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,        
|                                                           |  | 2005                    |         | 2004 |   | 2003    |  | 2002 |         | 2001
|                                                           |  | (Dollars in thousands) 
|Total amount of:                                           |  |                         |        
|Assets                                                     |  | $                       | 639,589 |      | $ | 579,731 |  | $    | 531,465 |      | $ | 427,502 |  | $ | 285,639
|Loans receivable, net                                      |  |                         | 397,310 |      |   | 356,825 |  |      | 334,740 |      |   | 292,095 |  |   | 170,016
|Loans held for sale                                        |  |                         |        |      |   |        |  |      |        |      |   |        |  |   | 928    
|Cash and due from banks                                    |  |                         | 13,487  |      |   | 17,357  |  |      | 12,958  |      |   | 9,288   |  |   | 3,941  
|Interest-bearing deposits in Federal Home Loan Bank (FHLB) |  |                         | 424     |      |   | 42      |  |      | 35      |      |   | 905     |  |   | 39     
|Federal funds sold                                         |  |                         | 2,250   |      |   | 850     |  |      | 2,185   |      |   | 3,840   |  |   | 690    
|Federal Home Loan Bank stock                               |  |                         | 3,211   |      |   | 3,015   |  |      | 2,917   |      |   | 2,488   |  |   | 2,284  
|Securities available for sale                              |  |                         | 172,890 |      |   | 155,151 |  |      | 140,597 |      |   | 100,659 |  |   | 98,235 
|Securities held to maturity:                               |  |                         |         |      |   |         |  |      |         |      |   |         |  |   |        
|U.S. Government agency securities                          |  |                         | 17,292  |      |   | 21,546  |  |      | 13,339  |      |   |        |  |   |       
|Mortgage-backed Securities                                 |  |                         | 891     |      |   | 1,222   |  |      | 1,769   |      |   | 2,932   |  |   | 4,462  
|Deposits                                                   |  |                         | 482,728 |      |   | 436,195 |  |      | 417,488 |      |   | 353,655 |  |   | 200,316
|FHLB advances                                              |  |                         | 93,172  |      |   | 81,319  |  |      | 54,353  |      |   | 23,623  |  |   | 38,747 
|Subordinated debentures                                    |  |                         | 10,310  |      |   | 10,310  |  |      | 10,310  |      |   |        |  |   |       
|Total stockholders equity                                 |  |                         | 49,842  |      |   | 49,373  |  |      | 47,238  |      |   | 46,878  |  |   | 43,589 
|Number of:                                                 |  |                         |         |      |   |         |  |      |         |      |   |         |  |   |        
|Real estate loans outstanding                              |  |                         | 5,076   |      |   | 4,805   |  |      | 4,048   |      |   | 3,216   |  |   | 2,248  
|Deposit accounts                                           |  |                         | 51,635  |      |   | 48,071  |  |      | 43,069  |      |   | 36,868  |  |   | 18,178 
|Offices open                                               |  |                         | 9       |      |   | 9       |  |      | 9       |      |   | 8       |  |   | 6      
|                                                           |  |                         |         |      |  
|Operating Data                                             |  |                         |         |      |   |         |  |      |         |      |   |         |  |   |        
|                                                           |  | Year Ended December 31,
|                                                           |  | 2005                    |         | 2004 |   | 2003    |  | 2002 |         | 2001
|                                                           |  | (Dollars in thousands) 
|Interest and dividend income                               |  | $                       | 29,666  |      | $ | 26,381  |  | $    | 24,743  |      | $ | 20,042  |  | $ | 17,562 
|Interest expense                                           |  |                         | 15,474  |      |   | 12,537  |  |      | 12,379  |      |   | 9,420   |  |   | 9,752  
|                                                           |  |                         |         |      |   |         |  |      |         |      |   |         |  |   |        
|Net interest income before provision for loan losses       |  |                         | 14,192  |      |   | 13,844  |  |      | 12,364  |      |   | 10,622  |  |   | 7,810  
|Provision for loan losses                                  |  |                         | 1,250   |      |   | 1,200   |  |      | 1,750   |      |   | 795     |  |   | 222    
|                                                           |  |                         |         |      |   |         |  |      |         |      |   |         |  |   |        
|Net interest income                                        |  |                         | 12,942  |      |   | 12,644  |  |      | 10,614  |      |   | 9,827   |  |   | 7,588  
|Non-interest income                                        |  |                         | 4,532   |      |   | 3,038   |  |      | 3,499   |      |   | 2,312   |  |   | 717    
|Non-interest expense                                       |  |                         | 11,600  |      |   | 10,008  |  |      | 9,044   |      |   | 5,199   |  |   | 5,493  
|                                                           |  |                         |         |      |   |         |  |      |         |      |   |         |  |   |        
|Income before income taxes                                 |  |                         | 5,874   |      |   | 5,674   |  |      | 5,069   |      |   | 6,940   |  |   | 2,812  
|Provision for income taxes                                 |  |                         | 1,744   |      |   | 1,683   |  |      | 1,574   |      |   | 2,346   |  |   | 973    
|                                                           |  |                         |         |      |   |         |  |      |         |      |   |         |  |   |        
|Net income                                                 |  | $                       | 4,130   |      | $ | 3,991   |  | $    | 3,495   |      | $ | 4,594   |  | $ | 1,839  
|                                                           |  |                         |         |      |   |         |  |      |         |      |   |         |  |   |        



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Selected Quarterly Information (Unaudited)



|                                                        |  |                         |       |                |   |               |  |                |       |  |   |      
|------------------------------------------------------- |  | ----------------------- | ----- | -------------- | - | ------------- |  | -------------- | ----- |  | - | -----
|                                                        |  | First Quarter           |       | Second Quarter |   | Third Quarter |  | Fourth Quarter
|                                                        |  | ( Dollars in thousands)
|Year Ended December 31, 2005:                           |  |                         |       |                |   |               |  |                |       |  |   |      
|Interest and dividend income                            |  | $                       | 6,825 |                | $ | 6,936         |  | $              | 7,616 |  | $ | 8,289
|Net interest income after provision for losses on loans |  |                         | 3,107 |                |   | 3,072         |  |                | 3,299 |  |   | 3,464
|Noninterest income                                      |  |                         | 968   |                |   | 1,311         |  |                | 965   |  |   | 1,288
|Noninterest expense                                     |  |                         | 2,664 |                |   | 2,856         |  |                | 2,799 |  |   | 3,281
|Net income                                              |  |                         | 993   |                |   | 1,065         |  |                | 1,021 |  |   | 1,051
|Year Ended December 31, 2004:                           |  |                         |       |                |   |               |  |                |       |  |   |      
|Interest and dividend income                            |  | $                       | 6,294 |                | $ | 6,592         |  | $              | 6,769 |  | $ | 6,726
|Net interest income after provision for losses on loans |  |                         | 3,029 |                |   | 3,238         |  |                | 3,307 |  |   | 3,070
|Noninterest income                                      |  |                         | 792   |                |   | 705           |  |                | 846   |  |   | 695  
|Noninterest expense                                     |  |                         | 2,396 |                |   | 2,395         |  |                | 2,577 |  |   | 2,640
|Net income                                              |  |                         | 947   |                |   | 1,041         |  |                | 1,065 |  |   | 938  



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Key Operating Ratios



|                                                                                                                        |  |                                      |   |  |        |   |  |        |  
|----------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------ | - |  | ------ | - |  | ------ | -
|                                                                                                                        |  | At or for the Year EndedDecember 31, |  
|                                                                                                                        |  | 2005                                 |   |  | 2004   |   |  | 2003   |  
|Performance Ratios                                                                                                      |  |                                      |   |  |        |   |  |        |  
|Return on average assets (net income divided by average total assets)                                                   |  | 0.69                                 | % |  | 0.71   | % |  | 0.72   | %
|Return on average equity (net income divided by average total equity)                                                   |  | 8.33                                 | % |  | 8.32   | % |  | 7.40   | %
|Interest rate spread (combined weighted average interest rate earned less combined weighted average interest rate cost) |  | 2.39                                 | % |  | 2.50   | % |  | 2.47   | %
|Ratio of average interest-earning assets to average interest-bearing liabilities                                        |  | 108.03                               | % |  | 108.51 | % |  | 110.48 | %
|Ratio of non-interest expense to average total assets                                                                   |  | 1.93                                 | % |  | 1.76   | % |  | 1.86   | %
|Ratio of net interest income after provision for loan losses to non-interest expense                                    |  | 111.57                               | % |  | 126.34 | % |  | 117.36 | %
|Efficiency ratio (non-interest expense divided by sum of net interest income plus non-interest income)                  |  | 61.95                                | % |  | 63.09  | % |  | 57.01  | %
|Asset Quality Ratios                                                                                                    |  |                                      |   |  |        |   |  |        |  
|Non-performing assets to total assets at end of period                                                                  |  | 0.19                                 | % |  | 0.13   | % |  | 0.27   | %
|Non-performing loans to total loans at end of period                                                                    |  | 0.25                                 | % |  | 0.18   | % |  | 0.34   | %
|Allowance for loan losses to total loans at end of period                                                               |  | 1.00                                 | % |  | 0.91   | % |  | 0.76   | %
|Allowance for loan losses to non-performing loans at end of period                                                      |  | 402.01                               | % |  | 501.23 | % |  | 225.17 | %
|Provision for loan losses to total loans receivable, net                                                                |  | 0.31                                 | % |  | 0.33   | % |  | 0.52   | %
|Net charge-offs to average loans outstanding                                                                            |  | 0.14                                 | % |  | 0.14   | % |  | 0.20   | %
|Capital Ratios                                                                                                          |  |                                      |   |  |        |   |  |        |  
|Total equity to total assets at end of period                                                                           |  | 7.79                                 | % |  | 8.52   | % |  | 8.89   | %
|Average total equity to average assets                                                                                  |  | 8.27                                 | % |  | 8.49   | % |  | 9.72   | %

Regulatory Capital



|                                     |  |                        |        |         |   |       
|------------------------------------ |  | ---------------------- | ------ | ------- | - | ------
|                                     |  | December 31, 2005     
|                                     |  | (Dollars in thousands)
|                                     |  | Bank                   |        | Company
|Tangible capital                     |  | $                      | 54,892 |         | $ | 57,739
|Less: Tangible capital requirement   |  |                        | 9,515  |         |   | 9,558 
|                                     |  |                        |        |         |   |       
|Excess                               |  |                        | 45,377 |         |   | 48,181
|                                     |  |                        |        |         |   |       
|Core capital                         |  | $                      | 54,892 |         | $ | 57,739
|Less: Core capital requirement       |  |                        | 25,374 |         |   | 25,487
|                                     |  |                        |        |         |   |       
|Excess                               |  |                        | 29,518 |         |   | 32,252
|                                     |  |                        |        |         |   |       
|Total risk-based capital             |  | $                      | 58,896 |         | $ | 61,743
|Less: Risk-based capital requirement |  |                        | 31,340 |         |   | 31,440
|                                     |  |                        |        |         |   |       
|Excess                               |  |                        | 27,556 |         |   | 30,303
|                                     |  |                        |        |         |   |       



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MANAGEMENTS DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

This discussion relates to the financial condition and results of operations of the Company, which became the
holding company for the Bank in February 1998. The principal business of the Bank consists of accepting deposits from the general public and investing these funds primarily in loans and in investment securities and mortgage-backed securities. The
Banks loan portfolio consists primarily of loans secured by residential real estate located in its market area.

For the year ended
December 31, 2005, the Company recorded net income of $4.1 million, a return on average assets of 0.69% and a return on average equity of 8.33%. For the year ended December 31, 2004, the Company recorded net income of $4.0 million, a
return on average assets of 0.71% and a return on average equity of 8.32%. For the year ended December 31, 2003 the Company recorded net income of $3.5 million, a return on average assets of 0.72% and a return on average equity of 7.40%.

The Companys net income is dependent primarily on its net interest income, which is the difference between interest income earned on
its loan, 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 thrift industry 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.

Aggregate Contractual Obligations



|                                 |  |                    |         |                              |         |                               |        |                     |        |       |        
|-------------------------------- |  | ------------------ | ------- | ---------------------------- | ------- | ----------------------------- | ------ | ------------------- | ------ | ----- | -------
|                                 |  | Maturity by Period
|December 31, 2005 (In thousands) |  | Less than1 year    |         | Greaterthan 1 yearto 3 years |         | Greaterthan 3 yearsto 5 years |        | Greater than5 years |        | Total
|Deposits                         |  | $                  | 368,601 |                              | 91,886  |                               | 22,241 |                     |       |       | 482,728
|FHLB borrowings                  |  |                    | 29,329  |                              | 13,000  |                               | 19,000 |                     | 31,843 |       | 93,172 
|Subordinated debentures          |  |                    |        |                              |        |                               |       |                     | 10,310 |       | 10,310 
|Lease commitments                |  |                    | 35      |                              | 40      |                               | 40     |                     |       |       | 115    
|Purchase obligations             |  |                    | 7,540   |                              | 2,880   |                               | 2,880  |                     |       |       | 13,300 
|                                 |  |                    |         |                              |         |                               |        |                     |        |       |        
|Total                            |  | $                  | 405,505 |                              | 107,806 |                               | 44,161 |                     | 42,153 |       | 599,625
|                                 |  |                    |         |                              |         |                               |        |                     |        |       |        

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



4



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FHLB borrowings represent the amounts that are due to FHLB of Cincinnati. All amounts have fixed maturity
dates with the exception of $18 million in convertible securities that may be called after the three month LIBOR exceeds 4.60%. The convertible advance has a prepayment penalty of $198,000 at December 31, 2005. Management does not anticipate
calling these advances at this time.

Subordinated debentures represent the amount borrowed in a private pool trust preferred issuance on
September 25, 2003. The debentures are priced at the three-month LIBOR plus 3.10%, currently 7.25%. The debentures re-price and pay interest quarterly and have a thirty-year final maturity. The debentures may be called at the issuers
discretion on a quarterly basis after five years.

Lease commitments represent the total minimum lease payments under noncancelable
operating leases.

Purchase obligations represent the total anticipated cost for non-cancelable operating contracts and fixed asset
purchases. In October of 2004, the Company entered into an agreement to construct a 26,000 square foot operations center in Hopkinsville, Kentucky. At December 31, 2005, the Company anticipates that an additional $1.4 million in cost will be
incurred to complete the project. The estimated completion date is late in the second quarter of 2006.

In December of 2005, the Company
signed a contract to construct two retail offices in Clarksville, Tennessee at a combined cost of approximately $3.2 million. The entire cost of the construction projects will be incurred during 2006. In addition, the Company anticipates purchasing
one additional parcel of land to be used as a retail location. Several possible sites have been identified with an expected cost of approximately $600,000 that will be incurred early in 2006.

In December 2005, the Company entered into an agreement with a contractor to construct a retail office in Calvert City, Kentucky. At December 31,
2005, the estimated cost to complete the construction project was $600,000. The Company anticipates that all construction cost will be incurred in 2006.

The most significant operating contract is for the Companys data processing services, which re-prices monthly based on the number of accounts and other operational factors. Estimates have been made to include
reasonable growth projections. In December 2005, the Company renewed the operating contract with the current data processing provider for a period not to exceed five years. The Company anticipates only a minor increase in fixed and variable cost
rates with this contract.

Off Balance Sheet Arrangements



|                                 |  |                    |        |                              |       |                               |     |                     |        |       |       
|-------------------------------- |  | ------------------ | ------ | ---------------------------- | ----- | ----------------------------- | --- | ------------------- | ------ | ----- | ------
|                                 |  | Maturity by Period
|December 31, 2005 (In thousands) |  | Less than1 year    |        | Greaterthan 1 yearto 3 years |       | Greaterthan 3 yearsto 5 years |     | Greater than5 years |        | Total
|Commercial lines of credit       |  | $                  | 9,632  |                              | 3,940 |                               | 4   |                     |       |       | 13,576
|Commitments to extend credit     |  |                    | 5,312  |                              | 3,096 |                               | 642 |                     | 15,158 |       | 24,208
|Standby letters of credit        |  |                    | 3,588  |                              |      |                               |    |                     |       |       | 3,588 
|Home equity lines of credit      |  |                    | 400    |                              | 605   |                               | 155 |                     | 9,308  |       | 10,468
|                                 |  |                    |        |                              |       |                               |     |                     |        |       |       
|Total                            |  | $                  | 18,932 |                              | 7,641 |                               | 801 |                     | 24,466 |       | 51,840
|                                 |  |                    |        |                              |       |                               |     |                     |        |       |       

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.



5



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Accounting for Derivative Instruments and Hedging Activities

In October of 2004, Heritage Bank entered into a receive fixed pay variable swap transaction in the amount of $10 million with Compass Bank of Birmingham
in which Heritage Bank will pay Compass a fixed rate of 3.53% quarterly for four years while Compass will pay Heritage Bank a rate equal to the three month London Interbank Offering Rate (Libor). Heritage Bank has signed an inter-company
transfer with the Company that allows the Company to convert its variable rate subordinated debenture issuance to a fixed rate. The critical terms of the interest rate swap match the term of the corresponding variable rate subordinated debt
issuance. All components of the derivative instruments gain or loss are included in the assessment of hedge effectiveness. There were no fair-value hedging gains or losses, as a result of hedge ineffectiveness, recognized for the three or
twelve months ended December 31, 2005. The Company recognized a decrease in interest expense of $11,000 for the three months ended December 31, 2005 and an increase in interest expense of $26,000 for the twelve months ended
December 31, 2005 related to the interest rate swap.

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 any class of financial instrument nor does it engage in hedging activities or purchase high-risk derivative instruments. The Company is not subject to foreign currency exchange rate
risk or commodity price risk. Substantially all of the Companys interest rate risk is derived from the Banks lending and deposit taking 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 upward changes in interest rates.

Qualitative Aspects of Market Risk.The
Companys principal financial objective is to achieve long-term profitability while reducing its exposure to fluctuating market interest rates. The Company has sought to reduce the exposure of its earnings to changes in market interest rates by
attempting to manage the mismatch between assets and liabilities maturities and interest rates. The principal element in achieving this objective is to increase the interest-rate sensitivity of the Companys interest-earning assets by retaining
for its portfolio loans with interest rates subject to periodic adjustment to market conditions. The Company relies on retail deposits as its primary source of funds. Management believes retail deposits, compared to brokered deposits, reduce the
effects of its interest rate fluctuations because they generally represent a more stable source of funds. As part of its interest rate risk management strategy, the Bank promotes demand accounts and certificates of deposit with primarily terms of up
to five years.

Asset / Liability Management

Key components of a successful asset/liability strategy are the monitoring and managing of interest rate sensitivity of both the interest-earning asset and interest-bearing liability portfolios. The Company has employed various strategies
intended to minimize the adverse affect of interest rate risk on future operations by providing a better match between the interest rate sensitivity between its assets and liabilities. In particular, the Companys strategies are intended to
stabilize net interest income for the long-term by protecting its interest rate spread against increases in interest rates. Such strategies include the origination of adjustable-rate mortgage loans secured by one-to-four family residential real
estate, and, to a lesser extent, multi-family real estate loans and the origination of other loans with interest rates that are more sensitive to adjustment based upon market conditions than long-term, fixed-rate residential mortgage loans. For the
year ended December 31, 2005, approximately $176.4 million of the $211.6million of one-to-four family residential loans originated by the Company (comprising 83.4% of such loans) had adjustable rates or will mature within one
year.



6



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

At December 31, 2005, $9.9 million in securities were due within one year, approximately $48.3 million were due in one to five years,
approximately $60.7 million were due in five to ten years and approximately $19.9 million were due after ten years. However, at December 31, 2005, $90.7 million of these securities had a call provision, which authorizes the issuing agency to
prepay the securities at face value at certain pre-established dates. 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, 2005, all of these securities are callable and/or due prior to December 31, 2007. The weighted average life of the agency bond portfolio is approximately 3.3 years and the modified duration of the agency bond
portfolio is approximately 3.2 years.

The municipal bond portfolio largely consists of local school district bonds with the guarantee of
the state of Kentucky or out of state bonds insured by private companies. At December 31, 2005 the Company has $18.0 million in municipal bonds. These bonds were purchased to provide long-term income stability and higher tax equivalent yields
to a small portion of the investment portfolio. At December 31, 2005, approximately $9.6 million of the Companys municipal bond portfolio is callable with call dates ranging from January 2006 to December 2014. The call dates are staggered
to eliminate the excessive cash flows within any one-year period. At December 31, 2005, $35,000 were due in less than one year, $3.0 million were due within one to five years, $7.2 million were due in five to ten years and approximately $7.8
million were due after ten years. At December 31, 2005, approximately $2.9 million of municipal bonds had a call date between one and five years and approximately $6.7 million in more than five years. At December 31, 2005, the average life
of the municipal bond portfolio is approximately 3.2 years and the modified duration of the municipal bond portfolio is approximately 2.0 years.

At December 31, 2005, the Company held $4.6 million ($5 million par value) in corporate bonds. All corporate bonds purchased by the Company were investment grade when purchased. The corporate bond portfolio consist of $2 million par
value General Motors Acceptance Corporation (GMAC) bonds due in August 2007 and $3 million par value in Ford Motor Acceptance Corporation (FMAC) bonds maturing in $1 million increments in January 2007, October 2008, and October 2009. During
2005, the national credit rating agencies downgraded the parent companies of both GMAC and FMAC (General Motors and Ford) so that their bonds are no longer investment grade. The downgrades are the result of the long-term business prospects and
current and future health and pension liabilities of General Motors and Ford. The Company conducts a financial analysis similar to that of a loan customer for each corporate purchase. This analysis includes reviewing quarterly and periodic SEC
filings for both the parent companies and subsidiaries. The Company has determined that both General Motors and Ford maintain acceptable levels and sources of liquidity to meet short-term obligations. The Companys analysis indicates that both
General Motors and Ford have adequate levels and sources of liquidity to meet current and near-term obligations, including the funding of bond interest and principal payments. The Company owns no callable corporate bonds. At December 31, 2005,
the average life of the corporate bond portfolio is approximately 2.2 years and the modified duration of the corporate bond portfolio is approximately 2.0 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.



7



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At December 31, 2005, the Company held approximately $38.7 million in fixed rate mortgage backed
securities with an average life of approximately 4.3 years and a modified duration of approximately 3.6 years. The Company held approximately $1.2 million in adjustable rate mortgage backed securities with an average life of approximately 4.4 years
and a modified duration of approximately 3.6 years.

