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: ~~March 31,~~September 30, 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 ~~May 2,~~October 30, 2023, the registrant had ~~8,250,807~~8,147,869 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	56
	Notes to Unaudited Consolidated Financial Statements	67
Item 2.	Management 's Discussion and Analysis of Financial Condition and Results of Operations	3032
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4245
Item 4.	Controls and Procedures	4245
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	4346
Item 1A.	Risk Factors	4346
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4346
Item 3.	Defaults Upon Senior Securities	4346
Item 4.	Mine Safety Disclosures	4346
Item 5.	Other Information	4347
Item 6.	Exhibits	4447
SIGNATURES		4548

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

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)	March 31, 2023		December 31, 2022		(dollars in thousands)	September 30, 2023		December 31, 2022
Assets	Assets					Assets
Cash and cash equivalents	Cash and cash equivalents	$	107,171	$	87,401	Cash and cash equivalents	$	84,520	$	87,401
Interest-bearing deposits in banks	Interest-bearing deposits in banks	349		349		Interest-bearing deposits in banks	99		349
Investment securities available for sale, at fair value	Investment securities available for sale, at fair value	466,506		486,518		Investment securities available for sale, at fair value	427,019		486,518
Investment securities held to maturity (fair values of $1,069 and $1,072, respectively)		1,070		1,075
Investment securities held to maturity (fair values of $1,052 and $1,072, respectively)						Investment securities held to maturity (fair values of $1,052 and $1,072, respectively)	1,065		1,075
Mortgage loans held for sale	Mortgage loans held for sale	473		98		Mortgage loans held for sale	467		98
Loans, net of unearned income	Loans, net of unearned income	2,466,392		2,430,750		Loans, net of unearned income	2,569,094		2,430,750
Allowance for loan losses	Allowance for loan losses	(30,118)		(29,299)		Allowance for loan losses	(31,123)		(29,299)
Total loans, net of unearned income and allowance for loan losses	Total loans, net of unearned income and allowance for loan losses	2,436,274		2,401,451		Total loans, net of unearned income and allowance for loan losses	2,537,971		2,401,451
Office properties and equipment, net	Office properties and equipment, net	42,844		43,560		Office properties and equipment, net	42,402		43,560
Cash surrender value of bank-owned life insurance	Cash surrender value of bank-owned life insurance	46,528		46,276		Cash surrender value of bank-owned life insurance	47,054		46,276
Goodwill and core deposit intangibles	Goodwill and core deposit intangibles	87,527		87,973		Goodwill and core deposit intangibles	86,749		87,973
Accrued interest receivable and other assets	Accrued interest receivable and other assets	78,228		73,579		Accrued interest receivable and other assets	90,383		73,579
Total Assets	Total Assets	$	3,266,970	$	3,228,280	Total Assets	$	3,317,729	$	3,228,280
Liabilities	Liabilities					Liabilities
Deposits:	Deposits:					Deposits:
Noninterest-bearing	Noninterest-bearing	$	854,736	$	904,301	Noninterest-bearing	$	785,448	$	904,301
Interest-bearing	Interest-bearing	1,703,008		1,728,880		Interest-bearing	1,812,036		1,728,880
Total Deposits	Total Deposits	2,557,744		2,633,181		Total Deposits	2,597,484		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	54,073		54,013		Subordinated debt, net of issuance cost	54,187		54,013
Short-term Federal Home Loan Bank advances	Short-term Federal Home Loan Bank advances	233,650		155,000		Short-term Federal Home Loan Bank advances	241,000		155,000
Long-term Federal Home Loan Bank advances	Long-term Federal Home Loan Bank advances	43,077		21,213		Long-term Federal Home Loan Bank advances	42,826		21,213
Accrued interest payable and other liabilities	Accrued interest payable and other liabilities	27,787		29,380		Accrued interest payable and other liabilities	31,361		29,380
Total Liabilities	Total Liabilities	2,921,870		2,898,326		Total Liabilities	2,972,397		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; 8,284,130 and 8,286,084 shares issued and outstanding, respectively		83		83
Common stock, $0.01 par value - 40,000,000 shares authorized; 8,163,655 and 8,286,084 shares issued and outstanding, respectively						Common stock, $0.01 par value - 40,000,000 shares authorized; 8,163,655 and 8,286,084 shares issued and outstanding, respectively	81		83
Additional paid-in capital	Additional paid-in capital	165,470		164,942		Additional paid-in capital	165,149		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)	(1,964)		(2,053)		Employee Stock Ownership Plan (ESOP)	(1,785)		(2,053)
Recognition and Retention Plan (RRP)	Recognition and Retention Plan (RRP)	(5)		(7)		Recognition and Retention Plan (RRP)	(2)		(7)
Retained earnings	Retained earnings	215,290		206,296		Retained earnings	227,649		206,296
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(33,774)		(39,307)		Accumulated other comprehensive loss	(45,760)		(39,307)
Total Shareholders’ Equity	Total Shareholders’ Equity	345,100		329,954		Total Shareholders’ Equity	345,332		329,954
Total Liabilities and Shareholders’ Equity	Total Liabilities and Shareholders’ Equity	$	3,266,970	$	3,228,280	Total Liabilities and Shareholders’ Equity	$	3,317,729	$	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 March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands, except per share data)	(dollars in thousands, except per share data)	2023		2022			(dollars in thousands, except per share data)	2023		2022		2023		2022
Interest Income	Interest Income						Interest Income
Loans, including fees	Loans, including fees	$	34,498	$	22,671		Loans, including fees	$	38,490	$	29,859	$	109,518	$	79,834
Investment securities:	Investment securities:						Investment securities:
Taxable interest	Taxable interest	2,998		1,542			Taxable interest	2,863		2,812		8,772		6,576
Tax-exempt interest	Tax-exempt interest	144		76			Tax-exempt interest	76		146		295		338
Other investments and deposits	Other investments and deposits	475		277			Other investments and deposits	649		1,447		1,679		2,587
Total interest income	Total interest income	38,115		24,566			Total interest income	42,078		34,264		120,264		89,335
Interest Expense	Interest Expense						Interest Expense
Deposits	Deposits	3,240		893			Deposits	8,181		1,270		16,968		3,266
Other borrowings	Other borrowings	53		53			Other borrowings	53		53		161		160
Subordinated debt expense	Subordinated debt expense	851		—			Subordinated debt expense	845		859		2,546		859
Short-term Federal Home Loan Bank advances	Short-term Federal Home Loan Bank advances	2,259		—			Short-term Federal Home Loan Bank advances	3,150		—		8,382		—
Long-term Federal Home Loan Bank advances	Long-term Federal Home Loan Bank advances	117		109			Long-term Federal Home Loan Bank advances	340		105		797		321
Total interest expense	Total interest expense	6,520		1,055			Total interest expense	12,569		2,287		28,854		4,606
Net interest income	Net interest income	31,595		23,511			Net interest income	29,509		31,977		91,410		84,729
Provision for loan losses	Provision for loan losses	814		3,215			Provision for loan losses	351		1,696		1,676		5,502
Net interest income after provision for loan losses	Net interest income after provision for loan losses	30,781		20,296			Net interest income after provision for loan losses	29,158		30,281		89,734		79,227
Noninterest Income	Noninterest Income						Noninterest Income
Service fees and charges	Service fees and charges	1,250		1,165			Service fees and charges	1,277		1,300		3,757		3,722
Bank card fees	Bank card fees	1,787		1,454			Bank card fees	1,903		1,623		5,405		4,713
Gain on sale of loans, net	Gain on sale of loans, net	57		299			Gain on sale of loans, net	687		78		770		641
Income from bank-owned life insurance	Income from bank-owned life insurance	253		214			Income from bank-owned life insurance	265		231		778		658
Loss on sale of securities, net	Loss on sale of securities, net	(249)		—			Loss on sale of securities, net	—		—		(249)		—
(Loss) gain on sale of assets, net	(Loss) gain on sale of assets, net	(17)		5			(Loss) gain on sale of assets, net	—		18		(20)		17
Other income	Other income	230		249			Other income	267		224		717		795
Total noninterest income	Total noninterest income	3,311		3,386			Total noninterest income	4,399		3,474		11,158		10,546
Noninterest Expense	Noninterest Expense						Noninterest Expense
Compensation and benefits	Compensation and benefits	12,439		10,159			Compensation and benefits	12,492		12,128		37,532		34,870
Occupancy	Occupancy	2,350		1,803			Occupancy	2,410		2,297		7,207		6,454
Marketing and advertising	Marketing and advertising	307		407			Marketing and advertising	638		658		1,387		1,713
Data processing and communication	Data processing and communication	2,321		2,195			Data processing and communication	2,496		2,284		6,949		7,012
Professional services	Professional services	364		542			Professional services	402		331		1,225		1,348
Forms, printing and supplies	Forms, printing and supplies	187		146			Forms, printing and supplies	195		185		586		584
Franchise and shares tax	Franchise and shares tax	541		391			Franchise and shares tax	542		633		1,624		1,415
Regulatory fees	Regulatory fees	539		446			Regulatory fees	511		467		1,451		1,611
Foreclosed assets and ORE, net	Foreclosed assets and ORE, net	(739)		402			Foreclosed assets and ORE, net	99		101		(590)		493
Amortization of acquisition intangible	Amortization of acquisition intangible	446		252			Amortization of acquisition intangible	389		453		1,224		1,159
Provision for credit losses on unfunded commitments	Provision for credit losses on unfunded commitments	210		302			Provision for credit losses on unfunded commitments	—		146		361		448
Other expenses	Other expenses	975		1,195			Other expenses	1,164		1,040		3,281		3,621
Total noninterest expense	Total noninterest expense	19,940		18,240			Total noninterest expense	21,338		20,723		62,237		60,728
Income before income tax expense	Income before income tax expense	14,152		5,442			Income before income tax expense	12,219		13,032		38,655		29,045
Income tax expense	Income tax expense	2,832		1,041			Income tax expense	2,465		2,598		7,800		5,749
Net Income	Net Income	$	11,320	$	4,401		Net Income	$	9,754	$	10,434	$	30,855	$	23,296
Earnings per share:	Earnings per share:						Earnings per share:
Basic	Basic	$	1.40	$	0.53		Basic	$	1.22	$	1.29	$	3.84	$	2.86
Diluted	Diluted	$	1.39	$	0.53		Diluted	$	1.22	$	1.28	$	3.82	$	2.84
Cash dividends declared per common share	Cash dividends declared per common share	$	0.25	$	0.23		Cash dividends declared per common share	$	0.25	$	0.23	$	0.75	$	0.69

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 March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2023		2022			(dollars in thousands)	2023		2022		2023		2022
Net Income	Net Income	$	11,320	$	4,401		Net Income	$	9,754	$	10,434	$	30,855	$	23,296
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
Other Comprehensive Loss							Other Comprehensive Loss
Unrealized losses on available for sale investment securities							Unrealized losses on available for sale investment securities	(10,218)		(25,149)		(8,894)		(58,980)
Unrealized gains on cash flow hedges							Unrealized gains on cash flow hedges	183		1,297		476		3,793
Reclassification adjustment for losses included in net income	Reclassification adjustment for losses included in net income	249		—			Reclassification adjustment for losses included in net income	—		—		249		—
Tax effect	Tax effect	(1,470)		3,777			Tax effect	2,108		5,009		1,716		11,589
Other comprehensive income (loss), net of taxes		5,533		(14,209)
Other comprehensive loss, net of taxes							Other comprehensive loss, net of taxes	(7,927)		(18,843)		(6,453)		(43,598)
Comprehensive Income (Loss)	Comprehensive Income (Loss)	$	16,853	$	(9,808)		Comprehensive Income (Loss)	$	1,827	$	(8,409)	$	24,402	$	(20,302)

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 Loss		Total
Balance, December 31, 2021		$	85	$	164,982	$	(2,410)	$	(13)	$	188,515	$	744	$	351,903
Balance, June 30, 2022																Balance, June 30, 2022	$	84	$	164,177	$	(2,231)	$	(9)	$	191,114	$	(24,011)	$	329,124
Net income	Net income									4,401				4,401		Net income									10,434				10,434
Other comprehensive loss	Other comprehensive loss											(14,209)		(14,209)		Other comprehensive loss											(18,843)		(18,843)
Purchase of Company’s common stock at cost, 84,515 shares		(1)		(844)						(2,546)				(3,391)
Purchase of Company’s common stock at cost, 77,021 shares																Purchase of Company’s common stock at cost, 77,021 shares	(1)		(770)						(2,084)				(2,855)
Cash dividends declared, $0.23 per share	Cash dividends declared, $0.23 per share									(1,962)				(1,962)		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, 8,997 shares		1		160						(22)				139
Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 3,260 shares																Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 3,260 shares	—		97						(1)				96
Exercise of stock options	Exercise of stock options	—		28										28		Exercise of stock options	—		53										53
RRP shares released for allocation	RRP shares released for allocation			(2)				2						—		RRP shares released for allocation			(1)				1						—
ESOP shares released for allocation	ESOP shares released for allocation			337		89								426		ESOP shares released for allocation			309		89								398
Share-based compensation cost	Share-based compensation cost			169										169		Share-based compensation cost			159										159
Balance, March 31, 2022		$	85	$	164,830	$	(2,321)	$	(11)	$	188,386	$	(13,465)	$	337,504
Balance, December 31, 2022		$	83	$	164,942	$	(2,053)	$	(7)	$	206,296	$	(39,307)	$	329,954
Balance, September 30, 2022																Balance, September 30, 2022	$	83	$	164,024	$	(2,142)	$	(8)	$	197,553	$	(42,854)	$	316,656
Balance, June 30, 2023																Balance, June 30, 2023	$	82	$	164,945	$	(1,875)	$	(3)	$	220,801	$	(37,833)	$	346,117
Net income	Net income									11,320				11,320		Net income									9,754				9,754
Other comprehensive income												5,533		5,533
Purchase of Company’s common stock at cost, 10,199 shares		—		(102)						(233)				(335)
Other comprehensive loss																Other comprehensive loss											(7,927)		(7,927)
Purchase of Company’s common stock at cost, 37,805 shares																Purchase of Company’s common stock at cost, 37,805 shares	(1)		(378)						(856)				(1,235)
Cash dividends declared, $0.25 per share	Cash dividends declared, $0.25 per share									(2,072)				(2,072)		Cash dividends declared, $0.25 per share									(2,049)				(2,049)
Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 4,029 shares		—		33						(21)				12
Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 2,801 shares																Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 2,801 shares	—		71						(1)				70
Exercise of stock options	Exercise of stock options	—		85										85		Exercise of stock options	—		17										17
RRP shares released for allocation	RRP shares released for allocation			(2)				2						—		RRP shares released for allocation			(1)				1						—
ESOP shares released for allocation	ESOP shares released for allocation			308		89								397		ESOP shares released for allocation			264		90								354
Share-based compensation cost	Share-based compensation cost			206										206		Share-based compensation cost			231										231
Balance, March 31, 2023		$	83	$	165,470	$	(1,964)	$	(5)	$	215,290	$	(33,774)	$	345,100
Balance, September 30, 2023																Balance, September 30, 2023	$	81	$	165,149	$	(1,785)	$	(2)	$	227,649	$	(45,760)	$	345,332

