(1,132	)		(2,164	)
Net deferred tax asset	$	3,052			2,642

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. Commercial banks 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). At December 31, 2016, the Company has operating loss carry forwards of approximately $2 million, which begin to expire in 2034.

93

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(Table Amounts in Thousands)

(12) Income Taxes: (Continued)

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 recapture was required due to the Bank’s charter conversion from a thrift to a commercial bank or if the bank was acquired by another 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, 2016, and December 31, 2015, 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, 2016, and December 31, 2015, 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 and expected future taxable income. There were no 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 2012. The Company recognizes interest and penalties on income taxes, if any, as a component of income tax expense.

(13) Foreclosed Assets:

The Company’s foreclosed assets balances at December 31, 2016, and December 31, 2015 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. As of December 31, 2016, and December 31, 2015, the composition of the Company’s balance in foreclosed assets are as follows:

	December 31,
	2016		2015
One-to-four family mortgages	$	135		55
Home equity line of credit		28		—
Multi-family		1,775		—
Land		—		943
Non-residential real estate		459		738
Total foreclosed assets	$	2,397		1,736

94

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(Table Amounts in Thousands)

(14) 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, 2016, and December 31, 2015, of approximately $43.4 million and $46.4 million, respectively. At December 31, 2016 and December 31, 2015, the Bank had no fixed rate loan commitments. Unused lines of credit were approximately $91.9 million and $84.9 million at December 31, 2016 and 2015, respectively. Also at December 31, 2016 and December 31, 2015, the Bank has unused consumer lines of credit tied to customer deposit accounts of $18.5 million and $9.5 million, 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, purchase services and lease operating equipment that are non-cancelable. At December 31, 2016, future minimal purchase, lease and rental commitments were as follows:

Years Ending
December 31,
2017	$	2,311
2018		1,568
2019		1,462
2020		67
2021		34
Total	$	5,442

The Company incurred rental expenses of approximately $127,000, $61,000 and $66,000 for the years ended December 31, 2016, December 31, 2015, and December 31, 2014, respectively. In the normal course of business, the Bank and Corporation 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 has an expected annual cost of approximately $1.5 million. The Bank has several ATM branding agreements with local businesses. These agreements allow the Bank to maintain a cash machine and signage in various locations for an annual cost of approximately $104,000.

95

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(14) 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 Anthem Blue Cross Blue Shield (“Anthem”) to process claims and handle other duties of the plan. Anthem does not assume any liabilities as a third party administrator. The Bank purchased two stop-loss insurance policies to limit total medical claims from Anthem. The first specific stop-loss policy limits the Company’s annual cost per covered individual in 2015, 2016 and 2017 to $90,000, $90,000 and $100,000, respectively. The Company has purchased a second stop-loss policy that limits the aggregate claims for the Company in 2017, 2016 and 2015 at $1,570,747, $1,697,678 and $1,852,013, respectively, based upon the Company’s enrollment during those years. 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, 2016, and December 31, 2015, the Company recognized a liability for self-insured medical expenses of approximately $256,000 and $400,000, 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.    

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.

96

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(14) 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.

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 paid a fixed rate of 7.27% for seven years and received an amount equal to the three-month London Interbank Lending Rate (Libor) plus 3.10%. The interest rate swap was classified as a cash flow hedge by the Bank and was tested quarterly for effectiveness. The interest rate swap matured on October 8, 2015.

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.

The Company is subject to various claims and legal actions that have arisen in the course of conducting business. The Company records these as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not expect the ultimate disposition of these matters to have a material adverse impact on the Company’s Consolidated Financial Statements.

(15) Regulatory Matters:

The Corporation is a commercial bank 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 state chartered commercial bank supervised by the KDFI and the FDIC. 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.

97

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(Table Amounts in Thousands)

(15) Regulatory Matters: (Continued)

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of tangible and core capital (as defined in the regulations) to adjusted total assets (as defined), and of total capital (as defined) and Tier 1 to risk weighted assets (as defined). The minimum required capital amounts presented include the minimum required capital levels as of December 31, 2016 and 2015 based on the phase-in provisions of Basel III Capital Rules. Management believes, as of December 31, 2016, and December 31, 2015, that the Bank meets all capital adequacy requirements to which it is subject. The Company’s consolidated capital ratios and the Bank’s actual capital amounts and ratios as of December 31, 2016, and December 31, 2015, are presented below:

											To be Well
						Minimum Capital					Capitalized for
						Required - Basel III					Prompt Corrective
	Actual					Phase-In Schedule					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2016
Tier 1 leverage capital to adjusted total assets
Company	$	92,803		10.8	%	$	34,392		4.0	%	$	42,990		5.0	%
Bank	$	91,617		10.7	%	$	34,315		4.0	%	$	42,894		5.0	%
Total capital to risk weighted assets
Company	$	98,915		16.2	%	$	52,682		8.625	%	$	61,080		10.0	%
Bank	$	97,729		16.0	%	$	52,561		8.625	%	$	60,941		10.0	%
Tier 1 capital to risk weighted assets
Company	$	92,803		15.2	%	$	40,466		6.625	%	$	48,864		8.0	%
Bank	$	91,617		15.0	%	$	40,373		6.625	%	$	48,753		8.0	%
Common equity tier 1capital to risk weighted assets
Company	$	92,803		15.2	%	$	31,304		5.125	%		n/a		n/a
Bank	$	91,617		15.0	%	$	31,232		5.125	%	$	39,611		6.5	%
As of December 31, 2015
Tier 1 leverage capital to adjusted total assets
Company	$	95,156		10.9	%	$	34,924		4.0	%	$	43,656		5.0	%
Bank	$	93,328		10.7	%	$	34,840		4.0	%	$	43,550		5.0	%
Total capital to risk weighted assets
Company	$	100,857		17.3	%	$	46,772		8.0	%	$	58,465		10.0	%
Bank	$	99,029		17.1	%	$	46,272		8.0	%	$	57,840		10.0	%
Tier 1 capital to risk weighted assets
Company	$	95,156		16.3	%	$	35,079		6.0	%	$	46,772		8.0	%
Bank	$	93,328		16.1	%	$	34,704		6.0	%	$	46,272		8.0	%
Common equity tier 1capital to risk
weighted assets
Company	$	95,156		16.3	%	$	26,309		4.5	%		n/a		n/a
Bank	$	93,328		16.1	%	$	26,028		4.5	%	$	37,596		6.5	%

98

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(15) Regulatory Matters: (Continued)

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized, although these terms are not used to represent overall financial status. At December 31, 2016 and 2015, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. Management is not aware of any conditions or events that have changed the Bank’s status as a well-capitalized bank.

(16) 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 KDFI, has regulations that impose certain restrictions on payment of dividends to the Corporation. Current regulations of the KDFI allow the Bank (based upon its current capital level and supervisory status assigned by the KDFI) to pay a dividend as long as the Bank subsidiary maintains an appropriate Tier 1 Capital ratio. Furthermore, for the Bank to pay a dividend to the Corporation without regulatory approval, the dividend is limited to the total amount of the Bank’s current year net income plus the Bank’s net income of the prior two years less any previous dividends paid by the Bank to the Corporation during that time. At December 31, 2016, the Bank was unable to pay additional dividends to the Corporation without regulatory approval. Given the prospects for the approval of Basel III, the Company anticipates that in practice it will need to maintain a minimum Tier 1 Capital ratio of 8.50% at its bank subsidiary to continue to pay dividends to common shareholders and will structure its business plan to maintain a Tier 1 Capital ratio at the Bank level at or above 9.00%.

On October 28, 2014, the Company’s Board of Directors announced it may purchase an additional 300,000 shares of common stock and another 1.0 million shares of common stock for general corporate purchases or future employee benefit plans. That plan expired October 31, 2015, with the Company having purchased 860,303 shares of common stock and having reissued 600,000 shares of common stock to establish the ESOP. On November 18, 2015, the Company’s Board of Directors announced a new stock repurchase program of up to 300,000 shares of the Company’s common stock that will expire December 31, 2017. The Company will conduct repurchases through open market transactions or in privately negotiated transactions that may be made from time to time depending on market conditions and other factors. At December 31, 2016, the Company holds a total of 1,246,136 shares of treasury stock at an average price of $12.32 per share. At December 31, 2016, the Company may purchase 92,550 shares of treasury stock under the current approved plan.

The Company has paid all interest payments due on HopFed Capital Trust I. If interest payments to HopFed Capital Trust I are not made in a timely manner, the Company is prohibited from making cash dividend payments to its common shareholders.

99

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(16) Stockholders’ Equity: (Continued)

In July 2013, the Federal Reserve Board and the FDIC approved final rules that substantially amend the regulatory risk-based capital rules applicable to Heritage Bank USA, Inc. and HopFed Bancorp, Inc. The final rules implement the regulatory capital reforms of the Basel Committee on Banking Supervision reflected in “Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems” (Basel III) and changes required by the Dodd-Frank Act.

Under these rules, the leverage capital and risk-based capital ratios of bank holding companies may not be lower than the leverage and risk-based capital ratios for insured depository institutions. The final rules implementing the Basel III regulatory capital reforms became effective on January 1, 2015, and include new minimum risk-based capital and leverage ratios. Moreover, these rules refine the definition of what constitutes “capital” for purposes of calculating those ratios, including the definitions of Tier 1 capital and Tier 2 capital.

The new minimum capital level requirements applicable to bank holding companies and banks subject to the rules are:

• a new common equity Tier 1 capital ratio of 4.5%;

• a Tier 1 risk-based capital ratio of 6% (increased from 4%);

• a total risk-based capital ratio of 8% (unchanged from current rules); and

• a Tier 1 leverage ratio of 4% for all institutions.

The rules also establish a “capital conservation buffer” of 2.5% (to be phased by 2019) above the new regulatory minimum risk-based capital ratios, and result in the following minimum ratios once the capital conservation buffer is fully phased in:

• a common equity Tier 1 risk-based capital ratio of 7.0%;

• a Tier 1 risk-based capital ratio of 8.5%; and

• a total risk-based capital ratio of 10.5%.

At December 31, 2016, the Bank and Corporation met all fully phased capital requirements of Basel III, including the capital conservation buffer of 2.5% to be fully phased in by January 1, 2019, the Capital conservation buffer for 2016 is 0.625%. The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital.

100

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(17) 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.

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

	Years Ended December 31,
	2016			2015			2014
Basic earnings per share:
Weighted average common shares		6,757,345			6,919,190			7,306,078
Less: Average unallocated ESOP shares		(523,485	)		(546,913	)		—
Weighted average common shares		6,233,860			6,372,277			7,306,078
Dilutive effect of stock options		—			—			—
Weighted average common and incremental shares		6,233,860			6,372,277			7,306,078

101

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(Table Amounts in Thousands)

(18) Condensed Parent Company Only Financial Statements:

The following condensed balance sheets as of December 31, 2016, and December 31, 2015, and condensed statements of income and cash flows for the years ended December 31, 2016, December 31, 2015, and December 31, 2014, of the parent company only should be read in conjunction with the consolidated financial statements and the notes thereto.

Condensed Balance Sheets:
	2016			2015
Assets:
Cash	$	1,084			2,087
Investment in subsidiary		95,242			95,804
Prepaid expenses and other assets		804			490
Total assets		97,130			98,381
Liabilities and equity
Liabilities
Dividend payable - common		288			287
Interest payable		101			89
Other liabilities		3			65
Subordinated debentures		10,310			10,310
Total liabilities		10,702			10,751
Equity:
Preferred stock		—			—
Common stock		80			79
Additional paid-capital		58,660			58,604
Retained earnings		49,035			47,124
Treasury stock - common stock		(15,347	)		(13,471	)
Unearned ESOP shares		(6,548	)		(7,180	)
Accumulated other comprehensive income		548			2,474
Total equity		86,428			87,630
Total liabilities and equity	$	97,130			98,381

102

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(Table Amounts in Thousands)

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

Condensed Statements of Income:

	2016			2015			2014
Interest and dividend income:
Dividend income from subsidiary Bank	$	2,000			12,100			2,600
Total interest and dividend income		2,000			12,100			2,600
Interest expense		388			740			737
Non-interest expenses		391			541			546
Total expenses		779			1,281			1,283
Income before income taxes and equity in undistributed earnings of subsidiary		1,221			10,819			1,317
Income tax benefits		(319	)		(529	)		(459	)
Income before equity in undistributed earnings of subsidiary		1,540			11,348			1,776
Equity in (distribution in excess of) earnings of subsidiary		1,364			(8,944	)		423
Income available to common shareholders	$	2,904			2,404			2,199

103

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(Table Amounts in Thousands)

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

Condensed Statements of Cash Flows:

	2016			2015			2014
Cash flows from operating activities
Net income	$	2,904			2,404			2,199
Adjustments to reconcile net income to net cash provided by operating activities
Equity in undistributed earnings of subsidiary		(1,364	)		8,943			(423	)
Amortization of restricted stock		135			190			164
Increase (decrease) in:
Current income taxes payable		(49	)		11			200
Accrued expenses		(392	)		(149	)		280
Net cash provided by operating activities		1,234			11,399			2,420
Cash flows from financing activities:
Purchase of treasury stock		(1,876	)		(11,926	)		(3,500	)
Proceeds on ESOP loan		632			704			—
Dividends paid on common stock		(993	)		(1,022	)		(1,187	)
Net cash (used in) financing activities		(2,237	)		(12,244	)		(4,687	)
Net decrease in cash		(1,003	)		(845	)		(2,267	)
Cash and due from banks at beginning of year		2,087			2,932			5,199
Cash and due from banks at end of year	$	1,084			2,087			2,932

104

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(Table Amounts in Thousands)

(19) 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,		December 31,
	2016		2015
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,
	2016		2015
Income – interest income from subordinated debentures issued by HopFed Bancorp, Inc.	$	400		354
Net income	$	400		354

Summary Statements of Stockholder’s Equity

	Trust							Total
	Preferred		Common		Retained			Stockholder’s
	Securities		Stock		Earnings			Equity
Beginning balances, January 1, 2016	$	10,000		310		—			10,310
Retained earnings:
Net income		—		—		400			400
Dividends:
Trust preferred securities		—		—		(388	)		(388	)
Common dividends paid to HopFed Bancorp, Inc.		—		—		(12	)		(12	)
Total retained earnings		—		—		—			—
Ending balances, December 31, 2016	$	10,000		310		—			10,310

105

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(Table Amounts in Thousands)

(20) Quarterly Results of Operations: (Unaudited)

Summarized unaudited quarterly operating results for the year ended December 31, 2016:

	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter
December 31, 2016:
Interest and dividend income	$	8,081		7,691		8,004		7,951
Interest expense		1,405		1,268		1,315		1,311
Net interest income		6,676		6,423		6,689		6,640
Provision for loan losses		458		465		255		63
Net interest income after provision for loan losses		6,218		5,958		6,434		6,577
Noninterest income		2,020		1,970		1,945		2,000
Noninterest expense		7,683		7,609		7,353		7,211
Income before income taxes		555		319		1,026		1,366
Income taxes		46		15		41		260
Net income	$	509		304		985		1,106
Basic earnings per share	$	0.08		0.05		0.16		0.18
Diluted earnings per share	$	0.08		0.05		0.16		0.18
Weighted average shares outstanding:
Basic		6,297,755		6,232,457		6,212,231		6,193,278
Diluted		6,297,755		6,232,457		6,212,231		6,193,278

106

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(Table Amounts in Thousands)

(20) Quarterly Results of Operations: (Unaudited)

Summarized unaudited quarterly operating results for the year ended December 31, 2015:

Interest and dividend income	$	9,195	7,919		8,012		7,996
Interest expense		1,633	1,612		1,633		1,672
Net interest income		7,562	6,307		6,379		6,324
Provision for loan losses		215	270		275		291
Net interest income after provision for loan losses		7,347	6,037		6,104		6,033
Noninterest income		1,913	1,868		1,936		1,885
Noninterest expense		7,470	8,234		7,553		7,188
Income (loss) before income taxes		1,790	(329	)	487		730
Income taxes expense (benefit)		435	(212	)	(23	)	74
Net income (loss)	$	1,355	(117	)	510		656
Basic earnings (loss) per share	$	0.20	(0.02	)	0.08		0.10
Diluted earnings (loss) per share	$	0.20	(0.02	)	0.08		0.10
Weighted average shares outstanding:
Basic		6,732,456	6,425,687		6,359,556		6,328,324
Diluted		6,732,456	6,425,687		6,359,556		6,328,324

107

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2016, 2015 and 2014

(Table Amounts in Thousands)

(21) 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 (loss) included in stockholders’ equity along with the related tax effect for the years ended December 31, 2016, 2015 and 2014.

	Pre-Tax			Tax Benefit			Net of Tax
	Amount			(Expense)			Amount
December 31, 2016:
Unrealized holding gains (losses) on:
Available for sale securities	($	2,048	)		697			(1,351	)
Available for sale securities – OTTI		(258	)		88			(170	)
Reclassification adjustments for gains on:
Available for sale securities		(612	)		207			(405	)
	($	2,918	)		992			(1,926	)
December 31, 2015:
Unrealized holding gains (losses) on:
Available for sale securities	($	1,698	)		577			(1,121	)
Available for sale securities – OTTI		359			(122	)		237
Derivatives		389			(132	)		257
Reclassification adjustments for gains on:
Available for sale securities		(691	)		235			(456	)
	($	1,641	)		558			(1,083	)
December 31, 2014:
Unrealized holding gains on:
Available for sale securities	$	7,773			(2,643	)		5,130
Derivatives		359			(122	)		237
Reclassification adjustments for gains on:
Available for sale securities		(578	)		197			(381	)
	$	7,554			(2,568	)		4,986

108

EX-21.1

EXHIBIT 21.1

SUBSIDIARIES OF THE REGISTRANT

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

SUBSIDIARIES OF HERITAGE BANK

	Percentage Owned	Jurisdiction of Incorporation
Fort Webb LLC	100%	Kentucky
Heritage Interim Corporation	100%	Tennessee
JBMM LLC	100%	Kentucky
Heritage USA Title, LLC	100%	Kentucky

EX-23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference of our reports dated March 15, 2017, relating to our audit of the HopFed Bancorp, Inc. and subsidiaries’ (the “Company”) consolidated financial statements and internal control over financial reporting as of and for the year ended December 31, 2016, which appears in this Annual Report on Form 10-K, in the Company’s following Registration Statements:

• Registration Statement (No. 333-156652) on Form S-3,

• Registration Statement (No. 333-189670) on Form S-8,

• Registration Statement (No. 333-117956) on Form S-8, and

• Registration Statement (No. 333-79391) on Form S-8.

/s/ Carr, Riggs & Ingram, LLC

Nashville, Tennessee

March 15, 2017

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in registration statements Nos. 333-189670, 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 3, 2016, relating to the consolidated balance sheet of HopFed Bancorp, Inc. and subsidiaries as of December 31, 2015, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2015, which report appears in the December 31, 2016 Annual Report on Form 10-K of HopFed Bancorp, Inc. and subsidiaries.

/s/ RAYBURN | FITZGERALD PC

Brentwood, Tennessee

March 15, 2017

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 15, 2017	(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 15, 2017	(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, 2016 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 15, 2017

(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, 2016 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 15, 2017

(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.

XML

Document and Entity Information - USD ($)	12 Months Ended
	Dec. 31, 2016	Mar. 06, 2017	Jun. 30, 2016
Document And Entity Information [Abstract]
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	FY
Trading Symbol	HFBC
Entity Registrant Name	HOPFED BANCORP INC
Entity Central Index Key	0001041550
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		6,716,679
Entity Public Float			$ 74,901,029

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Assets
Cash and due from banks	$ 21,779	$ 46,926
Interest-bearing deposits in banks	3,970	7,772
Cash and cash equivalents	25,749	54,698
Federal Home Loan Bank stock, at cost	4,428	4,428
Securities available for sale	209,480	237,177
Loans held for sale	1,094	2,792
Loans receivable, net of allowance for loan losses of $6,112 at December 31, 2016, and $5,700 at December 31, 2015	604,286	556,349
Accrued interest receivable	3,799	4,139
Foreclosed assets	2,397	1,736
Bank owned life insurance	10,662	10,319
Premises and equipment, net	23,461	24,034
Deferred tax assets	3,052	2,642
Other assets	3,078	4,840
Total assets	891,486	903,154
Deposits:
Non-interest-bearing accounts	131,145	125,070
Interest-bearing accounts:
Interest bearing checking accounts	209,347	203,779
Savings and money market accounts	99,312	95,893
Other time deposits	293,078	314,664
Total deposits	732,882	739,406
Advances from Federal Home Loan Bank	11,000	15,000
Repurchase agreements	47,655	45,770
Subordinated debentures	10,310	10,310
Advances from borrowers for taxes and insurance	766	614
Dividends payable	288	287
Accrued expenses and other liabilities	2,157	4,137
Total liabilities	805,058	815,524
Stockholders' equity
Preferred stock, par value $0.01 per share; authorized 500,000 shares; no shares issued or outstanding at December 31, 2016 and December 31, 2015
Common stock, par value $.01 per share; authorized 15,000,000 shares; 7,963,378 issued and 6,717,242 outstanding at December 31, 2016, and 7,951,699 issued and 6,865,811 outstanding at December 31, 2015	80	79
Additional paid-in-capital	58,660	58,604
Retained earnings	49,035	47,124
Treasury stock, at cost (1,246,136 shares at December 31, 2016 and 1,085,888 shares at December 31, 2015)	(15,347)	(13,471)
Unearned ESOP Shares (at cost 498,346 at December 31, 2016 and 546,413 at December 31, 2015)	(6,548)	(7,180)
Accumulated other comprehensive income	548	2,474
Total stockholders' equity	86,428	87,630
Total liabilities and stockholders' equity	$ 891,486	$ 903,154

XML

Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Statement of Financial Position [Abstract]
Loans receivable, allowance for loan losses	$ 6,112	$ 5,700
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	500,000	500,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	15,000,000	15,000,000
Common stock, shares issued	7,963,378	7,951,699
Common stock, shares outstanding	6,717,242	6,865,811
Treasury stock, shares	1,246,136	1,085,888
Unearned ESOP Shares at cost	498,346	546,413

XML

Consolidated Statements of Income - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Interest and dividend income
Loans	$ 25,778	$ 25,300	$ 26,025
Taxable securities available for sale	4,595	6,149	6,548
Nontaxable securities available for sale	1,308	1,651	2,081
Interest-bearing deposits in banks	46	22	26
Total interest and dividend income	31,727	33,122	34,680
Interest expense:
Deposits	4,240	5,031	5,603
Advances from Federal Home Loan Bank	163	289	1,665
Repurchase agreements	508	491	874
Subordinated debentures	388	739	737
Total interest expense	5,299	6,550	8,879
Net interest income	26,428	26,572	25,801
Provision for loan losses	1,241	1,051	(2,273)
Net interest income after provision for loan losses	25,187	25,521	28,074
Non-interest income:
Service charges	2,788	2,925	3,354
Merchant card	1,224	1,130	1,075
Mortgage origination	1,585	1,175	719
Realized gains from sale of securities available for sale, net	612	691	578
Income from bank owned life insurance	343	335	307
Financial services commission	614	685	980
Other operating	769	661	827
Total non-interest income	7,935	7,602	7,840
Non-interest expenses:
Salaries and employee benefits	15,400	15,810	15,222
Occupancy	3,173	3,077	3,217
Data processing	2,942	2,827	2,887
State deposit tax	990	1,018	1,336
Intangible amortization		33	97
Professional services	1,404	1,506	1,331
Advertising	1,401	1,302	1,341
Postage and communications	625	577	577
Supplies	607	527	627
Deposit insurance and examination fees	609	586	724
(Gain) loss on sale of premises and equipment	(72)	1	25
Foreclosed assets, net	448	1,227	474
Loss on sale of loan note			1,781
Loss on early debt extinguishment			2,510
Other operating	2,329	1,954	1,767
Total non-interest expense	29,856	30,445	33,916
Income before income tax expense	3,266	2,678	1,998
Income tax expense (benefit)	362	274	(201)
Net income	$ 2,904	$ 2,404	$ 2,199
Earnings per share available to common stockholders:
Basic	$ 0.47	$ 0.38	$ 0.30
Diluted	$ 0.47	$ 0.38	$ 0.30
Weighted average shares outstanding - basic	6,233,860	6,372,277	7,306,078
Weighted average shares outstanding - diluted	6,233,860	6,372,277	7,306,078

XML

Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Statement of Comprehensive Income [Abstract]
Net income	$ 2,904	$ 2,404	$ 2,199
Other comprehensive income, net of tax:
Unrealized gain (loss) on non - other than temporary impaired investment securities ("OTTI") available for sale, net of taxes	(1,351)	(1,121)	5,130
Unrealized gain (loss) on OTTI securities, net of taxes	(170)	237
Unrealized gain on derivatives, net of taxes		257	237
Reclassification adjustment for gains and accretion included in net income, net of taxes	(405)	(456)	(381)
Total other comprehensive income (loss)	(1,926)	(1,083)	4,986
Comprehensive income	$ 978	$ 1,321	$ 7,185

XML

Consolidated Statements of Changes in Stockholders' Equity - USD ($) $ in Thousands	Total	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Common Treasury Stock [Member]	Unearned ESOP Shares [Member]	Accumulated Other Comprehensive Income (Loss) [Member]
Beginning balance at Dec. 31, 2013	$ 95,717	$ 79	$ 58,302	$ 44,694	$ (5,929)		$ (1,429)
Beginning balance, Shares at Dec. 31, 2013		7,447,903
Net income	2,199			2,199
Restricted stock awards, shares		22,378
Net change in unrealized gain (losses) on securities available for sale, net of taxes	4,749						4,749
Net change in unrealized losses on derivatives, net of taxes	237						237
Cash dividend to common stockholders'	(1,164)			(1,164)
Common stock repurchase	(3,500)				(3,500)
Common stock repurchase, shares		(298,999)
Compensation expense, restricted stock awards	164		164
Ending balance at Dec. 31, 2014	98,402	$ 79	58,466	45,729	(9,429)		3,557
Ending balance, Shares at Dec. 31, 2014		7,171,282
Net income	2,404			2,404
Restricted stock awards, shares		2,034
Net change in unrealized gain (losses) on securities available for sale, net of taxes	(1,340)						(1,340)
Net change in unrealized losses on derivatives, net of taxes	257						257
Cash dividend to common stockholders'	(1,009)			(1,009)
Common stock repurchase	(11,926)				(11,926)
Common stock repurchase, shares		(907,505)
Common stock issued					7,884	$ (7,884)
Common stock issued, shares		600,000
ESOP Shares Earned	652		(52)
ESOP Shares Earned, shares						704
Compensation expense, restricted stock awards	190		190
Ending balance at Dec. 31, 2015	87,630	$ 79	58,604	47,124	(13,471)	$ (7,180)	2,474
Ending balance, Shares at Dec. 31, 2015		6,865,811
Net income	2,904			2,904
Restricted stock awards	1	$ 1
Restricted stock awards, shares		11,679
Net change in unrealized gain (losses) on securities available for sale, net of taxes	(1,926)						(1,926)
Cash dividend to common stockholders'	(993)			(993)
Common stock repurchase	$ (1,876)				(1,876)
Common stock repurchase, shares	(92,550)	(160,248)
ESOP Shares Earned	$ 553		(79)
ESOP Shares Earned, shares	600,000					632
Compensation expense, restricted stock awards	$ 135		135
Ending balance at Dec. 31, 2016	$ 86,428	$ 80	$ 58,660	$ 49,035	$ (15,347)	$ (6,548)	$ 548
Ending balance, Shares at Dec. 31, 2016		6,717,242

XML

Consolidated Statements of Changes in Stockholders' Equity (Parenthetical) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Net change in unrealized gain (losses) on securities available for sale, taxes	$ 992	$ 690	$ (2,446)
Net change in unrealized losses on derivatives, income tax benefit		$ (132)	$ (122)
Cash dividend to common stockholders, per share	$ 0.16	$ 0.16	$ 0.16
Retained Earnings [Member]
Cash dividend to common stockholders, per share	$ 0.16	$ 0.16	$ 0.16
Accumulated Other Comprehensive Income (Loss) [Member]
Net change in unrealized gain (losses) on securities available for sale, taxes	$ 992	$ 690	$ (2,446)
Net change in unrealized losses on derivatives, income tax benefit		$ (132)	$ (122)

XML

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Cash flows from operating activities:
Net income	$ 2,904	$ 2,404	$ 2,199
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	1,241	1,051	(2,273)
Depreciation	1,320	1,266	1,336
Amortization of intangible assets		33	97
Amortization of investment premiums and discounts, net	1,515	1,650	2,076
Other than temporary impairment recovery on available for sale securities	(17)	(17)
Expense (benefit) for deferred income taxes	267	177	(231)
Stock compensation expense	135	138	164
Income from bank owned life insurance	(343)	(335)	(307)
Gain on sale of securities available for sale	(612)	(691)	(578)
Gain on sale of mortgage loans	(1,585)	(1,175)	(719)
Loss on sale of loan note			1,781
(Gain) loss on sale of premises and equipment	(72)	1	25
Proceeds from sale of mortgage loans	56,309	43,847	37,300
(Gain) loss on sale of foreclosed assets	(21)	716	208
Originations of mortgage loans sold	(53,026)	(44,020)	(32,835)
(Increase) decrease in:
Accrued interest receivable	340	437	657
Other assets	145	21	1,513
Increase (decrease) in accrued expenses and other liabilities	(1,980)	933	(277)
Net cash provided by operating activities	6,520	6,436	10,136
Cash flows from investing activities:
Proceeds from sales, calls and maturities of securities available for sale	67,671	120,354	112,235
Purchase of securities available for sale	(43,778)	(56,875)	(91,257)
Net increase in loans	(49,586)	(19,005)	(1,908)
Proceeds from sale of foreclosed assets	1,623	344	1,118
Proceeds from sale of premises and equipment	100
Purchase of premises and equipment	(775)	(2,361)	(1,168)
Net cash provided by (used in) investing activities	(24,745)	42,457	19,020
Cash flows from financing activities:
Net increase (decrease) in deposits	(6,524)	8,098	(31,689)
Increase (decrease) in advance payments by borrowers for taxes and insurance	152	101	(8)
Advances from Federal Home Loan Bank	26,000	41,000	57,000
Repayment of advances from Federal Home Loan Bank	(30,000)	(60,000)	(69,780)
Increase (decrease) in repurchase agreements	1,885	(11,588)	4,599
Acquisition of treasury stock	(1,876)	(11,926)	(3,500)
Proceeds from repayment of ESOP loan	632	704
Dividends paid on common stock	(993)	(1,023)	(1,187)
Net cash (used in) financing activities	(10,724)	(34,634)	(44,565)
Increase (decrease) in cash and cash equivalents	(28,949)	14,259	(15,409)
Cash and cash equivalents, beginning of period	54,698	40,439	55,848
Cash and cash equivalents, end of period	25,749	54,698	40,439
Supplemental disclosures of cash flow information:
Interest paid	5,354	6,587	8,977
Income taxes refund	(564)	(900)	(718)
Supplemental disclosures of non-cash investing and financing activities:
Loans charged off	1,468	1,867	1,232
Loan transferred to held for sale			6,987
Foreclosures and in substance foreclosures of loans during year	2,263	869	1,579
Net unrealized gains (losses) on investment securities classified as available for sale	(2,918)	(2,030)	7,195
Increase (decrease) in deferred tax asset related to unrealized gains (losses) on investments	992	691	(2,446)
Dividends declared and payable	288	287	301
Sale and financing of stock to ESOP		7,884
Issue of unearned restricted stock	$ 145	$ 25	$ 260

XML

Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2016

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 and headquartered in Hopkinsville, Kentucky. The Corporation’s principal business activities are conducted through its wholly-owned subsidiary, Heritage Bank USA, Inc. (the “Bank”), a Kentucky state chartered commercial 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).

