UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended: ~~September 30, 2022~~March 31, 2023


☐			Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number: 001-34190

HOME BANCORP, INC.

(Exact name of Registrant as specified in its charter)


Louisiana			71-1051785
(State or Other Jurisdiction of Incorporation or Organization)			(I.R.S. Employer Identification Number)
503 Kaliste Saloom Road, Lafayette, Louisiana			70508
(Address of Principal Executive Offices)			(Zip Code)

Registrant’s telephone number, including area code: (337) 237-1960

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if changed since last report)

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


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock	HBCP	NASDAQ Stock Market

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

At ~~November~~May 2, ~~2022,~~2023, the registrant had ~~8,281,634~~8,250,807 shares of common stock, $0.01 par value, outstanding.

HOME BANCORP, INC. and SUBSIDIARY

TABLE OF CONTENTS



PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	Page
	Consolidated Statements of Financial Condition	1
	Consolidated Statements of Income	2
	Consolidated Statements of Comprehensive Income	3
	Consolidated Statements of Changes in Shareholders’ Equity	4
	Consolidated Statements of Cash Flows	65
	Notes to Unaudited Consolidated Financial Statements	76
Item 2.	Management 's Discussion and Analysis of Financial Condition and Results of Operations	3830
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5442
Item 4.	Controls and Procedures	5442
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	5543
Item 1A.	Risk Factors	5543
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5543
Item 3.	Defaults Upon Senior Securities	5643
Item 4.	Mine Safety Disclosures	5643
Item 5.	Other Information	5643
Item 6.	Exhibits	5644
SIGNATURES		5745

HOME BANCORP, INC. and SUBSIDIARY

GLOSSARY OF DEFINED TERMS

Below is a listing of certain acronyms, abbreviations and defined terms, among others, used throughout this Quarterly Report on Form 10-Q, including in "Item 1. Financial Statements" and "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations." The terms "we," "our" or "us" refer to Home Bancorp, Inc. and its consolidated subsidiaries, unless the context otherwise requires.


ACL	–	Allowance for credit losses
ALL	–	Allowance for loan losses
AOCI	–	Accumulated other comprehensive income
ASC	–	Accounting Standards Codification
ASU	–	Accounting Standards Update
Bank	–	Home Bank, N. A., a wholly-owned subsidiary of the Company
BOLI	–	Bank-owned life insurance
bps	–	basis points, 100 basis points being equal to 1.0%
C&D	–	Construction and land
C&I	–	Commercial and industrial
CARES Act	–	Coronavirus Aid, Relief, and Economic Security Act
CECL	–	Current expected credit losses
Company	–	Home Bancorp, Inc., a Louisiana corporation and the holding company for Home Bank, N. A.
COVID-19	–	The novel coronavirus
CRE	–	Commercial real estate
EPS	–	Earnings per common share
FASB	–	Financial Accounting Standards Board
FHLB	–	Federal Home Loan Bank
GAAP	–	Generally Accepted Accounting Principles
LTV	–	Loan-to-value
NPA(s)	–	Nonperforming asset(s)
OCI	–	Other comprehensive income
ORE	–	Other real estate
PCD	–	Purchased credit deteriorated
~~PCI~~	–	~~Purchased credit impaired~~
PPP	–	Paycheck Protection Program
SBA	–	U.S. Small Business Association
SEC	–	U.S. Securities and Exchange Commission
TDR	–	Troubled debt restructuring
TE	–	Taxable equivalent
U.S.	–	United States

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


		(Unaudited)		(Audited)			(Unaudited)		(Audited)
(dollars in thousands)	(dollars in thousands)	September 30, 2022		December 31, 2021		(dollars in thousands)	March 31, 2023		December 31, 2022
Assets	Assets					Assets
Cash and cash equivalents	Cash and cash equivalents	$	150,556	$	601,443	Cash and cash equivalents	$	107,171	$	87,401
Interest-bearing deposits in banks	Interest-bearing deposits in banks	349		349		Interest-bearing deposits in banks	349		349
Investment securities available for sale, at fair value	Investment securities available for sale, at fair value	492,758		327,632		Investment securities available for sale, at fair value	466,506		486,518
Investment securities held to maturity (fair values of $1,066 and $2,132, respectively)		1,080		2,102
Investment securities held to maturity (fair values of $1,069 and $1,072, respectively)						Investment securities held to maturity (fair values of $1,069 and $1,072, respectively)	1,070		1,075
Mortgage loans held for sale	Mortgage loans held for sale	169		1,104		Mortgage loans held for sale	473		98
Loans, net of unearned income	Loans, net of unearned income	2,303,279		1,840,093		Loans, net of unearned income	2,466,392		2,430,750
Allowance for loan losses	Allowance for loan losses	(27,351)		(21,089)		Allowance for loan losses	(30,118)		(29,299)
Total loans, net of unearned income and allowance for loan losses	Total loans, net of unearned income and allowance for loan losses	2,275,928		1,819,004		Total loans, net of unearned income and allowance for loan losses	2,436,274		2,401,451
Office properties and equipment, net	Office properties and equipment, net	43,685		43,542		Office properties and equipment, net	42,844		43,560
Cash surrender value of bank-owned life insurance	Cash surrender value of bank-owned life insurance	46,019		40,361		Cash surrender value of bank-owned life insurance	46,528		46,276
Goodwill and core deposit intangibles	Goodwill and core deposit intangibles	87,839		61,949		Goodwill and core deposit intangibles	87,527		87,973
Accrued interest receivable and other assets	Accrued interest receivable and other assets	69,283		40,758		Accrued interest receivable and other assets	78,228		73,579
Total Assets	Total Assets	$	3,167,666	$	2,938,244	Total Assets	$	3,266,970	$	3,228,280
Liabilities	Liabilities					Liabilities
Deposits:	Deposits:					Deposits:
Noninterest-bearing	Noninterest-bearing	$	921,089	$	766,385	Noninterest-bearing	$	854,736	$	904,301
Interest-bearing	Interest-bearing	1,817,335		1,769,464		Interest-bearing	1,703,008		1,728,880
Total Deposits	Total Deposits	2,738,424		2,535,849		Total Deposits	2,557,744		2,633,181
Other borrowings	Other borrowings	5,539		5,539		Other borrowings	5,539		5,539
Subordinated debt, net of issuance cost	Subordinated debt, net of issuance cost	53,958		—		Subordinated debt, net of issuance cost	54,073		54,013
Short-term Federal Home Loan Bank advances						Short-term Federal Home Loan Bank advances	233,650		155,000
Long-term Federal Home Loan Bank advances	Long-term Federal Home Loan Bank advances	24,816		26,046		Long-term Federal Home Loan Bank advances	43,077		21,213
Accrued interest payable and other liabilities	Accrued interest payable and other liabilities	28,273		18,907		Accrued interest payable and other liabilities	27,787		29,380
Total Liabilities	Total Liabilities	2,851,010		2,586,341		Total Liabilities	2,921,870		2,898,326
Shareholders’ Equity	Shareholders’ Equity					Shareholders’ Equity
Preferred stock, $0.01 par value - 10,000,000 shares authorized; none issued	Preferred stock, $0.01 par value - 10,000,000 shares authorized; none issued	—		—		Preferred stock, $0.01 par value - 10,000,000 shares authorized; none issued	—		—
Common stock, $0.01 par value - 40,000,000 shares authorized; 8,273,334 and 8,526,907 shares issued and outstanding, respectively		83		85
Common stock, $0.01 par value - 40,000,000 shares authorized; 8,284,130 and 8,286,084 shares issued and outstanding, respectively						Common stock, $0.01 par value - 40,000,000 shares authorized; 8,284,130 and 8,286,084 shares issued and outstanding, respectively	83		83
Additional paid-in capital	Additional paid-in capital	164,024		164,982		Additional paid-in capital	165,470		164,942
Unallocated common stock held by:	Unallocated common stock held by:					Unallocated common stock held by:
Employee Stock Ownership Plan (ESOP)	Employee Stock Ownership Plan (ESOP)	(2,142)		(2,410)		Employee Stock Ownership Plan (ESOP)	(1,964)		(2,053)
Recognition and Retention Plan (RRP)	Recognition and Retention Plan (RRP)	(8)		(13)		Recognition and Retention Plan (RRP)	(5)		(7)
Retained earnings	Retained earnings	197,553		188,515		Retained earnings	215,290		206,296
Accumulated other comprehensive (loss) income		(42,854)		744
Accumulated other comprehensive loss						Accumulated other comprehensive loss	(33,774)		(39,307)
Total Shareholders’ Equity	Total Shareholders’ Equity	316,656		351,903		Total Shareholders’ Equity	345,100		329,954
Total Liabilities and Shareholders’ Equity	Total Liabilities and Shareholders’ Equity	$	3,167,666	$	2,938,244	Total Liabilities and Shareholders’ Equity	$	3,266,970	$	3,228,280

The accompanying Notes are an integral part of these Consolidated Financial Statements.

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
(dollars in thousands, except per share data)	(dollars in thousands, except per share data)	2022		2021		2022		2021		(dollars in thousands, except per share data)	2023		2022
Interest Income	Interest Income									Interest Income
Loans, including fees	Loans, including fees	$	29,859	$	27,045	$	79,834	$	77,362	Loans, including fees	$	34,498	$	22,671
Investment securities:	Investment securities:									Investment securities:
Taxable interest	Taxable interest	2,812		1,108		6,576		3,069		Taxable interest	2,998		1,542
Tax-exempt interest	Tax-exempt interest	146		81		338		262		Tax-exempt interest	144		76
Other investments and deposits	Other investments and deposits	1,447		189		2,587		421		Other investments and deposits	475		277
Total interest income	Total interest income	34,264		28,423		89,335		81,114		Total interest income	38,115		24,566
Interest Expense	Interest Expense									Interest Expense
Deposits	Deposits	1,270		1,120		3,266		4,256		Deposits	3,240		893
Other borrowings	Other borrowings	53		53		160		159		Other borrowings	53		53
Subordinated debt expense	Subordinated debt expense	859		—		859		—		Subordinated debt expense	851		—

Short-term Federal Home Loan Bank advances										Short-term Federal Home Loan Bank advances	2,259		—
Long-term Federal Home Loan Bank advances	Long-term Federal Home Loan Bank advances	105		116		321		360		Long-term Federal Home Loan Bank advances	117		109
Total interest expense	Total interest expense	2,287		1,289		4,606		4,775		Total interest expense	6,520		1,055
Net interest income	Net interest income	31,977		27,134		84,729		76,339		Net interest income	31,595		23,511
Provision (reversal) for loan losses		1,696		(2,385)		5,502		(7,513)
Net interest income after provision (reversal) for loan losses		30,281		29,519		79,227		83,852
Provision for loan losses										Provision for loan losses	814		3,215
Net interest income after provision for loan losses										Net interest income after provision for loan losses	30,781		20,296
Noninterest Income	Noninterest Income									Noninterest Income
Service fees and charges	Service fees and charges	1,300		1,260		3,722		3,478		Service fees and charges	1,250		1,165
Bank card fees	Bank card fees	1,623		1,519		4,713		4,416		Bank card fees	1,787		1,454
Gain on sale of loans, net	Gain on sale of loans, net	78		415		641		2,142		Gain on sale of loans, net	57		299
Income from bank-owned life insurance	Income from bank-owned life insurance	231		1,938		658		2,384		Income from bank-owned life insurance	253		214
Gain (loss) on sale of assets, net		18		(3)		17		(460)
Loss on sale of securities, net										Loss on sale of securities, net	(249)		—
(Loss) gain on sale of assets, net										(Loss) gain on sale of assets, net	(17)		5
Other income	Other income	224		254		795		777		Other income	230		249
Total noninterest income	Total noninterest income	3,474		5,383		10,546		12,737		Total noninterest income	3,311		3,386
Noninterest Expense	Noninterest Expense									Noninterest Expense
Compensation and benefits	Compensation and benefits	12,128		9,809		34,870		29,160		Compensation and benefits	12,439		10,159
Occupancy	Occupancy	2,297		1,717		6,454		5,146		Occupancy	2,350		1,803
Marketing and advertising	Marketing and advertising	658		399		1,713		838		Marketing and advertising	307		407
Data processing and communication	Data processing and communication	2,284		2,118		7,012		6,263		Data processing and communication	2,321		2,195
Professional services	Professional services	331		234		1,348		685		Professional services	364		542
Forms, printing and supplies	Forms, printing and supplies	185		158		584		480		Forms, printing and supplies	187		146
Franchise and shares tax	Franchise and shares tax	633		360		1,415		1,079		Franchise and shares tax	541		391
Regulatory fees	Regulatory fees	467		301		1,611		986		Regulatory fees	539		446
Foreclosed assets and ORE, net	Foreclosed assets and ORE, net	101		74		493		298		Foreclosed assets and ORE, net	(739)		402
Amortization of acquisition intangible	Amortization of acquisition intangible	453		291		1,159		884		Amortization of acquisition intangible	446		252
Provision for credit losses on unfunded commitments	Provision for credit losses on unfunded commitments	146		—		448		375		Provision for credit losses on unfunded commitments	210		302
Other expenses	Other expenses	1,040		970		3,621		2,771		Other expenses	975		1,195
Total noninterest expense	Total noninterest expense	20,723		16,431		60,728		48,965		Total noninterest expense	19,940		18,240
Income before income tax expense	Income before income tax expense	13,032		18,471		29,045		47,624		Income before income tax expense	14,152		5,442
Income tax expense	Income tax expense	2,598		3,412		5,749		9,241		Income tax expense	2,832		1,041
Net Income	Net Income	$	10,434	$	15,059	$	23,296	$	38,383	Net Income	$	11,320	$	4,401
Earnings per share:	Earnings per share:									Earnings per share:
Basic	Basic	$	1.29	$	1.80	$	2.86	$	4.56	Basic	$	1.40	$	0.53
Diluted	Diluted	$	1.28	$	1.79	$	2.84	$	4.54	Diluted	$	1.39	$	0.53
Cash dividends declared per common share	Cash dividends declared per common share	$	0.23	$	0.23	$	0.69	$	0.68	Cash dividends declared per common share	$	0.25	$	0.23

The accompanying Notes are an integral part of these Consolidated Financial Statements.

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

Three Months Ended
September 30, Nine Months Ended
September 30,
(dollars in thousands) 2022 2021 2022 2021
Net Income $ 10,434 $ 15,059 $ 23,296 $ 38,383
Other Comprehensive Loss
Unrealized losses on available for sale investment securities (25,149) (1,897) (58,980) (5,201)
Unrealized gains on cash flow hedges 1,297 55 3,793 974
Tax effect 5,009 387 11,589 887
Other comprehensive loss, net of taxes (18,843) (1,455) (43,598) (3,340)
Comprehensive (Loss) Income $ (8,409) $ 13,604 $ (20,302) $ 35,043


	Three Months Ended March 31,
(dollars in thousands)	2023		2022
Net Income	$	11,320	$	4,401
Other Comprehensive Income (Loss)
Unrealized gains (losses) on available for sale investment securities	7,470		(19,853)
Unrealized (losses) gains on cash flow hedges	(716)		1,867
Reclassification adjustment for losses included in net income	249		—
Tax effect	(1,470)		3,777
Other comprehensive income (loss), net of taxes	5,533		(14,209)
Comprehensive Income (Loss)	$	16,853	$	(9,808)

The accompanying Notes are an integral part of these Consolidated Financial Statements.

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)


(dollars in thousands, except per share data)	(dollars in thousands, except per share data)	Common stock		Additional Paid-in capital		Unallocated Common Stock Held by ESOP		Unallocated Common Stock Held by RRP		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total		(dollars in thousands, except per share data)	Common stock		Additional Paid-in capital		Unallocated Common Stock Held by ESOP		Unallocated Common Stock Held by RRP		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
Balance, June 30, 2021		$	87	$	165,296	$	(2,589)	$	(15)	$	171,644	$	3,389	$	337,812
Balance, December 31, 2021																Balance, December 31, 2021	$	85	$	164,982	$	(2,410)	$	(13)	$	188,515	$	744	$	351,903
Net income	Net income									15,059				15,059		Net income									4,401				4,401
Other comprehensive loss	Other comprehensive loss											(1,455)		(1,455)		Other comprehensive loss											(14,209)		(14,209)
Purchase of Company’s common stock at cost, 159,762 shares		(2)		(1,596)						(4,386)				(5,984)
Purchase of Company’s common stock at cost, 84,515 shares																Purchase of Company’s common stock at cost, 84,515 shares	(1)		(844)						(2,546)				(3,391)
Cash dividends declared, $0.23 per share	Cash dividends declared, $0.23 per share									(1,988)				(1,988)		Cash dividends declared, $0.23 per share									(1,962)				(1,962)
Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 3,549 shares		—		87						(2)				85
Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 8,997 shares																Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 8,997 shares	1		160						(22)				139
Exercise of stock options	Exercise of stock options	—		26										26		Exercise of stock options	—		28										28
RRP shares released for allocation	RRP shares released for allocation			(1)				1						—		RRP shares released for allocation			(2)				2						—
ESOP shares released for allocation	ESOP shares released for allocation			269		90								359		ESOP shares released for allocation			337		89								426
Share-based compensation cost	Share-based compensation cost			235										235		Share-based compensation cost			169										169
Balance, September 30, 2021		$	85	$	164,316	$	(2,499)	$	(14)	$	180,327	$	1,934	$	344,149
Balance, June 30, 2022		$	84	$	164,177	$	(2,231)	$	(9)	$	191,114	$	(24,011)	$	329,124
Balance, March 31, 2022																Balance, March 31, 2022	$	85	$	164,830	$	(2,321)	$	(11)	$	188,386	$	(13,465)	$	337,504
Balance, December 31, 2022																Balance, December 31, 2022	$	83	$	164,942	$	(2,053)	$	(7)	$	206,296	$	(39,307)	$	329,954
Net income	Net income									10,434				10,434		Net income									11,320				11,320
Other comprehensive loss												(18,843)		(18,843)
Purchase of Company’s common stock at cost, 77,021 shares		(1)		(770)						(2,084)				(2,855)
Cash dividends declared, $0.23 per share										(1,910)				(1,910)
Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 3,260 shares		—		97						(1)				96
Other comprehensive income																Other comprehensive income											5,533		5,533
Purchase of Company’s common stock at cost, 10,199 shares																Purchase of Company’s common stock at cost, 10,199 shares	—		(102)						(233)				(335)
Cash dividends declared, $0.25 per share																Cash dividends declared, $0.25 per share									(2,072)				(2,072)
Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 4,029 shares																Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 4,029 shares	—		33						(21)				12
Exercise of stock options	Exercise of stock options	—		53										53		Exercise of stock options	—		85										85
RRP shares released for allocation	RRP shares released for allocation			(1)				1						—		RRP shares released for allocation			(2)				2						—
ESOP shares released for allocation	ESOP shares released for allocation			309		89								398		ESOP shares released for allocation			308		89								397
Share-based compensation cost	Share-based compensation cost			159										159		Share-based compensation cost			206										206
Balance, September 30, 2022		$	83	$	164,024	$	(2,142)	$	(8)	$	197,553	$	(42,854)	$	316,656
Balance, March 31, 2023																Balance, March 31, 2023	$	83	$	165,470	$	(1,964)	$	(5)	$	215,290	$	(33,774)	$	345,100

The accompanying Notes are an integral part of these Consolidated Financial Statements.

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF ~~CHANGES IN SHAREHOLDERS’ EQUITY - CONTINUED~~CASH FLOWS

(Unaudited)

(dollars in thousands, except per share data) Common
stock Additional
Paid-in
capital Unallocated
Common Stock
Held by ESOP Unallocated
Common Stock
Held by RRP Retained
Earnings Accumulated Other Comprehensive Income (Loss) Total
Balance, December 31, 2020 $ 87 $ 164,988 $ (2,767) $ (22) $ 154,282 $ 5,274 $ 321,842
Net income 38,383 38,383
Other comprehensive loss (3,340) (3,340)
Purchase of Company’s common stock at cost, 243,497 shares (2) (2,433) (6,363) (8,798)
Cash dividends declared, $0.68 per share (5,906) (5,906)
Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 22,273 shares — 245 (69) 176
Exercise of stock options — 80 80
RRP shares released for allocation (8) 8 —
ESOP shares released for allocation 849 268 1,117
Share-based compensation cost 595 595
Balance, September 30, 2021 $ 85 $ 164,316 $ (2,499) $ (14) $ 180,327 $ 1,934 $ 344,149
Balance, December 31, 2021 $ 85 $ 164,982 $ (2,410) $ (13) $ 188,515 $ 744 $ 351,903
Net income 23,296 23,296
Other comprehensive loss (43,598) (43,598)
Purchase of Company’s common stock at cost, 287,035 shares (2) (2,868) (8,407) (11,277)
Cash dividends declared, $0.69 per share (5,790) (5,790)
Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 22,837 shares 304 (61) 243
Exercise of stock options — 182 182
RRP shares released for allocation (5) 5 —
ESOP shares released for allocation 933 268 1,201
Share-based compensation cost 496 496
Balance, September 30, 2022 $ 83 $ 164,024 $ (2,142) $ (8) $ 197,553 $ (42,854) $ 316,656


	For the Three Months Ended March 31,
(dollars in thousands)	2023		2022
Cash flows from operating activities:
Net income	$	11,320	$	4,401
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	814		3,215
Depreciation	894		762
Amortization and accretion of purchase accounting valuations and intangibles	979		710

Federal Home Loan Bank stock dividends	(55)		3
Net amortization of discount on investments	135		401
Amortization of subordinated debt issuance cost	60		—
Loss on sale of securities, net	249		—
Gain on loans sold, net	(57)		(299)
Proceeds, including principal payments, from loans held for sale	4,339		25,131
Originations of loans held for sale	(4,657)		(27,915)
Loss (gain) on sale of assets, net	17		(5)
Non-cash compensation	603		595
Deferred income tax benefit	(104)		(604)
Increase in accrued interest receivable and other assets	(2,179)		(6,102)
Increase in cash surrender value of bank-owned life insurance	(253)		(214)
(Decrease) increase in accrued interest payable and other liabilities	(2,303)		1,448
Net cash provided by operating activities	9,802		1,527
Cash flows from investing activities:
Purchases of securities available for sale	—		(87,259)
Proceeds from maturities, prepayments and calls on securities available for sale	13,590		12,796

Proceeds from sales of securities available for sale	13,762		—
Increase in loans, net	(36,305)		(805)

Proceeds from sale of foreclosed assets	413		1,489
Purchases of office properties and equipment	(199)		(340)
Net cash disbursed in sale of banking center	—		(11,182)
Net cash disbursed in business combination	—		(16,122)


Proceeds from sale of office properties and equipment	4		28
Purchase of Federal Home Loan Bank stock	(4,193)		—
Net cash used in investing activities	(12,928)		(101,395)
Cash flows from financing activities:
(Decrease) increase in deposits, net	(75,306)		52,010
Borrowings on Federal Home Loan Bank advances	6,261,375		—
Repayments of Federal Home Loan Bank advances	(6,160,863)		(380)

Proceeds from exercise of stock options	85		28
Issuance of stock under incentive plans, net	12		139
Dividends paid to shareholders	(2,072)		(1,962)
Purchase of Company’s common stock	(335)		(3,391)
Net cash provided by financing activities	22,896		46,444
Net change in cash and cash equivalents	19,770		(53,424)
Cash and cash equivalents, beginning	87,401		601,443
Cash and cash equivalents, ending	$	107,171	$	548,019

The accompanying Notes are an integral part of these Consolidated Financial Statements.

~~HOME BANCORP, INC. AND SUBSIDIARY~~

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(Unaudited)~~
For the Nine Months Ended
September 30,
(dollars in thousands) 2022 2021
Cash flows from operating activities:
Net income $ 23,296 $ 38,383
Adjustments to reconcile net income to net cash provided by operating activities:
Provision (reversal) for loan losses 5,502 (7,513)
Depreciation 2,538 2,301
Amortization and accretion of purchase accounting valuations and intangibles 3,020 2,762
Federal Home Loan Bank stock dividends (22) (11)
Net amortization of discount on investments 871 1,484
Amortization of subordinated debt issuance cost 60 —
Gain on loans sold, net (641) (2,142)
Proceeds, including principal payments, from loans held for sale 64,755 165,995
Originations of loans held for sale (63,179) (157,770)
(Gain) loss on sale of assets, net (17) 460
Non-cash compensation 1,697 1,712
Deferred income tax (benefit) expense (425) 1,747
Increase in accrued interest receivable and other assets (9,207) (3,612)
Increase in cash surrender value of bank-owned life insurance (658) (667)
Increase in accrued interest payable and other liabilities 9,085 793
Net cash provided by operating activities 36,675 43,922
Cash flows from investing activities:
Purchases of securities available for sale (236,236) (125,380)
Proceeds from maturities, prepayments and calls on securities available for sale 44,692 64,278
Proceeds from maturities, prepayments and calls on securities held to maturity 1,000 800
Proceeds from sales of securities available for sale — 5,068
(Increase) decrease in loans, net (151,039) 99,621
Proceeds from sale of foreclosed assets 2,557 2,274
Purchases of office properties and equipment (1,904) (1,998)
Net cash disbursed in sale of banking center (11,182) —
Net cash disbursed in business combination (16,123) —
Purchase of bank-owned life insurance (5,000) —
Proceeds from bank-owned life insurance — 1,717
Proceeds from sale of office properties and equipment 73 400
Net cash (used in) provided by investing activities (373,162) 46,780
Cash flows from financing activities:
(Decrease) increase in deposits, net (150,411) 151,896
Borrowings on Federal Home Loan Bank advances — —
Repayments of Federal Home Loan Bank advances (1,245) (2,408)
Proceeds from issuance of subordinated debt, net of issuance cost 53,898 —
Proceeds from exercise of stock options 182 80
Issuance of stock under incentive plans, net 243 176
Dividends paid to shareholders (5,790) (5,906)
Purchase of Company’s common stock (11,277) (8,798)
Net cash (used in) provided by financing activities (114,400) 135,040
Net change in cash and cash equivalents (450,887) 225,742
Cash and cash equivalents, beginning 601,443 187,952
Cash and cash equivalents, ending $ 150,556 $ 413,694

~~The accompanying Notes are an integral part of these Consolidated Financial Statements.~~

HOME BANCORP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company were prepared in accordance with instructions for Form 10-Q and Regulation S-X and do not include information or footnotes necessary for a complete presentation of financial condition, results of operations, comprehensive income, changes in shareholders’ equity and cash flows in conformity with accounting principles generally accepted in the United States of America. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial statements have been included. Certain reclassifications have been made to prior period balances to conform to the current period presentation. The results of operations for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ are not necessarily indicative of the results which may be expected for the entire fiscal year. These statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, ~~2021.~~2022.