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

HOME BANCORP, INC. AND SUBSIDIARY

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

(Unaudited)
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


(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, 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
Balance, December 31, 2022	$	83	$	164,942	$	(2,053)	$	(7)	$	206,296	$	(39,307)	$	329,954
Net income									30,855				30,855
Other comprehensive loss											(6,453)		(6,453)
Purchase of Company’s common stock at cost, 147,738 shares	(2)		(1,476)						(3,240)				(4,718)
Cash dividends declared, $0.75 per share									(6,185)				(6,185)
Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 20,259 shares			98						(77)				21
Exercise of stock options	—		102										102
RRP shares released for allocation			(5)				5						—
ESOP shares released for allocation			821		268								1,089
Share-based compensation cost			667										667
Balance, September 30, 2023	$	81	$	165,149	$	(1,785)	$	(2)	$	227,649	$	(45,760)	$	345,332

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)	2023		2022
Cash flows from operating activities:
Net income	$	30,855	$	23,296
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	1,676		5,502
Depreciation	2,659		2,538
Amortization and accretion of purchase accounting valuations and intangibles	2,807		3,020

Federal Home Loan Bank stock dividends	(391)		(22)
Net amortization of discount on investments	292		871
Amortization of subordinated debt issuance cost	174		60
Loss on sale of securities, net	249		—
Gain on loans sold, net	(770)		(641)
Proceeds, including principal payments, from loans held for sale	12,510		64,755
Originations of loans held for sale	(12,749)		(63,179)
Loss (gain) on sale of assets, net	20		(17)
Non-cash compensation	1,756		1,697
Deferred income tax (benefit) expense	31		(425)
Increase in accrued interest receivable and other assets	(9,641)		(9,207)
Increase in cash surrender value of bank-owned life insurance	(778)		(658)
Decrease in accrued interest payable and other liabilities	2,469		9,085
Net cash provided by operating activities	31,169		36,675
Cash flows from investing activities:
Purchases of securities available for sale	—		(236,236)
Proceeds from maturities, prepayments and calls on securities available for sale	36,561		44,692
Proceeds from maturities, prepayments and calls on securities held to maturity	—		1,000
Proceeds from sales of securities available for sale	13,762		—
Increase in loans, net	(139,803)		(151,039)
Decrease in interest-bearing deposits in banks	250		—
Proceeds from sale of foreclosed assets	426		2,557
Purchases of office properties and equipment	(1,525)		(1,904)
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 sale of office properties and equipment	4		73
Purchase of Federal Home Loan Bank stock	(5,215)		—
Net cash used in investing activities	(95,540)		(373,162)
Cash flows from financing activities:
Decrease in deposits, net	(35,340)		(150,411)
Borrowings on Federal Home Loan Bank advances	15,695,975		—
Repayments of Federal Home Loan Bank advances	(15,588,365)		(1,245)
Proceeds from issuance of subordinated debt, net of issuance cost	—		53,898
Proceeds from exercise of stock options	102		182
Issuance of stock under incentive plans, net	21		243
Dividends paid to shareholders	(6,185)		(5,790)
Purchase of Company’s common stock	(4,718)		(11,277)
Net cash provided by (used in) financing activities	61,490		(114,400)
Net change in cash and cash equivalents	(2,881)		(450,887)
Cash and cash equivalents, beginning	87,401		601,443
Cash and cash equivalents, ending	$	84,520	$	150,556

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 ~~March 31,~~September 30, 2023 and 2022 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, 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, 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, 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,~~326-20, 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 2023-01, “Leases (Topic 842): Common Control Arrangements” (“ASU 2023-01”) clarifies the accounting for leasehold improvements associated with common control leases to public business entities. This update is effective for fiscal years beginning after December 15, 2023, 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 2023-02, “Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method” (“ASU 2023-02”) permits reporting entities to elect to account for their tax equity investments, regardless of the 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 for fiscal years beginning after December 15, 2023, 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 statements.

3. Investment Securities

The following tables summarize the Company’s available for sale and held to maturity investment securities at ~~March 31,~~September 30, 2023 and December 31, 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
March 31, 2023
September 30, 2023										September 30, 2023
Available for sale:	Available for sale:									Available for sale:
U.S. agency mortgage-backed	U.S. agency mortgage-backed	$	341,049	$	94	$	33,762	$	307,381	U.S. agency mortgage-backed	$	324,459	$	2	$	44,290	$	280,171
Collateralized mortgage obligations	Collateralized mortgage obligations	88,800		1		3,914		84,887		Collateralized mortgage obligations	84,009		1		5,731		78,279
Municipal bonds	Municipal bonds	56,426		8		7,878		48,556		Municipal bonds	55,705		1		10,669		45,037
U.S. government agency	U.S. government agency	20,301		—		979		19,322		U.S. government agency	19,278		—		1,834		17,444
Corporate bonds	Corporate bonds	6,980		—		620		6,360		Corporate bonds	6,982		—		894		6,088
Total available for sale	Total available for sale	$	513,556	$	103	$	47,153	$	466,506	Total available for sale	$	490,433	$	4	$	63,418	$	427,019
Held to maturity:	Held to maturity:									Held to maturity:
Municipal bonds	Municipal bonds	$	1,070	$	—	$	1	$	1,069	Municipal bonds	$	1,065	$	—	$	13	$	1,052
Total held to maturity	Total held to maturity	$	1,070	$	—	$	1	$	1,069	Total held to maturity	$	1,065	$	—	$	13	$	1,052


(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
December 31, 2022
Available for sale:
U.S. agency mortgage-backed	$	355,014	$	63	$	38,245	$	316,832
Collateralized mortgage obligations	91,217		1		4,873		86,345
Municipal bonds	67,476		50		9,901		57,625
U.S. government agency	20,600		—		1,267		19,333
Corporate bonds	6,980		—		597		6,383
Total available for sale	$	541,287	$	114	$	54,883	$	486,518
Held to maturity:
Municipal bonds	$	1,075	$	—	$	3	$	1,072
Total held to maturity	$	1,075	$	—	$	3	$	1,072

The estimated fair value and amortized cost by contractual maturity of the Company’s investment securities as of ~~March 31,~~September 30, 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,~~September 30, 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	$	2,901	$	53,234	$	108,800	$	142,446	$	307,381	U.S. agency mortgage-backed	$	2,885	$	64,645	$	88,804	$	123,837	$	280,171
Collateralized mortgage obligations	Collateralized mortgage obligations	—		59,551		4,937		20,399		84,887		Collateralized mortgage obligations	430		54,915		4,636		18,298		78,279
Municipal bonds	Municipal bonds	2,194		1,737		19,889		24,736		48,556		Municipal bonds	1,705		1,707		19,721		21,904		45,037
U.S. government agency	U.S. government agency	—		6,039		12,961		322		19,322		U.S. government agency	—		5,164		11,964		316		17,444
Corporate bonds	Corporate bonds	—		—		6,360		—		6,360		Corporate bonds	—		—		6,088		—		6,088
Total available for sale	Total available for sale	$	5,095	$	120,561	$	152,947	$	187,903	$	466,506	Total available for sale	$	5,020	$	126,431	$	131,213	$	164,355	$	427,019
Held to maturity:	Held to maturity:											Held to maturity:
Municipal bonds	Municipal bonds	$	—	$	1,069	$	—	$	—	$	1,069	Municipal bonds	$	—	$	1,052	$	—	$	—	$	1,052
Total held to maturity	Total held to maturity	$	—	$	1,069	$	—	$	—	$	1,069	Total held to maturity	$	—	$	1,052	$	—	$	—	$	1,052

(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	$	2,958	$	56,901	$	118,859	$	162,331	$	341,049	U.S. agency mortgage-backed	$	2,909	$	71,833	$	99,747	$	149,970	$	324,459
Collateralized mortgage obligations	Collateralized mortgage obligations	—		61,831		5,577		21,392		88,800		Collateralized mortgage obligations	433		58,262		5,405		19,909		84,009
Municipal bonds	Municipal bonds	2,214		1,897		22,669		29,646		56,426		Municipal bonds	1,705		1,892		23,606		28,502		55,705
U.S. government agency	U.S. government agency	—		6,115		13,861		325		20,301		U.S. government agency	—		5,292		13,669		317		19,278
Corporate bonds	Corporate bonds	—		—		6,980		—		6,980		Corporate bonds	—		—		6,982		—		6,982
Total available for sale	Total available for sale	$	5,172	$	126,744	$	167,946	$	213,694	$	513,556	Total available for sale	$	5,047	$	137,279	$	149,409	$	198,698	$	490,433
Held to maturity:	Held to maturity:											Held to maturity:
Municipal bonds	Municipal bonds	$	—	$	1,070	$	—	$	—	$	1,070	Municipal bonds	$	—	$	1,065	$	—	$	—	$	1,065
Total held to maturity	Total held to maturity	$	—	$	1,070	$	—	$	—	$	1,070	Total held to maturity	$	—	$	1,065	$	—	$	—	$	1,065

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.

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
March 31, 2023		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
September 30, 2023														September 30, 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	$	98,538	$	4,908	$	206,144	$	28,854	$	304,682	$	33,762	U.S. agency mortgage-backed	$	10,320	$	421	$	269,593	$	43,869	$	279,913	$	44,290
Collateralized mortgage obligations	Collateralized mortgage obligations	64,860		2,480		20,018		1,434		84,878		3,914		Collateralized mortgage obligations	—		—		78,271		5,731		78,271		5,731
Municipal bonds	Municipal bonds	6,931		417		39,154		7,461		46,085		7,878		Municipal bonds	1,887		95		42,649		10,574		44,536		10,669
U.S. government agency	U.S. government agency	16,088		666		3,234		313		19,322		979		U.S. government agency	3,649		305		13,795		1,529		17,444		1,834
Corporate bonds	Corporate bonds	1,374		107		4,986		513		6,360		620		Corporate bonds	—		—		6,088		894		6,088		894
Total available for sale	Total available for sale	$	187,791	$	8,578	$	273,536	$	38,575	$	461,327	$	47,153	Total available for sale	$	15,856	$	821	$	410,396	$	62,597	$	426,252	$	63,418
Held to maturity:	Held to maturity:													Held to maturity:
Municipal bonds	Municipal bonds	$	534	$	1	$	—	$	—	$	534	$	1	Municipal bonds	$	1,052	$	13	$	—	$	—	$	1,052	$	13
Total held to maturity	Total held to maturity	$	534	$	1	$	—	$	—	$	534	$	1	Total held to maturity	$	1,052	$	13	$	—	$	—	$	1,052	$	13


(dollars in thousands)	Less Than 1 Year				Over 1 Year				Total
December 31, 2022	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available for sale:
U.S. agency mortgage-backed	$	184,896	$	14,828	$	129,248	$	23,417	$	314,144	$	38,245
Collateralized mortgage obligations	85,715		4,860		620		13		86,335		4,873
Municipal bonds	28,710		3,245		24,100		6,656		52,810		9,901
U.S. government agency	18,718		1,259		615		8		19,333		1,267
Corporate bonds	3,233		247		3,150		350		6,383		597
Total available for sale	$	321,272	$	24,439	$	157,733	$	30,444	$	479,005	$	54,883
Held to maturity:
Municipal bonds	$	1,072	$	3	$	—	$	—	$	1,072	$	3
Total held to maturity	$	1,072	$	3	$	—	$	—	$	1,072	$	3

At ~~March 31,~~September 30, 2023, ~~310~~305 of the Company’s debt securities had unrealized losses totaling ~~9.3%~~12.9% of the individual securities’ amortized cost basis and ~~9.2%~~12.9% of the Company’s total amortized cost basis of the investment securities portfolio. At such date, ~~145~~290 of the ~~310~~305 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 ~~March 31,~~September 30, 2023.

At ~~March 31,~~September 30, 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 ~~March 31,~~September 30, 2023 and December 31, 2022.

Credit Ratings

(dollars in thousands)

AAA/AA/A

BBB/BB/B

Total

(dollars in thousands)

AAA/AA/A

BBB/BB/B

Total

March 31, 2023

September 30, 2023

Held to maturity:

Municipal bonds

1,070

—

1,070

Municipal bonds

1,065

—

1,065

910


	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 and nine months ended ~~March 31,~~September 30, 2023, the Company recorded gross gains of $0 and $98,000, respectively, and gross losses of $0 and $347,000, respectively, 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 and nine months ended ~~March 31,~~September 30, 2022.

Accrued interest receivable on the Company's investment securities was ~~$1,389,000~~$1,374,000 and $1,798,000 at ~~March 31,~~September 30, 2023 and December 31, 2022, respectively. These amounts are recorded in accrued interest receivable and other assets on the Consolidated Statements of Financial Condition.

At ~~March 31,~~September 30, 2023 and December 31, 2022, the Company had ~~$146,500,000~~$127,860,000 and $170,036,000, respectively, of securities pledged to secure public deposits.