The Bank is a Kentucky commercial chartered bank and is supervised by the Kentucky Department of Financial Institutions (“KDFI”) and the FDIC. Supervision of the Corporation is conducted by the Federal Reserve Bank of Saint Louis (“FED”).

The Bank owns JBMM, LLC, a wholly owned, limited liability company, which owns and manages the Bank’s foreclosed assets. The Bank owns Heritage Interim Corporation, a Tennessee corporation established to facilitate the acquisition of a bank in Tennessee. The proposed acquisition was terminated in August of 2013. The Bank owns Heritage USA Title, LLC, which sells title insurance to the Bank’s real estate loan customers.

The Bank owns Fort Webb LP, LLC, which owns a limited partnership interest in Fort Webb Elderly Housing LP, LLC, 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.

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 subsidiaries (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 (“U.S. GAAP”) and conform to general practices in the banking industry. U.S. GAAP is generally defined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), as amended by Accounting Standards Updates (“ASUs”). Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) are also sources of authoritative U.S. GAAP for SEC registrants.

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 U.S. GAAP. Voting interest entities in 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 subsidiaries, HopFed Capital Trust I and Fort Webb LP, LLC are VIEs for which the Company is not the primary beneficiary. Accordingly, these accounts are not included in the Company’s consolidated financial statements.

Subsequent Events

The Company has evaluated subsequent events for potential impact and disclosure through the issue date of these consolidated financial statements.

Estimates

In preparing the consolidated financial statements in conformity with U.S. GAAP, 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 collateral.

Cash and Cash Equivalents

Cash and cash equivalents are defined as cash on hand, amounts due on demand from commercial banks, interest-bearing deposits in other financial institutions and federal funds sold with maturities of three months or less. The Company is required to maintain reserve funds in either cash on hand or on deposit with the Federal Reserve Bank. At December 31, 2016, the Company’s reserve requirement was met with available cash on hand.

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. Gains and losses on sales are recorded on the trade date.

Other Than Temporary Impairment

Management evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic conditions warrant such evaluation. 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. FHLB stock is periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.

Loans Receivable and Allowance for Loan Losses

Loans receivable are stated at unpaid principal balances, less the allowance for loan losses and deferred loan cost. 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. Subsequent recoveries, if any, are credited to the allowance. 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. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the most recent three years.

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 Troubled Debt Restructurings (“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 have an allowance established for it. 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 estimate 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 evaluated, 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 U.S. GAAP and has taken into account the views of its regulators and the current economic environment.

If an asset or portion thereof is classified as a loss, we establish a specific reserve for such amount. If the Company determines that a loan relationship is collateral dependent, the Company will charge off the portion of that loan that is deemed to be impaired against the allowance for loan loss account. 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. The Company will charge off a portion or all of a loan balance once it deems the collection of any remaining interest and principal due to be unlikely.

Loans held for sale

Mortgage loans originated and intended for sale are carried at the lower of cost or estimated fair value as determined on a loan-by-loan basis. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income. Realized gains and losses are recognized when legal title to the loans has been transferred to the purchaser and sales proceeds have been received and are reflected in the accompanying consolidated statement of operations in gains on mortgage loans sold, net of related costs such as compensation expenses. The Company does not securitize mortgage loans.

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, 2016, the Bank maintained a servicing portfolio of one to four family real estate loans of approximately $19.7 million and approximately $22.8 million at December 31, 2015. For the years ended December 31, 2016, December 31, 2015, and December 31, 2014, 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.

Foreclosed Assets

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.

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.

Treasury Stock

The Company may occasionally purchase its own common stock either in open market transactions or privately negotiated transactions. The value of the Company’s common stock held in treasury is listed at cost.

Unearned ESOP Shares

The Company offers an Employee Stock Ownership Plan (“ESOP”) to the employees of the Company. The unearned portion of common stock of the Company held in the ESOP Trust is recorded on the balance sheet at cost. Common stock is released from the ESOP Trust to the participants as the Bank makes payments on the loan to the Corporation on behalf of the ESOP Trust.

Comprehensive Income

Comprehensive income consists of net income and other comprehensive income, net of applicable income taxes. Other comprehensive income includes unrealized appreciation (depreciation) on available-for-sale securities, unrealized appreciation (depreciation) on available-for-sale securities for which a portion of an other than temporary impairment has been recognized in income, and unrealized appreciation (depreciation) on derivatives.

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales, when control over the assets have been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

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 and Kentucky income tax returns as well as its Kentucky and Tennessee franchise and excise tax returns on a consolidated basis with its subsidiaries. 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 core deposit intangible asset related to the middle Tennessee acquisition of June 2006 was amortized using the sum of the year’s digits method over an estimated period of nine years. At December 31, 2015, the core deposit intangible was fully amortized.

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 the guidelines of 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. The Company’s derivative matured on October 8, 2015. There were no fair value hedging gains or losses, as a result of hedge ineffectiveness, recognized for the years ended December 31, 2015 or 2014.

Fair Values of Financial Instruments

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-bearing deposits in banks

The carrying amounts reported in the consolidated balance sheets for interest bearing deposits in banks is 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 held for sale

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

Loans receivable

The fair values 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.

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%.

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 Corporation by the KDFI or FDIC. Any restrictions imposed by either regulator would effectively limit the Company’s ability to pay a dividend to its common stockholders as discussed in Note 16. At December 31, 2016, there were no such restrictions. At December 31, 2016, the Corporation has approximately $1.1 million in cash on hand available to pay common dividends and repurchase treasury stock as outlined in Note 19. At December 31, 2016, the Bank may not pay an additional cash dividend to the Corporation without regulatory approval.

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. Anti-dilutive common stock equivalents are not included for the purposes of this calculation. At December 31, 2016, the Company has no warrants or stock options outstanding.

Stock Compensation

Compensation cost is recognized for restricted stock awards issued to employees based on the fair value of these awards at the date of grant. The cost is recognized over the required service period, generally defined as the vesting period.

Effect of New Accounting Pronouncements

In May 2014, the FASB issued new guidance related to “Revenue from Contracts with Customers.” This guidance supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the ASC. The guidance requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This guidance is effective for interim and annual reporting periods beginning after December 15, 2016; however, the FASB has agreed to a one-year deferral of the effective date to December 15, 2017. The implementation of ASC Topic 605 will not have a material impact on the Company’s Consolidated Financial Statements.

ASU No. 2015-02, “Amendments to the Consolidation Analysis.” This ASU affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. Specifically, the amendments: (1) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities; (2) eliminate the presumption that a general partner should consolidate a limited partnership; (3) affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; and (4) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. ASU No. 2015-02 was effective for interim and annual reporting periods beginning after December 15, 2015. The implementation of the provisions of ASU No. 2015-02 did not have a material impact on the Company’s Consolidated Financial Statements.

ASU 2015-05, “Intangibles – Goodwill and Other - Internal-Use Software (Subtopic 350-40) – Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” ASU 2015-05 addresses accounting for fees paid by a customer in cloud computing arrangements such as (i) software as a service, (ii) platform as a service, (iii) infrastructure as a service and (iv) other similar hosting arrangements. ASU 2015-05 provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The implementation of ASU 2015-05, which was effective on January 1, 2016, did not have a significant impact on the Company’s Consolidated Financial Statements.

ASU 2015-15, “Interest – Imputation of Interest (Subtopic 835-30) – Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting.” ASU 2015-15 adds SEC paragraphs pursuant to an SEC Staff Announcement that given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to line-of-credit arrangements, the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The implementation of ASU 2015-15 did not have a significant impact on the Company’s Consolidated Financial Statements.

In September 2015, the FASB issued Accounting Standards Update No. 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments.” The guidance in this update eliminates the requirement to restate prior period financial statements for measurement period adjustments. The new guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. The new guidance is intended to reduce complexity in financial reporting. The elimination of the restatement requirement should simplify financial reporting for many entities. However, recognizing the entire impact of a measurement period adjustment in a single reporting period may introduce earnings volatility and reduce comparability between periods when the adjustments are material. The accounting changes in this update are effective for public companies for annual periods, and the interim periods within those annual periods, after December 15, 2015. The implementation of ASU 2015-16 did not have a material impact on the Company’s Consolidated Financial Statements.

ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01, among other things, (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (iii) eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (v) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, (vi) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements and (vii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale. ASU 2016-01 will be effective on January 1, 2018, and is not expected to have a material effect on the Company’s Consolidated Financial Statements.

ASU 2016-02, “Leases (Topic 842).” ASU 2016-02 will, among other things, require lessees to recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model and ASC Topic 606, “Revenue from Contracts with Customers.” ASU 2016-02 will be effective for us on January 1, 2019, and will require transition using a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. We are currently evaluating the potential impact of ASU 2016-02 on the Company’s Consolidated Financial Statements.

ASU 2016-05 “Derivatives and Hedging (Topic 815) Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships.” ASU 2016-05 clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under ASC Topic 815 does not, in and of itself, require de-designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. ASU 2016-05 will be effective for us on January 1, 2017. The implementation of ASU 2016-05 is not expected to have a material impact on the Company’s Consolidated Financial Statements.

ASU 2016-07, “Investments – Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting.” The amendments affect all entities that have an investment that becomes qualified for the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence. ASU 2016-07 simplifies the transition to the equity method of accounting by eliminating retroactive adjustment of the investment when an investment qualifies for use of the equity method, among other things. ASU 2016-07 will be effective for us on January 1, 2017. The implementation of ASU 2016-07 is not expected to have a material impact on the Company’s Consolidated Financial Statements.

ASU 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” Under ASU 2016-09 all excess tax benefits and tax deficiencies related to share-based payment awards should be recognized as income tax expense or benefit in the income statement during the period in which they occur. Previously, such amounts were recorded in the pool of excess tax benefits included in additional paid-in capital, if such pool was available. Because excess tax benefits are no longer recognized in additional paid-in capital, the assumed proceeds from applying the treasury stock method when computing earnings per share should exclude the amount of excess tax benefits that would have previously been recognized in additional paid-in capital. Additionally, excess tax benefits should be classified along with other income tax cash flows as an operating activity rather than a financing activity, as was previously the case. ASU 2016-09 also provides that an entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest (current GAAP) or account for forfeitures when they occur. ASU 2016-09 changes the threshold to qualify for equity classification (rather than as a liability) to permit withholding up to the maximum statutory tax rates (rather than the minimum as was previously the case) in the applicable jurisdictions. ASU 2016-09 is effective on January 1, 2017. The implementation of ASU 2016-09 is not expected to have a material effect on the Company’s Consolidated Financial Statements.

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

ASU 2016-15 “Statement of Cash Flows (Topic 230)” (“ASU 2016-15”) is intended to reduce the diversity in practice around how certain transactions are classified within the statement of cash flows. ASU 2016-15 is effective for public companies for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted with retrospective application. We are evaluating the impact that the adoption of ASU 2016-15 will have on the Company’s Consolidated Financial Statements.

Other accounting standards that have been issued or proposed by the FASB or other standards 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. Reclassifications had no effect on prior year’s net income or shareholders’ equity.

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Securities

12 Months Ended

Dec. 31, 2016

Cash and Cash Equivalents [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, 2016
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Restricted:
FHLB stock	$	4,428		—		—			4,428
Available for Sale:
U.S. Treasury securities	$	2,000		1		—			2,001
U.S. Agency securities		83,667		983		(638	)		84,012
Tax free municipal bonds		33,004		1,081		(174	)		33,911
Taxable municipal bonds		2,720		17		(10	)		2,727
Trust preferred securities		1,634		183		—			1,817
Mortgage-backed securities:
GNMA		19,490		175		(109	)		19,556
FNMA		40,754		176		(577	)		40,353
FHLMC		6,831		12		(84	)		6,759
Non-Agency CMOs		3,786		—		(208	)		3,578
AGENCY CMOs		14,765		74		(73	)		14,766
	$	208,651		2,702		(1,873	)		209,480

	December 31, 2015
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Restricted:
FHLB stock	$	4,428		—		—			4,428
Available for Sale:
U.S. Treasury Securities	$	2,001		—		(1	)		2,000
U.S. Agency Securities		91,694		1,727		(488	)		92,933
Tax free municipal bonds		42,237		2,481		(59	)		44,659
Taxable municipal bonds		6,190		52		(65	)		6,177
Trust preferred securities		1,617		248		—			1,865
Mortgage-backed securities:
GNMA		29,990		239		(239	)		29,990
FNMA		28,189		266		(152	)		28,303
FHLMC		8,113		24		(51	)		8,086
Non-Agency CMOs		3,828		—		(174	)		3,654
AGENCY CMOs		19,570		71		(131	)		19,510
	$	233,429		5,108		(1,360	)		237,177

The scheduled maturities of debt securities available for sale at December 31, 2016, were as follows:

			Estimated
	Amortized		Fair
	Cost		Value
Due within one year	$	6,605		6,615
Due in one to five years		13,913		14,067
Due in five to ten years		32,611		32,744
Due after ten years		13,022		13,603
		66,151		67,029
Amortizing agency bonds		56,874		57,439
Mortgage-backed securities		85,626		85,012
Total unrestricted securities available for sale	$	208,651		209,480

The scheduled maturities of debt securities available for sale at December 31, 2015, were as follows:

			Estimated
	Amortized		Fair
	Cost		Value
Due within one year	$	—		—
Due in one to five years		17,939		18,304
Due in five to ten years		42,151		42,793
Due after ten years		22,702		24,088
		82,792		85,185
Amortizing agency bonds		60,947		62,449
Mortgage-backed securities		89,690		89,543
Total unrestricted securities available for sale	$	233,429		237,177

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

	Less than 12 months					12 months or longer					Total
	Estimated		Unrealized			Estimated		Unrealized			Estimated		Unrealized
	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
Available for sale
U.S. Agency debt securities	$	41,963		(597	)		3,459		(41	)		45,422		(638	)
Taxable municipals		1,347		(10	)		—		—			1,347		(10	)
Tax free municipals		7,369		(174	)		—		—			7,369		(174	)
Mortgage-backed securities:
GNMA		6,151		(62	)		3,861		(47	)		10,012		(109	)
FNMA		28,950		(577	)		—		—			28,950		(577	)
FHLMC		6,217		(84	)		—		—			6,217		(84	)
Non-Agency CMOs		—		—			3,578		(208	)		3,578		(208	)
AGENCY CMOs		7,144		(73	)		—		—			7,144		(73	)
Total Available for Sale	$	99,141		(1,577	)		10,898		(296	)		110,039		(1,873	)

The estimated fair value and unrealized loss amounts of temporarily impaired investments as of December 31, 2015, are as follows:

	Less than 12 months					12 months or longer					Total
	Estimated		Unrealized			Estimated		Unrealized			Estimated		Unrealized
	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
Available for sale
U.S. Treasury securities	$	2,000		(1	)		—		—			2,000		(1	)
U.S. Agency debt securities		26,499		(203	)		16,224		(285	)		42,723		(488	)
Taxable municipals		2,159		(32	)		1,887		(33	)		4,046		(65	)
Tax free municipals		—		—			3,878		(59	)		3,878		(59	)
Mortgage-backed securities:
GNMA		10,840		(105	)		11,508		(134	)		22,348		(239	)
FNMA		11,484		(87	)		3,036		(65	)		14,520		(152	)
FHLMC		7,336		(51	)		—		—			7,336		(51	)
NON-AGENCY CMOs		—		—			3,654		(174	)		3,654		(174	)
AGENCY CMOs		9,781		(90	)		1,991		(41	)		11,772		(131	)
Total Available for Sale	$	70,099		(569	)		42,178		(791	)		112,277		(1,360	)

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. Management gives consideration 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, 2016, the Company has 73 securities with unrealized losses. 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 $2.0 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 deferring the dividend payments for up to five years as prescribed by the trust agreement.

At September 30, 2013, the Company recognized a $400,000 impairment charge related to management’s financial analysis of the issuing institution, and our opinion that it would be unable to make dividend payments after the five-year extension expired. In January 2015, Your Community Bankshares (“YCB”) purchased FFKY. In September of 2016, Wesbanco (“WSBC”) closed on its purchase of YCB. WSBC is a $9.8 billion institution headquartered in West Virginia. WSBC has assumed the debt originally issued by FFKY, and all interest is now current. The Company is currently accreting the $400,000 impairment charge back into income.

During 2016, the Company sold investment securities classified as available for sale for proceeds of $19.0 million resulting in gross gains of $690,000 and gross losses of $78,000. During 2015, the Company sold investment securities classified as available for sale for proceeds of $84.9 million resulting in gross gains of $1,274,000 and gross losses of $583,000. During 2014, the Company sold investment securities classified as available for sale for proceeds of $75.3 million resulting in gross gains of $788,000 and gross losses of $210,000.

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, 2016, the Bank pledged investments with a book value of $125.6 million and a market value of approximately $128.4 million to various municipal entities as required by law. In addition, the Bank has provided $45.6 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.

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Loans Receivable, Net

12 Months Ended

Dec. 31, 2016

Receivables [Abstract]

Loans Receivable, Net

(3) Loans Receivable, Net:

The components of loans receivable in the consolidated balance sheets as of December 31, 2016, and December 31, 2015, were as follows:

	December 31, 2016						December 31, 2015
	Amount			Percent			Amount			Percent
Real estate loans:
One-to-four family first mortgages	$	147,962			24.2	%	$	145,999			26.0	%
Home equity line of credit		35,684			5.8	%		33,644			6.0	%
Second mortgages		1,452			0.3	%		1,771			0.3	%
Multi-family		34,284			5.6	%		24,725			4.4	%
Construction		39,255			6.4	%		34,878			6.2	%
Land		23,840			3.9	%		22,453			4.0	%
Farmland		47,796			7.8	%		42,246			7.5	%
Non-residential real estate		182,940			30.0	%		149,711			26.6	%
Total mortgage loans		513,213			84.0	%		455,427			81.0	%
Consumer loans		8,717			1.4	%		20,324			3.6	%
Commercial loans		88,907			14.6	%		86,743			15.4	%
Total other loans		97,624			16.0	%		107,067			19.0	%
Total loans		610,837			100.0	%		562,494			100.0	%
Deferred loan cost, net of fees		(439	)					(445	)
Less allowance for loan losses		(6,112	)					(5,700	)
Total loans, net	$	604,286					$	556,349

Loans serviced for the benefit of others totaled approximately $33.5 million and $36.9 million at December 31, 2016 and 2015, respectively. At December 31, 2016, approximately $19.7 million of the $33.5 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 are pledged to the Federal Home Loan Bank of Cincinnati as discussed in Note 6. At December 31, 2016, the carrying amount of loans eligible and pledged to the Federal Home Loan Bank of Cincinnati was $135.7 million.

The Company originates most fixed rate loans for immediate sale to outside investors, including Freddie Mac. Generally, the agreement to sell such loans occurs shortly after the loan application is tentatively approved through best effort commitments, not binding the Company to deliver a loan that does not close.

The Company uses the following risk definitions for commercial loan risk grades:

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

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

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

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

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

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

Substandard - A substandard asset is inadequately protected by the current sound worth or paying capacity of the debtor or the collateral pledged. There exists one or more well defined weaknesses that jeopardize the liquidation of the debt. There is a distinct possibility the Bank will experience some loss if the deficiencies are not corrected. Generally, the asset is considered collectible as to both principal and interest primarily because of collateral coverage or enterprise value. Generally, the asset is current and marginally secured.

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

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

The following credit risk standards are assigned to consumer loans:

Satisfactory - All consumer open-end and closed-end retail loans shall have an initial risk grade assigned of 3 - Satisfactory.

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

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

A loan is considered to be impaired when management determines that it is probable that the Company will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement. The value of individually impaired loans is measured based on the present value of expected payments or using the fair value of the collateral 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 Company 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 Company’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 Company’s commercial real estate portfolio are diverse in terms of type and geographic location. This diversity helps reduce the Company’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 Company avoids financing single-purpose projects unless other underwriting factors are present to help mitigate risk. The Company 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, 2016, approximately $78.7 million of the outstanding principal balance of the Company’s non-residential real estate loans were secured by owner-occupied properties, approximately $104.2 million was secured by non-owner occupied properties.

With respect to loans to developers and builders that are secured by non-owner occupied properties that the Company may originate from time to time, the Company generally requires the borrower to have had an existing relationship with the Company 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 Company 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.

Most of the Company’s lending activity occurs in Western Kentucky and Middle and Western Tennessee. The majority of the Company’s loan portfolio consists of non-residential real estate loans, farmland and agri-business commercial loans and one-to-four family residential real estate loans.

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

			Special		Impaired Loans						Specific Allowance for Impairment		Allowance for Loans not Impaired
	Pass		Mention		Substandard		Doubtful		Total
One-to-four family mortgages	$	145,965		744		1,253		—		147,962		—		852
Home equity line of credit		35,109		25		550		—		35,684		—		260
Junior liens		1,411		30		11		—		1,452		—		8
Multi-family		31,280		—		3,004		—		34,284		—		412
Construction		39,255		—		—		—		39,255		—		277
Land		15,581		35		8,224		—		23,840		1,036		724
Non-residential real estate		172,395		3		10,542		—		182,940		—		964
Farmland		44,832		674		2,290		—		47,796		—		778
Consumer loans		8,382		—		335		—		8,717		84		124
Commercial loans		85,174		603		3,130		—		88,907		28		565
Total	$	579,384		2,114		29,339		—		610,837		1,148		4,964

Loans by classification type and the related valuation allowance amounts at December 31, 2015 were as follows:

			Special		Impaired Loans						Specific Allowance for Impairment		Allowance for Loans not Impaired
	Pass		Mention		Substandard		Doubtful		Total
One-to-four family mortgages	$	142,729		41		3,229		—		145,999		60		970
Home equity line of credit		33,475		—		169		—		33,644		—		201
Junior liens		1,720		35		16		—		1,771		—		8
Multi-family		21,644		—		3,081		—		24,725		138		89
Construction		34,878		—		—		—		34,878		—		377
Land		11,794		41		10,618		—		22,453		69		1,310
Non-residential real estate		138,865		2,489		8,357		—		149,711		134		1,005
Farmland		41,917		—		329		—		42,246		—		358
Consumer loans		20,123		—		201		—		20,324		49		309
Commercial loans		84,317		352		2,074		—		86,743		180		443
Total	$	531,462		2,958		28,074		—		562,494		630		5,070

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

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

Impaired loans by classification type and the related valuation allowance amounts at December 31, 2015 were as follows:

	At December 31, 2015						For the year ended December 31, 2015
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
Impaired loans with no specific allowance
One-to-four family mortgages	$	2,526		2,526		—		2,389		80
Home equity line of credit		169		169		—		457		7
Junior liens		16		16		—		17		1
Multi-family		2,128		2,128		—		2,797		126
Construction		—		—		—		—		—
Land		10,038		10,998		—		8,520		671
Non-residential real estate		7,640		7,640		—		283		404
Farmland		329		329		—		7,774		19
Consumer loans		5		5		—		3		—
Commercial loans		1,274		1,274		—		1,599		73
Total		24,125		25,085		—		23,839		1,381
Impaired loans with a specific allowance
One-to-four family mortgages	$	703		703		60		709		40
Home equity line of credit		—		—		—		—		—
Junior liens		—		—		—		—		—
Multi-family		953		953		138		318		17
Construction		—		—		—		—		—
Land		580		580		69		1,707		46
Non-residential real estate		717		717		134		836		28
Farmland		—		—		—		—		—
Consumer loans		196		196		49		194		—
Commercial loans		800		800		180		514		15
Total		3,949		3,949		630		4,278		146
Total impaired loans	$	28,074		29,034		630		28,117		1,527

The following table presents the balance in the allowance for loan losses and the recorded investment in loans as of December 31, 2016, and December 31, 2015, by portfolio segment and based on the impairment method as of December 31, 2016, and December 31, 2015.