At December 31, 2005, the Company held approximately $12.3 million in Collateral
Mortgage Obligations (CMO). A CMO is a form of mortgage-backed security that has a structured payment stream based on various factors and does not necessarily remit monthly principal on a pro-rata basis. At December 31, 2005, the Companys
CMO portfolio had an average life of approximately 2.8 years and a modified duration of approximately 3.2 years. For more information regarding investment securities, see Note 2 of Notes to Consolidated Financial Statements.

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 portfolio value (NPV), a methodology adopted by the OTS
to assist the Bank in assessing interest rate risk.

Generally, NPV is the discounted present value of the difference between incoming cash
flows on interest-earning assets and other assets and outgoing cash flows on interest-bearing liabilities and other liabilities. The application of the methodology attempts to quantify interest rate risk as the change in the NPV, 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.

The following table presents the Banks NPV at December 31, 2005, as calculated by the OTS, based on information provided to the OTS by the
Bank.



|                |          |                        |          |  |                          |          |   |  |           |    |  |        |   |  |      |     
|--------------- | -------- | ---------------------- | -------- |  | ------------------------ | -------- | - |  | --------- | -- |  | ------ | - |  | ---- | ----
|Change In Rates |          | Net Portfolio Value    |          |  | NPV as % of PV of Assets |         
|                | $ Amount |                        | $ Change |  |                          | % Change |   |  | NPV Ratio |    |  | Change |  
|                |          | (Dollars in thousands) |          |  |                          |          |   |  |          
|+300 bp         |          | $                      | 52,248   |  | $                        | (22,878  | ) |  | (30       | )% |  | 8.51   | % |  | (304 | ) bp
|+200 bp         |          |                        | 60,680   |  |                          | (14,446  | ) |  | (19       | )% |  | 9.68   | % |  | (186 | ) bp
|+100 bp         |          |                        | 68,402   |  |                          | (6,724   | ) |  | (9        | )% |  | 10.71  | % |  | (84  | ) bp
|0 bp            |          |                        | 75,126   |  |                          |         |   |  |          |    |  | 11.55  | % |  |     |     
|-100 bp         |          |                        | 78,603   |  |                          | 3,478    |   |  | 5         | %  |  | 11.92  | % |  | 37   | bp  
|-200 bp         |          |                        | 78,167   |  |                          | 3,041    |   |  | 4         | %  |  | 11.76  | % |  | 21   | bp  

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



|                                                         |  |       |   
|-------------------------------------------------------- |  | ----- | --
|Pre-Shock NPV Ratio: NPV as % of Present Value of Assets |  | 11.55 | % 
|Exposure Measure: Post-Shock NPV Ratio                   |  | 9.68  | % 
|Sensitivity Measure: Change in NPV Ratio                 |  | 186   | bp

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 Bank 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.



8



---

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, 2005, the Company had a negative one-year or
less interest rate sensitivity gap of 18.70% 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. The following table sets forth the amounts of interest-earning assets and interest-bearing liabilities outstanding at December 31, 2005, which are expected to mature or reprice in each of the time periods shown.



|                                                                 |  |                        |          |     |                           |   |         |                           |  |   |                              |   |  |                   |        |   |       |   |        |   |  |   |         |  
|---------------------------------------------------------------- |  | ---------------------- | -------- | --- | ------------------------- | - | ------- | ------------------------- |  | - | ---------------------------- | - |  | ----------------- | ------ | - | ----- | - | ------ | - |  | - | ------- | -
|                                                                 |  | One Yearor Less        |          |     | Over OneThroughFive Years |   |         | Over FiveThroughTen Years |  |   | Over TenThroughFifteen Years |   |  | Over FifteenYears |        |   | Total |  
|                                                                 |  | (Dollars in thousands) |         
|Interest-earning assets:                                         |  |                        |          |     |                           |   |         |                           |  |   |                              |   |  |                   |        |   |       |   |        |   |  |   |         |  
|Loans:                                                           |  |                        |          |     |                           |   |         |                           |  |   |                              |   |  |                   |        |   |       |   |        |   |  |   |         |  
|One-to-four family                                               |  | $                      | 121,462  |     |                           | $ | 42,760  |                           |  | $ | 31,065                       |   |  | $                 | 14,010 |   |       | $ | 1,870  |   |  | $ | 211,167 |  
|Multi-family residential                                         |  |                        | 1,034    |     |                           |   | 2,924   |                           |  |   | 2,522                        |   |  |                   |       |   |       |   |       |   |  |   | 6,480   |  
|Construction                                                     |  |                        | 4,123    |     |                           |   | 8,449   |                           |  |   | 3,541                        |   |  |                   |       |   |       |   | 342    |   |  |   | 16,455  |  
|Non-residential                                                  |  |                        | 57,452   |     |                           |   | 25,957  |                           |  |   | 16,097                       |   |  |                   | 1,998  |   |       |   | 399    |   |  |   | 101,903 |  
|Secured by deposits                                              |  |                        | 2,435    |     |                           |   | 834     |                           |  |   | 13                           |   |  |                   |       |   |       |   |       |   |  |   | 3,282   |  
|Other loans                                                      |  |                        | 24,344   |     |                           |   | 26,275  |                           |  |   | 6,874                        |   |  |                   | 347    |   |       |   | 183    |   |  |   | 58,023  |  
|Time deposits and interest-bearing deposits in FHLB              |  |                        | 424      |     |                           |   |        |                           |  |   |                             |   |  |                   |       |   |       |   |       |   |  |   | 424     |  
|Federal funds sold                                               |  |                        | 2,250    |     |                           |   |        |                           |  |   |                             |   |  |                   |       |   |       |   |       |   |  |   | 2,250   |  
|Securities                                                       |  |                        | 36,342   |     |                           |   | 68,463  |                           |  |   | 34,044                       |   |  |                   | 3,242  |   |       |   |       |   |  |   | 142,091 |  
|Mortgage-backed securities                                       |  |                        | 10,311   |     |                           |   | 32,197  |                           |  |   | 5,646                        |   |  |                   | 3,301  |   |       |   | 738    |   |  |   | 52,193  |  
|                                                                 |  |                        |          |     |                           |   |         |                           |  |   |                              |   |  |                   |        |   |       |   |        |   |  |   |         |  
|Total                                                            |  |                        | 260,177  |     |                           |   | 207,859 |                           |  |   | 99,802                       |   |  |                   | 22,898 |   |       |   | 3,532  |   |  |   | 594,268 |  
|                                                                 |  |                        |          |     |                           |   |         |                           |  |   |                              |   |  |                   |        |   |       |   |        |   |  |   |         |  
|Interest-bearing liabilities:                                    |  |                        |          |     |                           |   |         |                           |  |   |                              |   |  |                   |        |   |       |   |        |   |  |   |         |  
|Deposits                                                         |  |                        | 331,683  |     |                           |   | 114,127 |                           |  |   |                             |   |  |                   |       |   |       |   |       |   |  |   | 445,810 |  
|Borrowed funds                                                   |  |                        | 39,639   |     |                           |   | 32,000  |                           |  |   | 31,843                       |   |  |                   |       |   |       |   |       |   |  |   | 103,482 |  
|                                                                 |  |                        |          |     |                           |   |         |                           |  |   |                              |   |  |                   |        |   |       |   |        |   |  |   |         |  
|Total                                                            |  |                        | 371,322  |     |                           |   | 146,127 |                           |  |   | 31,843                       |   |  |                   |       |   |       |   |       |   |  |   | 549,292 |  
|                                                                 |  |                        |          |     |                           |   |         |                           |  |   |                              |   |  |                   |        |   |       |   |        |   |  |   |         |  
|Interest sensitivity gap                                         |  | $                      | (111,145 | )   |                           | $ | 61,732  |                           |  | $ | 67,959                       |   |  | $                 | 22,898 |   |       | $ | 3,532  |   |  | $ | 44,976  |  
|                                                                 |  |                        |          |     |                           |   |         |                           |  |   |                              |   |  |                   |        |   |       |   |        |   |  |   |         |  
|Cumulative interest sensitivity Gap                              |  | $                      | (111,145 | )   |                           | $ | (49,413 | )                         |  | $ | 18,546                       |   |  | $                 | 41,444 |   |       | $ | 44,976 |   |  | $ | 44,976  |  
|                                                                 |  |                        |          |     |                           |   |         |                           |  |   |                              |   |  |                   |        |   |       |   |        |   |  |   |         |  
|Ratio of interest-earning assets to Interest-bearing liabilities |  |                        | 70.07    | %   |                           |   | 142.25  | %                         |  |   | 313.42                       | % |  |                   |       |   |       |   |       |   |  |   | 108.20  | %
|                                                                 |  |                        |          |     |                           |   |         |                           |  |   |                              |   |  |                   |        |   |       |   |        |   |  |   |         |  
|Ratio of cumulative gap to total interest-earning assets         |  |                        | (18.70   | ) % |                           |   | (8.31   | )%                        |  |   | 3.12                         | % |  |                   | 6.97   | % |       |   | 7.57   | % |  |   | 7.57    | %
|                                                                 |  |                        |          |     |                           |   |         |                           |  |   |                              |   |  |                   |        |   |       |   |        |   |  |   |         |  

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 lifetime prepayment speeds. Management of the Company does not believe that these assumptions will be materially different from the Companys
actual experience. However, 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 portfolio 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.



9



---

Average Balance, Interest and Average Yields and Rates

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

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



|                                                                 |  |                        |         |   |                            |        |   
|---------------------------------------------------------------- |  | ---------------------- | ------- | - | -------------------------- | ------ | --
|                                                                 |  | At December 31, 2005   |        
|                                                                 |  | Balance                |         |   | Weighted AverageYield/Cost |       
|                                                                 |  | (Dollars in thousands) |        
|Interest-earning assets:                                         |  |                        |         |   |                            |        |   
|Loans receivable, net                                            |  | $                      | 397,310 |   |                            | 6.53   | % 
|Non taxable securities available for sale                        |  |                        | 17,978  |   |                            | 4.97   | %*
|Taxable securities available for sale                            |  |                        | 154,912 |   |                            | 4.43   | % 
|Federal Home Loan Bank stock                                     |  |                        | 3,211   |   |                            | 5.00   | % 
|Securities held to maturity                                      |  |                        | 18,183  |   |                            | 4.53   | % 
|Time deposits and other interest- bearing cash deposits          |  |                        | 2,674   |   |                            | 3.71   | % 
|                                                                 |  |                        |         |   |                            |        |   
|Total interest-earning assets                                    |  |                        | 594,268 |   |                            | 5.84   | % 
|Non-interest-earning assets                                      |  |                        | 45,321  |   |                            |        |   
|                                                                 |  |                        |         |   |                            |        |   
|Total assets                                                     |  | $                      | 639,589 |   |                            |        |   
|                                                                 |  |                        |         |   |                            |        |   
|Interest-bearing liabilities:                                    |  |                        |         |   |                            |        |   
|Deposits                                                         |  | $                      | 445,810 |   |                            | 3.18   | % 
|FHLB borrowings                                                  |  |                        | 93,172  |   |                            | 3.93   | % 
|Subordinated debentures                                          |  |                        | 10,310  |   |                            | 7.35   | % 
|                                                                 |  |                        |         |   |                            |        |   
|Total interest-bearing liabilities                               |  |                        | 549,292 |   |                            | 3.39   | % 
|Non-interest-bearing liabilities                                 |  |                        | 40,455  |   |                            |        |   
|                                                                 |  |                        |         |   |                            |        |   
|Total liabilities                                                |  |                        | 589,747 |   |                            |        |   
|Common stock                                                     |  |                        | 40      |   |                            |        |   
|Additional paid-in capital                                       |  |                        | 26,019  |   |                            |        |   
|Retained earnings                                                |  |                        | 31,525  |   |                            |        |   
|Treasury stock                                                   |  |                        | (4,857  | ) |                            |        |   
|Unearned restricted stock                                        |  |                        | (230    | ) |                            |        |   
|Accumulated other comprehensive loss                             |  |                        | (2,655  | ) |                            |        |   
|                                                                 |  |                        |         |   |                            |        |   
|Total liabilities and equity                                     |  | $                      | 639,589 |   |                            |        |   
|                                                                 |  |                        |         |   |                            |        |   
|Interest rate spread                                             |  |                        |         |   |                            | 2.45   | % 
|                                                                 |  |                        |         |   |                            |        |   
|Ratio of interest-earning assets to interest-bearing liabilities |  |                        |         |   |                            | 108.20 | % 
|                                                                 |  |                        |         |   |                            |        |   



|* | Tax equivalent yield at the Companys 34% tax bracket and a 3.0% cost of funds rate.
|- | ------------------------------------------------------------------------------------



10



---

|                                                                                                                  |  |                         |            |   |          |        |                    |        |    |                |   |           |          |  |                    |  |        |                |  |   |          |   |                   |   |        |  |        |  
|----------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ---------- | - | -------- | ------ | ------------------ | ------ | -- | -------------- | - | --------- | -------- |  | ------------------ |  | ------ | -------------- |  | - | -------- | - | ----------------- | - | ------ |  | ------ | -
|                                                                                                                  |  | Year Ended December 31, |           
|                                                                                                                  |  | 2005                    |            |   | 2004     |        |                    | 2003   |   
|                                                                                                                  |  | (Dollars in Thousands)  |           
|                                                                                                                  |  | AverageBalance          |            |   | Interest |        | Average Yield/Cost |        |    | AverageBalance |   |           | Interest |  | Average Yield/Cost |  |        | AverageBalance |  |   | Interest |   | AverageYield/Cost |  
|Interest-earning assets:                                                                                          |  |                         |            |   |          |        |                    |        |    |                |   |           |          |  |                    |  |        |                |  |   |          |   |                   |   |        |  |        |  
|Loans receivable, net                                                                                             |  | $                       | 369,093    |   |          | 22,006 |                    | 5.96   | %  |                | $ | 347,806   |          |  | 19,307             |  | 5.55   | %              |  | $ | 315,126  |   |                   | $ | 19,332 |  | 6.14   | %
|Taxable securities AFS                                                                                            |  |                         | 142,942    |   |          | 5,891  |                    | 4.12   | %  |                |   | 126,420   |          |  | 4,964              |  | 3.93   | %              |  |   | 108,440  |   |                   |   | 4,196  |  | 3.87   | %
|Non taxable securities AFS                                                                                        |  |                         | 19,414     |   |          | 975    |                    | 5.02   | %  |                |   | 27,521    |          |  | 1,414              |  | 5.14   | %              |  |   | 19,539   |   |                   |   | 970    |  | 4.96   | %
|Securities held to maturity                                                                                       |  |                         | 21,449     |   |          | 977    |                    | 4.55   | %  |                |   | 22,845    |          |  | 1,084              |  | 4.75   | %              |  |   | 10,308   |   |                   |   | 467    |  | 4.53   | %
|Time deposits and other interest-bearing cash deposits                                                            |  |                         | 3,456      |   |          | 119    |                    | 3.44   | %  |                |   | 2,983     |          |  | 43                 |  | 1.44   | %              |  |   | 6,751    |   |                   |   | 74     |  | 1.10   | %
|                                                                                                                  |  |                         |            |   |          |        |                    |        |    |                |   |           |          |  |                    |  |        |                |  |   |          |   |                   |   |        |  |        |  
|Total interest-earning Assets                                                                                     |  | $                       | 556,354    |   |          | 29,968 |                    | 5.39   | %  |                | $ | 527,575   |          |  | 26,812             |  | 5.08   | %              |  |   | 460,164  |   |                   |   | 25,039 |  | 5.44   | %
|                                                                                                                  |  |                         |            |   |          |        |                    |        |    |                |   |           |          |  |                    |  |        |                |  |   |          |   |                   |   |        |  |        |  
|Non-interest-earning assets                                                                                       |  |                         | 43,464     |   |          |        |                    |        |    |                |   | 37,202    |          |  |                    |  |        |                |  |   | 25,588   |   |                   |   |        |  |        |  
|                                                                                                                  |  |                         |            |   |          |        |                    |        |    |                |   |           |          |  |                    |  |        |                |  |   |          |   |                   |   |        |  |        |  
|Total assets                                                                                                      |  |                         | 599,818    |   |          |        |                    |        |    |                |   | 564,777   |          |  |                    |  |        |                |  | $ | 485,752  |   |                   |   |        |  |        |  
|                                                                                                                  |  |                         |            |   |          |        |                    |        |    |                |   |           |          |  |                    |  |        |                |  |   |          |   |                   |   |        |  |        |  
|Interest-bearing liabilities:                                                                                     |  |                         |            |   |          |        |                    |        |    |                |   |           |          |  |                    |  |        |                |  |   |          |   |                   |   |        |  |        |  
|Deposits                                                                                                          |  | $                       | 424,930    |   |          | 11,909 |                    | 2.80   | %  |                | $ | 400,449   |          |  | 9,753              |  | 2.44   | %              |  | $ | 377,963  |   |                   |   | 10,896 |  | 2.88   | %
|Borrowings                                                                                                        |  |                         | 90,056     |   |          | 3,565  |                    | 3.96   | %  |                |   | 85,772    |          |  | 2,784              |  | 3.36   | %              |  |   | 38,558   |   |                   |   | 1,483  |  | 3.85   | %
|                                                                                                                  |  |                         |            |   |          |        |                    |        |    |                |   |           |          |  |                    |  |        |                |  |   |          |   |                   |   |        |  |        |  
|Total interest-bearing liabilities                                                                                |  |                         | 514,986    |   |          | 15,474 |                    | 3.00   | %  |                |   | 486,221   |          |  | 12,537             |  | 2.58   | %              |  |   | 416,521  |   |                   |   | 12,379 |  | 2.97   | %
|                                                                                                                  |  |                         |            |   |          |        |                    |        |    |                |   |           |          |  |                    |  |        |                |  |   |          |   |                   |   |        |  |        |  
|Non-interest-bearing liabilities                                                                                  |  |                         | 35,224     |   |          |        |                    |        |    |                |   | 30,581    |          |  |                    |  |        |                |  |   | 22,001   |   |                   |   |        |  |        |  
|                                                                                                                  |  |                         |            |   |          |        |                    |        |    |                |   |           |          |  |                    |  |        |                |  |   |          |   |                   |   |        |  |        |  
|Total liabilities                                                                                                 |  |                         | 550,210    |   |          |        |                    |        |    |                |   | 516,802   |          |  |                    |  |        |                |  |   | 438,522  |   |                   |   |        |  |        |  
|Common stock                                                                                                      |  |                         | 40         |   |          |        |                    |        |    |                |   | 40        |          |  |                    |  |        |                |  |   | 40       |   |                   |   |        |  |        |  
|Additional paid-in capital                                                                                        |  |                         | 25,941     |   |          |        |                    |        |    |                |   | 25,788    |          |  |                    |  |        |                |  |   | 25,714   |   |                   |   |        |  |        |  
|Retained earnings Unearned restricted shares                                                                      |  |                         | 30,335(181 | ) |          |        |                    |        |    |                |   | 27,638(65 | )        |  |                    |  |        |                |  |   | 26,411  |   |                   |   |        |  |        |  
|Treasury stock                                                                                                    |  |                         | (4,857     | ) |          |        |                    |        |    |                |   | (4,857    | )        |  |                    |  |        |                |  |   | (4,857   | ) |                   |   |        |  |        |  
|Accumulated other comprehensive (loss)                                                                            |  |                         | (1,670     | ) |          |        |                    |        |    |                |   | (569      | )        |  |                    |  |        |                |  |   | (78      | ) |                   |   |        |  |        |  
|                                                                                                                  |  |                         |            |   |          |        |                    |        |    |                |   |           |          |  |                    |  |        |                |  |   |          |   |                   |   |        |  |        |  
|Total liabilities and Equity                                                                                      |  |                         | 599,818    |   |          |        |                    |        |    |                | $ | 564,777   |          |  |                    |  |        |                |  | $ | 485,752  |   |                   |   |        |  |        |  
|                                                                                                                  |  |                         |            |   |          |        |                    |        |    |                |   |           |          |  |                    |  |        |                |  |   |          |   |                   |   |        |  |        |  
|Net interest income                                                                                               |  |                         |            |   |          | 14,494 |                    |        |    |                |   |           |          |  | 14,275             |  |        |                |  |   |          |   |                   | $ | 12,660 |  |        |  
|                                                                                                                  |  |                         |            |   |          |        |                    |        |    |                |   |           |          |  |                    |  |        |                |  |   |          |   |                   |   |        |  |        |  
|Interest rate spread                                                                                              |  |                         |            |   |          |        |                    | 2.39   | %* |                |   |           |          |  |                    |  | 2.50   | %*             |  |   |          |   |                   |   |        |  | 2.47   | %
|                                                                                                                  |  |                         |            |   |          |        |                    |        |    |                |   |           |          |  |                    |  |        |                |  |   |          |   |                   |   |        |  |        |  
|Net interest margin                                                                                               |  |                         |            |   |          |        |                    | 2.61   | %* |                |   |           |          |  |                    |  | 2.71   | %*             |  |   |          |   |                   |   |        |  | 2.75   | %
|                                                                                                                  |  |                         |            |   |          |        |                    |        |    |                |   |           |          |  |                    |  |        |                |  |   |          |   |                   |   |        |  |        |  
|Ratio of average interest-earning assets to average interest-bearing liabilities                                  |  |                         |            |   |          |        |                    | 108.03 | %  |                |   |           |          |  |                    |  | 108.51 | %              |  |   |          |   |                   |   |        |  | 110.48 | %
|                                                                                                                  |  |                         |            |   |          |        |                    |        |    |                |   |           |          |  |                    |  |        |                |  |   |          |   |                   |   |        |  |        |  
|*Using a 34% tax rate. The tax equivalent adjustment was $302, $431 and $296 for 2005, 2004 and 2003 respectively |  |                         |            |   |          |        |                    |        |    |                |   |           |          |  |                    |  |        |                |  |   |          |   |                   |   |        |  |        |  



11



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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) change in rate (changes in the average rate from year to
year multiplied by the prior years volume).



