UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended: September 30, ~~2019~~2020


☐			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~~NASDAQ Stock Market

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

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

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

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

At November ~~6, 2019,~~4, 2020, the registrant had ~~9,275,629~~8,755,250 shares of common stock, $0.01 par value, outstanding.

HOME BANCORP, INC. and SUBSIDIARY

TABLE OF CONTENTS

Page

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements (unaudited)

Consolidated Statements of Financial Condition

Consolidated Statements of Income

Consolidated Statements of Comprehensive Income

Consolidated Statements of Changes in Shareholders’ Equity

Consolidated Statements of Cash Flows

Notes to Unaudited Consolidated Financial Statements

Item 2.

Managements’ Discussion and Analysis of Financial Condition and Results of Operations

2735

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

3854

Item 4.

Controls and Procedures

3854

PART II - OTHER INFORMATION

Item 1.

Item 1A.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

3955

Item 3.

Defaults Upon Senior Securities

3956

Item 4.

Mine Safety Disclosures

Item 5.

Item 6.

HOME BANCORP, INC. and SUBSIDIARY

GLOSSARY OF DEFINED TERMS

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


ACL	–	Allowance for credit losses
ALL	–	Allowance for loan losses
AOCI	–	Accumulated other comprehensive income
ASC	–	Accounting Standards Codification
ASU	–	Accounting Standards Update
Bank	–	Home Bank, N.A., a wholly-owned subsidiary of the Company
BOLI	–	Bank-owned life insurance
bps	–	basis points, 100 basis points being equal to 1.0%
C&D	–	Construction and land
C&I	–	Commercial and industrial
CARES Act	–	Coronavirus Aid, Relief, and Economic Security Act
CECL	–	Current expected credit losses
Company	–	Home Bancorp, Inc., a Louisiana corporation and the holding company for Home Bank, N.A.
COVID-19	–	The novel coronavirus
CRE	–	Commercial real estate
EPS	–	Earnings per common share
FASB	–	Financial Accounting Standards Board
FHLB	–	Federal Home Loan Bank
GAAP	–	Generally Accepted Accounting Principles
LTV	–	Loan-to-value
NPA(s)	–	Nonperforming asset(s)
OCI	–	Other comprehensive income
ORE	–	Other real estate
PCD	–	Purchased credit deteriorated
PCI	–	Purchased credit impaired
PPP	–	Paycheck Protection Program
SBA	–	Small Business Association
SEC	–	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)			September 30,		December 31,
(dollars in thousands)	(dollars in thousands)	September 30, 2019		December 31, 2018		(dollars in thousands)	2020		2019
Assets	Assets					Assets
Cash and cash equivalents	Cash and cash equivalents	$	61,289	$	59,618	Cash and cash equivalents	$	185,836	$	39,847
Interest-bearing deposits in banks	Interest-bearing deposits in banks	449		939		Interest-bearing deposits in banks	349		449
Investment securities available for sale, at fair value	Investment securities available for sale, at fair value	255,114		260,131		Investment securities available for sale, at fair value	251,578		257,321
Investment securities held to maturity (fair values of $7,238 and $10,841, respectively)		7,193		10,872
Investment securities held to maturity (fair values of $3,008 and $7,194, respectively)						Investment securities held to maturity (fair values of $3,008 and $7,194, respectively)	2,942		7,149
Mortgage loans held for sale	Mortgage loans held for sale	6,909		2,086		Mortgage loans held for sale	21,045		6,990
Loans, net of unearned income	Loans, net of unearned income	1,707,442		1,649,754		Loans, net of unearned income	1,955,297		1,714,361
Allowance for loan losses	Allowance for loan losses	(17,598)		(16,348)		Allowance for loan losses	(33,002)		(17,868)
Total loans, net of unearned income and allowance for loan losses	Total loans, net of unearned income and allowance for loan losses	1,689,844		1,633,406		Total loans, net of unearned income and allowance for loan losses	1,922,295		1,696,493
Office properties and equipment, net	Office properties and equipment, net	46,362		47,124		Office properties and equipment, net	45,696		46,425
Cash surrender value of bank-owned life insurance	Cash surrender value of bank-owned life insurance	39,228		29,560		Cash surrender value of bank-owned life insurance	40,184		39,466
Goodwill and core deposit intangibles	Goodwill and core deposit intangibles	64,854		66,055		Goodwill and core deposit intangibles	63,439		64,472
Accrued interest receivable and other assets	Accrued interest receivable and other assets	46,798		43,867		Accrued interest receivable and other assets	45,836		41,853
Total Assets	Total Assets	2,218,040		2,153,658		Total Assets	2,579,200		2,200,465
Liabilities	Liabilities					Liabilities
Deposits:	Deposits:					Deposits:
Noninterest-bearing	Noninterest-bearing	446,742		438,146		Noninterest-bearing	629,345		437,828
Interest-bearing	Interest-bearing	1,384,664		1,335,071		Interest-bearing	1,578,149		1,383,147
Total Deposits	Total Deposits	1,831,406		1,773,217		Total Deposits	2,207,494		1,820,975
Other borrowings	Other borrowings	5,539		5,539		Other borrowings	5,539		5,539
Long-term Federal Home Loan Bank advances	Long-term Federal Home Loan Bank advances	47,853		58,698		Long-term Federal Home Loan Bank advances	31,445		40,620
Accrued interest payable and other liabilities	Accrued interest payable and other liabilities	18,565		12,164		Accrued interest payable and other liabilities	21,398		17,002
Total Liabilities	Total Liabilities	1,903,363		1,849,618		Total Liabilities	2,265,876		1,884,136
Shareholders’ Equity	Shareholders’ Equity					Shareholders’ Equity
Preferred stock, $0.01 par value - 10,000,000 shares authorized; NaN issued	Preferred stock, $0.01 par value - 10,000,000 shares authorized; NaN issued	—		—		Preferred stock, $0.01 par value - 10,000,000 shares authorized; NaN issued	0		0
Common stock, $0.01 par value - 40,000,000 shares authorized; 9,331,099 and 9,459,050 shares issued and outstanding, respectively		93		95
Common stock, $0.01 par value - 40,000,000 shares authorized; 8,831,406 and 9,252,418 shares issued and outstanding, respectively						Common stock, $0.01 par value - 40,000,000 shares authorized; 8,831,406 and 9,252,418 shares issued and outstanding, respectively	88		93
Additional paid-in capital	Additional paid-in capital	168,822		168,243		Additional paid-in capital	165,522		168,545
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)	(3,213)		(3,481)		Employee Stock Ownership Plan (ESOP)	(2,857)		(3,124)
Recognition and Retention Plan (RRP)	Recognition and Retention Plan (RRP)	(47)		(58)		Recognition and Retention Plan (RRP)	(23)		(35)
Retained earnings	Retained earnings	147,841		141,447		Retained earnings	145,373		150,158
Accumulated other comprehensive income (loss)		1,181		(2,206)
Accumulated other comprehensive income						Accumulated other comprehensive income	5,221		692
Total Shareholders’ Equity	Total Shareholders’ Equity	314,677		304,040		Total Shareholders’ Equity	313,324		316,329
Total Liabilities and Shareholders’ Equity	Total Liabilities and Shareholders’ Equity	$	2,218,040	$	2,153,658	Total Liabilities and Shareholders’ Equity	$	2,579,200	$	2,200,465