	Commercial		Land Development / Construction		Commercial Real Estate		Residential Real Estate		Consumer		Total
December 31, 2016:
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	28		1,036		—		—		84		1,148
Collectively evaluated for impairment		565		1,001		2,154		1,120		124		4,964
Total ending allowance balance	$	593		2,037		2,154		1,120		208		6,112
Loans:
Loans individually evaluated for impairment	$	3,130		8,224		15,836		1,814		335		29,339
Loans collectively evaluated for impairment		85,777		54,871		249,184		183,284		8,382		581,498
Total ending loans balance	$	88,907		63,095		265,020		185,098		8,717		610,837
	Commercial		Land Development / Construction		Commercial Real Estate		Residential Real Estate		Consumer		Total
December 31, 2015:
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	180		69		272		60		49		630
Collectively evaluated for impairment		443		1,687		1,452		1,179		309		5,070
Total ending allowance balance	$	623		1,756		1,724		1,239		358		5,700
Loans:
Loans individually evaluated for impairment	$	2,074		10,618		11,767		3,414		201		28,074
Loans collectively evaluated for impairment		84,669		46,713		204,915		178,000		20,123		534,420
Total ending loans balance	$	86,743		57,331		216,682		181,414		20,324		562,494

The average recorded investment in impaired loans for the years ended December 31, 2016 and 2015 was $31.6 million and $28.1 million, respectively. The Company recognized $1.5 million of interest income on impaired loans for the years ended December 31, 2016 and December 31, 2015, respectively, and $2.0 million for the year ended December 31, 2014. 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, 2016:

	Balance 12/31/2015		Charge off 2016			Recovery 2016		General Provision 2016			Specific Provision 2016			Ending Balance 12/31/2016
One-to-four family mortgages	$	1,030		—			167		(118	)		(227	)		852
Home equity line of credit		201		(30	)		14		59			16			260
Junior liens		8		—			14		—			(14	)		8
Multi-family		227		(421	)		—		323			283			412
Construction		377		—			—		(100	)		—			277
Land		1,379		—			—		(586	)		967			1,760
Non-residential real estate		1,139		—			10		(41	)		(144	)		964
Farmland		358		—			—		420			—			778
Consumer loans		358		(422	)		293		(187	)		166			208
Commercial loans		623		(595	)		141		122			302			593
	$	5,700		(1,468	)		639		(108	)		1,349			6,112

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, 2015:

	Balance 12/31/2014		Charge off 2015			Recovery 2015		General Provision 2015			Specific Provision 2015			Ending Balance 12/31/2015
One-to-four family mortgages	$	1,198		(143	)		39		(176	)		112			1,030
Home equity line of credit		181		(92	)		10		20			82			201
Junior liens		14		—			4		(6	)		(4	)		8
Multi-family		85		—			—		4			138			227
Construction		146		—			—		231			—			377
Land		1,123		(911	)		—		850			317			1,379
Non-residential real estate		2,083		(222	)		2		(944	)		220			1,139
Farmland		461		—			—		500			(603	)		358
Consumer loans		494		(298	)		118		(123	)		167			358
Commercial loans		504		(201	)		54		(61	)		327			623
	$	6,289		(1,867	)		227		295			756			5,700

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, 2014:

	Balance 12/31/2013		Charge off 2014			Recovery 2014		General Provision 2014			Specific Provision 2014			Ending Balance 12/31/2014
One-to-four family mortgages	$	2,048		(233	)		24		(304	)		(337	)		1,198
Home equity line of credit		218		(83	)		3		(37	)		80			181
Junior liens		39		—			9		(25	)		(9	)		14
Multi-family		466		—			—		(381	)		—			85
Construction		88		(139	)		9		58			130			146
Land		1,305		—			—		(74	)		(108	)		1,123
Non-residential real estate		2,719		(66	)		864		(1,368	)		(66	)		2,083
Farmland		510		—			—		542			(591	)		461
Consumer loans		541		(415	)		109		(13	)		272			494
Commercial loans		748		(296	)		94		(244	)		202			504
	$	8,682		(1,232	)		1,112		(1,846	)		(427	)		6,289

Non-accrual loans totaled $9.1 million and $7.4 million at December 31, 2016, and December 31, 2015, respectively. All non-accrual loans noted below are classified as either substandard or doubtful. Interest income foregone on such loans totaled $108,000 at December 31, 2016, $337,000 at December 31, 2015, and $76,000 at December 31, 2014, 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, 2016, and December 31, 2015. For the years ended December 31, 2016, and December 31, 2015, the components of the Company’s balances of non-accrual loans are as follows:

	12/31/2016		12/31/2015
One-to-four family first mortgages	$	270		2,234
Home equity lines of credit		402		48
Multi-family		—		1,968
Land		7,675		1,553
Non-residential real estate		208		247
Farmland		—		166
Consumer loans		3		8
Commercial loans		516		1,198
Total non-accrual loans	$	9,074		7,422

The table below presents gross loan balances excluding deferred loan fees of $439,000 at December 31, 2016, by loan classification allocated between past due, classified, performing and non-performing:

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

The table below presents gross loan balances excluding deferred loan fees of $445,000 at December 31, 2015, by loan classification allocated between past due, classified, performing and non-performing:

	Currently		30 - 89 Days		Non-accrual		Special		Impaired Loans Currently Performing
	Performing		Past Due		Loans		Mention		Substandard		Doubtful		Total
One-to-four family mortgages	$	142,058		671		2,234		41		995		—	$	145,999
Home equity line of credit		33,396		79		48		—		121		—		33,644
Junior liens		1,720		—		—		35		16		—		1,771
Multi-family		21,638		6		1,968		—		1,113		—		24,725
Construction		34,878		—		—		—		—		—		34,878
Land		11,047		747		1,553		41		9,065		—		22,453
Non-residential real estate		138,637		228		247		2,489		8,110		—		149,711
Farmland		41,853		64		166		—		163		—		42,246
Consumer loans		20,108		15		8		—		193		—		20,324
Commercial loans		84,272		45		1,198		352		876		—		86,743
Total	$	529,607		1,855		7,422		2,958		20,652		—		562,494

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 TDR, ASC 310; A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring, is determinative. In evaluating whether a restructuring constitutes a TDR, the Company must separately conclude that both of the following exist:

a.) The restructuring constitutes a concession

b.) The debtor is experiencing financial difficulties

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

If a debtor does not otherwise have access to funds at a market interest rate for debt with similar risk characteristics as the restructured debt, the restructured debt would be considered a below market rate, which may indicate that the 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.

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

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

At December 31, 2016, the Company had three loan relationships with a total of eight loans classified as performing TDR. The largest loan relationship classified as a TDR is collateralized by non-owner occupied commercial real estate and was placed on interest only payments in 2014. At July 31, 2015, both loans were removed from interest only and are now paying monthly principal and interest payments in accordance with the Company’s loan policy. At December 31, 2016, the loan relationship has a balance of approximately $3.2 million.

The second TDR relationship includes two loans secured by a non-owner occupied commercial real estate property. For a period of one year beginning in the third quarter of 2015, this loan relationship was modified to allow the customer to make interest only payments. The owner has significant equity in the collateral and is attempting to the sell the asset to use the equity for unanticipated financial obligations. The aggregate loan balance of this relationship is $2.2 million. At December 31, 2016, the owner is making principal and interest payments on this loan.

The third TDR relationship consist of three multi-family properties and one non-residential real estate property in which the loans payments were modified as interest only beginning in January 2016. The aggregate loan balance of this relationship is $1.1 million.

There were no loans as of December 31, 2016 that have been modified as TDRs during 2016 and then subsequently defaulted in 2016 on their modified terms. At December 31, 2016, there are no commitments to lend additional funds to any borrower whose loan terms have been modified in a TDR.

A summary of the activity in loans classified as TDRs for the year ended December 31, 2016, is as follows:

	Balance at		New		Loss on		Transferred to		Loan			Balance at
	12/31/15		TDR		Foreclosure		Non-accrual		Amortization			12/31/16
Multi-family real estate	$	—		816		—		—		(1	)		815
Non-residential real estate		5,536		228		—		—		(118	)		5,646
Total performing TDR	$	5,536		1,044		—		—		(119	)		6,461

A summary of the activity in loans classified as TDRs for the year ended December 31, 2015, is as follows:

	Balance at		New		Loss on		Transferred to		Loan			Balance at
	12/31/14		TDR		Foreclosure		Held For Sale		Amortization			12/31/15
Non-residential real estate	$	3,284		2,265		—		—		(13	)		5,536
Total performing TDR	$	3,284		2,265		—		—		(13	)		5,536

The Company originates loans to officers and directors and their affiliates at terms substantially equivalent to those available to other borrowers. Loans to officers and directors at December 31, 2016, and December 31, 2015, were approximately $4.9 million and $3.8 million, respectively. At December 31, 2016 and December 31, 2015, funds committed that were undisbursed to officers and directors approximated $380,000 and $493,000, respectively.

The following summarizes activity of loans to officers and directors and their affiliates for the years ended December 31, 2016, and December 31, 2015:

	2016			2015
Balance at beginning of period	$	3,844			4,022
New loans		1,651			682
Principal repayments		(601	)		(860	)
Balance at end of period	$	4,894			3,844

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Premises and Equipment

12 Months Ended

Dec. 31, 2016

Property, Plant 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, 2016 and December 31, 2015, consisted of the following:

	2016		2015
Land	$	6,555		6,579
Land improvements		1,132		1,097
Buildings		22,397		22,405
Furniture and equipment		6,932		6,488
		37,016		36,569
Less accumulated depreciation		13,555		12,535
Premises and equipment, net	$	23,461		24,034

Depreciation expense was approximately $1,320,000, $1,266,000 and $1,336,000 for the years ended December 31, 2016, 2015 and 2014, respectively.

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Deposits

12 Months Ended

Dec. 31, 2016

Text Block [Abstract]

Deposits

(5) Deposits:

At December 31, 2016, the scheduled maturities of other time deposits were as follows:

Years Ending December 31,
2017	$	137,907
2018		97,986
2019		29,945
2020		16,811
2021		10,429
	$	293,078

The amount of other time deposits with a minimum denomination greater of $250,000 or more was approximately $79.7 million and $78.8 million at December 31, 2016, and December 31, 2015, respectively. At December 31, 2016 and December 31, 2015, directors, members of senior management and their affiliates had deposits in the Bank of approximately $2.1 million and $6.2 million, respectively.

Interest expense on deposits for the years ended December 31, 2016, December 31, 2015 and December 31, 2014, is summarized as follows:

	2016		2015		2014
Interest bearing checking accounts	$	1,183		1,105		1,253
Money market accounts		76		88		86
Savings		95		103		109
Other time deposits		2,886		3,735		4,155
	$	4,240		5,031		5,603

The Bank maintains clearing arrangements for its demand, interest bearing checking accounts 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, 2016, average daily clearings were approximately $5.9 million.

At December 31, 2016, the Company had approximately $335,000 of deposit accounts in overdraft status and are reclassified to loans on the accompanying consolidated balance sheet. At December 31, 2015, the Company had approximately $196,000 of deposit accounts in overdraft status and are reclassified to loans on the accompanying consolidated balance sheet. At December 31, 2016, and December 31, 2015, the Company had deposits classified as brokered deposits totaling $33.4 million and $34.4 million, respectively.

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Advances from Federal Home Loan Bank

12 Months Ended

Dec. 31, 2016

Banking and Thrift [Abstract]

Advances from Federal Home Loan Bank

(6) Advances from Federal Home Loan Bank:

Federal Home Loan Bank advances are summarized as follows:

	December 31,
	2016					2015
			Weighted					Weighted
Types of Advances	Amount		Average Rate			Amount		Average Rate
Fixed-rate	$	11,000		1.04	%	$	15,000		2.19	%

Scheduled maturities of FHLB advances as of December 31, 2016, are as follows:

Years Ending	Fixed		Average
December 31,	Rate		Cost
2017	$	5,000		0.88	%
2018		6,000		1.18	%
Total	$	11,000		1.04	%

The Bank has an approved line of credit of $30 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, 2016, the Bank could borrow an additional $51.3 million from the FHLB of Cincinnati without pledging additional collateral. At December 31, 2016, the Bank has an additional $6.8 million in additional collateral that could be pledged to the FHLB to secure additional advance requirements. The Bank has a $12 million unsecured line of credit with BBVA 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 no balance at December 31, 2016.

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Repurchase Agreements

12 Months Ended

Dec. 31, 2016

Text Block [Abstract]

Repurchase Agreements

(7) Repurchase Agreements:

At December 31, 2016, the Company provided investment securities with a market value and book value of $47.7 million as collateral for repurchase agreements. The maximum repurchase balance outstanding during the year ended December 31, 2016, and December 31, 2015, was $54.8 million and $57.4 million, respectively.

At December 31, 2016, and December 31, 2015, the respective cost and maturities of the Company’s repurchase agreements are as follows:

2016
Third Party	Balance		Average Rate			Maturity
Various customers	$	47,655		0.91	%		Overnight
Total	$	47,655		0.91	%
2015
Third Party	Balance		Average Rate			Maturity		Comments
Merrill Lynch	$	6,000		4.36	%		9/18/2016		Quarterly callable
Various customers		39,770		0.61	%				Overnight
Total	$	45,770		1.13	%

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Fair Value Measurement

12 Months Ended

Dec. 31, 2016

Fair Value Disclosures [Abstract]

Fair Value Measurement

(8) Fair Value Measurement:

ASC Topic 820, Fair Value Measurements and Disclosures, 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.

The Company 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 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, 2016	Total carrying value in the consolidated		Quoted Prices In Active Markets for		Significant Other Observable		Significant Unobservable
Description	balance sheet at December 31, 2016		Identical Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)
Assets
Available for sale securities	$	209,480		2,001		205,662		1,817

December 31, 2015	Total carrying value in the consolidated		Quoted Prices In Active Markets for		Significant Other Observable		Significant Unobservable
Description	balance sheet at December 31, 2015		Identical Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)
Assets
Available for sale securities	$	237,177		2,000		233,312		1,865

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

December 31, 2016	Total carrying value in the		Quoted Prices In Active		Significant Other		Significant
Description	consolidated balance sheet at 12/31/2016		Markets for Identical Assets (Level 1)		Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
Assets
Foreclosed assets	$	2,397		—		—		2,397
Impaired loans, net of allowance of $1,148	$	6,123		—		—		6,123

December 31, 2015	Total carrying value in the		Quoted Prices In Active		Significant Other		Significant
Description	consolidated balance sheet at 12/31/2015		Markets for Identical Assets (Level 1)		Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
Assets
Foreclosed assets	$	1,736		—		—		1,736
Impaired loans, net of allowance of $630	$	3,319		—		—		3,319

The following table presents quantitative information about level 3 fair value measurements for assets measured at fair value on a reoccuring and non-reoccuring basis at December 31, 2016 and 2015:

Level 3 Significant Unobservable Input Assumptions
	Fair Value		Valuation Technique	Unobservable Input	Quantitative Range of Unobservable Inputs
December 31, 2016
Assets measured on a non-recurring basis
Foreclosed assets		2,397	Discount to appraised value of collateral	Appraisal comparability adjustments		30% to 55%
Impaired loans		7,271	Discount to appraised value of collateral	Appraisal comparability adjustments		10% to 25%
Asset measured on a recurring basis
Trust preferred securities		1,817	Discounted cash flow Spread to Libor swap curve	Compare to quotes for sale when available		One month libor 4% to 6%
December 31, 2015
Assets measured on a non-recurring basis
Foreclosed assets		1,736	Discount to appraised value of collateral	Appraisal comparability adjustments		10% to 15%
Impaired loans		3,949	Discount to appraised value of collateral	Appraisal comparability adjustments		10% to 15%
Asset measured on a recurring basis
Trust preferred securities		1,865	Discounted cash flow Spread to Libor swap curve	Compare to quotes for sale when available		One month libor 4% to 6%

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

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

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, 2016 and 2015, (including the change in fair value) for assets and liabilities classified by the Company 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,
	2016			2015
	Other			Other
	Assets			Assets
Fair value, December 31,	$	1,865		$	1,489
Change in unrealized gains (losses) included in other comprehensive income for assets and liabilities still held at December 31,		(65	)		359
Other than temporary impairment charge		—			—
Recovery of prior impairment charge		17			17
Purchases, issuances and settlements, net		—			—
Transfers in and/or out of Level 3		—			—
Fair value, December 31,	$	1,817		$	1,865

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

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

The estimated fair values of financial instruments were as follows at December 31, 2015:

							Using
					Quoted Prices		Significant
					In Active Markets		Other		Significant
			Estimated		for Identical		Observable		Unobservable
	Carrying		Fair		Assets		Inputs		Inputs
	Amount		Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from banks	$	46,926		46,926		46,926		—		—
Interest-bearing deposits in banks		7,772		7,772		7,772		—		—
Securities available for sale		237,177		237,177		2,000		233,312		1,865
Federal Home Loan Bank stock		4,428		4,428		—		4,428		—
Loans held for sale		2,792		2,792		—		2,792		—
Loans receivable		556,349		552,981		—		—		552,981
Accounts receivable		4,139		4,139		—		4,139		—
Financial Liabilities:
Deposits		739,406		724,877		—		724,877		—
Advances from borrowers for taxes and insurance		614		614		—		614		—
Advances from Federal Home Loan Bank		15,000		14,985		—		14,985		—
Repurchase agreements		45,770		45,931		—		45,931		—
Subordinated debentures		10,310		10,099		—		—		10,099

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 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.

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

	Years Ended December 31,
	2016			2015			2014
Beginning balance	$	1,736			1,927			1,674
Foreclosed assets measured at initial recognition:
Carrying value of foreclosed assets prior to acquisition		2,935			986			1,816
Proceeds from sale of foreclosed assets		(1,623	)		(344	)		(1,118	)
Charge-offs recognized in the allowance for loan loss		(672	)		(117	)		(237	)
Gains (losses) included in non-interest expense		21			(716	)		(208	)
Fair value	$	2,397			1,736			1,927

Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. There were no transfers between levels for the years ended December 31, 2016, 2015 and 2014

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Subordinated Debentures

12 Months Ended

Dec. 31, 2016

Brokers and Dealers [Abstract]

Subordinated Debentures

(9) 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. The most recent interest rate adjustment for the trust was effective January 12, 2017, which adjusted the total coupon rate to 4.12%. 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.

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Concentrations of Credit Risk

12 Months Ended

Dec. 31, 2016

Risks and Uncertainties [Abstract]

Concentrations of Credit Risk

(10) 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.

At December 31, 2016, all cash and cash equivalents are deposited with BBVA Compass Bank, the Federal Reserve Bank or the Federal Home Loan Bank of Cincinnati (FHLB). Deposits at Compass BBVA Bank are insured to $250,000. 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, 2016, total FHLB deposits were approximately $826,000 and total deposits at the Federal Reserve were $4.7 million, none of which is insured by the FDIC. At December 31, 2016, total deposits at BBVA were $9.7 million, of which $250,000 were insured by the FDIC.

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Employee Benefit Plans

12 Months Ended

Dec. 31, 2016

Compensation and Retirement Disclosure [Abstract]

Employee Benefit Plans

(11) Employee Benefit Plans:

HopFed Bancorp Long Term Incentive Plans

On March 20, 2013, the Board of Directors of the Company adopted the HopFed Bancorp, Inc. 2013 Long Term Incentive Plan (the “Plan”), which was subsequently approved at the 2013 Annual Meeting of Stockholders. Under the Plan, the Compensation Committee has discretionary authority to grant up to 300,000 shares in the form of restricted stock grants and options to such employees, directors and advisory directors as the committee shall designate. The grants vest in equal installments over three or four year periods. 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, 2016, the Compensation Committee granted 12,342 shares of restricted stock with a market value of $145,000. For the year ended December 31, 2015, the Compensation Committee granted 2,034 shares of restricted stock with a market value of $25,000. For the year ended December 31, 2014, the Compensation Committee granted 22,378 shares of restricted stock with a market value of $260,000. The Company recognized $135,000, $190,000, and $164,000 in compensation expense in 2016, 2015 and 2014, respectively. The remaining compensation expense to be recognized at December 31, 2016, is as follows:

Year Ending December 31,	Approximate Future Compensation Expense
2017	$	88
2018		54
2019		9
2020		2
Total	$	153

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, 2016, the Company has 242,577 restricted shares available from the 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. Prior to January 1, 2015, the Company matched employee contributions up to 4%. In addition, the Company chose to provide all eligible employees an additional 4% of compensation without regards to the amount of the employee contribution. In 2015, the Company discontinued all employer 401(K) contributions on behalf of employees while allowing employees to continue to make contributions to the 401(K) plan. The Company established a new retirement plan for all employees discussed below.

HopFed Bancorp, Inc. 2015 Employee Stock Ownership Plan

On March 2, 2015, the Company implemented the HopFed Bancorp, Inc. 2015 Employee Stock Ownership Plan which covers substantially all employees who are at least 21 years old with at least one year of employment with the Company and Heritage Bank USA, Inc., the Company’s commercial bank subsidiary. The ESOP has three individuals who have been selected by the Company to serve as trustees. A directed corporate trustee has also been appointed. The ESOP will be administered by a committee (the “Committee”) currently composed of eleven employees selected by the Company or its designee.

On March 2, 2015, the ESOP entered into a loan agreement with the Corporation to borrow up to $13,500,000 to purchase up to 1,000,000 shares common stock (“ESOP Loan”). On the same date, the ESOP purchased 600,000 shares from the Corporation at a cost of $7,884,000 using the proceeds of the ESOP Loan. In accordance with the ESOP Loan documents, the common stock purchased by the ESOP serves as collateral for the ESOP Loan. The ESOP Loan will be repaid principally from discretionary contributions by the Bank to the ESOP. The ESOP Loan was amended to provide for no future draws and a final maturity of December 9, 2026. The interest rate on the ESOP Loan is 3.0%. Shares purchased by the ESOP will be held in a suspense account for allocation among participants as the ESOP Loan is repaid. The ESOP shares are dividend paying. Dividends on unearned shares will be used to repay the ESOP Loan.

For the year ended December 31, 2016, the Company recognized an expense of $553,000 related to the ESOP loan payment. At December 31, 2016, the Company released 48,067 shares from the ESOP trust to individual participants of the plan as a result of the loan payment. For the year ended December 31, 2015, the Company recognized an expense of $652,000 related to the ESOP loan payment. At December 31, 2015, the Company released 53,587 shares from the ESOP trust to individual employees of the plan as a result of the loan payment. At December 31, 2016, shares held by the ESOP were as follows:

	December 31, 2016
Earned ESOP shares		101,654
Unearned ESOP shares		498,346
Total ESOP shares		600,000
Share Price at December 31, 2016	$	13.46
Fair value of unearned shares	$	6,707,737

Deferred Compensation Plan

During 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 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, 2016, the accrued value of all deferred compensation contacts is approximately $253,000. The Company is currently making cash remittances of approximately $12,500 per year on deferred compensation contracts.

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Income Taxes

12 Months Ended

Dec. 31, 2016

Income Tax Disclosure [Abstract]

Income Taxes

(12) Income Taxes:

The provision for income tax expense (benefit) for the years ended December 31, 2016, December 31, 2015, and December 31, 2014, consisted of the following:

	2016		2015		2014
Current
Federal	$	—		—		—
State		95		97		30
		95		97		30
Deferred
Federal		267		177		(231	)
State		—		—		—
		267		177		(231	)
	$	362		274		(201	)

Total income tax expense for the years ended December 31, 2016, December 31, 2015, and December 31, 2014, differed from the amounts computed by applying the federal income tax rate of 34 percent to income before income taxes as follows:

	2016			2015			2014
Expected federal income tax expense at statutory tax rate	$	1,110			911			679
Effect of nontaxable interest income		(452	)		(458	)		(542	)
Effect of nontaxable bank owned life insurance income		(117	)		(114	)		(104	)
Effect of Qualified Zone Academy Bond (QZAB) credit		(114	)		(109	)		(220	)
State taxes on income, net of federal benefit		59			59			10
Other tax credits		(128	)		(80	)		(80	)
Non deductible expenses		4			65			56
Total income tax expense	$	362			274			(201	)
Effective tax rate (benefit)		11.1	%		10.2	%		(10.1%	)

The components of deferred taxes as of December 31, 2016, and December 31, 2015, are summarized as follows:

	2016			2015
Deferred tax assets:
Allowance for loan loss	$	2,078			1,938
Accrued expenses		294			377
Net operating loss carry forward		454			1,182
Tax credit carry forward		568			258
Intangible amortization		548			784
Other		242			267
		4,184			4,806
Deferred tax liabilities:
FHLB stock dividends		(787	)		(787	)
Unrealized gain on securities available for sale		(240	)		(1,275	)
Depreciation and amortization		(105	)		(102	)
		(1,132	)		(2,164	)
Net deferred tax asset	$	3,052			2,642

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. Commercial banks 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). At December 31, 2016, the Company has operating loss carry forwards of approximately $2 million, which begin to expire in 2034.

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 recapture was required due to the Bank’s charter conversion from a thrift to a commercial bank or if the bank was acquired by another 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, 2016, and December 31, 2015, 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, 2016, and December 31, 2015, 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 and expected future taxable income. There were no 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 2012. The Company recognizes interest and penalties on income taxes, if any, as a component of income tax expense.

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Foreclosed Assets

12 Months Ended

Dec. 31, 2016

Banking and Thrift [Abstract]

Foreclosed Assets

(13) Foreclosed Assets:

The Company’s foreclosed assets balances at December 31, 2016, and December 31, 2015 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. As of December 31, 2016, and December 31, 2015, the composition of the Company’s balance in foreclosed assets are as follows:

	December 31,
	2016		2015
One-to-four family mortgages	$	135		55
Home equity line of credit		28		—
Multi-family		1,775		—
Land		—		943
Non-residential real estate		459		738
Total foreclosed assets	$	2,397		1,736

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Commitments and Contingencies

12 Months Ended

Dec. 31, 2016

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

(14) 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, 2016, and December 31, 2015, of approximately $43.4 million and $46.4 million, respectively. At December 31, 2016 and December 31, 2015, the Bank had no fixed rate loan commitments. Unused lines of credit were approximately $91.9 million and $84.9 million at December 31, 2016 and 2015, respectively. Also at December 31, 2016 and December 31, 2015, the Bank has unused consumer lines of credit tied to customer deposit accounts of $18.5 million and $9.5 million, 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, purchase services and lease operating equipment that are non-cancelable. At December 31, 2016, future minimal purchase, lease and rental commitments were as follows:

Years Ending
December 31,
2017	$	2,311
2018		1,568
2019		1,462
2020		67
2021		34
Total	$	5,442

The Company incurred rental expenses of approximately $127,000, $61,000 and $66,000 for the years ended December 31, 2016, December 31, 2015, and December 31, 2014, respectively. In the normal course of business, the Bank and Corporation 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 has an expected annual cost of approximately $1.5 million. The Bank has several ATM branding agreements with local businesses. These agreements allow the Bank to maintain a cash machine and signage in various locations for an annual cost of approximately $104,000.

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 Anthem Blue Cross Blue Shield (“Anthem”) to process claims and handle other duties of the plan. Anthem does not assume any liabilities as a third party administrator. The Bank purchased two stop-loss insurance policies to limit total medical claims from Anthem. The first specific stop-loss policy limits the Company’s annual cost per covered individual in 2015, 2016 and 2017 to $90,000, $90,000 and $100,000, respectively. The Company has purchased a second stop-loss policy that limits the aggregate claims for the Company in 2017, 2016 and 2015 at $1,570,747, $1,697,678 and $1,852,013, respectively, based upon the Company’s enrollment during those years. 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, 2016, and December 31, 2015, the Company recognized a liability for self-insured medical expenses of approximately $256,000 and $400,000, 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.    

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.

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 paid a fixed rate of 7.27% for seven years and received an amount equal to the three-month London Interbank Lending Rate (Libor) plus 3.10%. The interest rate swap was classified as a cash flow hedge by the Bank and was tested quarterly for effectiveness. The interest rate swap matured on October 8, 2015.

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.

The Company is subject to various claims and legal actions that have arisen in the course of conducting business. The Company records these as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not expect the ultimate disposition of these matters to have a material adverse impact on the Company’s Consolidated Financial Statements.

