HopFed Bancorp, Inc. Reports Growth in Net Income and Loans for Third Quarter

Net Income Up 93.4% Year-over-Year to $3.5 Million

Net Loans Increase 7.6% Year-over-Year to $630.2 Million

HopFed Bancorp, Inc. HFBC (the "Company"), the holding company for Heritage Bank USA, Inc. (the "Bank"), today reported growth in net income and loans for the three and nine month periods ended September 30, 2017. For the three month period ended September 30, 2017, net income rose 42.4% to $1.4 million, or $0.22 per share, compared to $985,000, or $0.16 per share, for the three month period ended September 30, 2016. For the nine month period ended September 30, 2017, net income rose 93.4% to $3.5 million, or $0.56 per share, compared to $1.8 million, or $0.29 per share, for the nine month period ended September 30, 2016.

Commenting on the third quarter results, John E. Peck, President and Chief Executive Officer, said, "At September 30, 2017, loans rose 7.6% to $630.2 million and deposits were up 2.7% to $731.2 million compared to September 30, 2016. HopFed's positive trend of earnings growth continues into the third quarter of 2017 as a result of the growth in the average balance of loans and careful management of non-interest expenses. We are confident that our continued success in providing quality service and value to our communities will translate into improved financial performance."

Financial Highlights

• Loans receivable rose 7.6% to $630.2 million at September 30, 2017, compared to $586.3 million at September 30, 2016. Loan growth benefited from solid production from the Company's loan production office in Nashville, Tennessee. At September 30, 2017, total loans originated and outstanding in the Nashville loan production office were $63.2 million compared to $39.5 million at September 30, 2016.
• The Company continues to experience a reduction in the level of non-accrual and problem loans. Non-accrual loans declined from $11.7 million, or 1.99% of total loans, at September 30, 2016, to $1.7 million, or 0.28% of total loans, at September 30, 2017. Loans classified as impaired were $31.9 million at September 30, 2016 and $11.2 million at September 30, 2017.

• The Company continued to repurchase its common stock as part of the Board approved stock repurchase program. For the nine month period ended September 30, 2017, the Company purchased 41,321 shares of its common stock at a weighted average price of $14.14 per share. At September 30, 2017, the Company held 1,287,457 shares in treasury stock with a weighted average cost of $12.37 per share. The Company may purchase an additional 51,229 additional shares of treasury stock under its current repurchase program.

Results of Operations

In the three and nine month periods ended September 30, 2017, net interest income was $7.1 million and $20.8 million, respectively, as compared to $6.7 million and $19.8 million for the three and nine month periods ended September 30, 2016. The improved level of net interest income is the result of the growth in the average balances of loans. For the three month period ended September 30, 2017, the average balance of net loans outstanding was $637.0 million, an increase of $61.9 million compared to the three month period ended September 30, 2016. For the nine month period ended September 30, 2017, the average balance of net loans outstanding was $626.1 million, an increase of $63.3 million as compared to the nine month period ended September 30, 2017. During the three and nine month periods ended September 30, 2017, total interest earning assets have increased by $39.1 million and $34.5 million, respectively. The Company has utilized cash on hand and the cash flow provided by our securities portfolio to fund a meaningful portion of our loan growth.

The improvement in net interest income for the three and nine months ended September 30, 2017 is partially offset by the higher cost of interest bearing liabilities. The total cost of all interest bearing liabilities for the three and nine month periods ended September 30, 2017 is 0.89% and 0.85%, respectively, compared to 0.80% for the three and nine month periods ended September 30, 2016. For the three and nine month periods ended September 30, 2017, the Company's net interest margin was 3.43% and 3.37%, respectively, compared to 3.41% and 3.36% for the three and nine month periods ended September 30, 2016, respectively.

In the three and nine month periods ended September 30, 2017, the Company has experienced a reduction of both consumer and municipal checking account balances. At September 30, 2017 and December 31, 2016, total non-interest bearing checking account balances were $128.2 million and $136.3 million, representing a decline of $8.1 million. At September 30, 2017 and December 31, 2016, total interest bearing checking account balances were $196.3 million and $209.3 million, representing a decline of $13.0 million. For the nine month period ended September 30, 2017, short term interest rates have increased. Coupled with the competitive nature of select local markets, the Company anticipates continued increases in the cost of funding our loan growth.