Critical Accounting Policies and Estimates

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties and could reflect materially different results under different assumptions and conditions. Methodologies the Company uses when applying critical accounting policies and developing critical accounting estimates are included in its Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

There have been no material changes from the critical accounting policies previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. In preparing its financial statements, the Company is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Reclassifications

Certain reclassifications have been made to prior period balances to conform to the current period presentation.

2. Recent Accounting Pronouncements

Accounting Standards Adopted in 2023

ASU 2022-01, “Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method.” Under prior guidance, entities can apply the last-of-layer hedging method to hedge the exposure of a closed portfolio of prepayable financial assets to fair value changes due to changes in interest rates for a portion of the portfolio that is not expected to be affected by prepayments, defaults, and other events affecting the timing and amount of cash flows. ASU 2022-01 expands the last-of-layer method, which permits only one hedge layer, to allow multiple hedged layers of a single closed portfolio. To reflect that expansion, the last-of-layer method is renamed the portfolio layer method. ASU 2022-01 also (i) expands the scope of the portfolio layer method to include non-prepayable financial assets, (ii) specifies eligible hedging instruments in a single-layer hedge, (iii) provides additional guidance on the accounting for and disclosure of hedge basis adjustments under the portfolio layer method and (iv) specifies how hedge basis adjustments should be considered when determining credit losses for the assets included in the closed portfolio. ASU 2022-01 is effective for fiscal years and interim periods after December, 15, 2022. The adoption of ASU 2022-01 did not impact our Consolidated Financial Statements.

ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.” ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings in Accounting Standards Codification (“ASC”) Subtopic 310-40, Receivables - Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. Additionally, ASU 2022-02 requires entities to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of ASC Subtopic 3126-20, Financial Instruments - Credit Losses - Measured at Amortized Cost. ASU 2022-02 is effective for fiscal years and interim periods after December, 15, 2022. The Company adopted ASU 2022-02 on a prospective basis on January 1, 2023. The adoption of ASU 2022-02 did not have a significant impact on our Consolidated Financial Statements.

Issued but Not Yet Adopted Accounting Standards

Accounting Standard Update (“ASU”) ASU ~~2022-01, “Derivatives and Hedging~~2023-01, “Leases (Topic ~~815)”~~842): Common Control Arrangements” (“ASU ~~2022-01”~~2023-01”) clarifies the guidance in ASC 815 on fair value hedge accounting of interest rate risk for portfolios and financial assets. Among other things, the amended guidance established the “last-of-layer” method for making the fair value hedge accounting for ~~these portfolios more accessible and renamed that method the “portfolio layer” method. ASU 2022-01~~leasehold improvements associated with common control leases to public business entities. This update is effective ~~January 1,~~for fiscal years beginning after December 15, 2023, ~~and~~including interim periods within those fiscal years. The adoption of ASU 2023-01 is not expected to have a significant impact on our consolidated financial statements.

ASU ~~2022-02, “Financial Instruments -~~2023-02, “Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit ~~Losses (Topic 326)”~~Structures Using the Proportional Amortization Method” (“ASU ~~2022-02”~~2023-02”) ~~eliminates the guidance on troubled debt restructurings and requires~~permits reporting entities to ~~evaluate all loan modifications~~elect to ~~determine if they result in a new loan or a continuation~~account for their tax equity investments, regardless of the ~~existing loan. ASU 2022-02 also requires that entities disclose current-period gross charge-offs by year of origination for loans and leases. ASU 2022-02~~tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. This update is effective ~~January 1,~~for fiscal years beginning after December 15, 2023, ~~and~~including interim periods within those fiscal years. The adoption of ASU 2023-02 is not expected to have a significant impact on our consolidated financial ~~statement disclosures.~~

ASU 2022-03, "Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions" was issued to improve fair value guidance for equity securities subject to contractual sale restrictions. These amendments clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. The amendments also require additional disclosures for equity securities subject to contractual sale restrictions. These amendments are effective for fiscal years beginning after December 15, 2023, and are not expected to have a significant impact on our financial statement disclosures.

statements.

3. ~~Acquisition Activity~~

On March 26, 2022, the Company completed the acquisition of Friendswood Capital Corporation (“Friendswood”), the former holding company of Texan Bank, N. A. (“Texan Bank”) of Houston, Texas. Shareholders of Friendswood received $15.34 per share in cash, yielding an aggregate purchase price of $64,864,000.

The acquisition was accounted for under the purchase method of accounting in accordance with ASC 805, Business Combinations. In accordance with ASC 805, the Company recorded goodwill totaling $22,452,000 from the acquisition as a result of consideration transferred over net assets acquired. Both the assets acquired and liabilities assumed were recorded at their respective acquisition date fair values. Identifiable intangible assets, including core deposit intangible assets, were recorded at fair value.

The fair value estimates of the Friendswood assets and liabilities are preliminary and require management to make estimates about discount rates, expected cash flows, market conditions, and other future events that are highly subjective in nature and are subject to refinement for a one year period after the date of the acquisition. Under current accounting principles, the Company’s estimates of fair values may be adjusted for a period of up to one year from the acquisition date.

~~The assets acquired and liabilities assumed, as well as the adjustments to record the assets and liabilities at fair value, are presented in the following table as of March 26, 2022.~~

(dollars in thousands) As Acquired Fair Value Adjustments As recorded by Home Bancorp
Assets
Cash and cash equivalents $ 48,741 $ — $ 48,741
Investment securities 33,679 (268) (a) 33,411
Loans 320,050 (2,558) (b) 317,492
Repossessed assets 950 (246) (c) 704
Office properties and equipment, net 1,663 (116) (d) 1,547
Core deposit intangible — 4,597 (e) 4,597
Other assets 9,687 (1,688) (f) 7,999
Total assets acquired $ 414,770 $ (279) $ 414,491
Liabilities
Noninterest-bearing deposits $ 97,668 — $ 97,668
Interest-bearing deposits 269,301 1,022 (g) 270,323
Other liabilities 3,873 215 (h) 4,088
Total liabilities assumed $ 370,842 $ 1,237 $ 372,079
Excess of assets acquired over liabilities assumed 42,412
Cash consideration paid (64,864)
Total goodwill recorded $ 22,452

~~(a) The adjustment represents the market value adjustments on Friendswood's investment securities based on their interest rate risk and credit risk.~~

~~(b) The adjustment to reflect the fair value of loans includes:~~

•~~Adjustment of $3.0 million to reflect the removal of Friendswood's allowance for loan losses, net of the allowance for credit losses on PCD loans at the acquisition date, in accordance with ASC 805.~~

•Net discount of $5.5 million for all remaining loans determined not to be within the scope of ASC 310-30 which totaled $309.8 million. In determining the fair value of the loans which were not within the scope of ASC 310-30, the acquired loan portfolio was evaluated based on risk characteristics and other credit and market criteria to determine credit quality and interest adjustments to the fair value of the loans acquired. The acquired loan balance was reduced by the net amount of the credit quality and interest adjustments in determining the fair value of the loans.

~~(c) The adjustment represents the write-down of the book value of Friendswood's repossessed assets to their estimated fair value, as adjusted for estimated costs to sell.~~

~~(d) The adjustment represents the write-down of the book value of Friendswood’s office properties and equipment to their estimated fair value at the acquisition date.~~

(e) The adjustment represents the value of the core deposit base assumed in the acquisition. The core deposit asset was recorded as an identifiable intangible asset and will be amortized on an accelerated basis over the estimated life of the deposit base of 10 years.

~~(f) The adjustment is to record the deferred tax asset on the transaction and the estimated fair value on other assets.~~

(g) Adjustment to reflect the fair value of certificates of deposit acquired based on current interest rates for similar instruments. The adjustment will be recognized using a level yield amortization method based on maturities of the deposit liabilities.

~~(h) Adjustment to reflect the fair value of liabilities at the acquisition date.~~

The Company acquired loans at the acquisition date of Friendswood with more than significant deterioration of credit quality since origination (purchased credit deteriorated loans or "PCD" loans). The carrying amount of these loans at acquisition was as follows:


~~(in thousands)~~	~~Acquisition Date of March 26, 2022~~
~~Purchase price of PCD loans at acquisition~~	$	~~10,228~~
~~Allowance for credit losses on PCD loans at acquisition~~	~~1,415~~
~~Par value of PCD acquired loans at acquisition~~	$	~~11,643~~

The following pro forma information for the nine months ended September 30, 2022 and 2021 reflects the Company’s estimated consolidated results of operations as if the acquisition of Friendswood occurred at January 1, 2021, unadjusted for potential cost savings. Merger-related costs for the nine months ended September 30, 2022 and 2021 were approximately $1,971,000 and $299,000, respectively, and have been excluded from the pro-forma information presented below.

(dollars in thousands except per share information) 2022 2021
Net interest income $ 89,764 $ 91,007
Noninterest income 11,450 15,024
Noninterest expense 64,263 60,522
Net income 24,845 41,887
Earnings per share - basic $ 3.07 $ 4.98
Earnings per share - diluted 3.05 4.95

The selected pro forma financial information presented above is for illustrative purposes only and is not necessarily indicative of the financial results of the combined companies had the acquisition actually been completed at the beginning of the periods presented, nor does it indicate future results for any other interim or full-year period.

4. Investment Securities

The following tables summarize the Company’s available for sale and held to maturity investment securities at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022.


(dollars in thousands)	(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
September 30, 2022
March 31, 2023										March 31, 2023
Available for sale:	Available for sale:									Available for sale:
U.S. agency mortgage-backed	U.S. agency mortgage-backed	$	361,235	$	7	$	42,025	$	319,217	U.S. agency mortgage-backed	$	341,049	$	94	$	33,762	$	307,381
Collateralized mortgage obligations	Collateralized mortgage obligations	95,699		—		5,163		90,536		Collateralized mortgage obligations	88,800		1		3,914		84,887
Municipal bonds	Municipal bonds	67,629		2		10,726		56,905		Municipal bonds	56,426		8		7,878		48,556
U.S. government agency	U.S. government agency	20,849		2		1,238		19,613		U.S. government agency	20,301		—		979		19,322
Corporate bonds	Corporate bonds	6,979		—		492		6,487		Corporate bonds	6,980		—		620		6,360
Total available for sale	Total available for sale	$	552,391	$	11	$	59,644	$	492,758	Total available for sale	$	513,556	$	103	$	47,153	$	466,506
Held to maturity:	Held to maturity:									Held to maturity:
Municipal bonds	Municipal bonds	$	1,080	$	—	$	14	$	1,066	Municipal bonds	$	1,070	$	—	$	1	$	1,069
Total held to maturity	Total held to maturity	$	1,080	$	—	$	14	$	1,066	Total held to maturity	$	1,070	$	—	$	1	$	1,069


(dollars in thousands)	(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
December 31, 2021
December 31, 2022										December 31, 2022
Available for sale:	Available for sale:									Available for sale:
U.S. agency mortgage-backed	U.S. agency mortgage-backed	$	234,720	$	1,793	$	2,740	$	233,773	U.S. agency mortgage-backed	$	355,014	$	63	$	38,245	$	316,832
Collateralized mortgage obligations	Collateralized mortgage obligations	31,356		557		1		31,912		Collateralized mortgage obligations	91,217		1		4,873		86,345
Municipal bonds	Municipal bonds	51,094		402		777		50,719		Municipal bonds	67,476		50		9,901		57,625
U.S. government agency	U.S. government agency	5,615		8		9		5,614		U.S. government agency	20,600		—		1,267		19,333
Corporate bonds	Corporate bonds	5,500		114		—		5,614		Corporate bonds	6,980		—		597		6,383
Total available for sale	Total available for sale	$	328,285	$	2,874	$	3,527	$	327,632	Total available for sale	$	541,287	$	114	$	54,883	$	486,518
Held to maturity:	Held to maturity:									Held to maturity:
Municipal bonds	Municipal bonds	$	2,102	$	30	$	—	$	2,132	Municipal bonds	$	1,075	$	—	$	3	$	1,072
Total held to maturity	Total held to maturity	$	2,102	$	30	$	—	$	2,132	Total held to maturity	$	1,075	$	—	$	3	$	1,072

107

The estimated fair value and amortized cost by contractual maturity of the Company’s investment securities as of ~~September 30, 2022~~March 31, 2023 are shown in the following tables. Securities are classified according to their contractual maturities without consideration of principal amortization, potential prepayments or call options. The expected maturity of a security may differ from its contractual maturity because of prepayments or the exercise of call options. Accordingly, actual maturities may differ from contractual maturities. The Company’s investment securities portfolio had an effective duration of 4.5 years at March 31, 2023 and December 31, 2022.


(dollars in thousands)	(dollars in thousands)	One Year or Less		After One Year through Five Years		After Five Years through Ten Years		After Ten Years		Total		(dollars in thousands)	One Year or Less		After One Year through Five Years		After Five Years through Ten Years		After Ten Years		Total
Fair Value	Fair Value											Fair Value
Available for sale:	Available for sale:											Available for sale:
U.S. agency mortgage-backed	U.S. agency mortgage-backed	$	4,104	$	38,846	$	121,211	$	155,056	$	319,217	U.S. agency mortgage-backed	$	2,901	$	53,234	$	108,800	$	142,446	$	307,381
Collateralized mortgage obligations	Collateralized mortgage obligations	—		50,855		16,609		23,072		90,536		Collateralized mortgage obligations	—		59,551		4,937		20,399		84,887
Municipal bonds	Municipal bonds	500		5,330		21,401		29,674		56,905		Municipal bonds	2,194		1,737		19,889		24,736		48,556
U.S. government agency	U.S. government agency	—		5,971		13,292		350		19,613		U.S. government agency	—		6,039		12,961		322		19,322
Corporate bonds	Corporate bonds	—		—		6,487		—		6,487		Corporate bonds	—		—		6,360		—		6,360
Total available for sale	Total available for sale	$	4,604	$	101,002	$	179,000	$	208,152	$	492,758	Total available for sale	$	5,095	$	120,561	$	152,947	$	187,903	$	466,506
Held to maturity:	Held to maturity:											Held to maturity:
Municipal bonds	Municipal bonds	$	—	$	1,066	$	—	$	—	$	1,066	Municipal bonds	$	—	$	1,069	$	—	$	—	$	1,069
Total held to maturity	Total held to maturity	$	—	$	1,066	$	—	$	—	$	1,066	Total held to maturity	$	—	$	1,069	$	—	$	—	$	1,069

(dollars in thousands)	(dollars in thousands)	One Year or Less		After One Year through Five Years		After Five Years through Ten Years		After Ten Years		Total		(dollars in thousands)	One Year or Less		After One Year through Five Years		After Five Years through Ten Years		After Ten Years		Total
Amortized Cost	Amortized Cost											Amortized Cost
Available for sale:	Available for sale:											Available for sale:
U.S. agency mortgage-backed	U.S. agency mortgage-backed	$	4,126	$	41,683	$	135,526	$	179,900	$	361,235	U.S. agency mortgage-backed	$	2,958	$	56,901	$	118,859	$	162,331	$	341,049
Collateralized mortgage obligations	Collateralized mortgage obligations	—		53,238		18,154		24,307		95,699		Collateralized mortgage obligations	—		61,831		5,577		21,392		88,800
Municipal bonds	Municipal bonds	500		5,407		24,284		37,438		67,629		Municipal bonds	2,214		1,897		22,669		29,646		56,426
U.S. government agency	U.S. government agency	—		6,083		14,414		352		20,849		U.S. government agency	—		6,115		13,861		325		20,301
Corporate bonds	Corporate bonds	—		—		6,979		—		6,979		Corporate bonds	—		—		6,980		—		6,980
Total available for sale	Total available for sale	$	4,626	$	106,411	$	199,357	$	241,997	$	552,391	Total available for sale	$	5,172	$	126,744	$	167,946	$	213,694	$	513,556
Held to maturity:	Held to maturity:											Held to maturity:
Municipal bonds	Municipal bonds	$	—	$	1,080	$	—	$	—	$	1,080	Municipal bonds	$	—	$	1,070	$	—	$	—	$	1,070
Total held to maturity	Total held to maturity	$	—	$	1,080	$	—	$	—	$	1,080	Total held to maturity	$	—	$	1,070	$	—	$	—	$	1,070

Management evaluates securities for impairment from credit losses at least quarterly, and more frequently when economic and market conditions warrant such evaluations. Consideration is given to numerous factors including, but not limited to, the extent to which the fair value is less than the amortized cost basis; adverse conditions causing changes in the financial condition of the issuer of the security or underlying loan guarantors; changes to the rating of the security by a rating agency; and the Company’s intent to sell a security or whether it is more likely than not the Company will be required to sell the security before the recovery of its amortized cost, which may extend to maturity.

The Company performs a process to determine whether the decline in the fair value of securities has resulted from credit losses or other factors. This process involves evaluating each security for impairment by monitoring credit performance, collateral type, collateral geography, bond credit support, loan-to-value ratios, credit scores, loss severity levels, pricing levels, downgrades by rating agencies, cash flow projections and other factors as indicators of potential credit issues. If this evaluation indicates the existence of credit losses, the Company compares the present value of cash flows expected to be collected from the security with the amortized cost basis. If the present value of expected cash flows is less than the amortized cost basis, an ACL is recorded, limited by the amount that the fair value of the security is less than its amortized cost.

118

The Company's investment securities with unrealized losses, aggregated by type and length of time that individual securities have been in a continuous loss position, are summarized in the following tables.


(dollars in thousands)	(dollars in thousands)	Less Than 1 Year				Over 1 Year				Total				(dollars in thousands)	Less Than 1 Year				Over 1 Year				Total
September 30, 2022		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
March 31, 2023														March 31, 2023	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available for sale:	Available for sale:													Available for sale:
U.S. agency mortgage-backed	U.S. agency mortgage-backed	$	221,881	$	22,585	$	96,763	$	19,440	$	318,644	$	42,025	U.S. agency mortgage-backed	$	98,538	$	4,908	$	206,144	$	28,854	$	304,682	$	33,762
Collateralized mortgage obligations	Collateralized mortgage obligations	89,820		5,160		698		3		90,518		5,163		Collateralized mortgage obligations	64,860		2,480		20,018		1,434		84,878		3,914
Municipal bonds	Municipal bonds	36,410		4,846		19,493		5,880		55,903		10,726		Municipal bonds	6,931		417		39,154		7,461		46,085		7,878
U.S. government agency	U.S. government agency	17,862		1,232		666		6		18,528		1,238		U.S. government agency	16,088		666		3,234		313		19,322		979
Corporate bonds	Corporate bonds	3,301		178		3,186		314		6,487		492		Corporate bonds	1,374		107		4,986		513		6,360		620
Total available for sale	Total available for sale	$	369,274	$	34,001	$	120,806	$	25,643	$	490,080	$	59,644	Total available for sale	$	187,791	$	8,578	$	273,536	$	38,575	$	461,327	$	47,153
Held to maturity:	Held to maturity:													Held to maturity:
Municipal bonds	Municipal bonds	$	1,066	$	14	$	—	$	—	$	1,066	$	14	Municipal bonds	$	534	$	1	$	—	$	—	$	534	$	1
Total held to maturity	Total held to maturity	$	1,066	$	14	$	—	$	—	$	1,066	$	14	Total held to maturity	$	534	$	1	$	—	$	—	$	534	$	1


(dollars in thousands)	(dollars in thousands)	Less Than 1 Year				Over 1 Year				Total				(dollars in thousands)	Less Than 1 Year				Over 1 Year				Total
December 31, 2021		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
December 31, 2022														December 31, 2022	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available for sale:	Available for sale:													Available for sale:
U.S. agency mortgage-backed	U.S. agency mortgage-backed	$	158,908	$	2,382	$	11,575	$	358	$	170,483	$	2,740	U.S. agency mortgage-backed	$	184,896	$	14,828	$	129,248	$	23,417	$	314,144	$	38,245
Collateralized mortgage obligations	Collateralized mortgage obligations	254		1		988		—		1,242		1		Collateralized mortgage obligations	85,715		4,860		620		13		86,335		4,873
Municipal bonds	Municipal bonds	29,047		719		1,228		58		30,275		777		Municipal bonds	28,710		3,245		24,100		6,656		52,810		9,901
U.S. government agency	U.S. government agency	—		—		1,001		9		1,001		9		U.S. government agency	18,718		1,259		615		8		19,333		1,267
Corporate bonds	Corporate bonds	3,499		—		—		—		3,499		—		Corporate bonds	3,233		247		3,150		350		6,383		597
Total available for sale	Total available for sale	$	191,708	$	3,102	$	14,792	$	425	$	206,500	$	3,527	Total available for sale	$	321,272	$	24,439	$	157,733	$	30,444	$	479,005	$	54,883
Held to maturity:	Held to maturity:													Held to maturity:
Municipal bonds	Municipal bonds	$	—	$	—	$	—	$	—	$	—	$	—	Municipal bonds	$	1,072	$	3	$	—	$	—	$	1,072	$	3
Total held to maturity	Total held to maturity	$	—	$	—	$	—	$	—	$	—	$	—	Total held to maturity	$	1,072	$	3	$	—	$	—	$	1,072	$	3

At ~~September 30, 2022, 324~~March 31, 2023, 310 of the Company’s debt securities had unrealized losses totaling ~~10.8%~~9.3% of the individual securities’ amortized cost basis and ~~10.8%~~9.2% of the Company’s total amortized cost basis of the investment securities portfolio. At such date, 51145 of the ~~324~~310 securities had been in a continuous loss position for over 12 months. Management has determined that the declines in the fair value of these securities were not attributable to credit losses. As a result, no ACL was recorded for available for sale investment securities at ~~September 30, 2022.~~March 31, 2023.

At ~~September 30, 2022,~~March 31, 2023, it was determined that no ACL was required for the Company's held-to-maturity investment securities. The Company monitors credit quality of debt securities held-to-maturity through the use of credit ratings. The following tables present the amortized cost of the Company's held-to-maturity securities by credit quality rating at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022.

Credit Ratings

(dollars in thousands)

AAA/AA/A

BBB/BB/B

Total

(dollars in thousands)

AAA/AA/A

BBB/BB/B

Total

September 30, 2022

March 31, 2023

Held to maturity:

Municipal bonds

1,080

—

1,080

Municipal bonds

1,070

—

1,070

Credit Ratings
(dollars in thousands) AAA/AA/A BBB/BB/B Total
December 31, 2021
Held to maturity:
Municipal bonds $ 2,102 $ — $ 2,102


	Credit Ratings
(dollars in thousands)	AAA/AA/A		BBB/BB/B		Total
December 31, 2022
Held to maturity:
Municipal bonds	$	1,075	$	—	$	1,075

For the three months ended March 31, 2023, the Company recorded gross gains of $98,000 and gross losses of $347,000 related to the sale of investment securities. There were no gross gains or gross losses related to the sale of investment securities for the three months ended March 31, 2022.

Accrued interest receivable on the Company's investment securities was ~~$1,548,000~~$1,389,000 and ~~$942,000~~$1,798,000 at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. These amounts are recorded in accrued interest receivable and other assets on the Consolidated Statements of Financial Condition.

At ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the Company had ~~$182,022,000~~$146,500,000 and ~~$156,492,000,~~$170,036,000, respectively, of securities pledged to secure public deposits.

5.4. Earnings Per Share

Earnings per common share was computed based on the following:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
(in thousands, except per share data)	(in thousands, except per share data)	2022		2021		2022		2021		(in thousands, except per share data)	2023		2022
Numerator:	Numerator:									Numerator:
Net income available to common shareholders	Net income available to common shareholders	$	10,434	$	15,059	$	23,296	$	38,383	Net income available to common shareholders	$	11,320	$	4,401
Denominator:	Denominator:									Denominator:
Weighted average common shares outstanding	Weighted average common shares outstanding	8,089		8,354		8,162		8,413		Weighted average common shares outstanding	8,088		8,270
Effect of dilutive securities:	Effect of dilutive securities:									Effect of dilutive securities:
Restricted stock	Restricted stock	11		12		14		12		Restricted stock	21		18
Stock options	Stock options	38		40		43		35		Stock options	28		49
Weighted average common shares outstanding – assuming dilution	Weighted average common shares outstanding – assuming dilution	8,138		8,406		8,219		8,460		Weighted average common shares outstanding – assuming dilution	8,137		8,337
Basic earnings per common share	Basic earnings per common share	$	1.29	$	1.80	$	2.86	$	4.56	Basic earnings per common share	$	1.40	$	0.53
Diluted earnings per common share	Diluted earnings per common share	$	1.28	$	1.79	$	2.84	$	4.54	Diluted earnings per common share	$	1.39	$	0.53

Options for ~~75,789~~63,558 and ~~106,190~~59,328 shares of common stock were not included in the computation of diluted EPS for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively, because the effect of those shares was anti-dilutive. For the nine months ended September 30, 2022 and 2021, options on 66,866 and 98,262, respectively, shares of common stock were not included in the computation of diluted EPS because the effect of these shares was anti-dilutive.

1310

6.5. Credit Quality and Allowance for Credit Losses

The following briefly describes the distinction between originated and acquired loans and certain significant accounting policies.

Loans

Loans are reported at the principal balance outstanding net of unearned income and fair value discounts, if applicable. Interest on loans and the accretion of unearned income are computed in a manner that approximates a level yield on recorded principal. Interest on loans is recorded as income is earned. The accrual of interest is discontinued when it is probable the borrower will not be able to meet payment obligations as they become due. It is our policy, with certain limited exceptions, to discontinue accruing interest and reverse any interest accrued on any loan which is 90 days or more past due. Interest income is not accrued on these loans until the borrower’s financial condition and payment record demonstrate an ability to service the debt. If it is determined that all or part of a loan is uncollectible, the potion of the loan deemed uncollectible is charged to the allowance for credit losses.