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Regulatory Matters

12 Months Ended

Dec. 31, 2016

Banking and Thrift [Abstract]

Regulatory Matters

(15) Regulatory Matters:

The Corporation is a commercial bank 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 state chartered commercial bank supervised by the KDFI and the FDIC. 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). The minimum required capital amounts presented include the minimum required capital levels as of December 31, 2016 and 2015 based on the phase-in provisions of Basel III Capital Rules. Management believes, as of December 31, 2016, and December 31, 2015, that the Bank meets all capital adequacy requirements to which it is subject. The Company’s consolidated capital ratios and the Bank’s actual capital amounts and ratios as of December 31, 2016, and December 31, 2015, are presented below:

											To be Well
						Minimum Capital					Capitalized for
						Required - Basel III					Prompt Corrective
	Actual					Phase-In Schedule					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2016
Tier 1 leverage capital to adjusted total assets
Company	$	92,803		10.8	%	$	34,392		4.0	%	$	42,990		5.0	%
Bank	$	91,617		10.7	%	$	34,315		4.0	%	$	42,894		5.0	%
Total capital to risk weighted assets
Company	$	98,915		16.2	%	$	52,682		8.625	%	$	61,080		10.0	%
Bank	$	97,729		16.0	%	$	52,561		8.625	%	$	60,941		10.0	%
Tier 1 capital to risk weighted assets
Company	$	92,803		15.2	%	$	40,466		6.625	%	$	48,864		8.0	%
Bank	$	91,617		15.0	%	$	40,373		6.625	%	$	48,753		8.0	%
Common equity tier 1capital to risk weighted assets
Company	$	92,803		15.2	%	$	31,304		5.125	%		n/a		n/a
Bank	$	91,617		15.0	%	$	31,232		5.125	%	$	39,611		6.5	%
As of December 31, 2015
Tier 1 leverage capital to adjusted total assets
Company	$	95,156		10.9	%	$	34,924		4.0	%	$	43,656		5.0	%
Bank	$	93,328		10.7	%	$	34,840		4.0	%	$	43,550		5.0	%
Total capital to risk weighted assets
Company	$	100,857		17.3	%	$	46,772		8.0	%	$	58,465		10.0	%
Bank	$	99,029		17.1	%	$	46,272		8.0	%	$	57,840		10.0	%
Tier 1 capital to risk weighted assets
Company	$	95,156		16.3	%	$	35,079		6.0	%	$	46,772		8.0	%
Bank	$	93,328		16.1	%	$	34,704		6.0	%	$	46,272		8.0	%
Common equity tier 1capital to risk
weighted assets
Company	$	95,156		16.3	%	$	26,309		4.5	%		n/a		n/a
Bank	$	93,328		16.1	%	$	26,028		4.5	%	$	37,596		6.5	%

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized, although these terms are not used to represent overall financial status. At December 31, 2016 and 2015, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. Management is not aware of any conditions or events that have changed the Bank’s status as a well-capitalized bank.

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Stockholders' Equity

12 Months Ended

Dec. 31, 2016

Equity [Abstract]

Stockholders' Equity

(16) 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 KDFI, has regulations that impose certain restrictions on payment of dividends to the Corporation. Current regulations of the KDFI allow the Bank (based upon its current capital level and supervisory status assigned by the KDFI) to pay a dividend as long as the Bank subsidiary maintains an appropriate Tier 1 Capital ratio. Furthermore, for the Bank to pay a dividend to the Corporation without regulatory approval, the dividend is limited to the total amount of the Bank’s current year net income plus the Bank’s net income of the prior two years less any previous dividends paid by the Bank to the Corporation during that time. At December 31, 2016, the Bank was unable to pay additional dividends to the Corporation without regulatory approval. Given the prospects for the approval of Basel III, the Company anticipates that in practice it will need to maintain a minimum Tier 1 Capital ratio of 8.50% at its bank subsidiary to continue to pay dividends to common shareholders and will structure its business plan to maintain a Tier 1 Capital ratio at the Bank level at or above 9.00%.

On October 28, 2014, the Company’s Board of Directors announced it may purchase an additional 300,000 shares of common stock and another 1.0 million shares of common stock for general corporate purchases or future employee benefit plans. That plan expired October 31, 2015, with the Company having purchased 860,303 shares of common stock and having reissued 600,000 shares of common stock to establish the ESOP. On November 18, 2015, the Company’s Board of Directors announced a new stock repurchase program of up to 300,000 shares of the Company’s common stock that will expire December 31, 2017. The Company will conduct repurchases through open market transactions or in privately negotiated transactions that may be made from time to time depending on market conditions and other factors. At December 31, 2016, the Company holds a total of 1,246,136 shares of treasury stock at an average price of $12.32 per share. At December 31, 2016, the Company may purchase 92,550 shares of treasury stock under the current approved plan.

The Company has paid all interest payments due on HopFed Capital Trust I. If interest payments to HopFed Capital Trust I are not made in a timely manner, the Company is prohibited from making cash dividend payments to its common shareholders.

In July 2013, the Federal Reserve Board and the FDIC approved final rules that substantially amend the regulatory risk-based capital rules applicable to Heritage Bank USA, Inc. and HopFed Bancorp, Inc. The final rules implement the regulatory capital reforms of the Basel Committee on Banking Supervision reflected in “Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems” (Basel III) and changes required by the Dodd-Frank Act.

Under these rules, the leverage capital and risk-based capital ratios of bank holding companies may not be lower than the leverage and risk-based capital ratios for insured depository institutions. The final rules implementing the Basel III regulatory capital reforms became effective on January 1, 2015, and include new minimum risk-based capital and leverage ratios. Moreover, these rules refine the definition of what constitutes “capital” for purposes of calculating those ratios, including the definitions of Tier 1 capital and Tier 2 capital.

The new minimum capital level requirements applicable to bank holding companies and banks subject to the rules are:

• a new common equity Tier 1 capital ratio of 4.5%;

• a Tier 1 risk-based capital ratio of 6% (increased from 4%);

• a total risk-based capital ratio of 8% (unchanged from current rules); and

• a Tier 1 leverage ratio of 4% for all institutions.

The rules also establish a “capital conservation buffer” of 2.5% (to be phased by 2019) above the new regulatory minimum risk-based capital ratios, and result in the following minimum ratios once the capital conservation buffer is fully phased in:

• a common equity Tier 1 risk-based capital ratio of 7.0%;

• a Tier 1 risk-based capital ratio of 8.5%; and

• a total risk-based capital ratio of 10.5%.

At December 31, 2016, the Bank and Corporation met all fully phased capital requirements of Basel III, including the capital conservation buffer of 2.5% to be fully phased in by January 1, 2019, the Capital conservation buffer for 2016 is 0.625%. The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital.

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Earnings Per Share

12 Months Ended

Dec. 31, 2016

Earnings Per Share [Abstract]

Earnings Per Share

(17) 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.

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

	Years Ended December 31,
	2016			2015			2014
Basic earnings per share:
Weighted average common shares		6,757,345			6,919,190			7,306,078
Less: Average unallocated ESOP shares		(523,485	)		(546,913	)		—
Weighted average common shares		6,233,860			6,372,277			7,306,078
Dilutive effect of stock options		—			—			—
Weighted average common and incremental shares		6,233,860			6,372,277			7,306,078

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Condensed Parent Company Only Financial Statements

12 Months Ended

Dec. 31, 2016

Condensed Financial Information of Parent Company Only Disclosure [Abstract]

Condensed Parent Company Only Financial Statements

(18) Condensed Parent Company Only Financial Statements:

The following condensed balance sheets as of December 31, 2016, and December 31, 2015, and condensed statements of income and cash flows for the years ended December 31, 2016, December 31, 2015, and December 31, 2014, of the parent company only should be read in conjunction with the consolidated financial statements and the notes thereto.

Condensed Balance Sheets:
	2016			2015
Assets:
Cash	$	1,084			2,087
Investment in subsidiary		95,242			95,804
Prepaid expenses and other assets		804			490
Total assets		97,130			98,381
Liabilities and equity
Liabilities
Dividend payable - common		288			287
Interest payable		101			89
Other liabilities		3			65
Subordinated debentures		10,310			10,310
Total liabilities		10,702			10,751
Equity:
Preferred stock		—			—
Common stock		80			79
Additional paid-capital		58,660			58,604
Retained earnings		49,035			47,124
Treasury stock - common stock		(15,347	)		(13,471	)
Unearned ESOP shares		(6,548	)		(7,180	)
Accumulated other comprehensive income		548			2,474
Total equity		86,428			87,630
Total liabilities and equity	$	97,130			98,381

Condensed Statements of Income:

	2016			2015			2014
Interest and dividend income:
Dividend income from subsidiary Bank	$	2,000			12,100			2,600
Total interest and dividend income		2,000			12,100			2,600
Interest expense		388			740			737
Non-interest expenses		391			541			546
Total expenses		779			1,281			1,283
Income before income taxes and equity in undistributed earnings of subsidiary		1,221			10,819			1,317
Income tax benefits		(319	)		(529	)		(459	)
Income before equity in undistributed earnings of subsidiary		1,540			11,348			1,776
Equity in (distribution in excess of) earnings of subsidiary		1,364			(8,944	)		423
Income available to common shareholders	$	2,904			2,404			2,199

Condensed Statements of Cash Flows:

	2016			2015			2014
Cash flows from operating activities
Net income	$	2,904			2,404			2,199
Adjustments to reconcile net income to net cash provided by operating activities
Equity in undistributed earnings of subsidiary		(1,364	)		8,943			(423	)
Amortization of restricted stock		135			190			164
Increase (decrease) in:
Current income taxes payable		(49	)		11			200
Accrued expenses		(392	)		(149	)		280
Net cash provided by operating activities		1,234			11,399			2,420
Cash flows from financing activities:
Purchase of treasury stock		(1,876	)		(11,926	)		(3,500	)
Proceeds on ESOP loan		632			704			—
Dividends paid on common stock		(993	)		(1,022	)		(1,187	)
Net cash (used in) financing activities		(2,237	)		(12,244	)		(4,687	)
Net decrease in cash		(1,003	)		(845	)		(2,267	)
Cash and due from banks at beginning of year		2,087			2,932			5,199
Cash and due from banks at end of year	$	1,084			2,087			2,932

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Investments in Affiliated Companies

12 Months Ended

Dec. 31, 2016

Financial Support for Nonconsolidated Legal Entity [Abstract]

Investments in Affiliated Companies

(19) 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,		December 31,
	2016		2015
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,
	2016		2015
Income – interest income from subordinated debentures issued by HopFed Bancorp, Inc.	$	400		354
Net income	$	400		354

Summary Statements of Stockholder’s Equity

	Trust							Total
	Preferred		Common		Retained			Stockholder’s
	Securities		Stock		Earnings			Equity
Beginning balances, January 1, 2016	$	10,000		310		—			10,310
Retained earnings:
Net income		—		—		400			400
Dividends:
Trust preferred securities		—		—		(388	)		(388	)
Common dividends paid to HopFed Bancorp, Inc.		—		—		(12	)		(12	)
Total retained earnings		—		—		—			—
Ending balances, December 31, 2016	$	10,000		310		—			10,310

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Quarterly Results of Operations

12 Months Ended

Dec. 31, 2016

Quarterly Financial Information Disclosure [Abstract]

Quarterly Results of Operations

(20) Quarterly Results of Operations: (Unaudited)

Summarized unaudited quarterly operating results for the year ended December 31, 2016:

	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter
December 31, 2016:
Interest and dividend income	$	8,081		7,691		8,004		7,951
Interest expense		1,405		1,268		1,315		1,311
Net interest income		6,676		6,423		6,689		6,640
Provision for loan losses		458		465		255		63
Net interest income after provision for loan losses		6,218		5,958		6,434		6,577
Noninterest income		2,020		1,970		1,945		2,000
Noninterest expense		7,683		7,609		7,353		7,211
Income before income taxes		555		319		1,026		1,366
Income taxes		46		15		41		260
Net income	$	509		304		985		1,106
Basic earnings per share	$	0.08		0.05		0.16		0.18
Diluted earnings per share	$	0.08		0.05		0.16		0.18
Weighted average shares outstanding:
Basic		6,297,755		6,232,457		6,212,231		6,193,278
Diluted		6,297,755		6,232,457		6,212,231		6,193,278

Summarized unaudited quarterly operating results for the year ended December 31, 2015:

Interest and dividend income	$	9,195	7,919		8,012		7,996
Interest expense		1,633	1,612		1,633		1,672
Net interest income		7,562	6,307		6,379		6,324
Provision for loan losses		215	270		275		291
Net interest income after provision for loan losses		7,347	6,037		6,104		6,033
Noninterest income		1,913	1,868		1,936		1,885
Noninterest expense		7,470	8,234		7,553		7,188
Income (loss) before income taxes		1,790	(329	)	487		730
Income taxes expense (benefit)		435	(212	)	(23	)	74
Net income (loss)	$	1,355	(117	)	510		656
Basic earnings (loss) per share	$	0.20	(0.02	)	0.08		0.10
Diluted earnings (loss) per share	$	0.20	(0.02	)	0.08		0.10
Weighted average shares outstanding:
Basic		6,732,456	6,425,687		6,359,556		6,328,324
Diluted		6,732,456	6,425,687		6,359,556		6,328,324

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Comprehensive Income

12 Months Ended

Dec. 31, 2016

Equity [Abstract]

Comprehensive Income

(21) 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 (loss) included in stockholders’ equity along with the related tax effect for the years ended December 31, 2016, 2015 and 2014.

	Pre-Tax			Tax Benefit			Net of Tax
	Amount			(Expense)			Amount
December 31, 2016:
Unrealized holding gains (losses) on:
Available for sale securities	($	2,048	)		697			(1,351	)
Available for sale securities – OTTI		(258	)		88			(170	)
Reclassification adjustments for gains on:
Available for sale securities		(612	)		207			(405	)
	($	2,918	)		992			(1,926	)
December 31, 2015:
Unrealized holding gains (losses) on:
Available for sale securities	($	1,698	)		577			(1,121	)
Available for sale securities – OTTI		359			(122	)		237
Derivatives		389			(132	)		257
Reclassification adjustments for gains on:
Available for sale securities		(691	)		235			(456	)
	($	1,641	)		558			(1,083	)
December 31, 2014:
Unrealized holding gains on:
Available for sale securities	$	7,773			(2,643	)		5,130
Derivatives		359			(122	)		237
Reclassification adjustments for gains on:
Available for sale securities		(578	)		197			(381	)
	$	7,554			(2,568	)		4,986

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Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2016

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 and headquartered in Hopkinsville, Kentucky. The Corporation’s principal business activities are conducted through its wholly-owned subsidiary, Heritage Bank USA, Inc. (the “Bank”), a Kentucky state chartered commercial 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).

The Bank is a Kentucky commercial chartered bank and is supervised by the Kentucky Department of Financial Institutions (“KDFI”) and the FDIC. Supervision of the Corporation is conducted by the Federal Reserve Bank of Saint Louis (“FED”).

The Bank owns JBMM, LLC, a wholly owned, limited liability company, which owns and manages the Bank’s foreclosed assets. The Bank owns Heritage Interim Corporation, a Tennessee corporation established to facilitate the acquisition of a bank in Tennessee. The proposed acquisition was terminated in August of 2013. The Bank owns Heritage USA Title, LLC, which sells title insurance to the Bank’s real estate loan customers.

The Bank owns Fort Webb LP, LLC, which owns a limited partnership interest in Fort Webb Elderly Housing LP, LLC, 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.

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 subsidiaries (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 (“U.S. GAAP”) and conform to general practices in the banking industry. U.S. GAAP is generally defined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), as amended by Accounting Standards Updates (“ASUs”). Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) are also sources of authoritative U.S. GAAP for SEC registrants.

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 U.S. GAAP. Voting interest entities in 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 subsidiaries, HopFed Capital Trust I and Fort Webb LP, LLC are VIEs for which the Company is not the primary beneficiary. Accordingly, these accounts are not included in the Company’s consolidated financial statements.

Subsequent Events

Subsequent Events

The Company has evaluated subsequent events for potential impact and disclosure through the issue date of these consolidated financial statements.

Estimates

Estimates

In preparing the consolidated financial statements in conformity with U.S. GAAP, 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 collateral.

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-bearing deposits in other financial institutions and federal funds sold with maturities of three months or less. The Company is required to maintain reserve funds in either cash on hand or on deposit with the Federal Reserve Bank. At December 31, 2016, the Company’s reserve requirement was met with available cash on hand.

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. Gains and losses on sales are recorded on the trade date.

Other Than Temporary Impairment

Other Than Temporary Impairment

Management evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic conditions warrant such evaluation. 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. FHLB stock is periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.

Loans Receivable and Allowance for Loan Losses

Loans Receivable and Allowance for Loan Losses

Loans receivable are stated at unpaid principal balances, less the allowance for loan losses and deferred loan cost. 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. Subsequent recoveries, if any, are credited to the allowance. 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. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the most recent three years.

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 Troubled Debt Restructurings (“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 have an allowance established for it. 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 estimate 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 evaluated, 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 U.S. GAAP and has taken into account the views of its regulators and the current economic environment.

If an asset or portion thereof is classified as a loss, we establish a specific reserve for such amount. If the Company determines that a loan relationship is collateral dependent, the Company will charge off the portion of that loan that is deemed to be impaired against the allowance for loan loss account. 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. The Company will charge off a portion or all of a loan balance once it deems the collection of any remaining interest and principal due to be unlikely.

Loans held for sale

Loans held for sale

Mortgage loans originated and intended for sale are carried at the lower of cost or estimated fair value as determined on a loan-by-loan basis. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income. Realized gains and losses are recognized when legal title to the loans has been transferred to the purchaser and sales proceeds have been received and are reflected in the accompanying consolidated statement of operations in gains on mortgage loans sold, net of related costs such as compensation expenses. The Company does not securitize mortgage loans.

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, 2016, the Bank maintained a servicing portfolio of one to four family real estate loans of approximately $19.7 million and approximately $22.8 million at December 31, 2015. For the years ended December 31, 2016, December 31, 2015, and December 31, 2014, 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.

Foreclosed Assets

Foreclosed Assets

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.

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.

Treasury Stock

Treasury Stock

The Company may occasionally purchase its own common stock either in open market transactions or privately negotiated transactions. The value of the Company’s common stock held in treasury is listed at cost.

Unearned ESOP Shares

Unearned ESOP Shares

The Company offers an Employee Stock Ownership Plan (“ESOP”) to the employees of the Company. The unearned portion of common stock of the Company held in the ESOP Trust is recorded on the balance sheet at cost. Common stock is released from the ESOP Trust to the participants as the Bank makes payments on the loan to the Corporation on behalf of the ESOP Trust.

Comprehensive Income

Comprehensive Income

Comprehensive income consists of net income and other comprehensive income, net of applicable income taxes. Other comprehensive income includes unrealized appreciation (depreciation) on available-for-sale securities, unrealized appreciation (depreciation) on available-for-sale securities for which a portion of an other than temporary impairment has been recognized in income, and unrealized appreciation (depreciation) on derivatives.

Transfers of Financial Assets

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales, when control over the assets have been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

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 and Kentucky income tax returns as well as its Kentucky and Tennessee franchise and excise tax returns on a consolidated basis with its subsidiaries. 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 core deposit intangible asset related to the middle Tennessee acquisition of June 2006 was amortized using the sum of the year’s digits method over an estimated period of nine years. At December 31, 2015, the core deposit intangible was fully amortized.

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 the guidelines of 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. The Company’s derivative matured on October 8, 2015. There were no fair value hedging gains or losses, as a result of hedge ineffectiveness, recognized for the years ended December 31, 2015 or 2014.

Fair Values of Financial Instruments

Fair Values of Financial Instruments

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-bearing deposits in banks

The carrying amounts reported in the consolidated balance sheets for interest bearing deposits in banks is 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 held for sale

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

Loans receivable

The fair values 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.

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%.

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 Corporation by the KDFI or FDIC. Any restrictions imposed by either regulator would effectively limit the Company’s ability to pay a dividend to its common stockholders as discussed in Note 16. At December 31, 2016, there were no such restrictions. At December 31, 2016, the Corporation has approximately $1.1 million in cash on hand available to pay common dividends and repurchase treasury stock as outlined in Note 19. At December 31, 2016, the Bank may not pay an additional cash dividend to the Corporation without regulatory approval.

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. Anti-dilutive common stock equivalents are not included for the purposes of this calculation. At December 31, 2016, the Company has no warrants or stock options outstanding.

Stock Compensation

Stock Compensation

Compensation cost is recognized for restricted stock awards issued to employees based on the fair value of these awards at the date of grant. The cost is recognized over the required service period, generally defined as the vesting period.

Effect of New Accounting Pronouncements

Effect of New Accounting Pronouncements

In May 2014, the FASB issued new guidance related to “Revenue from Contracts with Customers.” This guidance supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the ASC. The guidance requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This guidance is effective for interim and annual reporting periods beginning after December 15, 2016; however, the FASB has agreed to a one-year deferral of the effective date to December 15, 2017. The implementation of ASC Topic 605 will not have a material impact on the Company’s Consolidated Financial Statements.

ASU No. 2015-02, “Amendments to the Consolidation Analysis.” This ASU affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. Specifically, the amendments: (1) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities; (2) eliminate the presumption that a general partner should consolidate a limited partnership; (3) affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; and (4) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. ASU No. 2015-02 was effective for interim and annual reporting periods beginning after December 15, 2015. The implementation of the provisions of ASU No. 2015-02 did not have a material impact on the Company’s Consolidated Financial Statements.

ASU 2015-05, “Intangibles – Goodwill and Other - Internal-Use Software (Subtopic 350-40) – Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” ASU 2015-05 addresses accounting for fees paid by a customer in cloud computing arrangements such as (i) software as a service, (ii) platform as a service, (iii) infrastructure as a service and (iv) other similar hosting arrangements. ASU 2015-05 provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The implementation of ASU 2015-05, which was effective on January 1, 2016, did not have a significant impact on the Company’s Consolidated Financial Statements.

ASU 2015-15, “Interest – Imputation of Interest (Subtopic 835-30) – Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting.” ASU 2015-15 adds SEC paragraphs pursuant to an SEC Staff Announcement that given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to line-of-credit arrangements, the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The implementation of ASU 2015-15 did not have a significant impact on the Company’s Consolidated Financial Statements.

In September 2015, the FASB issued Accounting Standards Update No. 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments.” The guidance in this update eliminates the requirement to restate prior period financial statements for measurement period adjustments. The new guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. The new guidance is intended to reduce complexity in financial reporting. The elimination of the restatement requirement should simplify financial reporting for many entities. However, recognizing the entire impact of a measurement period adjustment in a single reporting period may introduce earnings volatility and reduce comparability between periods when the adjustments are material. The accounting changes in this update are effective for public companies for annual periods, and the interim periods within those annual periods, after December 15, 2015. The implementation of ASU 2015-16 did not have a material impact on the Company’s Consolidated Financial Statements.

ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01, among other things, (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (iii) eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (v) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, (vi) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements and (vii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale. ASU 2016-01 will be effective on January 1, 2018, and is not expected to have a material effect on the Company’s Consolidated Financial Statements.

ASU 2016-02, “Leases (Topic 842).” ASU 2016-02 will, among other things, require lessees to recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model and ASC Topic 606, “Revenue from Contracts with Customers.” ASU 2016-02 will be effective for us on January 1, 2019, and will require transition using a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. We are currently evaluating the potential impact of ASU 2016-02 on the Company’s Consolidated Financial Statements.

ASU 2016-05 “Derivatives and Hedging (Topic 815) Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships.” ASU 2016-05 clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under ASC Topic 815 does not, in and of itself, require de-designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. ASU 2016-05 will be effective for us on January 1, 2017. The implementation of ASU 2016-05 is not expected to have a material impact on the Company’s Consolidated Financial Statements.

ASU 2016-07, “Investments – Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting.” The amendments affect all entities that have an investment that becomes qualified for the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence. ASU 2016-07 simplifies the transition to the equity method of accounting by eliminating retroactive adjustment of the investment when an investment qualifies for use of the equity method, among other things. ASU 2016-07 will be effective for us on January 1, 2017. The implementation of ASU 2016-07 is not expected to have a material impact on the Company’s Consolidated Financial Statements.

ASU 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” Under ASU 2016-09 all excess tax benefits and tax deficiencies related to share-based payment awards should be recognized as income tax expense or benefit in the income statement during the period in which they occur. Previously, such amounts were recorded in the pool of excess tax benefits included in additional paid-in capital, if such pool was available. Because excess tax benefits are no longer recognized in additional paid-in capital, the assumed proceeds from applying the treasury stock method when computing earnings per share should exclude the amount of excess tax benefits that would have previously been recognized in additional paid-in capital. Additionally, excess tax benefits should be classified along with other income tax cash flows as an operating activity rather than a financing activity, as was previously the case. ASU 2016-09 also provides that an entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest (current GAAP) or account for forfeitures when they occur. ASU 2016-09 changes the threshold to qualify for equity classification (rather than as a liability) to permit withholding up to the maximum statutory tax rates (rather than the minimum as was previously the case) in the applicable jurisdictions. ASU 2016-09 is effective on January 1, 2017. The implementation of ASU 2016-09 is not expected to have a material effect on the Company’s Consolidated Financial Statements.

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

ASU 2016-15 “Statement of Cash Flows (Topic 230)” (“ASU 2016-15”) is intended to reduce the diversity in practice around how certain transactions are classified within the statement of cash flows. ASU 2016-15 is effective for public companies for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted with retrospective application. We are evaluating the impact that the adoption of ASU 2016-15 will have on the Company’s Consolidated Financial Statements.

Other accounting standards that have been issued or proposed by the FASB or other standards 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. Reclassifications had no effect on prior year’s net income or shareholders’ equity.

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 TDR, ASC 310; A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring, is determinative. In evaluating whether a restructuring constitutes a TDR, the Company must separately conclude that both of the following exist:

a.) The restructuring constitutes a concession

b.) The debtor is experiencing financial difficulties

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

If a debtor does not otherwise have access to funds at a market interest rate for debt with similar risk characteristics as the restructured debt, the restructured debt would be considered a below market rate, which may indicate that the 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.

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

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

Fair Value Measurement

ASC Topic 820, Fair Value Measurements and Disclosures, 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.

The Company 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.