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

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands, except per share data)	(dollars in thousands, except per share data)	2019		2018		2019		2018		(dollars in thousands, except per share data)	2020		2019		2020		2019
Interest Income	Interest Income									Interest Income
Loans, including fees	Loans, including fees	$	23,562	$	24,118	$	70,572	$	70,448	Loans, including fees	$	24,769	$	23,562	$	72,839	$	70,572
Investment securities:	Investment securities:									Investment securities:
Taxable interest	Taxable interest	1,401		1,516		4,655		4,355		Taxable interest	897		1,401		3,308		4,655
Tax-exempt interest	Tax-exempt interest	114		178		397		543		Tax-exempt interest	70		114		253		397
Other investments and deposits	Other investments and deposits	397		297		1,140		1,063		Other investments and deposits	106		397		361		1,140
Total interest income	Total interest income	25,474		26,109		76,764		76,409		Total interest income	25,842		25,474		76,761		76,764
Interest Expense	Interest Expense									Interest Expense
Deposits	Deposits	4,050		2,312		11,116		6,142		Deposits	2,368		4,050		9,047		11,116
Other borrowings expense		53		—		159		—
Other borrowings										Other borrowings	53		53		159		159
Short-term Federal Home Loan Bank advances	Short-term Federal Home Loan Bank advances	—		6		—		39		Short-term Federal Home Loan Bank advances	0		0		23		0
Long-term Federal Home Loan Bank advances	Long-term Federal Home Loan Bank advances	230		281		751		877		Long-term Federal Home Loan Bank advances	149		230		520		751
Total interest expense	Total interest expense	4,333		2,599		12,026		7,058		Total interest expense	2,570		4,333		9,749		12,026
Net interest income	Net interest income	21,141		23,510		64,738		69,351		Net interest income	23,272		21,141		67,012		64,738
Provision for loan losses	Provision for loan losses	1,146		786		2,301		2,331		Provision for loan losses	0		1,146		12,728		2,301
Net interest income after provision for loan losses	Net interest income after provision for loan losses	19,995		22,724		62,437		67,020		Net interest income after provision for loan losses	23,272		19,995		54,284		62,437
Noninterest Income	Noninterest Income									Noninterest Income
Service fees and charges	Service fees and charges	1,516		1,638		4,396		4,812		Service fees and charges	1,123		1,516		3,529		4,396
Bank card fees	Bank card fees	1,141		1,110		3,414		3,405		Bank card fees	1,331		1,141		3,595		3,414
Gain on sale of loans, net	Gain on sale of loans, net	355		206		758		614		Gain on sale of loans, net	904		355		1,843		758
Income from bank-owned life insurance	Income from bank-owned life insurance	1,464		166		1,831		490		Income from bank-owned life insurance	231		1,464		718		1,831
(Loss) gain on sale of assets, net		(8)		(68)		(336)		77
Loss on sale of assets, net										Loss on sale of assets, net	0		(8)		(11)		(336)
Other income	Other income	306		289		853		770		Other income	205		306		581		853
Total noninterest income	Total noninterest income	4,774		3,341		10,916		10,168		Total noninterest income	3,794		4,774		10,255		10,916
Noninterest Expense	Noninterest Expense									Noninterest Expense
Compensation and benefits	Compensation and benefits	10,266		9,328		28,977		27,492		Compensation and benefits	9,740		10,266		28,518		28,977
Occupancy	Occupancy	1,791		1,661		5,405		5,055		Occupancy	1,686		1,791		5,075		5,405
Marketing and advertising	Marketing and advertising	418		329		997		939		Marketing and advertising	288		418		746		997
Data processing and communication	Data processing and communication	1,764		1,804		4,782		5,827		Data processing and communication	1,851		1,764		5,430		4,782
Professional services	Professional services	227		265		684		856		Professional services	197		227		665		684
Forms, printing and supplies	Forms, printing and supplies	172		180		514		811		Forms, printing and supplies	140		172		471		514
Franchise and shares tax	Franchise and shares tax	399		362		1,196		1,091		Franchise and shares tax	378		399		1,156		1,196
Regulatory fees	Regulatory fees	127		455		717		1,177		Regulatory fees	526		127		1,004		717
Foreclosed assets, net		47		58		328		247
Foreclosed assets and ORE, net										Foreclosed assets and ORE, net	162		47		324		328
Amortization of acquisition intangible	Amortization of acquisition intangible	393		450		1,201		1,407		Amortization of acquisition intangible	338		393		1,033		1,201
Provision for credit losses on unfunded commitments										Provision for credit losses on unfunded commitments	0		0		1,272		0
Other expenses	Other expenses	1,006		804		3,052		2,706		Other expenses	810		1,006		2,563		3,052
Total noninterest expense	Total noninterest expense	16,610		15,696		47,853		47,608		Total noninterest expense	16,116		16,610		48,257		47,853
Income before income tax expense	Income before income tax expense	8,159		10,369		25,500		29,580		Income before income tax expense	10,950		8,159		16,282		25,500
Income tax expense	Income tax expense	1,303		2,107		4,174		6,079		Income tax expense	2,168		1,303		3,102		4,174
Net Income	Net Income	$	6,856	$	8,262	$	21,326	$	23,501	Net Income	$	8,782	$	6,856	$	13,180	$	21,326
Earnings per share:	Earnings per share:									Earnings per share:
Basic	Basic	$	0.76	$	0.91	$	2.34	$	2.59	Basic	$	1.01	$	0.76	$	1.51	$	2.34
Diluted	Diluted	$	0.75	$	0.89	$	2.32	$	2.53	Diluted	$	1.01	$	0.75	$	1.51	$	2.32
Cash dividends declared per common share	Cash dividends declared per common share	$	0.21	$	0.19	$	0.62	$	0.51	Cash dividends declared per common share	$	0.22	$	0.21	$	0.66	$	0.62