4. Earnings Per Share

Earnings per common share was computed based on the following:


		Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share data)	(in thousands, except per share data)	2023		2022			(in thousands, except per share data)	2023		2022		2023		2022
Numerator:	Numerator:						Numerator:
Net income available to common shareholders	Net income available to common shareholders	$	11,320	$	4,401		Net income available to common shareholders	$	9,754	$	10,434	$	30,855	$	23,296
Denominator:	Denominator:						Denominator:
Weighted average common shares outstanding	Weighted average common shares outstanding	8,088		8,270			Weighted average common shares outstanding	8,006		8,089		8,045		8,162
Effect of dilutive securities:	Effect of dilutive securities:						Effect of dilutive securities:
Restricted stock	Restricted stock	21		18			Restricted stock	14		11		17		14
Stock options	Stock options	28		49			Stock options	19		38		22		43
Weighted average common shares outstanding – assuming dilution	Weighted average common shares outstanding – assuming dilution	8,137		8,337			Weighted average common shares outstanding – assuming dilution	8,039		8,138		8,084		8,219
Basic earnings per common share	Basic earnings per common share	$	1.40	$	0.53		Basic earnings per common share	$	1.22	$	1.29	$	3.84	$	2.86
Diluted earnings per common share	Diluted earnings per common share	$	1.39	$	0.53		Diluted earnings per common share	$	1.22	$	1.28	$	3.82	$	2.84

Options for ~~63,558~~131,180 and ~~59,328~~75,789 shares of common stock were not included in the computation of diluted EPS for the three months ended ~~March 31,~~September 30, 2023 and 2022, respectively, because the effect of those shares was anti-dilutive. For the nine months ended September 30, 2023 and 2022, options on 102,493 and 66,866, respectively, shares of common stock were not included in the computation of diluted EPS because the effect of those shares was anti-dilutive.

1011

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.

Allowance for Credit Losses

The allowance for credit losses ("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.

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)	(dollars in thousands)	March 31, 2023		December 31, 2022		(dollars in thousands)	September 30, 2023		December 31, 2022
Real estate loans:	Real estate loans:					Real estate loans:
One- to four-family first mortgage	One- to four-family first mortgage	$	405,638	$	389,616	One- to four-family first mortgage	$	432,092	$	389,616
Home equity loans and lines	Home equity loans and lines	64,107		61,863		Home equity loans and lines	69,350		61,863
Commercial real estate	Commercial real estate	1,162,367		1,152,537		Commercial real estate	1,178,111		1,152,537
Construction and land	Construction and land	318,622		313,175		Construction and land	342,711		313,175
Multi-family residential	Multi-family residential	102,604		100,588		Multi-family residential	106,411		100,588
Total real estate loans	Total real estate loans	2,053,338		2,017,779		Total real estate loans	2,128,675		2,017,779
Other loans:	Other loans:					Other loans:
Commercial and industrial	Commercial and industrial	379,119		377,894		Commercial and industrial	407,189		377,894
Consumer	Consumer	33,935		35,077		Consumer	33,230		35,077
Total other loans	Total other loans	413,054		412,971		Total other loans	440,419		412,971
Total loans	Total loans	$	2,466,392	$	2,430,750	Total loans	$	2,569,094	$	2,430,750

The net discount on the Company’s acquired loans was ~~$6,199,000~~$4,920,000 and $6,866,000 at ~~March 31,~~September 30, 2023 and December 31, 2022, respectively. In addition, loan balances as of ~~March 31,~~September 30, 2023 and December 31, 2022 are reported net of unearned income of $5,179,000 and $4,580,000, respectively.

1112

~~$4,633,000 and $4,580,000, respectively. Unearned income at March 31, 2023 and December 31, 2022 included PPP deferred lender fees of $84,000 and $94,000, respectively.~~

Accrued interest receivable on the Company's loans was ~~$9,587,000~~$11,485,000 and $9,520,000 at ~~March 31,~~September 30, 2023 and December 31, 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.


		March 31, 2023							September 30, 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	$	3,356	$	—	$	3,356	One- to four-family first mortgage	$	3,320	$	—	$	3,320
Home equity loans and lines	Home equity loans and lines	753		—		753		Home equity loans and lines	742		—		742
Commercial real estate	Commercial real estate	13,344		450		13,794		Commercial real estate	14,185		230		14,415
Construction and land	Construction and land	4,921		—		4,921		Construction and land	5,123		—		5,123
Multi-family residential	Multi-family residential	608		—		608		Multi-family residential	523		—		523
Commercial and industrial	Commercial and industrial	5,831		143		5,974		Commercial and industrial	6,161		105		6,266
Consumer	Consumer	712		—		712		Consumer	734		—		734
Total allowance for loan losses	Total allowance for loan losses	$	29,525	$	593	$	30,118	Total allowance for loan losses	$	30,788	$	335	$	31,123

Unfunded lending commitments(1)	Unfunded lending commitments(1)	$	2,303	$	—	$	2,303	Unfunded lending commitments(1)	$	2,454	$	—	$	2,454
Total allowance for credit losses	Total allowance for credit losses	$	31,828	$	593	$	32,421	Total allowance for credit losses	$	33,242	$	335	$	33,577


		March 31, 2023							September 30, 2023
(dollars in thousands)	(dollars in thousands)	Collectively Evaluated		Individually Evaluated(2)		Total		(dollars in thousands)	Collectively Evaluated		Individually Evaluated(2)		Total
Loans:	Loans:							Loans:
One- to four-family first mortgage	One- to four-family first mortgage	$	405,610	$	28	$	405,638	One- to four-family first mortgage	$	432,092	$	—	$	432,092
Home equity loans and lines	Home equity loans and lines	64,107		—		64,107		Home equity loans and lines	69,350		—		69,350
Commercial real estate	Commercial real estate	1,158,077		4,290		1,162,367		Commercial real estate	1,173,506		4,605		1,178,111
Construction and land	Construction and land	318,622		—		318,622		Construction and land	342,711		—		342,711
Multi-family residential	Multi-family residential	102,604		—		102,604		Multi-family residential	106,411		—		106,411
Commercial and industrial	Commercial and industrial	378,948		171		379,119		Commercial and industrial	407,057		132		407,189
Consumer	Consumer	33,935		—		33,935		Consumer	33,230		—		33,230
Total loans	Total loans	$	2,461,903	$	4,489	$	2,466,392	Total loans	$	2,564,357	$	4,737	$	2,569,094

1213


	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)One PCD loan was individually evaluated at ~~March 31,~~September 30, 2023 and December 31, 2022, respectively.

1314

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


		Three Months Ended March 31, 2023										Nine Months Ended September 30, 2023
(dollars in thousands)	(dollars in thousands)	Beginning Balance		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	$	2,883	$	—	$	6	$	467	$	3,356		One- to four-family first mortgage	$	2,883	$	—	$	43	$	394	$	3,320
Home equity loans and lines	Home equity loans and lines	624		—		1		128		753			Home equity loans and lines	624		—		5		113		742
Commercial real estate	Commercial real estate	13,814		—		—		(20)		13,794			Commercial real estate	13,814		—		55		546		14,415
Construction and land	Construction and land	4,680		—		—		241		4,921			Construction and land	4,680		—		—		443		5,123
Multi-family residential	Multi-family residential	572		—		—		36		608			Multi-family residential	572		—		—		(49)		523
Commercial and industrial	Commercial and industrial	6,024		(56)		81		(75)		5,974			Commercial and industrial	6,024		(86)		165		163		6,266
Consumer	Consumer	702		(37)		10		37		712			Consumer	702		(62)		28		66		734
Total allowance for loan losses	Total allowance for loan losses	$	29,299	$	(93)	$	98	$	814	$	30,118		Total allowance for loan losses	$	29,299	$	(148)	$	296	$	1,676	$	31,123

Unfunded lending commitments	Unfunded lending commitments	$	2,093	$	—	$	—	$	210	$	2,303		Unfunded lending commitments	$	2,093	$	—	$	—	$	361	$	2,454
Total allowance for credit losses	Total allowance for credit losses	$	31,392	$	(93)	$	98	$	1,024	$	32,421		Total allowance for credit losses	$	31,392	$	(148)	$	296	$	2,037	$	33,577


		Three Months Ended March 31, 2022													Nine Months Ended September 30, 2022
(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		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	$	1,944	$	—	$	—	$	2	$	110	$	2,056	One- to four-family first mortgage	$	1,944	$	—	$	—	$	6	$	375	$	2,325
Home equity loans and lines	Home equity loans and lines	508		—		—		2		29		539		Home equity loans and lines	508		—		—		7		(15)		500
Commercial real estate	Commercial real estate	10,454		2,083		—		—		2,665		15,202		Commercial real estate	10,454		1,220		(270)		—		2,293		13,697
Construction and land	Construction and land	3,572		—		—		—		540		4,112		Construction and land	3,572		—		—		—		1,401		4,973
Multi-family residential	Multi-family residential	457		—		—		—		97		554		Multi-family residential	457		—		—		—		41		498
Commercial and industrial	Commercial and industrial	3,520		195		(160)		386		(301)		3,640		Commercial and industrial	3,520		195		(750)		468		1,278		4,711
Consumer	Consumer	634		—		(156)		75		75		628		Consumer	634		—		(240)		124		129		647
Total allowance for loan losses	Total allowance for loan losses	$	21,089	$	2,278	$	(316)	$	465	$	3,215	$	26,731	Total allowance for loan losses	$	21,089	$	1,415	$	(1,260)	$	605	$	5,502	$	27,351

Unfunded lending commitments	Unfunded lending commitments	$	1,815	$	—	$	—	$	—	$	302	$	2,117	Unfunded lending commitments	$	1,815	$	—	$	—	$	—	$	448	$	2,263
Total allowance for credit losses	Total allowance for credit losses	$	22,904	$	2,278	$	(316)	$	465	$	3,517	$	28,848	Total allowance for credit losses	$	22,904	$	1,415	$	(1,260)	$	605	$	5,950	$	29,614

(1)Allowance recorded for PCD loans in the Company's acquisition of Friendswood Capital Corporation at the acquisition date of March 26, 2022.

1415

Credit Quality

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


		March 31, 2023																			September 30, 2023
		Term Loans by Origination Year																			Term Loans by Origination Year
(dollars in thousands)	(dollars in thousands)	2023		2022		2021		2020		2019		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	$	29,134	$	106,524	$	81,824	$	36,712	$	32,058	$	110,281	$	4,707	$	56	$	401,296	Pass	$	82,292	$	107,715	$	73,509	$	34,415	$	30,035	$	97,105	$	3,438	$	502	$	429,011
Special Mention	Special Mention	—		650		189		—		—		385		—		—		1,224		Special Mention	149		498		188		—		—		35		—		—		870
Substandard	Substandard	—		172		54		362		162		2,368		—		—		3,118		Substandard	—		167		117		312		83		1,532		—		—		2,211
Doubtful	Doubtful	—		—		—		—		—		—		—		—		—		Doubtful	—		—		—		—		—		—		—		—		—
Total one- to four-family first mortgages	Total one- to four-family first mortgages	$	29,134	$	107,346	$	82,067	$	37,074	$	32,220	$	113,034	$	4,707	$	56	$	405,638	Total one- to four-family first mortgages	$	82,441	$	108,380	$	73,814	$	34,727	$	30,118	$	98,672	$	3,438	$	502	$	432,092
Current period gross charge-offs	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	$	1,014	$	1,953	$	1,272	$	765	$	1,063	$	3,736	$	53,474	$	799	$	64,076	Pass	$	1,711	$	1,676	$	1,273	$	778	$	1,297	$	3,300	$	58,677	$	513	$	69,225
Special Mention	Special Mention	—		—		—		—		—		—		—		—		—		Special Mention	—		—		—		—		—		—		—		—		—
Substandard	Substandard	—		—		—		—		—		31		—		—		31		Substandard	—		—		—		—		—		96		—		29		125
Doubtful	Doubtful	—		—		—		—		—		—		—		—		—		Doubtful	—		—		—		—		—		—		—		—		—
Total home equity loans and lines	Total home equity loans and lines	$	1,014	$	1,953	$	1,272	$	765	$	1,063	$	3,767	$	53,474	$	799	$	64,107	Total home equity loans and lines	$	1,711	$	1,676	$	1,273	$	778	$	1,297	$	3,396	$	58,677	$	542	$	69,350
Current period gross charge-offs	Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate:	Commercial real estate:																			Commercial real estate:
Pass	Pass	$	45,016	$	297,505	$	269,717	$	203,283	$	149,196	$	144,581	$	39,254	$	276	$	1,148,828	Pass	$	122,107	$	289,147	$	256,212	$	191,091	$	140,184	$	121,539	$	40,995	$	820	$	1,162,095
Special Mention	Special Mention	—		—		—		340		—		—		—		—		340		Special Mention	—		—		—		330		—		—		—		—		330
Substandard	Substandard	—		18		174		74		5,542		7,119		272		—		13,199		Substandard	—		16		1,623		2,652		5,471		5,761		100		63		15,686
Doubtful	Doubtful	—		—		—		—		—		—		—		—		—		Doubtful	—		—		—		—		—		—		—		—		—
Total commercial real estate loans	Total commercial real estate loans	$	45,016	$	297,523	$	269,891	$	203,697	$	154,738	$	151,700	$	39,526	$	276	$	1,162,367	Total commercial real estate loans	$	122,107	$	289,163	$	257,835	$	194,073	$	145,655	$	127,300	$	41,095	$	883	$	1,178,111
Current period gross charge-offs	Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Construction and land:	Construction and land:																			Construction and land:
Pass	Pass	$	24,932	$	180,459	$	73,592	$	13,925	$	8,047	$	4,835	$	3,635	$	2,213	$	311,638	Pass	$	90,344	$	162,894	$	54,384	$	7,017	$	7,789	$	4,284	$	3,800	$	—	$	330,512
Special Mention	Special Mention	509		174		4,597		151		—		—		—		—		5,431		Special Mention	466		174		4,597		151		—		—		—		—		5,388
Substandard																				Substandard	—		2,054		658		—		—		52		4,047		—		6,811
Doubtful																				Doubtful	—		—		—		—		—		—		—		—		—
Total construction and land loans																				Total construction and land loans	$	90,810	$	165,122	$	59,639	$	7,168	$	7,789	$	4,336	$	7,847	$	—	$	342,711
Current period gross charge-offs																				Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