XML

Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2016

Accounting Policies [Abstract]

Schedule of Useful Life of Property, Plant, and Equipment

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

XML

Securities (Tables)

12 Months Ended

Dec. 31, 2016

Cash and Cash Equivalents [Abstract]

Amortized Cost of Securities and their Estimated Fair Values

The carrying amount of securities and their estimated fair values follow:

	December 31, 2016
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Restricted:
FHLB stock	$	4,428		—		—			4,428
Available for Sale:
U.S. Treasury securities	$	2,000		1		—			2,001
U.S. Agency securities		83,667		983		(638	)		84,012
Tax free municipal bonds		33,004		1,081		(174	)		33,911
Taxable municipal bonds		2,720		17		(10	)		2,727
Trust preferred securities		1,634		183		—			1,817
Mortgage-backed securities:
GNMA		19,490		175		(109	)		19,556
FNMA		40,754		176		(577	)		40,353
FHLMC		6,831		12		(84	)		6,759
Non-Agency CMOs		3,786		—		(208	)		3,578
AGENCY CMOs		14,765		74		(73	)		14,766
	$	208,651		2,702		(1,873	)		209,480

	December 31, 2015
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Restricted:
FHLB stock	$	4,428		—		—			4,428
Available for Sale:
U.S. Treasury Securities	$	2,001		—		(1	)		2,000
U.S. Agency Securities		91,694		1,727		(488	)		92,933
Tax free municipal bonds		42,237		2,481		(59	)		44,659
Taxable municipal bonds		6,190		52		(65	)		6,177
Trust preferred securities		1,617		248		—			1,865
Mortgage-backed securities:
GNMA		29,990		239		(239	)		29,990
FNMA		28,189		266		(152	)		28,303
FHLMC		8,113		24		(51	)		8,086
Non-Agency CMOs		3,828		—		(174	)		3,654
AGENCY CMOs		19,570		71		(131	)		19,510
	$	233,429		5,108		(1,360	)		237,177

Maturities of Debt Securities Available for Sale

The scheduled maturities of debt securities available for sale at December 31, 2016, were as follows:

			Estimated
	Amortized		Fair
	Cost		Value
Due within one year	$	6,605		6,615
Due in one to five years		13,913		14,067
Due in five to ten years		32,611		32,744
Due after ten years		13,022		13,603
		66,151		67,029
Amortizing agency bonds		56,874		57,439
Mortgage-backed securities		85,626		85,012
Total unrestricted securities available for sale	$	208,651		209,480

The scheduled maturities of debt securities available for sale at December 31, 2015, were as follows:

			Estimated
	Amortized		Fair
	Cost		Value
Due within one year	$	—		—
Due in one to five years		17,939		18,304
Due in five to ten years		42,151		42,793
Due after ten years		22,702		24,088
		82,792		85,185
Amortizing agency bonds		60,947		62,449
Mortgage-backed securities		89,690		89,543
Total unrestricted securities available for sale	$	233,429		237,177

Estimated Fair Value and Unrealized Loss Amounts of Impaired Investments

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

	Less than 12 months					12 months or longer					Total
	Estimated		Unrealized			Estimated		Unrealized			Estimated		Unrealized
	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
Available for sale
U.S. Agency debt securities	$	41,963		(597	)		3,459		(41	)		45,422		(638	)
Taxable municipals		1,347		(10	)		—		—			1,347		(10	)
Tax free municipals		7,369		(174	)		—		—			7,369		(174	)
Mortgage-backed securities:
GNMA		6,151		(62	)		3,861		(47	)		10,012		(109	)
FNMA		28,950		(577	)		—		—			28,950		(577	)
FHLMC		6,217		(84	)		—		—			6,217		(84	)
Non-Agency CMOs		—		—			3,578		(208	)		3,578		(208	)
AGENCY CMOs		7,144		(73	)		—		—			7,144		(73	)
Total Available for Sale	$	99,141		(1,577	)		10,898		(296	)		110,039		(1,873	)

The estimated fair value and unrealized loss amounts of temporarily impaired investments as of December 31, 2015, are as follows:

	Less than 12 months					12 months or longer					Total
	Estimated		Unrealized			Estimated		Unrealized			Estimated		Unrealized
	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
Available for sale
U.S. Treasury securities	$	2,000		(1	)		—		—			2,000		(1	)
U.S. Agency debt securities		26,499		(203	)		16,224		(285	)		42,723		(488	)
Taxable municipals		2,159		(32	)		1,887		(33	)		4,046		(65	)
Tax free municipals		—		—			3,878		(59	)		3,878		(59	)
Mortgage-backed securities:
GNMA		10,840		(105	)		11,508		(134	)		22,348		(239	)
FNMA		11,484		(87	)		3,036		(65	)		14,520		(152	)
FHLMC		7,336		(51	)		—		—			7,336		(51	)
NON-AGENCY CMOs		—		—			3,654		(174	)		3,654		(174	)
AGENCY CMOs		9,781		(90	)		1,991		(41	)		11,772		(131	)
Total Available for Sale	$	70,099		(569	)		42,178		(791	)		112,277		(1,360	)

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Loans Receivable, Net (Tables)

12 Months Ended

Dec. 31, 2016

Receivables [Abstract]

Components of Loans Receivable in Consolidated Balance Sheets

The components of loans receivable in the consolidated balance sheets as of December 31, 2016, and December 31, 2015, were as follows:

	December 31, 2016						December 31, 2015
	Amount			Percent			Amount			Percent
Real estate loans:
One-to-four family first mortgages	$	147,962			24.2	%	$	145,999			26.0	%
Home equity line of credit		35,684			5.8	%		33,644			6.0	%
Second mortgages		1,452			0.3	%		1,771			0.3	%
Multi-family		34,284			5.6	%		24,725			4.4	%
Construction		39,255			6.4	%		34,878			6.2	%
Land		23,840			3.9	%		22,453			4.0	%
Farmland		47,796			7.8	%		42,246			7.5	%
Non-residential real estate		182,940			30.0	%		149,711			26.6	%
Total mortgage loans		513,213			84.0	%		455,427			81.0	%
Consumer loans		8,717			1.4	%		20,324			3.6	%
Commercial loans		88,907			14.6	%		86,743			15.4	%
Total other loans		97,624			16.0	%		107,067			19.0	%
Total loans		610,837			100.0	%		562,494			100.0	%
Deferred loan cost, net of fees		(439	)					(445	)
Less allowance for loan losses		(6,112	)					(5,700	)
Total loans, net	$	604,286					$	556,349

Loans by Classification Type and Related Allowance Amounts

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

			Special		Impaired Loans						Specific Allowance for Impairment		Allowance for Loans not Impaired
	Pass		Mention		Substandard		Doubtful		Total
One-to-four family mortgages	$	145,965		744		1,253		—		147,962		—		852
Home equity line of credit		35,109		25		550		—		35,684		—		260
Junior liens		1,411		30		11		—		1,452		—		8
Multi-family		31,280		—		3,004		—		34,284		—		412
Construction		39,255		—		—		—		39,255		—		277
Land		15,581		35		8,224		—		23,840		1,036		724
Non-residential real estate		172,395		3		10,542		—		182,940		—		964
Farmland		44,832		674		2,290		—		47,796		—		778
Consumer loans		8,382		—		335		—		8,717		84		124
Commercial loans		85,174		603		3,130		—		88,907		28		565
Total	$	579,384		2,114		29,339		—		610,837		1,148		4,964

Loans by classification type and the related valuation allowance amounts at December 31, 2015 were as follows:

			Special		Impaired Loans						Specific Allowance for Impairment		Allowance for Loans not Impaired
	Pass		Mention		Substandard		Doubtful		Total
One-to-four family mortgages	$	142,729		41		3,229		—		145,999		60		970
Home equity line of credit		33,475		—		169		—		33,644		—		201
Junior liens		1,720		35		16		—		1,771		—		8
Multi-family		21,644		—		3,081		—		24,725		138		89
Construction		34,878		—		—		—		34,878		—		377
Land		11,794		41		10,618		—		22,453		69		1,310
Non-residential real estate		138,865		2,489		8,357		—		149,711		134		1,005
Farmland		41,917		—		329		—		42,246		—		358
Consumer loans		20,123		—		201		—		20,324		49		309
Commercial loans		84,317		352		2,074		—		86,743		180		443
Total	$	531,462		2,958		28,074		—		562,494		630		5,070

Impaired Loans by Classification Type

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

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

Impaired loans by classification type and the related valuation allowance amounts at December 31, 2015 were as follows:

	At December 31, 2015						For the year ended December 31, 2015
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
Impaired loans with no specific allowance
One-to-four family mortgages	$	2,526		2,526		—		2,389		80
Home equity line of credit		169		169		—		457		7
Junior liens		16		16		—		17		1
Multi-family		2,128		2,128		—		2,797		126
Construction		—		—		—		—		—
Land		10,038		10,998		—		8,520		671
Non-residential real estate		7,640		7,640		—		283		404
Farmland		329		329		—		7,774		19
Consumer loans		5		5		—		3		—
Commercial loans		1,274		1,274		—		1,599		73
Total		24,125		25,085		—		23,839		1,381
Impaired loans with a specific allowance
One-to-four family mortgages	$	703		703		60		709		40
Home equity line of credit		—		—		—		—		—
Junior liens		—		—		—		—		—
Multi-family		953		953		138		318		17
Construction		—		—		—		—		—
Land		580		580		69		1,707		46
Non-residential real estate		717		717		134		836		28
Farmland		—		—		—		—		—
Consumer loans		196		196		49		194		—
Commercial loans		800		800		180		514		15
Total		3,949		3,949		630		4,278		146
Total impaired loans	$	28,074		29,034		630		28,117		1,527

Allowance for Loan Losses and Recorded Investment in Loans by Portfolio Segment and Impairment Method

The following table presents the balance in the allowance for loan losses and the recorded investment in loans as of December 31, 2016, and December 31, 2015, by portfolio segment and based on the impairment method as of December 31, 2016, and December 31, 2015.

	Commercial		Land Development / Construction		Commercial Real Estate		Residential Real Estate		Consumer		Total
December 31, 2016:
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	28		1,036		—		—		84		1,148
Collectively evaluated for impairment		565		1,001		2,154		1,120		124		4,964
Total ending allowance balance	$	593		2,037		2,154		1,120		208		6,112
Loans:
Loans individually evaluated for impairment	$	3,130		8,224		15,836		1,814		335		29,339
Loans collectively evaluated for impairment		85,777		54,871		249,184		183,284		8,382		581,498
Total ending loans balance	$	88,907		63,095		265,020		185,098		8,717		610,837
	Commercial		Land Development / Construction		Commercial Real Estate		Residential Real Estate		Consumer		Total
December 31, 2015:
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	180		69		272		60		49		630
Collectively evaluated for impairment		443		1,687		1,452		1,179		309		5,070
Total ending allowance balance	$	623		1,756		1,724		1,239		358		5,700
Loans:
Loans individually evaluated for impairment	$	2,074		10,618		11,767		3,414		201		28,074
Loans collectively evaluated for impairment		84,669		46,713		204,915		178,000		20,123		534,420
Total ending loans balance	$	86,743		57,331		216,682		181,414		20,324		562,494

Allowance for Loan Loss Account by Loan

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, 2016:

	Balance 12/31/2015		Charge off 2016			Recovery 2016		General Provision 2016			Specific Provision 2016			Ending Balance 12/31/2016
One-to-four family mortgages	$	1,030		—			167		(118	)		(227	)		852
Home equity line of credit		201		(30	)		14		59			16			260
Junior liens		8		—			14		—			(14	)		8
Multi-family		227		(421	)		—		323			283			412
Construction		377		—			—		(100	)		—			277
Land		1,379		—			—		(586	)		967			1,760
Non-residential real estate		1,139		—			10		(41	)		(144	)		964
Farmland		358		—			—		420			—			778
Consumer loans		358		(422	)		293		(187	)		166			208
Commercial loans		623		(595	)		141		122			302			593
	$	5,700		(1,468	)		639		(108	)		1,349			6,112

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, 2015:

	Balance 12/31/2014		Charge off 2015			Recovery 2015		General Provision 2015			Specific Provision 2015			Ending Balance 12/31/2015
One-to-four family mortgages	$	1,198		(143	)		39		(176	)		112			1,030
Home equity line of credit		181		(92	)		10		20			82			201
Junior liens		14		—			4		(6	)		(4	)		8
Multi-family		85		—			—		4			138			227
Construction		146		—			—		231			—			377
Land		1,123		(911	)		—		850			317			1,379
Non-residential real estate		2,083		(222	)		2		(944	)		220			1,139
Farmland		461		—			—		500			(603	)		358
Consumer loans		494		(298	)		118		(123	)		167			358
Commercial loans		504		(201	)		54		(61	)		327			623
	$	6,289		(1,867	)		227		295			756			5,700

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, 2014:

	Balance 12/31/2013		Charge off 2014			Recovery 2014		General Provision 2014			Specific Provision 2014			Ending Balance 12/31/2014
One-to-four family mortgages	$	2,048		(233	)		24		(304	)		(337	)		1,198
Home equity line of credit		218		(83	)		3		(37	)		80			181
Junior liens		39		—			9		(25	)		(9	)		14
Multi-family		466		—			—		(381	)		—			85
Construction		88		(139	)		9		58			130			146
Land		1,305		—			—		(74	)		(108	)		1,123
Non-residential real estate		2,719		(66	)		864		(1,368	)		(66	)		2,083
Farmland		510		—			—		542			(591	)		461
Consumer loans		541		(415	)		109		(13	)		272			494
Commercial loans		748		(296	)		94		(244	)		202			504
	$	8,682		(1,232	)		1,112		(1,846	)		(427	)		6,289

Non-accrual Loans

For the years ended December 31, 2016, and December 31, 2015, the components of the Company’s balances of non-accrual loans are as follows:

	12/31/2016		12/31/2015
One-to-four family first mortgages	$	270		2,234
Home equity lines of credit		402		48
Multi-family		—		1,968
Land		7,675		1,553
Non-residential real estate		208		247
Farmland		—		166
Consumer loans		3		8
Commercial loans		516		1,198
Total non-accrual loans	$	9,074		7,422

Gross Loan Balances Excluding Deferred Loan Fees by Loan Classification Allocated Between Past Due Performing and Non-performing

The table below presents gross loan balances excluding deferred loan fees of $439,000 at December 31, 2016, by loan classification allocated between past due, classified, performing and non-performing:

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

The table below presents gross loan balances excluding deferred loan fees of $445,000 at December 31, 2015, by loan classification allocated between past due, classified, performing and non-performing:

	Currently		30 - 89 Days		Non-accrual		Special		Impaired Loans Currently Performing
	Performing		Past Due		Loans		Mention		Substandard		Doubtful		Total
One-to-four family mortgages	$	142,058		671		2,234		41		995		—	$	145,999
Home equity line of credit		33,396		79		48		—		121		—		33,644
Junior liens		1,720		—		—		35		16		—		1,771
Multi-family		21,638		6		1,968		—		1,113		—		24,725
Construction		34,878		—		—		—		—		—		34,878
Land		11,047		747		1,553		41		9,065		—		22,453
Non-residential real estate		138,637		228		247		2,489		8,110		—		149,711
Farmland		41,853		64		166		—		163		—		42,246
Consumer loans		20,108		15		8		—		193		—		20,324
Commercial loans		84,272		45		1,198		352		876		—		86,743
Total	$	529,607		1,855		7,422		2,958		20,652		—		562,494

Summary of the Activity in Loans Classified as TDRs

A summary of the activity in loans classified as TDRs for the year ended December 31, 2016, is as follows:

	Balance at		New		Loss on		Transferred to		Loan			Balance at
	12/31/15		TDR		Foreclosure		Non-accrual		Amortization			12/31/16
Multi-family real estate	$	—		816		—		—		(1	)		815
Non-residential real estate		5,536		228		—		—		(118	)		5,646
Total performing TDR	$	5,536		1,044		—		—		(119	)		6,461

A summary of the activity in loans classified as TDRs for the year ended December 31, 2015, is as follows:

	Balance at		New		Loss on		Transferred to		Loan			Balance at
	12/31/14		TDR		Foreclosure		Held For Sale		Amortization			12/31/15
Non-residential real estate	$	3,284		2,265		—		—		(13	)		5,536
Total performing TDR	$	3,284		2,265		—		—		(13	)		5,536

Summary of Loans to Officers, Directors and Their Affiliates

The following summarizes activity of loans to officers and directors and their affiliates for the years ended December 31, 2016, and December 31, 2015:

	2016			2015
Balance at beginning of period	$	3,844			4,022
New loans		1,651			682
Principal repayments		(601	)		(860	)
Balance at end of period	$	4,894			3,844

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Premises and Equipment (Tables)

12 Months Ended

Dec. 31, 2016

Property, Plant and Equipment [Abstract]

Components of Premises and Equipment Included in Consolidated Balance Sheets

Components of premises and equipment included in the consolidated balance sheets as of December 31, 2016 and December 31, 2015, consisted of the following:

	2016		2015
Land	$	6,555		6,579
Land improvements		1,132		1,097
Buildings		22,397		22,405
Furniture and equipment		6,932		6,488
		37,016		36,569
Less accumulated depreciation		13,555		12,535
Premises and equipment, net	$	23,461		24,034

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Deposits (Tables)

12 Months Ended

Dec. 31, 2016

Text Block [Abstract]

Scheduled Maturities of Other Time Deposits

At December 31, 2016, the scheduled maturities of other time deposits were as follows:

Years Ending December 31,
2017	$	137,907
2018		97,986
2019		29,945
2020		16,811
2021		10,429
	$	293,078

Interest Expense on Deposits

Interest expense on deposits for the years ended December 31, 2016, December 31, 2015 and December 31, 2014, is summarized as follows:

	2016		2015		2014
Interest bearing checking accounts	$	1,183		1,105		1,253
Money market accounts		76		88		86
Savings		95		103		109
Other time deposits		2,886		3,735		4,155
	$	4,240		5,031		5,603

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Advances from Federal Home Loan Bank (Tables)

12 Months Ended

Dec. 31, 2016

Banking and Thrift [Abstract]

Summarized Federal Home Loan Bank Advances

Federal Home Loan Bank advances are summarized as follows:

	December 31,
	2016					2015
			Weighted					Weighted
Types of Advances	Amount		Average Rate			Amount		Average Rate
Fixed-rate	$	11,000		1.04	%	$	15,000		2.19	%

Scheduled Maturities of FHLB Advances

Scheduled maturities of FHLB advances as of December 31, 2016, are as follows:

Years Ending	Fixed		Average
December 31,	Rate		Cost
2017	$	5,000		0.88	%
2018		6,000		1.18	%
Total	$	11,000		1.04	%

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Repurchase Agreements (Tables)

12 Months Ended

Dec. 31, 2016

Text Block [Abstract]

Cost and Maturities of the Company's Repurchase Agreements

At December 31, 2016, and December 31, 2015, the respective cost and maturities of the Company’s repurchase agreements are as follows:

2016
Third Party	Balance		Average Rate			Maturity
Various customers	$	47,655		0.91	%		Overnight
Total	$	47,655		0.91	%
2015
Third Party	Balance		Average Rate			Maturity		Comments
Merrill Lynch	$	6,000		4.36	%		9/18/2016		Quarterly callable
Various customers		39,770		0.61	%				Overnight
Total	$	45,770		1.13	%

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Fair Value Measurement (Tables)

12 Months Ended

Dec. 31, 2016

Fair Value Disclosures [Abstract]

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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, 2016	Total carrying value in the consolidated		Quoted Prices In Active Markets for		Significant Other Observable		Significant Unobservable
Description	balance sheet at December 31, 2016		Identical Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)
Assets
Available for sale securities	$	209,480		2,001		205,662		1,817

December 31, 2015	Total carrying value in the consolidated		Quoted Prices In Active Markets for		Significant Other Observable		Significant Unobservable
Description	balance sheet at December 31, 2015		Identical Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)
Assets
Available for sale securities	$	237,177		2,000		233,312		1,865

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

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

December 31, 2016	Total carrying value in the		Quoted Prices In Active		Significant Other		Significant
Description	consolidated balance sheet at 12/31/2016		Markets for Identical Assets (Level 1)		Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
Assets
Foreclosed assets	$	2,397		—		—		2,397
Impaired loans, net of allowance of $1,148	$	6,123		—		—		6,123

December 31, 2015	Total carrying value in the		Quoted Prices In Active		Significant Other		Significant
Description	consolidated balance sheet at 12/31/2015		Markets for Identical Assets (Level 1)		Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
Assets
Foreclosed assets	$	1,736		—		—		1,736
Impaired loans, net of allowance of $630	$	3,319		—		—		3,319

Quantitative Information about Level 3 Fair Value Measurements for Assets Measured at Fair Value on Reoccurring and Non-reoccurring Basis

The following table presents quantitative information about level 3 fair value measurements for assets measured at fair value on a reoccuring and non-reoccuring basis at December 31, 2016 and 2015:

Level 3 Significant Unobservable Input Assumptions
	Fair Value		Valuation Technique	Unobservable Input	Quantitative Range of Unobservable Inputs
December 31, 2016
Assets measured on a non-recurring basis
Foreclosed assets		2,397	Discount to appraised value of collateral	Appraisal comparability adjustments		30% to 55%
Impaired loans		7,271	Discount to appraised value of collateral	Appraisal comparability adjustments		10% to 25%
Asset measured on a recurring basis
Trust preferred securities		1,817	Discounted cash flow Spread to Libor swap curve	Compare to quotes for sale when available		One month libor 4% to 6%
December 31, 2015
Assets measured on a non-recurring basis
Foreclosed assets		1,736	Discount to appraised value of collateral	Appraisal comparability adjustments		10% to 15%
Impaired loans		3,949	Discount to appraised value of collateral	Appraisal comparability adjustments		10% to 15%
Asset measured on a recurring basis
Trust preferred securities		1,865	Discounted cash flow Spread to Libor swap curve	Compare to quotes for sale when available		One month libor 4% to 6%

Roll-Forward of the Consolidated Condensed Statement of Financial Condition Items

The table below includes a roll-forward of the balance sheet items for the years ended December 31, 2016 and 2015, (including the change in fair value) for assets and liabilities classified by the Company 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,
	2016			2015
	Other			Other
	Assets			Assets
Fair value, December 31,	$	1,865		$	1,489
Change in unrealized gains (losses) included in other comprehensive income for assets and liabilities still held at December 31,		(65	)		359
Other than temporary impairment charge		—			—
Recovery of prior impairment charge		17			17
Purchases, issuances and settlements, net		—			—
Transfers in and/or out of Level 3		—			—
Fair value, December 31,	$	1,817		$	1,865

Estimated Fair Values of Financial Instruments

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

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

The estimated fair values of financial instruments were as follows at December 31, 2015:

							Using
					Quoted Prices		Significant
					In Active Markets		Other		Significant
			Estimated		for Identical		Observable		Unobservable
	Carrying		Fair		Assets		Inputs		Inputs
	Amount		Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from banks	$	46,926		46,926		46,926		—		—
Interest-bearing deposits in banks		7,772		7,772		7,772		—		—
Securities available for sale		237,177		237,177		2,000		233,312		1,865
Federal Home Loan Bank stock		4,428		4,428		—		4,428		—
Loans held for sale		2,792		2,792		—		2,792		—
Loans receivable		556,349		552,981		—		—		552,981
Accounts receivable		4,139		4,139		—		4,139		—
Financial Liabilities:
Deposits		739,406		724,877		—		724,877		—
Advances from borrowers for taxes and insurance		614		614		—		614		—
Advances from Federal Home Loan Bank		15,000		14,985		—		14,985		—
Repurchase agreements		45,770		45,931		—		45,931		—
Subordinated debentures		10,310		10,099		—		—		10,099

Foreclosed Assets that were Re-measured and Reported at Fair Value

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

	Years Ended December 31,
	2016			2015			2014
Beginning balance	$	1,736			1,927			1,674
Foreclosed assets measured at initial recognition:
Carrying value of foreclosed assets prior to acquisition		2,935			986			1,816
Proceeds from sale of foreclosed assets		(1,623	)		(344	)		(1,118	)
Charge-offs recognized in the allowance for loan loss		(672	)		(117	)		(237	)
Gains (losses) included in non-interest expense		21			(716	)		(208	)
Fair value	$	2,397			1,736			1,927

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Employee Benefit Plans (Tables)

12 Months Ended

Dec. 31, 2016

Compensation and Retirement Disclosure [Abstract]

Compensation Expense to be Recognized

The remaining compensation expense to be recognized at December 31, 2016, is as follows:

Year Ending December 31,	Approximate Future Compensation Expense
2017	$	88
2018		54
2019		9
2020		2
Total	$	153

Summary of Shares Held by Employee Stock Ownership Plan (ESOP)

At December 31, 2016, shares held by the ESOP were as follows:

	December 31, 2016
Earned ESOP shares		101,654
Unearned ESOP shares		498,346
Total ESOP shares		600,000
Share Price at December 31, 2016	$	13.46
Fair value of unearned shares	$	6,707,737

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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2016

Income Tax Disclosure [Abstract]

Provision for Income Tax Expense (Benefit)

The provision for income tax expense (benefit) for the years ended December 31, 2016, December 31, 2015, and December 31, 2014, consisted of the following:

	2016		2015		2014
Current
Federal	$	—		—		—
State		95		97		30
		95		97		30
Deferred
Federal		267		177		(231	)
State		—		—		—
		267		177		(231	)
	$	362		274		(201	)

Reconciliation of Federal Income Tax Rate

Total income tax expense for the years ended December 31, 2016, December 31, 2015, and December 31, 2014, differed from the amounts computed by applying the federal income tax rate of 34 percent to income before income taxes as follows:

	2016			2015			2014
Expected federal income tax expense at statutory tax rate	$	1,110			911			679
Effect of nontaxable interest income		(452	)		(458	)		(542	)
Effect of nontaxable bank owned life insurance income		(117	)		(114	)		(104	)
Effect of Qualified Zone Academy Bond (QZAB) credit		(114	)		(109	)		(220	)
State taxes on income, net of federal benefit		59			59			10
Other tax credits		(128	)		(80	)		(80	)
Non deductible expenses		4			65			56
Total income tax expense	$	362			274			(201	)
Effective tax rate (benefit)		11.1	%		10.2	%		(10.1%	)

Components of Deferred Taxes

The components of deferred taxes as of December 31, 2016, and December 31, 2015, are summarized as follows:

	2016			2015
Deferred tax assets:
Allowance for loan loss	$	2,078			1,938
Accrued expenses		294			377
Net operating loss carry forward		454			1,182
Tax credit carry forward		568			258
Intangible amortization		548			784
Other		242			267
		4,184			4,806
Deferred tax liabilities:
FHLB stock dividends		(787	)		(787	)
Unrealized gain on securities available for sale		(240	)		(1,275	)
Depreciation and amortization		(105	)		(102	)
		(1,132	)		(2,164	)
Net deferred tax asset	$	3,052			2,642

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Foreclosed Assets (Tables)

12 Months Ended

Dec. 31, 2016

Banking and Thrift [Abstract]

Company's Balance in Foreclosed Assets

As of December 31, 2016, and December 31, 2015, the composition of the Company’s balance in foreclosed assets are as follows:

	December 31,
	2016		2015
One-to-four family mortgages	$	135		55
Home equity line of credit		28		—
Multi-family		1,775		—
Land		—		943
Non-residential real estate		459		738
Total foreclosed assets	$	2,397		1,736

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Commitments and Contingencies (Tables)

12 Months Ended

Dec. 31, 2016

Commitments and Contingencies Disclosure [Abstract]

Future Minimal Purchase, Lease and Rental Commitments

At December 31, 2016, future minimal purchase, lease and rental commitments were as follows:

Years Ending
December 31,
2017	$	2,311
2018		1,568
2019		1,462
2020		67
2021		34
Total	$	5,442

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Regulatory Matters (Tables)

12 Months Ended

Dec. 31, 2016

Banking and Thrift [Abstract]

The Company's Consolidated Capital Ratios and the Bank's Actual Capital Amounts and Ratios

The Company’s consolidated capital ratios and the Bank’s actual capital amounts and ratios as of December 31, 2016, and December 31, 2015, are presented below:

											To be Well
						Minimum Capital					Capitalized for
						Required - Basel III					Prompt Corrective
	Actual					Phase-In Schedule					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2016
Tier 1 leverage capital to adjusted total assets
Company	$	92,803		10.8	%	$	34,392		4.0	%	$	42,990		5.0	%
Bank	$	91,617		10.7	%	$	34,315		4.0	%	$	42,894		5.0	%
Total capital to risk weighted assets
Company	$	98,915		16.2	%	$	52,682		8.625	%	$	61,080		10.0	%
Bank	$	97,729		16.0	%	$	52,561		8.625	%	$	60,941		10.0	%
Tier 1 capital to risk weighted assets
Company	$	92,803		15.2	%	$	40,466		6.625	%	$	48,864		8.0	%
Bank	$	91,617		15.0	%	$	40,373		6.625	%	$	48,753		8.0	%
Common equity tier 1capital to risk weighted assets
Company	$	92,803		15.2	%	$	31,304		5.125	%		n/a		n/a
Bank	$	91,617		15.0	%	$	31,232		5.125	%	$	39,611		6.5	%
As of December 31, 2015
Tier 1 leverage capital to adjusted total assets
Company	$	95,156		10.9	%	$	34,924		4.0	%	$	43,656		5.0	%
Bank	$	93,328		10.7	%	$	34,840		4.0	%	$	43,550		5.0	%
Total capital to risk weighted assets
Company	$	100,857		17.3	%	$	46,772		8.0	%	$	58,465		10.0	%
Bank	$	99,029		17.1	%	$	46,272		8.0	%	$	57,840		10.0	%
Tier 1 capital to risk weighted assets
Company	$	95,156		16.3	%	$	35,079		6.0	%	$	46,772		8.0	%
Bank	$	93,328		16.1	%	$	34,704		6.0	%	$	46,272		8.0	%
Common equity tier 1capital to risk
weighted assets
Company	$	95,156		16.3	%	$	26,309		4.5	%		n/a		n/a
Bank	$	93,328		16.1	%	$	26,028		4.5	%	$	37,596		6.5	%