|                                           |  |                           |       |   |                         |       |   |                           |       |   |                           |        |        |   |  |       |   |  |        |  
|------------------------------------------ |  | ------------------------- | ----- | - | ----------------------- | ----- | - | ------------------------- | ----- | - | ------------------------- | ------ | ------ | - |  | ----- | - |  | ------ | -
|                                           |  | Year Ended December 31,   |      
|                                           |  | 2005 vs. 2004             |       |   | 2004 vs. 2003           |      
|                                           |  | Increase(Decrease) due to |       |   | TotalIncrease(Decrease) |       |   | Increase(Decrease) due to |       |   | Total Increase (Decrease) |       
|                                           |  | Rate                      |       |   | Volume                  |       |   |                           | Rate  |   |                           | Volume |        |  
|                                           |  | (Dollars in thousands)    |      
|Interest-earning assets:                   |  |                           |       |   |                         |       |   |                           |       |   |                           |        |        |   |  |       |   |  |        |  
|Loans receivable                           |  | $                         | 1,430 |   |                         | 1,269 |   |                           | 2,699 |   |                           | $      | (1,841 | ) |  | 1,816 |   |  | (25    | )
|Securities available for sale, taxable     |  |                           | 246   |   |                         | 681   |   |                           | 927   |   |                           |        | 70     |   |  | 698   |   |  | 768    |  
|Securities available for sale, non taxable |  |                           | (32   | ) |                         | (407  | ) |                           | (439  | ) |                           |        | 40     |   |  | 404   |   |  | 444    |  
|Securities held to maturity                |  |                           | (43   | ) |                         | (64   | ) |                           | (107  | ) |                           |        | 20     |   |  | 597   |   |  | 617    |  
|Other interest-earning assets              |  |                           | 60    |   |                         | 16    |   |                           | 76    |   |                           |        | 23     |   |  | (54   | ) |  | (31    | )
|                                           |  |                           |       |   |                         |       |   |                           |       |   |                           |        |        |   |  |       |   |  |        |  
|Total interest-earning assets              |  |                           | 1,661 |   |                         | 1,495 |   |                           | 3,156 |   |                           |        | (1,688 | ) |  | 3,461 |   |  | 1,773  |  
|                                           |  |                           |       |   |                         |       |   |                           |       |   |                           |        |        |   |  |       |   |  |        |  
|Interest-bearing liabilities:              |  |                           |       |   |                         |       |   |                           |       |   |                           |        |        |   |  |       |   |  |        |  
|Deposits                                   |  |                           | 1,470 |   |                         | 686   |   |                           | 2,156 |   |                           |        | (1,690 | ) |  | 547   |   |  | (1,143 | )
|Borrowings                                 |  |                           | 626   |   |                         | 155   |   |                           | 781   |   |                           |        | (267   | ) |  | 1,568 |   |  | 1,301  |  
|                                           |  |                           |       |   |                         |       |   |                           |       |   |                           |        |        |   |  |       |   |  |        |  
|Total interest-bearing liabilities         |  |                           | 2,096 |   |                         | 841   |   |                           | 2,937 |   |                           |        | (1,957 | ) |  | 2,115 |   |  | 158    |  
|                                           |  |                           |       |   |                         |       |   |                           |       |   |                           |        |        |   |  |       |   |  |        |  
|Increase (decrease) in net interest income |  | $                         | (435  | ) |                         | 654   |   |                           | 219   |   |                           | $      | 269    |   |  | 1,346 |   |  | 1,615  |  
|                                           |  |                           |       |   |                         |       |   |                           |       |   |                           |        |        |   |  |       |   |  |        |  

Critical Accounting Policies and Estimates

The Companys financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The
financial information contained within these statements is, to a significant extent, financial information that is based on appropriate measures of the financial effects of transactions and events that have already occurred. Based on its
consideration of accounting policies that involved the most complex and subjective decisions and assessments, management has identified its most critical accounting policy to be that related to the allowance for loan losses. The Companys
allowance for loan loss methodology incorporates a variety of risk considerations, both quantitative and qualitative; in establishing an allowance for loan loss that management believes is appropriate at each reporting date. Quantitative factors
included the Companys historical loss experience, delinquency and charge-off trends, collateral values, changes in non-performing loans, and other factors. Quantitative factors also incorporate known information about individual loans,
including borrowers sensitivity to economic conditions throughout the southeast and particular, the state of certain industries. Size and complexity of individual credits in relation to loan structure, existing loan policies and pace of
portfolio growth are other qualitative factors that are considered in the methodology. 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 change 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, 2005 and 2004 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 it 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. Any accrued interest on these loans is reserved for as part of managements
evaluation of the allowance for loan loss account.



12



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Comparison of Financial Condition at December 31, 2005 and December 31, 2004

The Companys total assets increased by $59.9 million, from $579.7 million at December 31, 2004 to $639.6 million at December 31, 2005.
Federal funds sold increased from $850,000 at December 31, 2004 to $2.3 million at December 31, 2005. Securities held to maturity decreased $4.6 million due to one agency bond being called. The available for sale portfolio increased $17.8
million.

The Companys net loan portfolio increased by $40.5 million during the year ended December 31, 2005. Net loans totaled
$397.3 and $356.8 at December 31, 2005 and December 31, 2004, respectively. The increase in the loan activity during the year ended December 31, 2005 was due to increased economic activity in many of the Companys markets, and
the fourth quarter 2005 expansion of the Companys trade area to include Clarksville, Montgomery County, Tennessee. Clarksville is approximately 25 miles south of the Companys headquarters with a population of approximately 130,000, twice
that of the Companys home (and largest) market. For the year ended December 31, 2005, the Companys average yield on loans was 5.96%, compared with 5.55% for the year ended December 31, 2004.

At December 31, 2005, the Companys investments classified as held to maturity were carried at an amortized cost of $18.2 million and had an
estimated fair market value of $17.8 million, and its securities classified as available for sale had an estimated fair market value of $172.9 million and an amortized cost of $177.2 million. At December 31,2005, the Companys investment
in Federal Home Loan Bank stock was carried at an amortized cost of $3.2 million. See Note 2 of Notes to Consolidated Financial Statements.

The allowance for loan losses totaled $4.0 million at December 31, 2005, an increase of $700,000 from the allowance for loan losses of $3.3 million at December 31, 2004. The ratio of the allowance for loan losses to loans was
1.00% and 0.91% at December 31, 2005 and 2004, respectively. Also, at December 31, 2005, the Companys non-accrual loans were $996,000, or 0.25% of total loans, compared to $653,000, or 0.18% of total loans, at December 31, 2004.
The Companys ratio of allowance for loan losses to non-performing loans at December 31, 2005 and 2004 was 402.01% and 501.23%, respectively.

Comparison of Operating Results for the Years Ended December 31, 2005 and 2004

Net Income.The Companys
net income for the years ended December 31, 2005 was $4.1 million compared to $4.0 million at December 31, 2004.

Net Interest
Income.Net interest income for the year ended December 31, 2005 was $14.2 million, compared to $13.8 million for the year ended December 31, 2004. The increase in net interest income for the year ended December 31, 2005 was the
result of loan and investment portfolio growth and an increase in short-term interest rates. For the year ended December 31, 2005, the Companys tax equivalent average yield on total interest-earning assets was 5.39% compared to 5.08% for
the year ended December 31, 2004, and its average cost of interest-bearing liabilities was 3.00%, compared to 2.58% for the year ended December 31, 2004. As a result, the Companys tax equivalent interest rate spread for the year
ended December 31, 2005 was 2.39%, compared to 2.50% for the year ended December 31, 2004 and its tax equivalent net interest margin was 2.61% for the year ended December 31, 2005, compared to 2.71% for the year ended
December 31, 2004.

Interest Income.Interest income increased $3.3 million from $26.4 million to $29.7 million, or by 12.5%
during the year ended December 31, 2005 compared to 2004. The increase was attributable to an increase in loan and investment volume as well as an increase in short-term interest rates on such interest-earning assets. The average balance on
securities held to maturity decreased $1.4 million, from $22.8 million at December 31, 2004 to $21.4 million at December 31, 2005. The average balance on taxable securities available for sale increased $16.5 million, from $126.4 million at
December 31, 2004 to $142.9 million at December 31, 2005. The average balance of non-taxable securities available for sale decreased $8.1 million, from $27.5 million at December 31, 2004 to $19.4 million at December 31, 2005.
Average time deposits and other interest-bearing cash deposits increased $500,000, from $3.0 million at December 31, 2004 to $3.5 million at December 31, 2005. Overall, average total interest-earning assets increased $28.8 million from
December 31, 2004 to December 31, 2005.

Interest Expense.Interest expense increased to $15.5 million for the year ended
December 31, 2005 compared to $12.5 million for 2004. The increase in interest expense was attributable to an increase in the average balances of both deposit and Federal Home Loan Bank (FHLB) borrowings as well as an increase in
short-term interest rates. The average cost of average interest-bearing liabilities increased from 2.58% for the year ended December 31, 2004 to 3.00% for the year ended December 31, 2005.



13



---

Over the same period, the average balance of interest bearing deposits increased from $400.4 million for
the year ended December 31, 2004 to $424.9 million at December 31, 2005. The average balance of FHLB borrowings increased from $75.4 million for the year ended December 31, 2004 to $79.7 million for the year ended December 31,
2005. The average cost of FHLB borrowings increased from 3.04% for the year ended December 31, 2004 to 3.62% for the year ended December 31, 2005.

Provision for Loan Losses.The Company determined that an additional $1.25 million in provision for loan losses was required for the year ended December 31, 2005 and $1.20 million in provision for loan
loss was required for the year ended December 31, 2004.

Non-Interest Income. Non-interest income increased by $1.5 million for
the year ended December 31, 2005 to $4.5 million, compared to $3.0 million for the year ended December 31, 2004. The increase in non-interest income is the result of higher income realized on deposit accounts. Gains on sales of loans and
securities increased from $405,000 for the year ended December 31, 2004 to $518,000 for the year ended December 31, 2005. The increase in gains on the sale of securities is the result of the sale of the Banks data processing
provider, Intrieve, Inc. The Bank had a $15,000 equity investment in Intrieve. In April 2005, Intrieve sold to Harland Financial Services and the Bank recognized a gain of approximately $345,000.

Non-Interest Expense.Total non-interest expense for the year ended December 31, 2005 was $11.6 million, compared to $10.0 million in 2004.
The increase was the result of the Company hiring additional staff to fund both increased business activity as well as to increase operational staff to increase its retail-banking network into both current and new markets in 2006. The Companys
expansion plans in 2006 include at least two offices in Clarksville, Tennessee and one additional office in both Hopkinsville and Murray, Kentucky.

Income Taxes. The effective tax rate for the years ended December 31, 2005 and December 31, 2004 was 29.7%.

Comparison of
Operating Results for the Years Ended December 31, 2004 and 2003

Net Income.The Companys net income for the year
ended December 31, 2004 was $4.0 million compared to $3.5 million for the year ended December 31, 2003.

Net Interest Income.Net interest income for the year ended December 31, 2004 was $13.8 million, compared to $12.4 million for the year ended December 31, 2003. The increase in net interest income for the year ended December 31, 2004 was the result of
loan and investment portfolio growth. For the year ended December 31, 2004, the Companys tax equivalent average yield on total interest-earning assets was 5.08% compared to 5.44% for the year ended December 31, 2003, and its average
cost of interest-bearing liabilities was 2.58%, compared to 2.97% for the year ended December 31, 2003. As a result, the Companys tax equivalent interest rate spread for the year ended December 31, 2004 was 2.50%, compared to 2.47%
for the year ended December 31, 2003 and its tax equivalent net interest margin was 2.71% for the year ended December 31, 2004, compared to 2.75% for the year ended December 31, 2003.

Interest Income.Interest income increased $1.6 million from $24.7 million to $26.4 million, or by 6.6% during the year ended December 31,
2004 compared to 2003. The increase was attributable to an increase in loan and investment volume, offsetting a declining yield on such interest-earning assets. The average balance on securities held to maturity increased $12.5 million, from $10.3
million at December 31, 2003 to $22.8 million at December 31, 2004. The average balance on taxable securities available for sale increased $18.0 million, from $108.4 million at December 31, 2003 to $126.4 million at December 31,
2004. The average balance of non-taxable securities available for sale increased $8.0 million, from $19.5 million at December 31, 2003 to $27.5 million at December 31, 2004. Average time deposits and other interest-bearing cash deposits
decreased $3.8 million, from $6.8 million at December 31, 2003 to $3.0 million at December 31, 2004. Overall, average total interest-earning assets increased $67.4 million from December 31, 2003 to December 31, 2004.

Interest Expense.Interest expense increased to $12.5 million for the year ended December 31, 2004 compared to $12.4 million for 2003. The
increase in interest expense was attributable to an increase in the average balances of both deposit and Federal Home Loan Bank (FHLB) borrowings. The average cost of average interest-bearing liabilities declined from 2.97% for the year
ended December 31, 2003 to 2.58% for the year ended December 31, 2004. Over the same period, the average balance of interest bearing deposits increased from $378.0 million for the year ended December 31, 2003 to $400.4 million at
December 31, 2004.



14



---

The average balance of FHLB borrowings increased from $36.0 million for the year ended December 31,
2003 to $75.4 million for the year ended December 31, 2004. The average cost of FHLB borrowings declined from 3.80% for the year ended December 31, 2003 to 3.04% for the year ended December 31, 2004.

Provision for Loan Losses.The Company determined that an additional $1.2 million in provision for loan losses was required for the year ended
December 31, 2004. For the year ended December 31, 2003, the Company determined that a provision for loan losses of $1.75 million was required.

Non-Interest Income.Non-interest income decreased by $461,000 for the year ended December 31, 2004 to $3.0 million, compared to $3.5 million for the year ended December 31, 2003. The decline in
non-interest income is the result of lower gains on the sale of both fixed rate loans and securities. Both of these declines are directly related to the higher level of market interest rates in 2004 as compared to the market level of rates in
mid-2003. Gains on the sale of loans and securities declined from $1.2 million for the year ended December 31, 2003 to $405,000 for the year ended December 31, 2004.

Non-Interest Expense.Total non-interest expense for the year ended December 31, 2004 was $10.0 million, compared to $9.0 million in 2003.
The increase was the result of the Company hiring additional staff to fund both increased business activity as well as to increase operational staff to assist with Sarbanes-Oxley compliance and increased professional services expense due to
additional audit fees and related outside work necessary for Sarbanes-Oxley. The Company anticipates that its continuing efforts to comply with Sarbanes-Oxley will result in approximately $200,000 of operating expenses per year in 2005 and beyond.
See Note 11 of Notes to Consolidated Financial Statements.

Income Taxes.The effective tax rate for the year ended
December 31, 2004 was 29.7%, compared to 31.2% for 2003. The decline in the Companys effective tax rate is the result of a larger balance in municipal bonds and increased income from bank owned life insurance.

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, 2005, the Bank exceeded all regulatory minimum capital requirements. For a detailed discussion of the OTS regulatory capital requirements, and for a tabular
presentation of the Banks compliance with such requirements, see Note 14 of Notes to Consolidated Financial Statements.

Liquidity. Liquidity management is both a daily and long-term function of business management. If the Bank requires funds beyond its ability to generate them internally, the Bank believes that it could borrow funds from the FHLB. At
December 31, 2005, the Bank had outstanding advances of $93.2 million from the FHLB. The Bank can immediately borrow an additional $23.9 million from the FHLB and can borrow an additional $169.4 million with the purchase of additional capital
stock. See Note 7 of Notes to Consolidated Financial Statements.

Subordinated Debentures Issuance. On September 25, 2003, the
Company issued $10,310,000 of subordinated debentures in a private placement offering. The securities have a thirty-year maturity and are callable at the issuers discretion on a quarterly basis beginning five years after issuance. The
securities are priced at a variable rate equal to the three-month libor (London Interbank Offering Rate) plus 3.10%. Interest is paid and the rate of interest may change on a quarterly basis. The Companys subsidiary, a federal chartered thrift
supervised by the Office of Thrift Supervision (OTS) may recognize the proceeds of trust preferred securities as capital. OTS 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.



15



---

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, 2005, cash and cash equivalents totaled $16.2 million. The level of these assets depends upon
the Banks operating, investing and financing activities during any given period.

Cash flows from operating activities for the years
ended December 31, 2005, 2004 and 2003 were $5.1 million, $6.3 million, and $3.5 million, respectively.

Cash flows from
investing activities were a net use of funds of $63.8 million, $47.3 million and $105.5 million in 2005, 2004 and 2003, respectively. A principal use of cash in this area has been purchases of securities available for sale of $48.7 million offset by
proceeds from sales, calls and maturities of securities of $27.1 million during 2005. Maturities, calls and cash flow from securities classified as held to maturity exceeded purchases by $4.8 million. At the same time, the investment of cash in
loans was $42.6 million in 2005, $23.3 million in 2004 and $44.7 in 2003. Purchases of securities available for sale exceeded maturities and sales by $15.0 million in 2004 and $42.1 million in 2003. Purchases of securities classified as held to
maturities exceeded maturities, calls and cash flow by $7.4 million in 2004 and $12.1 million in 2003

At December 31, 2005, the Bank
had $27.8 million in outstanding commitments to originate loans and unused lines of credit of $24.0 million. The Bank anticipates that it will have sufficient funds available to meet its current loan origination and lines of credit commitments.
Certificates of deposit, which are scheduled to mature in one year or less totaled $137.3 million at December 31, 2005. Based on historical experience, management believes that a significant portion of such deposits will remain with the
Bank.

Impact of Inflation and Changing Prices

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



16



---

Consolidated Financial Statements

HopFed Bancorp, Inc.

and Subsidiaries

December 31, 2005, 2004 and 2003



---

Table of Contents



|                                                                                                                |  |           
|--------------------------------------------------------------------------------------------------------------- |  | ----------
|                                                                                                                |  | PageNumber
|Report of Independent Registered Public Accounting Firm                                                         |  | 1         
|                                                                                                                | 
|Consolidated Balance Sheets as of December 31, 2005 and 2004                                                    |  | 2-3       
|                                                                                                                | 
|Consolidated Statements of Income for the Years ended December 31, 2005, 2004 and 2003                          |  | 4-5       
|                                                                                                                | 
|Consolidated Statements of Comprehensive Income for the Years ended December 31, 2005, 2004 and 2003            |  | 6         
|                                                                                                                | 
|Consolidated Statements of Changes in Stockholders Equity for the Years ended December 31, 2005, 2004 and 2003 |  | 7         
|                                                                                                                | 
|Consolidated Statements of Cash Flows for the Years ended December 31, 2005, 2004 and 2003                      |  | 8-9       
|                                                                                                                | 
|Notes to Consolidated Financial Statements                                                                      |  | 10-52     



1



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

of HopFed Bancorp, Inc.

Hopkinsville, Kentucky

We have audited the accompanying consolidated balance sheets of HopFed Bancorp, Inc. and
subsidiaries (the Company) as of December 31, 2005 and 2004 and the related consolidated statements of income, comprehensive income, changes in stockholders equity and cash flows for each of the years in the three-year period
ended December 31, 2005. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. As of and for the years ended December 31, 2005, 2004 and 2003, the Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of HopFed Bancorp, Inc. and subsidiaries as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2005 in conformity with
accounting principles generally accepted in the United States of America.



|                                     
|-------------------------------------
|                                     
|/s/ Rayburn, Bates & Fitzgerald, P.C.
|Brentwood, Tennessee                 
|March 28, 2006                       



1



---

HopFed Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

December 31, 2005 and 2004

(Dollars in Thousands)



|                                                                                                                 |  |      |         |      |        
|---------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- | -------
|                                                                                                                 |  | 2005 |         | 2004
|Assets                                                                                                           |  |      |         |      |        
|Cash and due from banks (notes 6 and 10)                                                                         |  | $    | 13,487  |      | 17,357 
|Interest-earning deposits in Federal Home Loan Bank                                                              |  |      | 424     |      | 42     
|Federal funds sold                                                                                               |  |      | 2,250   |      | 850    
|                                                                                                                 |  |      |         |      |        
|Cash and cash equivalents                                                                                        |  |      | 16,161  |      | 18,249 
|Federal Home Loan Bank stock, at cost (note 2)                                                                   |  |      | 3,211   |      | 3,015  
|Securities available for sale (note 2)                                                                           |  |      | 172,890 |      | 155,151
|Securities held to maturity, market value of $17,816 for 2005 and $22,721 for 2004, respectively (note 2)        |  |      | 18,183  |      | 22,768 
|Other investments, at cost (note 2)                                                                              |  |      |        |      | 15     
|Loans receivable, net of allowance for loan losses of $4,004 for 2005 and $3,273 for 2004, respectively (note 3) |  |      | 397,310 |      | 356,825
|Real estate and other assets owned                                                                               |  |      | 228     |      | 111    
|Accrued interest receivable                                                                                      |  |      | 3,697   |      | 3,053  
|Premises and equipment, net (note 4)                                                                             |  |      | 12,500  |      | 6,700  
|Deferred tax assets (note 12)                                                                                    |  |      | 1,955   |      | 702    
|Intangible asset (note 5)                                                                                        |  |      | 1,377   |      | 1,755  
|Goodwill (note 5)                                                                                                |  |      | 3,689   |      | 3,689  
|Bank owned life insurance                                                                                        |  |      | 7,156   |      | 6,896  
|Other assets                                                                                                     |  |      | 1,232   |      | 802    
|                                                                                                                 |  |      |         |      |        
|Total assets                                                                                                     |  | $    | 639,589 |      | 579,731
|                                                                                                                 |  |      |         |      |        
|Liabilities and Stockholders Equity                                                                             |  |      |         |      |        
|Liabilities:                                                                                                     |  |      |         |      |        
|Deposits: (note 6)                                                                                               |  |      |         |      |        
|Non-interest-bearing accounts                                                                                    |  | $    | 36,918  |      | 32,214 
|Interest-bearing accounts:                                                                                       |  |      |         |      |        
|NOW accounts                                                                                                     |  |      | 96,949  |      | 87,075 
|Savings and money market accounts                                                                                |  |      | 97,477  |      | 65,350 
|Other time deposits                                                                                              |  |      | 251,384 |      | 251,556
|                                                                                                                 |  |      |         |      |        
|Total deposits                                                                                                   |  |      | 482,728 |      | 436,195
|Advances from Federal Home Loan Bank (note 7)                                                                    |  |      | 93,172  |      | 81,319 
|Subordinated debentures (note 9)                                                                                 |  |      | 10,310  |      | 10,310 
|Advances from borrowers for taxes and insurance                                                                  |  |      | 295     |      | 301    
|Dividends payable                                                                                                |  |      | 438     |      | 437    
|Accrued expenses and other liabilities (note 11)                                                                 |  |      | 2,804   |      | 1,796  
|                                                                                                                 |  |      |         |      |        
|Total liabilities                                                                                                |  |      | 589,747 |      | 530,358
|                                                                                                                 |  |      |         |      |        

See accompanying notes to consolidated financial statements.