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

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2019		2018		2019		2018		(dollars in thousands)	2020		2019		2020		2019
Net Income	Net Income	$	6,856	$	8,262	$	21,326	$	23,501	Net Income	$	8,782	$	6,856	$	13,180	$	21,326
Other Comprehensive Income (Loss)
Unrealized gains (losses) on investment securities		14		(1,279)		4,287		(4,289)
Other Comprehensive Income										Other Comprehensive Income
Unrealized gains on available for sale investment securities										Unrealized gains on available for sale investment securities	39		14		5,815		4,287
Unrealized gains (losses) on cash flow hedges										Unrealized gains (losses) on cash flow hedges	76		0		(82)		0
Tax effect	Tax effect	(3)		268		(900)		901		Tax effect	(24)		(3)		(1,204)		(900)
Other comprehensive income (loss), net of taxes		11		(1,011)		3,387		(3,388)
Other comprehensive income, net of taxes										Other comprehensive income, net of taxes	91		11		4,529		3,387
Comprehensive Income	Comprehensive Income	$	6,867	$	7,251	$	24,713	$	20,113	Comprehensive Income	$	8,873	$	6,867	$	17,709	$	24,713

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) Common
stock Additional
Paid-in
capital Unallocated
Common Stock
Held by ESOP Unallocated
Common Stock
Held by RRP Retained
Earnings Accumulated Other Comprehensive (Loss) Income Total
Balance, December 31, 2017 $ 94 $ 165,341 $ (3,838) $ (84) $ 117,313 $ (955) $ 277,871
Net income 23,501 23,501
Other comprehensive loss (3,388) (3,388)
Reclassification of stranded tax effects in accumulated other comprehensive income 206 (206) —
Purchase of Company’s common stock at cost, 8,283 shares — (83) (297) (380)
Cash dividends declared, $0.51 per share (4,810) (4,810)
Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 16,898 shares — 139 (65) 74
Exercise of stock options 1 897 898
RRP shares released for allocation (7) 7 —
ESOP shares released for allocation 1,109 267 1,376
Share-based compensation cost 546 546
Balance, September 30, 2018 $ 95 $ 167,942 $ (3,571) $ (77) $ 135,848 $ (4,549) $ 295,688
Balance, December 31, 2018 $ 95 $ 168,243 $ (3,481) $ (58) $ 141,447 $ (2,206) $ 304,040
Net income 21,326 21,326
Other comprehensive income 3,387 3,387
Purchase of Company’s common stock at cost, 341,095 shares (3) (3,408) (9,008) (12,419)
Cash dividends declared, $0.62 per share (5,858) (5,858)
Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 24,392 shares — 233 (66) 167
Exercise of stock options 1 2,228 2,229
RRP shares released for allocation (11) 11 —
ESOP shares released for allocation 922 268 1,190
Share-based compensation cost 615 615
Balance, September 30, 2019 $ 93 $ 168,822 $ (3,213) $ (47) $ 147,841 $ 1,181 $ 314,677


(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		Total
Balance, June 30, 2019	$	94	$	169,233	$	(3,303)	$	(48)	$	146,348	$	1,170	$	313,494
Net income									6,856				6,856
Other comprehensive income											11		11
Purchase of Company’s common stock at cost, 123,902 shares	(1)		(1,238)						(3,385)				(4,624)
Cash dividends declared, $0.21 per share									(1,976)				(1,976)
Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 5,071 shares	—		130						(2)				128
Exercise of stock options	0		143										143
RRP shares released for allocation			(1)				1						0
ESOP shares released for allocation			318		90								408
Share-based compensation cost			237										237
Balance, September 30, 2019	$	93	$	168,822	$	(3,213)	$	(47)	$	147,841	$	1,181	$	314,677
Balance, June 30, 2020	$	90	$	166,494	$	(2,946)	$	(24)	$	140,582	$	5,130	$	309,326

Net income									8,782				8,782
Other comprehensive income											91		91
Purchase of Company’s common stock at cost, 135,224 shares	(2)		(1,351)						(2,020)				(3,373)
Cash dividends declared, $0.22 per share									(1,970)				(1,970)
Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 529 shares	—		0						(1)				(1)
Exercise of stock options	0		0										0
RRP shares released for allocation			(1)				1						0
ESOP shares released for allocation			201		89								290
Share-based compensation cost			179										179
Balance, September 30, 2020	$	88	$	165,522	$	(2,857)	$	(23)	$	145,373	$	5,221	$	313,324

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

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY - CONTINUED

(Unaudited)

(dollars in thousands, except per share data) Common
stock Additional
Paid-in
capital Unallocated
Common Stock
Held by ESOP Unallocated
Common Stock
Held by RRP Retained
Earnings Accumulated Other Comprehensive (Loss) Income Total
Balance, June 30, 2018 $ 94 $ 166,897 $ (3,660) $ (77) $ 129,645 $ (3,538) $ 289,361
Net income 8,262 8,262
Other comprehensive loss (1,011) (1,011)
Purchase of Company’s common stock at cost,7,206 shares — (72) (259) (331)
Cash dividends declared, $0.19 per share (1,799) (1,799)
Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 370 shares — (31) (1) (32)
Exercise of stock options 1 558 559
RRP shares released for allocation (3) — (3)
ESOP shares released for allocation 390 89 479
Share-based compensation cost 203 203
Balance, September 30, 2018 $ 95 $ 167,942 $ (3,571) $ (77) $ 135,848 $ (4,549) $ 295,688
Balance, June 30, 2019 $ 94 $ 169,233 $ (3,303) $ (48) $ 146,348 $ 1,170 $ 313,494
Net income 6,856 6,856
Other comprehensive income 11 11
Purchase of Company’s common stock at cost, 123,902 shares (1) (1,238) (3,385) (4,624)
Cash dividends declared, $0.21 per share (1,976) (1,976)
Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 5,071 shares — 130 (2) 128
Exercise of stock options — 143 143
RRP shares released for allocation (1) 1 —
ESOP shares released for allocation 318 90 408
Share-based compensation cost 237 237
Balance, September 30, 2019 $ 93 $ 168,822 $ (3,213) $ (47) $ 147,841 $ 1,181 $ 314,677