~~Originated vs. Acquired Loans~~

"Originated loans" are loans that were originated for investment by the Company. Loans that were acquired as a result of business combinations are referred to as “acquired loans” and are recorded at their estimated fair value on the acquisition date. The Company's acquired loans purchased prior to the adoption of ASC Topic 326 on January 1, 2020 were initially classified as either purchased credit impaired (“PCI”) loans (i.e., loans that reflect credit deterioration since origination and for which it was probable at acquisition that the Company would be unable to collect all contractually required payments) or purchased non-impaired loans (i.e., “performing acquired loans”). The Company estimated the fair value of PCI loans based on the amount and timing of expected principal, interest and other cash flows for each loan. The excess of the loan’s contractual principal and interest payments over all cash flows expected to be collected at acquisition was considered an amount that should not be accreted. These credit discounts (“nonaccretable marks”) were included in the determination of the initial fair value for acquired loans; therefore, no allowance for credit losses was recorded at the acquisition date. Differences between the estimated fair values and expected cash flows of acquired loans at the acquisition date that were not credit-based (“accretable marks”) were subsequently accreted to interest income over the estimated life of the loans. Subsequent to the acquisition date for PCI loans, increases in cash flows over those expected at the acquisition date resulted in a move of the discount from nonaccretable to accretable, while decreases in expected cash flows after the acquisition date were recognized through the provision for credit losses.

Subsequent to January 1, 2020, acquired loans that have evidence of more-than-insignificant deterioration in credit quality since origination are considered purchased credit deteriorated (“PCD”) loans. At acquisition, an estimate of expected credit losses is made for PCD loans. This initial allowance for credit losses is allocated to individual PCD loans and added to the purchase price or acquisition date fair value to establish the initial amortized cost basis of the PCD loans. Any difference between the unpaid principal balance of PCD loans and the amortized cost basis is considered to relate to noncredit factors, resulting in a discount or premium that is amortized to interest income. For acquired loans not deemed PCD loans at acquisition, the difference between the initial fair value mark and the unpaid principal balance are recognized in interest income over the estimated life of the loans. In addition, an initial allowance for expected credit losses is estimated and recorded as provision expense at the acquisition date. The subsequent measurement of expected credit losses for all acquired loans is the same as the subsequent measurement of expected credit losses for originated loans.

Allowance for Credit Losses

~~Due to the adoption of ASC Topic 326 on January 1, 2020, management maintains, based on current and forecasted information, an~~The allowance for credit losses ("ACL") ~~that reflects a current estimate of expected credit losses ("CECL") for the estimated life of the loan portfolio at reporting periods subsequent to the adoption date.~~

~~The ACL,~~, which equals the sum of the ALL and the ACL on unfunded lending commitments, is established through provisions for credit losses. Management recalculates the ACL at least quarterly to reassess the estimate of credit losses for the total portfolio at the relevant reporting date. Under ASC Topic 326, the ACL is measured on a pool basis when similar risk characteristics exist. For each pool of loans, management also evaluates and applies qualitative adjustments to the calculated ACL based on several factors, including, but not limited to, changes in current and expected future economic conditions, changes in industry experience and industry loan concentrations, changes in the volume and severity of nonperforming assets, changes in lending policies and personnel and changes in the competitive and regulatory environment of the banking industry. Loans that do not share similar risk characteristics are individually evaluated and are excluded from the pooled loan analysis.

different conditions or assumptions. Federal regulatory agencies, as an integral part of their examination process, periodically review our ACL. Such agencies may require management to make additional provisions for estimated losses based upon judgments different from those of management.

We continue to monitor and modify our ACL as conditions warrant. No assurance can be given that our level of ACL will cover all of the losses on our loans or that future adjustments to the ACL will not be necessary if economic and other conditions differ substantially from the conditions used by management to determine the current level of the ACL.

The Company’s loans, net of unearned income, consisted of the following as of the dates indicated.

(dollars in thousands) September 30, 2022 December 31, 2021
Real estate loans:
One- to four-family first mortgage $ 376,028 $ 350,843
Home equity loans and lines 60,624 60,312
Commercial real estate 1,086,656 801,624
Construction and land 328,753 259,652
Multi-family residential 97,212 90,518
Total real estate loans 1,949,273 1,562,949
Other loans:
Commercial and industrial 320,900 244,123
Consumer 33,106 33,021
Total other loans 354,006 277,144
Total loans $ 2,303,279 $ 1,840,093

Loans increased during the first quarter of 2022 with the addition of Friendswood's loan portfolio, which amounted to $317.5 million on March 26, 2022 (the date of acquisition). The net investment in PPP loans, which is included in commercial and industrial loans, was $7,094,000 and $43,637,000 at September 30, 2022 and December 31, 2021, respectively.


(dollars in thousands)	March 31, 2023		December 31, 2022
Real estate loans:
One- to four-family first mortgage	$	405,638	$	389,616
Home equity loans and lines	64,107		61,863
Commercial real estate	1,162,367		1,152,537
Construction and land	318,622		313,175
Multi-family residential	102,604		100,588
Total real estate loans	2,053,338		2,017,779
Other loans:
Commercial and industrial	379,119		377,894
Consumer	33,935		35,077
Total other loans	413,054		412,971
Total loans	$	2,466,392	$	2,430,750

The net discount on the Company’s acquired loans was ~~$7,616,000~~$6,199,000 and ~~$4,289,000~~$6,866,000 at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. In addition, loan balances as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 are reported net of unearned income of ~~$4,244,000~~

$4,633,000 and ~~$4,924,000,~~$4,580,000, respectively. Unearned income at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 included PPP deferred lender fees of ~~$103,000~~$84,000 and ~~$1,301,000,~~$94,000, respectively.

Accrued interest receivable on the Company's loans was ~~$7,742,000~~$9,587,000 and ~~$6,496,000~~$9,520,000 at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively, and is excluded from the estimate of the ACL. Those amounts are recorded in accrued interest receivable and other assets on the Consolidated Statements of Financial Condition.

Allowance for Credit Losses

The ACL, which includes the ALL and the ACL on unfunded lending commitments, and recorded investment in loans as of the dates indicated are as follows.


		September 30, 2022							March 31, 2023
(dollars in thousands)	(dollars in thousands)	Collectively Evaluated		Individually Evaluated		Total		(dollars in thousands)	Collectively Evaluated		Individually Evaluated		Total
Allowance for credit losses:	Allowance for credit losses:							Allowance for credit losses:
One- to four-family first mortgage	One- to four-family first mortgage	$	2,293	$	32	$	2,325	One- to four-family first mortgage	$	3,356	$	—	$	3,356
Home equity loans and lines	Home equity loans and lines	500		—		500		Home equity loans and lines	753		—		753
Commercial real estate	Commercial real estate	12,504		1,193		13,697		Commercial real estate	13,344		450		13,794
Construction and land	Construction and land	4,973		—		4,973		Construction and land	4,921		—		4,921
Multi-family residential	Multi-family residential	498		—		498		Multi-family residential	608		—		608
Commercial and industrial	Commercial and industrial	4,523		188		4,711		Commercial and industrial	5,831		143		5,974
Consumer	Consumer	647		—		647		Consumer	712		—		712
Total allowance for loan losses	Total allowance for loan losses	$	25,938	$	1,413	$	27,351	Total allowance for loan losses	$	29,525	$	593	$	30,118

Unfunded lending commitments(1)	Unfunded lending commitments(1)	$	2,263	$	—	$	2,263	Unfunded lending commitments(1)	$	2,303	$	—	$	2,303
Total allowance for credit losses	Total allowance for credit losses	$	28,201	$	1,413	$	29,614	Total allowance for credit losses	$	31,828	$	593	$	32,421


	March 31, 2023
(dollars in thousands)	Collectively Evaluated		Individually Evaluated(2)		Total
Loans:
One- to four-family first mortgage	$	405,610	$	28	$	405,638
Home equity loans and lines	64,107		—		64,107
Commercial real estate	1,158,077		4,290		1,162,367
Construction and land	318,622		—		318,622
Multi-family residential	102,604		—		102,604
Commercial and industrial	378,948		171		379,119
Consumer	33,935		—		33,935
Total loans	$	2,461,903	$	4,489	$	2,466,392

September 30, 2022
(dollars in thousands) Collectively Evaluated
Individually Evaluated(2)
Total
Loans:
One- to four-family first mortgage $ 375,916 $ 112 $ 376,028
Home equity loans and lines 60,624 — 60,624
Commercial real estate 1,075,964 10,692 1,086,656
Construction and land 328,753 — 328,753
Multi-family residential 97,212 — 97,212
Commercial and industrial 320,656 244 320,900
Consumer 33,020 86 33,106
Total loans $ 2,292,145 $ 11,134 $ 2,303,279

December 31, 2021
(dollars in thousands) Collectively Evaluated Individually Evaluated Total
Allowance for credit losses:
One- to four-family first mortgage $ 1,944 $ — $ 1,944
Home equity loans and lines 508 — 508
Commercial real estate 10,207 247 10,454
Construction and land 3,572 — 3,572
Multi-family residential 457 — 457
Commercial and industrial 3,095 425 3,520
Consumer 634 — 634
Total allowance for loan losses $ 20,417 $ 672 $ 21,089
Unfunded lending commitments(1)
$ 1,815 $ — $ 1,815
Total allowance for credit losses $ 22,232 $ 672 $ 22,904

1612

December 31, 2021
(dollars in thousands) Collectively Evaluated
Individually Evaluated(2)
Total
Loans:
One- to four-family first mortgage $ 350,843 $ — $ 350,843
Home equity loans and lines 60,312 — 60,312
Commercial real estate 797,751 3,873 801,624
Construction and land 259,652 — 259,652
Multi-family residential 90,518 — 90,518
Commercial and industrial 243,379 744 244,123
Consumer 33,021 — 33,021
Total loans $ 1,835,476 $ 4,617 $ 1,840,093


	December 31, 2022
(dollars in thousands)	Collectively Evaluated		Individually Evaluated		Total
Allowance for credit losses:
One- to four-family first mortgage	$	2,883	$	—	$	2,883
Home equity loans and lines	624		—		624
Commercial real estate	13,264		550		13,814
Construction and land	4,680		—		4,680
Multi-family residential	572		—		572
Commercial and industrial	5,853		171		6,024
Consumer	702		—		702
Total allowance for loan losses	$	28,578	$	721	$	29,299

Unfunded lending commitments(1)	$	2,093	$	—	$	2,093
Total allowance for credit losses	$	30,671	$	721	$	31,392

	December 31, 2022
(dollars in thousands)	Collectively Evaluated		Individually Evaluated(2)		Total
Loans:
One- to four-family first mortgage	$	389,616	$	—	$	389,616
Home equity loans and lines	61,863		—		61,863
Commercial real estate	1,147,794		4,743		1,152,537
Construction and land	313,175		—		313,175
Multi-family residential	100,588		—		100,588
Commercial and industrial	377,690		204		377,894
Consumer	34,991		86		35,077
Total loans	$	2,425,717	$	5,033	$	2,430,750

(1)The ACL on unfunded lending commitments is recorded within accrued interest payable and other liabilities on the Consolidated Statements of Financial Condition.

(2)~~Three~~One ~~and zero~~ PCD ~~loans were~~loan was individually evaluated at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

1713

A summary of activity in the ACL for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and March 31, 2022 ~~and September 30, 2021~~ follows.


		Nine Months Ended September 30, 2022													Three Months Ended March 31, 2023
(dollars in thousands)	(dollars in thousands)	Beginning Balance		Allowance for Acquired PCD Loans(1)		Charge-offs		Recoveries		Provision (Reversal)		Ending Balance		(dollars in thousands)	Beginning Balance		Charge-offs		Recoveries		Provision (Reversal)		Ending Balance
Allowance for credit losses:	Allowance for credit losses:													Allowance for credit losses:
One- to four-family first mortgage	One- to four-family first mortgage	$	1,944	$	—	$	—	$	6	$	375	$	2,325	One- to four-family first mortgage	$	2,883	$	—	$	6	$	467	$	3,356
Home equity loans and lines	Home equity loans and lines	508		—		—		7		(15)		500		Home equity loans and lines	624		—		1		128		753
Commercial real estate	Commercial real estate	10,454		1,220		(270)		—		2,293		13,697		Commercial real estate	13,814		—		—		(20)		13,794
Construction and land	Construction and land	3,572		—		—		—		1,401		4,973		Construction and land	4,680		—		—		241		4,921
Multi-family residential	Multi-family residential	457		—		—		—		41		498		Multi-family residential	572		—		—		36		608
Commercial and industrial	Commercial and industrial	3,520		195		(750)		468		1,278		4,711		Commercial and industrial	6,024		(56)		81		(75)		5,974
Consumer	Consumer	634		—		(240)		124		129		647		Consumer	702		(37)		10		37		712
Total allowance for loan losses	Total allowance for loan losses	$	21,089	$	1,415	$	(1,260)	$	605	$	5,502	$	27,351	Total allowance for loan losses	$	29,299	$	(93)	$	98	$	814	$	30,118

Unfunded lending commitments	Unfunded lending commitments	$	1,815	$	—	$	—	$	—	$	448	$	2,263	Unfunded lending commitments	$	2,093	$	—	$	—	$	210	$	2,303
Total allowance for credit losses	Total allowance for credit losses	$	22,904	$	1,415	$	(1,260)	$	605	$	5,950	$	29,614	Total allowance for credit losses	$	31,392	$	(93)	$	98	$	1,024	$	32,421


		Nine Months Ended September 30, 2021											Three Months Ended March 31, 2022
(dollars in thousands)	(dollars in thousands)	Beginning Balance		Charge-offs		Recoveries		Provision (Reversal)		Ending Balance		(dollars in thousands)	Beginning Balance		Allowance for Acquired PCD Loans (1)		Charge-offs		Recoveries		Provision (Reversal)		Ending Balance
Allowance for credit losses:	Allowance for credit losses:											Allowance for credit losses:
One- to four-family first mortgage	One- to four-family first mortgage	$	3,065	$	(176)	$	13	$	(757)	$	2,145	One- to four-family first mortgage	$	1,944	$	—	$	—	$	2	$	110	$	2,056
Home equity loans and lines	Home equity loans and lines	676		(6)		6		(155)		521		Home equity loans and lines	508		—		—		2		29		539
Commercial real estate	Commercial real estate	18,851		(1,024)		—		(4,500)		13,327		Commercial real estate	10,454		2,083		—		—		2,665		15,202
Construction and land	Construction and land	4,155		—		63		(590)		3,628		Construction and land	3,572		—		—		—		540		4,112
Multi-family residential	Multi-family residential	1,077		—		—		(450)		627		Multi-family residential	457		—		—		—		97		554
Commercial and industrial	Commercial and industrial	4,276		(522)		307		(811)		3,250		Commercial and industrial	3,520		195		(160)		386		(301)		3,640
Consumer	Consumer	863		(79)		117		(250)		651		Consumer	634		—		(156)		75		75		628
Total allowance for loan losses	Total allowance for loan losses	$	32,963	$	(1,807)	$	506	$	(7,513)	$	24,149	Total allowance for loan losses	$	21,089	$	2,278	$	(316)	$	465	$	3,215	$	26,731

Unfunded lending commitments	Unfunded lending commitments	$	1,425	$	—	$	—	$	375	$	1,800	Unfunded lending commitments	$	1,815	$	—	$	—	$	—	$	302	$	2,117
Total allowance for credit losses	Total allowance for credit losses	$	34,388	$	(1,807)	$	506	$	(7,138)	$	25,949	Total allowance for credit losses	$	22,904	$	2,278	$	(316)	$	465	$	3,517	$	28,848

(1)~~On January 1, 2020~~Allowance recorded for PCD loans in the ~~Company adopted ASU No. 2016-13,~~ ~~Financial Instruments - Credit Losses (Topic 326): Measurement~~Company's acquisition of ~~Credit Losses on Financial Instruments,~~ ~~which introduced a new model known as CECL.~~Friendswood Capital Corporation at the acquisition date of March 26, 2022.

1814

Credit Quality

The following tables present the Company’s loan portfolio by credit quality classification and origination year as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022.


		September 30, 2022																			March 31, 2023
		Term Loans by Origination Year																			Term Loans by Origination Year
(dollars in thousands)	(dollars in thousands)	2022		2021		2020		2019		2018		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total		(dollars in thousands)	2023		2022		2021		2020		2019		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total
One- to four-family first mortgage:	One- to four-family first mortgage:																			One- to four-family first mortgage:
Pass	Pass	$	79,286	$	80,482	$	39,464	$	35,406	$	27,804	$	99,681	$	7,975	$	1,715	$	371,813	Pass	$	29,134	$	106,524	$	81,824	$	36,712	$	32,058	$	110,281	$	4,707	$	56	$	401,296
Special Mention	Special Mention	150		189		—		—		—		358		—		500		1,197		Special Mention	—		650		189		—		—		385		—		—		1,224
Substandard	Substandard	277		29		392		93		172		2,055		—		—		3,018		Substandard	—		172		54		362		162		2,368		—		—		3,118
Doubtful	Doubtful	—		—		—		—		—		—		—		—		—		Doubtful	—		—		—		—		—		—		—		—		—
Total one- to four-family first mortgages	Total one- to four-family first mortgages	$	79,713	$	80,700	$	39,856	$	35,499	$	27,976	$	102,094	$	7,975	$	2,215	$	376,028	Total one- to four-family first mortgages	$	29,134	$	107,346	$	82,067	$	37,074	$	32,220	$	113,034	$	4,707	$	56	$	405,638
Current period gross charge-offs																				Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Home equity loans and lines:	Home equity loans and lines:																			Home equity loans and lines:
Pass	Pass	$	1,460	$	1,554	$	804	$	1,165	$	633	$	3,579	$	51,264	$	132	$	60,591	Pass	$	1,014	$	1,953	$	1,272	$	765	$	1,063	$	3,736	$	53,474	$	799	$	64,076
Special Mention	Special Mention	—		—		—		—		—		—		—		—		—		Special Mention	—		—		—		—		—		—		—		—		—
Substandard	Substandard	—		—		—		—		—		33		—		—		33		Substandard	—		—		—		—		—		31		—		—		31
Doubtful	Doubtful	—		—		—		—		—		—		—		—		—		Doubtful	—		—		—		—		—		—		—		—		—
Total home equity loans and lines	Total home equity loans and lines	$	1,460	$	1,554	$	804	$	1,165	$	633	$	3,612	$	51,264	$	132	$	60,624	Total home equity loans and lines	$	1,014	$	1,953	$	1,272	$	765	$	1,063	$	3,767	$	53,474	$	799	$	64,107
Current period gross charge-offs																				Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate:	Commercial real estate:																			Commercial real estate:
Pass	Pass	$	232,390	$	273,789	$	206,929	$	156,285	$	68,110	$	102,580	$	29,227	$	443	$	1,069,753	Pass	$	45,016	$	297,505	$	269,717	$	203,283	$	149,196	$	144,581	$	39,254	$	276	$	1,148,828
Special Mention	Special Mention	1,118		—		350		585		—		351		751		—		3,155		Special Mention	—		—		—		340		—		—		—		—		340
Substandard	Substandard	101		—		170		5,476		534		7,467		—		—		13,748		Substandard	—		18		174		74		5,542		7,119		272		—		13,199
Doubtful	Doubtful	—		—		—		—		—		—		—		—		—		Doubtful	—		—		—		—		—		—		—		—		—
Total commercial real estate loans	Total commercial real estate loans	$	233,609	$	273,789	$	207,449	$	162,346	$	68,644	$	110,398	$	29,978	$	443	$	1,086,656	Total commercial real estate loans	$	45,016	$	297,523	$	269,891	$	203,697	$	154,738	$	151,700	$	39,526	$	276	$	1,162,367
Current period gross charge-offs																				Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Construction and land:	Construction and land:																			Construction and land:
Pass	Pass	$	119,984	$	141,095	$	32,738	$	20,991	$	3,671	$	3,602	$	4,013	$	1,618	$	327,712	Pass	$	24,932	$	180,459	$	73,592	$	13,925	$	8,047	$	4,835	$	3,635	$	2,213	$	311,638
Special Mention	Special Mention	184		533		—		—		—		—		—		—		717		Special Mention	509		174		4,597		151		—		—		—		—		5,431
Substandard		87		—		151		—		—		86		—		—		324
Doubtful		—		—		—		—		—		—		—		—		—
Total construction and land loans		$	120,255	$	141,628	$	32,889	$	20,991	$	3,671	$	3,688	$	4,013	$	1,618	$	328,753

1915


		September 30, 2022																			March 31, 2023
		Term Loans by Origination Year																			Term Loans by Origination Year
(dollars in thousands)	(dollars in thousands)	2022		2021		2020		2019		2018		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total		(dollars in thousands)	2023		2022		2021		2020		2019		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total
Substandard																				Substandard	—		1,305		181		—		—		67		—		—		1,553
Doubtful																				Doubtful	—		—		—		—		—		—		—		—		—
Total construction and land loans																				Total construction and land loans	$	25,441	$	181,938	$	78,370	$	14,076	$	8,047	$	4,902	$	3,635	$	2,213	$	318,622
Current period gross charge-offs																				Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Multi-family residential:	Multi-family residential:																			Multi-family residential:
Pass	Pass	$	25,111	$	20,687	$	26,163	$	13,207	$	2,269	$	3,351	$	176	$	2,859	$	93,823	Pass	$	5,155	$	34,572	$	12,231	$	25,367	$	12,938	$	4,650	$	1,488	$	2,820	$	99,221
Special Mention	Special Mention	—		—		—		—		3,312		—		—		—		3,312		Special Mention	—		—		—		—		—		—		—		—		—
Substandard	Substandard	—		—		—		—		77		—		—		—		77		Substandard	—		—		—		—		—		3,383		—		—		3,383
Doubtful	Doubtful	—		—		—		—		—		—		—		—		—		Doubtful	—		—		—		—		—		—		—		—		—
Total multi-family residential loans	Total multi-family residential loans	$	25,111	$	20,687	$	26,163	$	13,207	$	5,658	$	3,351	$	176	$	2,859	$	97,212	Total multi-family residential loans	$	5,155	$	34,572	$	12,231	$	25,367	$	12,938	$	8,033	$	1,488	$	2,820	$	102,604
Current period gross charge-offs																				Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial and industrial:	Commercial and industrial:																			Commercial and industrial:
Pass	Pass	$	81,508	$	53,550	$	17,678	$	11,214	$	12,140	$	3,337	$	136,107	$	672	$	316,206	Pass	$	18,162	$	99,630	$	43,172	$	13,627	$	7,640	$	12,855	$	178,597	$	681	$	374,364
Special Mention	Special Mention	941		—		278		—		7		—		1,154		—		2,380		Special Mention	—		1,318		—		338		—		221		906		—		2,783
Substandard	Substandard	—		—		1,946		—		—		17		325		26		2,314		Substandard	1,569		—		—		42		—		3		358		—		1,972
Doubtful	Doubtful	—		—		—		—		—		—		—		—		—		Doubtful	—		—		—		—		—		—		—		—		—
Total commercial and industrial loans	Total commercial and industrial loans	$	82,449	$	53,550	$	19,902	$	11,214	$	12,147	$	3,354	$	137,586	$	698	$	320,900	Total commercial and industrial loans	$	19,731	$	100,948	$	43,172	$	14,007	$	7,640	$	13,079	$	179,861	$	681	$	379,119
Current period gross charge-offs																				Current period gross charge-offs	$	—	$	—	$	—	$	—	$	7	$	—	$	49	$	—	$	56
Consumer:	Consumer:																			Consumer:
Pass	Pass	$	6,165	$	2,573	$	1,759	$	733	$	173	$	13,643	$	7,509	$	5	$	32,560	Pass	$	1,399	$	8,807	$	1,756	$	1,300	$	485	$	12,342	$	7,555	$	28	$	33,672
Special Mention	Special Mention	—		—		—		—		—		—		—		—		—		Special Mention	—		—		—		—		—		—		—		—		—
Substandard	Substandard	—		312		—		—		—		234		—		—		546		Substandard	—		9		11		—		—		243		—		—		263
Doubtful	Doubtful	—		—		—		—		—		—		—		—		—		Doubtful	—		—		—		—		—		—		—		—		—
Total consumer loans	Total consumer loans	$	6,165	$	2,885	$	1,759	$	733	$	173	$	13,877	$	7,509	$	5	$	33,106	Total consumer loans	$	1,399	$	8,816	$	1,767	$	1,300	$	485	$	12,585	$	7,555	$	28	$	33,935
Current period gross charge-offs																				Current period gross charge-offs	$	—	$	6	$	1	$	—	$	—	$	—	$	30	$	—	$	37
Total loans:	Total loans:																			Total loans:
Pass	Pass	$	545,904	$	573,730	$	325,535	$	239,001	$	114,800	$	229,773	$	236,271	$	7,444	$	2,272,458	Pass	$	124,812	$	729,450	$	483,564	$	294,979	$	211,427	$	293,280	$	288,710	$	6,873	$	2,433,095
Special Mention	Special Mention	2,393		722		628		585		3,319		709		1,905		500		10,761		Special Mention	509		2,142		4,786		829		—		606		906		—		9,778
Substandard	Substandard	465		341		2,659		5,569		783		9,892		325		26		20,060		Substandard	1,569		1,504		420		478		5,704		13,214		630		—		23,519
Doubtful	Doubtful	—		—		—		—		—		—		—		—		—		Doubtful	—		—		—		—		—		—		—		—		—
Total loans	Total loans	$	548,762	$	574,793	$	328,822	$	245,155	$	118,902	$	240,374	$	238,501	$	7,970	$	2,303,279	Total loans	$	126,890	$	733,096	$	488,770	$	296,286	$	217,131	$	307,100	$	290,246	$	6,873	$	2,466,392
Current period gross charge-offs																				Current period gross charge-offs	$	—	$	6	$	1	$	—	$	7	—		79		—		$	93