2



---

HopFed Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets, Continued

December 31, 2005 and 2004

(Dollars in Thousands)



|                                                                                                                                                                                                           |  |      |         |   |      |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | ------- | -
|                                                                                                                                                                                                           |  | 2005 |         |   | 2004 |        
|Stockholders equity (notes 11, 14, 15 and 16):                                                                                                                                                            |  |      |         |   |      |         |  
|Preferred stock, par value $.01 per share; authorized - 500,000 shares; none issued or outstanding at December 31, 2005 and
2004                                                                           |  | $    |        |   |      |        |  
|Common stock, par value $.01 per share; authorized - 7,500,000 shares; 4,057,987 issued and 3,649,078 outstanding at December 31, 2005
and 4,048,192 issued and 3,639,283 outstanding at December 31, 2004 |  |      | 40      |   |      | 40      |  
|Additional paid-in capital                                                                                                                                                                                 |  |      | 26,019  |   |      | 25,863  |  
|Retained earnings-substantially restricted                                                                                                                                                                 |  |      | 31,525  |   |      | 29,145  |  
|Treasury stock (at cost, 408,909 shares at December 31, 2005 and December 31, 2004)                                                                                                                        |  |      | (4,857  | ) |      | (4,857  | )
|Unearned restricted stock                                                                                                                                                                                  |  |      | (230    | ) |      | (131    | )
|Accumulated other comprehensive loss, net of taxes                                                                                                                                                         |  |      | (2,655  | ) |      | (687    | )
|                                                                                                                                                                                                           |  |      |         |   |      |         |  
|Total stockholders equity                                                                                                                                                                                 |  |      | 49,842  |   |      | 49,373  |  
|                                                                                                                                                                                                           |  |      |         |   |      |         |  
|Total liabilities and stockholders equity                                                                                                                                                                 |  | $    | 639,589 |   |      | 579,731 |  
|                                                                                                                                                                                                           |  |      |         |   |      |         |  
|Commitments and contingencies (notes 8, 10, and 13)                                                                                                                                                        |  |      |         |   |      |         |  

See accompanying notes to consolidated financial statements.



3



---

HopFed Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income

For the Years ended December 31,
2005, 2004 and 2003

(Dollars in Thousands)



|                                                         |  |      |        |      |        |      |       
|-------------------------------------------------------- |  | ---- | ------ | ---- | ------ | ---- | ------
|                                                         |  | 2005 |        | 2004 |        | 2003
|Interest and dividend income:                            |  |      |        |      |        |      |       
|Loans receivable                                         |  | $    | 22,006 |      | 19,307 |      | 19,332
|Securities available for sale                            |  |      | 5,891  |      | 4,964  |      | 4,196 
|Securities held to maturity                              |  |      | 977    |      | 1,084  |      | 467   
|Nontaxable securities available for sale                 |  |      | 673    |      | 983    |      | 674   
|Interest-earning deposits                                |  |      | 119    |      | 43     |      | 74    
|                                                         |  |      |        |      |        |      |       
|Total interest and dividend income                       |  |      | 29,666 |      | 26,381 |      | 24,743
|                                                         |  |      |        |      |        |      |       
|Interest expense:                                        |  |      |        |      |        |      |       
|Deposits (note 6)                                        |  |      | 11,909 |      | 9,753  |      | 10,896
|Advances from Federal Home Loan Bank                     |  |      | 2,885  |      | 2,295  |      | 1,364 
|Subordinated debentures                                  |  |      | 680    |      | 489    |      | 119   
|                                                         |  |      |        |      |        |      |       
|Total interest expense                                   |  |      | 15,474 |      | 12,537 |      | 12,379
|                                                         |  |      |        |      |        |      |       
|Net interest income                                      |  |      | 14,192 |      | 13,844 |      | 12,364
|Provision for loan losses (note 3)                       |  |      | 1,250  |      | 1,200  |      | 1,750 
|                                                         |  |      |        |      |        |      |       
|Net interest income after provision for loan losses      |  |      | 12,942 |      | 12,644 |      | 10,614
|                                                         |  |      |        |      |        |      |       
|Non-interest income:                                     |  |      |        |      |        |      |       
|Service charges                                          |  |      | 2,462  |      | 1,302  |      | 1,162 
|Gain on sale of loans                                    |  |      | 138    |      | 99     |      | 552   
|Gain on sale of Intrieve, Inc. stock                     |  |      | 345    |      |       |      |      
|Realized gain from sale of securities available for sale |  |      | 35     |      | 306    |      | 634   
|Income from bank owned life insurance                    |  |      | 260    |      | 268    |      | 50    
|Financial services commission                            |  |      | 498    |      | 428    |      | 331   
|Other operating income                                   |  |      | 794    |      | 635    |      | 770   
|                                                         |  |      |        |      |        |      |       
|Total non-interest income                                |  |      | 4,532  |      | 3,038  |      | 3,499 
|                                                         |  |      |        |      |        |      |       
|Non-interest expenses:                                   |  |      |        |      |        |      |       
|Salaries and benefits (note 11)                          |  |      | 5,906  |      | 5,166  |      | 5,241 
|Occupancy expense (note 4)                               |  |      | 1,038  |      | 759    |      | 652   
|Data processing expense                                  |  |      | 1,115  |      | 876    |      | 639   
|State deposit tax                                        |  |      | 437    |      | 417    |      | 383   
|Core deposit intangible amortization                     |  |      | 378    |      | 378    |      | 378   
|Professional services                                    |  |      | 855    |      | 542    |      | 526   
|Advertising expense                                      |  |      | 620    |      | 600    |      | 305   
|Other operating expenses                                 |  |      | 1,251  |      | 1,270  |      | 920   
|                                                         |  |      |        |      |        |      |       
|Total non-interest expense                               |  |      | 11,600 |      | 10,008 |      | 9,044 
|                                                         |  |      |        |      |        |      |       

See accompanying notes to consolidated financial statements.



4



---

HopFed Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income, Continued

For the Years ended
December 31, 2005, 2004 and 2003

(Dollar Amounts in Thousands, Except Per Share and Share Amounts)



|                                              |  |      |           |      |           |      |          
|--------------------------------------------- |  | ---- | --------- | ---- | --------- | ---- | ---------
|                                              |  | 2005 |           | 2004 |           | 2003
|Income before income tax expense              |  | $    | 5,874     |      | 5,674     |      | 5,069    
|Income tax expense (note 12)                  |  |      | 1,744     |      | 1,683     |      | 1,574    
|                                              |  |      |           |      |           |      |          
|Net income                                    |  | $    | 4,130     |      | 3,991     |      | 3,495    
|                                              |  |      |           |      |           |      |          
|Earnings per share (note 16):                 |  |      |           |      |           |      |          
|Basic                                         |  | $    | 1.13      |      | 1.10      |      | 0.96     
|                                              |  |      |           |      |           |      |          
|Fully diluted                                 |  | $    | 1.13      |      | 1.09      |      | 0.96     
|                                              |  |      |           |      |           |      |          
|Weighted average shares outstanding - basic   |  |      | 3,644,178 |      | 3,634,904 |      | 3,630,396
|                                              |  |      |           |      |           |      |          
|Weighted average shares outstanding - diluted |  |      | 3,669,918 |      | 3,663,751 |      | 3,653,974
|                                              |  |      |           |      |           |      |          

See accompanying notes to consolidated financial statements.



5



---

HopFed Bancorp, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

For the Years ended
December 31, 2005, 2004 and 2003

(Dollars in Thousands)



|                                                                               |  |      |        |   |      |       |   |      |        |  
|------------------------------------------------------------------------------ |  | ---- | ------ | - | ---- | ----- | - | ---- | ------ | -
|                                                                               |  | 2005 |        |   | 2004 |       |   | 2003 |       
|Net income                                                                     |  | $    | 4,130  |   |      | 3,991 |   |      | 3,495  |  
|Other comprehensive income, net of tax (note 20):                              |  |      |        |   |      |       |   |      |        |  
|Unrealized gain (loss) on investment securities available for sale, net of tax |  |      | (2,087 | ) |      | 26    |   |      | (1,013 | )
|Unrealized gain on derivatives, net of tax                                     |  |      | 142    |   |      | 45    |   |      |       |  
|Reclassification adjustment for gains included in net income                   |  |      | (23    | ) |      | (202  | ) |      | (418   | )
|                                                                               |  |      |        |   |      |       |   |      |        |  
|Comprehensive income                                                           |  | $    | 2,162  |   |      | 3,860 |   |      | 2,064  |  
|                                                                               |  |      |        |   |      |       |   |      |        |  

See accompanying notes to consolidated financial statements.



6



---

HopFed Bancorp, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders Equity

For the Years
ended December 31, 2005, 2004 and 2003

(Dollars in Thousands, Except Per Share and Share Amounts)



|                                                                                                        |  |              |  |             |    |                          |        |                  |        |   |               |        |   |                                            |        |   |                         |      |   |             |        |  
|------------------------------------------------------------------------------------------------------- |  | ------------ |  | ----------- | -- | ------------------------ | ------ | ---------------- | ------ | - | ------------- | ------ | - | ------------------------------------------ | ------ | - | ----------------------- | ---- | - | ----------- | ------ | -
|                                                                                                        |  | CommonShares |  | CommonStock |    | AdditionalPaid-inCapital |        | RetainedEarnings |        |   | TreasuryStock |        |   | AccumulatedOtherComprehensiveIncome (Loss) |        |   | UnearnedRestrictedStock |      |   | TotalEquity |       
|Balance, December 31, 2002                                                                              |  | 3,630,396    |  | $           | 40 |                          | 25,714 |                  | 25,106 |   |               | (4,857 | ) |                                            | 875    |   |                         |     |   |             | 46,878 |  
|Net income                                                                                              |  |             |  |             |   |                          |       |                  | 3,495  |   |               |       |   |                                            |       |   |                         |     |   |             | 3,495  |  
|Net change in unrealized gains (losses) on securities available for sale, net of income taxes of $737   |  |             |  |             |   |                          |       |                  |       |   |               |       |   |                                            | (1,431 | ) |                         |     |   |             | (1,431 | )
|Dividends ($0.47 per share)                                                                             |  |             |  |             |   |                          |       |                  | (1,704 | ) |               |       |   |                                            |       |   |                         |     |   |             | (1,704 | )
|                                                                                                        |  |              |  |             |    |                          |        |                  |        |   |               |        |   |                                            |        |   |                         |      |   |             |        |  
|Balance, December 31, 2003                                                                              |  | 3,630,396    |  |             | 40 |                          | 25,714 |                  | 26,897 |   |               | (4,857 | ) |                                            | (556   | ) |                         |     |   |             | 47,238 |  
|Net income                                                                                              |  |             |  |             |   |                          |       |                  | 3,991  |   |               |       |   |                                            |       |   |                         |     |   |             | 3,991  |  
|Restricted stock awards                                                                                 |  | 8,887        |  |             |   |                          | 149    |                  |       |   |               |       |   |                                            |       |   |                         | (149 | ) |             |       |  
|Net change in unrealized gains (losses) on securities available for sale, net of income taxes of $91    |  |             |  |             |   |                          |       |                  |       |   |               |       |   |                                            | (176   | ) |                         |     |   |             | (176   | )
|Net change in unrealized gain (losses) on derivatives, net of taxes of $23                              |  |             |  |             |   |                          |       |                  |       |   |               |       |   |                                            | 45     |   |                         |     |   |             | 45     |  
|Compensation expense, restricted stock awards                                                           |  |             |  |             |   |                          |       |                  |       |   |               |       |   |                                            |       |   |                         | 18   |   |             | 18     |  
|Dividends ($0.48 per share)                                                                             |  |             |  |             |   |                          |       |                  | (1,743 | ) |               |       |   |                                            |       |   |                         |     |   |             | (1,743 | )
|                                                                                                        |  |              |  |             |    |                          |        |                  |        |   |               |        |   |                                            |        |   |                         |      |   |             |        |  
|Balance, December 31, 2004                                                                              |  | 3,639,283    |  |             | 40 |                          | 25,863 |                  | 29,145 |   |               | (4,857 | ) |                                            | (687   | ) |                         | (131 | ) |             | 49,373 |  
|Net income                                                                                              |  |             |  |             |   |                          |       |                  | 4,130  |   |               |       |   |                                            |       |   |                         |     |   |             | 4,130  |  
|Restricted stock awards                                                                                 |  | 9,795        |  |             |   |                          | 156    |                  |       |   |               |       |   |                                            |       |   |                         | (156 | ) |             |       |  
|Net change in unrealized gains (losses) on securities available for sale, net of income taxes of $1,103 |  |             |  |             |   |                          |       |                  |       |   |               |       |   |                                            | (2,110 | ) |                         |     |   |             | (2,110 | )
|Net change in unrealized gain (losses) on derivatives, net of taxes of $89                              |  |             |  |             |   |                          |       |                  |       |   |               |       |   |                                            | 142    |   |                         |     |   |             | 142    |  
|Compensation expense, restricted stock awards                                                           |  |             |  |             |   |                          |       |                  |       |   |               |       |   |                                            |       |   |                         | 57   |   |             | 57     |  
|Dividends ($0.48 per share)                                                                             |  |             |  |             |   |                          |       |                  | (1,750 | ) |               |       |   |                                            |       |   |                         |     |   |             | (1,750 | )
|                                                                                                        |  |              |  |             |    |                          |        |                  |        |   |               |        |   |                                            |        |   |                         |      |   |             |        |  
|Balance December 31, 2005                                                                               |  | 3,649,078    |  | $           | 40 |                          | 26,019 |                  | 31,525 |   |               | (4,857 | ) |                                            | (2,655 | ) |                         | (230 | ) |             | 49,842 |  
|                                                                                                        |  |              |  |             |    |                          |        |                  |        |   |               |        |   |                                            |        |   |                         |      |   |             |        |  

See accompanying notes to consolidated financial statements.



7



---

HopFed Bancorp, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

For the Years ended December 31,
2005, 2004 and 2003

(Dollars in Thousands)



|                                                                                  |  |      |         |   |      |         |   |      |          |  
|--------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | ------- | - | ---- | -------- | -
|                                                                                  |  | 2005 |         |   | 2004 |         |   | 2003 |         
|Cash flows from operating activities:                                             |  |      |         |   |      |         |   |      |          |  
|Net income                                                                        |  | $    | 4,130   |   |      | 3,991   |   |      | 3,495    |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |      |         |   |      |         |   |      |          |  
|Provision for loan losses                                                         |  |      | 1,250   |   |      | 1,200   |   |      | 1,750    |  
|Depreciation                                                                      |  |      | 436     |   |      | 346     |   |      | 319      |  
|Amortization of intangible assets                                                 |  |      | 378     |   |      | 378     |   |      | 378      |  
|Amortization of investment premiums and discounts, net                            |  |      | 495     |   |      | 719     |   |      | 238      |  
|Provision (benefit) for deferred income taxes                                     |  |      | (250    | ) |      | 18      |   |      | 38       |  
|Stock dividends on Federal Home Loan Bank stock                                   |  |      | (155    | ) |      | (118    | ) |      | (97      | )
|Compensation expense, restricted stock grants                                     |  |      | 57      |   |      | 18      |   |      |         |  
|Increase in cash surrender value of bank owned life insurance                     |  |      | (260    | ) |      | (268    | ) |      | (94      | )
|Gain on sale of securities available for sale                                     |  |      | (35     | ) |      | (306    | ) |      | (634     | )
|Gain on sale of Intrieve, Inc. stock                                              |  |      | (345    | ) |      |        |   |      |         |  
|Gain on sales of loans                                                            |  |      | (138    | ) |      | (99     | ) |      | (552     | )
|Proceeds from sales of loans                                                      |  |      | 12,007  |   |      | 10,205  |   |      | 27,326   |  
|Originations of loans sold                                                        |  |      | (11,869 | ) |      | (10,106 | ) |      | (26,774  | )
|(Increase) decrease in:                                                           |  |      |         |   |      |         |   |      |          |  
|Accrued interest receivable                                                       |  |      | (644    | ) |      | (204    | ) |      | (520     | )
|Other assets                                                                      |  |      | (955    | ) |      | 182     |   |      | (126     | )
|Increase (decrease) in:                                                           |  |      |         |   |      |         |   |      |          |  
|Accrued expenses and other liabilities                                            |  |      | 1,008   |   |      | 367     |   |      | (1,247   | )
|                                                                                  |  |      |         |   |      |         |   |      |          |  
|Net cash provided by operating activities                                         |  |      | 5,110   |   |      | 6,323   |   |      | 3,500    |  
|                                                                                  |  |      |         |   |      |         |   |      |          |  
|Cash flows from investing activities:                                             |  |      |         |   |      |         |   |      |          |  
|Proceeds from calls and maturities of securities held to maturity                 |  |      | 4,804   |   |      | 17,546  |   |      | 6,365    |  
|Proceeds from sale of Intrieve Inc. stock                                         |  |      | 360     |   |      |        |   |      |         |  
|Proceeds from sales, calls and maturities of securities available for sale        |  |      | 27,078  |   |      | 68,186  |   |      | 113,986  |  
|Purchases of securities held to maturity                                          |  |      |        |   |      | (24,989 | ) |      | (18,512  | )
|Purchase of securities available for sale                                         |  |      | (48,694 | ) |      | (83,221 | ) |      | (156,057 | )
|Net increase in loans                                                             |  |      | (42,631 | ) |      | (23,343 | ) |      | (44,667  | )
|Purchase of Federal Home Loan Bank stock                                          |  |      | (41     | ) |      | (409    | ) |      |         |  
|Proceeds from sale of foreclosed asset                                            |  |      | 758     |   |      |        |   |      |         |  
|Proceeds from sales of premises and equipment                                     |  |      | 15      |   |      | 32      |   |      | 63       |  
|Purchases of premises and equipment                                               |  |      | (5,477  | ) |      | (1,085  | ) |      | (1,429   | )
|Purchase of bank owned life insurance                                             |  |      |        |   |      |        |   |      | (4,987   | )
|Purchases of capital securities of unconsolidated subsidiary                      |  |      |        |   |      |        |   |      | (310     | )
|                                                                                  |  |      |         |   |      |         |   |      |          |  
|Net cash used in investing activities                                             |  |      | (63,828 | ) |      | (47,283 | ) |      | (105,548 | )
|                                                                                  |  |      |         |   |      |         |   |      |          |  

See accompanying notes to consolidated financial statements.



8



---

HopFed Bancorp, Inc. and Subsidiaries

Consolidated Statements of Cash Flows, Continued

For the Years ended
December 31, 2005, 2004 and 2003

(Dollars in Thousands)



|                                                                                       |  |      |          |   |      |         |   |      |         |  
|-------------------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | ------- | - | ---- | ------- | -
|                                                                                       |  | 2005 |          |   | 2004 |         |   | 2003 |        
|Cash flows from financing activities:                                                  |  |      |          |   |      |         |   |      |         |  
|Net increase in demand deposits, savings, money market, NOW accounts and time deposits |  | $    | 46,533   |   |      | 18,707  |   |      | 63,833  |  
|(Decrease) increase in advance payments by borrowers for taxes and insurance           |  |      | (6       | ) |      | 102     |   |      | (12     | )
|Advances from Federal Home Loan Bank                                                   |  |      | 117,400  |   |      | 126,850 |   |      | 36,850  |  
|Repayment of advances from Federal Home Loan Bank                                      |  |      | (105,547 | ) |      | (99,884 | ) |      | (6,120  | )
|Proceeds from issuance of subordinated debentures                                      |  |      |         |   |      |        |   |      | 10,310  |  
|Dividends paid                                                                         |  |      | (1,750   | ) |      | (1,744  | ) |      | (1,668  | )
|                                                                                       |  |      |          |   |      |         |   |      |         |  
|Net cash provided by financing activities                                              |  |      | 56,630   |   |      | 44,031  |   |      | 103,193 |  
|                                                                                       |  |      |          |   |      |         |   |      |         |  
|Increase (decrease) in cash and cash equivalents                                       |  |      | (2,088   | ) |      | 3,071   |   |      | 1,145   |  
|Cash and cash equivalents, beginning of period                                         |  |      | 18,249   |   |      | 15,178  |   |      | 14,033  |  
|                                                                                       |  |      |          |   |      |         |   |      |         |  
|Cash and cash equivalents, end of period                                               |  | $    | 16,161   |   |      | 18,249  |   |      | 15,178  |  
|                                                                                       |  |      |          |   |      |         |   |      |         |  
|Supplemental disclosures of Cash Flow Information:                                     |  |      |          |   |      |         |   |      |         |  
|Interest paid                                                                          |  | $    | 15,283   |   |      | 12,516  |   |      | 12,370  |  
|                                                                                       |  |      |          |   |      |         |   |      |         |  
|Income taxes paid                                                                      |  | $    | 2,015    |   |      | 1,800   |   |      | 1,610   |  
|                                                                                       |  |      |          |   |      |         |   |      |         |  
|Supplemental Disclosures of Non-cash Investing and Financing Activities:               |  |      |          |   |      |         |   |      |         |  
|Foreclosures and in substance foreclosures of loans during year                        |  | $    | 388      |   |      | 104     |   |      | 272     |  
|                                                                                       |  |      |          |   |      |         |   |      |         |  
|Net unrealized gains on investment securities classified as available for sale         |  | $    | (3,200   | ) |      | (265    | ) |      | (2,168  | )
|                                                                                       |  |      |          |   |      |         |   |      |         |  
|Increase in deferred tax asset related to unrealized losses on investments             |  | $    | 1,103    |   |      | 91      |   |      | 737     |  
|                                                                                       |  |      |          |   |      |         |   |      |         |  
|Dividends declared and payable                                                         |  | $    | 438      |   |      | 437     |   |      | 435     |  
|                                                                                       |  |      |          |   |      |         |   |      |         |  
|Issue of unearned restricted stock                                                     |  | $    | 156      |   |      | 149     |   |      |        |  
|                                                                                       |  |      |          |   |      |         |   |      |         |  

See accompanying notes to consolidated financial statements.