For the nine month periods ended September 30, 2017 and September 30, 2016, the Company's non-interest income was $6.2 million and $5.9 million, respectively. The improved levels of non-interest income is partially attributable to changes made to the Company's checking account offerings in December of 2016. In the nine month period ended September 30, 2017, the Company has increased fee income on deposit accounts by $329,000 compared to the nine month period ended September 30, 2016. The new checking account product offerings reduces, but does not eliminate, the number of checking accounts not subject to a monthly fee. However, the Company's new deposit product offerings added several valuable features for customers such as roadside assistance, cell phone insurance and discounts at many local businesses. For the nine month period ended September 30, 2017, other operating income was $877,000, an increase of $309,000 compared to the nine month period ended September 30, 2016. The increase in other operating income was largely due to a one-time payment from a vendor of $225,000.

For the three and nine month periods ended September 30, 2017, total non-interest expenses were $7.2 million and $22.1 million, respectively compared to $7.4 million and $22.6 million for the three and nine month periods ended September 30, 2016, respectively. In the three and nine month periods ended September 30, 2017, the Company's net foreclosure expenses have declined by $229,000 and $384,000, respectively, compared to the three and nine month periods ended September 30, 2016. For the three and nine month periods ended September 30, 2017, the Company's salaries and benefits expense was $3.9 million and $12.1 million, respectively. This represents an increase of $162,000 and $486,000, respectively, compared to the three and nine month periods ended September 30, 2016. The Company's cost of providing health insurance benefits to employees increased by $86,000 and $267,000 in the three and nine month periods ended September 30, 2017 compared to the three and six month periods ended September 30, 2016.

Balance Sheet

At September 30, 2017, total assets were $904.1 million, compared to $891.5 million at December 31, 2016 and $871.9 million at September 30, 2016. Management continues to strive to growth both sides of the Company's balance sheet at approximately the same pace to maximize our interest rate margin and profitability. The Company's loan growth has been focused on commercial and residential real estate. The Company continues to utilize the cash from the investment portfolio to supplement liquidity for loan growth. The Company is managing deposit growth to limit the increased cost necessary to attract new deposits while seeking to grow our deposit base at a rate commensurate with our loan demand. In the nine month period ended September 30, 2017, deposit growth has been dependent on time deposit and brokered deposits due to the decline in balances held in both interest bearing and non-interest bearing checking accounts. A summary of loans outstanding by type at September 30, 2017, December 31, 2016 and September 30, 2016 is as follows:

Asset Quality

In the three month period ended September 30, 2017, the Company foreclosed on its largest problem loan, a $6.7 million lending relationship that included a residential property, two small developed commercial lots and a 67 acre tract of undeveloped land. In September 2017, the Company recognized a $2.6 million charge-off and has listed these properties for sale. For the nine month period ended September 30, 2017, the Company's net charge-offs totaled $1.7 million for an annualized net charge off ratio of 0.37%.

As a result of improved financial performance of several borrowers and the foreclosure of our largest non-accrual loan, the Company's non-accrual loans fell to $1.7 million, or 0.28% of total loans at September 30, 2017 compared to $11.7 million, or 1.99% of total loans, at September 30, 2016 and $9.1 million, or 1.49% of total loans, at December 31, 2016. The Company's level of impaired loans declined from $31.9 million at September 30, 2016 to $11.2 million at September 30, 2017. The table below provides a history of the Company's significant credit quality metrics:

The Company

HopFed Bancorp, Inc. is the holding company for Heritage Bank USA, Inc. ("Heritage Bank"), a Kentucky state chartered commercial bank. Heritage Bank has eighteen offices in western Kentucky and middle Tennessee and loan production offices in Nashville, Tennessee and Brentwood, Tennessee. The Company offers a broad line of financial services and products with the personalized focus of a community banking organization. More information about HopFed Bancorp and Heritage Bank is located on its website www.bankwithheritage.com.

Forward-Looking Information

Information contained in this press release, other than historical information, may be considered forward-looking in nature and is subject to various risks, uncertainties, and assumptions. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or expected. Among the key factors that may have a direct bearing on the Company's operating results, performance or financial condition are competition and the demand for the Company's products and services, and other factors as set forth in filings with the Securities and Exchange Commission. The Company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the Company's expectations. Certain tabular presentations may not reconcile because of rounding.

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