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Earnings Per Share (Tables)

12 Months Ended

Dec. 31, 2016

Earnings Per Share [Abstract]

Summary of Reconciliation of Weighted Average Common Shares

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

	Years Ended December 31,
	2016			2015			2014
Basic earnings per share:
Weighted average common shares		6,757,345			6,919,190			7,306,078
Less: Average unallocated ESOP shares		(523,485	)		(546,913	)		—
Weighted average common shares		6,233,860			6,372,277			7,306,078
Dilutive effect of stock options		—			—			—
Weighted average common and incremental shares		6,233,860			6,372,277			7,306,078

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Investments in Affiliated Companies (Tables)

12 Months Ended

Dec. 31, 2016

HopFed [Member]

Summary of Balance Sheets

Condensed Balance Sheets:
	2016			2015
Assets:
Cash	$	1,084			2,087
Investment in subsidiary		95,242			95,804
Prepaid expenses and other assets		804			490
Total assets		97,130			98,381
Liabilities and equity
Liabilities
Dividend payable - common		288			287
Interest payable		101			89
Other liabilities		3			65
Subordinated debentures		10,310			10,310
Total liabilities		10,702			10,751
Equity:
Preferred stock		—			—
Common stock		80			79
Additional paid-capital		58,660			58,604
Retained earnings		49,035			47,124
Treasury stock - common stock		(15,347	)		(13,471	)
Unearned ESOP shares		(6,548	)		(7,180	)
Accumulated other comprehensive income		548			2,474
Total equity		86,428			87,630
Total liabilities and equity	$	97,130			98,381

Summary of Condensed Statements of Income

Condensed Statements of Income:

	2016			2015			2014
Interest and dividend income:
Dividend income from subsidiary Bank	$	2,000			12,100			2,600
Total interest and dividend income		2,000			12,100			2,600
Interest expense		388			740			737
Non-interest expenses		391			541			546
Total expenses		779			1,281			1,283
Income before income taxes and equity in undistributed earnings of subsidiary		1,221			10,819			1,317
Income tax benefits		(319	)		(529	)		(459	)
Income before equity in undistributed earnings of subsidiary		1,540			11,348			1,776
Equity in (distribution in excess of) earnings of subsidiary		1,364			(8,944	)		423
Income available to common shareholders	$	2,904			2,404			2,199

Equity Method Investments [Member]

Summary of Balance Sheets

Summary Balance Sheets

	December 31,		December 31,
	2016		2015
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 Condensed Statements of Income

Summary Statements of Income

	Years Ended December. 31,
	2016		2015
Income – interest income from subordinated debentures issued by HopFed Bancorp, Inc.	$	400		354
Net income	$	400		354

Summary Statement of Stockholders' Equity

Summary Statements of Stockholder’s Equity

	Trust							Total
	Preferred		Common		Retained			Stockholder’s
	Securities		Stock		Earnings			Equity
Beginning balances, January 1, 2016	$	10,000		310		—			10,310
Retained earnings:
Net income		—		—		400			400
Dividends:
Trust preferred securities		—		—		(388	)		(388	)
Common dividends paid to HopFed Bancorp, Inc.		—		—		(12	)		(12	)
Total retained earnings		—		—		—			—
Ending balances, December 31, 2016	$	10,000		310		—			10,310

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Condensed Parent Company Only Financial Statements (Tables)

12 Months Ended

Dec. 31, 2016

HopFed [Member]

Summary of Condensed Statements of Cash Flows

Condensed Statements of Cash Flows:

	2016			2015			2014
Cash flows from operating activities
Net income	$	2,904			2,404			2,199
Adjustments to reconcile net income to net cash provided by operating activities
Equity in undistributed earnings of subsidiary		(1,364	)		8,943			(423	)
Amortization of restricted stock		135			190			164
Increase (decrease) in:
Current income taxes payable		(49	)		11			200
Accrued expenses		(392	)		(149	)		280
Net cash provided by operating activities		1,234			11,399			2,420
Cash flows from financing activities:
Purchase of treasury stock		(1,876	)		(11,926	)		(3,500	)
Proceeds on ESOP loan		632			704			—
Dividends paid on common stock		(993	)		(1,022	)		(1,187	)
Net cash (used in) financing activities		(2,237	)		(12,244	)		(4,687	)
Net decrease in cash		(1,003	)		(845	)		(2,267	)
Cash and due from banks at beginning of year		2,087			2,932			5,199
Cash and due from banks at end of year	$	1,084			2,087			2,932

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Quarterly Results of Operations (Tables)

12 Months Ended

Dec. 31, 2016

Quarterly Financial Information Disclosure [Abstract]

Summarized Unaudited Quarterly Operating Results

Summarized unaudited quarterly operating results for the year ended December 31, 2016:

	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter
December 31, 2016:
Interest and dividend income	$	8,081		7,691		8,004		7,951
Interest expense		1,405		1,268		1,315		1,311
Net interest income		6,676		6,423		6,689		6,640
Provision for loan losses		458		465		255		63
Net interest income after provision for loan losses		6,218		5,958		6,434		6,577
Noninterest income		2,020		1,970		1,945		2,000
Noninterest expense		7,683		7,609		7,353		7,211
Income before income taxes		555		319		1,026		1,366
Income taxes		46		15		41		260
Net income	$	509		304		985		1,106
Basic earnings per share	$	0.08		0.05		0.16		0.18
Diluted earnings per share	$	0.08		0.05		0.16		0.18
Weighted average shares outstanding:
Basic		6,297,755		6,232,457		6,212,231		6,193,278
Diluted		6,297,755		6,232,457		6,212,231		6,193,278

Summarized unaudited quarterly operating results for the year ended December 31, 2015:

Interest and dividend income	$	9,195	7,919		8,012		7,996
Interest expense		1,633	1,612		1,633		1,672
Net interest income		7,562	6,307		6,379		6,324
Provision for loan losses		215	270		275		291
Net interest income after provision for loan losses		7,347	6,037		6,104		6,033
Noninterest income		1,913	1,868		1,936		1,885
Noninterest expense		7,470	8,234		7,553		7,188
Income (loss) before income taxes		1,790	(329	)	487		730
Income taxes expense (benefit)		435	(212	)	(23	)	74
Net income (loss)	$	1,355	(117	)	510		656
Basic earnings (loss) per share	$	0.20	(0.02	)	0.08		0.10
Diluted earnings (loss) per share	$	0.20	(0.02	)	0.08		0.10
Weighted average shares outstanding:
Basic		6,732,456	6,425,687		6,359,556		6,328,324
Diluted		6,732,456	6,425,687		6,359,556		6,328,324

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Comprehensive Income (Tables)

12 Months Ended

Dec. 31, 2016

Equity [Abstract]

Other Comprehensive (Loss) Income Included in Stockholders' Equity

The following table sets forth the amounts of other comprehensive income (loss) included in stockholders’ equity along with the related tax effect for the years ended December 31, 2016, 2015 and 2014.

	Pre-Tax			Tax Benefit			Net of Tax
	Amount			(Expense)			Amount
December 31, 2016:
Unrealized holding gains (losses) on:
Available for sale securities	($	2,048	)		697			(1,351	)
Available for sale securities – OTTI		(258	)		88			(170	)
Reclassification adjustments for gains on:
Available for sale securities		(612	)		207			(405	)
	($	2,918	)		992			(1,926	)
December 31, 2015:
Unrealized holding gains (losses) on:
Available for sale securities	($	1,698	)		577			(1,121	)
Available for sale securities – OTTI		359			(122	)		237
Derivatives		389			(132	)		257
Reclassification adjustments for gains on:
Available for sale securities		(691	)		235			(456	)
	($	1,641	)		558			(1,083	)
December 31, 2014:
Unrealized holding gains on:
Available for sale securities	$	7,773			(2,643	)		5,130
Derivatives		359			(122	)		237
Reclassification adjustments for gains on:
Available for sale securities		(578	)		197			(381	)
	$	7,554			(2,568	)		4,986

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Summary of Significant Accounting Policies - Additional Information (Detail)	1 Months Ended	12 Months Ended
	Oct. 31, 2008	Dec. 31, 2016 USD ($) Branch shares	Dec. 31, 2015 USD ($)	Dec. 31, 2013 USD ($)
Accounting Policies [Line Items]
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		$ 19,700,000	$ 22,800,000
Accrued interest receivable maximum recovery period		90 days
Number of branch offices involved in origination of loans and collection of deposits | Branch		18
Hedging gains or losses, fair value		$ 0	$ 0	$ 0
Derivative maturity date		Oct. 08, 2015
Maturity period of cash and cash equivalents		90 days
Interest rate to be received under swap agreement		Three-month London Interbank Lending Rate (Libor) plus 3.10%
Percentage above LIBOR	3.10%	3.10%
Cash available for dividend		$ 1,100,000
Warrants outstanding		$ 0
Stock options outstanding | shares		0
Core Deposits [Member]
Accounting Policies [Line Items]
Intangible assets useful lives		9 years

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Summary of Significant Accounting Policies - Schedule of Useful Life of Property, Plant and Equipment (Detail)	12 Months Ended
	Dec. 31, 2016
Buildings [Member]
Property, Plant and Equipment [Line Items]
Useful lives of property, plant and equipment	40 years
Minimum [Member] | Land Improvements [Member]
Property, Plant and Equipment [Line Items]
Useful lives of property, plant and equipment	5 years
Minimum [Member] | Furniture and Equipment [Member]
Property, Plant and Equipment [Line Items]
Useful lives of property, plant and equipment	5 years
Maximum [Member] | Land Improvements [Member]
Property, Plant and Equipment [Line Items]
Useful lives of property, plant and equipment	15 years
Maximum [Member] | Furniture and Equipment [Member]
Property, Plant and Equipment [Line Items]
Useful lives of property, plant and equipment	15 years

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Securities - Amortized Cost of Securities and their Estimated Fair Values (Detail) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Schedule of Available-for-sale Securities [Line Items]
FHLB stock	$ 4,428	$ 4,428
FHLB stock	4,428	4,428
Amortized Cost	208,651	233,429
Gross Unrealized Gains	2,702
Gross Unrealized Losses	(1,873)
Estimated Fair Value	209,480	237,177
Estimated Fair Value, Less than 12 months	99,141	70,099
Unrealized Losses, Less than 12 months	(1,577)	(569)
Estimated Fair Value, 12 months or longer	10,898	42,178
Unrealized Losses, 12 months or longer	(296)	(791)
Estimated Fair Value	110,039	112,277
Unrealized Losses	(1,873)	(1,360)
Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost		233,429
Gross Unrealized Gains		5,108
Gross Unrealized Losses		(1,360)
Estimated Fair Value		237,177
U.S. Treasury Securities [Member] | Available for Sale Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	2,000	2,001
Gross Unrealized Gains	1
Gross Unrealized Losses		(1)
Estimated Fair Value	2,001	2,000
U.S. Treasury Securities [Member] | U.S. Agency Securities [Member] | Temporarily Impaired Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Estimated Fair Value, Less than 12 months		2,000
Unrealized Losses, Less than 12 months		(1)
Estimated Fair Value		2,000
Unrealized Losses		(1)
U.S. Government and Agency Debt Securities [Member] | Available for Sale Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	83,667	91,694
Gross Unrealized Gains	983	1,727
Gross Unrealized Losses	(638)	(488)
Estimated Fair Value	84,012	92,933
U.S. Government and Agency Debt Securities [Member] | U.S. Agency Securities [Member] | Temporarily Impaired Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Estimated Fair Value, Less than 12 months	41,963	26,499
Unrealized Losses, Less than 12 months	(597)	(203)
Estimated Fair Value, 12 months or longer	3,459	16,224
Unrealized Losses, 12 months or longer	(41)	(285)
Estimated Fair Value	45,422	42,723
Unrealized Losses	(638)	(488)
Taxable Municipals Bonds [Member] | Available for Sale Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	2,720	6,190
Gross Unrealized Gains	17	52
Gross Unrealized Losses	(10)	(65)
Estimated Fair Value	2,727	6,177
Taxable Municipals Bonds [Member] | U.S. Agency Securities [Member] | Temporarily Impaired Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Estimated Fair Value, Less than 12 months	1,347	2,159
Unrealized Losses, Less than 12 months	(10)	(32)
Estimated Fair Value, 12 months or longer		1,887
Unrealized Losses, 12 months or longer		(33)
Estimated Fair Value	1,347	4,046
Unrealized Losses	(10)	(65)
Tax Free Municipals Bonds [Member] | Available for Sale Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	33,004	42,237
Gross Unrealized Gains	1,081	2,481
Gross Unrealized Losses	(174)	(59)
Estimated Fair Value	33,911	44,659
Tax Free Municipals Bonds [Member] | U.S. Agency Securities [Member] | Temporarily Impaired Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Estimated Fair Value, Less than 12 months	7,369
Unrealized Losses, Less than 12 months	(174)
Estimated Fair Value, 12 months or longer		3,878
Unrealized Losses, 12 months or longer		(59)
Estimated Fair Value	7,369	3,878
Unrealized Losses	(174)	(59)
Trust Preferred Securities [Member] | Available for Sale Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	1,634	1,617
Gross Unrealized Gains	183	248
Estimated Fair Value	1,817	1,865
GNMA [Member] | Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	19,490	29,990
Gross Unrealized Gains	175	239
Gross Unrealized Losses	(109)	(239)
Estimated Fair Value	19,556	29,990
GNMA [Member] | Mortgage-Backed Securities [Member] | Temporarily Impaired Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Estimated Fair Value, Less than 12 months	6,151	10,840
Unrealized Losses, Less than 12 months	(62)	(105)
Estimated Fair Value, 12 months or longer	3,861	11,508
Unrealized Losses, 12 months or longer	(47)	(134)
Estimated Fair Value	10,012	22,348
Unrealized Losses	(109)	(239)
FNMA [Member] | Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	40,754	28,189
Gross Unrealized Gains	176	266
Gross Unrealized Losses	(577)	(152)
Estimated Fair Value	40,353	28,303
FNMA [Member] | Mortgage-Backed Securities [Member] | Temporarily Impaired Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Estimated Fair Value, Less than 12 months	28,950	11,484
Unrealized Losses, Less than 12 months	(577)	(87)
Estimated Fair Value, 12 months or longer		3,036
Unrealized Losses, 12 months or longer		(65)
Estimated Fair Value	28,950	14,520
Unrealized Losses	(577)	(152)
FHLMC [Member] | Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	6,831	8,113
Gross Unrealized Gains	12	24
Gross Unrealized Losses	(84)	(51)
Estimated Fair Value	6,759	8,086
FHLMC [Member] | Mortgage-Backed Securities [Member] | Temporarily Impaired Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Estimated Fair Value, Less than 12 months	6,217	7,336
Unrealized Losses, Less than 12 months	(84)	(51)
Estimated Fair Value	6,217	7,336
Unrealized Losses	(84)	(51)
Non-Agency CMO [Member] | Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	3,786	3,828
Gross Unrealized Losses	(208)	(174)
Estimated Fair Value	3,578	3,654
Non-Agency CMO [Member] | Mortgage-Backed Securities [Member] | Temporarily Impaired Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Estimated Fair Value, 12 months or longer	3,578	3,654
Unrealized Losses, 12 months or longer	(208)	(174)
Estimated Fair Value	3,578	3,654
Unrealized Losses	(208)	(174)
Agency CMO [Member] | Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	14,765	19,570
Gross Unrealized Gains	74	71
Gross Unrealized Losses	(73)	(131)
Estimated Fair Value	14,766	19,510
Agency CMO [Member] | Mortgage-Backed Securities [Member] | Temporarily Impaired Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Estimated Fair Value, Less than 12 months	7,144	9,781
Unrealized Losses, Less than 12 months	(73)	(90)
Estimated Fair Value, 12 months or longer		1,991
Unrealized Losses, 12 months or longer		(41)
Estimated Fair Value	7,144	11,772
Unrealized Losses	$ (73)	$ (131)

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Securities - Maturities of Debt Securities Available for Sale (Detail) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Schedule of Available-for-sale Securities [Line Items]
Amortized cost of debt securities available for sale, due within one year	$ 6,605
Amortized cost of debt securities available for sale, due in one to five years	13,913	$ 17,939
Amortized cost of debt securities available for sale, due in five to ten years	32,611	42,151
Amortized cost of debt securities available for sale, due after ten years	13,022	22,702
Total amortized cost debt securities available for sale with specific maturities	66,151	82,792
Amortized Cost	208,651	233,429
Estimated fair value of debt securities available for sale, due within one year	6,615
Estimated fair value of debt securities available for sale, due in one to five years	14,067	18,304
Estimated fair value of debt securities available for sale, due in five to ten years	32,744	42,793
Estimated fair value of debt securities available for sale, due after ten years	13,603	24,088
Total estimated fair value of debt securities available for sale with specific maturities	67,029	85,185
Total unrestricted securities available for sale at estimated fair value	209,480	237,177
Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Total amortized cost of debt securities available for sale without specific maturities	85,626	89,690
Total estimated fair value of debt securities available for sale without specific maturities	85,012	89,543
Amortizing Agency Bonds [Member]
Schedule of Available-for-sale Securities [Line Items]
Total amortized cost of debt securities available for sale without specific maturities	56,874	60,947
Total estimated fair value of debt securities available for sale without specific maturities	$ 57,439	$ 62,449

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Securities - Additional Information (Detail)	1 Months Ended				12 Months Ended
	Jan. 31, 2015 USD ($)	Sep. 30, 2013 USD ($)	Oct. 31, 2010	Jun. 30, 2008 USD ($)	Dec. 31, 2016 USD ($) Securities	Dec. 31, 2015 USD ($)	Dec. 31, 2014 USD ($)	Sep. 30, 2016 USD ($)
Schedule of Available-for-sale Securities [Line Items]
Number of securities with unrealized losses | Securities					73
Investment par value				$ 2,000,000
Investment interest percentage				8.00%
Dividend payment period		5 years
Impairment charges	$ 400,000	$ 400,000
Net worth					$ 98,915,000	$ 100,857,000
Available for sale for proceeds					19,000,000	84,900,000	$ 75,300,000
Gross gains in available for sale for proceeds					690,000	1,274,000	788,000
Gross loss in available for sale for proceeds					78,000	$ 583,000	$ 210,000
Securities pledged to municipalities for deposits in excess of FDIC limits, book value					125,600,000
Securities pledged to municipalities for deposits in excess of FDIC limits, market value					128,400,000
Letter of credit issued by FHLB					$ 45,600,000
FFKY [Member]
Schedule of Available-for-sale Securities [Line Items]
Period of deferring dividend payments			5 years
Wesbanco ("WSBC")
Schedule of Available-for-sale Securities [Line Items]
Net worth								$ 9,800,000,000
Subordinated Debt [Member]
Schedule of Available-for-sale Securities [Line Items]
Total risk based capital ratio				30 years

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Loans Receivable, Net - Components of Loans Receivable in Consolidated Balance Sheets (Detail) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Real estate loans:
Total loans, gross	$ 610,837	$ 562,494
Deferred loan cost, net of fees	(439)	(445)
Less allowance for loan losses	(6,112)	(5,700)
Total loans	$ 604,286	$ 556,349
Loans and Leases Receivable in Percentage	100.00%	100.00%
Multi-Family [Member]
Real estate loans:
Total loans, gross	$ 34,284	$ 24,725
Real Estate Loans [Member]
Real estate loans:
Loans and Leases Receivable in Percentage	84.00%	81.00%
Real Estate Loans [Member] | Multi-Family [Member]
Real estate loans:
Loans and Leases Receivable in Percentage	5.60%	4.40%
Consumer Loans [Member]
Real estate loans:
Total loans, gross	$ 8,717	$ 20,324
Less allowance for loan losses	$ (208)	$ (358)
Loans and Leases Receivable in Percentage	1.40%	3.60%
Commercial Loans [Member]
Real estate loans:
Total loans, gross	$ 88,907	$ 86,743
Less allowance for loan losses	$ (593)	$ (623)
Loans and Leases Receivable in Percentage	14.60%	15.40%
Total Other Loans [Member]
Real estate loans:
Loans and Leases Receivable in Percentage	16.00%	19.00%
One-to-Four Family Mortgages [Member]
Real estate loans:
Total loans, gross	$ 147,962	$ 145,999
One-to-Four Family Mortgages [Member] | Real Estate Loans [Member]
Real estate loans:
Loans and Leases Receivable in Percentage	24.20%	26.00%
Home Equity Line of Credit [Member]
Real estate loans:
Total loans, gross	$ 35,684	$ 33,644
Home Equity Line of Credit [Member] | Real Estate Loans [Member]
Real estate loans:
Loans and Leases Receivable in Percentage	5.80%	6.00%
Construction [Member]
Real estate loans:
Total loans, gross	$ 39,255	$ 34,878
Construction [Member] | Real Estate Loans [Member]
Real estate loans:
Loans and Leases Receivable in Percentage	6.40%	6.20%
Land [Member]
Real estate loans:
Total loans, gross	$ 23,840	$ 22,453
Land [Member] | Real Estate Loans [Member]
Real estate loans:
Loans and Leases Receivable in Percentage	3.90%	4.00%
Farmland [Member]
Real estate loans:
Total loans, gross	$ 47,796	$ 42,246
Farmland [Member] | Real Estate Loans [Member]
Real estate loans:
Loans and Leases Receivable in Percentage	7.80%	7.50%
Non-Residential Real Estate [Member]
Real estate loans:
Total loans, gross	$ 182,940	$ 149,711
Non-Residential Real Estate [Member] | Real Estate Loans [Member]
Real estate loans:
Loans and Leases Receivable in Percentage	30.00%	26.60%
Real Estate Loans [Member]
Real estate loans:
Total loans, gross	$ 513,213	$ 455,427
Real Estate Loans [Member] | Multi-Family [Member]
Real estate loans:
Total loans, gross	34,284	24,725
Real Estate Loans [Member] | One-to-Four Family Mortgages [Member]
Real estate loans:
Total loans, gross	147,962	145,999
Real Estate Loans [Member] | Home Equity Line of Credit [Member]
Real estate loans:
Total loans, gross	35,684	33,644
Real Estate Loans [Member] | Construction [Member]
Real estate loans:
Total loans, gross	39,255	34,878
Real Estate Loans [Member] | Land [Member]
Real estate loans:
Total loans, gross	23,840	22,453
Real Estate Loans [Member] | Farmland [Member]
Real estate loans:
Total loans, gross	47,796	42,246
Real Estate Loans [Member] | Non-Residential Real Estate [Member]
Real estate loans:
Total loans, gross	182,940	149,711
Total Other Loans [Member]
Real estate loans:
Total loans, gross	97,624	107,067
Total Other Loans [Member] | Consumer Loans [Member]
Real estate loans:
Total loans, gross	8,717	20,324
Total Other Loans [Member] | Commercial Loans [Member]
Real estate loans:
Total loans, gross	$ 88,907	$ 86,743
Second Mortgages [Member] | Real Estate Loans [Member]
Real estate loans:
Loans and Leases Receivable in Percentage	0.30%	0.30%
Second Mortgages [Member] | Real Estate Loans [Member]
Real estate loans:
Total loans, gross	$ 1,452	$ 1,771

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Loans Receivable, Net - Additional Information (Detail)	12 Months Ended
	Dec. 31, 2016 USD ($) SecurityLoan	Dec. 31, 2015 USD ($)	Dec. 31, 2014 USD ($)
Accounts, Notes, Loans and Financing Receivable [Line Items]
Mortgage loans service for benefit of others	$ 33,500,000	$ 36,900,000
Carrying amount of loans eligible and pledged to Federal Home Loan Bank	135,700,000
Average recorded investment in impaired loans	31,594,000	28,117,000
Interest income recognized on impaired loans	1,529,000	1,527,000	$ 2,000,000
Non-accrual Loans	9,074,000	7,422,000
Interest income foregone on non accrual loans	108,000	337,000	76,000
Total loans past due more than 90 days and still accruing interest	0	0
Deferred loan fees	$ 439,000	445,000
Number of additional TDRs | SecurityLoan	8
Number of TDR loan relationship | SecurityLoan	3
Loan relationship balance	$ 6,461,000	5,536,000	3,284,000
New TDR loan balance	1,044,000	2,265,000
Loans that have been modified as TDRs, subsequently defaulted	0
Commitments to lend additional funds to borrower	0
Loans to officers and directors	4,894,000	3,844,000	4,022,000
Funds undisbursed to officers and directors	380,000	493,000
Non-Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual Loans	208,000	247,000
Loan relationship balance	5,646,000	5,536,000	$ 3,284,000
New TDR loan balance	228,000	2,265,000
First Tdr Relationship [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loan relationship balance	$ 3,200,000
Second Tdr Relationship [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Number of additional TDRs | SecurityLoan	2
New TDR loan balance	$ 2,200,000
Third Tdr Relationship [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
New TDR loan balance	$ 1,100,000
Third Tdr Relationship [Member] | Non-Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Number of additional TDRs | SecurityLoan	1
Freddie Mac [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Mortgage loans service for benefit of Freddie Mac	$ 19,700,000
Officers and Directors [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans to officers and directors	4,900,000	3,800,000
Owner Occupied Properties [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Secured non-residential real estate loans	78,700,000
Non Owner Occupied Properties [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Secured non-residential real estate loans	104,200,000
Multi-Family [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual Loans		$ 1,968,000
Loan relationship balance	815,000
New TDR loan balance	$ 816,000
Multi-Family [Member] | Third Tdr Relationship [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Number of additional TDRs | SecurityLoan	3

XML

Loans Receivable, Net - Loans by Classification Type and Related Allowance Amounts (Detail) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Financing Receivable, Allowance for Credit Losses [Line Items]
Total	$ 610,837	$ 562,494
Specific Allowance for Impairment	1,148	630
Allowance for Performing Loans	4,964	5,070
Multi-Family [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total	34,284	24,725
Specific Allowance for Impairment		138
Allowance for Performing Loans	412	89
One-to-Four Family Mortgages [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total	147,962	145,999
Specific Allowance for Impairment		60
Allowance for Performing Loans	852	970
Home Equity Line of Credit [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total	35,684	33,644
Allowance for Performing Loans	260	201
Construction [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total	39,255	34,878
Allowance for Performing Loans	277	377
Land [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total	23,840	22,453
Specific Allowance for Impairment	1,036	69
Allowance for Performing Loans	724	1,310
Non-Residential Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total	182,940	149,711
Specific Allowance for Impairment		134
Allowance for Performing Loans	964	1,005
Farmland [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total	47,796	42,246
Allowance for Performing Loans	778	358
Junior Liens [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total	1,452	1,771
Allowance for Performing Loans	8	8
Consumer Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total	8,717	20,324
Specific Allowance for Impairment	84	49
Allowance for Performing Loans	124	309
Commercial Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total	88,907	86,743
Specific Allowance for Impairment	28	180
Allowance for Performing Loans	565	443
Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total	579,384	531,462
Pass [Member] | Multi-Family [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total	31,280	21,644
Pass [Member] | One-to-Four Family Mortgages [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total	145,965	142,729
Pass [Member] | Home Equity Line of Credit [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total	35,109	33,475
Pass [Member] | Construction [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total	39,255	34,878
Pass [Member] | Land [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total	15,581	11,794
Pass [Member] | Non-Residential Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total	172,395	138,865
Pass [Member] | Farmland [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total	44,832	41,917
Pass [Member] | Junior Liens [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total	1,411	1,720
Pass [Member] | Consumer Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total	8,382	20,123
Pass [Member] | Commercial Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total	85,174	84,317
Special Mention [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total	2,114	2,958
Special Mention [Member] | One-to-Four Family Mortgages [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total	744	41
Special Mention [Member] | Home Equity Line of Credit [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total	25
Special Mention [Member] | Land [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total	35	41
Special Mention [Member] | Non-Residential Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total	3	2,489
Special Mention [Member] | Farmland [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total	674
Special Mention [Member] | Junior Liens [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total	30	35
Special Mention [Member] | Commercial Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total	603	352
Impaired Loans Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total	29,339	28,074
Impaired Loans Substandard [Member] | Multi-Family [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total	3,004	3,081
Impaired Loans Substandard [Member] | One-to-Four Family Mortgages [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total	1,253	3,229
Impaired Loans Substandard [Member] | Home Equity Line of Credit [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total	550	169
Impaired Loans Substandard [Member] | Land [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total	8,224	10,618
Impaired Loans Substandard [Member] | Non-Residential Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total	10,542	8,357
Impaired Loans Substandard [Member] | Farmland [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total	2,290	329
Impaired Loans Substandard [Member] | Junior Liens [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total	11	16
Impaired Loans Substandard [Member] | Consumer Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total	335	201
Impaired Loans Substandard [Member] | Commercial Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total	$ 3,130	$ 2,074