9



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HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2005, 2004 and
2003



|(1) | Summary of Significant Accounting Policies:
|--- | -------------------------------------------

Nature of Operations and Customer Concentration

HopFed Bancorp, Inc. (the Corporation) is a bank holding company
incorporated in the state of Delaware. The Companys principal business activities are conducted through its wholly-owned subsidiary, Heritage Bank (the Bank), which is a federally chartered savings bank engaged in the business of
accepting deposits and providing mortgage, consumer, construction and commercial loans to the general public through its retail banking offices. The Banks business activities are primarily limited to western Kentucky. 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 subject to comprehensive regulation, examination and supervision by the
Office of Thrift Supervision (OTS) and the FDIC.

A substantial portion of the Banks loans are secured by real estate in the West
Kentucky market. In addition, foreclosed real estate is located in this same market. Accordingly, the ultimate collectability of 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.

Management believes that the allowance for loan losses is
adequate. While management uses available information to recognize losses on loans and foreclosed real estate, future additions to the allowances may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an
integral part of their examination process, periodically review the Banks allowances for losses on loans and foreclosed real estate. Such agencies may require the Bank to recognize additions to the allowances based on their judgments about
information available to them at the time of their examination.

Principles of Consolidation

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

Accounting

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



10



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HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2005, 2004 and 2003



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



Estimates

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

Cash and Cash Equivalents

Cash and cash equivalents are defined as cash on hand, amounts due on demand from banks, interest-earning deposits in the Federal Home Loan Bank and federal funds sold with maturities of three months or less.

Securities

The Company
reports debt, readily-marketable equity, mortgage-backed and mortgage related securities in one of the following categories: (i) held to maturity (management has a positive intent and ability to hold to maturity) which are to be
reported at cost, adjusted for premiums and discounts that are recognized in interest income; (ii) trading (held for current resale) which are to be reported at fair value, with unrealized gains and losses included in earnings; and
(iii) 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. 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 average prepayment speeds in the three previous months.



11



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HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2005, 2004 and 2003



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



Other Securities

Other securities, such as Federal Home Loan Bank stock and Intrieve, Inc. stock, are recognized at cost. In April 2005, the entire balance of Intrieve stock was sold.

Loans Receivable

Loans receivable are
stated at unpaid principal balances, less the allowance for loan losses and discounts.

Discounts on home improvement and consumer loans are
recognized over the lives of the loans using the interest method. Loan origination fee income is recognized as received and direct loan origination costs are expensed as incurred. Statement of Financial Accounting Standards (SFAS) 91,
Nonrefundable Fees & 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. However, deferral of such fees and costs would not have a material effect on the consolidated financial statements.

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

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



12



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HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2005, 2004 and 2003



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



Loans Receivable (Continued)

The measurement of impaired loans generally is based on the present value of future cash flows discounted at the historical effective interest rate,
except that collateral-dependent loans generally are measured for impairment based on the fair value of the collateral. 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.

Management considers both
the Banks recent charge off history as well as industry trends when making an estimate as to the amount to reserve for losses in the current loan portfolio that are not individually classified. Industry trends are an especially important
consideration as the Companys loan portfolio mix is changing. Portions of the loan portfolio, including commercial loans and non-residential real estate, have seen sizable increases in the last three years. Management believes that the limited
time frame that these loans have been outstanding is not adequate for the development of a reasonable loss history. Management believes it has established the allowance in accordance with accounting principles generally accepted in the United States
of America and has taken into account the views of its regulators and the current economic environment.

Fixed Rate Mortgage
Originations

The Bank originates fixed rate first mortgage loans for customers in its local markets and selling these loans on the
secondary market with the Bank retaining servicing rights. For the year ended December 31, 2005, the Bank maintained a servicing portfolio of approximately $42.5 million. For the years ended December 31, 2003, 2004 and 2005, the Bank has
reviewed the value of the servicing asset as well as the operational cost associated with servicing the portfolio. After this review, 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 are 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 and any adjustments to value are recognized in the current periods operations.

Revenue Recognition

Mortgage loans held for sale are generally delivered to secondary market investors under firm 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.



13



---

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2005, 2004 and 2003



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



Revenue Recognition (Continued)

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 or payments are past due more than 90 days. Interest continues to accrue on loans over 90 days past due if they are well secured and in the process of collection.

Income Taxes

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

Goodwill

In accordance with SFAS 142, Goodwill and Other Intangible Assets, goodwill is no longer amortized, but instead tested for impairment at least annually.

Intangible Assets

The intangible
assets for insurance contracts and core deposits are amortized using the straight-line method over the estimated period of benefit of seven years. The Company periodically evaluates the recoverability of the intangible assets and takes into account
events or circumstances that warrant a revised estimate of the useful lives or indicates that impairment exists.



14



---

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2005, 2004 and 2003



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



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.

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:

In 2004, the Company entered into a swap transaction in the amount of $10 million with a financial
institution. The critical terms of the interest rate swap match the term of the corresponding variable rate subordinated debt issuance. All components of the derivative instruments gain or loss are included in the assessment of hedge
effectiveness.

Under guidelines of SFAS 133, 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. SFAS 133 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 SFAS 133.

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. Using these guidelines, The Company has documented the use of the above mentioned swap as a cash flow hedge.



15



---

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2005, 2004 and 2003



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



Derivative Instruments: (Continued)

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. SFAS 133 basis adjustments recorded on hedged assets and liabilities are amortized over the
remaining life of the hedged item beginning no later than when hedge accounting ceases. There were no fair value hedging gains or losses, as a result of hedge ineffectiveness, recognized for year ended December 31, 2005. The Company recognized
$26,000 in interest expense for the year ended December 31, 2005 related to the interest rate swap.

In January 2006, the Bank settled
the interest rate swap at a net gain of approximately $272,000. The Company will recognize this gain as a reduction on interest expense in equal installments of approximately $25,000 per quarter beginning for the three month period ending
March 31, 2006 and for each three month period thereafter through September 30, 2008.

The Bank, in the normal course of business,
originates fixed rate mortgages that are sold to the Federal Home Loan Mortgage Corporation (Freddie Mac). Upon tentative underwriting approval by Freddie Mac, the Bank issues a thirty-day commitment to originate a fixed rate first mortgage under
specific terms and conditions that the Bank intends to sell to Freddie Mac. As part of its activities to mitigate interest rate risk in the mortgage lending function, the Bank may commit to guarantee delivery of specific loan amounts, at specific
yields, at specific dates to Freddie Mac with or without identifying specific closed loans. The Banks failure to deliver loans under the terms and conditions of the commitment may result in a future liability to the Bank. SFAS 149,
Amendment of Statement 133 on Derivative Instruments and. Hedging Activities, provides guidance on the types of loan commitments that are derivatives under SFAS 133 (and therefore required to be accounted for as derivatives) under the
scope of SFAS 133. Generally, only commitments to originate mortgage loans that will be held for sale by the issuer of the loan are derivatives under the scope of SFAS 133. See Note 13 for additional information.



16



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HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2005, 2004 and 2003



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



Fair Values of Financial Instruments

SFAS 107, 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. SFAS 107 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.

Available-for-sale and held-to-maturity
securities

Fair values for investment securities available-for-sale and held-to-maturity 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.

Loans
receivable

The fair values for loans receivable are 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 with similar terms to borrowers of similar credit quality. Loan fair value estimates include judgments regarding future expected loss experience
and risk characteristics.

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.



17



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HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2005, 2004 and 2003



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



Fair Value of Financial Instruments (Continued)

Deposits

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

Advances from the Federal Home Loan Bank

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
could be obtained.

Off-Balance-Sheet Instruments

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

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 by the weighted average number of common shares outstanding for each period presented. Diluted EPS is calculated by dividing net income 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. Common stock equivalents which are considered anti-dilutive are not included for the purposes of
this calculation.

Stock Options

The Company accounts for its stock option plans in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, as permitted by SFAS
123, Accounting for Stock-Based Compensation. As such, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. SFAS 123 requires entities which continue to
apply the provisions of APB Opinion No. 25 to provide pro-forma earnings per share disclosure for stock option grants made in 1995 and subsequent years as if the fair value based method defined in SFAS 123 had been applied. SFAS 148,
Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of FASB No. 123, provides that an entity that has transitioned to the accounting treatment prescribed by SFAS 123 may use the intrinsic value method in
lieu of the fair value based method for determining the fair value of stock options at the date of grant. SFAS 148 requires disclosure in addition to SFAS 123 if APB Opinion No. 25 is currently being applied.



18



---

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2005, 2004 and 2003

(Table Amounts in Thousands, Except Per Share Amounts)



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



Stock Options: (Continued)

The Company applies APB Opinion No. 25 and related interpretations in accounting for the plan. No compensation cost has been recognized for the plan
because the stock option price is equal to or greater than the fair value at the grant date. Following is a reconciliation of reported and pro forma net income and earnings per share had compensation cost for the plan been determined based on the
fair value of SFAS 123, Accounting for Stock-Based Compensation, as amended:



|                                                                                                                                            |  |                        |       |   |      |       |   |      |       |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ----- | - | ---- | ----- | - | ---- | ----- | -
|                                                                                                                                            |  | Year EndedDecember 31, |      
|                                                                                                                                            |  | 2005                   |       |   | 2004 |       |   | 2003 |      
|Net income as reported                                                                                                                      |  | $                      | 4,130 |   |      | 3,991 |   |      | 3,495 |  
|Total stock-based employee compensation expense determined under fair value based method for all awards granted, net of related tax
effects |  |                        | (38   | ) |      | (91   | ) |      | (105  | )
|                                                                                                                                            |  |                        |       |   |      |       |   |      |       |  
|Pro forma net income                                                                                                                        |  | $                      | 4,092 |   |      | 3,900 |   |      | 3,390 |  
|                                                                                                                                            |  |                        |       |   |      |       |   |      |       |  
|                                                                                                                                            | 
|                                                                                                                                            |  | Year EndedDecember 31, |      
|                                                                                                                                            |  | 2005                   |       |   | 2004 |       |   | 2003 |      
|Earnings per share:                                                                                                                         |  |                        |       |   |      |       |   |      |       |  
|Basic - as reported                                                                                                                         |  | $                      | 1.13  |   |      | 1.10  |   |      | 0.96  |  
|                                                                                                                                            |  |                        |       |   |      |       |   |      |       |  
|Basic - pro forma                                                                                                                           |  |                        | 1.12  |   |      | 1.07  |   |      | 0.93  |  
|                                                                                                                                            |  |                        |       |   |      |       |   |      |       |  
|Diluted - as reported                                                                                                                       |  | $                      | 1.13  |   |      | 1.09  |   |      | 0.96  |  
|                                                                                                                                            |  |                        |       |   |      |       |   |      |       |  
|Diluted - pro forma                                                                                                                         |  |                        | 1.12  |   |      | 1.06  |   |      | 0.93  |  
|                                                                                                                                            |  |                        |       |   |      |       |   |      |       |  



19



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HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2005, 2004 and 2003



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



Effect of New Accounting Pronouncements

In December 2004, the FASB issued SFAS 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary
Transactions.SFAS 153 amends the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged and more broadly provides for exceptions regarding exchanges of nonmonetary assets that do not
have commercial substance. SFAS 153 is effective for nonmonetary asset exchanges occurring in the fiscal periods beginning after June 15, 2005. The adoption of SFAS 153 did not have a material impact on the Companys financial position,
results of operations and cash flow.

In December 2004, the FASB revised SFAS 123, Accounting for Stock-Based Compensation. SFAS 123R
establishes accounting requirements for share-based compensation to employees and carries forward prior guidance on share-based for awards to non-employees. The provisions of this statement will become effective July 1, 2005 for all equity
awards granted after the effective date. In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (SAB 107). SAB 107 expresses the views of the SEC staff regarding the interaction of FAS 123R and certain SEC rules and regulations and
provides the SEC staffs view regarding the valuation of share based payment arrangements for public companies. In April 2005, an amendment was issued to SFAS No. 123R regarding the compliance date for implementation. The Company will
prospectively adopt SFAS 123R on January 1, 2006, as required by the amendment. SFAS 123R requires an entity to estimate the number of awards expected to actually vest, exclusive of awards expected to be forfeited. Currently, the Company
recognizes forfeitures as they occur. The adopting of this standard is not expected to have a material effect on financial condition, the results of operations, and cash flows.

In March 2004, FASB Emerging Issues Task Force (EITF) released Issue 03-01, Meaning of Other Than Temporary Impairment,which addressed
other-than-temporary impairment of certain debt and equity investments. The recognition and measurement requirements of Issue 03-01, and other disclosure requirements not already implemented, were effective for periods beginning after
June 15, 2004. In September 2004, the FASB staff issued FASB Staff Position (FSP) EITF 03-1-1, which delayed the effective date for certain measurement and recognition guidance contained in Issue 03-01,The FSP requires the
application of pre-existing other-than-temporary guidance during the period of delay until a final consensus is reached.

In November 2005,
FSP FAS Nos. 115-1 and FAS 124-1 The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investmentwas issued. The FSP nullifies certain requirements of Issue 03-01 and supersedes EITF Topic No. D-44,
Recognition of Other-Than-Temporary Impairment upon the Planned Sale of a Security Whose Cost Exceeds Fair Value.This FSP nullified the requirements of paragraphs 10-18 of Issue 03-01 and related examples. The guidance in this FSP
shall be applied to reporting periods beginning after December 15, 2005. The Company believes the adoption of this FSP in 2006 will not have a material impact on the financial condition, the results of operations, or cash flows.



20



---

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2005, 2004 and 2003



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



Effect of New Accounting Pronouncements (Continued)

In May 2005, the FASB issued SFAS 154, Accounting Changes and Error Corrections  a Replacement of APB Opinion No. 20 and FASB Statement
No. 3. This Statement replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting for and
reporting of a change in accounting principle. This Statement requires retrospective application to prior accounting periods financial statements of changes in accounting principle, unless it is impracticable to determine either the
period-specific effects or the cumulative effect of the accounting principle. It also applies to changes required by accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. This
Statement is effective for accounting changes and error corrections made in fiscal years beginning after December 15, 2005. The effects of this Statement is not expected to have a material effect on the consolidated financial statements of the
Company.

In September 2005, the FASB issued an Exposure Draft, Earnings Per Share, an amendment of SFAS 128. This Exposure Draft
would amend SFAS 128, Earnings Per Share, to clarify guidance for mandatory convertible instruments, the treasury stock method, contracts that may be settled in cash or shares and shares that may be issued. The proposed Exposure Draft as
currently drafted would be effective for interim and annual periods ending after June 15, 2006. Retrospective application would be required for all changes to SFAS 128, except that retrospective application would be prohibited for contracts
that were either settled in cash prior to the adoption or modified prior to the adoption to require cash settlement. The Company does not anticipate that adoption of this Statement will have a material effect on its consolidated financial statements
or its impact on calculation of basic and diluted earnings per share.

Reclassification

Certain prior year amounts have been reclassified to conform to the December 31, 2005 presentation.



21



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HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2005, 2004 and 2003

(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 available for sale and their estimated fair values follow:



|                                       |  |                   |         |                      |     |                       |        |   |                    |        
|-------------------------------------- |  | ----------------- | ------- | -------------------- | --- | --------------------- | ------ | - | ------------------ | -------
|                                       |  | December 31, 2005
|                                       |  | AmortizedCost     |         | GrossUnrealizedGains |     | GrossUnrealizedLosses |        |   | EstimatedFairValue
|Restricted:                            |  |                   |         |                      |     |                       |        |   |                    |        
|FHLB stock                             |  | $                 | 3,211   |                      |    |                       |       |   |                    | 3,211  
|                                       |  |                   |         |                      |     |                       |        |   |                    |        
|Unrestricted:                          |  |                   |         |                      |     |                       |        |   |                    |        
|U.S. government and agency securities: |  |                   |         |                      |     |                       |        |   |                    |        
|Agency debt securities                 |  | $                 | 100,772 |                      | 18  |                       | (1,765 | ) |                    | 99,025 
|Corporate bonds                        |  |                   | 5,177   |                      |    |                       | (592   | ) |                    | 4,585  
|Municipal bonds                        |  |                   | 18,343  |                      | 86  |                       | (451   | ) |                    | 17,978 
|Mortgage-backed securities:            |  |                   |         |                      |     |                       |        |   |                    |        
|GNMA                                   |  |                   | 1,954   |                      |    |                       | (48    | ) |                    | 1,906  
|FNMA                                   |  |                   | 26,865  |                      |    |                       | (933   | ) |                    | 25,932 
|FHLMC                                  |  |                   | 11,522  |                      |    |                       | (368   | ) |                    | 11,154 
|CMOs                                   |  |                   | 12,563  |                      |    |                       | (253   | ) |                    | 12,310 
|                                       |  |                   |         |                      |     |                       |        |   |                    |        
|                                       |  |                   | 177,196 |                      | 104 |                       | (4,410 | ) |                    | 172,890
|                                       |  |                   |         |                      |     |                       |        |   |                    |        



22



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HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2005, 2004 and 2003

(Table Amounts in Thousands)



|(2) | Securities: (Continued)
|--- | -----------------------



|                                       |  |                   |         |                      |     |                       |        |   |                    |        
|-------------------------------------- |  | ----------------- | ------- | -------------------- | --- | --------------------- | ------ | - | ------------------ | -------
|                                       |  | December 31, 2004
|                                       |  | AmortizedCost     |         | GrossUnrealizedGains |     | GrossUnrealizedLosses |        |   | EstimatedFairValue
|Restricted:                            |  |                   |         |                      |     |                       |        |   |                    |        
|FHLB stock                             |  | $                 | 3,015   |                      |    |                       |       |   |                    | 3,015  
|Intrieve stock                         |  |                   | 15      |                      |    |                       |       |   |                    | 15     
|                                       |  |                   |         |                      |     |                       |        |   |                    |        
|                                       |  |                   | 3,030   |                      |    |                       |       |   |                    | 3,030  
|                                       |  |                   |         |                      |     |                       |        |   |                    |        
|Unrestricted:                          |  |                   |         |                      |     |                       |        |   |                    |        
|U.S. government and agency securities: |  |                   |         |                      |     |                       |        |   |                    |        
|Agency debt securities                 |  | $                 | 65,114  |                      | 114 |                       | (628   | ) |                    | 64,600 
|Corporate bonds                        |  |                   | 5,260   |                      |    |                       | (60    | ) |                    | 5,200  
|Municipal bonds                        |  |                   | 23,764  |                      | 296 |                       | (279   | ) |                    | 23,781 
|Mortgage-backed securities:            |  |                   |         |                      |     |                       |        |   |                    |        
|GNMA                                   |  |                   | 2,739   |                      | 3   |                       | (6     | ) |                    | 2,736  
|FNMA                                   |  |                   | 31,319  |                      | 13  |                       | (410   | ) |                    | 30,922 
|FHLMC                                  |  |                   | 13,092  |                      | 31  |                       | (120   | ) |                    | 13,003 
|CMOs                                   |  |                   | 14,970  |                      | 16  |                       | (77    | ) |                    | 14,909 
|                                       |  |                   |         |                      |     |                       |        |   |                    |        
|                                       |  | $                 | 156,258 |                      | 473 |                       | (1,580 | ) |                    | 155,151
|                                       |  |                   |         |                      |     |                       |        |   |                    |        

The scheduled maturities of debt securities available for sale at December 31, 2005 and 2004
were as follows:



|                                                 |  |               |         |                    |        
|------------------------------------------------ |  | ------------- | ------- | ------------------ | -------
|2005                                             |  | AmortizedCost |         | EstimatedFairValue
|Due within one year                              |  | $             | 10,015  |                    | 9,940  
|Due in one to five years                         |  |               | 43,689  |                    | 42,516 
|Due in five to ten years                         |  |               | 54,002  |                    | 52,685 
|Due after ten years                              |  |               | 16,586  |                    | 16,447 
|                                                 |  |               |         |                    |        
|                                                 |  |               | 124,292 |                    | 121,588
|Mortgage-backed securities                       |  |               | 52,904  |                    | 51,302 
|                                                 |  |               |         |                    |        
|Total unrestricted securities available for sale |  | $             | 177,196 |                    | 172,890
|                                                 |  |               |         |                    |        



23



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HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2005, 2004 and 2003

(Table Amounts in Thousands)



|(2) | Securities: (Continued)
|--- | -----------------------



|                                                 |  |               |         |                    |        
|------------------------------------------------ |  | ------------- | ------- | ------------------ | -------
|2004                                             |  | AmortizedCost |         | EstimatedFairValue
|Due within one year                              |  | $             | 35      |                    | 35     
|Due in one to five years                         |  |               | 22,711  |                    | 22,667 
|Due in five to ten years                         |  |               | 54,082  |                    | 53,580 
|Due after ten years                              |  |               | 17,310  |                    | 17,299 
|                                                 |  |               |         |                    |        
|                                                 |  |               | 94,138  |                    | 93,581 
|Mortgage-backed securities                       |  |               | 62,120  |                    | 61,570 
|                                                 |  |               |         |                    |        
|Total unrestricted securities available for sale |  | $             | 156,258 |                    | 155,151
|                                                 |  |               |         |                    |        

FHLB stock is an equity interest in the Federal Home Loan Bank. Intrieve stock is an equity
interest in Intrieve, Incorporated, and the Banks data processing service center. Intrieve, Inc. was purchased by Harland Financial Services in April 2005. As a result, the Company recognized a gain of approximately $345,000. FHLB stock does
not have readily determinable fair values because ownership is restricted and a market is lacking. FHLB stock is classified as a restricted investment securities, carried at cost and evaluated for impairment.