(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) Income		Total
Balance, December 31, 2018	$	95	$	168,243	$	(3,481)	$	(58)	$	141,447	$	(2,206)	$	304,040
Net income									21,326				21,326
Other comprehensive income											3,387		3,387
Purchase of Company’s common stock at cost, 341,095 shares	(3)		(3,408)						(9,008)				(12,419)
Cash dividends declared, $0.62 per share									(5,858)				(5,858)
Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 24,392 shares	—		233						(66)				167
Exercise of stock options	1		2,228										2,229
RRP shares released for allocation			(11)				11						0
ESOP shares released for allocation			922		268								1,190
Share-based compensation cost			615										615
Balance, September 30, 2019	$	93	$	168,822	$	(3,213)	$	(47)	$	147,841	$	1,181	$	314,677
Balance, December 31, 2019	$	93	$	168,545	$	(3,124)	$	(35)	$	150,158	$	692	$	316,329
Cumulative effect of change in accounting principle due the adoption of ASC Topic 326, net of tax									(4,725)				(4,725)
Net income									13,180				13,180
Other comprehensive income											4,529		4,529
Purchase of Company’s common stock at cost, 438,892 shares	(5)		(4,384)						(7,219)				(11,608)
Cash dividends declared, $0.66 per share									(5,978)				(5,978)
Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 16,175 shares	—		34						(43)				(9)
Exercise of stock options	0		30										30
RRP shares released for allocation			(12)				12						0
ESOP shares released for allocation			680		267								947
Share-based compensation cost			629										629
Balance, September 30, 2020	$	88	$	165,522	$	(2,857)	$	(23)	$	145,373	$	5,221	$	313,324

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,							For the Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2019		2018		(dollars in thousands)	2020		2019
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	21,326	$	23,501	Net income	$	13,180	$	21,326
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	Provision for loan losses	2,301		2,331		Provision for loan losses	12,728		2,301
Depreciation	Depreciation	2,107		1,832		Depreciation	2,288		2,107
Amortization and accretion of purchase accounting valuations and intangibles	Amortization and accretion of purchase accounting valuations and intangibles	4,768		6,259		Amortization and accretion of purchase accounting valuations and intangibles	3,458		4,768
Net amortization of mortgage servicing asset	Net amortization of mortgage servicing asset	83		113		Net amortization of mortgage servicing asset	56		83
Federal Home Loan Bank stock dividends	Federal Home Loan Bank stock dividends	(119)		(90)		Federal Home Loan Bank stock dividends	(56)		(119)
Net amortization of discount on investments	Net amortization of discount on investments	1,605		1,516		Net amortization of discount on investments	2,168		1,605
Gain on loans sold, net	Gain on loans sold, net	(758)		(614)		Gain on loans sold, net	(1,843)		(758)
Proceeds, including principal payments, from loans held for sale	Proceeds, including principal payments, from loans held for sale	81,021		73,539		Proceeds, including principal payments, from loans held for sale	192,232		81,021
Originations of loans held for sale	Originations of loans held for sale	(85,086)		(70,521)		Originations of loans held for sale	(204,444)		(85,086)
Non-cash compensation	Non-cash compensation	1,805		1,922		Non-cash compensation	1,576		1,805
Deferred income tax expense		176		225
Deferred income tax (benefit) expense						Deferred income tax (benefit) expense	(2,424)		176
Increase in accrued interest receivable and other assets	Increase in accrued interest receivable and other assets	(3,961)		(9,003)		Increase in accrued interest receivable and other assets	(2,072)		(3,961)
Increase in cash surrender value of bank-owned life insurance	Increase in cash surrender value of bank-owned life insurance	(636)		(490)		Increase in cash surrender value of bank-owned life insurance	(718)		(636)
Change in accrued interest payable and other liabilities		6,404		1,685
Increase in accrued interest payable and other liabilities						Increase in accrued interest payable and other liabilities	1,980		6,404
Net cash provided by operating activities	Net cash provided by operating activities	31,036		32,205		Net cash provided by operating activities	18,109		31,036
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Purchases of securities available for sale	Purchases of securities available for sale	(46,914)		(67,539)		Purchases of securities available for sale	(57,187)		(46,914)
Proceeds from maturities, prepayments and calls on securities available for sale	Proceeds from maturities, prepayments and calls on securities available for sale	54,775		38,016		Proceeds from maturities, prepayments and calls on securities available for sale	66,653		54,775
Proceeds from maturities, prepayments and calls on securities held to maturity	Proceeds from maturities, prepayments and calls on securities held to maturity	3,517		1,855		Proceeds from maturities, prepayments and calls on securities held to maturity	4,130		3,517
(Increase) decrease in loans, net		(63,679)		18,222
Increase in loans, net						Increase in loans, net	(245,440)		(63,679)
Reimbursement from FDIC for covered assets	Reimbursement from FDIC for covered assets	142		—		Reimbursement from FDIC for covered assets	0		142
Decrease in interest-bearing deposits in banks	Decrease in interest-bearing deposits in banks	490		1,237		Decrease in interest-bearing deposits in banks	100		490
Proceeds from sale of repossessed assets		1,720		616
Purchases of office properties and equipment		(3,009)		(2,824)
Proceeds from sale of foreclosed assets						Proceeds from sale of foreclosed assets	3,039		1,720
Purchase of bank-owned life insurance	Purchase of bank-owned life insurance	(10,000)		—		Purchase of bank-owned life insurance	0		(10,000)
Proceeds from bank-owned life insurance	Proceeds from bank-owned life insurance	2,163		—		Proceeds from bank-owned life insurance	0		2,163
Purchases of office properties and equipment						Purchases of office properties and equipment	(1,570)		(3,009)
Proceeds from sale of office properties and equipment	Proceeds from sale of office properties and equipment	53		1,051		Proceeds from sale of office properties and equipment	4		53
Purchase of Federal Home Loan Bank stock						Purchase of Federal Home Loan Bank stock	(1,592)		0
Net cash used in investing activities	Net cash used in investing activities	(60,742)		(9,366)		Net cash used in investing activities	(231,863)		(60,742)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Increase (decrease) in deposits, net		58,152		(94,992)
Increase in deposits, net						Increase in deposits, net	386,509		58,152
Borrowings on Federal Home Loan Bank advances	Borrowings on Federal Home Loan Bank advances	6,010		—		Borrowings on Federal Home Loan Bank advances	119,700		6,010
Repayments of Federal Home Loan Bank advances	Repayments of Federal Home Loan Bank advances	(16,904)		(12,323)		Repayments of Federal Home Loan Bank advances	(128,901)		(16,904)
Proceeds from exercise of stock options	Proceeds from exercise of stock options	2,229		898		Proceeds from exercise of stock options	30		2,229
Issuance of stock under incentive plans	Issuance of stock under incentive plans	167		74		Issuance of stock under incentive plans	(9)		167
Dividends paid to shareholders	Dividends paid to shareholders	(5,858)		(4,810)		Dividends paid to shareholders	(5,978)		(5,858)
Purchase of Company’s common stock	Purchase of Company’s common stock	(12,419)		(380)		Purchase of Company’s common stock	(11,608)		(12,419)
Net cash provided by (used in) financing activities		31,377		(111,533)
Net cash provided by financing activities						Net cash provided by financing activities	359,743		31,377
Net change in cash and cash equivalents	Net change in cash and cash equivalents	1,671		(88,694)		Net change in cash and cash equivalents	145,989		1,671
Cash and cash equivalents at beginning of year		59,618		150,418
Cash and cash equivalents at end of period		$	61,289	$	61,724
Cash and cash equivalents, beginning						Cash and cash equivalents, beginning	39,847		59,618
Cash and cash equivalents, ending						Cash and cash equivalents, ending	$	185,836	$	61,289