2016


		December 31, 2021																			December 31, 2022
		Term Loans by Origination Year																			Term Loans by Origination Year
(dollars in thousands)	(dollars in thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total		(dollars in thousands)	2022		2021		2020		2019		2018		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total
One- to four-family first mortgage:	One- to four-family first mortgage:																			One- to four-family first mortgage:
Pass	Pass	$	77,865	$	44,152	$	45,542	$	34,301	$	35,048	$	96,975	$	12,412	$	351	$	346,646	Pass	$	107,546	$	78,744	$	37,876	$	34,114	$	26,455	$	94,729	$	5,387	$	348	$	385,199
Special Mention	Special Mention	—		—		—		—		—		369		—		—		369		Special Mention	150		189		—		—		—		355		—		500		1,194
Substandard	Substandard	—		347		716		266		463		2,036		—		—		3,828		Substandard	272		56		368		145		372		2,010		—		—		3,223
Doubtful	Doubtful	—		—		—		—		—		—		—		—		—		Doubtful	—		—		—		—		—		—		—		—		—
Total one- to four-family first mortgages	Total one- to four-family first mortgages	$	77,865	$	44,499	$	46,258	$	34,567	$	35,511	$	99,380	$	12,412	$	351	$	350,843	Total one- to four-family first mortgages	$	107,968	$	78,989	$	38,244	$	34,259	$	26,827	$	97,094	$	5,387	$	848	$	389,616
Home equity loans and lines:	Home equity loans and lines:																			Home equity loans and lines:
Pass	Pass	$	1,688	$	873	$	1,114	$	919	$	816	$	3,567	$	50,323	$	975	$	60,275	Pass	$	1,898	$	1,453	$	783	$	1,142	$	604	$	3,453	$	51,502	$	995	$	61,830
Special Mention	Special Mention	—		—		—		—		—		—		—		—		—		Special Mention	—		—		—		—		—		—		—		—		—
Substandard	Substandard	—		—		—		—		37		—		—		—		37		Substandard	—		—		—		—		—		33		—		—		33
Doubtful	Doubtful	—		—		—		—		—		—		—		—		—		Doubtful	—		—		—		—		—		—		—		—		—
Total home equity loans and lines	Total home equity loans and lines	$	1,688	$	873	$	1,114	$	919	$	853	$	3,567	$	50,323	$	975	$	60,312	Total home equity loans and lines	$	1,898	$	1,453	$	783	$	1,142	$	604	$	3,486	$	51,502	$	995	$	61,863
Commercial real estate:	Commercial real estate:																			Commercial real estate:
Pass	Pass	$	226,989	$	193,637	$	142,045	$	68,949	$	73,555	$	59,396	$	23,310	$	1,699	$	789,580	Pass	$	292,894	$	279,397	$	210,983	$	159,169	$	64,554	$	95,083	$	35,918	$	586	$	1,138,584
Special Mention	Special Mention	—		—		—		—		1,841		366		—		—		2,207		Special Mention	—		179		345		—		—		—		—		—		524
Substandard	Substandard	437		821		381		1,741		306		5,991		—		160		9,837		Substandard	97		—		167		5,579		294		7,292		—		—		13,429
Doubtful	Doubtful	—		—		—		—		—		—		—		—		—		Doubtful	—		—		—		—		—		—		—		—		—
Total commercial real estate loans	Total commercial real estate loans	$	227,426	$	194,458	$	142,426	$	70,690	$	75,702	$	65,753	$	23,310	$	1,859	$	801,624	Total commercial real estate loans	$	292,991	$	279,576	$	211,495	$	164,748	$	64,848	$	102,375	$	35,918	$	586	$	1,152,537
Construction and land:	Construction and land:																			Construction and land:
Pass	Pass	$	148,054	$	50,062	$	48,432	$	4,832	$	2,867	$	1,738	$	2,845	$	—	$	258,830	Pass	$	170,744	$	101,321	$	19,620	$	8,912	$	2,534	$	2,716	$	4,434	$	1,727	$	312,008
Special Mention	Special Mention	575		—		—		—		—		—		—		—		575		Special Mention	—		520		—		—		—		—		—		—		520
Substandard	Substandard	—		—		—		—		5		242		—		—		247		Substandard	417		—		152		—		—		78		—		—		647
Doubtful	Doubtful	—		—		—		—		—		—		—		—		—		Doubtful	—		—		—		—		—		—		—		—		—
Total construction and land loans	Total construction and land loans	$	148,629	$	50,062	$	48,432	$	4,832	$	2,872	$	1,980	$	2,845	$	—	$	259,652	Total construction and land loans	$	171,161	$	101,841	$	19,772	$	8,912	$	2,534	$	2,794	$	4,434	$	1,727	$	313,175

2117


		December 31, 2021																			December 31, 2022
		Term Loans by Origination Year																			Term Loans by Origination Year
(dollars in thousands)	(dollars in thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total		(dollars in thousands)	2022		2021		2020		2019		2018		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total
Multi-family residential:	Multi-family residential:																			Multi-family residential:
Pass	Pass	$	31,236	$	31,805	$	14,467	$	6,363	$	2,588	$	2,762	$	1,297	$	—	$	90,518	Pass	$	33,822	$	15,775	$	25,661	$	13,070	$	2,241	$	2,491	$	1,302	$	2,840	$	97,202
Special Mention	Special Mention	—		—		—		—		—		—		—		—		—		Special Mention	—		—		—		—		3,312		—		—		—		3,312
Substandard	Substandard	—		—		—		—		—		—		—		—		—		Substandard	—		—		—		—		74		—		—		—		74
Doubtful	Doubtful	—		—		—		—		—		—		—		—		—		Doubtful	—		—		—		—		—		—		—		—		—
Total multi-family residential loans	Total multi-family residential loans	$	31,236	$	31,805	$	14,467	$	6,363	$	2,588	$	2,762	$	1,297	$	—	$	90,518	Total multi-family residential loans	$	33,822	$	15,775	$	25,661	$	13,070	$	5,627	$	2,491	$	1,302	$	2,840	$	100,588
Commercial and industrial:	Commercial and industrial:																			Commercial and industrial:
Pass	Pass	$	82,765	$	32,465	$	14,794	$	8,737	$	3,066	$	1,690	$	96,648	$	296	$	240,461	Pass	$	108,464	$	50,850	$	16,043	$	8,599	$	11,203	$	2,759	$	174,145	$	712	$	372,775
Special Mention	Special Mention	—		—		—		—		—		—		267		—		267		Special Mention	338		—		—		—		7		—		1,188		—		1,533
Substandard	Substandard	—		2,013		—		417		5		18		942		—		3,395		Substandard	590		—		2,317		8		—		293		328		50		3,586
Doubtful	Doubtful	—		—		—		—		—		—		—		—		—		Doubtful	—		—		—		—		—		—		—		—		—
Total commercial and industrial loans	Total commercial and industrial loans	$	82,765	$	34,478	$	14,794	$	9,154	$	3,071	$	1,708	$	97,857	$	296	$	244,123	Total commercial and industrial loans	$	109,392	$	50,850	$	18,360	$	8,607	$	11,210	$	3,052	$	175,661	$	762	$	377,894
Consumer:	Consumer:																			Consumer:
Pass	Pass	$	5,472	$	2,627	$	1,211	$	411	$	1,041	$	15,530	$	6,488	$	37	$	32,817	Pass	$	10,012	$	2,048	$	1,577	$	536	$	136	$	12,785	$	7,420	$	29	$	34,543
Special Mention	Special Mention	—		—		—		—		—		2		—		—		2		Special Mention	—		—		—		—		—		—		—		—		—
Substandard	Substandard	16		—		—		—		7		179		—		—		202		Substandard	9		298		—		—		—		227		—		—		534
Doubtful	Doubtful	—		—		—		—		—		—		—		—		—		Doubtful	—		—		—		—		—		—		—		—		—
Total consumer loans	Total consumer loans	$	5,488	$	2,627	$	1,211	$	411	$	1,048	$	15,711	$	6,488	$	37	$	33,021	Total consumer loans	$	10,021	$	2,346	$	1,577	$	536	$	136	$	13,012	$	7,420	$	29	$	35,077
Total loans:	Total loans:																			Total loans:
Pass	Pass	$	574,069	$	355,621	$	267,605	$	124,512	$	118,981	$	181,658	$	193,323	$	3,358	$	1,819,127	Pass	$	725,380	$	529,588	$	312,543	$	225,542	$	107,727	$	214,016	$	280,108	$	7,237	$	2,402,141
Special Mention	Special Mention	575		—		—		—		1,841		737		267		—		3,420		Special Mention	488		888		345		—		3,319		355		1,188		500		7,083
Substandard	Substandard	453		3,181		1,097		2,424		823		8,466		942		160		17,546		Substandard	1,385		354		3,004		5,732		740		9,933		328		50		21,526
Doubtful	Doubtful	—		—		—		—		—		—		—		—		—		Doubtful	—		—		—		—		—		—		—		—		—
Total loans	Total loans	$	575,097	$	358,802	$	268,702	$	126,936	$	121,645	$	190,861	$	194,532	$	3,518	$	1,840,093	Total loans	$	727,253	$	530,830	$	315,892	$	231,274	$	111,786	$	224,304	$	281,624	$	7,787	$	2,430,750

2218

The above classifications follow regulatory guidelines and can generally be described as follows:

•Pass loans are of satisfactory quality.

•Special mention loans have an existing weakness that could cause future impairment, including the deterioration of financial ratios, past due status, questionable management capabilities and possible reduction in the collateral values.

•Substandard loans have an existing specific and well-defined weakness that may include poor liquidity and deterioration of financial performance. Such loans may be past due and related deposit accounts experiencing overdrafts. Immediate corrective action is necessary.

•Doubtful loans have specific weaknesses that are severe enough to make collection or liquidation in full highly questionable and improbable.

In addition, residential loans are classified using an inter-agency regulatory methodology that incorporates, among other factors, the extent of delinquencies and loan-to-value ratios. These classifications were the most current available as of the dates indicated and were generally updated within the quarter.

Age analysis of past due loans as of the dates indicated are as follows.


		September 30, 2022													March 31, 2023
(dollars in thousands)	(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current Loans		Total Loans		(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current Loans		Total Loans
Originated loans:	Originated loans:													Originated loans:
Real estate loans:	Real estate loans:													Real estate loans:
One- to four-family first mortgage	One- to four-family first mortgage	$	1,502	$	205	$	446	$	2,153	$	280,343	$	282,496	One- to four-family first mortgage	$	748	$	—	$	529	$	1,277	$	319,440	$	320,717
Home equity loans and lines	Home equity loans and lines	—		—		—		—		51,635		51,635		Home equity loans and lines	70		—		—		70		55,963		56,033
Commercial real estate	Commercial real estate	154		—		27		181		789,988		790,169		Commercial real estate	426		57		—		483		870,711		871,194
Construction and land	Construction and land	—		—		151		151		288,952		289,103		Construction and land	1,158		—		328		1,486		292,713		294,199
Multi-family residential	Multi-family residential	—		—		—		—		90,021		90,021		Multi-family residential	—		—		—		—		98,474		98,474
Total real estate loans	Total real estate loans	1,656		205		624		2,485		1,500,939		1,503,424		Total real estate loans	2,402		57		857		3,316		1,637,301		1,640,617
Other loans:	Other loans:													Other loans:
Commercial and industrial	Commercial and industrial	95		490		236		821		280,852		281,673		Commercial and industrial	557		6		202		765		342,651		343,416
Consumer	Consumer	187		20		190		397		28,817		29,214		Consumer	121		—		183		304		30,546		30,850
Total other loans	Total other loans	282		510		426		1,218		309,669		310,887		Total other loans	678		6		385		1,069		373,197		374,266
Total originated loans	Total originated loans	$	1,938	$	715	$	1,050	$	3,703	$	1,810,608	$	1,814,311	Total originated loans	$	3,080	$	63	$	1,242	$	4,385	$	2,010,498	$	2,014,883
Acquired loans:	Acquired loans:													Acquired loans:
Real estate loans:	Real estate loans:													Real estate loans:
One- to four-family first mortgage	One- to four-family first mortgage	$	1,152	$	387	$	408	$	1,947	$	91,585	$	93,532	One- to four-family first mortgage	$	630	$	54	$	685	$	1,369	$	83,552	$	84,921
Home equity loans and lines	Home equity loans and lines	23		—		—		23		8,966		8,989		Home equity loans and lines	21		—		1		22		8,052		8,074
Commercial real estate	Commercial real estate	—		—		629		629		295,858		296,487		Commercial real estate	62		—		567		629		290,544		291,173
Construction and land	Construction and land	—		—		139		139		39,511		39,650		Construction and land	—		—		35		35		24,388		24,423
Multi-family residential	Multi-family residential	—		—		—		—		7,191		7,191		Multi-family residential	—		—		—		—		4,130		4,130
Total real estate loans	Total real estate loans	1,175		387		1,176		2,738		443,111		445,849		Total real estate loans	713		54		1,288		2,055		410,666		412,721
Other loans:	Other loans:													Other loans:
Commercial and industrial	Commercial and industrial	309		294		—		603		38,624		39,227		Commercial and industrial	—		32		—		32		35,671		35,703
Consumer	Consumer	47		—		35		82		3,810		3,892		Consumer	11		—		65		76		3,009		3,085
Total other loans	Total other loans	356		294		35		685		42,434		43,119		Total other loans	11		32		65		108		38,680		38,788
Total acquired loans	Total acquired loans	$	1,531	$	681	$	1,211	$	3,423	$	485,545	$	488,968	Total acquired loans	$	724	$	86	$	1,353	$	2,163	$	449,346	$	451,509
Total loans:	Total loans:													Total loans:
Real estate loans:	Real estate loans:													Real estate loans:
One- to four-family first mortgage	One- to four-family first mortgage	$	2,654	$	592	$	854	$	4,100	$	371,928	$	376,028	One- to four-family first mortgage	$	1,378	$	54	$	1,214	$	2,646	$	402,992	$	405,638
Home equity loans and lines	Home equity loans and lines	23		—		—		23		60,601		60,624		Home equity loans and lines	91		—		1		92		64,015		64,107
Commercial real estate		154		—		656		810		1,085,846		1,086,656
Construction and land		—		—		290		290		328,463		328,753
Multi-family residential		—		—		—		—		97,212		97,212
Total real estate loans		2,831		592		1,800		5,223		1,944,050		1,949,273
Other loans:
Commercial and industrial		404		784		236		1,424		319,476		320,900
Consumer		234		20		225		479		32,627		33,106
Total other loans		638		804		461		1,903		352,103		354,006
Total loans		$	3,469	$	1,396	$	2,261	$	7,126	$	2,296,153	$	2,303,279

2419


		December 31, 2021													March 31, 2023
(dollars in thousands)	(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current Loans		Total Loans		(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current Loans		Total Loans
Originated loans:
Real estate loans:
One- to four-family first mortgage		$	1,267	$	266	$	1,151	$	2,684	$	254,880	$	257,564
Home equity loans and lines		—		—		—		—		48,561		48,561
Commercial real estate		438		—		4,854		5,292		682,323		687,615
Construction and land		428		—		—		428		249,802		250,230
Multi-family residential		—		—		—		—		87,316		87,316
Total real estate loans		2,133		266		6,005		8,404		1,322,882		1,331,286
Other loans:
Commercial and industrial		51		31		271		353		232,569		232,922
Consumer		289		—		25		314		29,247		29,561
Total other loans		340		31		296		667		261,816		262,483
Total originated loans		$	2,473	$	297	$	6,301	$	9,071	$	1,584,698	$	1,593,769
Acquired loans:
Real estate loans:
One- to four-family first mortgage		$	1,233	$	428	$	1,322	$	2,983	$	90,296	$	93,279
Home equity loans and lines		141		—		—		141		11,610		11,751
Commercial real estate		54		—		2,139		2,193		111,816		114,009
Construction and land		—		—		241		241		9,181		9,422
Multi-family residential		—		—		—		—		3,202		3,202
Total real estate loans		1,428		428		3,702		5,558		226,105		231,663
Other loans:
Commercial and industrial		81		—		430		511		10,690		11,201
Consumer		53		3		21		77		3,383		3,460
Total other loans		134		3		451		588		14,073		14,661
Total acquired loans		$	1,562	$	431	$	4,153	$	6,146	$	240,178	$	246,324
Total loans:
Real estate loans:
One- to four-family first mortgage		$	2,500	$	694	$	2,473	$	5,667	$	345,176	$	350,843
Home equity loans and lines		141		—		—		141		60,171		60,312
Commercial real estate	Commercial real estate	492		—		6,993		7,485		794,139		801,624		Commercial real estate	488		57		567		1,112		1,161,255		1,162,367
Construction and land	Construction and land	428		—		241		669		258,983		259,652		Construction and land	1,158		—		363		1,521		317,101		318,622
Multi-family residential	Multi-family residential	—		—		—		—		90,518		90,518		Multi-family residential	—		—		—		—		102,604		102,604
Total real estate loans	Total real estate loans	3,561		694		9,707		13,962		1,548,987		1,562,949		Total real estate loans	3,115		111		2,145		5,371		2,047,967		2,053,338
Other loans:	Other loans:													Other loans:
Commercial and industrial	Commercial and industrial	132		31		701		864		243,259		244,123		Commercial and industrial	557		38		202		797		378,322		379,119
Consumer	Consumer	342		3		46		391		32,630		33,021		Consumer	132		—		248		380		33,555		33,935
Total other loans	Total other loans	474		34		747		1,255		275,889		277,144		Total other loans	689		38		450		1,177		411,877		413,054
Total loans	Total loans	$	4,035	$	728	$	10,454	$	15,217	$	1,824,876	$	1,840,093	Total loans	$	3,804	$	149	$	2,595	$	6,548	$	2,459,844	$	2,466,392


	December 31, 2022
(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current Loans		Total Loans
Originated loans:
Real estate loans:
One- to four-family first mortgage	$	490	$	147	$	646	$	1,283	$	298,547	$	299,830
Home equity loans and lines	40		—		—		40		52,950		52,990
Commercial real estate	3,210		179		27		3,416		853,096		856,512
Construction and land	345		160		147		652		284,740		285,392
Multi-family residential	—		—		—		—		96,400		96,400
Total real estate loans	4,085		486		820		5,391		1,585,733		1,591,124
Other loans:
Commercial and industrial	152		—		210		362		338,418		338,780
Consumer	264		7		191		462		31,059		31,521
Total other loans	416		7		401		824		369,477		370,301
Total originated loans	$	4,501	$	493	$	1,221	$	6,215	$	1,955,210	$	1,961,425
Acquired loans:
Real estate loans:
One- to four-family first mortgage	$	1,591	$	136	$	519	$	2,246	$	87,540	$	89,786
Home equity loans and lines	116		—		1		117		8,756		8,873
Commercial real estate	294		—		566		860		295,165		296,025
Construction and land	—		—		132		132		27,651		27,783
Multi-family residential	—		—		—		—		4,188		4,188
Total real estate loans	2,001		136		1,218		3,355		423,300		426,655
Other loans:
Commercial and industrial	—		225		38		263		38,851		39,114
Consumer	41		3		21		65		3,491		3,556
Total other loans	41		228		59		328		42,342		42,670
Total acquired loans	$	2,042	$	364	$	1,277	$	3,683	$	465,642	$	469,325
Total loans:
Real estate loans:
One- to four-family first mortgage	$	2,081	$	283	$	1,165	$	3,529	$	386,087	$	389,616


	December 31, 2022
(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current Loans		Total Loans
Home equity loans and lines	156		—		1		157		61,706		61,863
Commercial real estate	3,504		179		593		4,276		1,148,261		1,152,537
Construction and land	345		160		279		784		312,391		313,175
Multi-family residential	—		—		—		—		100,588		100,588
Total real estate loans	6,086		622		2,038		8,746		2,009,033		2,017,779
Other loans:
Commercial and industrial	152		225		248		625		377,269		377,894
Consumer	305		10		212		527		34,550		35,077
Total other loans	457		235		460		1,152		411,819		412,971
Total loans	$	6,543	$	857	$	2,498	$	9,898	$	2,420,852	$	2,430,750

There were ~~$3,000~~$0 and ~~$6,000~~$2,000 of loans greater than 90 days past due and accruing at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

The following tables summarize information pertaining to nonaccrual loans as of dates indicated.


		September 30, 2022								March 31, 2023
(dollars in thousands)	(dollars in thousands)		With Related Allowance		Without Related Allowance		Total		(dollars in thousands)		With Related Allowance		Without Related Allowance		Total
Nonaccrual loans(1):	Nonaccrual loans(1):								Nonaccrual loans(1):
One- to four-family first mortgage	One- to four-family first mortgage		$	2,463	$	—	$	2,463	One- to four-family first mortgage		$	2,210	$	28	$	2,238
Home equity loans and lines	Home equity loans and lines		34		—		34		Home equity loans and lines		32		—		32
Commercial real estate	Commercial real estate		10,304		3,031		13,335		Commercial real estate		3,982		2,778		6,760
Construction and land	Construction and land		327		—		327		Construction and land		1,555		—		1,555
Multi-family residential	Multi-family residential		—		—		—		Multi-family residential		—		—		—
Commercial and industrial	Commercial and industrial		352		16		368		Commercial and industrial		382		—		382
Consumer	Consumer		467		86		553		Consumer		265		—		265
Total	Total		$	13,947	$	3,133	$	17,080	Total		$	8,426	$	2,806	$	11,232

		December 31, 2021								December 31, 2022
(dollars in thousands)	(dollars in thousands)		With Related Allowance		Without Related Allowance		Total		(dollars in thousands)		With Related Allowance		Without Related Allowance		Total
Nonaccrual loans(1):	Nonaccrual loans(1):								Nonaccrual loans(1):
One- to four-family first mortgage	One- to four-family first mortgage		$	3,575	$	—	$	3,575	One- to four-family first mortgage		$	2,300	$	—	$	2,300
Home equity loans and lines	Home equity loans and lines		38		—		38		Home equity loans and lines		34		—		34
Commercial real estate	Commercial real estate		8,315		116		8,431		Commercial real estate		4,031		2,914		6,945
Construction and land	Construction and land		258		—		258		Construction and land		315		—		315
Multi-family residential	Multi-family residential		—		—		—		Multi-family residential		—		—		—
Commercial and industrial	Commercial and industrial		743		20		763		Commercial and industrial		365		13		378
Consumer	Consumer		204		—		204		Consumer		455		86		541
Total	Total		$	13,133	$	136	$	13,269	Total		$	7,500	$	3,013	$	10,513

(1)Nonaccrual acquired loans include PCD loans of ~~$7,693,000~~$2,087,000 and $1,530,000 at ~~September 30, 2022. There were no nonaccrual acquired PCD loans at~~March 31, 2023 and December 31, ~~2021.~~2022, respectively.

All interest accrued but not received for loans placed on nonaccrual status is reversed against interest income. All payments received while on nonaccrual status are applied against the principal balance of nonaccrual loans. The Company does not recognize interest income while loans are on nonaccrual status.

Collateral Dependent Loans

The Company held loans that were individually evaluated for credit losses at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 for which the repayment, on the basis of our assessment at the reporting date, is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. The ACL for these collateral-dependent loans is primarily based on the fair value of the underlying collateral at the reporting date. The following describes the types of collateral that secure collateral dependent loans:

•One- to four-family first mortgages are primarily secured by first liens on residential real estate.

•Home equity loans and lines are primarily secured by first and junior liens on residential real estate.

•Commercial real estate loans are primarily secured by office and industrial buildings, warehouses, retail shopping facilities and various special purpose properties, including hotels and restaurants.

•Construction and land loans are primarily secured by residential and commercial properties, which are under construction and/or redevelopment, and by raw land.

•Commercial and industrial loans considered collateral dependent are primarily secured by accounts receivable, inventory and equipment.

The tables below summarize collateral dependent loans and the related ACL at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022.


		September 30, 2022					March 31, 2023
(dollars in thousands)	(dollars in thousands)	Loans		ACL		(dollars in thousands)	Loans		ACL
One- to four-family first mortgage	One- to four-family first mortgage	$	112	$	32	One- to four-family first mortgage	$	28	$	—
Home equity loans and lines	Home equity loans and lines	—		—		Home equity loans and lines	—		—
Commercial real estate	Commercial real estate	10,692		1,193		Commercial real estate	4,290		450
Construction and land	Construction and land	—		—		Construction and land	—		—
Multi-family residential	Multi-family residential	—		—		Multi-family residential	—		—
Commercial and industrial	Commercial and industrial	244		188		Commercial and industrial	171		143
Consumer	Consumer	86		—		Consumer	—		—
Total	Total	$	11,134	$	1,413	Total	$	4,489	$	593

		December 31, 2021					December 31, 2022
(dollars in thousands)	(dollars in thousands)	Loans		ACL		(dollars in thousands)	Loans		ACL
One- to four-family first mortgage	One- to four-family first mortgage	$	—	$	—	One- to four-family first mortgage	$	—	$	—
Home equity loans and lines	Home equity loans and lines	—		—		Home equity loans and lines	—		—
Commercial real estate	Commercial real estate	3,873		247		Commercial real estate	4,743		550
Construction and land	Construction and land	—		—		Construction and land	—		—
Multi-family residential	Multi-family residential	—		—		Multi-family residential	—		—
Commercial and industrial	Commercial and industrial	744		425		Commercial and industrial	204		171
Consumer	Consumer	—		—		Consumer	86		—
Total	Total	$	4,617	$	672	Total	$	5,033	$	721

Loan Modifications Made to Borrowers Experiencing Financial Difficulty

Occasionally, the Company modifies loans to borrowers in financial distress by providing certain concessions, such as principal forgiveness, term extension, an other-than-insignificant payment delay, interest only for a specified period of time, an interest rate reduction, or a combination of such concessions. When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses. Upon the Company's determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or portion of the loan) is charged-off. During the three months

ended March 31, 2023, there was no modifications of loans to borrowers who were experiencing financial difficulty. the Company did not provide any modifications under these circumstances to borrowers. Three loans were modified during the three months ended March 31, 2022 and they did not default within twelve months of modification.

Foreclosed Assets and ORE

Foreclosed assets and ORE include real property and other assets that have been acquired as a result of foreclosure, and real property no longer used in the Bank's business. Foreclosed assets and ORE totaled ~~$390,000~~$80,000 and ~~$1,189,000~~$461,000 at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. These amounts are recorded in accrued interest receivable and other assets on the Consolidated Statements of Financial Condition.

The carrying amount of foreclosed residential real estate properties held at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 totaled ~~$147,000~~$80,000 and ~~$136,000,~~$231,000, respectively. Loans secured by single family residential real estate that were in the process of foreclosure at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 totaled ~~$314,000~~$180,000 and ~~$505,000,~~$179,000, respectively.

Foreclosed assets and ORE included certain bank buildings that meet the criteria to be classified as assets held for sale. The carrying value of these assets totaled $423,000 at December 31, 2021. During the nine months ended September 30, 2022, the Company sold the asset held for sale at the recorded carrying value of $423,000 at December 31, 2021.