The estimated fair value and unrealized loss amounts of temporarily impaired investments as of December 31, 2005 are as follows:



|                                       |  |                     |        |                  |                     |   |                     |         |                  |        |   |                     |         |                  |        |  
|-------------------------------------- |  | ------------------- | ------ | ---------------- | ------------------- | - | ------------------- | ------- | ---------------- | ------ | - | ------------------- | ------- | ---------------- | ------ | -
|                                       |  | Less than 12 months |        |                  | 12 months or longer |   |                     | Total   |                 
|                                       |  | EstimatedFair Value |        | UnrealizedLosses |                     |   | EstimatedFair Value |         | UnrealizedLosses |        |   | EstimatedFair Value |         | UnrealizedLosses |       
|Held to maturity                       |  |                     |        |                  |                     |   |                     |         |                  |        |   |                     |         |                  |        |  
|U.S. government and agency securities: |  |                     |        |                  |                     |   |                     |         |                  |        |   |                     |         |                  |        |  
|Agency debt securities                 |  | $                   | 9,635  |                  | (192                | ) |                     | 7,283   |                  | (183   | ) |                     | 16,918  |                  | (375   | )
|                                       |  |                     |        |                  |                     |   |                     |         |                  |        |   |                     |         |                  |        |  
|Available for sale                     |  |                     |        |                  |                     |   |                     |         |                  |        |   |                     |         |                  |        |  
|U.S. government and agency securities: |  |                     |        |                  |                     |   |                     |         |                  |        |   |                     |         |                  |        |  
|Agency debt securities                 |  | $                   | 50,605 |                  | (658                | ) |                     | 43,968  |                  | (1,107 | ) |                     | 94,573  |                  | (1,765 | )
|Corporate bonds                        |  |                     | 887    |                  | (177                | ) |                     | 3,698   |                  | (415   | ) |                     | 4,585   |                  | (592   | )
|Municipal bonds                        |  |                     | 3,807  |                  | (62                 | ) |                     | 10,836  |                  | (389   | ) |                     | 14,643  |                  | (451   | )
|Mortgage-backed securities:            |  |                     |        |                  |                     |   |                     |         |                  |        |   |                     |         |                  |        |  
|GNMA                                   |  |                     | 362    |                  | (7                  | ) |                     | 1,544   |                  | (41    | ) |                     | 1,906   |                  | (48    | )
|FNMA                                   |  |                     | 3,929  |                  | (66                 | ) |                     | 22,002  |                  | (867   | ) |                     | 25,931  |                  | (933   | )
|FHLMC                                  |  |                     | 2,192  |                  | (38                 | ) |                     | 8,962   |                  | (330   | ) |                     | 11,154  |                  | (368   | )
|CMOs                                   |  |                     | 1,971  |                  | (38                 | ) |                     | 10,339  |                  | (215   | ) |                     | 12,310  |                  | (253   | )
|                                       |  |                     |        |                  |                     |   |                     |         |                  |        |   |                     |         |                  |        |  
|Total Available for Sale               |  | $                   | 63,753 |                  | (1,046              | ) |                     | 101,349 |                  | (3,364 | ) |                     | 165,102 |                  | (4,410 | )
|                                       |  |                     |        |                  |                     |   |                     |         |                  |        |   |                     |         |                  |        |  



24



---

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2005, 2004 and 2003



|(2) | Securities: (Continued)
|--- | -----------------------



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

At December 31, 2005, the Company has 162 securities with unrealized losses. With the exception of the Companys corporate bond portfolio,
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.

At December 31, 2005, the Companys corporate bond portfolio is no longer
investment quality. The Companys corporate bond portfolio consist of $2 million of General Motors Acceptance Corporation (GMAC) bonds maturing in August 2007, and $3 million of Ford Motor Acceptance Corporation bonds (FMAC) with $1 million
maturities in January 2007, October 2008 and October 2009. These bonds have a combined unrealized loss of approximately $592,000. The unrealized loss associated with these bonds is largely the result of a decline in the credit ratings of the
parent companies of both GMAC (GM) and FMAC (Ford). The Company reviews the statements of condition, operations, and cash flows of both GMAC, FMAC, and their parent companies on a consolidated basis each quarter to ascertain that the companies have
an adequate level of liquidity to meet both current and near-term obligations. At this time, management believes that both entities have adequate levels of liquidity to meet its obligations through the period that meets or exceeds the maturity of
the Companys bonds held in its portfolio. The sale of either subsidiary by the parent companies would enhance the credit rating of GMAC or FMAC and the subsequent rating of the Companys bond holdings. At this time, the Company has not
taken an impairment charge on its corporate bond portfolio. Management will continue to monitor quarterly financial statements and Securities Exchange Commission (SEC) filings in an effort to monitor the ability of GMAC, FMAC and their parent
companies to meet their near-term liquidity needs.

During 2005, the Company sold investment securities classified as available-for-sale for
proceeds of $10.6 million resulting in gross gains of $73,000 and gross losses of $38,000. Also during 2005, the Company sold restricted investment securities for proceeds of $360,000 resulting in gross gains of $345,000. The Company sold investment
securities classified as available-for-sale for proceeds of $39.5 million resulting in gross gains of $366,000 and gross losses of $60,000 during 2004. The Company sold investments securities classified as available-for-sale for proceeds of $61.2
million resulting in gross gains of $735,000 and gross losses of $101,000 during 2003.



25



---

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2005, 2004 and 2003

(Table Amounts in Thousands)



|(2) | Securities: (Continued)
|--- | -----------------------



The carrying amount of securities held to maturity and their estimated fair values follow:



|                                       |  |                   |        |                      |    |                       |      |   |                    |       
|-------------------------------------- |  | ----------------- | ------ | -------------------- | -- | --------------------- | ---- | - | ------------------ | ------
|                                       |  | December 31, 2005
|                                       |  | AmortizedCost     |        | GrossUnrealizedGains |    | GrossUnrealizedLosses |      |   | EstimatedFairValue
|Held to maturity securities            |  |                   |        |                      |    |                       |      |   |                    |       
|U.S. government and agency securities: |  |                   |        |                      |    |                       |      |   |                    |       
|Agency debt securities                 |  | $                 | 17,292 |                      |   |                       | (375 | ) |                    | 16,917
|Mortgage-backed securities:            |  |                   |        |                      |    |                       |      |   |                    |       
|GNMA                                   |  |                   | 815    |                      | 8  |                       |     |   |                    | 823   
|FNMA                                   |  |                   | 76     |                      |   |                       |     |   |                    | 76    
|                                       |  |                   |        |                      |    |                       |      |   |                    |       
|                                       |  |                   | 891    |                      | 8  |                       |     |   |                    | 899   
|                                       |  |                   |        |                      |    |                       |      |   |                    |       
|                                       |  | $                 | 18,183 |                      | 8  |                       | (375 | ) |                    | 17,816
|                                       |  |                   |        |                      |    |                       |      |   |                    |       
|                                       | 
|                                       |  | December 31, 2004
|                                       |  | AmortizedCost     |        | GrossUnrealizedGains |    | GrossUnrealizedLosses |      |   | EstimatedFairValue
|Held to maturity securities            |  |                   |        |                      |    |                       |      |   |                    |       
|U.S. government and agency securities: |  |                   |        |                      |    |                       |      |   |                    |       
|Agency debt securities                 |  | $                 | 21,546 |                      | 18 |                       | (89  | ) |                    | 21,475
|Mortgage-backed securities:            |  |                   |        |                      |    |                       |      |   |                    |       
|GNMA                                   |  |                   | 1,093  |                      | 23 |                       |     |   |                    | 1,116 
|FNMA                                   |  |                   | 129    |                      | 1  |                       |     |   |                    | 130   
|                                       |  |                   |        |                      |    |                       |      |   |                    |       
|                                       |  |                   | 1,222  |                      | 24 |                       |     |   |                    | 1,246 
|                                       |  |                   |        |                      |    |                       |      |   |                    |       
|                                       |  | $                 | 22,768 |                      | 42 |                       | (89  | ) |                    | 22,721
|                                       |  |                   |        |                      |    |                       |      |   |                    |       



26



---

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2005, 2004 and 2003

(Table Amounts in Thousands)



|(2) | Securities: (Continued)
|--- | -----------------------



The scheduled maturities of debt securities held to maturity at December 31, 2005 were as
follows:



|                                               |  |               |        |                    |       
|---------------------------------------------- |  | ------------- | ------ | ------------------ | ------
|                                               |  | AmortizedCost |        | EstimatedFairValue
|Due within one year                            |  | $             |       |                    |      
|Due in one to five years                       |  |               | 5,826  |                    | 5,697 
|Due in five to ten years                       |  |               | 8,000  |                    | 7,853 
|Due after ten years                            |  |               | 3,466  |                    | 3,367 
|                                               |  |               |        |                    |       
|                                               |  |               | 17,292 |                    | 16,917
|Mortgage-backed securities                     |  |               | 891    |                    | 899   
|                                               |  |               |        |                    |       
|Total unrestricted securities held to maturity |  | $             | 18,183 |                    | 17,816
|                                               |  |               |        |                    |       



|(3) | Loans Receivable, Net:
|--- | ----------------------

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

The components of loans receivable in the consolidated balance sheets as of December 31, 2005 and 2004 were as follows:



|                               |  |      |         |      |        
|------------------------------ |  | ---- | ------- | ---- | -------
|                               |  | 2005 |         | 2004
|Real estate loans:             |  |      |         |      |        
|One-to-four family             |  | $    | 211,564 |      | 207,252
|Multi-family                   |  |      | 6,613   |      | 6,520  
|Construction                   |  |      | 16,592  |      | 2,698  
|Non-residential                |  |      | 102,676 |      | 40,231 
|                               |  |      |         |      |        
|Total mortgage loans           |  |      | 337,445 |      | 256,701
|Loans secured by deposits      |  |      | 3,282   |      | 3,121  
|Other consumer loans           |  |      | 23,642  |      | 33,287 
|Commercial loans               |  |      | 36,945  |      | 66,989 
|                               |  |      |         |      |        
|                               |  |      | 401,314 |      | 360,098
|Less:                          |  |      |         |      |        
|Less allowance for loan losses |  |      | 4,004   |      | 3,273  
|                               |  |      |         |      |        
|                               |  | $    | 397,310 |      | 356,825
|                               |  |      |         |      |        



27



---

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2005, 2004 and 2003

(Table Amounts in Thousands)



|(3) | Loans Receivable, Net: (Continued)
|--- | ----------------------------------



Loans serviced for the benefit of others totaled approximately $47.3 million, $41.0 million and $40.6
million at December 31, 2005, 2004 and 2003, respectively. Servicing loans for others generally consists of collecting mortgage payments, maintaining escrow amounts, disbursing payments to investors and foreclosure processing.

Qualified one-to-four family first mortgage loans are pledged to the Federal Home Loan Bank of Cincinnati as discussed in note 7.

Impaired loans and related valuation allowance amounts at December 31, 2005 and 2004 were as follows:



|                    |  |      |       |      |    
|------------------- |  | ---- | ----- | ---- | ---
|                    |  | 2005 |       | 2004
|Recorded investment |  | $    | 2,706 |      | 911
|                    |  |      |       |      |    
|Valuation allowance |  | $    | 570   |      | 252
|                    |  |      |       |      |    

The average recorded investment in impaired loans for the years ended December 31, 2005, 2004
and 2003 was $2,273,000, $1,078,000, and $789,000, respectively. Interest income recognized on impaired loans was not significant during the years ended December 31, 2005, 2004 and 2003.

An analysis of the change in the allowance for loan losses for the years ended December 31, 2005, 2004 and 2003 follows:



|                             |  |      |       |   |      |       |   |      |       |  
|---------------------------- |  | ---- | ----- | - | ---- | ----- | - | ---- | ----- | -
|                             |  | 2005 |       |   | 2004 |       |   | 2003 |      
|Balance at beginning of year |  | $    | 3,273 |   |      | 2,576 |   |      | 1,455 |  
|Loans charged off            |  |      | (649  | ) |      | (649  | ) |      | (656  | )
|Recoveries                   |  |      | 130   |   |      | 146   |   |      | 27    |  
|Provision for loan losses    |  |      | 1,250 |   |      | 1,200 |   |      | 1,750 |  
|                             |  |      |       |   |      |       |   |      |       |  
|Balance at end of year       |  | $    | 4,004 |   |      | 3,273 |   |      | 2,576 |  
|                             |  |      |       |   |      |       |   |      |       |  

Non-accrual loans totaled $996,000 and $653,000 at December 31, 2005 and 2004, respectively.
Other assets owned totaled $228,000 and $111,000 at December 31, 2005 and 2004, respectively. Interest income foregone on such loans was not significant during 2005, 2004 and 2003. 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 three months or more past due and still accruing
interest as of December 31, 2005 and $20,000 in loans three months or more past due still accruing interest as of December 31, 2004.

The Company originates loans to officers and directors at terms substantially identical to those available to other borrowers. Loans to officers and directors at December 31, 2005 and 2004 were approximately $10,179,000 and $5,731,000,
respectively. At December 31, 2005, funds committed that were undisbursed to officers and directors approximated $983,000.



28



---

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2005, 2004 and 2003

(Table Amounts in Thousands)



|(3) | Loans Receivable, Net: (Continued)
|--- | ----------------------------------



The following summarizes activity of loans to officers and directors for the year ended
December 31, 2005 and 2004:



|                               |  |      |        |   |      |   |        |  
|------------------------------ |  | ---- | ------ | - | ---- | - | ------ | -
|                               |  | 2005 |        |   | 2004 |  
|Balance at beginning of period |  | $    | 5,731  |   |      | $ | 4,868  |  
|New loans                      |  |      | 5,931  |   |      |   | 2,391  |  
|Principal repayments           |  |      | (1,483 | ) |      |   | (1,528 | )
|                               |  |      |        |   |      |   |        |  
|Balance at end of period       |  | $    | 10,179 |   |      | $ | 5,731  |  
|                               |  |      |        |   |      |   |        |  



|(4) | Premises and Equipment:
|--- | -----------------------

Components of premises and
equipment included in the consolidated balance sheets as of December 31, 2005 and 2004 consisted of the following:



|                              |  |      |        |      |      
|----------------------------- |  | ---- | ------ | ---- | -----
|                              |  | 2005 |        | 2004
|Land                          |  | $    | 2,196  |      | 1,424
|Land improvements             |  |      | 129    |      | 113  
|Buildings                     |  |      | 4,604  |      | 4,574
|Construction in process       |  |      | 5,388  |      | 419  
|Furniture and equipment       |  |      | 2,155  |      | 1,778
|                              |  |      |        |      |      
|                              |  |      | 14,472 |      | 8,308
|Less accumulated depreciation |  |      | 1,972  |      | 1,608
|                              |  |      |        |      |      
|                              |  | $    | 12,500 |      | 6,700
|                              |  |      |        |      |      

Depreciation expense was approximately $436,000, $346,000, and $319,000 for the years ended
December 31, 2005, 2004 and 2003, respectively.

For the year ended December 31, 2005, the Company capitalized interest expense of
approximately $26,000 related to construction in process.



|(5) | Intangible Assets:
|--- | ------------------

Goodwill is tested for
impairment on an annual basis and as events or circumstances change that would more likely than not reduce fair value below its carrying amount. The Company completed its review and determined there was no impairment of goodwill as of
December 31, 2005 and 2004.



29



---

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2005, 2004 and 2003

(Table Amounts in Thousands)



|(5) | Intangible Assets: (Continued)
|--- | ------------------------------



The changes in the carrying amounts of other intangible assets for the years ended December 31,
2005 and 2004 are as follows:



|                           |  |                       |       |   |                              |     |   |       |       |  
|-------------------------- |  | --------------------- | ----- | - | ---------------------------- | --- | - | ----- | ----- | -
|                           |  | CoreDepositIntangible |       |   | InsuranceContractsIntangible |     |   | Total |      
|Balance, December 31, 2002 |  | $                     | 2,389 |   |                              | 122 |   |       | 2,511 |  
|Amortization               |  |                       | (360  | ) |                              | (18 | ) |       | (378  | )
|                           |  |                       |       |   |                              |     |   |       |       |  
|Balance, December 31, 2003 |  |                       | 2,029 |   |                              | 104 |   |       | 2,133 |  
|Amortization               |  |                       | (360  | ) |                              | (18 | ) |       | (378  | )
|                           |  |                       |       |   |                              |     |   |       |       |  
|Balance, December 31, 2004 |  |                       | 1,669 |   |                              | 86  |   |       | 1,755 |  
|Amortization               |  |                       | (360  | ) |                              | (18 | ) |       | (378  | )
|                           |  |                       |       |   |                              |     |   |       |       |  
|Balance, December 31, 2005 |  | $                     | 1,309 |   |                              | 68  |   |       | 1,377 |  
|                           |  |                       |       |   |                              |     |   |       |       |  

The estimated amortization expense for intangible assets for the subsequent four years is as
follows:



|     |  |                       |       |                              |    |       |      
|---- |  | --------------------- | ----- | ---------------------------- | -- | ----- | -----
|     |  | CoreDepositIntangible |       | InsuranceContractsIntangible |    | Total
|2006 |  | $                     | 360   |                              | 18 |       | 378  
|2007 |  |                       | 360   |                              | 18 |       | 378  
|2008 |  |                       | 360   |                              | 18 |       | 378  
|2009 |  |                       | 229   |                              | 14 |       | 243  
|     |  |                       |       |                              |    |       |      
|     |  | $                     | 1,309 |                              | 68 |       | 1,377
|     |  |                       |       |                              |    |       |      



|(6) | Deposits:
|--- | ---------

At December 31, 2005, the scheduled
maturities of other time deposits were as follows:



|     |  |   |        
|---- |  | - | -------
|2006 |  | $ | 137,257
|2007 |  |   | 65,649 
|2008 |  |   | 26,237 
|2009 |  |   | 17,668 
|2010 |  |   | 4,573  
|     |  |   |        
|     |  | $ | 251,384
|     |  |   |        



30



---

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2005, 2004 and 2003

(Table Amounts in Thousands)



|(6) | Deposits: (Continued)
|--- | ---------------------



The amount of other time deposits with a minimum denomination of $100,000 was approximately
$76,643,000 and $79,230,000 at December 31, 2005 and 2004, respectively. At December 31, 2005, directors, members of senior management and affiliates had deposits in the bank of approximately $1,024,000.

Interest expense on deposits for the years ended December 31, 2005, 2004 and 2003 is summarized as follows:



|                        |  |      |        |      |       |      |       
|----------------------- |  | ---- | ------ | ---- | ----- | ---- | ------
|                        |  | 2005 |        | 2004 |       | 2003
|Demand and NOW accounts |  | $    | 1,865  |      | 1,289 |      | 655   
|Money market accounts   |  |      | 491    |      | 248   |      | 460   
|Savings                 |  |      | 1,140  |      | 457   |      | 459   
|Other time deposits     |  |      | 8,413  |      | 7,759 |      | 9,322 
|                        |  |      |        |      |       |      |       
|                        |  | $    | 11,909 |      | 9,753 |      | 10,896
|                        |  |      |        |      |       |      |       

The Bank maintains clearing arrangements for its demand, NOW and money market accounts with
Compass Bank. The Bank is required to maintain certain cash reserves in its account to cover average daily clearings. At December 31, 2005, average daily clearings were approximately $4.9 million.

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, 2005, the Bank pledged investments with a market value of approximately $133.7 million to various municipal entities as required by law.



|(7) | Advances from Federal Home Loan Bank:
|--- | -------------------------------------

FHLB
advances are summarized as follows:



|                 |  |              |        |                     |      |   |        |   |                     |  |      |  
|---------------- |  | ------------ | ------ | ------------------- | ---- | - | ------ | - | ------------------- |  | ---- | -
|                 |  | December 31, |       
|                 |  | 2005         |        |                     | 2004 |  
|Type of Advances |  | Amount       |        | WeightedAverageRate |      |   | Amount |   | WeightedAverageRate | 
|Fixed-rate       |  | $            | 93,172 |                     | 3.93 | % |        | $ | 81,319              |  | 3.20 | %
|                 |  |              |        |                     |      |   |        |   |                     |  |      |  

Scheduled maturities of FHLB advances as of December 31, 2005 are as follows:



|                         |  |   |       
|------------------------ |  | - | ------
|Years Ended December 31, |  |  
|2006                     |  | $ | 29,329
|2007-2010                |  |   | 32,000
|2011-2015                |  |   | 31,843
|                         |  |   |       
|                         |  | $ | 93,172
|                         |  |   |       



31



---

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2005, 2004 and 2003

(Table Amounts in Thousands)



|(7) | Advances from Federal Home Loan Bank: (Continued)
|--- | -------------------------------------------------



The Bank has an approved line of credit of $30.0 million at December 31, 2005 which is secured
by a blanket agreement to maintain residential first mortgage loans with a principal value of 125% of the outstanding advances and has a variable interest rate. The Company can immediately increase its borrowings from the FHLB by approximately $23.9
million at December 31, 2005. The Bank could borrow an additional $169.4 million by purchasing additional stock in the FHLB. All borrowings with the FHLB are secured under a blanket agreement using the Banks portfolio of 1-4 family home
loans as collateral.



|(8) | Financial Instruments:
|--- | ----------------------

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

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



|                                   |  |             |        |      |       
|---------------------------------- |  | ----------- | ------ | ---- | ------
|                                   |  | December 31
|                                   |  | 2005        |        | 2004
|Commitments to extend credit       |  | $           | 24,208 |      | 21,300
|Standby letters of credit          |  |             | 3,588  |      | 870   
|Unused commercial lines of credit  |  |             | 13,576 |      | 8,564 
|Unused home equity lines of credit |  |             | 10,468 |      | 11,575

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.



32



---

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2005, 2004 and 2003

(Table Amounts in Thousands)



|(8) | Financial Instruments: (Continued)
|--- | ----------------------------------



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

The 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. The maximum potential amount of future payments that the Company could be required to make under the guarantees totaled $3,588,000 at December 31, 2005.