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 ~~Home Bancorp, Inc. (the “Company”)~~the Company were prepared in accordance with instructions for Form 10-Q and Regulation S-X and do not include information or footnotes necessary for a complete presentation of financial condition, results of operations, comprehensive income, changes in shareholders’ equity and cash flows in conformity with accounting principles generally accepted in the United States of America. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial statements have been included. Certain reclassifications have been made to prior period balances to conform to the current period presentation. The results of operations for the three and nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 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 ~~Securities and Exchange Commission (“SEC”)~~SEC for the year ended December 31, ~~2018.~~2019.

Critical Accounting Policies and Estimates

~~There were no material changes or developments during the reporting period with respect to methodologies~~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 ~~as disclosed~~are included in its Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

Accounting Policy for the Allowance for Credit Losses

During the first quarter of 2020, the Company adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The new standard significantly changed the impairment model for most financial assets that are measured at amortized cost, including off-balance sheet credit exposures, from an incurred loss model to an expected loss model. Determining the appropriateness of the allowance requires judgment by management about the effect of matters that are inherently uncertain. Changes in factors and forecasts used in evaluating the overall loan portfolio may result in significant changes in the allowance for credit losses and related provision expense in future periods. The allowance level is influenced by loan volumes, loan asset quality ratings, delinquency status, historical credit loss experience, loan performance characteristics, forecasted information and other conditions influencing loss expectations. Changes to the assumptions in the model in future periods could have a material impact on the Company's Consolidated Financial Statements. See Note 2. Recent Accounting Pronouncements for a detailed discussion of the Company's methodologies for estimating expected credit losses.

Accounting Policy for Derivative Instruments and Hedging Activities

During the second quarter of 2020, the Company entered into a derivative financial instrument designated as a cash flow hedge to manage interest rate risk. Refer to Note 6. Derivatives and Hedging Activities for additional disclosures pertaining to the three and nine months ended September 30, 2020. FASB ASC 815, Derivatives and Hedging (“ASC 815”), provides the disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how the entity accounts for derivative instruments and related hedged items, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Further, qualitative disclosures are required that explain the Company’s objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.

As required by ASC 815, the Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge.

In accordance with the FASB’s fair value measurement guidance (in ASU 2011-04), the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.

There have been no other material changes from the critical accounting policies disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2019. In preparing the 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.

2. Recent Accounting Pronouncements

~~In February 2016,~~Accounting Standards Adopted in 2020

On January 1, 2020, the FASB issued ASU No. 2016-02, “Conforming Amendments Related to Leases”. This ASU amends the codification regarding leases in order to increase transparency and comparability. Under former GAAP, the recognition of lease assets and lease liabilities by lessees was not required if the terms of the lease qualified it as an operating lease. ASU No. 2016-02 requires companies to recognize lease assets and liabilities on the statement of condition and disclose key information about leasing arrangements, for both operating and capital or finance leases. A lessee must recognize a liability to make lease payments and a right-of-use asset representing its right to use the leased asset for the lease term. The ASU is effective for annual and interim periods beginning after December 15, 2018. The Company implemented an accounting policy election to keep leases with an initial term of 12 months or less off the Company’s consolidated balance sheet. As of September 30, 2019, the Company’s right-of-use assets and liabilities, net of amortization, were $4.6 million. The Company reports its right-of-use assets and liabilities within accrued interest receivable and other assets and accrued interest payable and other liabilities on the Consolidated Statements of Financial Condition. The ASU did not have material impact on the consolidated income statement for the three-months or nine-months ended September 30, 2019, and is not expected to in future periods.

~~In June 2016, the FASB issued~~adopted ASU No. 2016-13, ~~“Measurement~~Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which introduced a new ~~impairment~~ model known as ~~CECL (Current Expected Credit Losses). The ASU~~CECL. ASC Topic 326 requires a financial ~~asset (or group of financial assets)~~assets measured on an amortized cost basis, including loans and held to maturity debt securities, to be presented at an amount net of an allowance for credit losses, which reflects expected losses for the full life of the financial asset. Unfunded lending commitments are also within the scope of this amendment. Under ~~current~~former GAAP, credit losses ~~are~~were not recognized until the occurrence of the loss iswas probable and entities, in general, ~~only consider past events and current conditions when measuring incurred losses. ASU No. 2016-13 will require entities~~did not attempt to ~~recognize a current~~ estimate ~~of all expected~~ credit losses ~~thus eliminating~~for the “probable” recognition threshold. To produce a current estimate of expected credit losses, the standard will require entities to incorporate forecasted information along with relevant information about past events, including historical experience, and current conditions that affect the collectability of the reported amountfull life of financial assets. ~~The ASU~~

ASC Topic 326 also ~~amends~~amended the accounting model for purchased financial assets and ~~replaces~~replaced the ~~current accounting~~guidance for ~~purchased credit impaired ("PCI")~~PCI financial assets with the concept of ~~purchased credit deteriorated ("PCD")~~PCD financial assets. For non-PCD assets, ~~an initial~~the CECL estimate ~~will be~~is recognized through ~~the allowance~~an ACL and provision for credit ~~losses and the provision for loan~~ losses. For PCD assets, ~~an initial~~the CECL estimate ~~will be~~is recognized through ~~the allowance for credit losses~~an ACL with an offset to the cost basis of the PCD ~~asset. Financial~~asset at the date of acquisition. Subsequent changes in the ACL for PCD assets ~~currently~~are recognized through a provision for loan losses. The financial assets formerly classified as PCI ~~will be~~are now classified as PCD assets ~~upon implementation~~under ASC Topic 326. Under former GAAP, an allowance and related provision expense was only recorded for purchased financial assets if the amount of estimated probable losses exceeded the ASU. Held-to-maturity debt securities and off-balance-sheet arrangements, such as commitments to extend credit, guarantees and standby letters of credit that are not unconditionally cancellable, are also withinfair value discount for the ~~scope of this amendment.~~ financial assets.