1516


		March 31, 2023																			September 30, 2023
		Term Loans by Origination Year																			Term Loans by Origination Year
(dollars in thousands)	(dollars in thousands)	2023		2022		2021		2020		2019		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		—		1,305		181		—		—		67		—		—		1,553
Doubtful		—		—		—		—		—		—		—		—		—
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		$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Multi-family residential:	Multi-family residential:																			Multi-family residential:
Pass	Pass	$	5,155	$	34,572	$	12,231	$	25,367	$	12,938	$	4,650	$	1,488	$	2,820	$	99,221	Pass	$	13,434	$	37,503	$	11,954	$	21,762	$	12,673	$	3,540	$	2,041	$	—	$	102,907
Special Mention	Special Mention	—		—		—		—		—		—		—		—		—		Special Mention	—		—		—		—		—		—		—		—		—
Substandard	Substandard	—		—		—		—		—		3,383		—		—		3,383		Substandard	—		—		—		—		—		3,504		—		—		3,504
Doubtful	Doubtful	—		—		—		—		—		—		—		—		—		Doubtful	—		—		—		—		—		—		—		—		—
Total multi-family residential loans	Total multi-family residential loans	$	5,155	$	34,572	$	12,231	$	25,367	$	12,938	$	8,033	$	1,488	$	2,820	$	102,604	Total multi-family residential loans	$	13,434	$	37,503	$	11,954	$	21,762	$	12,673	$	7,044	$	2,041	$	—	$	106,411
Current period gross charge-offs	Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial and industrial:	Commercial and industrial:																			Commercial and industrial:
Pass	Pass	$	18,162	$	99,630	$	43,172	$	13,627	$	7,640	$	12,855	$	178,597	$	681	$	374,364	Pass	$	59,926	$	84,770	$	34,459	$	11,518	$	6,076	$	6,277	$	194,352	$	4,874	$	402,252
Special Mention	Special Mention	—		1,318		—		338		—		221		906		—		2,783		Special Mention	—		1,157		—		338		—		220		743		—		2,458
Substandard	Substandard	1,569		—		—		42		—		3		358		—		1,972		Substandard	1,569		132		32		13		4		525		154		50		2,479
Doubtful	Doubtful	—		—		—		—		—		—		—		—		—		Doubtful	—		—		—		—		—		—		—		—		—
Total commercial and industrial loans	Total commercial and industrial loans	$	19,731	$	100,948	$	43,172	$	14,007	$	7,640	$	13,079	$	179,861	$	681	$	379,119	Total commercial and industrial loans	$	61,495	$	86,059	$	34,491	$	11,869	$	6,080	$	7,022	$	195,249	$	4,924	$	407,189
Current period gross charge-offs	Current period gross charge-offs	$	—	$	—	$	—	$	—	$	7	$	—	$	49	$	—	$	56	Current period gross charge-offs	$	—	$	—	$	—	$	30	$	7	$	—	$	49	$	—	$	86
Consumer:	Consumer:																			Consumer:
Pass	Pass	$	1,399	$	8,807	$	1,756	$	1,300	$	485	$	12,342	$	7,555	$	28	$	33,672	Pass	$	4,803	$	6,389	$	1,129	$	1,033	$	398	$	11,246	$	8,002	$	—	$	33,000
Special Mention	Special Mention	—		—		—		—		—		—		—		—		—		Special Mention	—		—		—		—		—		—		—		—		—
Substandard	Substandard	—		9		11		—		—		243		—		—		263		Substandard	—		29		9		6		8		178		—		—		230
Doubtful	Doubtful	—		—		—		—		—		—		—		—		—		Doubtful	—		—		—		—		—		—		—		—		—
Total consumer loans	Total consumer loans	$	1,399	$	8,816	$	1,767	$	1,300	$	485	$	12,585	$	7,555	$	28	$	33,935	Total consumer loans	$	4,803	$	6,418	$	1,138	$	1,039	$	406	$	11,424	$	8,002	$	—	$	33,230
Current period gross charge-offs	Current period gross charge-offs	$	—	$	6	$	1	$	—	$	—	$	—	$	30	$	—	$	37	Current period gross charge-offs	$	—	$	15	$	2	$	—	$	—	$	5	$	40	$	—	$	62
Total loans:	Total loans:																			Total loans:
Pass	Pass	$	124,812	$	729,450	$	483,564	$	294,979	$	211,427	$	293,280	$	288,710	$	6,873	$	2,433,095	Pass	$	374,617	$	690,094	$	432,920	$	267,614	$	198,452	$	247,291	$	311,305	$	6,709	$	2,529,002
Special Mention	Special Mention	509		2,142		4,786		829		—		606		906		—		9,778		Special Mention	615		1,829		4,785		819		—		255		743		—		9,046
Substandard	Substandard	1,569		1,504		420		478		5,704		13,214		630		—		23,519		Substandard	1,569		2,398		2,439		2,983		5,566		11,648		4,301		142		31,046
Doubtful	Doubtful	—		—		—		—		—		—		—		—		—		Doubtful	—		—		—		—		—		—		—		—		—
Total loans	Total loans	$	126,890	$	733,096	$	488,770	$	296,286	$	217,131	$	307,100	$	290,246	$	6,873	$	2,466,392	Total loans	$	376,801	$	694,321	$	440,144	$	271,416	$	204,018	$	259,194	$	316,349	$	6,851	$	2,569,094
Current period gross charge-offs	Current period gross charge-offs	$	—	$	6	$	1	$	—	$	7	—		79		—		$	93	Current period gross charge-offs	$	—	$	15	$	2	$	30	$	7	$	5	$	89	$	—	$	148

1617


	December 31, 2022
	Term Loans by Origination Year
(dollars in thousands)	2022		2021		2020		2019		2018		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total
One- to four-family first mortgage:
Pass	$	107,546	$	78,744	$	37,876	$	34,114	$	26,455	$	94,729	$	5,387	$	348	$	385,199
Special Mention	150		189		—		—		—		355		—		500		1,194
Substandard	272		56		368		145		372		2,010		—		—		3,223
Doubtful	—		—		—		—		—		—		—		—		—
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:
Pass	$	1,898	$	1,453	$	783	$	1,142	$	604	$	3,453	$	51,502	$	995	$	61,830
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		33		—		—		33
Doubtful	—		—		—		—		—		—		—		—		—
Total home equity loans and lines	$	1,898	$	1,453	$	783	$	1,142	$	604	$	3,486	$	51,502	$	995	$	61,863
Commercial real estate:
Pass	$	292,894	$	279,397	$	210,983	$	159,169	$	64,554	$	95,083	$	35,918	$	586	$	1,138,584
Special Mention	—		179		345		—		—		—		—		—		524
Substandard	97		—		167		5,579		294		7,292		—		—		13,429
Doubtful	—		—		—		—		—		—		—		—		—
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:
Pass	$	170,744	$	101,321	$	19,620	$	8,912	$	2,534	$	2,716	$	4,434	$	1,727	$	312,008
Special Mention	—		520		—		—		—		—		—		—		520
Substandard	417		—		152		—		—		78		—		—		647
Doubtful	—		—		—		—		—		—		—		—		—
Total construction and land loans	$	171,161	$	101,841	$	19,772	$	8,912	$	2,534	$	2,794	$	4,434	$	1,727	$	313,175

1718


	December 31, 2022
	Term Loans by Origination Year
(dollars in thousands)	2022		2021		2020		2019		2018		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total
Multi-family residential:
Pass	$	33,822	$	15,775	$	25,661	$	13,070	$	2,241	$	2,491	$	1,302	$	2,840	$	97,202
Special Mention	—		—		—		—		3,312		—		—		—		3,312
Substandard	—		—		—		—		74		—		—		—		74
Doubtful	—		—		—		—		—		—		—		—		—
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:
Pass	$	108,464	$	50,850	$	16,043	$	8,599	$	11,203	$	2,759	$	174,145	$	712	$	372,775
Special Mention	338		—		—		—		7		—		1,188		—		1,533
Substandard	590		—		2,317		8		—		293		328		50		3,586
Doubtful	—		—		—		—		—		—		—		—		—
Total commercial and industrial loans	$	109,392	$	50,850	$	18,360	$	8,607	$	11,210	$	3,052	$	175,661	$	762	$	377,894
Consumer:
Pass	$	10,012	$	2,048	$	1,577	$	536	$	136	$	12,785	$	7,420	$	29	$	34,543
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	9		298		—		—		—		227		—		—		534
Doubtful	—		—		—		—		—		—		—		—		—
Total consumer loans	$	10,021	$	2,346	$	1,577	$	536	$	136	$	13,012	$	7,420	$	29	$	35,077
Total loans:
Pass	$	725,380	$	529,588	$	312,543	$	225,542	$	107,727	$	214,016	$	280,108	$	7,237	$	2,402,141
Special Mention	488		888		345		—		3,319		355		1,188		500		7,083
Substandard	1,385		354		3,004		5,732		740		9,933		328		50		21,526
Doubtful	—		—		—		—		—		—		—		—		—
Total loans	$	727,253	$	530,830	$	315,892	$	231,274	$	111,786	$	224,304	$	281,624	$	7,787	$	2,430,750

1819

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.


		March 31, 2023													September 30, 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	$	748	$	—	$	529	$	1,277	$	319,440	$	320,717	One- to four-family first mortgage	$	2,404	$	47	$	409	$	2,860	$	351,315	$	354,175
Home equity loans and lines	Home equity loans and lines	70		—		—		70		55,963		56,033		Home equity loans and lines	83		—		6		89		60,712		60,801
Commercial real estate	Commercial real estate	426		57		—		483		870,711		871,194		Commercial real estate	69		163		231		463		901,994		902,457
Construction and land	Construction and land	1,158		—		328		1,486		292,713		294,199		Construction and land	5,532		130		1,121		6,783		311,353		318,136
Multi-family residential	Multi-family residential	—		—		—		—		98,474		98,474		Multi-family residential	3,987		—		—		3,987		98,431		102,418
Total real estate loans	Total real estate loans	2,402		57		857		3,316		1,637,301		1,640,617		Total real estate loans	12,075		340		1,767		14,182		1,723,805		1,737,987
Other loans:	Other loans:													Other loans:
Commercial and industrial	Commercial and industrial	557		6		202		765		342,651		343,416		Commercial and industrial	77		123		721		921		375,952		376,873
Consumer	Consumer	121		—		183		304		30,546		30,850		Consumer	259		—		90		349		30,219		30,568
Total other loans	Total other loans	678		6		385		1,069		373,197		374,266		Total other loans	336		123		811		1,270		406,171		407,441
Total originated loans	Total originated loans	$	3,080	$	63	$	1,242	$	4,385	$	2,010,498	$	2,014,883	Total originated loans	$	12,411	$	463	$	2,578	$	15,452	$	2,129,976	$	2,145,428
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	$	630	$	54	$	685	$	1,369	$	83,552	$	84,921	One- to four-family first mortgage	$	1,729	$	125	$	454	$	2,308	$	75,609	$	77,917
Home equity loans and lines	Home equity loans and lines	21		—		1		22		8,052		8,074		Home equity loans and lines	49		—		—		49		8,500		8,549
Commercial real estate	Commercial real estate	62		—		567		629		290,544		291,173		Commercial real estate	175		—		—		175		275,479		275,654
Construction and land	Construction and land	—		—		35		35		24,388		24,423		Construction and land	—		—		21		21		24,554		24,575
Multi-family residential	Multi-family residential	—		—		—		—		4,130		4,130		Multi-family residential	—		—		—		—		3,993		3,993
Total real estate loans	Total real estate loans	713		54		1,288		2,055		410,666		412,721		Total real estate loans	1,953		125		475		2,553		388,135		390,688
Other loans:	Other loans:													Other loans:
Commercial and industrial	Commercial and industrial	—		32		—		32		35,671		35,703		Commercial and industrial	1		—		32		33		30,283		30,316
Consumer	Consumer	11		—		65		76		3,009		3,085		Consumer	9		1		55		65		2,597		2,662
Total other loans	Total other loans	11		32		65		108		38,680		38,788		Total other loans	10		1		87		98		32,880		32,978
Total acquired loans	Total acquired loans	$	724	$	86	$	1,353	$	2,163	$	449,346	$	451,509	Total acquired loans	$	1,963	$	126	$	562	$	2,651	$	421,015	$	423,666
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	$	1,378	$	54	$	1,214	$	2,646	$	402,992	$	405,638	One- to four-family first mortgage	$	4,133	$	172	$	863	$	5,168	$	426,924	$	432,092
Home equity loans and lines	Home equity loans and lines	91		—		1		92		64,015		64,107		Home equity loans and lines	132		—		6		138		69,212		69,350

1920


		March 31, 2023													September 30, 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
Commercial real estate	Commercial real estate	488		57		567		1,112		1,161,255		1,162,367		Commercial real estate	244		163		231		638		1,177,473		1,178,111
Construction and land	Construction and land	1,158		—		363		1,521		317,101		318,622		Construction and land	5,532		130		1,142		6,804		335,907		342,711
Multi-family residential	Multi-family residential	—		—		—		—		102,604		102,604		Multi-family residential	3,987		—		—		3,987		102,424		106,411
Total real estate loans	Total real estate loans	3,115		111		2,145		5,371		2,047,967		2,053,338		Total real estate loans	14,028		465		2,242		16,735		2,111,940		2,128,675
Other loans:	Other loans:													Other loans:
Commercial and industrial	Commercial and industrial	557		38		202		797		378,322		379,119		Commercial and industrial	78		123		753		954		406,235		407,189
Consumer	Consumer	132		—		248		380		33,555		33,935		Consumer	268		1		145		414		32,816		33,230
Total other loans	Total other loans	689		38		450		1,177		411,877		413,054		Total other loans	346		124		898		1,368		439,051		440,419
Total loans	Total loans	$	3,804	$	149	$	2,595	$	6,548	$	2,459,844	$	2,466,392	Total loans	$	14,374	$	589	$	3,140	$	18,103	$	2,550,991	$	2,569,094


	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

2021


	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 $0$43,000 and $2,000 of loans greater than 90 days past due and accruing at ~~March 31,~~September 30, 2023 and December 31, 2022, respectively.