XML

Loans Receivable, Net - Impaired Loans by Classification Type (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Financing Receivable, Impaired [Line Items]
Recorded Investment	$ 22,068	$ 24,125
Total impaired loans Recorded Investment	29,339	28,074
Unpaid Principal Balance	23,028	25,085
Total impaired loans Unpaid Principal Balance	30,299	29,034
Related Allowance	0	0
Average Recorded Investment	26,861	23,839
Interest Income Recognized	1,020	1,381
Recorded Investment	7,271	3,949
Unpaid Principal Balance	7,271	3,949
Related Allowance	1,148	630
Average Recorded Investment	4,733	4,278
Total impaired loans Average Recorded Investment	31,594	28,117
Interest Income Recognized	509	146
Total impaired loans Interest Income Recognized	1,529	1,527	$ 2,000
Multi-Family [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment	3,004	2,128
Unpaid Principal Balance	3,004	2,128
Related Allowance	0	0
Average Recorded Investment	3,005	2,797
Interest Income Recognized	172	126
Recorded Investment		953
Unpaid Principal Balance		953
Related Allowance		138
Average Recorded Investment	910	318
Interest Income Recognized		17
One-to-Four Family Mortgages [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment	1,253	2,526
Unpaid Principal Balance	1,253	2,526
Related Allowance	0	0
Average Recorded Investment	1,470	2,389
Interest Income Recognized	67	80
Recorded Investment		703
Unpaid Principal Balance		703
Related Allowance		60
Average Recorded Investment	452	709
Interest Income Recognized		40
Home Equity Line of Credit [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment	550	169
Unpaid Principal Balance	550	169
Related Allowance	0	0
Average Recorded Investment	390	457
Interest Income Recognized	24	7
Construction [Member]
Financing Receivable, Impaired [Line Items]
Related Allowance	0	0
Land [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment	1,553	10,038
Unpaid Principal Balance	2,513	10,998
Related Allowance	0	0
Average Recorded Investment	7,868	8,520
Interest Income Recognized	38	671
Recorded Investment	6,671	580
Unpaid Principal Balance	6,671	580
Related Allowance	1,036	69
Average Recorded Investment	1,811	1,707
Interest Income Recognized	485	46
Non-Residential Real Estate [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment	10,542	7,640
Unpaid Principal Balance	10,542	7,640
Related Allowance	0	0
Average Recorded Investment	9,363	283
Interest Income Recognized	485	404
Recorded Investment		717
Unpaid Principal Balance		717
Related Allowance		134
Average Recorded Investment		836
Interest Income Recognized		28
Farmland [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment	2,290	329
Unpaid Principal Balance	2,290	329
Related Allowance	0	0
Average Recorded Investment	1,563	7,774
Interest Income Recognized	120	19
Average Recorded Investment	533
Junior Liens [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment	11	16
Unpaid Principal Balance	11	16
Related Allowance	0	0
Average Recorded Investment	13	17
Interest Income Recognized	1	1
Consumer Loans [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment		5
Unpaid Principal Balance		5
Related Allowance	0	0
Average Recorded Investment	21	3
Interest Income Recognized	1
Recorded Investment	335	196
Unpaid Principal Balance	335	196
Related Allowance	84	49
Average Recorded Investment	273	194
Commercial Loans [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment	2,865	1,274
Unpaid Principal Balance	2,865	1,274
Related Allowance	0	0
Average Recorded Investment	3,168	1,599
Interest Income Recognized	112	73
Recorded Investment	265	800
Unpaid Principal Balance	265	800
Related Allowance	28	180
Average Recorded Investment	754	514
Interest Income Recognized	$ 24	$ 15

XML

Loans Receivable, Net - Allowance for Loan Losses and Recorded Investment in Loans by Portfolio Segment and Impairment Method (Detail) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually evaluated for impairment	$ 1,148	$ 630
Collectively evaluated for impairment	4,964	5,070
Total ending allowance balance	6,112	5,700
Loans individually evaluated for impairment	29,339	28,074
Loans collectively evaluated for impairment	581,498	534,420
Total ending loans balance	610,837	562,494
Commercial Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually evaluated for impairment	28	180
Collectively evaluated for impairment	565	443
Total ending allowance balance	593	623
Loans individually evaluated for impairment	3,130	2,074
Loans collectively evaluated for impairment	85,777	84,669
Total ending loans balance	88,907	86,743
Land Development/Construction [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually evaluated for impairment	1,036	69
Collectively evaluated for impairment	1,001	1,687
Total ending allowance balance	2,037	1,756
Loans individually evaluated for impairment	8,224	10,618
Loans collectively evaluated for impairment	54,871	46,713
Total ending loans balance	63,095	57,331
Commercial Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually evaluated for impairment		272
Collectively evaluated for impairment	2,154	1,452
Total ending allowance balance	2,154	1,724
Loans individually evaluated for impairment	15,836	11,767
Loans collectively evaluated for impairment	249,184	204,915
Total ending loans balance	265,020	216,682
Residential Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually evaluated for impairment		60
Collectively evaluated for impairment	1,120	1,179
Total ending allowance balance	1,120	1,239
Loans individually evaluated for impairment	1,814	3,414
Loans collectively evaluated for impairment	183,284	178,000
Total ending loans balance	185,098	181,414
Consumer Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually evaluated for impairment	84	49
Collectively evaluated for impairment	124	309
Total ending allowance balance	208	358
Loans individually evaluated for impairment	335	201
Loans collectively evaluated for impairment	8,382	20,123
Total ending loans balance	$ 8,717	$ 20,324

XML

Loans Receivable, Net - Allowance for Loan Loss Account by Loan (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning balance	$ 5,700	$ 6,289	$ 8,682
Charge off	(1,468)	(1,867)	(1,232)
Recovery	639	227	1,112
General Provision	(108)	295	(1,846)
Specific Provision	1,349	756	(427)
Ending balance	6,112	5,700	6,289
Multi-Family [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning balance	227	85	466
Charge off	(421)
General Provision	323	4	(381)
Specific Provision	283	138
Ending balance	412	227	85
One-to-Four Family Mortgages [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning balance	1,030	1,198	2,048
Charge off		(143)	(233)
Recovery	167	39	24
General Provision	(118)	(176)	(304)
Specific Provision	(227)	112	(337)
Ending balance	852	1,030	1,198
Home Equity Line of Credit [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning balance	201	181	218
Charge off	(30)	(92)	(83)
Recovery	14	10	3
General Provision	59	20	(37)
Specific Provision	16	82	80
Ending balance	260	201	181
Construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning balance	377	146	88
Charge off			(139)
Recovery			9
General Provision	(100)	231	58
Specific Provision			130
Ending balance	277	377	146
Land [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning balance	1,379	1,123	1,305
Charge off		(911)
General Provision	(586)	850	(74)
Specific Provision	967	317	(108)
Ending balance	1,760	1,379	1,123
Non-Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning balance	1,139	2,083	2,719
Charge off		(222)	(66)
Recovery	10	2	864
General Provision	(41)	(944)	(1,368)
Specific Provision	(144)	220	(66)
Ending balance	964	1,139	2,083
Farmland [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning balance	358	461	510
General Provision	420	500	542
Specific Provision		(603)	(591)
Ending balance	778	358	461
Junior Liens [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning balance	8	14	39
Recovery	14	4	9
General Provision		(6)	(25)
Specific Provision	(14)	(4)	(9)
Ending balance	8	8	14
Consumer Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning balance	358	494	541
Charge off	(422)	(298)	(415)
Recovery	293	118	109
General Provision	(187)	(123)	(13)
Specific Provision	166	167	272
Ending balance	208	358	494
Commercial Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning balance	623	504	748
Charge off	(595)	(201)	(296)
Recovery	141	54	94
General Provision	122	(61)	(244)
Specific Provision	302	327	202
Ending balance	$ 593	$ 623	$ 504

XML

Loans Receivable, Net - Non-Accrual Loans (Detail) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total non-accrual loans	$ 9,074	$ 7,422
Multi-Family [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total non-accrual loans		1,968
One-to-Four Family Mortgages [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total non-accrual loans	270	2,234
Home Equity Line of Credit [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total non-accrual loans	402	48
Land [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total non-accrual loans	7,675	1,553
Non-Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total non-accrual loans	208	247
Farmland [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total non-accrual loans		166
Consumer Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total non-accrual loans	3	8
Commercial Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total non-accrual loans	$ 516	$ 1,198

XML

Loans Receivable, Net - Gross Loan Balances Excluding Deferred Loan Fees by Loan Classification Allocated Between Past Due Performing and Non-performing (Detail) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Financing Receivable, Recorded Investment, Past Due [Line Items]
Currently Performing	$ 578,173	$ 529,607
30 - 89 Days Past Due	1,211	1,855
Non-accrual Loans	9,074	7,422
Special Mention	2,114	2,958
Impaired Loans Currently Performing Substandard	20,265	20,652
Impaired Loans Currently Performing Doubtful	0	0
Total loans, gross	610,837	562,494
Multi-Family [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Currently Performing	31,280	21,638
30 - 89 Days Past Due		6
Non-accrual Loans		1,968
Impaired Loans Currently Performing Substandard	3,004	1,113
Impaired Loans Currently Performing Doubtful	0	0
Total loans, gross	34,284	24,725
One-to-Four Family Mortgages [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Currently Performing	145,069	142,058
30 - 89 Days Past Due	896	671
Non-accrual Loans	270	2,234
Special Mention	744	41
Impaired Loans Currently Performing Substandard	983	995
Impaired Loans Currently Performing Doubtful	0	0
Total loans, gross	147,962	145,999
Home Equity Line of Credit [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Currently Performing	35,087	33,396
30 - 89 Days Past Due	22	79
Non-accrual Loans	402	48
Special Mention	25
Impaired Loans Currently Performing Substandard	148	121
Impaired Loans Currently Performing Doubtful	0	0
Total loans, gross	35,684	33,644
Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Currently Performing	39,255	34,878
Impaired Loans Currently Performing Doubtful	0	0
Total loans, gross	39,255	34,878
Land [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Currently Performing	15,581	11,047
30 - 89 Days Past Due		747
Non-accrual Loans	7,675	1,553
Special Mention	35	41
Impaired Loans Currently Performing Substandard	549	9,065
Impaired Loans Currently Performing Doubtful	0	0
Total loans, gross	23,840	22,453
Farmland [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Currently Performing	44,832	41,853
30 - 89 Days Past Due		64
Non-accrual Loans		166
Special Mention	674
Impaired Loans Currently Performing Substandard	2,290	163
Impaired Loans Currently Performing Doubtful	0	0
Total loans, gross	47,796	42,246
Non-Residential Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Currently Performing	172,395	138,637
30 - 89 Days Past Due		228
Non-accrual Loans	208	247
Special Mention	3	2,489
Impaired Loans Currently Performing Substandard	10,334	8,110
Impaired Loans Currently Performing Doubtful	0	0
Total loans, gross	182,940	149,711
Junior Liens [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Currently Performing	1,407	1,720
30 - 89 Days Past Due	4
Special Mention	30	35
Impaired Loans Currently Performing Substandard	11	16
Impaired Loans Currently Performing Doubtful	0	0
Total loans, gross	1,452	1,771
Consumer Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Currently Performing	8,354	20,108
30 - 89 Days Past Due	28	15
Non-accrual Loans	3	8
Impaired Loans Currently Performing Substandard	332	193
Impaired Loans Currently Performing Doubtful	0	0
Total loans, gross	8,717	20,324
Commercial Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Currently Performing	84,913	84,272
30 - 89 Days Past Due	261	45
Non-accrual Loans	516	1,198
Special Mention	603	352
Impaired Loans Currently Performing Substandard	2,614	876
Impaired Loans Currently Performing Doubtful	0	0
Total loans, gross	$ 88,907	$ 86,743

XML

Loans Receivable, Net - Summary of the Activity in Loans Classified as TDRs (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Financing Receivable, Modifications [Line Items]
Beginning Balance	$ 5,536	$ 3,284
New TDR	1,044	2,265
Loss on Foreclosure	0	0
Transferred to Non-accrual	0
Transferred to Held For Sale		0
Loan Amortization	(119)
Removed from (Taken to) Non-accrual		(13)
Ending Balance	6,461	5,536
Multi-Family [Member]
Financing Receivable, Modifications [Line Items]
New TDR	816
Loss on Foreclosure	0
Transferred to Non-accrual	0
Loan Amortization	(1)
Ending Balance	815
Non-Residential Real Estate [Member]
Financing Receivable, Modifications [Line Items]
Beginning Balance	5,536	3,284
New TDR	228	2,265
Loss on Foreclosure	0	0
Transferred to Non-accrual	0
Transferred to Held For Sale		0
Loan Amortization	(118)
Removed from (Taken to) Non-accrual		(13)
Ending Balance	$ 5,646	$ 5,536

XML

Loans Receivable, Net - Summary of Loans to Officers, Directors and Their Affiliates (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Receivables [Abstract]
Balance at beginning of period	$ 3,844	$ 4,022
New loans	1,651	682
Principal repayments	(601)	(860)
Balance at end of period	$ 4,894	$ 3,844

XML

Premises and Equipment - Components of Premises and Equipment Included in the Consolidated Balance Sheets (Detail) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Property, Plant and Equipment [Line Items]
Premises and equipment, Gross	$ 37,016	$ 36,569
Less accumulated depreciation	13,555	12,535
Premises and equipment, net	23,461	24,034
Land [Member]
Property, Plant and Equipment [Line Items]
Premises and equipment, Gross	6,555	6,579
Land Improvements [Member]
Property, Plant and Equipment [Line Items]
Premises and equipment, Gross	1,132	1,097
Buildings [Member]
Property, Plant and Equipment [Line Items]
Premises and equipment, Gross	22,397	22,405
Furniture and Equipment [Member]
Property, Plant and Equipment [Line Items]
Premises and equipment, Gross	$ 6,932	$ 6,488

XML

Premises and Equipment - Additional Information (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Property, Plant and Equipment [Abstract]
Depreciation	$ 1,320	$ 1,266	$ 1,336

XML

Deposits - Scheduled Maturities of Other Time Deposits (Detail) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Banking and Thrift [Abstract]
2017	$ 137,907
2018	97,986
2019	29,945
2020	16,811
2021	10,429
Other time deposits	$ 293,078	$ 314,664

XML

Deposits - Additional Information (Detail) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Schedule Of Deposits Liabilities Balance Sheet Reported Amounts [Line Items]
Other time deposits	$ 79,700,000	$ 78,800,000
Deposits of directors, members of senior management and their affiliates	2,100,000	6,200,000
Average daily clearings	5,900,000
Deposit with overdraft status	335,000	196,000
Brokered and CDARS Deposits	732,882,000	739,406,000
Brokered Deposits [Member]
Schedule Of Deposits Liabilities Balance Sheet Reported Amounts [Line Items]
Brokered and CDARS Deposits	$ 33,400,000	$ 34,400,000

XML

Deposits - Interest Expenses on Deposits (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Banking and Thrift [Abstract]
Interest bearing checking accounts	$ 1,183	$ 1,105	$ 1,253
Money market accounts	76	88	86
Savings	95	103	109
Other time deposits	2,886	3,735	4,155
Total	$ 4,240	$ 5,031	$ 5,603

XML

Advances from Federal Home Loan Bank - Summarized Federal Home Loan Bank Advances (Detail) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Federal Home Loan Bank, Advances [Line Items]
Fixed-rate	$ 11,000	$ 15,000
Weighted Average [Member]
Federal Home Loan Bank, Advances [Line Items]
Weighted Average Rate	1.04%	2.19%

XML

Advances from Federal Home Loan Bank - Scheduled Maturities of FHLB Advances (Detail) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Federal Home Loan Bank, Advances [Line Items]
2017, Fixed rate	$ 5,000
2018, Fixed rate	6,000
Total, Fixed rate	$ 11,000
2017, Average cost	0.88%
2018, Average cost	1.18%
Weighted Average [Member]
Federal Home Loan Bank, Advances [Line Items]
Average cost	1.04%	2.19%

XML

Advances from Federal Home Loan Bank - Additional Information (Detail)	Dec. 31, 2016 USD ($)
Federal Home Loan Bank, Advances [Line Items]
Agreement of first mortgage loan and non-residential real estate loan	125.00%
Additional borrowing capacity	$ 51,300,000
Additional collateral pledged that could be pledged to FHLB	6,800,000
Federal Home Loan Bank of Cincinnati [Member]
Federal Home Loan Bank, Advances [Line Items]
Approved line of credit	30,000,000
BBVA Compass Bank [Member]
Federal Home Loan Bank, Advances [Line Items]
Approved line of credit	12,000,000
Bbva Compass Bank and Cincinnati [Member] | Overnight Line of Credit [Member]
Federal Home Loan Bank, Advances [Line Items]
Overnight lines of credit outstanding amount	$ 0

XML

Repurchase Agreements - Additional Information (Detail) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Banking and Thrift [Abstract]
Investment securities for repurchase agreements	$ 47,700,000
Maximum repurchase balances outstanding	$ 54,800,000	$ 57,400,000

XML

Repurchase Agreements - Cost and Maturities of Company's Repurchase Agreements (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2016
Assets Sold under Agreements to Repurchase [Line Items]
Balance of Third Party	$ 45,770	$ 47,655
Average Rate	1.13%	0.91%
Merrill Lynch [Member] | Quarterly Callable [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Balance of Third Party	$ 6,000
Average Rate	4.36%
Maturity	Sep. 18, 2016
Various Customers [Member] | Overnight [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Balance of Third Party	$ 39,770	$ 47,655
Average Rate	0.61%	0.91%

XML

Fair Value Measurement - Assets and Liabilities Measured at Fair Value on a Recurring Basis (Detail) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Assets
Available for sale securities	$ 209,480	$ 237,177
Fair Value, Measurements, Recurring [Member]
Assets
Available for sale securities	209,480	237,177
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets
Available for sale securities	2,001	2,000
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Fair Value, Measurements, Recurring [Member]
Assets
Available for sale securities	2,001	2,000
Significant Other Observable Inputs (Level 2) [Member]
Assets
Available for sale securities	205,662	233,312
Significant Other Observable Inputs (Level 2) [Member] | Fair Value, Measurements, Recurring [Member]
Assets
Available for sale securities	205,662	233,312
Significant Unobservable Inputs (Level 3) [Member]
Assets
Available for sale securities	1,817	1,865
Significant Unobservable Inputs (Level 3) [Member] | Fair Value, Measurements, Recurring [Member]
Assets
Available for sale securities	$ 1,817	$ 1,865

XML

Fair Value Measurement - Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis (Detail) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Assets
Foreclosed assets	$ 2,397	$ 1,736
Fair Value, Measurements, Nonrecurring [Member]
Assets
Foreclosed assets	2,397	1,736
Impaired loans, net of allowance	6,123	3,319
Significant Unobservable Inputs (Level 3) [Member] | Fair Value, Measurements, Nonrecurring [Member]
Assets
Foreclosed assets	2,397	1,736
Impaired loans, net of allowance	$ 6,123	$ 3,319

XML

Fair Value Measurement - Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis (Parenthetical) (Detail) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Fair Value Assets And Liabilities Measured On Nonrecurring Basis [Line Items]
Allowance for impaired loans	$ 1,148	$ 630
Fair Value, Measurements, Nonrecurring [Member]
Fair Value Assets And Liabilities Measured On Nonrecurring Basis [Line Items]
Allowance for impaired loans	$ 1,148	$ 630

XML

Fair Value Measurement - Quantitative Information about Level 3 Fair Value Measurements for Assets Measured at Fair Value on Reoccurring and Non-reoccurring Basis (Detail) - Significant Unobservable Inputs (Level 3) [Member] - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Fair Value, Measurements, Nonrecurring [Member] | Foreclosed Assets [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value	$ 2,397	$ 1,736
Valuation Technique	Discount to appraised value of collateral	Discount to appraised value of collateral
Unobservable Input	Appraisal comparability adjustments	Appraisal comparability adjustments
Fair Value, Measurements, Nonrecurring [Member] | Impaired Loans [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value	$ 7,271	$ 3,949
Valuation Technique	Discount to appraised value of collateral	Discount to appraised value of collateral
Unobservable Input	Appraisal comparability adjustments	Appraisal comparability adjustments
Fair Value, Measurements, Nonrecurring [Member] | Minimum [Member] | Foreclosed Assets [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Quantitative Range of Unobservable Inputs, Percentage	30.00%	10.00%
Fair Value, Measurements, Nonrecurring [Member] | Minimum [Member] | Impaired Loans [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Quantitative Range of Unobservable Inputs, Percentage	10.00%	10.00%
Fair Value, Measurements, Nonrecurring [Member] | Maximum [Member] | Foreclosed Assets [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Quantitative Range of Unobservable Inputs, Percentage	55.00%	15.00%
Fair Value, Measurements, Nonrecurring [Member] | Maximum [Member] | Impaired Loans [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Quantitative Range of Unobservable Inputs, Percentage	25.00%	15.00%
Fair Value, Measurements, Recurring [Member] | Trust Preferred Securities [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value	$ 1,817	$ 1,865
Valuation Technique	Discounted cash flow Spread to Libor swap curve	Discounted cash flow Spread to Libor swap curve
Unobservable Input	Compare to quotes for sale when available	Compare to quotes for sale when available
Quantitative Range of Unobservable Inputs, Description	One month libor	One month libor
Fair Value, Measurements, Recurring [Member] | Minimum [Member] | Trust Preferred Securities [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Quantitative Range of Unobservable Inputs, Percentage	4.00%	4.00%
Fair Value, Measurements, Recurring [Member] | Maximum [Member] | Trust Preferred Securities [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Quantitative Range of Unobservable Inputs, Percentage	6.00%	6.00%

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Fair Value Measurement - Roll-Forward of the Consolidated Condensed Statement of Financial Condition Items (Detail) - Other Assets [Member] - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Fair value, Beginning balance	$ 1,865	$ 1,489
Change in unrealized gains (losses) included in other comprehensive income for assets and liabilities still held at December 31,	(65)	359
Other than temporary impairment charge	0	0
Recovery of prior impairment charge	17	17
Purchases, issuances and settlements, net	0	0
Transfers in and/or out of Level 3	0	0
Fair value, Ending balance	$ 1,817	$ 1,865

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Fair Value Measurement - Estimated Fair Values of Financial Instruments (Detail) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Financial Assets:
Securities available for sale	$ 209,480	$ 237,177
Amortized Cost [Member]
Financial Assets:
Cash and due from banks	21,779	46,926
Interest-bearing deposits in banks	3,970	7,772
Securities available for sale	209,480	237,177
Federal Home Loan Bank stock	4,428	4,428
Loans held for sale	1,094	2,792
Loans receivable	604,286	556,349
Accrued interest receivable	3,799
Accounts receivable		4,139
Financial Liabilities:
Deposits	732,882	739,406
Advances from borrowers for taxes and insurance	766	614
Advances from Federal Home Loan Bank	11,000	15,000
Repurchase agreements	47,655	45,770
Subordinated debentures	10,310	10,310
Estimated Fair Value [Member]
Financial Assets:
Cash and due from banks	21,779	46,926
Interest-bearing deposits in banks	3,970	7,772
Securities available for sale	209,480	237,177
Federal Home Loan Bank stock	4,428	4,428
Loans held for sale	1,094	2,792
Loans receivable	593,257	552,981
Accrued interest receivable	3,799
Accounts receivable		4,139
Financial Liabilities:
Deposits	732,942	724,877
Advances from borrowers for taxes and insurance	766	614
Advances from Federal Home Loan Bank	10,979	14,985
Repurchase agreements	47,655	45,931
Subordinated debentures	10,099	10,099
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Financial Assets:
Cash and due from banks	21,779	46,926
Interest-bearing deposits in banks	3,970	7,772
Securities available for sale	2,001	2,000
Significant Other Observable Inputs (Level 2) [Member]
Financial Assets:
Securities available for sale	205,662	233,312
Federal Home Loan Bank stock	4,428	4,428
Loans held for sale	1,094	2,792
Accrued interest receivable	3,799
Accounts receivable		4,139
Financial Liabilities:
Deposits	732,942	724,877
Advances from borrowers for taxes and insurance	766	614
Advances from Federal Home Loan Bank	10,979	14,985
Repurchase agreements	47,655	45,931
Significant Unobservable Inputs (Level 3) [Member]
Financial Assets:
Securities available for sale	1,817	1,865
Loans receivable	593,257	552,981
Financial Liabilities:
Subordinated debentures	$ 10,099	$ 10,099

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Fair Value Measurement - Additional information (Detail)	12 Months Ended
	Dec. 31, 2016 USD ($) Liabilities Assets	Dec. 31, 2015 USD ($)	Dec. 31, 2014 USD ($)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Abstract]
Number of non-financial assets | Assets	0
Number of non-financial liabilities | Liabilities	0
Transfers between levels | $	$ 0	$ 0	$ 0

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Fair Value Measurement - Foreclosed Assets that were Re-measured and Reported at Fair Value (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Fair Value Disclosures [Abstract]
Beginning balance	$ 1,736	$ 1,927	$ 1,674
Carrying value of foreclosed assets prior to acquisition	2,935	986	1,816
Proceeds from sale of foreclosed assets	(1,623)	(344)	(1,118)
Charge-offs recognized in the allowance for loan loss	(672)	(117)	(237)
Gains (losses) included in non-interest expense	21	(716)	(208)
Fair value	$ 2,397	$ 1,736	$ 1,927

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Subordinated Debentures - Additional Information (Detail)	1 Months Ended		12 Months Ended
	Oct. 31, 2008	Sep. 30, 2003 USD ($) $ / Security	Dec. 31, 2016 USD ($)	Dec. 31, 2003 USD ($)	Dec. 31, 2015 USD ($)	Oct. 08, 2008 USD ($)
Debt Disclosure [Abstract]
Variable rate capital securities with an aggregate liquidation amount		$ 10,000,000
Preferred security, Aggregate liquidation amount | $ / Security		1,000
Floating rate junior subordinated debentures			$ 10,310,000	$ 10,310,000	$ 10,310,000
Percentage above LIBOR	3.10%		3.10%
Interest rate to be received under swap agreement, adjusted quarterly			Three-month London Interbank Lending Rate (Libor) plus 3.10%
Interest rate after adjustment			4.12%
Junior subordinated debentures maturity				2033
Junior subordinated debentures and capital securities redemption price						$ 1,000

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Concentrations of Credit Risk - Additional Information (Detail)	Dec. 31, 2016 USD ($)
Risks and Uncertainties [Abstract]
Deposit with bank insured amount	$ 250,000
Total FHLB deposits	826,000
Total deposits at federal reserve	4,700,000
Total deposits at BBVA	$ 9,700,000