In addition, ~~ASU 2016-13 will require~~ASC Topic 326 requires expected credit related losses for ~~available-for-sale~~available for sale debt securities to be recorded through an ~~allowance for credit losses,~~

ACL, while non-credit related losses will continue to be recognized through ~~Other Comprehensive Income (“OCI”). This ASU is effective~~OCI. The guidance under ASC Topic 326 had no impact on the Company's available for ~~fiscal years beginning after December 31, 2019. An entity will apply~~sale debt securities at January 1 or September 30, 2020. Management determined that the ~~amendments~~declines in ~~this update~~the fair value of these securities at such dates were not attributable to credit losses. The Company’s held to maturity debt securities are also required to utilize the CECL approach to estimate expected credit losses. The guidance under ASC Topic 326 had no impact on athe Company's held to maturity debt securities at January 1 or September 30, 2020.

The Company applied the guidance under ASC Topic 326 using the modified retrospective ~~basis, through a cumulative-effect adjustment~~approach for all non-PCD loans and unfunded lending commitments. Upon adoption on January 1, 2020, the Company recorded an after-tax decrease to retained earnings as of $4.7 million. The transition adjustment included $3.6 million due to the ~~beginning of the first reporting period~~increase in which the guidance is effective. The Company is conducting parallel testing of the CECL estimation process to determine the potential impact to our Consolidated Financial Statements upon the implementation of ASU No. 2016-13. Currently, the Company expects the adoption of the ASU to increase the allowance for non-PCD loan losses and $2.4 million due to the ~~provision for loan losses. The extent~~ACL on unfunded lending commitments.

For PCD loans, formerly classified as PCI, the Company applied the guidance under ASC Topic 326 using the prospective transition approach. As a result, the Company adjusted the amortized cost basis of the PCD loans to reclassify $1.0 million of purchase discount to the ALL on January 1, 2020.

The results for reporting periods beginning on or after January 1, 2020 are presented under ASC Topic 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP. The following table illustrates the impact ~~upon adoption~~of ASC Topic 326.


(dollars in thousands)	December 31, 2019		ASC Topic 326 Adoption Impact		January 1, 2020
Allowance for credit losses
One- to four-family first mortgage	$	2,715	$	986	$	3,701
Home equity loans and lines	1,084		(1)		1,083
Commercial real estate	6,541		1,974		8,515
Construction and land	2,670		519		3,189
Multi-family residential	572		(245)		327
Commercial and industrial	3,694		1,243		4,937
Consumer	592		157		749
Total allowance for loan losses	17,868		4,633		22,501

Unfunded lending commitments(1)	0		2,365		2,365
Total allowance for credit losses	$	17,868	$	6,998	$	24,866

Retained Earnings
Total allowance increase			$	6,998
Balance sheet reclassification(2)			(996)
Decrease to retained earnings, pre-tax			6,002
Tax effect			(1,277)
Decrease to retained earnings, net of tax effect			$	4,725

(1)The ACL for unfunded lending commitments is ~~not known~~recorded within accrued interest payable and ~~will depend~~other liabilities on the ~~characteristics~~Consolidated Statements of Financial Condition.

(2)For PCD loans, formerly classified as PCI, the Company applied the guidance under CECL using the prospective transition approach. As a result, the Company adjusted the amortized cost basis of the ~~Company’s~~PCD loans to reclassify the purchase discount to the ALL on January 1, 2020.

Under ASC Topic 326, the ACL is measured on a pool basis when similar risk characteristics exist and is maintained at an amount which management believes is a current estimate of the expected credit losses for the full life of the relevant pool of loans and related unfunded lending commitments. The Company's CECL calculation estimates loan losses using the discounted cash flow method for all loan pools, except for the Company's credit card portfolio. Loan losses for the credit card portfolio are estimated using the remaining life method due to the limited complexity and size of this portfolio. The discounted cash flow analysis uses loan-level term information (e.g., maturity date, payment amount, interest rate, etc.) and pool-level assumptions (e.g., default rates, prepayment speeds, etc.) to produce expected future cash flows for the full life of every loan in the pool. The expected future cash flows are discounted and results are then aggregated to produce a net present value of the pool and ultimately the ACL requirement for the pool. The remaining life method applies a loss rate to a given pool of loans over the estimate remaining life of the given pool. The remaining life of the pool is based on historical data. The loss rates computed for each pool and expected pool-level funding rates are applied to the related unfunded lending commitments to calculate an ACL on unfunded amounts. 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 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. Individually analyzed loans generally include larger commercial real estate loans, multi-family residential loans, construction and land loans, commercial and industrial loans and other loans as deem appropriate by management for which it is probable that all the amounts due under the contractual terms of the loan will not be collected. The ACL for loans that are individually evaluated is based on ~~that date as well as forecasted conditions thereafter.~~

~~In January 2017, FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other, Simplifying~~a comparison of the ~~Test~~recorded investment in the loan with either the expected cash flows discounted using the loan’s original effective interest rate, observable market price for ~~Goodwill Impairment”. The amendment in this ASU eliminates~~ the ~~requirement to calculate~~loan or the ~~implied~~ fair value of ~~goodwill in order to measure a goodwill impairment charge. An entity will record an impairment charge~~the collateral underlying certain collateral-dependent loans.