~~Troubled Debt Restructurings~~

During the course of its lending operations, the Company periodically grants concessions to its customers in an attempt to protect as much of its investment as possible and to minimize risk of loss. These concessions may include restructuring the terms of a customer loan to alleviate the burden of the customer’s near-term cash requirements. Loans are TDRs when the Company agrees to restructure a loan to a borrower who is experiencing financial difficulties in a manner that is deemed to be a “concession”. The Company defines a concession as a modification of existing terms granted to a borrower for economic or legal reasons related to the borrower’s financial difficulties that the Company would otherwise not consider. The concession either is granted through an agreement with the customer or is imposed by a court or by law. Concessions include modifying original loan terms to reduce or defer cash payments required as part of the loan agreement, including but not limited to:

•~~a reduction of the stated interest rate for the remaining original life of the debt,~~

•~~an extension of the maturity date or dates at an interest rate lower than the current market rate for new debt with similar risk characteristics,~~

•~~a reduction of the face amount or maturity amount of the debt or~~

•~~a reduction of accrued interest receivable on the debt.~~

~~In its determination of whether the customer is experiencing financial difficulties, the Company considers numerous indicators, including, but not limited to:~~

•whether the customer is currently in default on its existing loan, or is in an economic position where it is probable the customer will be in default on its loan in the foreseeable future without a modification,

•~~whether the customer has declared or is in the process of declaring bankruptcy,~~

•~~whether there is substantial doubt about the customer’s ability to continue as a going concern,~~

•whether, based on its projections of the customer’s current capabilities, the Company believes the customer’s future cash flows will be insufficient to service the debt, including interest, in accordance with the contractual terms of the existing agreement for the foreseeable future and

•~~whether, without modification, the customer cannot obtain sufficient funds from other sources at an effective interest rate equal to the current market rate for similar debt for a non-troubled debtor.~~

If the Company concludes that both a concession has been granted and the concession was granted to a customer experiencing financial difficulties, the Company identifies the loan as a TDR. At least quarterly, the Company evaluates larger commercial TDRs (i.e., TDRs with balances of $500,000 or greater) to determine if the assets should be individually evaluated for credit losses. The ACL for loans that are individually evaluated is based on a comparison of the recorded investment in the loan with either the expected cash flows discounted using the loan’s original effective interest rate, observable market price for the loan or the fair value of the collateral underlying certain collateral-dependent loans. Residential, consumer and smaller balance commercial TDRs are included in the Company's pooled-loan analysis to calculate the ACL and, generally, do not have a material impact on the overall ACL.

~~The following table summarizes information pertaining to TDRs modified during the periods indicated.~~

Nine Months Ended September 30,
2022 2021
(dollars in thousands) Number of Contracts Pre-modification Outstanding Recorded Investment Post-modification Outstanding Recorded Investment Number of Contracts Pre-modification Outstanding Recorded Investment Post-modification Outstanding Recorded Investment
Troubled debt restructurings:
One- to four-family first mortgage 6 $ 1,185 $ 1,142 2 $ 77 $ 74
Home equity loans and lines — — — — — —
Commercial real estate 2 407 344 2 479 445
Construction and land — — — — — —
Multi-family residential — — — — — —
Commercial and industrial 1 7 7 2 2,397 2,308
Other consumer 1 19 16 1 5 2
Total 10 $ 1,618 $ 1,509 7 $ 2,958 $ 2,829

~~None of the the loans modified during the nine months ended September 30, 2022 defaulted during the same period.~~

One commercial real estate loan totaling $342,000, two one- to four-family first mortgage loans totaling $73,000, and one commercial and industrial loan totaling $304,000 were modified during the nine months ended September 30, 2021 and defaulted within twelve months of modification. The defaults did not have a significant impact on our allowance for credit losses at September 30, 2021.

7.6. Derivatives and Hedging Activities

Risk Management Objective of Using Derivatives

The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates.

The Company’s existing credit derivatives result from loan participation arrangements, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. The Company occasionally enters into credit risk participation agreements with counterparty banks to accept a portion of the credit risk related to interest rate swaps. The agreements, which are typically executed in conjunction with a participation in a loan with the same customer, allow customers to execute an interest rate swap with one bank while allowing for the distribution of the credit risk among participating members. Collateral used to support the credit risk for the underlying lending relationship is also available to offset the risk of credit risk participations and customer derivative positions.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. As part of its efforts to accomplish this objective, the Company entered into certain interest rate swap agreements as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Such derivatives were used to hedge the variable cash flows associated with existing variable rate liabilities.

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in Accumulated Other Comprehensive Income and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable rate liabilities.

During the next twelve months, the Company estimates that an additional ~~$1,554,000~~$1,729,000 will be reclassified as additional interest income.

Non-designated Hedges

The Company’s existing credit derivatives result from participations in interest rate swaps provided by external lenders as part of loan participation arrangements, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain lenders which participate in loans. For derivative instruments that are not designated as hedging instruments, changes in the fair value of the derivatives are recognized in earnings immediately.

Fair Values of Derivative Instruments

The tables below present the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Statement of Financial Condition as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022.


		September 30, 2022									March 31, 2023
		Derivative Assets(1)				Derivative Liabilities(1)					Derivative Assets(1)				Derivative Liabilities(1)
(dollars in thousands)	(dollars in thousands)	Notional Amount		Fair Value		Notional Amount		Fair Value		(dollars in thousands)	Notional Amount		Fair Value		Notional Amount		Fair Value
Derivatives designated as hedging instruments:	Derivatives designated as hedging instruments:									Derivatives designated as hedging instruments:
Interest rate swaps - variable rate liabilities	Interest rate swaps - variable rate liabilities	$	40,000	$	5,462	$	—	$	—	Interest rate swaps - variable rate liabilities	$	40,000	$	4,447	$	—	$	—

Derivatives not designated as hedging instruments:	Derivatives not designated as hedging instruments:									Derivatives not designated as hedging instruments:
Risk participation agreements	Risk participation agreements	—		—		10,000		10		Risk participation agreements	—		—		11,977		10

Netting adjustments	Netting adjustments			—				—		Netting adjustments			—				—

Net derivative amounts	Net derivative amounts			$	5,462			$	10	Net derivative amounts			$	4,447			$	10

		December 31, 2021									December 31, 2022
		Derivative Assets(1)				Derivative Liabilities(1)					Derivative Assets(1)				Derivative Liabilities(1)
(dollars in thousands)	(dollars in thousands)	Notional Amount		Fair Value		Notional Amount		Fair Value		(dollars in thousands)	Notional Amount		Fair Value		Notional Amount		Fair Value
Derivatives designated as hedging instruments:	Derivatives designated as hedging instruments:									Derivatives designated as hedging instruments:
Interest rate swaps - variable rate liabilities	Interest rate swaps - variable rate liabilities	$	40,000	$	1,589	$	—	$	—	Interest rate swaps - variable rate liabilities	$	40,000	$	5,144	$	—	$	—

Derivatives not designated as hedging instruments:	Derivatives not designated as hedging instruments:									Derivatives not designated as hedging instruments:
Risk participation agreements	Risk participation agreements	—		—		10,000		43		Risk participation agreements	—		—		12,036		9

Netting adjustments	Netting adjustments			—				—		Netting adjustments			—				—

Net derivative amounts	Net derivative amounts			$	1,589			$	43	Net derivative amounts			$	5,144			$	9

(1)Derivative assets and liabilities are reported at fair value in accrued interest receivable and other assets and accrued interest payable and other liabilities, respectively, in the Consolidated Statements of Financial Condition.

At ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, accumulated unrealized gains, net of taxes, on derivative instruments totaled ~~$4,256,000~~$3,395,000 and ~~$1,259,000,~~$3,961,000, respectively.

Effect of Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income and the Consolidated Statements of Income

The tables below present the effect of cash flow hedge accounting on Accumulated Other Comprehensive Income and the Consolidated Statements of Income as of ~~September 30, 2022~~March 31, 2023 and ~~September 30, 2021.~~March 31, 2022.

Three Months Ended September 30, 2022
Amount of Gain Recognized in OCI Location of Gain Reclassified from AOCI into Income Amount of Gain Reclassified from AOCI into Income
(dollars in thousands) Total Included Component Total Included Component
Derivatives in cash flows hedging relationships:
Interest rate swaps - variable rate liabilities $ 1,490 $ 1,490 Interest income $ 193 $ 193
Nine Months Ended September 30, 2022
Amount of Gain Recognized in OCI Location of Gain Reclassified from AOCI into Income Amount of Gain Reclassified from AOCI into Income
(dollars in thousands) Total Included Component Total Included Component
Derivatives in cash flows hedging relationships:
Interest rate swaps - variable rate liabilities $ 4,024 $ 4,024 Interest income $ 231 $ 231


	Three Months Ended March 31, 2023
	Amount of Loss Recognized in OCI				Location of Gain Reclassified from AOCI into Income	Amount of Gain Reclassified from AOCI into Income
(dollars in thousands)	Total		Included Component			Total		Included Component
Derivatives in cash flows hedging relationships:
Interest rate swaps - variable rate liabilities	$	(295)	$	(295)	Interest income	$	421	$	421

Three Months Ended September 30, 2021

Three Months Ended March 31, 2022

Amount of Gain Recognized in OCI

Location of Loss Reclassified from AOCI into Income

Amount of Loss Reclassified from AOCI into Income

Amount of Gain Recognized in OCI

Location of Loss Reclassified from AOCI into Income

Amount of Loss Reclassified from AOCI into Income

(dollars in thousands)

Total

Included Component

Total

Included Component

(dollars in thousands)

Total

Included Component

Total

Included Component

Derivatives in cash flows hedging relationships:

Interest rate swaps - variable rate liabilities

Interest expense

(16)

Interest rate swaps - variable rate liabilities

1,855

Interest expense

(12)

Nine Months Ended September 30, 2021

Amount of Gain Recognized in OCI

Location of Loss Reclassified from AOCI into Income

Amount of Loss Reclassified from AOCI into Income

(dollars in thousands)

Total

Included Component

Total

Included Component

Derivatives in cash flows hedging relationships:

Interest rate swaps - variable rate liabilities

926

Interest expense

(48)

Effect of Derivatives Not Designated as Hedging Instruments on the Consolidated Statements of Income

The table below presents the effect of the Company’s derivative financial instruments that are not designated as hedging instruments on the Consolidated Statements of Income as of ~~September 30,~~March 31, 2023 and March 31, 2022.

(dollars in thousands) Location of Income Recognized on Non-designated Hedges Three Months Ended September 30, 2022 Nine Months Ended September 30, 2022
Effects of non-designated hedges
Risk participation agreements Other noninterest income $ 6 $ 73
(dollars in thousands) Location of Income Recognized on Non-designated Hedges Three months ended September 30, 2021 Nine months ended September 30, 2021
Effects of non-designated hedges
Risk participation agreements Other noninterest income $ 6 $ 26

~~At and during the three and nine months ended September 30, 2021, the Company was not a party to derivative contracts not designated as hedging instruments.~~

(dollars in thousands)

Location of Loss Recognized on Non-designated Hedges

Three Months Ended March 31, 2023

Effects of non-designated hedges

Risk participation agreements

Other noninterest expense

(1)

(dollars in thousands)

Location of Income Recognized on Non-designated Hedges

Three Months Ended March 31, 2022

Effects of non-designated hedges

Risk participation agreements

Other noninterest income

Credit-risk-related Contingent Features

The Company has agreements with each of its derivative counterparties that contain a provision to the effect that, if the Company (either) defaults (or is capable of being declared in default) on any of its indebtedness, then the Company could also be declared in default on its derivative obligations.

The Company has agreements with certain of its derivative counterparties that contain a provision to the effect that, if the Company fails to maintain its status as a well or adequately capitalized institution, then the Company could be required to post additional collateral.

As of ~~September 30, 2022,~~March 31, 2023, there were no derivatives with credit-risk-related contingent features in a net liability position. Such derivatives are measured at fair value, which includes accrued interest but excludes any adjustment for nonperformance risk. If the Company had breached any provisions at ~~September 30, 2022,~~March 31, 2023, it would not have been required to settle any obligations under the agreements since the termination value was $0.

8.7. Long Term Debt

On June 30, 2022, the Company issued $55,000,000 in aggregate principal amount of its 5.75% Fixed-to-Floating Rate Subordinated Notes (the "Notes") due 2032. The Notes were issued at a price equal to 100% of the aggregate principal amount. The Notes have a stated maturity date of June 30, 2032 and ~~will~~ bear interest at a fixed rate of 5.75% per year from and including the issue date to but excluding June 30, 2027. From June 30, 2027, the Notes will bear interest at a floating rate equal to the then current three-month term secured overnight financing rate (“SOFR”), plus 282 basis points. The Notes may be redeemed by the Company, in whole or in part, on or after June 30, 2027. The Notes are intended to qualify as Tier 2 capital for regulatory purposes.

The carrying value of subordinated debt was ~~$53,958,000~~$54,073,000 and $54,013,000 at ~~September 30, 2022.~~March 31, 2023 and December 31, 2022, respectively. The subordinated debt was recorded net of issuance costs of ~~$1,102,000~~ ~~at September 30, 2022,~~ which is being amortized using the straight-line method over five years.

9.8. Fair Value Measurements and Disclosures

The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The Company groups assets and liabilities measured or disclosed at fair value in three levels as required by ASC 820, Fair Value Measurements and Disclosures. Under this guidance, fair value should be based on the assumptions market participants would use when pricing the asset or liability and establishes a fair value hierarchy that prioritizes the inputs used to develop those assumptions and measure fair value. The hierarchy requires companies to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels used to measure fair value are as follows:

•Level 1 – Quoted prices in active markets for identical assets or liabilities.

•Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

•Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

An asset’s or liability’s categorization within the fair value hierarchy is based upon the lowest level that is significant to the fair value measurement. Management reviews and updates the fair value hierarchy classifications of the Company’s assets and liabilities quarterly.

Recurring Basis

Investment Securities Available for Sale

Fair values of investment securities available for sale are primarily measured using information from a third-party pricing service. This pricing service provides pricing information by utilizing pricing models supported with market data information. Standard inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities bids, offers and other reference data from market research publications. If quoted prices are available in an active market, investment securities are classified as Level 1 measurements. If quoted prices are not available in an active market, fair values are estimated primarily by the use of pricing models. Level 2 investment securities are primarily comprised of mortgage-backed securities issued by government agencies and U.S. government-sponsored enterprises. In certain cases, where there is limited or less transparent information provided by the Company’s third-party pricing service, fair value is estimated by the use of secondary pricing services or through the use of non-binding third-party broker quotes. Investment securities are classified within Level 3 when little or no market activity supports the fair value.

Management primarily identifies investment securities which may have traded in illiquid or inactive markets, by identifying instances of a significant decrease in the volume and frequency of trades, relative to historical levels, as well as instances of a significant widening of the bid-ask spread in the brokered markets. Investment securities that are deemed to have been trading in illiquid or inactive markets may require the use of significant unobservable inputs. For example, management may use quoted prices for similar investment securities in the absence of a liquid and active market for the investment securities being valued. As of ~~September 30, 2022,~~March 31, 2023, management did not make adjustments to prices provided by the third-party pricing service as a result of illiquid or inactive markets.

Derivative Assets and Liabilities

Derivative assets and liabilities are reported at fair value in accrued interest receivable and other assets and accrued interest payable and other liabilities, respectively, in the Consolidated Statements of Financial Condition. The fair value of these derivative financial instruments is obtained from a third-party pricing service that uses widely accepted valuation techniques

including discounted cash flow analysis on the expected cash flows of each derivative. The analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The Company has determined that its derivative valuations are classified in Level 2 of the fair vale hierarchy.

The following tables present the balances of assets measured for fair value on a recurring basis as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022.


(dollars in thousands)	(dollars in thousands)	September 30, 2022		Level 1		Level 2		Level 3		(dollars in thousands)	March 31, 2023		Level 1		Level 2		Level 3
Assets	Assets									Assets
Available for sale securities:	Available for sale securities:									Available for sale securities:
U.S. agency mortgage-backed	U.S. agency mortgage-backed	$	319,217	$	—	$	319,217	$	—	U.S. agency mortgage-backed	$	307,381	$	—	$	307,381	$	—
Collateralized mortgage obligations	Collateralized mortgage obligations	90,536		—		90,536		—		Collateralized mortgage obligations	84,887		—		84,887		—
Municipal bonds	Municipal bonds	56,905		—		56,905		—		Municipal bonds	48,556		—		48,556		—
U.S. government agency	U.S. government agency	19,613		—		19,613		—		U.S. government agency	19,322		—		19,322		—
Corporate bonds	Corporate bonds	6,487		—		6,487		—		Corporate bonds	6,360		—		6,360		—
Total	Total	$	492,758	$	—	$	492,758	$	—	Total	$	466,506	$	—	$	466,506	$	—

Derivative assets	Derivative assets	$	5,462	$	—	$	5,462	$	—	Derivative assets	$	4,447	$	—	$	4,447	$	—
Total	Total	$	498,220	$	—	$	498,220	$	—	Total	$	470,953	$	—	$	470,953	$	—

Liabilities	Liabilities									Liabilities
Derivative liabilities	Derivative liabilities	$	10	$	—	$	10	$	—	Derivative liabilities	$	10	$	—	$	10	$	—

(dollars in thousands) December 31, 2021 Level 1 Level 2 Level 3
Assets
Available for sale securities:
U.S. agency mortgage-backed $ 233,773 $ — $ 233,773 $ —
Collateralized mortgage obligations 31,912 — 31,912 —
Municipal bonds 50,719 — 50,719 —
U.S. government agency 5,614 — 5,614 —
Corporate bonds 5,614 — 5,614 —
Total $ 327,632 $ — $ 327,632 $ —
Derivative assets $ 1,589 $ — $ 1,589 $ —
Total $ 329,221 $ — $ 329,221 $ —
Liabilities
Derivative liabilities $ 43 $ — $ 43 $ —


(dollars in thousands)	December 31, 2022		Level 1		Level 2		Level 3
Assets
Available for sale securities:
U.S. agency mortgage-backed	$	316,832	$	—	$	316,832	$	—
Collateralized mortgage obligations	86,345		—		86,345		—
Municipal bonds	57,625		—		57,625		—
U.S. government agency	19,333		—		19,333		—
Corporate bonds	6,383		—		6,383		—
Total	$	486,518	$	—	$	486,518	$	—

Derivative assets	$	5,144	$	—	$	5,144	$	—
Total	$	491,662	$	—	$	491,662	$	—

Liabilities
Derivative liabilities	$	9	$	—	$	9	$	—

3427

Nonrecurring Basis

The Company records loans individually evaluated for credit losses at fair value on a nonrecurring basis. Fair value is measured at the fair value of the collateral for collateral-dependent loans. For non-collateral-dependent loans, fair value is measured by present valuing expected future cash flows. Loans individually evaluated are classified as Level 3 assets when measured using appraisals from third parties of the collateral less any prior liens and when there is no observable market price.

Foreclosed assets and ORE are also recorded at fair value on a nonrecurring basis. Foreclosed assets are initially recorded at fair value less estimated costs to sell. ORE is recorded at the lower of its net book value or fair value at the date of transfer to ORE. The fair value of foreclosed assets and ORE is based on property appraisals and an analysis of similar properties available. As such, the Company classifies foreclosed and ORE assets as Level 3 assets.

The Company has segregated all financial assets that are measured at fair value on a nonrecurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date as reflected in the table below.

Fair Value Measurements Using
(dollars in thousands) September 30, 2022 Level 1 Level 2 Level 3
Assets
Loans individually evaluated $ 9,721 $ — $ — $ 9,721
Foreclosed assets and ORE 390 — — 390
Total $ 10,111 $ — $ — $ 10,111
Fair Value Measurements Using
(dollars in thousands) December 31, 2021 Level 1 Level 2 Level 3
Assets
Loans individually evaluated $ 3,945 $ — $ — $ 3,945
Foreclosed assets and ORE 1,189 — — 1,189
Total $ 5,134 $ — $ — $ 5,134


			Fair Value Measurements Using
(dollars in thousands)	March 31, 2023		Level 1		Level 2		Level 3
Assets
Loans individually evaluated	$	3,896	$	—	$	—	$	3,896
Foreclosed assets and ORE	80		—		—		80
Total	$	3,976	$	—	$	—	$	3,976

			Fair Value Measurements Using
(dollars in thousands)	December 31, 2022		Level 1		Level 2		Level 3
Assets
Loans individually evaluated	$	4,312	$	—	$	—	$	4,312
Foreclosed assets and ORE	461		—		—		461
Total	$	4,773	$	—	$	—	$	4,773

The following table shows significant unobservable inputs used in the fair value measurement of Level 3 assets.

(dollars in thousands)

Fair Value

Valuation Technique

Unobservable Inputs

Range of Discounts

Weighted Average Discount

(dollars in thousands)

Fair Value

Valuation Technique

Unobservable Inputs

Range of Discounts

Weighted Average Discount

September 30, 2022

March 31, 2023

Loans individually evaluated

9,721

Third party appraisals and discounted cash flows

Collateral values, market discounts and estimated costs to sell

0% - 83%

13%

Loans individually evaluated

3,896

Third party appraisals and discounted cash flows

Collateral values, market discounts and estimated costs to sell

0% - 83%

13%

Foreclosed assets and ORE

390

Third party appraisals, sales contracts, broker price opinions

Collateral values, market discounts and estimated costs to sell

0% - 27%

Foreclosed assets and ORE

Third party appraisals, sales contracts, broker price opinions

Collateral values, market discounts and estimated costs to sell

6% - 31%

31%

(dollars in thousands)

Fair Value

Valuation Technique

Unobservable Inputs

Range of
Discounts

Weighted Average Discount

(dollars in thousands)

Fair Value

Valuation Technique

Unobservable Inputs

Range of
Discounts

Weighted Average Discount

December 31, 2021

December 31, 2022

Loans individually evaluated

3,945

Third party appraisals and discounted cash flows

Collateral values, market discounts and estimated costs to sell

0% - 100%

15%

Loans individually evaluated

4,312

Third party appraisals and discounted cash flows

Collateral values, market discounts and estimated costs to sell

0% - 89%

14%

Foreclosed assets and ORE

1,189

Third party appraisals, sales contracts, broker price opinions

Collateral values, market discounts and estimated costs to sell

6% - 16%

12%

Foreclosed assets and ORE

461

Third party appraisals, sales contracts, broker price opinions

Collateral values, market discounts and estimated costs to sell

6% - 31%

16%

3528

ASC 820, Fair Value Measurements and Disclosures, requires the disclosure of each class of financial instruments for which it is practicable to estimate. The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. 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. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. ASC 820 excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial statements. These estimates are subjective in nature, involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates included herein are based on existing on- and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business and the fair value of assets and liabilities that are not required to be recorded or disclosed at fair value like premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

Methods and assumptions used to estimate fair value of each class of financial instruments for which it is practicable to estimate fair value are described in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. The fair value of subordinated debt is estimated based on current market rates on similar debt in the market. The Company classifies this debt in Level 2 of the fair value table. There have been no other material changes from the fair value estimate methods and assumptions previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

The following table presents estimated fair values of the Company’s financial instruments as of the dates indicated.


				Fair Value Measurements at September 30, 2022											Fair Value Measurements at March 31, 2023
(dollars in thousands)	(dollars in thousands)	Carrying Amount		Total		Level 1		Level 2		Level 3		(dollars in thousands)	Carrying Amount		Total		Level 1		Level 2		Level 3
Financial Assets	Financial Assets											Financial Assets
Cash and cash equivalents	Cash and cash equivalents	$	150,556	$	150,556	$	150,556	$	—	$	—	Cash and cash equivalents	$	107,171	$	107,171	$	107,171	$	—	$	—
Interest-bearing deposits in banks	Interest-bearing deposits in banks	349		349		349		—		—		Interest-bearing deposits in banks	349		349		349		—		—
Investment securities available for sale	Investment securities available for sale	492,758		492,758		—		492,758		—		Investment securities available for sale	466,506		466,506		—		466,506		—
Investment securities held to maturity	Investment securities held to maturity	1,080		1,066		—		1,066		—		Investment securities held to maturity	1,070		1,069		—		1,069		—
Mortgage loans held for sale	Mortgage loans held for sale	169		169		—		169		—		Mortgage loans held for sale	473		473		—		473		—
Loans, net	Loans, net	2,275,928		2,174,834		—		2,165,113		9,721		Loans, net	2,436,274		2,325,572		—		2,321,676		3,896
Cash surrender value of BOLI	Cash surrender value of BOLI	46,019		46,019		46,019		—		—		Cash surrender value of BOLI	46,528		46,528		46,528		—		—
Derivative assets(1)	Derivative assets(1)	5,462		5,462		—		5,462		—		Derivative assets(1)	4,447		4,447		—		4,447		—
Financial Liabilities	Financial Liabilities											Financial Liabilities
Deposits	Deposits	$	2,738,424	$	2,725,412	$	—	$	2,725,412	$	—	Deposits	$	2,557,744	$	2,548,197	$	2,185,832	$	362,365	$	—
Other borrowings	Other borrowings	5,539		4,890		—		4,890		—		Other borrowings	5,539		5,444		—		5,444		—
Subordinated debt		53,958		52,299		—		52,299		—
Subordinated debt, net of issuance cost												Subordinated debt, net of issuance cost	54,073		51,848		—		51,848		—
Short-term FHLB advances												Short-term FHLB advances	233,650		233,650		233,650		—		—
Long-term FHLB advances	Long-term FHLB advances	24,816		23,571		—		23,571		—		Long-term FHLB advances	43,077		41,799		—		41,799		—
Derivative liabilities(1)	Derivative liabilities(1)	10		10		—		10		—		Derivative liabilities(1)	10		10		—		10		—

3629


				Fair Value Measurements at December 31, 2021											Fair Value Measurements at December 31, 2022
(dollars in thousands)	(dollars in thousands)	Carrying Amount		Total		Level 1		Level 2		Level 3		(dollars in thousands)	Carrying Amount		Total		Level 1		Level 2		Level 3
Financial Assets	Financial Assets											Financial Assets
Cash and cash equivalents	Cash and cash equivalents	$	601,443	$	601,443	$	601,443	$	—	$	—	Cash and cash equivalents	$	87,401	$	87,401	$	87,401	$	—	$	—
Interest-bearing deposits in banks	Interest-bearing deposits in banks	349		349		349		—		—		Interest-bearing deposits in banks	349		349		349		—		—
Investment securities available for sale	Investment securities available for sale	327,632		327,632		—		327,632		—		Investment securities available for sale	486,518		486,518		—		486,518		—
Investment securities held to maturity	Investment securities held to maturity	2,102		2,132		—		2,132		—		Investment securities held to maturity	1,075		1,072		—		1,072		—
Mortgage loans held for sale	Mortgage loans held for sale	1,104		1,104		—		1,104		—		Mortgage loans held for sale	98		98		—		98		—
Loans, net	Loans, net	1,819,004		1,834,023		—		1,830,078		3,945		Loans, net	2,401,451		2,326,104		—		2,321,792		4,312
Cash surrender value of BOLI	Cash surrender value of BOLI	40,361		40,361		40,361		—		—		Cash surrender value of BOLI	46,276		46,276		46,276		—		—
Derivative assets(1)	Derivative assets(1)	1,589		1,589		—		1,589		—		Derivative assets(1)	5,144		5,144		—		5,144		—
Financial Liabilities	Financial Liabilities											Financial Liabilities
Deposits	Deposits	$	2,535,849	$	2,533,951	$	—	$	2,533,951	$	—	Deposits	$	2,633,181	$	2,620,577	$	2,297,736	$	322,841	$	—
Other borrowings	Other borrowings	5,539		5,860		—		5,860		—		Other borrowings	5,539		5,388		—		5,388		—
Subordinated debt, net of issuance cost												Subordinated debt, net of issuance cost	54,013		51,287		—		51,287		—
Short-term FHLB advances												Short-term FHLB advances	155,000		155,000		155,000		—		—
Long-term FHLB advances	Long-term FHLB advances	26,046		26,263		—		26,263		—		Long-term FHLB advances	21,213		20,019		—		20,019		—
Derivative liabilities(1)	Derivative liabilities(1)	43		43		—		43		—		Derivative liabilities(1)	9		9		—		9		—


Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The purpose of this discussion and analysis is to focus on significant changes in the financial condition of the Company and the Bank from December 31, ~~2021~~2022 through ~~September 30, 2022~~March 31, 2023 and on its results of operations for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022. This discussion and analysis is intended to highlight and supplement information presented elsewhere in this quarterly report on Form 10-Q, particularly the consolidated financial statements and related notes appearing in Item 1.

