Investor Relations

At Heritage Bank, we’re not just bankers, we’re your neighbors. This consistent belief has been a main stay of our bank’s message for the past few years. And it couldn’t be more appropriate than during the bank’s past twelve months of operation. In seven communities, serving customers in western Kentucky and middle Tennessee, the management and staff of nine banking centers have provided high quality financial products and services to the constituents in their respective neighborhoods.

At the same time, these dedicated Heritage Bank employees have given more than 8,000 hours to local charities and service organizations and have helped our organization contribute several thousand dollars in local support to meet the civic and humanitarian needs in the neighborhoods where they live and work. In addition, Heritage Bank has supported numerous young students in our markets with funding for college through our Scholarship Program. The idea of being both banker and neighbor is more than a corporate slogan at Heritage Bank. It is the means by which we measure our company’s delivery of value-added services to our ever-growing markets.

Going Deeper, Growing Stronger

Market concentration was a hallmark of the company’s endeavors in 2005. After adding two new locations to our ever-widening base of operations in 2004, we placed renewed emphasis on forging new and deeper relationships at all of our sites thereby enhancing our financial strength in each market. Our goal in representing our bank as both trusted banker and local neighbor was to cement the idea that in a world of corporate mergers and giant take-overs, Heritage Bank remains loyal to the provision of banking products that are developed and delivered by the very people our customers see both at the bank and at the soccerfield, the drugstore or the county fair. We firmly believe that we have successfully positioned the bank as an often unique local entity in several of our markets. We believe this distinction affords us a market differentiation that will continue to bring us new customers and stronger longterm relationships.

In light of the tobacco buy-out program introduced in 2005, Heritage Bank addressed this significant opportunity by establishing our many agricultural lenders as excellent resources in their local areas. We communicated with area farmers by means of direct mail and a structured media campaign that focused on our staff’s expertise and agricultural experience to reap the benefits of this newly identified target market.

A program designed to streamline the process of “switching” from another bank to Heritage was implemented in all of our locations. The bank developed and promoted a “switchkit” which greatly eased the transition and paperwork of making the move to Heritage. This impetus resulted in both deposit growth and customer volume.

The bank continued to develop our online banking efficiency and access. In such a highly competitive industry, we are keenly aware of the need to maintain the necessary technologies to offer and support products which meet the demands of increasingly sophisticated customers. We are pleased with the productivity and user-friendliness of our web site and online activities and we are continually evaluating these internet systems to take advantage of emerging developments.

In keeping with our corporate commitment to put “neighborhood” people at the forefront of our banking centers, we have continuously assessed our staffing in order to assure that we have the right people in the right places. New management assignments in a number of key positions have, we believe, enhanced our strategic positioning in several important areas.

Heritage Solutions, our insurance and investment arm, has continued its growth as well as that of our banking concerns. An excellent array of portfolio instruments and insurance products enhance the company’s position as a full-service financial institution. These additional relationships also create a profitable means of cross-selling banking services to our investment clientele.

Gaining Ground

An exciting climax to our successful year was the completion of our new office located on Lafayette Road in Hopkinsville. This new 25,000 square foot facility houses a retail banking center and an operational center for the company. We believe the efficiencies afforded by this new location will provide even greater potential for sustained growth and provides for us a third Hopkinsville bank center and heightened visibility. The new year will also bring the completion of our Calvert City office and our expanded Murray office, aiding us in seeing even greater market share in both of these communities.

Our new locations in Clarksville, Tennessee will take Heritage Bank into another new market and allow us to further expand our network of banking offices in this region. Clarksville and Montgomery County serve a population of more than 136,000 people. Heritage Bank currently has eleven ATMs in the Clarksville market. The new full-service facility is planned for completion in 2006.

All of us at HopFed Bancorp, Inc.—the employees, management and board of directors—are proud of the progress we made in 2005 and pleased to bring you this report of our financial growth. We are once again grateful for the opportunity to share our success story with you and to invite you to join us in 2006 as we seek to shape the future of this historic company.

John Peck,
President and CEO