The Company has identified the following portfolio segments based on the ~~excess of~~risk characteristics described in the ~~carrying amount over~~table for its fair value. This ASU is effective for fiscal and interim testing periods beginning after December 15, 2019. The Company has early adopted the amendment and it has not impacted our Consolidated Financial Statements.pooled loan analysis under ASC Topic 326:


Loan Pool						Risk Characteristics
One- to four-family first mortgage						This category consists of loans secured by first liens on residential real estate. The performance of these loans may be adversely affected by, among other factors, unemployment rates, local residential real estate market conditions and the interest rate environment. Generally, these loans are for longer terms than home equity loans and lines.
Home equity loans and lines						This category consists of loans secured by first and junior liens on residential real estate. The performance of these loans may be adversely affected by, among other factors, unemployment rates, local residential real estate market conditions and the interest rate environment.
Commercial real estate						This category consists of loans primarily secured by office and industrial buildings, warehouses, retail shopping facilities and various special purpose properties, including hotels and restaurants. The performance of CRE loans may be adversely affected by, among other factors, conditions specific to the relevant industry, the real estate market for the property type and geographic region where the property or borrower is located.
Construction and land						This category consists of loans to finance the ground-up construction and/or improvement of residential and commercial properties and loans secured by land. The performance of C&D loans is generally dependent upon the successful completion of improvements and/or land development for the end user, the sale of the property to a third party, or a secondary source of cash flow from the owners. The successful completion of planned improvements and development may be adversely affected by changes in the estimated property value upon completion of construction, projected costs and other conditions leading to project delays.
Multi-family residential						This category consists of loans secured by apartment or residential buildings with five or more units used to accommodate households on a temporary or permanent basis. The performance of multi-family loans is generally dependent on the receipt of rental income from the tenants who occupy the subject property. The occupancy rate of the subject property and the ability of the tenants to pay rent may be adversely affected by the location of the subject property and local economic conditions.
Commercial and industrial						This category consists of secured and unsecured loans to purchase capital equipment, agriculture operating loans and other business loans for working capital and operating purposes. Secured loans are primarily secured by accounts receivable, inventory and other business assets. The performance of C&I loans may be adversely affected by, among other factors, conditions specific to the relevant industry, fluctuations in the value of the collateral and individual performance factors related to the borrower.
Consumer						This category consists of loans to individuals for household, family and other personal use. The performance of these loans may be adversely affected by national and local economic conditions, unemployment rates and other factors affecting the borrower's income available to service the debt.
Credit cards						This category consists of unsecured revolving lines of credit for personal and commercial use. Credit card loans are generally smaller in size and are less complex relative to larger loan categories. Due to their unsecured nature, historical loss rates for credit card loans are generally higher than the loss rates on loans secured by real estate.

In August 2018, the FASB issued ASU No. 2018-13, “Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” The ASU ~~removes, modifies~~removed, modified and ~~adds~~added certain disclosure requirements for fair value measurements. ~~For example,~~Under the ASU, public entities ~~will~~are no longer be required to disclose the valuation processes for Level 3 fair value measurements, but will be required to disclose the range and weighted average used to develop significant unobservable inputs and the change in unrealized gains and losses included in other comprehensive income for Level 3 fair value measurements. The ASU also removed the requirement to disclose transfers between Level 1 and Level 2 fair value measurements and the policy for those transfers. ASU No. 2018-13 is effective for interim and annual reporting periods beginning after December 15, ~~2019. In addition, entities may early adopt the modified or eliminated disclosure requirements~~2019 and delay adoption of the additional disclosure requirements until their effective date. The Company is currently assessing the impact of adoption of this guidance upon its disclosures. ASU No. 2018-13 willdid not impact our Consolidated Financial Statements, as the update only revises disclosure requirements.

Issued but Not Yet Adopted Accounting Standards

In December 2019, the FASB issued ASU No. 2019-12, "Simplifying the Accounting for Income Taxes (Topic 740)." The amendments in this ASU simplified the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improved the consistent application of and simplified GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The amendments in the ASU are effective for fiscal years and interim periods beginning after December 15, 2020. The Company does not expect the adoption of this ASU to impact the Consolidated Financial Statements.

3. Investment Securities

~~Summary information regarding~~The following table summarizes the Company’s ~~investment securities classified as~~ available for sale and held to maturity ~~as of~~investment securities at September 30, ~~2019~~2020 and December 31, ~~2018 is as follows.~~2019.


(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
						Less Than 1 Year		Over 1 Year
September 30, 2019
September 30, 2020												September 30, 2020						Less Than 1 Year		Over 1 Year
Available for sale:	Available for sale:											Available for sale:
U.S. agency mortgage-backed	U.S. agency mortgage-backed	$	82,597	$	1,226	$	54	$	74	$	83,695	U.S. agency mortgage-backed		$	118,843	$	4,352	$	43	$	0	$	123,152
Collateralized mortgage obligations	Collateralized mortgage obligations	152,143		958		351		366		152,384		Collateralized mortgage obligations		97,371		1,853		62		5		99,157
Municipal bonds	Municipal bonds	15,059		181		26		—		15,214		Municipal bonds		20,315		549		47		0		20,817
U.S. government agency	U.S. government agency	3,820		13		2		10		3,821		U.S. government agency		6,358		67		0		12		6,413
Corporate bonds												Corporate bonds		2,000		39		0		0		2,039
Total available for sale	Total available for sale	$	253,619	$	2,378	$	433	$	450	$	255,114	Total available for sale		$	244,887	$	6,860	$	152	$	17	$	251,578
Held to maturity:	Held to maturity:											Held to maturity:
Municipal bonds	Municipal bonds	$	7,193	$	46	$	1	$	—	$	7,238	Municipal bonds		$	2,942	$	66	$	0	$	0	$	3,008
Total held to maturity	Total held to maturity	$	7,193	$	46	$	1	$	—	$	7,238	Total held to maturity		$	2,942	$	66	$	0	$	0	$	3,008


(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses				Fair Value
December 31, 2019					Less Than 1 Year		Over 1 Year
Available for sale:
U.S. agency mortgage-backed	$	94,446	$	1,081	$	292	$	63	$	95,172
Collateralized mortgage obligations	142,408		701		300		358		142,451
Municipal bonds	15,895		166		56		0		16,005
U.S. government agency	3,696		11		4		10		3,693
Total available for sale	$	256,445	$	1,959	$	652	$	431	$	257,321
Held to maturity:
Municipal bonds	$	7,149	$	45	$	0	$	0	$	7,194
Total held to maturity	$	7,149	$	45	$	0	$	0	$	7,194

811

(dollars in thousands) Amortized
Cost Gross
Unrealized
Gains Gross Unrealized Losses Fair Value
Less Than
1 Year Over 1
Year
December 31, 2018
Available for sale:
U.S. agency mortgage-backed $ 86,487 $ 485 $ 171 $ 892 $ 85,909
Collateralized mortgage obligations 145,814 129 161 2,191 143,591
Municipal bonds 21,453 52 16 12 21,477
U.S. government agency 9,169 29 19 25 9,154
Total available for sale $ 262,923 $ 695 $ 367 $ 3,120 $ 260,131
Held to maturity:
Municipal bonds $ 10,872 $ 11 $ 5 $ 37 $ 10,841
Total held to maturity $ 10,872 $ 11 $ 5 $ 37 $ 10,841

The estimated fair value and amortized cost by contractual maturity of the Company’s investment securities as of September 30, ~~2019~~2020 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.