Forward-Looking Statements

To the extent that statements in this Form 10-Q relate to future plans, objectives, financial results or performance of the Company or Bank, these statements are deemed to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements, which are based on management’s current information, estimates and assumptions and the current economic environment, are generally identified by the use of words such as “plan”, “believe”, “expect”, “intend”, “anticipate”, “estimate”, “project” or similar expressions, or by future or conditional terms such as “will”, “would”, “should”, “could”, “may”, “likely”, “probably”, or “possibly”. The Company’s or the Bank’s actual strategies and results in future periods may differ materially from those currently expected due to various risks and uncertainties. Certain risks, uncertainties and other factors, including those set forth under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, ~~2021~~2022 and any subsequent Quarterly Report on Form 10-Q or Current Report on Form 8-K, may cause actual results to differ materially from the results discussed in the forward-looking statements appearing in this discussion and analysis and may include factors such as, but not limited to, credit quality and risk, the COVID-19 pandemic, industry and technological changes, cyber incidents or other failures, disruptions or security breaches, interest rates, commercial and residential real estate values, economic and market conditions in the United States or internationally, fund availability, accounting estimates and risk management processes, the transition away from the London Interbank Offered Rate (LIBOR), legislative and regulatory changes, business strategy execution, key personnel, competition, mortgage markets, fraud, environmental liability and severe weather, natural disasters, acts of war or terrorism or other external events. The Company undertakes no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made.

~~Non-GAAP Financial Measures~~

Management's Discussion and Analysis of Financial Condition and Results of Operations contains financial information determined by methods other than in accordance with generally accepted accounting principles (“GAAP”). The Company's management uses this non-GAAP financial information in its analysis of the Company's performance. In this Item 2, information is included which excludes PPP loans, the effect of PPP loans on income and the effect of acquired loans on the provision for loan losses. Management believes the presentation of this non-GAAP financial information provides useful information that is helpful to a full understanding of the Company’s financial position and operating results. This non-GAAP financial information should not be viewed as a substitute for financial information determined in accordance with GAAP, nor is it necessarily comparable to non-GAAP financial information presented by other companies. A reconciliation on non-GAAP information included herein to GAAP is presented at the end of this item under the heading "Reconciliation of Non-GAAP Measures".

EXECUTIVE OVERVIEW

The Company reported net income for the ~~third~~first quarter of ~~2022~~2023 of ~~$10.4~~$11.3 million, or ~~$1.28~~$1.39 diluted EPS, ~~down $4.6~~up $6.9 million compared to the ~~third~~first quarter of ~~2021.~~2022. Net income for the ~~third~~first quarter of ~~2021~~2022 totaled ~~$15.1~~$4.4 million, or ~~$1.79~~$0.53 diluted EPS. The ~~third~~first quarter of 2022 ~~includes~~included merger expenses related to the acquisition of Friendswood Capital Corporation (“Friendswood”) on March 26, 2022 totaling ~~$41,000,~~$284,000, net of taxes. ~~The third quarter of 2021 includes a non-taxable BOLI benefit totaling $1.7 million following the death of a former employee.~~

For the nine months ended September 30, 2022, the Company reported net income $23.3 million, or $2.84 diluted EPS, down $15.1 million from $38.4 million, or $4.54 diluted EPS, reported for the nine months ended September 30, 2021. The nine months ended September 30, 2022 includes merger expenses related to the acquisition of Friendswood totaling $1.6 million, net of taxes, compared to a net loss on the sale of a banking center totaling $361,000, net of taxes, and a non-taxable BOLI benefit following the death of a former employee totaling $1.7 million for the nine months ended September 30, 2021.

Key components of the Company’s performance during the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 include:

•Assets increased ~~$229.4~~$38.7 million, or ~~7.8%~~1.2%, from December 31, ~~2021~~2022 to ~~$3.2~~$3.3 billion at ~~September 30, 2022.~~March 31, 2023.

•Total loans were ~~$2.3~~$2.5 billion at ~~September 30, 2022,~~March 31, 2023, up ~~$463.2~~$35.6 million, or ~~25.2%~~1.5%, from December 31, ~~2021. The loan growth resulted primarily from the addition of Friendswood's loan portfolio, which amounted to $317.5 million on March 26, 2022 (the date of acquisition).~~

•~~PPP loans totaled $7.1 million at September 30, 2022, down $36.5 million, or 83.7%, from December 31, 2021.~~2022.

•During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023, the Company provisioned $814,000 to the allowance for loan losses, primarily due to loan growth. During the three months ended March 31, 2022, the Company provisioned ~~$1.7~~$3.2 million ~~and $5.5 million, respectively,~~ to the allowance for loan losses primarily due to the acquisition of Friendswood's loan ~~portfolio and loan growth. During the three and nine months ended September 30, 2021, the Company recorded a reversal to the allowance for loan losses of $2.4 million and $7.5 million, respectively.~~portfolio.

•The ALL totaled ~~$27.4~~$30.1 million, or ~~1.19%~~1.22% of total loans, at ~~September 30, 2022~~March 31, 2023 compared to ~~$21.1~~$29.3 million, or ~~1.15%~~1.21% of total loans, at December 31, ~~2021. Excluding PPP loans, the ratio~~2022. The ACL, which is comprised of the ~~ALL to~~allowance for loan losses plus the allowance for unfunded lending commitments, totaled $32.4 million, or 1.31% of total loans, ~~was 1.19% and 1.17%~~ at ~~September 30, 2022 and~~March 31, 2023 compared to $31.4 million, or 1.29% of total loans, at December 31, ~~2021, respectively.~~2022.

•Nonperforming assets increased ~~$3.0~~$336,000, or 3.1%, from $11.0 million, or ~~20.8%, from $14.5 million, or 0.49%~~0.34% of total assets, at December 31, ~~2021~~2022 to ~~$17.5~~$11.3 million, or ~~0.55%~~0.35% of total assets, at ~~September 30, 2022.~~March 31, 2023. The increase in NPAs was primarily due to ~~NPAs acquired from Friendswood, which amounted~~one credit relationship being downgraded to ~~$10.2 million on March 26, 2022 (the date of acquisition), which was partially offset by paydowns and improvements in credit quality of loans.~~substandard.

•Total deposits ~~increased $202.6~~decreased $75.4 million, or ~~8.0%~~2.9%, from ~~$2.5~~$2.6 billion at December 31, ~~2021~~2022 to ~~$2.7~~$2.6 billion at ~~September 30, 2022. The increase was primarily from the addition of Friendswood''s deposits, which amounted to $368.0 million on~~ March ~~26, 2022 (the date of acquisition), which was partially offset by a $40.6 million decline in public funds and a $53.1 million decline in surge deposits related to three current customers.~~

•The Company issued $55.0 million in aggregate principal amount of its 5.75% Fixed-to-Floating Rate Subordinated Notes (the "Notes") due 2032. The Notes were issued at a price equal to 100% of the aggregate principal amount. The carrying value of subordinated debt was $54.0 million at September 30, 2022. The subordinated debt was recorded net of issuance costs of ~~$1.1 million~~ ~~at September 30, 2022.~~31, 2023.

•The net interest margin was ~~4.11% and 3.77%~~4.18% for the three ~~and nine~~ months ended ~~September 30, 2022, respectively, down 5 bps and down 24~~March 31, 2023, up 79 bps, from the three ~~and nine~~ months ended September 30, 2021, respectively. Excluding the impact of PPP loans, the net interest margin was 4.11% and 3.73% for the three and nine months ended September 30, 2022, respectively, compared to 3.64% and 3.74% for the three and nine months ended September 30, 2021, respectively.March 31, 2022.

•The average rate paid on total interest-bearing deposits was ~~0.27%~~0.77% for the ~~third~~first quarter of ~~2022,~~2023, which was ~~unchanged from the third quarter of 2021. For the nine months ended September 30, 2022, the average rate paid on total interest-bearing deposits was 0.23%, down 12~~up 57 bps from the ~~nine months ended September 30, 2021.~~first quarter of 2022.

•Total interest expense for the ~~third~~first quarter of ~~2022~~2023 was up ~~$998,000,~~$5.5 million, or ~~77.4%~~518.0%, compared to the ~~third~~first quarter of ~~2021. For~~2022 primarily due to the ~~nine months ended September 30, 2022, total~~rising interest rate environment and the attendant higher costs on deposits, expense ~~was down $169,000, or 3.5%, from~~related to subordinated debt, and increase in short-term FHLB borrowings in the ~~comparable period in 2021.~~first quarter of 2023

•Noninterest income for the ~~third~~first quarter of ~~2022~~2023 was down ~~$1.9 million,~~$75,000, or ~~35.5%~~2.2%, compared to the ~~third~~first quarter of ~~2021,~~2022, primarily due to a net loss on sale of securities totaling $249,000 during the ~~receipt in the third~~first quarter of ~~2021 of a non-taxable BOLI benefit totaling $1.7 million following the death of a former employee. For the nine months ended September 30, 2022, noninterest income~~2023, which was down $2.2 million, or 17.2%, from the comparable period in 2021 primarily due to the absence of the $1.7 million BOLI benefit received in the third quarter of 2021 and a decrease in gains on the sale of loans (down $1.5 million), partially offset by ~~a difference~~an increase in bank card fees of ~~$477,000 in the gain/loss on the sale of assets.~~$333,000.

•Noninterest expense for the ~~third~~first quarter of ~~2022~~2023 was up ~~$4.3~~$1.7 million, or ~~26.1%~~9.3%, compared to the ~~third~~first quarter of ~~2021. For the nine months ended September 30,~~ 2022, ~~noninterest expense was up $11.8~~primarily due to increases in expenses for compensation and benefits (up $2.3 million or 24.0%, from the comparable period in 2021. Noninterest expense includes merger-related expenses, which totaled $60,000 (pre-tax) and $2.0 million (pre-tax) for the three and nine months ended September 30, 2022, respectively. The increase in noninterest expense related primarily to the ~~Friendswood acquisition and the attendant~~ growth of the ~~Company’s~~Company's employee base ~~as well as~~due to the ~~resulting higher~~Friendswood acquisition) and occupancy ~~expense, regulatory fees,~~(up $547,000, again primarily due to the growth of the Company with the Friendswood acquisition), which was partially offset by a decrease in foreclosed assets (down $1.1 million primarily due to the recovery of a previous loss on a OREO sale and ~~data processing costs.~~less foreclosed asset expenses).

FINANCIAL CONDITION

Loans, Allowance for Credit Losses and Asset Quality

Loans

Total loans at ~~September 30, 2022~~March 31, 2023 were ~~$2.3~~$2.5 billion, up ~~$463.2~~$35.6 million, or ~~25.2%~~1.5%, from December 31, ~~2021.~~2022. The loan growth resulted primarily from the ~~addition~~additions of ~~Friendswood's~~loans across all loan ~~portfolio, which amounted to $317.5 million on March 26, 2022 (the date~~types with the exception of ~~acquisition).~~consumer loans. PPP loans, included in commercial and industrial loans, totaled ~~$7.1~~$6.2 million at ~~September 30, 2022,~~March 31, 2023, down ~~$36.5 million,~~$466,000, or ~~83.7%~~7.0%, from December 31, ~~2021. Excluding PPP loans and Friendswood''s acquired loan portfolio, organic loans increased $180.8 million, or 10.1%, from December~~ 2022.

31 ~~2021.~~

The following table summarizes the composition of the Company’s loan portfolio as of the dates indicated.

(dollars in thousands) September 30, 2022 December 31, 2021 Increase/(Decrease)
Real estate loans:
One-to four-family first mortgage $ 376,028 $ 350,843 $ 25,185 7.2 %
Home equity loans and lines 60,624 60,312 312 0.5
Commercial real estate 1,086,656 801,624 285,032 35.6
Construction and land 328,753 259,652 69,101 26.6
Multi-family residential 97,212 90,518 6,694 7.4
Total real estate loans 1,949,273 1,562,949 386,324 24.7 %
Other loans:
Commercial and industrial 320,900 244,123 76,777 31.5
Consumer 33,106 33,021 85 0.3
Total other loans 354,006 277,144 76,862 27.7
Total loans $ 2,303,279 $ 1,840,093 $ 463,186 25.2 %


(dollars in thousands)	March 31, 2023		December 31, 2022		Increase/(Decrease)
Real estate loans:
One-to four-family first mortgage	$	405,638	$	389,616	$	16,022	4.1	%
Home equity loans and lines	64,107		61,863		2,244		3.6
Commercial real estate	1,162,367		1,152,537		9,830		0.9
Construction and land	318,622		313,175		5,447		1.7
Multi-family residential	102,604		100,588		2,016		2.0
Total real estate loans	2,053,338		2,017,779		35,559		1.8	%
Other loans:
Commercial and industrial	379,119		377,894		1,225		0.3
Consumer	33,935		35,077		(1,142)		(3.3)
Total other loans	413,054		412,971		83		—
Total loans	$	2,466,392	$	2,430,750	$	35,642	1.5	%

Allowance for Credit Losses

Due to the adoption of ASC Topic 326 on January 1, 2020, management maintains, based on current and forecasted information, an ACL that reflects a current estimate of expected credit losses ("CECL") for the estimated life of the loan portfolio at reporting periods subsequent to the adoption date.

The ACL which equals the sum of the ALL and the ACL on unfunded lending commitments, is established through provisions for credit losses. Management recalculates the ACL at least quarterly to reassess the estimate of credit losses for the total portfolio at the relevant reporting date. Under ASC Topic 326, the ACL is measured on a pool basis when similar risk characteristics exist. For each pool of loans, management also evaluates and applies qualitative adjustments to the calculated ACL based on several factors, including, but not limited to, changes in current and expected future economic conditions, changes in industry experience and industry loan concentrations, changes in the volume and severity of nonperforming assets, changes in lending policies and personnel and changes in the competitive and regulatory environment of the banking industry. Loans that do not share similar risk characteristics are individually evaluated and are excluded from the pooled loan analysis.

The ACL policy described above is supplemented by periodic reviews and validations performed by independent loan reviewers. The results of the reviews are reported to the Audit Committee of the Board of Directors. The establishment of the ACL is significantly affected by management judgment. There is likelihood that different amounts would be reported under different conditions or assumptions. Federal regulatory agencies, as an integral part of their examination process, periodically review our ACL. Such agencies may require management to make additional provisions for estimated losses based upon judgments different from those of management.

At ~~September 30, 2022,~~March 31, 2023, the ALL totaled ~~$27.4~~$30.1 million, or ~~1.19%~~1.22% of total loans, up ~~$6.3 million~~$819,000 from ~~$21.1~~$29.3 million, or ~~1.15%~~1.21% of total loans, at December 31, ~~2021.~~2022. During the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, the Company provisioned ~~$5.5 million~~$814,000 of the allowance loan losses primarily due to ~~the acquisition of Friendswood and~~ loan growth. Net loan ~~charge-offs~~recoveries totaled ~~$655,000~~$5,000 for the ~~nine~~three months ended ~~September 30, 2022.~~March 31, 2023.

Asset Quality

One of management’s key objectives has been, and continues to be, maintaining a high level of asset quality. In addition to maintaining credit standards for new loan originations, we proactively monitor loans and collection and workout processes of delinquent or problem loans. When a borrower fails to make a scheduled payment, we attempt to cure the deficiency by making personal contact with the borrower. Initial contacts are generally made within 10 days after the date payment is due. In most cases, deficiencies are promptly resolved. If the delinquency continues, late charges are assessed and additional efforts are made to collect the deficiency. All loans which are designated as “special mention,” classified or which are delinquent 90 days or more are reported to the Board of Directors of the Bank monthly. For loans where the collection of principal or interest payments is doubtful, the accrual of interest income ceases. It is our policy, with certain limited exceptions, to discontinue accruing interest and reverse any interest accrued on any loan which is 90 days or more past due. On occasion, this action may be taken earlier if the financial condition of the borrower raises significant concern with regard to their ability to service the

debt in accordance with the terms of the loan agreement. Interest income is not accrued on these loans until the borrower’s financial condition and payment record demonstrate an ability to service the debt.

Under our allowance policy, credit losses are measured on a pool basis when similar risk characteristics exist. Loans that do not share similar risk characteristics are individually evaluated for credit losses and are excluded from the pooled loan analysis. At least quarterly, management evaluates the loan portfolio to determine which loans should be individually evaluated for credit losses. Management's evaluation involves an analysis of larger (i.e., loans with balances of $500,000 or greater) commercial real estate loans, multi-family residential loans, construction and land loans and commercial and industrial loans. Third party property valuations are obtained at the time of origination for real estate secured loans. When a determination is made that a loan has deteriorated to the point of becoming a problem loan, updated valuations may be ordered to determine if a short-fall exists, which may lead to a recommendation for partial charge off or appropriate allowance allocation. Property valuations are ordered through, and are reviewed by, an appraisal officer at the Bank. The Company typically orders an “as is” valuation for collateral property if a loan is in a criticized loan classification. Loans individually evaluated for credit losses are reported to the Board of Directors monthly.

At ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, loans identified as impaired and individually evaluated for ~~credit~~expected losses were ~~$11.1~~$4.5 million and ~~$4.6~~$5.0 million, respectively. Total loans individually evaluated for credit losses at September 30, 2022 included $7.7 million of acquired loans, of which three loans were acquired with deteriorated credit quality in the Friendswood acquisition. At December 31, 2021, loans individually evaluated for credit losses included $1.1 million of acquired loans, of which none were acquired with deteriorated credit quality.

The following tables provide a summary of loans individually evaluated for credit losses as of the dates indicated.
September 30, 2022
(dollars in thousands) Recorded investment Allowance for Loan Losses Allowance to Total Loans
Loans Individually Evaluated
One- to four-family first mortgage $ 112 $ 32 28.57 %
Home equity loans and lines — — —
Commercial real estate 10,692 1,193 11.16
Construction and land — — —
Multi-family residential — — —
Commercial and industrial 244 188 77.05
Consumer 86 — —
Total $ 11,134 $ 1,413 12.69 %


		December 31, 2021							March 31, 2023
(dollars in thousands)	(dollars in thousands)	Recorded investment		Allowance for Loan Losses		Allowance to Total Loans		(dollars in thousands)	Recorded investment		Allowance for Loan Losses		Allowance to Total Loans
Loans Individually Evaluated	Loans Individually Evaluated							Loans Individually Evaluated
One- to four-family first mortgage	One- to four-family first mortgage	$	—	$	—	—	%	One- to four-family first mortgage	$	28	$	—	—	%
Home equity loans and lines	Home equity loans and lines	—		—		—		Home equity loans and lines	—		—		—
Commercial real estate	Commercial real estate	3,873		247		6.38		Commercial real estate	4,290		450		10.49
Construction and land	Construction and land	—		—		—		Construction and land	—		—		—
Multi-family residential	Multi-family residential	—		—		—		Multi-family residential	—		—		—
Commercial and industrial	Commercial and industrial	744		425		57.12		Commercial and industrial	171		143		83.63
Consumer	Consumer	—		—		—		Consumer	—		—		—
Total	Total	$	4,617	$	672	14.55	%	Total	$	4,489	$	593	13.21	%

									December 31, 2022
(dollars in thousands)								(dollars in thousands)	Recorded investment		Allowance for Loan Losses		Allowance to Total Loans
Loans Individually Evaluated								Loans Individually Evaluated
One- to four-family first mortgage								One- to four-family first mortgage	$	—	$	—	—	%
Home equity loans and lines								Home equity loans and lines	—		—		—
Commercial real estate								Commercial real estate	4,743		550		11.60
Construction and land								Construction and land	—		—		—
Multi-family residential								Multi-family residential	—		—		—
Commercial and industrial								Commercial and industrial	204		171		83.82
Consumer								Consumer	86		—		—
Total								Total	$	5,033	$	721	14.33	%

Federal regulations and our policies require that we utilize an internal asset classification system as a means of reporting problem and potential problem assets. We have incorporated an internal asset classification system, substantially consistent with Federal banking regulations, as a part of our credit monitoring system. Federal banking regulations set forth a classification scheme for problem and potential problem assets as “substandard,” “doubtful” or “loss” assets. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in

those classified “substandard” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted.

At ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, loans classified as substandard totaled ~~$20.1~~$23.5 million and ~~$17.5~~$21.5 million, respectively. There were no assets classified as doubtful at either date. For additional information, refer to Note 6 5to the Consolidated Financial Statements. The ~~$2.5~~$2.0 million, or ~~14.3%~~9.3%, increase in substandard loans at ~~September 30, 2022~~March 31, 2023 compared to December 31, ~~2021~~2022 was primarily due ~~primarily~~to one credit relationship being downgraded to substandard, ~~commercial real estate loans acquired from Friendswood, which amounted to $7.7 million at September 30, 2022,~~ partially offset by loan payoffs and improvements in other classified loans.

The following tables provide a summary of loans classified as special mention and substandard as of the dates indicated.


(dollars in thousands)	(dollars in thousands)	September 30, 2022		December 31, 2021		Increase/(Decrease)				(dollars in thousands)	March 31, 2023		December 31, 2022		Increase/(Decrease)
Special Mention Loans	Special Mention Loans									Special Mention Loans
One- to four-family first mortgage	One- to four-family first mortgage	$	1,197	$	369	$	828	224.4	%	One- to four-family first mortgage	$	1,224	$	1,194	$	30	2.5	%
Home equity loans and lines	Home equity loans and lines	—		—		—		—		Home equity loans and lines	—		—		—		—
Commercial real estate	Commercial real estate	3,155		2,207		948		43.0		Commercial real estate	340		524		(184)		(35.1)
Construction and land	Construction and land	717		575		142		24.7		Construction and land	5,431		520		4,911		944.4
Multi-family residential	Multi-family residential	3,312		—		3,312		—		Multi-family residential	—		3,312		(3,312)		(100.0)
Commercial and industrial	Commercial and industrial	2,380		267		2,113		791.4		Commercial and industrial	2,783		1,533		1,250		81.5
Consumer	Consumer	—		2		(2)		(100.0)		Consumer	—		—		—		—
Total special mention loans	Total special mention loans	$	10,761	$	3,420	$	7,341	214.6	%	Total special mention loans	$	9,778	$	7,083	$	2,695	38.0	%

~~Special mention loans increased $7.3 million from December 31, 2021 to September 30, 2022 primarily due to downgrades of pass loans to a special mention rating.~~


(dollars in thousands)	(dollars in thousands)	September 30, 2022		December 31, 2021		Increase/(Decrease)				(dollars in thousands)	March 31, 2023		December 31, 2022		Increase/(Decrease)
Substandard Loans	Substandard Loans									Substandard Loans
One- to four-family first mortgage	One- to four-family first mortgage	$	3,018	$	3,828	$	(810)	(21.2)	%	One- to four-family first mortgage	$	3,118	$	3,223	$	(105)	(3.3)	%
Home equity loans and lines	Home equity loans and lines	33		37		(4)		(10.8)		Home equity loans and lines	31		33		(2)		(6.1)
Commercial real estate	Commercial real estate	13,748		9,837		3,911		39.8		Commercial real estate	13,199		13,429		(230)		(1.7)
Construction and land	Construction and land	324		247		77		31.2		Construction and land	1,553		647		906		140.0
Multi-family residential	Multi-family residential	77		—		77		—		Multi-family residential	3,383		74		3,309		4471.6
Commercial and industrial	Commercial and industrial	2,314		3,395		(1,081)		(31.8)		Commercial and industrial	1,972		3,586		(1,614)		(45.0)
Consumer	Consumer	546		202		344		170.3		Consumer	263		534		(271)		(50.7)
Total substandard loans	Total substandard loans	$	20,060	$	17,546	$	2,514	14.3	%	Total substandard loans	$	23,519	$	21,526	$	1,993	9.3	%

A bank’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by Federal bank regulators which can order the establishment of additional general or specific loss allowances. The Federal banking agencies have adopted an interagency policy statement on the allowance for loan and lease losses. The policy statement provides guidance for financial institutions on both the responsibilities of management for the assessment and establishment of allowances and guidance for banking agency examiners to use in determining the adequacy of general valuation guidelines. Generally, the policy statement recommends that institutions have effective systems and controls to identify, monitor and address asset quality problems; that management analyze all significant factors that affect the collectability of the portfolio in a reasonable manner; and that management establish acceptable allowance evaluation processes that meet the objectives set forth in the policy statement. Due to the adoption of ASC Topic 326 on January 1, 2020, management maintains, based on current and forecasted information, an ACL that reflects a current estimate of expected credit losses for the estimated life of the loan portfolio at reporting periods subsequent to the adoption date. For all reporting periods, actual losses are uncertain and dependent upon future events and, as such, further additions to the level of ACL may become necessary.

The following table sets forth the composition of the Company’s nonperforming assets and performing troubled debt restructurings as of the dates indicated.