The estimated fair values of financial instruments were as follows at December 31, 2005:



|                                                    |  |                |         |                    |        
|--------------------------------------------------- |  | -------------- | ------- | ------------------ | -------
|                                                    |  | CarryingAmount |         | EstimatedFairValue
|Financial assets:                                   |  |                |         |                    |        
|Cash and due from banks                             |  | $              | 13,487  |                    | 13,487 
|Interest-earning deposits in Federal Home Loan Bank |  |                | 424     |                    | 424    
|Federal funds sold                                  |  |                | 2,250   |                    | 2,250  
|Securities available for sale                       |  |                | 172,890 |                    | 172,890
|Federal Home Loan Bank stock                        |  |                | 3,211   |                    | 3,211  
|Securities held to maturity                         |  |                | 18,183  |                    | 17,816 
|Loans receivable                                    |  |                | 397,310 |                    | 383,594
|Accrued interest receivable                         |  |                | 3,697   |                    | 3,697  
|Bank owned life insurance                           |  |                | 7,156   |                    | 7,156  
|Financial liabilities:                              |  |                |         |                    |        
|Deposits                                            |  |                | 482,728 |                    | 480,184
|Advances from borrowers for taxes and insurance     |  |                | 295     |                    | 295    
|Advances from Federal Home Loan Bank                |  |                | 93,172  |                    | 90,496 
|Subordinated debentures                             |  |                | 10,310  |                    | 10,310 
|Off-balance-sheet liabilities:                      |  |                |         |                    |        
|Commitments to extend credit                        |  |                |        |                    |       
|Commercial letters of credit                        |  |                |        |                    |       
|Derivatives                                         |  |                | 297     |                    | 297    



33



---

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2005, 2004 and 2003

(Table Amounts in Thousands)



|(8) | Financial Instruments: (Continued)
|--- | ----------------------------------



The estimated fair values of financial instruments were as follows at December 31, 2004:



|                                                    |  |                |         |                    |        
|--------------------------------------------------- |  | -------------- | ------- | ------------------ | -------
|                                                    |  | CarryingAmount |         | EstimatedFairValue
|Financial assets:                                   |  |                |         |                    |        
|Cash and due from banks                             |  | $              | 17,357  |                    | 17,357 
|Interest-earning deposits in Federal Home Loan Bank |  |                | 42      |                    | 42     
|Federal funds sold                                  |  |                | 850     |                    | 850    
|Securities available for sale                       |  |                | 155,151 |                    | 155,151
|Federal Home Loan Bank stock                        |  |                | 3,015   |                    | 3,015  
|Other investments                                   |  |                | 15      |                    | 15     
|Securities held to maturity                         |  |                | 22,768  |                    | 22,721 
|Loans receivable                                    |  |                | 356,825 |                    | 347,398
|Accrued interest receivable                         |  |                | 3,053   |                    | 3,053  
|Bank owned life insurance                           |  |                | 6,896   |                    | 6,896  
|Financial liabilities:                              |  |                |         |                    |        
|Deposits                                            |  |                | 436,195 |                    | 435,815
|Advances from borrowers for taxes and insurance     |  |                | 301     |                    | 301    
|Advances from Federal Home Loan Bank                |  |                | 81,319  |                    | 78,967 
|Subordinated debentures                             |  |                | 10,310  |                    | 10,310 
|Off-balance-sheet liabilities:                      |  |                |         |                    |        
|Commitments to extend credit                        |  |                |        |                    |       
|Commercial letters of credit                        |  |                |        |                    |       
|Derivatives                                         |  |                | 68      |                    | 68     



|(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 (7.35% for the quarter ending
December 31, 2005). These junior subordinated debentures mature in 2033, at which time the capital securities must be redeemed. The junior subordinated debentures and capital securities can be redeemed contemporaneously, in whole or in part,
beginning October 8, 2008 at a redemption price of $1,000 per capital security.



34



---

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2005, 2004 and 2003



|(9) | Subordinated Debentures: (Continued)
|--- | ------------------------------------



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



|(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. One-to-four family residences collateralize the majority of the loans. The Bank requires collateral for all 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.

Cash and cash equivalents with financial institutions exceeded the insurance coverage as of December 31, 2005 and 2004. The
excess balance of such items as of December 31, 2005 and 2004 was $7.2 million and $13.6 million, respectively.



|(11) | Employee Benefit Plans:
|---- | -----------------------

Pension Plan

The Bank had maintained a defined benefit pension plan covering substantially all of its employees who satisfy certain age and service
requirements. The benefits were based on years of service and the employees average earnings, which were computed using the five consecutive years prior to retirement that yield the highest average. The Banks funding policy was to
contribute annually, actuarially determined amounts to finance the plan benefits.

During September 2001, the Bank Board of Directors
authorized management to terminate the plan effective December 31, 2001. A settlement loss of $990,000 was incurred during 2003.



35



---

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2005, 2004 and 2003

(Table Amounts in Thousands)



|(11) | Employee Benefit Plans: (Continued)
|---- | -----------------------------------



Pension Plan (Continued)

The following table sets forth the plans funded status and amounts recognized in the consolidated balance sheets at December 31, 2003:



|                                               |  |      |        |  
|---------------------------------------------- |  | ---- | ------ | -
|                                               |  | 2003 |       
|Change in benefit obligation:                  |  |      |        |  
|Benefit obligation at beginning of year        |  | $    | 2,643  |  
|Service cost                                   |  |      |       |  
|Interest costs                                 |  |      | 52     |  
|Actuarial loss                                 |  |      |       |  
|Benefits paid                                  |  |      | (3,685 | )
|Settlements                                    |  |      | 990    |  
|                                               |  |      |        |  
|Benefit obligation at end of year              |  | $    |       |  
|                                               |  |      |        |  
|Change in plan assets                          |  |      |        |  
|Fair value of plan assets at beginning of year |  | $    | 1,415  |  
|Actual return on plan assets                   |  |      | 52     |  
|Employers contributions                        |  |      | 2,218  |  
|Benefits paid                                  |  |      | (3,685 | )
|                                               |  |      |        |  
|Fair value of plan assets at end of year       |  |      |       |  
|                                               |  |      |        |  
|Funded status                                  |  |      |        |  
|Unrecognized net asset                         |  |      |       |  
|                                               |  |      |        |  
|Accrued pension cost                           |  | $    |       |  
|                                               |  |      |        |  

The components of net periodic pension cost for the years ended December 31, 2003 were as
follows:



|                                              |  |      |   
|--------------------------------------------- |  | ---- | --
|                                              |  | 2003
|Service cost                                  |  | $    |  
|Interest cost on projected benefit obligation |  |      | 52
|Expected return on plan assets                |  |      |  
|Amortization of transitional asset            |  |      |  
|Amortization of prior service cost            |  |      |  
|Amortization of net loss                      |  |      |  
|                                              |  |      |   
|Net periodic pension cost                     |  | $    | 52
|                                              |  |      |   



36



---

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2005, 2004 and 2003



|(11) | Employee Benefit Plans: (Continued)
|---- | -----------------------------------



Stock Option Plan

On February 24, 1999, the Board of Directors of the Company adopted the HopFed Bancorp, Inc. 1999 Stock Option Plan (Option Plan), which was
subsequently approved at the 1999 Annual Meeting of Stockholders. Under the Option Plan, the Option Committee has discretionary authority to grant stock options and stock appreciation rights to such employees, directors and advisory directors, as
the committee shall designate. The Option Plan reserved 403,360 shares of common stock for issuance upon the exercise of options or stock appreciation rights.

The Company will receive the exercise price for shares of common stock issued to Option Plan participants upon the exercise of their option, and will receive no monetary consideration upon the exercise of stock
appreciation rights. The Board of Directors granted options to purchase 403,360 shares of common stock under the Option Plan at an exercise price of $20.75 per share, which was the fair market value on the date of the grant. As a result of the
special dividend of $4.00 per share paid in December, 1999, and in accordance with plan provisions, the number of options and the exercise price has been adjusted to 480,475 and $17.42 respectively.

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

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



|                                       |  |                 |   |  |                              |      
|-------------------------------------- |  | --------------- | - |  | ---------------------------- | -----
|                                       |  | Numberof Shares |   |  | WeightedAverageExercisePrice
|Options outstanding, December 31, 2002 |  | 402,309         |   |  | $                            | 16.05
|Granted                                |  |                |   |  |                              |      
|Exercised                              |  |                |   |  |                              |      
|Forfeited                              |  | (148,557        | ) |  |                              | 17.42
|                                       |  |                 |   |  |                              |      
|Options outstanding, December 31, 2003 |  | 253,752         |   |  |                              | 15.05
|                                       |  |                 |   |  |                              |      
|Granted                                |  | 20,000          |   |  |                              | 17.34
|Exercised                              |  |                |   |  |                              |      
|Forfeited                              |  |                |   |  |                              |      
|                                       |  |                 |   |  |                              |      



37



---

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2005, 2004 and 2003



|(11) | Employee Benefit Plans: (Continued)
|---- | -----------------------------------



Stock Option Plan (Continued)



|                                       |  |                 |  |                              |      
|-------------------------------------- |  | --------------- |  | ---------------------------- | -----
|                                       |  | Number ofShares |  | WeightedAverageExercisePrice
|Options outstanding, December 31, 2004 |  | 273,752         |  |                              | 15.22
|                                       |  |                 |  |                              |      
|Granted                                |  |                |  |                              |      
|Exercised                              |  |                |  |                              |      
|Forfeited                              |  |                |  |                              |      
|                                       |  |                 |  |                              |      
|Options outstanding, December 31, 2005 |  | 273,752         |  | $                            | 15.22
|                                       |  |                 |  |                              |      

The following is a summary of stock options outstanding at December 31, 2005:



|              |  |                                                  |  |                     |  |                   
|------------- |  | ------------------------------------------------ |  | ------------------- |  | ------------------
|ExercisePrice |  | WeightedAverageRemainingContractual Life (Years) |  | Options Outstanding |  | OptionsExercisable
|$17.42        |  | 2.2                                              |  | 153,752             |  | 153,752           
|12.3317.34    |  | 4.88.4                                           |  | 60,00020,000        |  | 57,5005,000       
|10.00         |  | 4.4                                              |  | 40,000              |  | 40,000            
|              |  |                                                  |  |                     |  |                   
|15.22         |  | 3.7                                              |  | 273,752             |  | 256,252           
|              |  |                                                  |  |                     |  |                   

The weighted average fair value of options granted during December 31, 2004 was $4.36 per
share. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model using the following weighted average assumptions: volatility of 15%, a risk free interest rate of 4.25%, expected dividend
yield of 2.77% and an expected life of nine and one half years for options granted during the year ended December 31, 2004.

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



38



---

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2005, 2004 and 2003



|(11) | Employee Benefits Plan: (Continued)
|---- | -----------------------------------



Hopfed Bancorp, Inc. 2004 Long Term Incentive Plan

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

Awards are
recognized as an expense to the Company in accordance with the vesting schedule. Awards in which the vesting is accelerated must be recognized as an expense immediately. Awards are valued at the closing stock price on the day the award is granted.
In 2005, the Compensation Committee granted a total of 9,795 shares with a market value of $156,000. In 2004, the Compensation Committee granted a total of 8,887 shares with market value of $149,000, respectively. The Company recognized $57,000 and
$18,000 in compensation expense in 2005 and 2004, respectively.

401(K) Plan

During 2002, the Bank initiated a 401(k) retirement program. The plan is available to all employees who meet minimum eligibility requirements.
Participants may generally contribute up to 15% of earnings, and in addition, management will match employee contributions up to 4%. Expense related to Company contributions amounted to $270,000, $229,000 and $208,000 in 2005, 2004 and 2003,
respectively.

Deferred Compensation Plan

During the third quarter of 2002, the Company purchased assets and assumed the liabilities relating to a nonqualified deferred compensation plan for certain employees of the Fulton division. The Company owns single
premium life insurance policies on the life of each participant and is the beneficiary of the policy value. When a participant retires, the benefits accrued for each participant will be distributed to the participant in equal installments for 15
years. The expense recognized by the Company for 2005, 2004, and 2003 amounted to $27,000, $19,000, and $19,000, respectively.

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.



39



---

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2005, 2004 and 2003

(Table Amounts in Thousands, Except Percentages)



|(12) | Income Taxes:
|---- | -------------



The provision for income taxes for the years ended December 31, 2005, 2004 and 2003 consisted of
the following:



|         |  |      |       |   |      |   |       |  |      
|-------- |  | ---- | ----- | - | ---- | - | ----- |  | -----
|         |  | 2005 |       |   | 2004 |   | 2003 
|Current  |  |      |       |   |      |   |       |  |      
|Federal  |  | $    | 1,990 |   |      | $ | 1,665 |  | 1,536
|State    |  |      | 4     |   |      |   |      |  |     
|         |  |      |       |   |      |   |       |  |      
|         |  |      | 1,994 |   |      |   | 1,665 |  | 1,536
|Deferred |  |      | (250  | ) |      |   | 18    |  | 38   
|         |  |      |       |   |      |   |       |  |      
|         |  | $    | 1,744 |   |      | $ | 1,683 |  | 1,574
|         |  |      |       |   |      |   |       |  |      

Total income tax expense for the years ended December 31, 2005, 2004 and 2003 differed from
the amounts computed by applying the federal income tax rate of 34 percent to income before income taxes as follows:



|                                                          |  |      |       |   |      |   |       |      |  |       |  
|--------------------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | ---- |  | ----- | -
|                                                          |  | 2005 |       |   | 2004 |   |       | 2003 | 
|Expected federal income tax expense at statutory tax rate |  | $    | 1,997 |   |      | $ | 1,929 |      |  | 1,723 |  
|Effect of nontaxable interest income                      |  |      | (254  | ) |      |   | (324  | )    |  | (213  | )
|Effect of nontaxable bank owned life insurance income     |  |      | (88   | ) |      |   | (91   | )    |  | (17   | )
|Non deductible expenses                                   |  |      | 89    |   |      |   | 169   |      |  | 81    |  
|                                                          |  |      |       |   |      |   |       |      |  |       |  
|Total federal income tax expense                          |  | $    | 1,744 |   |      |   | 1,683 |      |  | 1,574 |  
|                                                          |  |      |       |   |      |   |       |      |  |       |  
|Effective rate                                            |  |      | 29.7  | % |      |   | 29.7  | %    |  | 31.2  | %
|                                                          |  |      |       |   |      |   |       |      |  |       |  

The components of deferred taxes as of December 31, 2005 and 2004 are summarized as follows:



|                                                         |  |      |       |   |      |       |  
|-------------------------------------------------------- |  | ---- | ----- | - | ---- | ----- | -
|                                                         |  | 2005 |       |   | 2004 |      
|Deferred tax liabilities:                                |  |      |       |   |      |       |  
|FHLB stock dividends                                     |  | $    | (662  | ) |      | (610  | )
|Depreciation and amortization                            |  |      | (208  | ) |      | (190  | )
|                                                         |  |      |       |   |      |       |  
|                                                         |  |      | (870  | ) |      | (800  | )
|                                                         |  |      |       |   |      |       |  
|Deferred tax assets:                                     |  |      |       |   |      |       |  
|Bad debt reserves                                        |  |      | 1,332 |   |      | 1,078 |  
|Accrued expenses                                         |  |      | 140   |   |      | 47    |  
|Unrealized depreciation on securities available for sale |  |      | 1,353 |   |      | 377   |  
|                                                         |  |      |       |   |      |       |  
|                                                         |  |      | 2,825 |   |      | 1,502 |  
|                                                         |  |      |       |   |      |       |  
|Net deferred tax asset                                   |  | $    | 1,955 |   |      | 702   |  
|                                                         |  |      |       |   |      |       |  



40



---

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2005, 2004 and 2003



|(12) | Income Taxes: (Continued)
|---- | -------------------------



The Small Business Protection Act of 1996, among other things, repealed the tax bad debt reserve
method for thrifts effective for taxable years beginning after December 31, 1995. For the year ended December 31, 2003, the Bank recaptured approximately $146,000 of tax bad debt reserves into taxable income. Thrifts such as the Bank may
now only use the same tax bad debt reserve method that is allowed for commercial banks. A thrift with assets greater than $500 million can no longer use the reserve method and may only deduct loan losses as they actually arise (i.e., the specific
charge-off method).

The portion of a thrifts tax bad debt reserve that is not recaptured (generally pre-1988 bad debt reserves) under
the 1996 law is only subject to recapture at a later date under certain circumstances. These include stock repurchase redemptions by the thrift or if the thrift converts to a type of institution (such as a credit union) that is not considered a bank
for tax purposes. However, no further recapture would be required if the thrift converted to a commercial bank charter or was acquired by a bank. The Bank does not anticipate engaging in any transactions at this time that would require the recapture
of its remaining tax bad debt reserves. Therefore, retained earnings at December 31, 2005 and 2004 includes approximately $4,027,000 which represents such bad debt deductions for which no deferred income taxes have been provided.



|(13) | 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, 2005 and 2004 of approximately $24,208,000 and $21,300,000, respectively. Of these amounts, approximately $531,000 and $2,073,000 as of December 31, 2005
and 2004, respectively, were for fixed rate loans. The interest rates for the fixed rate loan commitments ranged from 6.00% to 6.375% and 4.75% to 6.50% for December 31, 2005 and 2004, respectively. At December 31, 2005, the Bank has
committed to sell fixed rate loans totaling $365,000. In the event that the Bank is unable to fulfill its commitment to sell these loans, the Banks liability to its investor was not material to the consolidated financial statements of the
Company. Unused lines of credit were approximately $24,044,000 and $20,139,000 as of December 31, 2005 and 2004, 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.



41



---

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2005, 2004 and 2003



|(13) | Commitments and Contingencies: (Continued)
|---- | ------------------------------------------



The Company and the Bank have entered into commitments to rent facilities and lease operating
equipment that are non-cancelable. At December 31, 2005, future minimal lease and rental commitments were as follows:



|                         |  |   |        
|------------------------ |  | - | -------
|Years Ending December 31 |  |  
|2006                     |  | $ | 35,200 
|2007                     |  | $ | 19,800 
|2008                     |  | $ | 19,800 
|2009                     |  | $ | 19,800 
|2010                     |  | $ | 19,800 
|                         |  |   |        
|                         |  | $ | 114,400
|                         |  |   |        

The Company incurred rental expenses of approximately $7,000, $16,000 and $28,000 for the years
ended December 31, 2003, 2004 and 2005, respectively.

The Company and the Bank have entered into non-cancelable purchase obligations
and fixed asset purchases. In October 2004, the Company entered into an agreement to construct a 26,000 square foot retail bank and operations center in Hopkinsville. The anticipated cost to complete the project is $1.4 million with an anticipated
completion date at the end of the second quarter of 2006.

In December 2005, the Company entered into an agreement to construct two retail
bank offices in Clarksville, Tennessee. Each office has an estimated 4,000 square feet. The combined estimated cost of both offices is $3.2 million. In addition, the Company must purchase one additional unimproved lot on which to build a retail
office. The estimated cost of the additional lot is $600,000. The Company anticipates that the entire cost of the project will be incurred in 2006.

In December 2005, the Company entered into an agreement to construct a retail bank office in Calvert City, Kentucky The office will have approximately 4,000 square feet and an estimated remaining cost to complete of $600,000. The Company
estimates that the entire cost of the project will be incurred in 2006.

In the normal course of business, the Bank and Company have entered
into operating contracts necessary to conduct the Companys daily business. The most significant operating contract is for the Banks data processing services. The monthly cost associated with this contract is variable based on the number
of accounts and usage but averages approximately $110,000 per month. In December 2005, the Company renewed this contract for five years. The contract expires in 2011. In addition, the Bank is a defendant in legal proceedings arising in connection
with its business. It is the best judgment of management that neither the financial position nor results of operations of the Bank will be materially affected by the final outcome of these legal proceedings.



42



---

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2005, 2004 and 2003



|(14) | Regulatory Matters:
|---- | -------------------

The Company is a unitary
thrift holding company and, as such, is subject to regulation, examination and supervision by the Office of Thrift Supervision (OTS).

The
Bank is also subject to various regulatory requirements administered by the OTS. 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 Companys and the Banks financial statements.

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

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of tangible and core capital (as defined in the regulations) to adjusted total assets (as defined), and of total capital (as defined) and Tier 1 to risk weighted assets (as defined). Management believes, as of December 31, 2005 and 2004,
that the Bank meets all capital adequacy requirements to which it is subject.

The most recent notification from the OTS categorized the
Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum total, tangible and core capital ratios as set forth in the table below. There are no
conditions or events since that notification that management believes have changed the institutions category.



43



---

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2005, 2004 and 2003

(Table Amounts in Thousand, Except Percentages)



|(14) | Regulatory Matters (Continued):
|---- | -------------------------------



The Companys and the Banks actual capital amounts and ratios as of December 31, 2005
and 2004 are presented below (dollars in thousands):



|                                          |  |                |        |       |             |   |        |                                       |        |  |                                                                                       |        |  |       |        |  |        |   |       |   |        |  |       |  
|----------------------------------------- |  | -------------- | ------ | ----- | ----------- | - | ------ | ------------------------------------- | ------ |  | ------------------------------------------------------------------------------------- | ------ |  | ----- | ------ |  | ------ | - | ----- | - | ------ |  | ----- | -
|                                          |  | Company Actual |        |       | Bank Actual |   |        | Required for CapitalAdequacy Purposes |        |  | Required to be Categorizedas Well Capitalized UnderPrompt CorrectiveAction
Provisions |       
|                                          |  | Amount         |        | Ratio |             |   | Amount |                                       | Ratio  |  |                                                                                       | Amount |  | Ratio |        |  | Amount |   | Ratio |  
|As of December 31, 2005                   |  |                |        |       |             |   |        |                                       |        |  |                                                                                       |        |  |       |        |  |        |   |       |   |        |  |       |  
|Tangible capital to adjusted total assets |  | $              | 57,739 |       | 9.1         | % |        | $                                     | 54,892 |  | 8.7                                                                                   | %      |  | $     | 9,515  |  | 1.50   | % |       |   | N/A    |  | N/A   |  
|Core capital to adjusted total assets     |  | $              | 57,739 |       | 9.1         | % |        | $                                     | 54,892 |  | 8.7                                                                                   | %      |  | $     | 25,374 |  | 4.00   | % |       | $ | 31,718 |  | 5.00  | %
|Total capital to risk weighted assets     |  | $              | 61,743 |       | 15.7        | % |        | $                                     | 58,896 |  | 15.0                                                                                  | %      |  | $     | 31,340 |  | 8.00   | % |       | $ | 39,176 |  | 10.00 | %
|Tier I capital to risk weighted assets    |  | $              | 57,739 |       | 14.7        | % |        | $                                     | 54,892 |  | 14.0                                                                                  | %      |  |       | N/A    |  | N/A    |   |       | $ | 23,505 |  | 6.00  | %
|As of December 31, 2004                   |  |                |        |       |             |   |        |                                       |        |  |                                                                                       |        |  |       |        |  |        |   |       |   |        |  |       |  
|Tangible capital to adjusted total assets |  | $              | 54,924 |       | 9.6         | % |        | $                                     | 52,899 |  | 9.2                                                                                   | %      |  | $     | 8,605  |  | 1.50   | % |       |   | N/A    |  | N/A   |  
|Core capital to adjusted total assets     |  | $              | 54,924 |       | 9.6         | % |        | $                                     | 52,899 |  | 9.2                                                                                   | %      |  | $     | 22,946 |  | 4.00   | % |       | $ | 28,683 |  | 5.00  | %
|Total capital to risk weighted assets     |  | $              | 58,198 |       | 17.3        | % |        | $                                     | 56,172 |  | 16.7                                                                                  | %      |  | $     | 26,898 |  | 8.00   | % |       | $ | 33,622 |  | 10.00 | %
|Tier I capital to risk weighted assets    |  | $              | 54,924 |       | 16.3        | % |        | $                                     | 52,899 |  | 15.7                                                                                  | %      |  |       | N/A    |  | N/A    |   |       | $ | 20,173 |  | 6.00  | %



44



---

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2005, 2004 and 2003



|(15) | 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 OTS, has regulations that impose certain restrictions on payment of dividends to the
Company. Current regulations of the OTS allow the Bank (based upon its current capital level and supervisory status assigned by the OTS) to pay a dividend of up to 100% of net income to date during the calendar year plus the retained income for the
preceding two years.