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


		March 31, 2023								September 30, 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		$	2,210	$	28	$	2,238	One- to four-family first mortgage		$	1,682	$	—	$	1,682
Home equity loans and lines	Home equity loans and lines		32		—		32		Home equity loans and lines		126		—		126
Commercial real estate	Commercial real estate		3,982		2,778		6,760		Commercial real estate		3,589		2,624		6,213
Construction and land	Construction and land		1,555		—		1,555		Construction and land		2,765		—		2,765
Multi-family residential	Multi-family residential		—		—		—		Multi-family residential		—		—		—
Commercial and industrial	Commercial and industrial		382		—		382		Commercial and industrial		889		—		889
Consumer	Consumer		265		—		265		Consumer		231		—		231
Total	Total		$	8,426	$	2,806	$	11,232	Total		$	9,282	$	2,624	$	11,906

		December 31, 2022								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		$	2,300	$	—	$	2,300	One- to four-family first mortgage		$	2,300	$	—	$	2,300
Home equity loans and lines	Home equity loans and lines		34		—		34		Home equity loans and lines		34		—		34
Commercial real estate	Commercial real estate		4,031		2,914		6,945		Commercial real estate		4,031		2,914		6,945
Construction and land	Construction and land		315		—		315		Construction and land		315		—		315
Multi-family residential	Multi-family residential		—		—		—		Multi-family residential		—		—		—
Commercial and industrial	Commercial and industrial		365		13		378		Commercial and industrial		365		13		378
Consumer	Consumer		455		86		541		Consumer		455		86		541
Total	Total		$	7,500	$	3,013	$	10,513	Total		$	7,500	$	3,013	$	10,513

(1)Nonaccrual acquired loans include PCD loans of ~~$2,087,000~~$1,452,000 and $1,530,000 at ~~March 31,~~September 30, 2023 and December 31, 2022, respectively.

2122

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 ~~March 31,~~September 30, 2023 and December 31, 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 ~~March 31,~~September 30, 2023 and December 31, 2022.


		March 31, 2023					September 30, 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	$	28	$	—	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	4,290		450		Commercial real estate	4,605		230
Construction and land	Construction and land	—		—		Construction and land	—		—
Multi-family residential	Multi-family residential	—		—		Multi-family residential	—		—
Commercial and industrial	Commercial and industrial	171		143		Commercial and industrial	132		105
Consumer	Consumer	—		—		Consumer	—		—
Total	Total	$	4,489	$	593	Total	$	4,737	$	335

		December 31, 2022					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	4,743		550		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	204		171		Commercial and industrial	204		171
Consumer	Consumer	86		—		Consumer	86		—
Total	Total	$	5,033	$	721	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~~nine months

2223

ended ~~March 31,~~September 30, 2023, there ~~was~~were no modifications of loans to borrowers who were experiencing financial difficulty. ~~the~~The Company did not provide any modifications under these circumstances to borrowers. ~~Three~~Ten loans were modified during the ~~three~~nine months ended ~~March 31,~~September 30, 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 ~~$80,000~~$362,000 and $461,000 at ~~March 31,~~September 30, 2023 and December 31, 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 ~~March 31,~~September 30, 2023 and December 31, 2022 totaled ~~$80,000~~$362,000 and $231,000, respectively. Loans secured by single family residential real estate that were in the process of foreclosure at ~~March 31,~~September 30, 2023 and December 31, 2022 totaled ~~$180,000~~$114,000 and $179,000, respectively.

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 ~~$1,729,000~~$2,313,000 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.

2324

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 ~~March 31,~~September 30, 2023 and December 31, 2022.


		March 31, 2023									September 30, 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	$	4,447	$	—	$	—	Interest rate swaps - variable rate liabilities	$	60,000	$	5,690	$	—	$	—

Derivatives not designated as hedging instruments:	Derivatives not designated as hedging instruments:									Derivatives not designated as hedging instruments:
Risk participation agreements	Risk participation agreements	—		—		11,977		10		Risk participation agreements	—		—		11,858		1

Netting adjustments	Netting adjustments			—				—		Netting adjustments			—				—

Net derivative amounts	Net derivative amounts			$	4,447			$	10	Net derivative amounts			$	5,690			$	1

		December 31, 2022									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	$	5,144	$	—	$	—	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	—		—		12,036		9		Risk participation agreements	—		—		12,036		9

Netting adjustments	Netting adjustments			—				—		Netting adjustments			—				—

Net derivative amounts	Net derivative amounts			$	5,144			$	9	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 ~~March 31,~~September 30, 2023 and December 31, 2022, accumulated unrealized gains, net of taxes, on derivative instruments totaled ~~$3,395,000~~$4,337,000 and $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 ~~March 31,~~September 30, 2023 and ~~March 31,~~September 30, 2022.

2425

Three Months Ended March 31, 2023

Three Months Ended September 30, 2023

Amount of Loss Recognized in OCI

Location of Gain Reclassified from AOCI into Income

Amount of Gain Reclassified from AOCI into Income

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

(dollars in thousands)

Total

Included Component

Total

Included Component

Derivatives in cash flows hedging relationships:

Interest rate swaps - variable rate liabilities

(295)

Interest income

421

Interest rate swaps - variable rate liabilities

785

Interest income

602

Nine Months Ended September 30, 2023

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

Location of Gain Reclassified from AOCI into Income

Total

Included Component

Derivatives in cash flows hedging relationships:

Interest rate swaps - variable rate liabilities

2,047

Interest income

1,571

Three Months Ended March 31, 2022

Three Months Ended September 30, 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 Gain Reclassified from AOCI into Income

Amount of Gain 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

1,855

Interest expense

(12)

Interest rate swaps - variable rate liabilities

1,490

Interest income

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

Location of Gain Reclassified from AOCI into Income

Total

Included Component

Derivatives in cash flows hedging relationships:

Interest rate swaps - variable rate liabilities

4,024

Interest income

231

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 ~~March 31,~~September 30, 2023 and ~~March 31,~~September 30, 2022.

~~(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~~

(dollars in thousands)

Location of Income Recognized on Non-designated Hedges

Three Months Ended September 30, 2023

Nine Months Ended September 30, 2023

Effects of non-designated hedges

Risk participation agreements

Other noninterest income

(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

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 ~~March 31,~~September 30, 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 ~~March 31,~~September 30, 2023, it would not have been required to settle any obligations under the agreements since the termination value was $0.

7. Long Term Debt

On June 30, 2022, the Company issued ~~$55,000,000~~$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 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 ~~$54,073,000~~$54,187,000 and $54,013,000 at ~~March 31,~~September 30, 2023 and December 31, 2022, respectively. The subordinated debt was recorded net of issuance costs which is being amortized using the straight-line method over five years.

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 ~~March 31,~~September 30, 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 ~~March 31,~~September 30, 2023 and December 31, 2022.

(dollars in thousands) March 31, 2023 Level 1 Level 2 Level 3
Assets
Available for sale securities:
U.S. agency mortgage-backed $ 307,381 $ — $ 307,381 $ —
Collateralized mortgage obligations 84,887 — 84,887 —
Municipal bonds 48,556 — 48,556 —
U.S. government agency 19,322 — 19,322 —
Corporate bonds 6,360 — 6,360 —
Total $ 466,506 $ — $ 466,506 $ —
Derivative assets $ 4,447 $ — $ 4,447 $ —
Total $ 470,953 $ — $ 470,953 $ —
Liabilities
Derivative liabilities $ 10 $ — $ 10 $ —


(dollars in thousands)	September 30, 2023		Level 1		Level 2		Level 3
Assets
Available for sale securities:
U.S. agency mortgage-backed	$	280,171	$	—	$	280,171	$	—
Collateralized mortgage obligations	78,279		—		78,279		—
Municipal bonds	45,037		—		45,037		—
U.S. government agency	17,444		—		17,444		—
Corporate bonds	6,088		—		6,088		—
Total	$	427,019	$	—	$	427,019	$	—

Derivative assets	$	5,690	$	—	$	5,690	$	—
Total	$	432,709	$	—	$	432,709	$	—

Liabilities
Derivative liabilities	$	1	$	—	$	1	$	—


(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	$	—

2729

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									Fair Value Measurements Using
(dollars in thousands)	(dollars in thousands)	March 31, 2023		Level 1		Level 2		Level 3		(dollars in thousands)	September 30, 2023		Level 1		Level 2		Level 3
Assets	Assets									Assets
Loans individually evaluated	Loans individually evaluated	$	3,896	$	—	$	—	$	3,896	Loans individually evaluated	$	4,402	$	—	$	—	$	4,402
Foreclosed assets and ORE	Foreclosed assets and ORE	80		—		—		80		Foreclosed assets and ORE	362		—		—		362
Total	Total	$	3,976	$	—	$	—	$	3,976	Total	$	4,764	$	—	$	—	$	4,764

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

March 31, 2023

September 30, 2023

Loans individually evaluated

3,896

Third party appraisals and discounted cash flows

Collateral values, market discounts and estimated costs to sell

0% - 83%

13%

Loans individually evaluated

4,402

Third party appraisals and discounted cash flows

Collateral values, market discounts and estimated costs to sell

0% - 80%

Foreclosed assets and ORE

Third party appraisals, sales contracts, broker price opinions

Collateral values, market discounts and estimated costs to sell

6% - 31%

31%

Foreclosed assets and ORE

362

Third party appraisals, sales contracts, broker price opinions

Collateral values, market discounts and estimated costs to sell

12% - 44%

33%

(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, 2022

Loans individually evaluated

4,312

Third party appraisals and discounted cash flows

Collateral values, market discounts and estimated costs to sell

0% - 89%

14%

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

461

Third party appraisals, sales contracts, broker price opinions

Collateral values, market discounts and estimated costs to sell

6% - 31%

16%

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%

2830

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, 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, 2022.

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


				Fair Value Measurements at March 31, 2023											Fair Value Measurements at September 30, 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	$	107,171	$	107,171	$	107,171	$	—	$	—	Cash and cash equivalents	$	84,520	$	84,520	$	84,520	$	—	$	—
Interest-bearing deposits in banks	Interest-bearing deposits in banks	349		349		349		—		—		Interest-bearing deposits in banks	99		99		99		—		—
Investment securities available for sale	Investment securities available for sale	466,506		466,506		—		466,506		—		Investment securities available for sale	427,019		427,019		—		427,019		—
Investment securities held to maturity	Investment securities held to maturity	1,070		1,069		—		1,069		—		Investment securities held to maturity	1,065		1,052		—		1,052		—
Mortgage loans held for sale	Mortgage loans held for sale	473		473		—		473		—		Mortgage loans held for sale	467		467		—		467		—
Loans, net	Loans, net	2,436,274		2,325,572		—		2,321,676		3,896		Loans, net	2,537,971		2,357,045		—		2,352,643		4,402
Cash surrender value of BOLI	Cash surrender value of BOLI	46,528		46,528		46,528		—		—		Cash surrender value of BOLI	47,054		47,054		47,054		—		—
Derivative assets(1)	Derivative assets(1)	4,447		4,447		—		4,447		—		Derivative assets(1)	5,690		5,690		—		5,690		—
Financial Liabilities	Financial Liabilities											Financial Liabilities
Deposits	Deposits	$	2,557,744	$	2,548,197	$	2,185,832	$	362,365	$	—	Deposits	$	2,597,484	$	2,589,335	$	2,041,027	$	548,308	$	—
Other borrowings	Other borrowings	5,539		5,444		—		5,444		—		Other borrowings	5,539		5,342		—		5,342		—
Subordinated debt, net of issuance cost	Subordinated debt, net of issuance cost	54,073		51,848		—		51,848		—		Subordinated debt, net of issuance cost	54,187		48,312		—		48,312		—
Short-term FHLB advances	Short-term FHLB advances	233,650		233,650		233,650		—		—		Short-term FHLB advances	241,000		241,000		241,000		—		—
Long-term FHLB advances	Long-term FHLB advances	43,077		41,799		—		41,799		—		Long-term FHLB advances	42,826		41,321		—		41,321		—
Derivative liabilities(1)	Derivative liabilities(1)	10		10		—		10		—		Derivative liabilities(1)	1		1		—		1		—

2931


			Fair Value Measurements at December 31, 2022
(dollars in thousands)	Carrying Amount		Total		Level 1		Level 2		Level 3
Financial Assets
Cash and cash equivalents	$	87,401	$	87,401	$	87,401	$	—	$	—
Interest-bearing deposits in banks	349		349		349		—		—
Investment securities available for sale	486,518		486,518		—		486,518		—
Investment securities held to maturity	1,075		1,072		—		1,072		—
Mortgage loans held for sale	98		98		—		98		—
Loans, net	2,401,451		2,326,104		—		2,321,792		4,312
Cash surrender value of BOLI	46,276		46,276		46,276		—		—
Derivative assets(1)	5,144		5,144		—		5,144		—
Financial Liabilities
Deposits	$	2,633,181	$	2,620,577	$	2,297,736	$	322,841	$	—
Other borrowings	5,539		5,388		—		5,388		—
Subordinated debt, net of issuance cost	54,013		51,287		—		51,287		—
Short-term FHLB advances	155,000		155,000		155,000		—		—
Long-term FHLB advances	21,213		20,019		—		20,019		—
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, 2022 through ~~March 31,~~September 30, 2023 and on its results of operations for the three and nine months ended ~~March 31,~~September 30, 2023 and 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, 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.

EXECUTIVE OVERVIEW

The Company reported net income for the ~~first~~third quarter of 2023 of ~~$11.3~~$9.8 million, or ~~$1.39~~$1.22 diluted EPS, ~~up $6.9 million~~down $680,000 compared to the ~~first~~third quarter of 2022. Net income for the ~~first~~third quarter of 2022 totaled ~~$4.4~~$10.4 million, or ~~$0.53~~$1.28 diluted EPS. The ~~first~~

third quarter of 2022 included merger expenses related to the acquisition of Friendswood Capital Corporation (“Friendswood”) on March 26, 2022 totaling ~~$284,000,~~$41,000, net of taxes.