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Employee Benefit Plans - Additional Information (Detail) - USD ($)				12 Months Ended
	Mar. 02, 2015	Oct. 28, 2014	Mar. 20, 2013	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Compensation Related Costs Disclosure [Line Items]
Purchase of common stock				498,346	546,413
Shares purchased from the corporation		600,000		600,000
Cost of shares purchased from the corporation				$ 632,000	$ 704,000
2015 Employee Stock Ownership Plan [Member]
Compensation Related Costs Disclosure [Line Items]
Employee stock ownership plan employee minimum service period	1 year
Employee stock ownership plan, description				2015 Employee Stock Ownership Plan (the “ESOP”) which covers substantially all employees who are at least 21 years old with at least one year of employment with the Company and Heritage Bank USA, Inc. (the “Bank”), the Company’s commercial bank subsidiary. The ESOP has three individuals who have been selected by the Company to serve as trustees. A directed corporate trustee has also been appointed. The ESOP will be administered by a committee (the “Committee”) currently composed of eleven employees selected by the Company or its designee.
Employee stock ownership plan loan, shares released from the ESOP trust				48,067	53,587
Employee stock ownership plan loan, expenses recognized				$ 553,000	$ 652,000
2015 Employee Stock Ownership Plan [Member] | Employee Stock Option Plan Loan [Member]
Compensation Related Costs Disclosure [Line Items]
Employee stock option plan, loan amount	$ 13,500,000
Purchase of common stock	1,000,000
Shares purchased from the corporation	600,000
Cost of shares purchased from the corporation	$ 7,884,000
Interest rate on ESOP loan	3.00%
Final maturity date	Dec. 09, 2026
HopFed [Member]
Compensation Related Costs Disclosure [Line Items]
Cost of shares purchased from the corporation				632,000	704,000
2013 Long Term Incentive Plan [Member]
Compensation Related Costs Disclosure [Line Items]
Shares authorized to be granted under option or other stock incentive plans			300,000
Compensation expense				$ 135,000	$ 190,000	$ 164,000
2013 Long Term Incentive Plan [Member] | HopFed [Member]
Compensation Related Costs Disclosure [Line Items]
Restricted shares available from the HOPFED Bancorp				242,577
2013 Long Term Incentive Plan [Member] | Minimum [Member]
Compensation Related Costs Disclosure [Line Items]
Stock options vesting period			3 years
2013 Long Term Incentive Plan [Member] | Maximum [Member]
Compensation Related Costs Disclosure [Line Items]
Stock options vesting period			4 years
2013 Long Term Incentive Plan [Member] | Restricted Stock [Member]
Compensation Related Costs Disclosure [Line Items]
Shares authorized to be granted under option or other stock incentive plans				12,342	2,034	22,378
Restricted stock granted by Compensation Committee, market value				$ 145,000	$ 25,000	$ 260,000
401(k) [Member]
Compensation Related Costs Disclosure [Line Items]
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%
Deferred Compensation Plans [Member]
Compensation Related Costs Disclosure [Line Items]
Deferred compensation arrangement number of installments related to distributions paid				15 years
Original face value of all deferred compensation contracts				$ 668,000
Accrued value of all deferred compensation contracts				253,000
Cash remittances on deferred compensation contracts per year				$ 12,500

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Employee Benefit Plans - Compensation Expense to be Recognized (Detail) $ in Thousands	Dec. 31, 2016 USD ($)
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
2017	$ 88
2018	54
2019	9
2020	2
Total	$ 153

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Employee Benefit Plans - Summary of Shares Held by Employee Stock Ownership Plan (ESOP) (Detail) - USD ($)		12 Months Ended
	Oct. 28, 2014	Dec. 31, 2016	Dec. 31, 2015
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Earned ESOP shares		101,654
Unearned ESOP shares		498,346	546,413
Total ESOP shares	600,000	600,000
Share Price at December 31, 2016		$ 13.46
Fair value of unearned shares		$ 6,707,737

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Income Taxes - Provision for Income Tax Expense (Detail) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Current
Federal									$ 0	$ 0	$ 0
State									95	97	30
Current income tax expenses									95	97	30
Deferred
Federal									267	177	(231)
State									0	0	0
Deferred income taxes expenses									267	177	(231)
Income tax expense (benefit)	$ 260	$ 41	$ 15	$ 46	$ 74	$ (23)	$ (212)	$ 435	$ 362	$ 274	$ (201)

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Income Taxes - Additional Information (Detail) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Income Tax Disclosure [Abstract]
Federal income tax rate	34.00%	34.00%	34.00%
Amount of thrift which no longer use reserve method	$ 500,000,000
Operating loss carry forwards	$ 2,000,000
Operating loss carryforwards expiration year	2034
Amount of bad debt deductions included retained earnings	$ 4,027,000	$ 4,027,000
Valuation allowance for deferred tax assets	0	0
Unrecognized tax benefits	$ 0	$ 0

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Income Taxes - Reconciliation of Federal Income Tax Rate (Detail) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Income Tax Disclosure [Abstract]
Expected federal income tax expense at statutory tax rate									$ 1,110	$ 911	$ 679
Effect of nontaxable interest income									(452)	(458)	(542)
Effect of nontaxable bank owned life insurance income									(117)	(114)	(104)
Effect of Qualified Zone Academy Bond (QZAB) credit									(114)	(109)	(220)
State taxes on income, net of federal benefit									59	59	10
Other tax credits									(128)	(80)	(80)
Non deductible expenses									4	65	56
Income tax expense (benefit)	$ 260	$ 41	$ 15	$ 46	$ 74	$ (23)	$ (212)	$ 435	$ 362	$ 274	$ (201)
Effective tax rate (benefit)									11.10%	10.20%	(10.10%)

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Income Taxes - Components of Deferred Taxes (Detail) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Deferred tax assets:
Allowance for loan loss	$ 2,078	$ 1,938
Accrued expenses	294	377
Net operating loss carry forward	454	1,182
Tax credit carry forward	568	258
Intangible amortization	548	784
Other	242	267
Deferred tax assets Net	4,184	4,806
Deferred tax liabilities:
FHLB stock dividends	(787)	(787)
Unrealized gain on securities available for sale	(240)	(1,275)
Depreciation and amortization	(105)	(102)
Deferred tax liabilities, Gross, Total	(1,132)	(2,164)
Net deferred tax asset	$ 3,052	$ 2,642

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Foreclosed Assets - Company's Balance in Foreclosed Assets (Detail) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Schedule of Foreclosed Assets [Line Items]
Total foreclosed assets	$ 2,397	$ 1,736
One-to-Four Family Mortgages [Member]
Schedule of Foreclosed Assets [Line Items]
Total foreclosed assets	135	55
Home Equity Line of Credit [Member]
Schedule of Foreclosed Assets [Line Items]
Total foreclosed assets	28
Multi-Family [Member]
Schedule of Foreclosed Assets [Line Items]
Total foreclosed assets	1,775
Land [Member]
Schedule of Foreclosed Assets [Line Items]
Total foreclosed assets		943
Non-Residential Real Estate [Member]
Schedule of Foreclosed Assets [Line Items]
Total foreclosed assets	$ 459	$ 738

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Commitments and Contingencies - Additional Information (Detail) - USD ($)	1 Months Ended	12 Months Ended
	Oct. 31, 2008	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Commitment and Contingencies [Line Items]
Amount of fixed rate loan commitments			$ 0	$ 0
Initial term of employment agreements			3 years
Rental expenses			$ 127,000	61,000	$ 66,000
Variable monthly cost associated with contract, average			1,500,000
Annual cost under branding agreements			104,000
Amount of annual cost per covered individual under first specific stop loss policy limits			90,000	90,000
Amount of annual cost per covered individual under second specific stop loss policy limits			1,697,678	1,852,013
Liability related to self insured medical expenses			$ 256,000	400,000
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%
LIBOR	3.10%		3.10%
Interest rate swap agreement expiry date			Oct. 08, 2015
Scenario, Forecast [Member]
Commitment and Contingencies [Line Items]
Amount of annual cost per covered individual under first specific stop loss policy limits		$ 100,000
Amount of annual cost per covered individual under second specific stop loss policy limits		$ 1,570,747
Interest Rate Swap [Member]
Commitment and Contingencies [Line Items]
Interest rate swap agreement expiry date			Oct. 08, 2015
Minimum [Member]
Commitment and Contingencies [Line Items]
Period of most guarantees			1 year
Maximum [Member]
Commitment and Contingencies [Line Items]
Period of most guarantees			2 years
Commitments to Extend Credit [Member]
Commitment and Contingencies [Line Items]
Contractual notional amount of instruments			$ 43,400,000	46,400,000
Unused Lines of Credit [Member]
Commitment and Contingencies [Line Items]
Contractual notional amount of instruments			91,900,000	84,900,000
Unused Lines of Credit [Member] | Customer Deposit Accounts [Member]
Commitment and Contingencies [Line Items]
Contractual notional amount of instruments			$ 18,500,000	$ 9,500,000

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Commitments and Contingencies - Future Minimal Purchase, Lease and Rental Commitments (Detail) $ in Thousands	Dec. 31, 2016 USD ($)
Commitments and Contingencies Disclosure [Abstract]
2017	$ 2,311
2018	1,568
2019	1,462
2020	67
2021	34
Total	$ 5,442

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Regulatory Matters - The Company's Consolidated Capital Ratios and the Bank's Actual Capital Amounts and Ratios (Detail) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Tier 1 leverage capital to adjusted total assets, Actual Amount	$ 92,803	$ 95,156
Tier 1 leverage capital to adjusted total assets, Minimum Capital Required - Basel III Phase-In Schedule, Amount	34,392	34,924
Tier 1 leverage capital to adjusted total assets, To be Well Capitalized for Prompt Corrective Action Provision, Amount	42,990	43,656
Total capital to risk weighted assets, Actual Amount	98,915	100,857
Total capital to risk weighted assets, Minimum Capital Required - Basel III Phase-In Schedule, Amount	52,682	46,772
Total capital to risk weighted assets, To be Well Capitalized for Prompt Corrective Action Provision, Amount	61,080	58,465
Tier 1 capital to risk weighted assets, Actual Amount	92,803	95,156
Tier 1 capital to risk weighted assets, Minimum Capital Required - Basel III Phase-In Schedule, Amount	40,466	35,079
Tier 1 capital to risk weighted assets, To be Well Capitalized for Prompt Corrective Action Provision, Amount	48,864	46,772
Common equity tier 1 capital to risk weighted assets, Actual Amount	92,803	95,156
Common equity tier 1 capital to risk weighted assets, Minimum Capital Required - Basel III Phase-In Schedule, Amount	$ 31,304	$ 26,309
Tier 1 leverage capital to adjusted total assets, Actual Ratio	10.80%	10.90%
Tier 1 leverage capital to adjusted total assets, Minimum Capital Required - Basel III Phase-In Schedule, Ratio	4.00%	4.00%
Tier 1 leverage capital to adjusted total assets, To be Well Capitalized for Prompt Corrective Action Provision, Ratio	5.00%	5.00%
Total capital to risk weighted assets, Actual Ratio	16.20%	17.30%
Total capital to risk weighted assets, Minimum Capital Required - Basel III Phase-In Schedule, Ratio	8.625%	8.00%
Total capital to risk weighted assets, To be Well Capitalized for Prompt Corrective Action Provision, Ratio	10.00%	10.00%
Tier 1 capital to risk weighted assets, Actual Ratio	15.20%	16.30%
Tier 1 capital to risk weighted assets, Minimum Capital Required - Basel III Phase-In Schedule, Ratio	6.625%	6.00%
Tier 1 capital to risk weighted assets, To be Well Capitalized for Prompt Corrective Action Provision, Ratio	8.00%	8.00%
Common equity tier 1 capital to risk weighted assets, Actual Ratio	15.20%	16.30%
Common equity tier 1 capital to risk weighted assets, Minimum Capital Required - Basel III Phase-In Schedule, Ratio	5.125%	4.50%
Bank [Member]
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Tier 1 leverage capital to adjusted total assets, Actual Amount	$ 91,617	$ 93,328
Tier 1 leverage capital to adjusted total assets, Minimum Capital Required - Basel III Phase-In Schedule, Amount	34,315	34,840
Tier 1 leverage capital to adjusted total assets, To be Well Capitalized for Prompt Corrective Action Provision, Amount	42,894	43,550
Total capital to risk weighted assets, Actual Amount	97,729	99,029
Total capital to risk weighted assets, Minimum Capital Required - Basel III Phase-In Schedule, Amount	52,561	46,272
Total capital to risk weighted assets, To be Well Capitalized for Prompt Corrective Action Provision, Amount	60,941	57,840
Tier 1 capital to risk weighted assets, Actual Amount	91,617	93,328
Tier 1 capital to risk weighted assets, Minimum Capital Required - Basel III Phase-In Schedule, Amount	40,373	34,704
Tier 1 capital to risk weighted assets, To be Well Capitalized for Prompt Corrective Action Provision, Amount	48,753	46,272
Common equity tier 1 capital to risk weighted assets, Actual Amount	91,617	93,328
Common equity tier 1 capital to risk weighted assets, Minimum Capital Required - Basel III Phase-In Schedule, Amount	31,232	26,028
Common equity tier 1 capital to risk weighted assets, To be Well Capitalized for Prompt Corrective Action Provision, Amount	$ 39,611	$ 37,596
Tier 1 leverage capital to adjusted total assets, Actual Ratio	10.70%	10.70%
Tier 1 leverage capital to adjusted total assets, Minimum Capital Required - Basel III Phase-In Schedule, Ratio	4.00%	4.00%
Tier 1 leverage capital to adjusted total assets, To be Well Capitalized for Prompt Corrective Action Provision, Ratio	5.00%	5.00%
Total capital to risk weighted assets, Actual Ratio	16.00%	17.10%
Total capital to risk weighted assets, Minimum Capital Required - Basel III Phase-In Schedule, Ratio	8.625%	8.00%
Total capital to risk weighted assets, To be Well Capitalized for Prompt Corrective Action Provision, Ratio	10.00%	10.00%
Tier 1 capital to risk weighted assets, Actual Ratio	15.00%	16.10%
Tier 1 capital to risk weighted assets, Minimum Capital Required - Basel III Phase-In Schedule, Ratio	6.625%	6.00%
Tier 1 capital to risk weighted assets, To be Well Capitalized for Prompt Corrective Action Provision, Ratio	8.00%	8.00%
Common equity tier 1 capital to risk weighted assets, Actual Ratio	15.00%	16.10%
Common equity tier 1 capital to risk weighted assets, Minimum Capital Required - Basel III Phase-In Schedule, Ratio	5.125%	4.50%
Common equity tier 1 capital to risk weighted assets, To be Well Capitalized for Prompt Corrective Action Provision, Ratio	6.50%	6.50%

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Stockholders' Equity - Additional Information (Detail) - $ / shares			12 Months Ended
	Nov. 18, 2015	Oct. 28, 2014	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Stockholders Equity [Line Items]
Tier 1 risk-based capital ratio			15.20%	16.30%
Number of shares to be acquired under share repurchase program	300,000.0	300,000.0
Repurchase program expiration date	Dec. 31, 2017
ESOP shares reissued		600,000	600,000
Treasury stock, shares			1,246,136	1,085,888
Treasury stock shares purchased			92,550
Total risk-based capital ratio			16.20%	17.30%
Capital conservation buffer			0.625%
General Corporate Purchases or Employee Benefit Plans [Member]
Stockholders Equity [Line Items]
Number of shares to be acquired under share repurchase program		1,000,000
ESOP [Member]
Stockholders Equity [Line Items]
Number of shares to be acquired under share repurchase program		860,303.0
Repurchase program expiration date		Oct. 31, 2015
Basel Three Requirements [Member]
Stockholders Equity [Line Items]
Tier 1 risk-based capital ratio			6.00%
Common equity Tier 1 capital ratio			4.50%
Total risk-based capital ratio			8.00%
Tier 1 leverage ratio			4.00%
Post Capital Conservation Buffer [Member]
Stockholders Equity [Line Items]
Tier 1 risk-based capital ratio			8.50%
Common equity Tier 1 capital ratio			7.00%
Total risk-based capital ratio			10.50%
Capital conservation buffer			2.50%
Bank Subsidiary [Member] | Minimum [Member]
Stockholders Equity [Line Items]
Tier 1 risk-based capital ratio			8.50%
Bank [Member] | Minimum [Member]
Stockholders Equity [Line Items]
Tier 1 risk-based capital ratio			9.00%
Common Stock [Member]
Stockholders Equity [Line Items]
Treasury stock, shares			1,246,136
Average price of treasury stock			$ 12.32
Treasury stock shares purchased			160,248	907,505	298,999

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Earnings Per Share - Summary of Reconciliation of Weighted Average Common Shares (Detail) - shares	3 Months Ended								12 Months Ended
	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Basic earnings per share:
Weighted average common shares									6,757,345	6,919,190	7,306,078
Less: Average unallocated ESOP shares									(523,485)	(546,913)
Weighted average common shares	6,193,278	6,212,231	6,232,457	6,297,755	6,328,324	6,359,556	6,425,687	6,732,456	6,233,860	6,372,277	7,306,078
Dilutive effect of stock options									0	0	0
Weighted average common and incremental shares	6,193,278	6,212,231	6,232,457	6,297,755	6,328,324	6,359,556	6,425,687	6,732,456	6,233,860	6,372,277	7,306,078

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Condensed Parent Company Only Financial Statements - Summary of Condensed Balance Sheets (Detail) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2003
Assets:
Cash	$ 21,779	$ 46,926
Total assets	891,486	903,154
Liabilities and equity Liabilities
Dividend payable - common	288	287
Subordinated debentures	10,310	10,310			$ 10,310
Total liabilities	805,058	815,524
Equity:
Preferred stock
Common stock	80	79
Additional paid-capital	58,660	58,604
Retained earnings	49,035	47,124
Treasury stock	(15,347)	(13,471)
Unearned ESOP shares	(6,548)	(7,180)
Accumulated other comprehensive income	548	2,474
Total stockholders' equity	86,428	87,630	$ 98,402	$ 95,717
Total liabilities and equity	891,486	903,154
HopFed [Member]
Assets:
Cash	1,084	2,087
Investment in subsidiary	95,242	95,804
Prepaid expenses and other assets	804	490
Total assets	97,130	98,381
Liabilities and equity Liabilities
Dividend payable - common	288	287
Interest payable	101	89
Other liabilities	3	65
Subordinated debentures	10,310	10,310
Total liabilities	10,702	10,751
Equity:
Preferred stock
Common stock	80	79
Additional paid-capital	58,660	58,604
Retained earnings	49,035	47,124
Treasury stock	(15,347)	(13,471)
Unearned ESOP shares	(6,548)	(7,180)
Accumulated other comprehensive income	548	2,474
Total stockholders' equity	86,428	87,630
Total liabilities and equity	$ 97,130	$ 98,381

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Condensed Parent Company Only Financial Statements - Summary of Condensed Statements of Income (Detail) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Interest and dividend income:
Total interest and dividend income	$ 7,951	$ 8,004	$ 7,691	$ 8,081	$ 7,996	$ 8,012	$ 7,919	$ 9,195	$ 31,727	$ 33,122	$ 34,680
Interest expense	1,311	1,315	1,268	1,405	1,672	1,633	1,612	1,633	5,299	6,550	8,879
Non-interest expenses	7,211	7,353	7,609	7,683	7,188	7,553	8,234	7,470	29,856	30,445	33,916
Income (loss) before income taxes	1,366	1,026	319	555	730	487	(329)	1,790
Income tax benefits	$ 260	$ 41	$ 15	$ 46	$ 74	$ (23)	$ (212)	$ 435	362	274	(201)
HopFed [Member]
Interest and dividend income:
Dividend income from subsidiary Bank									2,000	12,100	2,600
Total interest and dividend income									2,000	12,100	2,600
Interest expense									388	740	737
Non-interest expenses									391	541	546
Total expenses									779	1,281	1,283
Income (loss) before income taxes									1,221	10,819	1,317
Income tax benefits									(319)	(529)	(459)
Income before equity in undistributed earnings of subsidiary									1,540	11,348	1,776
Equity in (distribution in excess of) earnings of subsidiary									1,364	(8,944)	423
Net income available for common shareholders									$ 2,904	$ 2,404	$ 2,199

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Condensed Parent Company Only Financial Statements - Summary of Condensed Statements of Cash Flows (Detail) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Cash flows from operating activities
Net income	$ 1,106	$ 985	$ 304	$ 509	$ 656	$ 510	$ (117)	$ 1,355	$ 2,904	$ 2,404	$ 2,199
Increase (decrease) in:
Net cash provided by operating activities									6,520	6,436	10,136
Cash flows from financing activities:
Purchase of treasury stock									(1,876)	(11,926)	(3,500)
Proceeds on ESOP loan									632	704
Dividends paid on common stock									(993)	(1,023)	(1,187)
Net cash (used in) financing activities									(10,724)	(34,634)	(44,565)
Increase (decrease) in cash and cash equivalents									(28,949)	14,259	(15,409)
Cash and cash equivalents, beginning of period				54,698				40,439	54,698	40,439	55,848
Cash and cash equivalents, end of period	25,749				54,698				25,749	54,698	40,439
HopFed [Member]
Cash flows from operating activities
Net income									2,904	2,404	2,199
Adjustments to reconcile net income to net cash provided by operating activities
Equity in undistributed earnings of subsidiary									(1,364)	8,943	(423)
Amortization of restricted stock									135	190	164
Increase (decrease) in:
Current income taxes payable									(49)	11	200
Accrued expenses									(392)	(149)	280
Net cash provided by operating activities									1,234	11,399	2,420
Cash flows from financing activities:
Purchase of treasury stock									(1,876)	(11,926)	(3,500)
Proceeds on ESOP loan									632	704
Dividends paid on common stock									(993)	(1,022)	(1,187)
Net cash (used in) financing activities									(2,237)	(12,244)	(4,687)
Increase (decrease) in cash and cash equivalents									(1,003)	(845)	(2,267)
Cash and cash equivalents, beginning of period				$ 2,087				$ 2,932	2,087	2,932	5,199
Cash and cash equivalents, end of period	$ 1,084				$ 2,087				$ 1,084	$ 2,087	$ 2,932

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Investments in Affiliated Companies - Additional Information (Detail)	Dec. 31, 2016
HopFed Capital Trust [Member] | Majority-Owned Subsidiary, Unconsolidated [Member]
Percent of common stock of HopFed Bancorp, Inc.	100.00%

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Investments in Affiliated Companies - Summary Balance Sheets (Detail) - Majority-Owned Subsidiary, Unconsolidated [Member] - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Asset - investment in subordinated debentures issued by HopFed Bancorp, Inc.	$ 10,310	$ 10,310
Liabilities	0	0
Stockholders' equity:
Total stockholders' equity	10,310	10,310
Total liabilities and stockholders equity	10,310	10,310
Trust Preferred Securities [Member]
Stockholders' equity:
Total stockholders' equity	10,000	10,000
Common Stock [Member]
Stockholders' equity:
Total stockholders' equity	$ 310	$ 310

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Investments in Affiliated Companies - Summary Balance Sheets (Parenthetical) (Detail)	Dec. 31, 2016	Dec. 31, 2015
Majority-Owned Subsidiary, Unconsolidated [Member] | Common Stock [Member]
Percent of common stock of HopFed Bancorp, Inc.	100.00%	100.00%

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Investments in Affiliated Companies - Summary Statement of Income (Detail) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Schedule of Equity Method Investments [Line Items]
Income - interest income from subordinated debentures issued by HopFed Bancorp, Inc.	$ 7,951	$ 8,004	$ 7,691	$ 8,081	$ 7,996	$ 8,012	$ 7,919	$ 9,195	$ 31,727	$ 33,122	$ 34,680
Majority-Owned Subsidiary, Unconsolidated [Member]
Schedule of Equity Method Investments [Line Items]
Income - interest income from subordinated debentures issued by HopFed Bancorp, Inc.									400	354
Net income									$ 400	$ 354

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Investments in Affiliated Companies - Summary Statements of Stockholders' Equity (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Dividends:
Total retained earnings	$ 49,035	$ 47,124
Majority-Owned Subsidiary, Unconsolidated [Member]
Schedule of Equity Method Investments [Line Items]
Beginning balances	10,310
Retained earnings:
Net income	400	354
Dividends:
Trust preferred securities	(388)
Common dividends paid to HopFed Bancorp, Inc.	(12)
Total retained earnings	0
Ending balances	10,310	10,310
Majority-Owned Subsidiary, Unconsolidated [Member] | Trust Preferred Securities [Member]
Schedule of Equity Method Investments [Line Items]
Beginning balances	10,000
Dividends:
Total retained earnings	0
Ending balances	10,000	10,000
Majority-Owned Subsidiary, Unconsolidated [Member] | Common Stock [Member]
Schedule of Equity Method Investments [Line Items]
Beginning balances	310
Dividends:
Total retained earnings	0
Ending balances	310	$ 310
Majority-Owned Subsidiary, Unconsolidated [Member] | Retained Earnings [Member]
Retained earnings:
Net income	400
Dividends:
Trust preferred securities	(388)
Common dividends paid to HopFed Bancorp, Inc.	(12)
Total retained earnings	$ 0

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Quarterly Results of Operations - Summarized Unaudited Quarterly Operating Results (Detail) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Quarterly Financial Information Disclosure [Abstract]
Interest and dividend income	$ 7,951	$ 8,004	$ 7,691	$ 8,081	$ 7,996	$ 8,012	$ 7,919	$ 9,195	$ 31,727	$ 33,122	$ 34,680
Interest expense	1,311	1,315	1,268	1,405	1,672	1,633	1,612	1,633	5,299	6,550	8,879
Net interest income	6,640	6,689	6,423	6,676	6,324	6,379	6,307	7,562	26,428	26,572	25,801
Provision for loan losses	63	255	465	458	291	275	270	215	1,241	1,051	(2,273)
Net interest income after provision for loan losses	6,577	6,434	5,958	6,218	6,033	6,104	6,037	7,347	25,187	25,521	28,074
Noninterest income	2,000	1,945	1,970	2,020	1,885	1,936	1,868	1,913	7,935	7,602	7,840
Noninterest expense	7,211	7,353	7,609	7,683	7,188	7,553	8,234	7,470	29,856	30,445	33,916
Income (loss) before income taxes	1,366	1,026	319	555	730	487	(329)	1,790
Income taxes expense (benefit)	260	41	15	46	74	(23)	(212)	435	362	274	(201)
Net income	$ 1,106	$ 985	$ 304	$ 509	$ 656	$ 510	$ (117)	$ 1,355	$ 2,904	$ 2,404	$ 2,199
Basic earnings (loss) per share	$ 0.18	$ 0.16	$ 0.05	$ 0.08	$ 0.10	$ 0.08	$ (0.02)	$ 0.20	$ 0.47	$ 0.38	$ 0.30
Diluted earnings (loss) per share	$ 0.18	$ 0.16	$ 0.05	$ 0.08	$ 0.10	$ 0.08	$ (0.02)	$ 0.20	$ 0.47	$ 0.38	$ 0.30
Weighted average shares outstanding:
Basic	6,193,278	6,212,231	6,232,457	6,297,755	6,328,324	6,359,556	6,425,687	6,732,456	6,233,860	6,372,277	7,306,078
Diluted	6,193,278	6,212,231	6,232,457	6,297,755	6,328,324	6,359,556	6,425,687	6,732,456	6,233,860	6,372,277	7,306,078

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Comprehensive Income - Other Comprehensive (Loss) Income Included in Stockholders' Equity (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Unrealized holding gains (losses) on:
Available for sale securities, Pre-Tax	$ (2,048)	$ (1,698)	$ 7,773
Available for sale securities - OTTI, Pre-Tax	(258)	359
Derivatives, Pre-Tax		389	359
Reclassification adjustments for gains on available for sale securities, Pre-Tax	(612)	(691)	(578)
Other comprehensive income, Pre-Tax	(2,918)	(1,641)	7,554
Available for sale securities, tax benefit (expense)	697	577	(2,643)
Available for sale securities - OTTI, tax benefit (expense)	88	(122)
Derivatives, tax benefit (expense)		(132)	(122)
Reclassification adjustments for gains on available for sale securities, tax benefit (expense)	207	235	197
Other comprehensive income, tax benefit (expense)	992	558	2,568
Available for sale securities, net of tax	(1,351)	(1,121)	5,130
Available for sale securities - OTTI, net of tax	(170)	237
Derivatives, net of tax		257	237
Reclassification adjustments for gains on available for sale securities, net of tax	(405)	(456)	(381)
Total other comprehensive income (loss)	$ (1,926)	$ (1,083)	$ 4,986