		September 30, 2022							December 31, 2021								March 31, 2023							December 31, 2022
(dollars in thousands)	(dollars in thousands)	Originated		Acquired(1)		Total			Originated		Acquired(1)		Total			(dollars in thousands)	Originated		Acquired(1)		Total			Originated		Acquired(1)		Total
Nonaccrual loans(2):	Nonaccrual loans(2):															Nonaccrual loans(2):
Real estate loans:	Real estate loans:															Real estate loans:
One- to four-family first mortgage	One- to four-family first mortgage	$	515	$	1,948	$	2,463		$	1,468	$	2,107	$	3,575		One- to four-family first mortgage	$	614	$	1,624	$	2,238		$	711	$	1,589	$	2,300
Home equity loans and lines	Home equity loans and lines	—		34		34			—		38		38			Home equity loans and lines	—		32		32			—		34		34
Commercial real estate	Commercial real estate	3,145		10,190		13,335			5,316		3,115		8,431			Commercial real estate	3,044		3,716		6,760			3,039		3,906		6,945
Construction and land	Construction and land	151		176		327			—		258		258			Construction and land	1,486		69		1,555			147		168		315
Multi-family residential	Multi-family residential	—		—		—			—		—		—			Multi-family residential	—		—		—			—		—		—
Other loans:	Other loans:															Other loans:
Commercial and industrial	Commercial and industrial	253		115		368			291		472		763			Commercial and industrial	216		166		382			224		154		378
Consumer	Consumer	217		336		553			158		46		204			Consumer	186		79		265			215		326		541
Total nonaccrual loans	Total nonaccrual loans	4,281		12,799		17,080			7,233		6,036		13,269			Total nonaccrual loans	5,546		5,686		11,232			4,336		6,177		10,513
Accruing loans 90 days or more past due	Accruing loans 90 days or more past due	3		—		3			6		—		6			Accruing loans 90 days or more past due	—		—		—			2		—		2
Total nonperforming loans	Total nonperforming loans	4,284		12,799		17,083			7,239		6,036		13,275			Total nonperforming loans	5,546		5,686		11,232			4,338		6,177		10,515
Foreclosed assets and ORE	Foreclosed assets and ORE	14		376		390			1,109		80		1,189			Foreclosed assets and ORE	—		80		80			151		310		461
Total nonperforming assets	Total nonperforming assets	4,298		13,175		17,473			8,348		6,116		14,464			Total nonperforming assets	5,546		5,766		11,312			4,489		6,487		10,976
Performing troubled debt restructurings(2)	Performing troubled debt restructurings(2)	4,686		879		5,565			3,867		1,096		4,963			Performing troubled debt restructurings(2)	—		—		—			4,600		1,605		6,205
Total nonperforming assets and troubled debt restructurings	Total nonperforming assets and troubled debt restructurings	$	8,984	$	14,054	$	23,038		$	12,215	$	7,212	$	19,427		Total nonperforming assets and troubled debt restructurings	$	5,546	$	5,766	$	11,312		$	9,089	$	8,092	$	17,181

Nonperforming loans to total loans	Nonperforming loans to total loans					0.74		%					0.72		%	Nonperforming loans to total loans					0.46		%					0.43		%
Nonperforming loans to total assets	Nonperforming loans to total assets					0.54		%					0.45		%	Nonperforming loans to total assets					0.34		%					0.33		%
Nonperforming assets to total assets	Nonperforming assets to total assets					0.55		%					0.49		%	Nonperforming assets to total assets					0.35		%					0.34		%

(1)Nonaccrual acquired loans include PCD loans of ~~$7.7~~$2.1 million ~~at September 30, 2022. There were no nonaccrual acquired PCD loans at~~for the periods ending March 31, 2023 and December 31, ~~2021.~~2022.

(2)Nonaccrual loans include originated restructured loans placed on nonaccrual totaling ~~$3.3 million and $3.7~~$3.1 million at ~~September 30, 2022 and~~ December 31, ~~2021, respectively.~~2022. Acquired restructured loans placed on nonaccrual totaled ~~$4.7 million and $3.5~~$3.7 million at ~~September 30, 2022 and~~ December 31, ~~2021, respectively.~~2022. With the adoption of ASU 2022-02, effective January 1, 2023, TDR accounting has been eliminated.

Foreclosed assets and ORE includes real property and other assets that have been acquired as a result of foreclosure, and real property no longer used in the Bank's business. Foreclosed assets and ORE are classified as such until sold or disposed. Foreclosed assets are recorded at fair value less estimated selling costs based on third party property valuations which are obtained at the time the asset is repossessed and periodically until the property is liquidated. ORE is recorded at the lower of its net book value or fair value at the date of transfer to ORE. Foreclosed assets and ORE holding costs are charged to expense. Gains and losses on the sale of foreclosed assets and ORE are charged to operations, as incurred. Costs associated with acquiring and improving a foreclosed property or ORE are capitalized to the extent that the carrying value does not exceed fair value less estimated selling costs.

Investment Securities

The Company’s investment securities portfolio totaled ~~$493.8~~$467.6 million as of ~~September 30, 2022, an increase~~March 31, 2023, a decrease of ~~$164.1~~$20.0 million, or ~~49.8%~~4.1%, from December 31, ~~2021.~~2022. During the first quarter 2023, the Company recorded a net loss of $249,000 related to the sale of available-for-sale investment securities totaling $14.0 million of securities. At ~~September 30, 2022,~~March 31, 2023, the Company had a net unrealized loss on its available for sale investment securities portfolio of ~~$59.6~~$47.1 million, compared to a net unrealized loss of ~~$653,000~~$54.8 million at December 31, ~~2021.~~2022. The Company’s investment securities portfolio had an effective duration of 4.5 years at March 31, 2023 and December 31, 2022.

The following table summarizes activity in the Company’s investment securities portfolio during the ~~nine~~three months ended ~~September 30, 2022.~~March 31, 2023.


(dollars in thousands)	(dollars in thousands)	Available for Sale		Held to Maturity		(dollars in thousands)	Available for Sale		Held to Maturity
Balance, December 31, 2021		$	327,632	$	2,102
Balance, December 31, 2022						Balance, December 31, 2022	$	486,518	$	1,075
Purchases	Purchases	236,236		—		Purchases	—		—
Acquired from Texan Bank, at fair value		33,411		—
Sales	Sales	—		—		Sales	(14,011)		—
Principal maturities, prepayments and calls	Principal maturities, prepayments and calls	(44,692)		(1,000)		Principal maturities, prepayments and calls	(13,590)		—
Amortization of premiums and accretion of discounts	Amortization of premiums and accretion of discounts	(849)		(22)		Amortization of premiums and accretion of discounts	(130)		(5)
Decrease in market value		(58,980)		—
Balance, September 30, 2022		$	492,758	$	1,080
Increase in market value						Increase in market value	7,470		—
Balance, March 31, 2023						Balance, March 31, 2023	$	466,506	$	1,070

Funding Sources

Deposits

Deposits totaled ~~$2.7~~$2.6 billion at ~~September 30, 2022, an increase~~March 31, 2023, a decrease of ~~$202.6~~$75.4 million, or ~~8.0%~~2.9%, compared to December 31, 2021. The increase was primarily from the addition of Texan Bank's deposits, which amounted to $368.0 million on March 26, 2022 (the date of acquisition), which was partially offset by a $40.6 million decline in public funds and a $53.1 million decline in surge deposits related to three current customers.2022. The following table summarizes the changes in the Company’s deposits from December 31, ~~2021~~2022 to ~~September 30, 2022.~~March 31, 2023.


(dollars in thousands)	(dollars in thousands)	September 30, 2022		December 31, 2021		Increase/(Decrease)				(dollars in thousands)	March 31, 2023		December 31, 2022		Increase/(Decrease)
Demand deposit	Demand deposit	$	921,089	$	766,385	$	154,704	20.2	%	Demand deposit	$	854,736	$	904,301	$	(49,565)	(5.5)	%
Savings	Savings	325,594		285,728		39,866		14.0		Savings	288,788		305,871		(17,083)		(5.6)
Money market	Money market	452,474		371,478		80,996		21.8		Money market	384,809		423,990		(39,181)		(9.2)
NOW	NOW	686,592		792,919		(106,327)		(13.4)		NOW	657,499		663,574		(6,075)		(0.9)
Certificates of deposit	Certificates of deposit	352,675		319,339		33,336		10.4		Certificates of deposit	371,912		335,445		36,467		10.9
Total deposits	Total deposits	$	2,738,424	$	2,535,849	$	202,575	8.0	%	Total deposits	$	2,557,744	$	2,633,181	$	(75,437)	(2.9)	%

The average rate paid on interest-bearing deposits was ~~0.27%~~0.77% for the ~~third~~first quarter of ~~2022, which remained unchanged~~2023, up 57 bps compared to the ~~third~~first quarter of ~~2021.~~

2022. At ~~September 30, 2022,~~March 31, 2023, certificates of deposit maturing within the next 12 months totaled ~~$274.7~~$305.1 million.

We obtain most of our deposits from individuals, small businesses and public funds in our market areas. The following table presents our deposits per customer type for the periods indicated.


	March 31, 2023	December 31, 2022
Individuals	51%	51%
Small businesses	39	40
Public funds	8	7
Broker	2	2
Total	100%	100%

The total amounts of our uninsured deposits (deposits in excess of $250,000, as calculated in accordance with FDIC regulations) were $778.0 million at March 31, 2023 and $830.9 million at December 31, 2022. Public funds in excess of the FDIC insurance limits are fully collateralized.

Subordinated Debt

On June 30, 2022, The Company issued $55.0 million in aggregate principal amount of its 5.75% Fixed-to-Floating Rate Subordinated Notes due 2032. The Notes were issued at a price equal to 100% of the aggregate principal amount. The Notes have a stated maturity date of June 30, 2032 and bear interest at a fixed rate of 5.75% per year from and including the issue date to but excluding June 30, 2027. From June 30, 2027, the Notes will bear interest at a floating rate equal to the then current three-month term secured overnight financing rate (“SOFR”), plus 282 basis points. The Notes may be redeemed by the

Company, in whole or in part, on or after June 30, 2027. The Notes are intended to qualify as Tier 2 capital for regulatory purposes.

The carrying value of subordinated debt was $54.1 million and $54.0 million at ~~September 30, 2022.~~March 31, 2023 and December 31, 2022, respectively. The subordinated debt was recorded net of issuance costs of ~~$1.1 million~~ ~~at September 30, 2022.~~and amortized using the straight-line method over five years.

Federal Home Loan Bank Advances

The average balance of total FHLB advances was ~~$25.0~~$215.5 million for the ~~third~~first quarter of ~~2022, down $2.0~~2023, up $189.7 million compared to the ~~third~~first quarter of 2021. For the nine months ended September 30, 2022, the average balance of total FHLB advances was $25.4 million, down $2.3 million compared to the nine months ended September 30, 2021. Average total FHLB advances decreased over the comparable periods primarily due to paydowns during the 2022 periods.2022.

The Company had $233.7 million short-term FHLB advances as of March 31, 2023 compared to $155.0 million as of December 31, 2022. At ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the Company had ~~$24.8~~$43.1 million and ~~$26.0~~$21.2 million in ~~total outstanding~~long-term FHLB advances, respectively, and ~~$1.1 billion~~$913.9 million and ~~$810.4~~$937.4 million in additional FHLB advances available, respectively.

Shareholders’ Equity

Total shareholders’ equity ~~decreased $35.2~~increased $15.1 million, or ~~10.0%~~4.6%, from ~~$351.9~~$330.0 million at December 31, ~~2021~~2022 to ~~$316.7~~$345.1 million at ~~September 30, 2022.~~March 31, 2023. Shareholders' equity ~~decreased~~increased primarily due to ~~an other comprehensive loss of $43.6 million, share repurchases~~net income of $11.3 million and ~~cash dividends of $5.8~~a $5.5 million ~~which were partially offset by net income of $23.3 million~~reduction in accumulated other comprehensive loss during the ~~nine~~three months ended September 30, 2022. Other comprehensive loss primarily reflects the market value of the Company's available for sale securities declining $59.0 million due primarily to the rising interest rate environment during the nine months ended September 30, 2022.March 31, 2023.

At ~~September 30, 2022,~~March 31, 2023, the Bank had regulatory capital amounts that were well in excess of regulatory requirements. The following table presents actual and required capital ratios for the Bank under the Basel III Capital Rules. The minimum required capital amounts presented include the minimum required capital levels as of ~~September 30, 2022~~March 31, 2023 based on the required capital levels as of January 1, 2019 when the Basel III Capital Rules were fully phased-in. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules.


		Actual				Minimum Capital Required – Basel III Fully Phased-In				To Be Well Capitalized Under Prompt Corrective Action Provisions					Actual				Minimum Capital Required – Basel III Fully Phased-In				To Be Well Capitalized Under Prompt Corrective Action Provisions
(dollars in thousands)	(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
Company:														Company:
Tier 1 risk-based capital														Tier 1 risk-based capital	291,347		11.11		222,878		8.50		N/A		N/A
Total risk-based capital														Total risk-based capital	377,391		14.39		275,320		10.50		N/A		N/A
Tier 1 leverage capital														Tier 1 leverage capital	291,347		9.30		125,293		4.00		N/A		N/A

Bank:	Bank:													Bank:
Common equity Tier 1 capital (to risk-weighted assets)	Common equity Tier 1 capital (to risk-weighted assets)	$	309,547	12.49	%	$	173,440	7.00	%	$	161,051	6.50	%	Common equity Tier 1 capital (to risk-weighted assets)	$	333,949	12.77	%	$	183,022	7.00	%	$	169,949	6.50	%
Tier 1 risk-based capital	Tier 1 risk-based capital	309,547		12.49		210,606		8.50		198,217		8.00		Tier 1 risk-based capital	333,949		12.77		222,240		8.50		209,167		8.00
Total risk-based capital	Total risk-based capital	338,210		13.65		260,160		10.50		247,771		10.00		Total risk-based capital	365,920		14.00		274,532		10.50		261,459		10.00
Tier 1 leverage capital	Tier 1 leverage capital	309,547		9.76		126,844		4.00		158,555		5.00		Tier 1 leverage capital	333,949		10.69		125,003		4.00		156,254		5.00

LIQUIDITY AND ASSET/LIABILITY MANAGEMENT

Liquidity Management

Liquidity management encompasses our ability to ensure that funds are available to meet the cash flow requirements of depositors and borrowers, while also ensuring adequate cash flow exists to meet the Company’s needs, including operating, strategic and capital. The Company develops its liquidity management strategies as part of its overall asset/liability management process. Our primary sources of funds are from deposits, amortization of loans, loan prepayments and the maturity of loans, investment securities and other investments, and other funds provided from operations. While scheduled payments from the amortization of loans and investment securities and maturing investment securities are relatively predictable sources of funds, deposit flows and loan prepayments can be greatly influenced by general interest rates, economic conditions and competition. The Company also maintains excess funds in short-term, interest-bearing assets that provide additional liquidity.

The Company uses its liquidity to fund existing and future loan commitments, to fund maturing certificates of deposit and demand deposit withdrawals, to invest in other interest-earning assets and to meet operating expenses. At ~~September 30, 2022,~~

March 31, 2023, certificates of deposit maturing within the next 12 months totaled ~~$274.7~~$305.1 million. Based upon historical experience, the Company anticipates that a significant portion of the maturing certificates of deposit will be redeposited with us.

In addition to cash flow from loan and securities payments and prepayments as well as from sales of securities available for sale, the Company has significant borrowing capacity available to fund liquidity needs. In recent years, the Company has utilized borrowings as a cost efficient addition to deposits as a source of funds. Borrowings consist of advances from the FHLB of Dallas, of which the Company is a member. Under terms of the collateral agreement with the FHLB, the Company pledges residential mortgage loans and investment securities as well as the Company’s stock in the FHLB as collateral for such advances. For the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, the average balance of outstanding FHLB advances was ~~$25.4~~$215.5 million. At ~~September 30, 2022,~~March 31, 2023, the Company had ~~$24.8~~$276.7 million in total outstanding FHLB ~~advances and had $1.1 billion in additional FHLB advances available.~~advances.

The following table summarizes the Company's primary and secondary sources of liquidity which were available at March 31, 2023.


(dollars in thousands)	March 31, 2023
Cash and cash equivalents	$	107,171
Unpledged investment securities, amortized cost(1)	352,077
FHLB advance availability(1)	913,921
Amounts available from unsecured lines of credit	55,000
Federal Reserve discount window availability(1)	500
Total primary and secondary sources of available liquidity	$	1,428,669

(1) Approximately $148.2 million of securities were moved in April 2023 from Federal Home Loan Bank to the Federal Reserve for future discount window availability at the Federal Reserve.

Asset/Liability Management

The objective of asset/liability management is to implement strategies for the funding and deployment of the Company’s financial resources that are expected to maximize soundness and profitability over time at acceptable levels of risk. Interest rate sensitivity is the potential impact of changing rate environments on both net interest income and cash flows. The Company measures its interest rate sensitivity over the near term primarily by running net interest income simulations. Our interest rate sensitivity also is monitored by management through the use of a model which generates estimates of the change in its net interest income over a range of interest rate scenarios. Based on the Company’s interest rate risk model, the table below sets forth the results of immediate and sustained changes in interest rates as of ~~September 30, 2022.~~March 31, 2023.


Shift in Interest Rates (in bps)	Shift in Interest Rates (in bps)	% Change in Projected Net Interest Income	Shift in Interest Rates (in bps)	% Change in Projected Net Interest Income
+300	+300	2.5%	+300	3.3%
+200	+200	1.8%	+200	2.3%
+100	+100	0.9%	+100	1.2%
-100	-100	(3.3)%	-100	(1.9)%

The actual impact of changes in interest rates will depend on many factors. These factors include the Company’s ability to achieve expected growth in earning assets and maintain a desired mix of earning assets and interest-bearing liabilities, the actual timing of asset and liability repricing, the magnitude of interest rate changes and corresponding movement in interest rate spreads and the level of success of asset/liability management strategies.

During the second quarter of 2020, the Company entered into certain interest rate swap agreements as part of its interest rate risk management strategy. The Company’s objectives in using interest rate derivatives are to manage its exposure to interest rate movements. During ~~2022~~2023 and ~~2021,~~2022, such derivatives were used to hedge the variable cost associated with existing variable rate liabilities. Refer to Note 76 of the Consolidated Financial Statements for more information on the effects of the derivative financial instruments on the consolidated financial statements.

To meet the financing needs of its customers, the Company issues financial instruments which represent conditional obligations that are not recognized, wholly or in part, in the statements of financial condition. These financial instruments include commitments to extend credit and standby letters of credit. Such instruments expose the Company to varying degrees of credit and interest rate risk in much the same way as funded loans. The same credit policies are used in these commitments as for on-balance sheet instruments. At ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the Company's allowance for credit losses on unfunded commitments totaled $2.3 million and ~~$1.8~~$2.1 million, respectively.

The following table summarizes our outstanding commitments to originate loans and to advance additional amounts pursuant to outstanding letters of credit, lines of credit and undisbursed construction loans as of the periods indicated.


		Contract Amount					Contract Amount
(dollars in thousands)	(dollars in thousands)	September 30, 2022		December 31, 2021		(dollars in thousands)	March 31, 2023		December 31, 2022
Standby letters of credit	Standby letters of credit	$	6,674	$	5,075	Standby letters of credit	$	6,721	$	6,969
Available portion of lines of credit	Available portion of lines of credit	356,464		320,611		Available portion of lines of credit	351,751		367,167
Undisbursed portion of loans in process	Undisbursed portion of loans in process	179,917		142,048		Undisbursed portion of loans in process	185,784		194,182
Commitments to originate loans	Commitments to originate loans	218,874		153,487		Commitments to originate loans	191,414		164,682

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 be drawn upon, the total commitment amounts generally represent future cash requirements.

Unfunded commitments under commercial lines of credit, revolving credit lines and overdraft protection agreements are commitments for possible future extensions of credit to existing customers. These lines of credit usually do not contain a specified maturity date and may not be drawn upon to the total extent to which the Company is committed.

The Company is subject to certain claims and litigation arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material effect on the financial condition or results of operations of the Company.

RESULTS OF OPERATIONS

Net income for the ~~third~~first quarter of ~~2022~~2023 was ~~$10.4~~$11.3 million, ~~down $4.6~~up $6.9 million compared to the ~~third~~first quarter of ~~2021.~~2022. Diluted EPS for the ~~third~~first quarter of ~~2022~~2023 was ~~$1.28, down $0.51~~$1.39, up $0.86 compared to the ~~third~~first quarter of ~~2021.~~

Net income for the nine months ended September 30, 2022 was $23.3 million, down $15.1 million, compared to the nine months ended September 30, 2021. Diluted EPS for the nine months ended September 30, 2022 was $2.84, down $1.70 compared to the nine months ended September 30, 2021.

2022. The increase in net income for the ~~three and nine months ended September 30,~~first quarter of 2023 compared to the same period in 2022 ~~and 2021~~ was ~~significantly impacted by~~primarily due to an increase in net interest income along with a significant decrease in the provision for loan losses. The first quarter of 2022 includes merger expenses totaling $284,000, net of taxes, related to the acquisition of ~~Friendswood's loan portfolio, the change in our estimate of the allowance for loan losses over the comparable periods and the recognition of PPP lender fees.~~ Friendswood.

During the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, the Company provisioned ~~$1.7 million and $5.5 million, respectively,~~$814,000 to the allowance for loan losses primarily due to loan ~~growth and the acquisition of Friendswood.~~growth. During the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, the Company ~~reversed $2.4~~provisioned $3.2 million ~~and $7.5 million, respectively, from~~to the allowance for loan ~~losses.~~losses primarily due to the acquisition of Friendswood's loan portfolio. The Company recognized ~~$108,000 and $1.2 million~~$10,000 of deferred PPP lender fees during the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023, compared to ~~$4.4 million and $9.4 million, respectively,~~$721,000 during the comparable ~~periods~~period in ~~2021.~~2022.

Net Interest Income

Net interest income is the difference between the interest income earned on interest-earning assets, such as loans and investment securities, and the interest expense paid on interest-bearing liabilities, such as deposits and borrowings. The Company’s net interest income is largely determined by our net interest spread, which is the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities, and the relative amounts of interest-earning assets and interest-bearing liabilities. The Company’s tax-equivalent net interest spread was ~~3.95%~~3.72% and ~~4.05%~~3.30% for the quarters ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and 3.65% and 3.89% for the nine months ended September 30, 2022 and 2021,~~ respectively.

Net interest income totaled ~~$32.0~~$31.6 million for the ~~third~~first quarter of ~~2022,~~2023, up ~~$4.8~~$8.1 million, or ~~17.8%~~34.4%, compared to the ~~third~~first quarter of ~~2021. For the nine months ended September 30, 2022, net interest income totaled $84.7 million, up $8.4 million, or 11.0%, compared to the nine months ended September 30, 2021.~~2022.

Loan income from deferred PPP lender fees totaled ~~$108,000~~$10,000 for the ~~third~~first quarter of ~~2022,~~2023, down ~~$4.3 million,~~$711,000, or ~~97.5%~~98.6%, compared to the ~~third~~first quarter of ~~2021. For the nine months ended September 30, 2022, loan income from~~2022. Unrecognized PPP lender fees totaled $84,000 at March 31, 2023.

4839

~~totaled $1.2 million, down $8.2 million from the comparable period in 2021. Unrecognized PPP lender fees totaled $103,000 at September 30, 2022.~~

The Company’s tax-equivalent net interest margin, which is net interest income as a percentage of average interest-earning assets, was ~~4.11%~~4.18% and ~~4.16%~~3.39% for the quarters ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively. For the same periods, the average loan yield was ~~5.17%~~5.67% and ~~5.60%~~4.88%, respectively. PPP loans did not significantly impact the net interest margin and the average loan yield during the third quarter of 2022. During the third quarter of 2021, PPP loans increased the net interest margin by 52 bps and increased the average loan yield by 60 bps. Excluding the impact of PPP loans, the net interest margin and the average loan yield increased by 47 and 17 bps, respectively, over the comparable quarters.

The net interest margin for the nine months ended September 30, 2022 and 2021 was 3.77% and 4.01%, respectively. For the same periods, the average loan yield was 5.01% and 5.25%, respectively. PPP loans increased the the net interest margin by four bps and the average loan yield by four bps during the nine months ended September 30, 2022. During the nine months ended September 30, 2021, PPP loans increased the net interest margin by 27 bps and the average loan yield by 22 bps. Excluding the impact of PPP loans, the net interest margin and the average loan yield decreased by one and six bps, respectively, over the comparable year-to-date periods.

Average PPP loans were ~~$9.4~~$6.4 million and ~~$144.6~~$31.3 million for the ~~third~~first quarters of ~~2022~~2023 and ~~2021, respectively. For the nine months ended September 30,~~ 2022, ~~and 2021, average PPP loans were $18.7 million and $203.5 million,~~ respectively.

Acquired loan discount accretion included in interest income totaled ~~$847,000~~$668,000 and ~~$556,000~~$457,000 for the quarters ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, respectively. For the nine months ended September 30, 2022 and 2021, acquired loan discount accretion included in interest income totaled $2.2 million and $1.9 million,~~ respectively.

The following ~~tables set~~table sets forth, for the periods indicated, information regarding (i) the total dollar amount of interest income of the Company from interest-earning assets and the resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rate; (iii) net interest income; (iv) net interest spread; and (v) net interest margin. Information is based on average monthly balances during the indicated periods. Taxable equivalent yields are calculated using a marginal tax rate of 21%.