For the nine months ended September 30, 2023, the Company reported net income $30.9 million, or $3.82 diluted EPS, up $7.6 million from $23.3 million, or $2.84 diluted EPS, reported for the nine months ended September 30, 2022. The nine months ended September 30, 2022 includes merger expenses related to the acquisition of Friendswood totaling $1.6 million, net of taxes.

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

•Assets increased ~~$38.7~~$89.4 million, or ~~1.2%~~2.8%, from December 31, 2022 to $3.3 billion at ~~March 31,~~September 30, 2023.

•Total loans were ~~$2.5~~$2.6 billion at ~~March 31,~~September 30, 2023, up ~~$35.6~~$138.3 million, or ~~1.5%~~5.7%, from December 31, 2022.

•During the three and nine months ended ~~March 31,~~September 30, 2023, the Company provisioned ~~$814,000~~$351,000 and $1.7 million, respectively, to the allowance for loan losses, primarily due to loan growth. During the three and nine months ended ~~March 31,~~September 30, 2022, the Company provisioned ~~$3.2~~$1.7 million and $5.5 million, respectively, to the allowance for loan losses primarily due to the acquisition of Friendswood's loan ~~portfolio.~~portfolio and loan growth.

•The ALL totaled ~~$30.1~~$31.1 million, or ~~1.22%~~1.21% of total loans, at ~~March 31,~~September 30, 2023 compared to $29.3 million, or 1.21% of total loans, at December 31, 2022. The ACL, which is comprised of the allowance for loan losses plus the allowance for unfunded lending commitments, totaled ~~$32.4~~$33.6 million, or 1.31% of total loans, at ~~March 31,~~September 30, 2023 compared to $31.4 million, or 1.29% of total loans, at December 31, 2022.

•Nonperforming assets increased ~~$336,000,~~$1.3 million, or ~~3.1%~~12.2%, from $11.0 million, or 0.34% of total assets, at December 31, 2022 to ~~$11.3~~$12.3 million, or ~~0.35%~~0.37% of total assets, at ~~March 31,~~September 30, 2023. The increase in NPAs was primarily due to ~~one~~three credit ~~relationship being downgraded to substandard.~~relationships placed on nonaccrual.

•Total deposits ~~decreased $75.4 million, or 2.9%, from $2.6 billion at December 31, 2022~~amounted to $2.6 billion at ~~March~~September 30, 2023, a decrease of $35.7 million, or 1.4%, from December 31, ~~2023.~~2022.

•The net interest margin was ~~4.18%~~3.75% and 3.95% for the three and nine months ended ~~March 31,~~September 30, 2023, respectively, down 36 bps and up 7918 bps, from the three and nine months ended ~~March 31, 2022.~~September 30, 2022, respectively.

•The average rate paid on total interest-bearing deposits was ~~0.77%~~1.84% for the ~~first~~third quarter of 2023, which was up 57157 bps from the ~~first~~third quarter of 2022. For the nine months ended September 30, 2023, the average rate paid on total interest-bearing deposits was 1.32%, up 109 bps from the nine months ended September 30, 2022.

•Total interest expense for the ~~first~~third quarter of 2023 was up ~~$5.5~~$10.3 million, or ~~518.0%~~449.6%, compared to the ~~first~~third quarter of 2022 primarily due to the rising interest rate environment and the ~~attendant~~ higher costs on deposits, ~~expense related to subordinated debt,~~ and an increase in short-term FHLB borrowings in the ~~first quarter of~~ 2023 period. For the nine months ended September 30, 2023, total interest expense was up $24.2 million, or 526.4%, from the comparable period in 2022.

•Noninterest income for the ~~first~~third quarter of 2023 was ~~down $75,000,~~up $925,000, or ~~2.2%~~26.6%, compared to the ~~first~~third quarter of 2022, primarily due to ~~a net loss~~an increase in gains on sale of ~~securities totaling $249,000~~loans (up $609,000, of which $640,000 was related to the sale of SBA loans during the ~~first~~third quarter of ~~2023, which was partially offset by~~2023) and an increase in bank card fees (up $280,000). For the nine months ended September 30, 2023, noninterest income was up $612,000, or 5.8%, from the comparable period in 2022 primarily due to an increase in bank card fees (up $692,000) and an increase in gains on sale of ~~$333,000.~~loans (up $129,000), which were partially offset by a $249,000 loss on sale of securities that occurred during the first quarter of 2023.

•Noninterest expense for the ~~first~~third quarter of 2023 was up ~~$1.7 million,~~$615,000, or ~~9.3%~~3.0%, compared to the ~~first~~third quarter of 2022. For the nine months ended September 30, 2023, noninterest expense was up $1.5 million, or 2.5%, from the comparable period in 2022. Noninterest expense for the three and nine months ended September 30, 2022 ~~primarily due to increases in~~included $60,000 and $2.0 million (pre-tax), respectively, of merger-related expenses for ~~compensation and benefits (up $2.3 million~~the Friendswood acquisition. The increase in noninterest expense for the nine months ended September 30, 2023 related primarily to the growth of the Company's employee base, ~~due to~~occupancy, data processing and communications, professional fees and franchise tax expenses as a result of the Friendswood ~~acquisition) and occupancy (up $547,000, again primarily due to the growth of the Company with the Friendswood acquisition),~~acquisition, which ~~was~~were partially offset by a ~~decrease in foreclosed assets (down $1.1 million primarily due to the~~$739,000 recovery of a previous loss on a ~~OREO sale and less~~ foreclosed asset ~~expenses).~~in the first quarter of 2023.

FINANCIAL CONDITION

Loans, Allowance for Credit Losses and Asset Quality

Loans

Total loans at ~~March 31,~~September 30, 2023 were ~~$2.5~~$2.6 billion, up ~~$35.6~~$138.3 million, or ~~1.5%~~5.7%, from December 31, 2022. The loan growth resulted primarily from the additions of loans across all loan types, with the exception of consumer ~~loans. PPP~~ loans, ~~included in commercial~~ and ~~industrial loans, totaled $6.2 million at March 31, 2023, down $466,000, or 7.0%, from December 31, 2022.~~

most markets of the Company.

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


(dollars in thousands)	(dollars in thousands)	March 31, 2023		December 31, 2022		Increase/(Decrease)				(dollars in thousands)	September 30, 2023		December 31, 2022		Increase/(Decrease)
Real estate loans:	Real estate loans:									Real estate loans:
One-to four-family first mortgage	One-to four-family first mortgage	$	405,638	$	389,616	$	16,022	4.1	%	One-to four-family first mortgage	$	432,092	$	389,616	$	42,476	10.9	%
Home equity loans and lines	Home equity loans and lines	64,107		61,863		2,244		3.6		Home equity loans and lines	69,350		61,863		7,487		12.1
Commercial real estate	Commercial real estate	1,162,367		1,152,537		9,830		0.9		Commercial real estate	1,178,111		1,152,537		25,574		2.2
Construction and land	Construction and land	318,622		313,175		5,447		1.7		Construction and land	342,711		313,175		29,536		9.4
Multi-family residential	Multi-family residential	102,604		100,588		2,016		2.0		Multi-family residential	106,411		100,588		5,823		5.8
Total real estate loans	Total real estate loans	2,053,338		2,017,779		35,559		1.8	%	Total real estate loans	2,128,675		2,017,779		110,896		5.5	%
Other loans:	Other loans:									Other loans:
Commercial and industrial	Commercial and industrial	379,119		377,894		1,225		0.3		Commercial and industrial	407,189		377,894		29,295		7.8
Consumer	Consumer	33,935		35,077		(1,142)		(3.3)		Consumer	33,230		35,077		(1,847)		(5.3)
Total other loans	Total other loans	413,054		412,971		83		—		Total other loans	440,419		412,971		27,448		6.6
Total loans	Total loans	$	2,466,392	$	2,430,750	$	35,642	1.5	%	Total loans	$	2,569,094	$	2,430,750	$	138,344	5.7	%

Allowance for Credit Losses

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.

At ~~March 31,~~September 30, 2023, the ALL totaled ~~$30.1~~$31.1 million, or ~~1.22%~~1.21% of total loans, up ~~$819,000~~$1.8 million from $29.3 million, or 1.21% of total loans, at December 31, 2022. During the ~~three~~nine months ended ~~March 31,~~September 30, 2023, the Company provisioned ~~$814,000~~$1.7 million of the allowance loan losses primarily due to loan growth. Net loan recoveries totaled ~~$5,000~~$148,000 for the ~~three~~nine months ended ~~March 31,~~September 30, 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 ~~March 31,~~September 30, 2023 and December 31, 2022, loans identified as ~~impaired~~credit deteriorated loans and individually evaluated for expected losses were ~~$4.5~~$4.7 million and $5.0 million, respectively. The following tables provide a summary of loans individually evaluated for credit losses as of the dates indicated.


		March 31, 2023							September 30, 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	$	28	$	—	—	%	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	4,290		450		10.49		Commercial real estate	4,605		230		4.99
Construction and land	Construction and land	—		—		—		Construction and land	—		—		—
Multi-family residential	Multi-family residential	—		—		—		Multi-family residential	—		—		—
Commercial and industrial	Commercial and industrial	171		143		83.63		Commercial and industrial	132		105		79.55
Consumer	Consumer	—		—		—		Consumer	—		—		—
Total	Total	$	4,489	$	593	13.21	%	Total	$	4,737	$	335	7.07	%

		December 31, 2022							December 31, 2022
(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	$	—	$	—	—	%
Home equity loans and lines	Home equity loans and lines	—		—		—		Home equity loans and lines	—		—		—
Commercial real estate	Commercial real estate	4,743		550		11.60		Commercial real estate	4,743		550		11.60
Construction and land	Construction and land	—		—		—		Construction and land	—		—		—
Multi-family residential	Multi-family residential	—		—		—		Multi-family residential	—		—		—
Commercial and industrial	Commercial and industrial	204		171		83.82		Commercial and industrial	204		171		83.82
Consumer	Consumer	86		—		—		Consumer	86		—		—
Total	Total	$	5,033	$	721	14.33	%	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 ~~March 31,~~September 30, 2023 and December 31, 2022, loans classified as substandard totaled ~~$23.5~~$31.0 million and $21.5 million, respectively. There were no assets classified as doubtful at either date. For additional information, refer to Note 5 to the Consolidated Financial Statements. The ~~$2.0~~$9.5 million, or ~~9.3%~~44.2%, increase in substandard loans at ~~March 31,~~September 30, 2023 compared to December 31, 2022 was primarily due to ~~one~~four credit ~~relationship~~relationships being downgraded to substandard, 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)	March 31, 2023		December 31, 2022		Increase/(Decrease)				(dollars in thousands)	September 30, 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	$	1,224	$	1,194	$	30	2.5	%	One- to four-family first mortgage	$	870	$	1,194	$	(324)	(27.1)	%
Home equity loans and lines	Home equity loans and lines	—		—		—		—		Home equity loans and lines	—		—		—		—
Commercial real estate	Commercial real estate	340		524		(184)		(35.1)		Commercial real estate	330		524		(194)		(37.0)
Construction and land	Construction and land	5,431		520		4,911		944.4		Construction and land	5,388		520		4,868		936.2
Multi-family residential	Multi-family residential	—		3,312		(3,312)		(100.0)		Multi-family residential	—		3,312		(3,312)		(100.0)
Commercial and industrial	Commercial and industrial	2,783		1,533		1,250		81.5		Commercial and industrial	2,458		1,533		925		60.3
Consumer	Consumer	—		—		—		—		Consumer	—		—		—		—
Total special mention loans	Total special mention loans	$	9,778	$	7,083	$	2,695	38.0	%	Total special mention loans	$	9,046	$	7,083	$	1,963	27.7	%


(dollars in thousands)	(dollars in thousands)	March 31, 2023		December 31, 2022		Increase/(Decrease)				(dollars in thousands)	September 30, 2023		December 31, 2022		Increase/(Decrease)
Substandard Loans	Substandard Loans									Substandard Loans
One- to four-family first mortgage	One- to four-family first mortgage	$	3,118	$	3,223	$	(105)	(3.3)	%	One- to four-family first mortgage	$	2,211	$	3,223	$	(1,012)	(31.4)	%
Home equity loans and lines	Home equity loans and lines	31		33		(2)		(6.1)		Home equity loans and lines	125		33		92		278.8
Commercial real estate	Commercial real estate	13,199		13,429		(230)		(1.7)		Commercial real estate	15,686		13,429		2,257		16.8
Construction and land	Construction and land	1,553		647		906		140.0		Construction and land	6,811		647		6,164		952.7
Multi-family residential	Multi-family residential	3,383		74		3,309		4471.6		Multi-family residential	3,504		74		3,430		4,635.1
Commercial and industrial	Commercial and industrial	1,972		3,586		(1,614)		(45.0)		Commercial and industrial	2,479		3,586		(1,107)		(30.9)
Consumer	Consumer	263		534		(271)		(50.7)		Consumer	230		534		(304)		(56.9)
Total substandard loans	Total substandard loans	$	23,519	$	21,526	$	1,993	9.3	%	Total substandard loans	$	31,046	$	21,526	$	9,520	44.2	%

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.