The Bank must provide the OTS with 30 days prior notice to the payment of the dividend. Any capital distribution in
excess of this amount would require supervisory approval. Capital distributions are further restricted should the Banks capital level fall below the fully phased-in capital requirements of the OTS. In no case will the Bank be allowed to make
capital distributions reducing equity below the required balance of the liquidation account. For the year ended December 31, 2005 and December 31, 2004, the Bank paid a $3,000,000 and $2,000,000 dividend to the Corporation, respectively.
The Bank paid no dividends to the Corporation during the year ended December 31, 2003. For the year ended December 31, 2005, the Bank could have paid the Corporation an additional dividend of approximately $4.1 million without OTS
supervisory approval.

OTS regulations also place restrictions after the conversion on the Company with respect to repurchases of its common
stock. With prior notice to the OTS, the Company is allowed to repurchase its outstanding shares. The Company has requested and received regulatory approval to acquire a total of 500,000 shares of its outstanding common stock. As of
December 31, 2005, 408,909 shares had been repurchased at an average price of $11.88 per share.



|(16) | 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.

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



|                                               |  |                          |  |           |  |          
|---------------------------------------------- |  | ------------------------ |  | --------- |  | ---------
|                                               |  | Years Ended December 31,
|                                               |  | 2005                     |  | 2004      |  | 2003     
|Basic earnings per share:                      |  |                          |  |           |  |          
|Weighted average common shares                 |  | 3,644,178                |  | 3,634,904 |  | 3,630,396
|                                               |  |                          |  |           |  |          
|Diluted earnings per share:                    |  |                          |  |           |  |          
|Weighted average common shares                 |  | 3,644,178                |  | 3,634,904 |  | 3,630,396
|Diluted effect of stock options                |  | 25,740                   |  | 28,847    |  | 23,578   
|                                               |  |                          |  |           |  |          
|Weighted average common and incremental shares |  | 3,669,918                |  | 3,663,751 |  | 3,653,974
|                                               |  |                          |  |           |  |          



45



---

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2005, 2004 and 2003

(Table Amounts in Thousands)



|(17) | Condensed Parent Company Only Financial Statements:
|---- | ---------------------------------------------------

The following condensed balance sheets as of December 31, 2005 and 2004 and condensed statements of income and cash flows for the years ended December 31, 2005, 2004 and 2003 of the parent company only should be read in
conjunction with the consolidated financial statements and the notes thereto.

Consolidated Balance Sheets:



|                                     |  |      |        |   |      |        |  
|------------------------------------ |  | ---- | ------ | - | ---- | ------ | -
|                                     |  | 2005 |        |   | 2004 |       
|Assets:                              |  |      |        |   |      |        |  
|Cash and due from banks              |  | $    | 86     |   |      | 47     |  
|Receivable from subsidiary           |  |      | 5      |   |      | 1,004  |  
|Federal funds sold                   |  |      | 2,250  |   |      | 850    |  
|Investment in subsidiary             |  |      | 36,231 |   |      | 36,651 |  
|Prepaid expenses and other assets    |  |      | 1,302  |   |      | 807    |  
|                                     |  |      |        |   |      |        |  
|Total assets                         |  | $    | 39,874 |   |      | 39,359 |  
|                                     |  |      |        |   |      |        |  
|Liabilities and equity:              |  |      |        |   |      |        |  
|Liabilities:                         |  |      |        |   |      |        |  
|Dividends payable                    |  | $    | 438    |   |      | 437    |  
|Interest payable                     |  |      | 170    |   |      | 126    |  
|Subordinated debentures              |  |      | 10,310 |   |      | 10,310 |  
|                                     |  |      |        |   |      |        |  
|Total liabilities                    |  |      | 10,918 |   |      | 10,873 |  
|                                     |  |      |        |   |      |        |  
|Equity:                              |  |      |        |   |      |        |  
|Common stock                         |  |      | 40     |   |      | 40     |  
|Additional paid-in capital           |  |      | 21,747 |   |      | 21,591 |  
|Retained earnings                    |  |      | 14,911 |   |      | 12,530 |  
|Treasury stock                       |  |      | (4,857 | ) |      | (4,857 | )
|Unearned restricted stock            |  |      | (230   | ) |      | (131   | )
|Accumulated other comprehensive loss |  |      | (2,655 | ) |      | (687   | )
|                                     |  |      |        |   |      |        |  
|Total equity                         |  |      | 28,956 |   |      | 28,486 |  
|                                     |  |      |        |   |      |        |  
|Total liabilities and equity         |  | $    | 39,874 |   |      | 39,359 |  
|                                     |  |      |        |   |      |        |  



46



---

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2005, 2004 and 2003

(Table Amounts in Thousands)



|(17) | Condensed Parent Company Only Financial Statements: (Continued)
|---- | ---------------------------------------------------------------



Condensed Income Statements:



|                                                                                     |  |      |       |   |      |       |   |      |       |  
|------------------------------------------------------------------------------------ |  | ---- | ----- | - | ---- | ----- | - | ---- | ----- | -
|                                                                                     |  | 2005 |       |   | 2004 |       |   | 2003 |      
|Interest and dividend income                                                         |  |      |       |   |      |       |   |      |       |  
|Dividend income                                                                      |  | $    | 3,000 |   |      | 2,000 |   |      |      |  
|Time deposits                                                                        |  |      | 39    |   |      | 13    |   |      | 22    |  
|                                                                                     |  |      |       |   |      |       |   |      |       |  
|Total interest and dividend income                                                   |  |      | 3,039 |   |      | 2,013 |   |      | 22    |  
|                                                                                     |  |      |       |   |      |       |   |      |       |  
|Interest expense                                                                     |  |      | 700   |   |      | 465   |   |      | 119   |  
|Non-interest expenses                                                                |  |      | 240   |   |      | 242   |   |      | 117   |  
|                                                                                     |  |      |       |   |      |       |   |      |       |  
|Total expenses                                                                       |  |      | 940   |   |      | 707   |   |      | 236   |  
|                                                                                     |  |      |       |   |      |       |   |      |       |  
|Income (loss) before income taxes and equity in undistributed earnings of subsidiary |  |      | 2,099 |   |      | 1,306 |   |      | (214  | )
|Income tax benefit                                                                   |  |      | (340  | ) |      | (233  | ) |      | (73   | )
|                                                                                     |  |      |       |   |      |       |   |      |       |  
|Income (loss) before equity in undistributed earnings of subsidiary                  |  |      | 2,439 |   |      | 1,539 |   |      | (141  | )
|Equity in undistributed earnings of subsidiary                                       |  |      | 1,691 |   |      | 2,452 |   |      | 3,636 |  
|                                                                                     |  |      |       |   |      |       |   |      |       |  
|Net income                                                                           |  | $    | 4,130 |   |      | 3,991 |   |      | 3,495 |  
|                                                                                     |  |      |       |   |      |       |   |      |       |  



47



---

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2005, 2004 and 2003

(Table Amounts in Thousands)



|(17) | Condensed Parent Company Only Financial Statements: (Continued)
|---- | ---------------------------------------------------------------



Condensed Statement of Cash Flows:



|                                                                                            |  |      |        |   |      |        |   |      |        |  
|------------------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | ------ | - | ---- | ------ | -
|                                                                                            |  | 2005 |        |   | 2004 |        |   | 2003 |       
|Cash flows from operating activities:                                                       |  |      |        |   |      |        |   |      |        |  
|Net income                                                                                  |  | $    | 4,130  |   |      | 3,991  |   |      | 3,495  |  
|Adjustments to reconcile net income to net cash (used in) provided by operating activities: |  |      |        |   |      |        |   |      |        |  
|Equity in undistributed earnings of subsidiary                                              |  |      | (1,691 | ) |      | (2,452 | ) |      | (3,636 | )
|Amortization of restricted stock                                                            |  |      | 57     |   |      |       |   |      |       |  
|Increase (decrease) in:                                                                     |  |      |        |   |      |        |   |      |        |  
|Current income taxes payable                                                                |  |      | (350   | ) |      | (166   | ) |      | (69    | )
|Accrued expenses                                                                            |  |      | 44     |   |      | 6      |   |      | 118    |  
|                                                                                            |  |      |        |   |      |        |   |      |        |  
|Net cash (used in) provided by operating activities                                         |  |      | 2,190  |   |      | 1,379  |   |      | (92    | )
|                                                                                            |  |      |        |   |      |        |   |      |        |  
|Cash flows for investing activities:                                                        |  |      |        |   |      |        |   |      |        |  
|Prepaid and other assets                                                                    |  |      |       |   |      | (78    | ) |      | (499   | )
|Investment in subsidiary                                                                    |  |      |       |   |      |       |   |      | (8,000 | )
|Investment in Trust                                                                         |  |      |       |   |      |       |   |      | (310   | )
|(Advance for) payment on receivable from subsidiary                                         |  |      | 999    |   |      | (866   | ) |      |       |  
|Net (increase) decrease in federal funds sold                                               |  |      | (1,400 | ) |      | 1,335  |   |      | 255    |  
|                                                                                            |  |      |        |   |      |        |   |      |        |  
|Net cash provided by (used in) investing activities                                         |  |      | (401   | ) |      | 391    |   |      | (8,554 | )
|                                                                                            |  |      |        |   |      |        |   |      |        |  
|Cash flows from financing activities:                                                       |  |      |        |   |      |        |   |      |        |  
|Subordinated debenture issue                                                                |  |      |       |   |      |       |   |      | 10,310 |  
|Dividends paid                                                                              |  |      | (1,750 | ) |      | (1,744 | ) |      | (1,668 | )
|                                                                                            |  |      |        |   |      |        |   |      |        |  
|Net cash provided by (used in) financing activities                                         |  |      | (1,750 | ) |      | (1,744 | ) |      | 8,642  |  
|                                                                                            |  |      |        |   |      |        |   |      |        |  
|Net increase (decrease) in cash                                                             |  |      | 39     |   |      | 26     |   |      | (4     | )
|Cash and due from banks at beginning of year                                                |  |      | 47     |   |      | 21     |   |      | 25     |  
|                                                                                            |  |      |        |   |      |        |   |      |        |  
|Cash and due from banks at end of year                                                      |  | $    | 86     |   |      | 47     |   |      | 21     |  
|                                                                                            |  |      |        |   |      |        |   |      |        |  



48



---

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2005, 2004 and 2003

(Table Amounts in Thousands)



|(18) | 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 (Trust), a wholly owned statutory business trust. The Trust was formed on September 25,
2003. Summary financial information for the Trust follows (dollars in thousands):

Summary Balance Sheet



|                                                                             |  |                 |        |                 |   |       
|---------------------------------------------------------------------------- |  | --------------- | ------ | --------------- | - | ------
|                                                                             |  | At Dec. 31,2005 |        | At Dec. 31,2004
|Asset  Investment in subordinated debentures issued by HopFed Bancorp, Inc. |  | $               | 10,310 |                 | $ | 10,310
|                                                                             |  |                 |        |                 |   |       
|Liabilities                                                                  |  | $               |       |                 | $ |      
|Stockholders equity  Trust preferred securities                            |  |                 | 10,000 |                 |   | 10,000
|Common stock (100% owned by HopFed Bancorp, Inc.)                            |  |                 | 310    |                 |   | 310   
|                                                                             |  |                 |        |                 |   |       
|Total stockholders equity                                                   |  |                 | 10,310 |                 |   | 10,310
|                                                                             |  |                 |        |                 |   |       
|Total liabilities and stockholders equity                                   |  | $               | 10,310 |                 | $ | 10,310
|                                                                             |  |                 |        |                 |   |       

Summary Income Statement



|                                                                                     |  |                      |     |      |   |    
|------------------------------------------------------------------------------------ |  | -------------------- | --- | ---- | - | ---
|                                                                                     |  | Years Ended Dec. 31,
|                                                                                     |  | 2005                 |     | 2004
|Income  Interest income from subordinated debentures issued by HopFed Bancorp, Inc. |  | $                    | 674 |      | $ | 478
|                                                                                     |  |                      |     |      |   |    
|Net Income                                                                           |  | $                    | 674 |      | $ | 478
|                                                                                     |  |                      |     |      |   |    

Summary Statement of Stockholders Equity



|                                              |  |                          |        |             |   |                  |  |   |                          |   |  |   |        |  
|--------------------------------------------- |  | ------------------------ | ------ | ----------- | - | ---------------- |  | - | ------------------------ | - |  | - | ------ | -
|                                              |  | TrustPreferredSecurities |        | CommonStock |   | RetainedEarnings |  |   | TotalStockholdersEquity |  
|Beginning balances, December 31, 2004         |  | $                        | 10,000 |             | $ | 310              |  | $ |                         |   |  | $ | 10,310 |  
|Retained earnings:                            |  |                          |        |             |   |                  |  |   |                          |   |  |   |        |  
|Net income                                    |  |                          |       |             |   |                 |  |   | 674                      |   |  |   | 674    |  
|Dividends:                                    |  |                          |        |             |   |                  |  |   |                          |   |  |   |        |  
|Trust preferred securities                    |  |                          |       |             |   |                 |  |   | (654                     | ) |  |   | (654   | )
|Common dividends paid to HopFed Bancorp, Inc. |  |                          |       |             |   |                 |  |   | (20                      | ) |  |   | (20    | )
|                                              |  |                          |        |             |   |                  |  |   |                          |   |  |   |        |  
|Total retained earnings                       |  |                          |       |             |   |                 |  |   |                         |   |  |   |       |  
|                                              |  |                          |        |             |   |                  |  |   |                          |   |  |   |        |  
|Ending balances, December 31, 2005            |  | $                        | 10,000 |             | $ | 310              |  | $ |                         |   |  | $ | 10,310 |  
|                                              |  |                          |        |             |   |                  |  |   |                          |   |  |   |        |  



49



---

HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2005, 2004 and 2003

(Table Amounts in Thousands, Except Per Share and Share Amounts)



|(19) | Quarterly Results of Operations: (Unaudited)
|---- | --------------------------------------------

Summarized unaudited quarterly operating results for the years ended December 31, 2005 and 2004 are as follows:



|                                                    |  |              |           |               |           |              |           |               |          
|--------------------------------------------------- |  | ------------ | --------- | ------------- | --------- | ------------ | --------- | ------------- | ---------
|                                                    |  | FirstQuarter |           | SecondQuarter |           | ThirdQuarter |           | FourthQuarter
|December 31, 2005:                                  |  |              |           |               |           |              |           |               |          
|Interest and dividend income                        |  | $            | 6,825     |               | 6,936     |              | 7,616     |               | 8,289    
|Interest expense                                    |  |              | 3,418     |               | 3,564     |              | 4,017     |               | 4,475    
|                                                    |  |              |           |               |           |              |           |               |          
|Net interest income                                 |  |              | 3,407     |               | 3,372     |              | 3,599     |               | 3,814    
|Provision for loan losses                           |  |              | 300       |               | 300       |              | 300       |               | 350      
|                                                    |  |              |           |               |           |              |           |               |          
|Net interest income after provision for loan losses |  |              | 3,107     |               | 3,072     |              | 3,299     |               | 3,464    
|Noninterest income                                  |  |              | 968       |               | 1,311     |              | 965       |               | 1,288    
|Noninterest expense                                 |  |              | 2,664     |               | 2,856     |              | 2,799     |               | 3,281    
|                                                    |  |              |           |               |           |              |           |               |          
|Income before income taxes                          |  |              | 1,411     |               | 1,527     |              | 1,465     |               | 1,471    
|Income taxes                                        |  |              | 418       |               | 462       |              | 444       |               | 420      
|                                                    |  |              |           |               |           |              |           |               |          
|Net income                                          |  | $            | 993       |               | 1,065     |              | 1,021     |               | 1,051    
|                                                    |  |              |           |               |           |              |           |               |          
|Basic earnings per share                            |  | $            | 0.27      |               | 0.29      |              | 0.28      |               | 0.29     
|                                                    |  |              |           |               |           |              |           |               |          
|Diluted earnings per share                          |  | $            | 0.27      |               | 0.29      |              | 0.28      |               | 0.29     
|                                                    |  |              |           |               |           |              |           |               |          
|Weighted average shares outstanding:                |  |              |           |               |           |              |           |               |          
|Basic                                               |  |              | 3,639,283 |               | 3,640,706 |              | 3,647,917 |               | 3,648,670
|                                                    |  |              |           |               |           |              |           |               |          
|Diluted                                             |  |              | 3,667,361 |               | 3,666,305 |              | 3,672,394 |               | 3,673,441
|                                                    |  |              |           |               |           |              |           |               |          



50



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HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2005, 2004 and 2003

(Table Amounts in Thousands, Except Per Share and Share Amounts)



|(19) | Quarterly Results of Operations: (Unaudited) (Continued)
|---- | --------------------------------------------------------



|                                                    |  |              |           |               |           |              |           |               |          
|--------------------------------------------------- |  | ------------ | --------- | ------------- | --------- | ------------ | --------- | ------------- | ---------
|                                                    |  | FirstQuarter |           | SecondQuarter |           | ThirdQuarter |           | FourthQuarter
|December 31, 2004:                                  |  |              |           |               |           |              |           |               |          
|Interest and dividend income                        |  | $            | 6,294     |               | 6,592     |              | 6,769     |               | 6,726    
|Interest expense                                    |  |              | 2,965     |               | 3,054     |              | 3,162     |               | 3,356    
|                                                    |  |              |           |               |           |              |           |               |          
|Net interest income                                 |  |              | 3,329     |               | 3,538     |              | 3,607     |               | 3,370    
|Provision for loan losses                           |  |              | 300       |               | 300       |              | 300       |               | 300      
|                                                    |  |              |           |               |           |              |           |               |          
|Net interest income after provision for loan losses |  |              | 3,029     |               | 3,238     |              | 3,307     |               | 3,070    
|Noninterest income                                  |  |              | 792       |               | 705       |              | 846       |               | 695      
|Noninterest expense                                 |  |              | 2,396     |               | 2,395     |              | 2,577     |               | 2,640    
|                                                    |  |              |           |               |           |              |           |               |          
|Income before income taxes                          |  |              | 1,425     |               | 1,548     |              | 1,576     |               | 1,125    
|Income taxes                                        |  |              | 478       |               | 507       |              | 511       |               | 187      
|                                                    |  |              |           |               |           |              |           |               |          
|Net income                                          |  | $            | 947       |               | 1,041     |              | 1,065     |               | 938      
|                                                    |  |              |           |               |           |              |           |               |          
|Basic earnings per share                            |  | $            | 0.26      |               | 0.29      |              | 0.29      |               | 0.26     
|                                                    |  |              |           |               |           |              |           |               |          
|Diluted earnings per share                          |  | $            | 0.26      |               | 0.28      |              | 0.29      |               | 0.26     
|                                                    |  |              |           |               |           |              |           |               |          
|Weighted average shares outstanding:                |  |              |           |               |           |              |           |               |          
|Basic                                               |  |              | 3,630,396 |               | 3,631,515 |              | 3,638,152 |               | 3,639,283
|                                                    |  |              |           |               |           |              |           |               |          
|Diluted                                             |  |              | 3,661,397 |               | 3,659,691 |              | 3,665,525 |               | 3,667,646
|                                                    |  |              |           |               |           |              |           |               |          



|(20) | Comprehensive Income:
|---- | ---------------------

SFAS 130, Reporting
Comprehensive Income, established standards for reporting comprehensive income. Comprehensive income includes net income and other comprehensive net income which is defined as non-owner related transactions in equity. The following table sets
forth the amounts of other comprehensive income included in stockholders equity along with the related tax effect for the years ended December 31, 2005, 2004 and 2003:



51



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HopFed Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, Continued

December 31, 2005, 2004 and 2003

(Table Amounts in Thousands)



|(20) | Comprehensive Income: (Continued)
|---- | ---------------------------------



|                                                              |  |               |        |   |                     |       |   |                 |        |  
|------------------------------------------------------------- |  | ------------- | ------ | - | ------------------- | ----- | - | --------------- | ------ | -
|                                                              |  | Pre-TaxAmount |        |   | TaxBenefit(Expense) |       |   | Net ofTaxAmount |       
|December 31, 2005:                                            |  |               |        |   |                     |       |   |                 |        |  
|Unrealized holding losses for the period                      |  | $             | (2,947 | ) |                     | 1,002 |   |                 | (1,945 | )
|Reclassification adjustments for gains included in net income |  |               | (35    | ) |                     | 12    |   |                 | (23    | )
|                                                              |  |               |        |   |                     |       |   |                 |        |  
|                                                              |  | $             | (2,982 | ) |                     | 1,014 |   |                 | (1,968 | )
|                                                              |  |               |        |   |                     |       |   |                 |        |  
|                                                              |  |               |       
|                                                              |  | Pre-TaxAmount |        |   | TaxBenefit(Expense) |       |   | Net ofTaxAmount |       
|December 31, 2004:                                            |  |               |        |   |                     |       |   |                 |        |  
|Unrealized holding gains for the period                       |  | $             | 108    |   |                     | (37   | ) |                 | 71     |  
|Reclassification adjustments for gains included in net income |  |               | (306   | ) |                     | 104   |   |                 | (202   | )
|                                                              |  |               |        |   |                     |       |   |                 |        |  
|                                                              |  | $             | (198   | ) |                     | 67    |   |                 | (131   | )
|                                                              |  |               |        |   |                     |       |   |                 |        |  
|                                                              |  |               |       
|                                                              |  | Pre-TaxAmount |        |   | TaxBenefit(Expense) |       |   | Net ofTaxAmount |       
|December 31, 2003:                                            |  |               |        |   |                     |       |   |                 |        |  
|Unrealized holding losses for the period                      |  | $             | (1,534 | ) |                     | 521   |   |                 | (1,013 | )
|Reclassification adjustments for gains included in net income |  |               | (634   | ) |                     | 216   |   |                 | (418   | )
|                                                              |  |               |        |   |                     |       |   |                 |        |  
|                                                              |  | $             | (2,168 | ) |                     | 737   |   |                 | (1,431 | )
|                                                              |  |               |        |   |                     |       |   |                 |        |  



52