Three Months Ended September 30,
2022 2021
(dollars in thousands) Average Balance Interest Average Yield/Rate Average Balance Interest Average Yield/Rate
Interest-earning assets:
Loans receivable(1)
$ 2,265,846 $ 29,859 5.17 % $ 1,896,808 $ 27,045 5.60 %
Investment securities
Taxable 504,241 2,812 2.23 259,282 1,108 1.71
Tax-exempt (TE)
28,059 146 2.64 19,168 81 2.13
Total investment securities 532,300 2,958 2.25 278,450 1,189 1.74
Other interest-earning assets 262,127 1,447 2.19 388,723 189 0.19
Total interest-earning assets (TE)
3,060,273 $ 34,264 4.41 2,563,981 $ 28,423 4.36
Noninterest-earning assets 205,634 192,372
Total assets $ 3,265,907 $ 2,756,353
Interest-bearing liabilities:
Deposits:
Savings, checking and money market $ 1,522,350 $ 876 0.23 % $ 1,312,131 $ 605 0.18 %
Certificates of deposit 371,925 394 0.42 332,916 515 0.61
Total interest-bearing deposits 1,894,275 1,270 0.27 1,645,047 1,120 0.27
Other borrowings 5,539 53 3.80 5,539 53 3.80
Subordinated debt 53,943 859 6.37 — — —
Short-term FHLB advances — — — — — —


		Three Months Ended September 30,													Three Months Ended March 31,
		2022						2021							2023						2022
(dollars in thousands)	(dollars in thousands)	Average Balance		Interest		Average Yield/Rate		Average Balance		Interest		Average Yield/Rate		(dollars in thousands)	Average Balance		Interest		Average Yield/Rate		Average Balance		Interest		Average Yield/Rate
Interest-earning assets:														Interest-earning assets:
Loans receivable(1)														Loans receivable(1)	$	2,437,770	$	34,498	5.67	%	$	1,862,616	$	22,671	4.88	%
Investment securities														Investment securities
Taxable														Taxable	507,952		2,998		2.36		341,792		1,542		1.80
Tax-exempt (TE)														Tax-exempt (TE)	27,243		144		2.67		17,944		76		2.13
Total investment securities														Total investment securities	535,195		3,142		2.38		359,736		1,618		1.82
Other interest-earning assets														Other interest-earning assets	53,456		475		3.60		561,262		277		0.20
Total interest-earning assets (TE)														Total interest-earning assets (TE)	3,026,421		$	38,115	5.05		2,783,614		$	24,566	3.54
Noninterest-earning assets														Noninterest-earning assets	193,435						193,945
Total assets														Total assets	$	3,219,856					$	2,977,559
Interest-bearing liabilities:														Interest-bearing liabilities:
Deposits:														Deposits:
Savings, checking and money market														Savings, checking and money market	$	1,349,185	$	2,048	0.62	%	$	1,461,966	$	530	0.15	%
Certificates of deposit														Certificates of deposit	349,683		1,192		1.38		317,866		363		0.46
Total interest-bearing deposits														Total interest-bearing deposits	1,698,868		3,240		0.77		1,779,832		893		0.20
Other borrowings														Other borrowings	5,539		53		3.89		5,539		53		3.89
Subordinated debt														Subordinated debt	54,041		851		6.30		—		—		—
Short-term FHLB advances														Short-term FHLB advances	191,734		2,259		4.71		—		—		—
Long term FHLB advances	Long term FHLB advances	24,977		105		1.68		27,011		116		1.72		Long term FHLB advances	23,744		117		1.97		25,795		109		1.70
Total interest-bearing liabilities	Total interest-bearing liabilities	1,978,734		$	2,287	0.46		1,677,597		$	1,289	0.31		Total interest-bearing liabilities	1,973,926		$	6,520	1.33		1,811,166		$	1,055	0.24
Noninterest-bearing liabilities	Noninterest-bearing liabilities	952,120						736,567						Noninterest-bearing liabilities	906,619						815,056
Total liabilities	Total liabilities	2,930,854						2,414,164						Total liabilities	2,880,545						2,626,222
Shareholders’ equity	Shareholders’ equity	335,053						342,189						Shareholders’ equity	339,311						351,337
Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	3,265,907					$	2,756,353					Total liabilities and shareholders' equity	$	3,219,856					$	2,977,559
Net interest-earning assets	Net interest-earning assets	$	1,081,539					$	886,384					Net interest-earning assets	$	1,052,495					$	972,448
Net interest spread (TE)	Net interest spread (TE)			$	31,977	3.95	%			$	27,134	4.05	%	Net interest spread (TE)			$	31,595	3.72	%			$	23,511	3.30	%
Net interest margin (TE)	Net interest margin (TE)					4.11	%					4.16	%	Net interest margin (TE)					4.18	%					3.39	%

(1)Nonperforming loans are included in the respective average loan balances, net of deferred fees, discounts and loans in process.

Nine Months Ended September 30,
2022 2021
(dollars in thousands) Average Balance Interest Average Yield/Rate Average Balance Interest Average Yield/Rate
Interest-earning assets:
Loans receivable(1)
$ 2,107,871 $ 79,834 5.01 % $ 1,949,004 $ 77,362 5.25 %
Investment securities
Taxable 433,270 6,576 2.02 252,309 3,069 1.62
Tax-exempt (TE)
23,325 338 2.45 19,967 262 2.22
Total investment securities 456,595 6,914 2.05 272,276 3,331 1.67
Other interest-earning assets 414,122 2,587 0.84 296,233 421 0.19
Total interest-earning assets (TE)
2,978,588 $ 89,335 3.97 2,517,513 $ 81,114 4.27
Noninterest-earning assets 202,022 189,256
Total assets $ 3,180,610 $ 2,706,769
Interest-bearing liabilities:
Deposits:
Savings, checking and money market $ 1,523,033 $ 2,079 0.18 % $ 1,289,759 $ 2,328 0.24 %
Certificates of deposit 365,584 1,187 0.43 342,167 1,928 0.75
Total interest-bearing deposits 1,888,617 3,266 0.23 1,631,926 4,256 0.35
Other borrowings 5,624 160 3.80 5,594 159 3.81
Subordinated debt 18,436 859 6.22 — — —
Short-term FHLB advances — — — — — —
Long term FHLB advances 25,396 321 1.69 27,706 360 1.73
Total interest-bearing liabilities 1,938,073 $ 4,606 0.32 1,665,226 $ 4,775 0.38
Noninterest-bearing liabilities 902,920 707,117
Total liabilities 2,840,993 2,372,343
Shareholders’ equity 339,617 334,426
Total liabilities and shareholders' equity $ 3,180,610 $ 2,706,769
Net interest-earning assets $ 1,040,515 $ 852,287
Net interest spread (TE)
$ 84,729 3.65 % $ 76,339 3.89 %
Net interest margin (TE)
3.77 % 4.01 %

5040

~~(1)Nonperforming loans are included in the respective average loan balances, net of deferred fees, discounts and loans in process.~~

The following table displays the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. The table distinguishes between (i) changes attributable to volume (changes in average volume between periods times prior year rate), (ii) changes attributable to rate (changes in average rate between periods times prior year volume) and (iii) total increase (decrease).


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended March 31,
		2022 Compared to 2021						2022 Compared to 2021							2023 Compared to 2022
		Change Attributable To						Change Attributable To							Change Attributable To
(dollars in thousands)	(dollars in thousands)	Rate		Volume		Increase/ (Decrease)		Rate		Volume		Increase/ (Decrease)		(dollars in thousands)	Rate		Volume		Increase/ (Decrease)
Interest income:	Interest income:													Interest income:
Loans receivable	Loans receivable	$	(1,698)	$	4,512	$	2,814	$	56	$	2,416	$	2,472	Loans receivable	$	4,151	$	7,676	$	11,827
Investment securities	Investment securities	518		1,251		1,769		1,548		2,035		3,583		Investment securities	612		912		1,524
Other interest-earning assets	Other interest-earning assets	1,638		(380)		1,258		1,296		870		2,166		Other interest-earning assets	2,578		(2,380)		198
Total interest income	Total interest income	458		5,383		5,841		2,900		5,321		8,221		Total interest income	7,341		6,208		13,549
Interest expense:	Interest expense:													Interest expense:
Savings, checking and money market accounts	Savings, checking and money market accounts	169		102		271		(287)		38		(249)		Savings, checking and money market accounts	1,606		(88)		1,518
Certificates of deposit	Certificates of deposit	(171)		50		(121)		(530)		(211)		(741)		Certificates of deposit	757		72		829
Other borrowings	Other borrowings	—		—		—		—		1		1		Other borrowings	—		—		—
Subordinated debt	Subordinated debt	—		859		859		—		859		859		Subordinated debt	—		851		851
FHLB advances	FHLB advances	(2)		(9)		(11)		(16)		(23)		(39)		FHLB advances	1,147		1,120		2,267
Total interest expense	Total interest expense	(4)		1,002		998		(833)		664		(169)		Total interest expense	3,510		1,955		5,465
Increase (decrease) in net interest income		$	462	$	4,381	$	4,843	$	3,733	$	4,657	$	8,390
Increase in net interest income														Increase in net interest income	$	3,831	$	4,253	$	8,084

Noninterest Income

Noninterest income for the ~~third~~first quarter of ~~2022~~2023 totaled ~~$3.5~~$3.3 million, down ~~$1.9 million,~~$75,000, or ~~35.5%~~2.2%, from ~~$5.4~~$3.4 million earned for the same period in ~~2021. Noninterest income for the nine months ended September 30, 2022 totaled $10.5 million, down $2.2 million, or 17.2%, from $12.7 million earned for the same period in 2021.~~2022.

Gains on the sale of loans for the ~~third~~first quarter of ~~2022~~2023 were down ~~$337,000,~~$242,000, or ~~81.2%~~80.9%, from the comparable period in ~~2021.~~ 2022.

The origination of mortgage loans held for sale continued declining in the third quarter of 2022 reflecting, in part, the rising interest rate environment. For the nine months ended September 30, 2022, gainsnet loss on the sale of ~~loans were down $1.5 million or 70.1% from~~assets totaled $17,000 for the ~~comparable period in 2021.~~

~~The~~three months ended March 31, 2023, compared to the net gain on the sale of assets ~~totaled $18,000 and $17,000~~in the amount of $5,000 for three months ended March 31, 2022.

The Company recorded a net loss of $249,000 related to the sale of investment securities during the first quarter of 2023. There were no gross gains or gross losses related to the sale of investment securities for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022. This was up $21,000 and $477,000, respectively, from the net losses recorded for three and nine months ended September 30, 2021. During the second quarter of 2021, the Company sold and leased back one of its Mississippi branch locations. The sale transferred control to the buyer-lessor and all losses were recognized at the time of the sale.

Income from service fees and charges for the third quarter of 2022 was up $40,000, or 3.2%, from the third quarter of 2021. For the nine months ended September 30, 2022, income from service fees and charges was up $244,000, or 7.0%. The change in income from service fees and charges over the three and nine month periods was primarily due to the change in income from overdraft fees on deposit accounts.

Income from bank-owned life insurance for the third quarter of 2022 was down $1.7 million. or 88.1%, from the third quarter of 2021 and down $1.7 million. or 72.4%, from the nine months ended September 2021 due to a non-taxable BOLI benefit totaling $1.7 million we recognized following the death of a former employee in the third quarter of 2021.

Income from bank card fees for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 was up ~~$104,000,~~$333,000, or ~~6.8% and $297,000, or 6.7%, respectively,~~22.9% from the comparable period in ~~2021~~2022 primarily due to increased transaction activity by our cardholders.

Noninterest Expense

Noninterest expense for the ~~third~~first quarter of ~~2022~~2023 totaled ~~$20.7~~$19.9 million, up ~~$4.3~~$1.7 million, or ~~26.1%~~9.3%, from the ~~third~~first quarter of ~~2021.~~2022. Noninterest expense for the ~~third~~first quarter of 2022 includes merger-related expenses totaling ~~$60,000~~$328,000 (pre-tax). The increase in noninterest expense related primarily to the Friendswood acquisition and the attendant growth of the Company’s employee base as well as the resultant higher occupancy expense and data processing costs.

~~Noninterest~~Compensation and benefits expense for the ~~nine~~three months ended ~~September 30, 2022 totaled $60.7 million,~~March 31, 2023 was up ~~$11.8~~$2.3 million, or 24.0%, from the same period in 2021. Noninterest expense includes merger-related expenses for the Friendswood acquisition totaling $2.0 million (pre-tax) for the nine months ended September 30, 2022. Other noninterest expense for the nine months ended September 30, 2022 was up $850,000, or 30.7%22.4%, from the comparable period in ~~2021~~2022 primarily due to ~~charge offs related to fraud on deposit accounts. The increase in noninterest~~the growth of the Company's employee base as a result of the Friendswood acquisition.

Occupancy expense for the three months ended March 31, 2023 was up $547,000, or 30.3%, from the comparable period ~~related~~in 2022 primarily as a result of the expansion of the Company's branch office network due to the Friendswood ~~acquisition~~acquisition.

Foreclosed assets expense for the three ended March 31, 2023 was down $1.1 million, or 283.8%, from the comparable period in 2022 primarily due to a recovery of a previous loss and ~~the attendant growth of the Company’s employee base as well as the resultant higher occupancy expense and data processing costs.~~less foreclosed assets expenses.

Income Taxes

Income tax expense for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 totaled ~~$2.6~~$2.8 million ~~and $5.7 million, respectively,~~ compared to ~~$3.4 million and $9.2~~$1.0 million for the three ~~and nine~~ months ended ~~September 30, 2021, respectively.~~March 31, 2022. The ~~decrease~~increase in income tax expense over the comparable periods ~~were~~was primarily due to ~~decreases in~~increased taxable earnings.

The Company's effective tax rates for the ~~third~~first quarters of 2023 and 2022 were 20.0% and 2021 were 19.9% and 18.5%, respectively. The effective tax rate decreased over the comparable three-month periods primarily due to an increase in non-taxable earnings from bank-owned life insurance during 2021. For the nine months ended September 30, 2022 and 2021, the Company's effective tax rates were 19.8% and 19.4%19.1%, respectively.

CRITICAL ACCOUNTING ESTIMATES

SEC guidance requires disclosure of “critical accounting estimates.” The SEC defines “critical accounting estimates” as those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations of the registrant.

We follow financial accounting and reporting policies that are in accordance with accounting principles generally accepted in the United States. Our accounting policies are discussed in detail in Note 1 - Basis of Presentation in the accompanying notes to the consolidated financial statements included elsewhere in this report and in our ~~2021~~2022 Annual Report on Form 10-K. Not all significant accounting policies require management to make difficult, subjective or complex judgments. However, management believes the policy noted below meets the SEC’s definition of a critical accounting policy.

Allowance for Credit Losses

Management considers the policies related to the allowance for credit losses as the most critical to the financial statement presentation. The total allowance for credit losses includes activity related to allowances calculated in accordance with Accounting Standards Codification 326, Credit Losses. The allowance for credit losses is established through a provision for credit losses charged to current earnings. The amount maintained in the allowance reflects management’s continuing evaluation of the credit losses expected to be recognized over the life of the loans in our portfolio. The allowance for credit losses on loans is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. For purposes of determining the allowance for credit losses, the loan portfolio is segregated by product types in order to recognize differing risk profiles among categories. Loans that do not share risk characteristics are evaluated on an individual basis and are not included in the collective evaluation. Management estimates the allowance balance using relevant available information from internal and external sources relating to past events, current conditions and reasonable and supportable forecasts. Adjustments to historical loss information are made to incorporate our reasonable and supportable forecast of future losses at the portfolio segment level, as well as any necessary qualitative adjustments, including, but not limited to, changes in current and expected future economic conditions, changes in industry experience and industry loan concentrations, changes in the volume and severity of nonperforming assets, changes in lending policies and personnel and changes in the competitive and regulatory environment of the banking industry. Loans that do not share similar risk characteristics are individually evaluated and are excluded from the pooled loan analysis.

~~Reconciliation of Non-GAAP Measures~~

~~The following table provides a reconciliation of Non-GAAP financial measures used herein to GAAP reporting. For further information, see "Non-GAAP Financial Measures" on page~~ 38.

~~Financial Condition~~

(dollars in thousands) September 30, 2022 December 31, 2021
Total loans $ 2,303,279 $ 1,840,093
Less: PPP loans 7,094 43,637
Less: Friendswood loan portfolio 318,907
Total loans excluding PPP loans $ 1,977,278 $ 1,796,456
Allowance for loan losses to total loans 1.19 % 1.15 %
Less: PPP loans — 0.02
Non-GAAP allowance for loan losses to total loans 1.19 % 1.17 %

~~Results of Operations~~

Three Months Ended
September 30, Nine Months Ended
September 30,
(dollars in thousands) 2022 2021 2022 2021
Reported loan income $ 29,859 $ 27,045 $ 79,834 $ 77,362
Less: PPP loan income 132 4,742 1,333 11,007
Loan income excluding PPP loan income $ 29,727 $ 22,303 $ 78,501 $ 66,355
Provision (reversal) for loan losses $ 1,696 $ (2,385) $ 5,502 $ (7,513)
Less: CECL impact for acquisition — — 3,802 —
Provision reversal for organic loans $ 1,696 $ (2,385) $ 1,700 $ (7,513)
Average total loans $ 2,265,846 $ 1,896,808 $ 2,107,871 $ 1,949,004
Less: average PPP loans 9,431 144,626 18,660 203,506
Average total loans excluding PPP loans $ 2,256,415 $ 1,752,182 $ 2,089,211 $ 1,745,498
Loan yield 5.17 % 5.60 % 5.01 % 5.25 %
Impact of PPP loans — (0.60) (0.04) (0.22)
Loan yield excluding PPP loans 5.17 % 5.00 % 4.97 % 5.03 %
Net interest margin 4.11 % 4.16 % 3.77 % 4.01 %
Impact of PPP loans — (0.52) (0.04) (0.27)
Net interest margin excluding PPP loans 4.11 % 3.64 % 3.73 % 3.74 %


Item 3.			Quantitative and Qualitative Disclosures About Market Risk.

Quantitative and qualitative disclosures about market risk are presented in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, ~~2021,~~2022, under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Asset/Liability Management and Market Risk”. Additional information at ~~September 30, 2022~~March 31, 2023 is included herein under Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Asset/Liability Management”.


Item 4.			Controls and Procedures.

Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations and are operating in an effective manner.

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934) occurred during the ~~third~~first quarter of ~~2022~~2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION


Item 1.			Legal Proceedings.

Not applicable.


Item 1A.			Risk Factors.

There have been no material changes from the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 filed with the Securities and Exchange Commission.


Item 2.			Unregistered Sales of Equity Securities and the Use of Proceeds.

The Company’s purchases of its common stock made during the quarter ended ~~September 30, 2022~~March 31, 2023 consisted of stock repurchases under the Company’s approved plans and are set forth in the following table.

Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Maximum Number of Shares that May Yet be Purchased Under the Plan or Programs(1)
July 1 – July 31, 2022 35,451 $ 35.68 35,451 238,603
August 1 – August 31, 2022 5,160 38.60 5,160 233,443
September 1 – September 30, 2022 36,410 38.18 36,410 197,033
Total 77,021 $ 37.06 77,021 197,033


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet be Purchased Under the Plan or Programs(1)
January 1 – January 31, 2023	—	$	—	—	195,718
February 1 – February 28, 2023	—	—		—	195,718
March 1 – March 31, 2023	10,199	32.81		10,199	185,519
Total	10,199	$	32.81	10,199	185,519

(1)On October 26, 2021, the Company announced the approval of a new repurchase program (the “2021 Repurchase Plan”). Under the 2021 Repurchase Plan, the Company may purchase up to an additional 430,000 shares, or approximately 5% of the Company’s outstanding common stock. ~~Share repurchases under the 2021 Repurchase Plan commenced upon completion of the Company’s 2020 Repurchase Plan.~~


Item 3.			Defaults Upon Senior Securities.

None.


Item 4.			Mine Safety Disclosures.

None.


Item 5.			Other Information.

None.


Item 6.			Exhibits and Financial Statement Schedules.

No.

Description

Location

4.1

Indenture, dated June 30, 2022, by and between Home Bancorp, Inc. and UMB Bank, National Association, as trustee.

(incorporated by reference from the like-numbered exhibit included in Home Bancorp’s Current Report on Form 8-K, dated as of June 30, 2022 and filed July 1, 2022 (SEC File No. 001-34190))

31.1

Rule 13(a)-14(a) Certification of the Chief Executive Officer

Filed herewith

31.2

Rule 13(a)-14(a) Certification of the Chief Financial Officer

Filed herewith

32.0

Section 1350 Certification

Filed herewith

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definitions Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover page Interactive Data File (embedded within the Inline XBRL document)

5644

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

HOME BANCORP, INC.

~~November 4, 2022~~May 5, 2023

By:

/s/ John W. Bordelon

John W. Bordelon

Chairman of the Board, President and Chief Executive Officer

~~November 4, 2022~~May 5, 2023

By:

/s/ David T. Kirkley

David T. Kirkley

Senior Executive Vice President and Chief Financial Officer

~~November 4, 2022~~May 5, 2023

By:

/s/ Mary H. Hopkins

Mary H. Hopkins

Home Bank, N. A. Senior Vice President and Director of Financial Management

5745


(dollars in thousands, except per share data)	Common stock		Additional Paid-in capital		Unallocated Common Stock Held by ESOP		Unallocated Common Stock Held by RRP		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
Balance, December 31, 2020	$	87	$	164,988	$	(2,767)	$	(22)	$	154,282	$	5,274	$	321,842

Net income									38,383				38,383
Other comprehensive loss											(3,340)		(3,340)
Purchase of Company’s common stock at cost, 243,497 shares	(2)		(2,433)						(6,363)				(8,798)
Cash dividends declared, $0.68 per share									(5,906)				(5,906)
Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 22,273 shares	—		245						(69)				176
Exercise of stock options	—		80										80
RRP shares released for allocation			(8)				8						—
ESOP shares released for allocation			849		268								1,117
Share-based compensation cost			595										595
Balance, September 30, 2021	$	85	$	164,316	$	(2,499)	$	(14)	$	180,327	$	1,934	$	344,149
Balance, December 31, 2021	$	85	$	164,982	$	(2,410)	$	(13)	$	188,515	$	744	$	351,903
Net income									23,296				23,296
Other comprehensive loss											(43,598)		(43,598)
Purchase of Company’s common stock at cost, 287,035 shares	(2)		(2,868)						(8,407)				(11,277)
Cash dividends declared, $0.69 per share									(5,790)				(5,790)
Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 22,837 shares			304						(61)				243
Exercise of stock options	—		182										182
RRP shares released for allocation			(5)				5						—
ESOP shares released for allocation			933		268								1,201
Share-based compensation cost			496										496
Balance, September 30, 2022	$	83	$	164,024	$	(2,142)	$	(8)	$	197,553	$	(42,854)	$	316,656


	For the Nine Months Ended September 30,
(dollars in thousands)	2022		2021
Cash flows from operating activities:
Net income	$	23,296	$	38,383
Adjustments to reconcile net income to net cash provided by operating activities:
Provision (reversal) for loan losses	5,502		(7,513)
Depreciation	2,538		2,301
Amortization and accretion of purchase accounting valuations and intangibles	3,020		2,762

Federal Home Loan Bank stock dividends	(22)		(11)
Net amortization of discount on investments	871		1,484
Amortization of subordinated debt issuance cost	60		—
Gain on loans sold, net	(641)		(2,142)
Proceeds, including principal payments, from loans held for sale	64,755		165,995
Originations of loans held for sale	(63,179)		(157,770)
(Gain) loss on sale of assets, net	(17)		460
Non-cash compensation	1,697		1,712
Deferred income tax (benefit) expense	(425)		1,747
Increase in accrued interest receivable and other assets	(9,207)		(3,612)
Increase in cash surrender value of bank-owned life insurance	(658)		(667)
Increase in accrued interest payable and other liabilities	9,085		793
Net cash provided by operating activities	36,675		43,922
Cash flows from investing activities:
Purchases of securities available for sale	(236,236)		(125,380)
Proceeds from maturities, prepayments and calls on securities available for sale	44,692		64,278
Proceeds from maturities, prepayments and calls on securities held to maturity	1,000		800
Proceeds from sales of securities available for sale	—		5,068
(Increase) decrease in loans, net	(151,039)		99,621

Proceeds from sale of foreclosed assets	2,557		2,274
Purchases of office properties and equipment	(1,904)		(1,998)
Net cash disbursed in sale of banking center	(11,182)		—
Net cash disbursed in business combination	(16,123)		—
Purchase of bank-owned life insurance	(5,000)		—
Proceeds from bank-owned life insurance	—		1,717
Proceeds from sale of office properties and equipment	73		400

Net cash (used in) provided by investing activities	(373,162)		46,780
Cash flows from financing activities:
(Decrease) increase in deposits, net	(150,411)		151,896
Borrowings on Federal Home Loan Bank advances	—		—
Repayments of Federal Home Loan Bank advances	(1,245)		(2,408)
Proceeds from issuance of subordinated debt, net of issuance cost	53,898		—
Proceeds from exercise of stock options	182		80
Issuance of stock under incentive plans, net	243		176
Dividends paid to shareholders	(5,790)		(5,906)
Purchase of Company’s common stock	(11,277)		(8,798)
Net cash (used in) provided by financing activities	(114,400)		135,040
Net change in cash and cash equivalents	(450,887)		225,742
Cash and cash equivalents, beginning	601,443		187,952
Cash and cash equivalents, ending	$	150,556	$	413,694


(dollars in thousands)	As Acquired		Fair Value Adjustments			As recorded by Home Bancorp
Assets
Cash and cash equivalents	$	48,741	$	—		$	48,741
Investment securities	33,679		(268)		(a)	33,411
Loans	320,050		(2,558)		(b)	317,492
Repossessed assets	950		(246)		(c)	704
Office properties and equipment, net	1,663		(116)		(d)	1,547
Core deposit intangible	—		4,597		(e)	4,597
Other assets	9,687		(1,688)		(f)	7,999
Total assets acquired	$	414,770	$	(279)		$	414,491
Liabilities
Noninterest-bearing deposits	$	97,668	—			$	97,668
Interest-bearing deposits	269,301		1,022		(g)	270,323
Other liabilities	3,873		215		(h)	4,088
Total liabilities assumed	$	370,842	$	1,237		$	372,079
Excess of assets acquired over liabilities assumed						42,412
Cash consideration paid						(64,864)
Total goodwill recorded						$	22,452


	Three Months Ended September 30, 2022
	Amount of Gain Recognized in OCI				Location of Gain Reclassified from AOCI into Income	Amount of Gain Reclassified from AOCI into Income
(dollars in thousands)	Total		Included Component			Total		Included Component
Derivatives in cash flows hedging relationships:
Interest rate swaps - variable rate liabilities	$	1,490	$	1,490	Interest income	$	193	$	193


	Nine Months Ended September 30, 2022

	Amount of Gain Recognized in OCI				Location of Gain Reclassified from AOCI into Income	Amount of Gain Reclassified from AOCI into Income
(dollars in thousands)	Total		Included Component			Total		Included Component
Derivatives in cash flows hedging relationships:
Interest rate swaps - variable rate liabilities	$	4,024	$	4,024	Interest income	$	231	$	231