		March 31, 2023							December 31, 2022								September 30, 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	$	614	$	1,624	$	2,238		$	711	$	1,589	$	2,300		One- to four-family first mortgage	$	578	$	1,104	$	1,682		$	711	$	1,589	$	2,300
Home equity loans and lines	Home equity loans and lines	—		32		32			—		34		34			Home equity loans and lines	58		68		126			—		34		34
Commercial real estate	Commercial real estate	3,044		3,716		6,760			3,039		3,906		6,945			Commercial real estate	3,632		2,581		6,213			3,039		3,906		6,945
Construction and land	Construction and land	1,486		69		1,555			147		168		315			Construction and land	2,712		53		2,765			147		168		315
Multi-family residential	Multi-family residential	—		—		—			—		—		—			Multi-family residential	—		—		—			—		—		—
Other loans:	Other loans:															Other loans:
Commercial and industrial	Commercial and industrial	216		166		382			224		154		378			Commercial and industrial	856		33		889			224		154		378
Consumer	Consumer	186		79		265			215		326		541			Consumer	165		66		231			215		326		541
Total nonaccrual loans	Total nonaccrual loans	5,546		5,686		11,232			4,336		6,177		10,513			Total nonaccrual loans	8,001		3,905		11,906			4,336		6,177		10,513
Accruing loans 90 days or more past due	Accruing loans 90 days or more past due	—		—		—			2		—		2			Accruing loans 90 days or more past due	43		—		43			2		—		2
Total nonperforming loans	Total nonperforming loans	5,546		5,686		11,232			4,338		6,177		10,515			Total nonperforming loans	8,044		3,905		11,949			4,338		6,177		10,515
Foreclosed assets and ORE	Foreclosed assets and ORE	—		80		80			151		310		461			Foreclosed assets and ORE	221		141		362			151		310		461
Total nonperforming assets	Total nonperforming assets	5,546		5,766		11,312			4,489		6,487		10,976			Total nonperforming assets	8,265		4,046		12,311			4,489		6,487		10,976
Performing troubled debt restructurings(2)	Performing troubled debt restructurings(2)	—		—		—			4,600		1,605		6,205			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	$	5,546	$	5,766	$	11,312		$	9,089	$	8,092	$	17,181		Total nonperforming assets and troubled debt restructurings	$	8,265	$	4,046	$	12,311		$	9,089	$	8,092	$	17,181

Nonperforming loans to total loans	Nonperforming loans to total loans					0.46		%					0.43		%	Nonperforming loans to total loans					0.47		%					0.43		%
Nonperforming loans to total assets	Nonperforming loans to total assets					0.34		%					0.33		%	Nonperforming loans to total assets					0.36		%					0.33		%
Nonperforming assets to total assets	Nonperforming assets to total assets					0.35		%					0.34		%	Nonperforming assets to total assets					0.37		%					0.34		%

(1)Nonaccrual acquired loans include PCD loans of ~~$2.1~~$1.5 million ~~for the periods ending March 31,~~and $1.5 million at September 30, 2023 and December 31, ~~2022.~~2022, respectively.

(2)Nonaccrual loans include originated restructured loans placed on nonaccrual totaling $3.1 million at December 31, 2022. Acquired restructured loans placed on nonaccrual totaled $3.7 million at December 31, 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 ~~$467.6~~$428.1 million as of ~~March 31,~~September 30, 2023, a decrease of ~~$20.0~~$59.5 million, or ~~4.1%~~12.2%, from December 31, 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 ~~March 31,~~September 30, 2023, the Company had a net

unrealized loss on its available for sale investment securities portfolio of ~~$47.1~~$63.4 million, compared to a net unrealized loss of $54.8 million at December 31, 2022. The Company’s investment securities portfolio had an effective duration of 4.5 years at ~~March 31,~~September 30, 2023 and December 31, 2022.

The following table summarizes activity in the Company’s investment securities portfolio during the ~~three~~nine months ended ~~March 31,~~September 30, 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, 2022	Balance, December 31, 2022	$	486,518	$	1,075	Balance, December 31, 2022	$	486,518	$	1,075
Purchases	Purchases	—		—		Purchases	—		—
Sales	Sales	(14,011)		—		Sales	(14,011)		—
Principal maturities, prepayments and calls	Principal maturities, prepayments and calls	(13,590)		—		Principal maturities, prepayments and calls	(36,561)		—
Amortization of premiums and accretion of discounts	Amortization of premiums and accretion of discounts	(130)		(5)		Amortization of premiums and accretion of discounts	(282)		(10)
Increase in market value		7,470		—
Balance, March 31, 2023		$	466,506	$	1,070
Decrease in market value						Decrease in market value	(8,645)		—
Balance, September 30, 2023						Balance, September 30, 2023	$	427,019	$	1,065

Funding Sources

Deposits

Deposits totaled $2.6 billion at ~~March 31,~~September 30, 2023, a decrease of ~~$75.4~~$35.7 million, or ~~2.9%~~1.4%, compared to December 31, 2022. The following table summarizes the changes in the Company’s deposits from December 31, 2022 to ~~March 31,~~September 30, 2023.


(dollars in thousands)	(dollars in thousands)	March 31, 2023		December 31, 2022		Increase/(Decrease)				(dollars in thousands)	September 30, 2023		December 31, 2022		Increase/(Decrease)
Demand deposit	Demand deposit	$	854,736	$	904,301	$	(49,565)	(5.5)	%	Demand deposit	$	785,448	$	904,301	$	(118,853)	(13.1)	%
Savings	Savings	288,788		305,871		(17,083)		(5.6)		Savings	246,402		305,871		(59,469)		(19.4)
Money market	Money market	384,809		423,990		(39,181)		(9.2)		Money market	392,174		423,990		(31,816)		(7.5)
NOW	NOW	657,499		663,574		(6,075)		(0.9)		NOW	617,003		663,574		(46,571)		(7.0)
Certificates of deposit	Certificates of deposit	371,912		335,445		36,467		10.9		Certificates of deposit	556,457		335,445		221,012		65.9
Total deposits	Total deposits	$	2,557,744	$	2,633,181	$	(75,437)	(2.9)	%	Total deposits	$	2,597,484	$	2,633,181	$	(35,697)	(1.4)	%

The average rate paid on interest-bearing deposits was ~~0.77%~~1.84% for the ~~first~~third quarter of 2023, up 57157 bps compared to the ~~first~~third quarter of 2022. At ~~March 31,~~September 30, 2023, certificates of deposit maturing within the next 12 months totaled ~~$305.1~~$460.6 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		September 30, 2023	December 31, 2022
Individuals	Individuals	51%	51%	Individuals	52%	51%
Small businesses	Small businesses	39	40	Small businesses	39	40
Public funds	Public funds	8	7	Public funds	7	7
Broker	Broker	2	2	Broker	2	2
Total	Total	100%	100%	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~~$755.5 million at ~~March 31,~~September 30, 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~~$54.2 million and $54.0 million at ~~March 31,~~September 30, 2023 and December 31, 2022, respectively. The subordinated debt was recorded net of issuance costs and amortized using the straight-line method over five years.

Federal Home Loan Bank Advances

The average balance of total FHLB advances was ~~$215.5~~$273.1 million for the ~~first~~third quarter of 2023, up ~~$189.7~~$248.1 million compared to the ~~first~~third quarter of 2022. For the nine months ended September 30, 2023, the average balance of total FHLB advances was $254.0 million, up $228.6 million compared to the nine months ended September 30, 2022. Given the reduction in total deposits during the quarter, we increased our utilization of FHLB advances as a source of funds in order to, among other things, fund our loan growth during the period.

The Company had ~~$233.7~~$241.0 million short-term FHLB advances as of ~~March 31,~~September 30, 2023 compared to $155.0 million as of December 31, 2022. As discussed above, the increase in FHLB advances was due to loan growth and a decline in deposits. At ~~March 31,~~September 30, 2023 and December 31, 2022, the Company had ~~$43.1~~$42.8 million and $21.2 million in long-term FHLB advances, respectively, and ~~$913.9~~$914.1 million and $937.4 million in additional FHLB advances available, respectively.

Shareholders’ Equity

Total shareholders’ equity increased ~~$15.1~~$15.4 million, or ~~4.6%~~4.7%, from $330.0 million at December 31, 2022 to ~~$345.1~~$345.3 million at ~~March 31,~~September 30, 2023. Shareholders' equity increased primarily due to net income of ~~$11.3~~$30.9 million, ~~and a $5.5 million reduction~~which was partially offset by an increase in accumulated other comprehensive loss on available for sale investment securities, cash dividends and share repurchases during the ~~three~~nine months ended ~~March 31,~~September 30, 2023.

At ~~March 31,~~September 30, 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 ~~March 31,~~September 30, 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:													Company:
Tier 1 risk-based capital	Tier 1 risk-based capital	291,347		11.11		222,878		8.50		N/A		N/A		Tier 1 risk-based capital	304,343		11.13		232,503		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		Total risk-based capital	391,907		14.33		287,210		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		Tier 1 leverage capital	304,343		9.53		127,774		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)	$	333,949	12.77	%	$	183,022	7.00	%	$	169,949	6.50	%	Common equity Tier 1 capital (to risk-weighted assets)	$	341,207	12.51	%	$	190,940	7.00	%	$	177,302	6.50	%
Tier 1 risk-based capital	Tier 1 risk-based capital	333,949		12.77		222,240		8.50		209,167		8.00		Tier 1 risk-based capital	341,207		12.51		231,856		8.50		218,218		8.00
Total risk-based capital	Total risk-based capital	365,920		14.00		274,532		10.50		261,459		10.00		Total risk-based capital	374,584		13.73		286,411		10.50		272,772		10.00
Tier 1 leverage capital	Tier 1 leverage capital	333,949		10.69		125,003		4.00		156,254		5.00		Tier 1 leverage capital	341,207		10.71		127,463		4.00		159,328		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 ~~March 31,~~September 30, 2023, certificates of deposit maturing within the next 12 months totaled ~~$305.1~~$460.6 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 ~~three~~nine months ended ~~March 31,~~September 30, 2023, the average balance of outstanding FHLB advances was ~~$215.5~~$254.0 million. At ~~March 31,~~September 30, 2023, the Company had ~~$276.7~~$283.8 million in total outstanding FHLB advances.

The following table summarizes the Company's primary and secondary sources of liquidity which were available at ~~March 31,~~September 30, 2023.


(dollars in thousands)	~~March 31,~~September 30, 2023
Cash and cash equivalents	$	~~107,171~~84,520
~~Unpledged~~Unencumbered investment securities, amortized cost~~(1)~~	~~352,077~~79,015
FHLB advance availability~~(1)~~	~~913,921~~914,064
Amounts available from unsecured lines of credit	55,000
Federal Reserve bank term funding program	106,140
Federal Reserve discount window availability~~(1)~~	500
Total primary and secondary sources of available liquidity	$	~~1,428,669~~1,239,239

~~(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 ~~March 31,~~September 30, 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	3.3%	+300	0.9%
+200	+200	2.3%	+200	0.6%
+100	+100	1.2%	+100	0.3%
-100	-100	(1.9)%	-100	(1.1)%

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 and 2023, 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 2023 and 2022, such derivatives were used to hedge the variable cost associated with existing variable rate liabilities. Refer to Note 6 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 ~~March 31,~~September 30, 2023 and December 31, 2022, the Company's allowance for credit losses on unfunded commitments totaled ~~$2.3~~$2.5 million and $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)	March 31, 2023		December 31, 2022		(dollars in thousands)	September 30, 2023		December 31, 2022
Standby letters of credit	Standby letters of credit	$	6,721	$	6,969	Standby letters of credit	$	5,918	$	6,969
Available portion of lines of credit	Available portion of lines of credit	351,751		367,167		Available portion of lines of credit	356,546		367,167
Undisbursed portion of loans in process	Undisbursed portion of loans in process	185,784		194,182		Undisbursed portion of loans in process	221,964		194,182
Commitments to originate loans	Commitments to originate loans	191,414		164,682		Commitments to originate loans	192,917		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 ~~first~~third quarter of 2023 was ~~$11.3~~$9.8 million, ~~up $6.9 million~~down $680,000 compared to the ~~first~~third quarter of 2022. Diluted EPS for the ~~first~~third quarter of 2023 was ~~$1.39, up $0.86~~$1.22, down $0.06 compared to the ~~first~~third quarter of 2022. ~~The increase in net~~

Net income for the ~~first quarter of~~nine months ended September 30, 2023 was $30.9 million, up $7.6 million, compared to the ~~same period in 2022~~nine months ended September 30, 2022. Diluted EPS for the nine months ended September 30, 2023 was 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$3.82, up $0.98 compared to the ~~acquisition of Friendswood.~~nine months ended September 30, 2022.

During the three and nine months ended ~~March 31,~~September 30, 2023, the Company provisioned ~~$814,000~~$351,000 and $1.7 million. respectively, to the allowance for loan losses primarily due to loan growth. During the three and nine months ended ~~March 31,~~September 30, 2022, the Company provisioned ~~$3.2~~$1.7 million and $5.5 million to the allowance for loan losses primarily due to loan growth and the acquisition of ~~Friendswood's loan portfolio. The Company recognized $10,000 of deferred PPP lender fees during the three months ended March 31, 2023, compared to $721,000 during the comparable period in 2022.~~Friendswood.

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 ~~3.72%~~2.99% and ~~3.30%~~3.95% for the quarters ended ~~March 31,~~September 30, 2023 and 2022, respectively, and 3.33% and 3.65% for the nine months ended September 30, 2023 and 2022, respectively.

Net interest income totaled ~~$31.6~~$29.5 million for the ~~first~~third quarter of 2023, ~~up $8.1~~down $2.5 million, or ~~34.4%~~7.7%, compared to the ~~first~~third quarter of 2022.

~~Loan~~ For the nine months ended September 30, 2023, net interest income ~~from deferred PPP lender fees~~ totaled ~~$10,000 for the first quarter of 2023, down $711,000,~~$91.4 million, up $6.7 million, or ~~98.6%~~7.9%, compared to the ~~first quarter of~~nine months ended September 30, 2022. ~~Unrecognized PPP lender fees totaled $84,000 at March 31, 2023.~~

The Company’s tax-equivalent net interest margin, which is net interest income as a percentage of average interest-earning assets, was ~~4.18%~~3.75% and ~~3.39%~~4.11% for the quarters ended ~~March 31,~~September 30, 2023 and 2022, respectively. For the same periods, the average loan yield was ~~5.67%~~5.95% and ~~4.88%~~5.17%, respectively.

~~Average PPP loans were $6.4 million and $31.3 million~~The net interest margin for the ~~first quarters of~~nine months ended September 30, 2023 and 2022 was 3.95% and 3.77%, respectively. For the same periods, the average loan yield was 5.82% and 5.01%, respectively.

Acquired loan discount accretion included in interest income totaled ~~$668,000~~$634,000 and ~~$457,000~~$847,000 for the quarters ended ~~March 31,~~September 30, 2023 and 2022, respectively. For the nine months ended September 30, 2023 and 2022, acquired loan discount accretion included in interest income totaled $1.9 million and $2.2 million, respectively.

The following 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 March 31,													Three Months Ended September 30,
		2023						2022							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:													Interest-earning assets:
Loans receivable(1)	Loans receivable(1)	$	2,437,770	$	34,498	5.67	%	$	1,862,616	$	22,671	4.88	%	Loans receivable(1)	$	2,538,218	$	38,490	5.95	%	$	2,265,846	$	29,859	5.17	%
Investment securities	Investment securities													Investment securities
Taxable	Taxable	507,952		2,998		2.36		341,792		1,542		1.80		Taxable	478,380		2,863		2.39		504,241		2,812		2.23
Tax-exempt (TE)	Tax-exempt (TE)	27,243		144		2.67		17,944		76		2.13		Tax-exempt (TE)	16,839		76		2.28		28,059		146		2.64
Total investment securities	Total investment securities	535,195		3,142		2.38		359,736		1,618		1.82		Total investment securities	495,219		2,939		2.39		532,300		2,958		2.25
Other interest-earning assets	Other interest-earning assets	53,456		475		3.60		561,262		277		0.20		Other interest-earning assets	54,015		649		4.77		262,127		1,447		2.19
Total interest-earning assets (TE)	Total interest-earning assets (TE)	3,026,421		$	38,115	5.05		2,783,614		$	24,566	3.54		Total interest-earning assets (TE)	3,087,452		$	42,078	5.36		3,060,273		$	34,264	4.41
Noninterest-earning assets	Noninterest-earning assets	193,435						193,945						Noninterest-earning assets	193,641						205,634
Total assets	Total assets	$	3,219,856					$	2,977,559					Total assets	$	3,281,093					$	3,265,907
Interest-bearing liabilities:	Interest-bearing liabilities:													Interest-bearing liabilities:
Deposits:	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	%	Savings, checking and money market	$	1,256,885	$	3,791	1.20	%	$	1,522,350	$	876	0.23	%
Certificates of deposit	Certificates of deposit	349,683		1,192		1.38		317,866		363		0.46		Certificates of deposit	511,754		4,390		3.40		371,925		394		0.42
Total interest-bearing deposits	Total interest-bearing deposits	1,698,868		3,240		0.77		1,779,832		893		0.20		Total interest-bearing deposits	1,768,639		8,181		1.84		1,894,275		1,270		0.27
Other borrowings	Other borrowings	5,539		53		3.89		5,539		53		3.89		Other borrowings	5,539		53		3.80		5,539		53		3.80
Subordinated debt	Subordinated debt	54,041		851		6.30		—		—		—		Subordinated debt	54,159		845		6.24		53,943		859		6.37
Short-term FHLB advances	Short-term FHLB advances	191,734		2,259		4.71		—		—		—		Short-term FHLB advances	230,222		3,150		5.35		—		—		—
Long term FHLB advances	Long term FHLB advances	23,744		117		1.97		25,795		109		1.70		Long term FHLB advances	42,865		340		3.17		24,977		105		1.68
Total interest-bearing liabilities	Total interest-bearing liabilities	1,973,926		$	6,520	1.33		1,811,166		$	1,055	0.24		Total interest-bearing liabilities	2,101,424		$	12,569	2.37		1,978,734		$	2,287	0.46
Noninterest-bearing liabilities	Noninterest-bearing liabilities	906,619						815,056						Noninterest-bearing liabilities	829,233						952,120
Total liabilities		2,880,545						2,626,222
Shareholders’ equity		339,311						351,337
Total liabilities and shareholders' equity		$	3,219,856					$	2,977,559
Net interest-earning assets		$	1,052,495					$	972,448
Net interest spread (TE)				$	31,595	3.72	%			$	23,511	3.30	%
Net interest margin (TE)						4.18	%					3.39	%


	Three Months Ended September 30,
	2023						2022
(dollars in thousands)	Average Balance		Interest		Average Yield/Rate		Average Balance		Interest		Average Yield/Rate
Total liabilities	2,930,657						2,930,854
Shareholders’ equity	350,436						335,053
Total liabilities and shareholders' equity	$	3,281,093					$	3,265,907
Net interest-earning assets	$	986,028					$	1,081,539
Net interest spread (TE)			$	29,509	2.99	%			$	31,977	3.95	%
Net interest margin (TE)					3.75	%					4.11	%

(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,
	2023						2022
(dollars in thousands)	Average Balance		Interest		Average Yield/Rate		Average Balance		Interest		Average Yield/Rate
Interest-earning assets:
Loans receivable(1)	$	2,489,374	$	109,518	5.82	%	$	2,107,871	$	79,834	5.01	%
Investment securities
Taxable	492,027		8,772		2.38		433,270		6,576		2.02
Tax-exempt (TE)	20,314		295		2.45		23,325		338		2.45
Total investment securities	512,341		9,067		2.38		456,595		6,914		2.05
Other interest-earning assets	53,245		1,679		4.22		414,122		2,587		0.84
Total interest-earning assets (TE)	3,054,960		$	120,264	5.21		2,978,588		$	89,335	3.97
Noninterest-earning assets	195,644						202,022
Total assets	$	3,250,604					$	3,180,610
Interest-bearing liabilities:
Deposits:
Savings, checking and money market	$	1,301,767	$	8,863	0.91	%	$	1,523,033	$	2,079	0.18	%
Certificates of deposit	423,418		8,105		2.56		365,584		1,187		0.43
Total interest-bearing deposits	1,725,185		16,968		1.32		1,888,617		3,266		0.23
Other borrowings	5,577		161		3.86		5,624		160		3.80
Subordinated debt	54,100		2,546		6.27		18,436		859		6.22
Short-term FHLB advances	217,391		8,382		5.08		—		—		—
Long term FHLB advances	36,603		797		2.90		25,396		321		1.69
Total interest-bearing liabilities	2,038,856		$	28,854	1.88		1,938,073		$	4,606	0.32
Noninterest-bearing liabilities	865,654						902,920
Total liabilities	2,904,510						2,840,993
Shareholders’ equity	346,094						339,617
Total liabilities and shareholders' equity	$	3,250,604					$	3,180,610
Net interest-earning assets	$	1,016,104					$	1,040,515
Net interest spread (TE)			$	91,410	3.33	%			$	84,729	3.65	%
Net interest margin (TE)					3.95	%					3.77	%

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

4043

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 March 31,						Three Months Ended September 30,				Nine Months Ended September 30,
		2023 Compared to 2022						2023 Compared to 2022				2023 Compared to 2022
		Change Attributable To						Change Attributable To				Change Attributable To
(dollars in thousands)	(dollars in thousands)	Rate		Volume		Increase/ (Decrease)			(dollars in thousands)	Rate		Volume		Increase/ (Decrease)		Rate		Volume		Increase/ (Decrease)
Interest income:	Interest income:								Interest income:
Loans receivable	Loans receivable	$	4,151	$	7,676	$	11,827		Loans receivable	$	4,616	$	4,015	$	8,631	$	14,433	$	15,251	$	29,684
Investment securities	Investment securities	612		912		1,524			Investment securities	190		(209)		(19)		1,129		1,024		2,153
Other interest-earning assets	Other interest-earning assets	2,578		(2,380)		198			Other interest-earning assets	1,027		(1,825)		(798)		1,690		(2,598)		(908)
Total interest income	Total interest income	7,341		6,208		13,549			Total interest income	5,833		1,981		7,814		17,252		13,677		30,929
Interest expense:	Interest expense:								Interest expense:
Savings, checking and money market accounts	Savings, checking and money market accounts	1,606		(88)		1,518			Savings, checking and money market accounts	3,387		(472)		2,915		4,838		1,946		6,784
Certificates of deposit	Certificates of deposit	757		72		829			Certificates of deposit	3,322		674		3,996		4,407		2,511		6,918
Other borrowings	Other borrowings	—		—		—			Other borrowings	—		—		—		1		—		1
Subordinated debt	Subordinated debt	—		851		851			Subordinated debt	(18)		4		(14)		565		1,122		1,687
FHLB advances	FHLB advances	1,147		1,120		2,267			FHLB advances	93		3,292		3,385		77		8,781		8,858
Total interest expense	Total interest expense	3,510		1,955		5,465			Total interest expense	6,784		3,498		10,282		9,888		14,360		24,248
Increase in net interest income	Increase in net interest income	$	3,831	$	4,253	$	8,084		Increase in net interest income	$	(951)	$	(1,517)	$	(2,468)	$	7,364	$	(683)	$	6,681

Noninterest Income

Noninterest income for the ~~first~~third quarter of 2023 totaled ~~$3.3~~$4.4 million, ~~down $75,000,~~up $925,000, or ~~2.2%~~26.6%, from ~~$3.4~~$3.5 million earned for the same period in 2022.

Noninterest income for the nine months ended September 30, 2023 totaled $11.2 million, up $612,000, or 5.8%, from $10.5 million earned for the same period in 2022.

Gains on the sale of loans for the ~~first~~third quarter of 2023 were ~~down $242,000,~~up $609,000, or ~~80.9%~~780.8%, from the comparable period in ~~2022.~~

~~The net loss~~2022 primarily due to the sale of SBA loans during the third quarter of 2023 resulting in a gain of $640,000. For the nine months ended September 30, 2023, gains on the sale of ~~assets totaled $17,000 for~~loans were up $129,000 or 20.1% from the ~~three months ended March 31, 2023, compared to the net gain on the sale of assets~~comparable period 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~~for the ~~first quarter of~~nine months ended September 30, 2023. There were no gross gains or gross losses related to the sale of investment securities for the three months ended ~~March 31,~~September 30, 2023 or for the three and nine months ended September 30, 2022.

Income from bank owned life insurance for the three and nine months ended September 30, 2023 was up $34,000, or 14.7% and $120,000, or 18.2%, respectively, from the comparable period in 2022 primarily due to additional policies purchased in August 2022.

Income from bank card fees for the three and nine months ended ~~March 31,~~September 30, 2023 was up ~~$333,000,~~$280,000, or ~~22.9%~~17.3% and $692,000, or 14.7%, respectively, from the comparable period in 2022 primarily due to increased transaction activity by our cardholders.

Noninterest Expense

Noninterest expense for the ~~first~~third quarter of 2023 totaled ~~$19.9~~$21.3 million, up ~~$1.7 million,~~$615,000, or ~~9.3%~~3.0%, from the ~~first~~third quarter of 2022. Noninterest expense for the third quarter of 2022 included merger-related expenses for the Friendswood acquisition totaling $60,000 (pre-tax). Noninterest expense increased over the comparable quarters primarily due to increases in compensation and benefits, data processing and communication, other expenses and occupancy, which were partially offset by the absence of provision for credit losses on unfunded commitments.

Noninterest expense for the nine months ended September 30, 2023 totaled $62.2 million, up $1.5 million, or 2.5%, from the same period in 2022. Noninterest expense included merger-related expenses totaling $2.0 million (pre-tax) for the nine months ended September 30, 2022. The increase in noninterest expense for the nine months ended September 30, 2023 related primarily to the growth of the Company's employee base, occupancy and franchise tax expenses as a result of the Friendswood acquisition, which were partially offset by a $739,000 recovery of a previous loss on a foreclosed asset in the first quarter of ~~2022 includes merger-related expenses totaling $328,000 (pre-tax).~~2023.

Income Taxes

~~Compensation and benefits~~Income tax expense for the three and nine months ended ~~March 31,~~September 30, 2023 ~~was up $2.3~~totaled $2.5 million ~~or 22.4%,~~and $7.8 million, respectively, compared to $2.6 million and $5.7 million for the three and nine months ended September 30, 2022, respectively. Income tax expense decreased over the comparable quarters primarily due to decreased taxable earnings in the third quarter of 2023. Income tax expense for the nine months ended September 30, 2023 increased from the comparable period in 2022 primarily due to ~~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 in 2022 primarily as a result of the expansion of the Company's branch office network due to the Friendswood 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 less foreclosed assets expenses.

~~Income Taxes~~

Income tax expense for the three months ended March 31, 2023 totaled $2.8 million compared to $1.0 million for the three months ended March 31, 2022. The increase in income tax expense over the comparable periods was primarily due to increased taxable ~~earnings.~~earnings during the 2023 period. The Company's effective tax rates for the ~~first~~third quarters of 2023 and 2022 were ~~20.0%~~20.2% and ~~19.1%~~19.9%, respectively. For the nine months ended September 30, 2023 and 2022, the Company's effective tax rates were 20.2% and 19.8%, 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 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.


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, 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 ~~March 31,~~September 30, 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 ~~first~~third quarter of 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, 2022 filed with the Securities and Exchange Commission.


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

(a) Not applicable.

(b) Not applicable.

(c) The Company’s purchases of its common stock made during the quarter ended ~~March 31,~~September 30, 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)
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


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, 2023	5,807	$	32.91	5,807	79,978
August 1 – August 31, 2023	7,337	32.67		7,337	72,641
September 1 – September 30, 2023	24,661	32.55		24,661	47,980
Total	37,805	$	32.63	37,805	47,980

(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. On October 18, 2023, the Company announced the approval of a new repurchase program (the “2023 Repurchase Plan”). Under the 2023 Repurchase Plan, the Company may purchase up to an additional 405,000 shares, or approximately 5% of the Company’s outstanding common stock. Share repurchases under the 2023 Repurchase Plan may commence upon the completion of the Company’s 2021 Repurchase Plan.


Item 3.			Defaults Upon Senior Securities.

~~None.~~(a) Not applicable.

(b) Not applicable.


Item 4.			Mine Safety Disclosures.

~~None.~~Not applicable.


Item 5.			Other Information.

~~None.~~(a) Not applicable.

(b) Not applicable.

(c) During the fiscal quarter ended September 30, 2023, none of our directors or executive officers adopted, terminated or modified a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement.


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)

4447

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.

~~May 5,~~November 1, 2023

By:

/s/ John W. Bordelon

John W. Bordelon

Chairman of the Board, President and Chief Executive Officer

~~May 5,~~November 1, 2023

By:

/s/ David T. Kirkley

David T. Kirkley

Senior Executive Vice President and Chief Financial Officer

~~May 5,~~November 1, 2023

By:

/s/ Mary H. Hopkins

Mary H. Hopkins

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

4548


	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