(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
Securities available for sale:
Available for sale:												Available for sale:
U.S. agency mortgage-backed	U.S. agency mortgage-backed	$	43	$	10,308	$	22,898	$	50,446	$	83,695	U.S. agency mortgage-backed	$	16	$	16,352	$	47,727	$	59,057	$	123,152
Collateralized mortgage obligations	Collateralized mortgage obligations	—		—		—		152,384		152,384		Collateralized mortgage obligations	1,455		15,591		30,339		51,772		99,157
Municipal bonds	Municipal bonds	778		5,549		2,185		6,702		15,214		Municipal bonds	1,325		2,297		8,659		8,536		20,817
U.S. government agency	U.S. government agency	—		—		—		3,821		3,821		U.S. government agency	0		0		5,991		422		6,413
Corporate bonds												Corporate bonds	0		0		2,039		0		2,039
Total securities available for sale	Total securities available for sale	$	821	$	15,857	$	25,083	$	213,353	$	255,114	Total securities available for sale	$	2,796	$	34,240	$	94,755	$	119,787	$	251,578
Securities held to maturity:
Held to maturity:												Held to maturity:
Municipal bonds	Municipal bonds	$	—	$	2,603	$	2,188	$	2,447	$	7,238	Municipal bonds	$	0	$	803	$	2,205	$	0	$	3,008
Total securities held to maturity	Total securities held to maturity	$	—	$	2,603	$	2,188	$	2,447	$	7,238	Total securities held to maturity	$	0	$	803	$	2,205	$	0	$	3,008

(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
Securities available for sale:
Available for sale:												Available for sale:
U.S. agency mortgage-backed	U.S. agency mortgage-backed	$	41	$	10,277	$	22,581	$	49,698	$	82,597	U.S. agency mortgage-backed	$	16	$	15,802	$	45,105	$	57,920	$	118,843
Collateralized mortgage obligations	Collateralized mortgage obligations	—		—		—		152,143		152,143		Collateralized mortgage obligations	1,455		14,930		29,529		51,457		97,371
Municipal bonds	Municipal bonds	776		5,524		2,119		6,640		15,059		Municipal bonds	1,318		2,273		8,265		8,459		20,315
U.S. government agency	U.S. government agency	—		—		—		3,820		3,820		U.S. government agency	0		0		5,929		429		6,358
Corporate bonds												Corporate bonds	0		0		2,000		0		2,000
Total securities available for sale	Total securities available for sale	$	817	$	15,801	$	24,700	$	212,301	$	253,619	Total securities available for sale	$	2,789	$	33,005	$	90,828	$	118,265	$	244,887
Securities held to maturity:
Held to maturity:												Held to maturity:
Municipal bonds	Municipal bonds	$	—	$	2,593	$	2,157	$	2,443	$	7,193	Municipal bonds	$	0	$	800	$	2,142	$	0	$	2,942
Total securities held to maturity	Total securities held to maturity	$	—	$	2,593	$	2,157	$	2,443	$	7,193	Total securities held to maturity	$	0	$	800	$	2,142	$	0	$	2,942

Management evaluates securities for ~~other-than-temporary~~ impairment from credit losses at least quarterly, and more frequently when economic and market conditions warrant such evaluations. Consideration is given to ~~(1)~~numerous factors including, but not limited to, the extent ~~and length of time~~to which the fair value ~~has been below cost; (2)~~is less than the ~~reasons for~~amortized cost basis; adverse conditions causing changes in the ~~decline in value;~~financial condition of the issuer of the security or underlying loan guarantors; changes to the rating of the security by a rating agency; and ~~(3)~~ 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 ~~identify~~determine whether the decline in the fair value of securities ~~that could potentially have a~~has resulted from credit ~~impairment that is other-than-temporary.~~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. ~~When~~If this evaluation indicates the existence of credit losses, the Company ~~determines~~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 athe fair value of the security is ~~deemed other-than-temporarily impaired, an impairment~~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 ~~is recognized.~~position, are summarized in the following tables.

~~As of~~


(dollars in thousands)	Less Than 1 Year				Over 1 Year				Total
September 30, 2020	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Securities available for sale:
U.S. agency mortgage-backed	$	14,660	$	43	$	0	$	0	$	14,660	$	43
Collateralized mortgage obligations	21,557		62		2,314		5		23,871		67
Municipal bonds	4,222		47		0		0		4,222		47
U.S. government agency	0		0		1,276		12		1,276		12
Corporate bonds	0		0		0		0		0		0
Total available for sale	$	40,439	$	152	$	3,590	$	17	$	44,029	$	169
Held to maturity:
Municipal bonds	$	0	$	0	$	0	$	0	$	0	$	0
Total held to maturity	$	0	$	0	$	0	$	0	$	0	$	0


(dollars in thousands)	Less Than 1 Year				Over 1 Year				Total
December 31, 2019	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Securities available for sale:
U.S. agency mortgage-backed	$	28,847	$	292	$	5,148	$	63	$	33,995	$	355
Collateralized mortgage obligations	50,004		300		37,131		358		87,135		658
Municipal bonds	3,044		56		0		0		3,044		56
U.S. government agency	1,213		4		466		10		1,679		14
Total available for sale	$	83,108	$	652	$	42,745	$	431	$	125,853	$	1,083
Held to maturity:
Municipal bonds	$	0	$	0	$	0	$	0	$	0	$	0
Total held to maturity	$	0	$	0	$	0	$	0	$	0	$	—

At September 30, ~~2019, 64~~2020, 36 of the Company’s ~~investment~~debt securities had unrealized losses totaling ~~0.8%~~0.4% of the individual securities’ amortized cost basis and ~~0.3%~~0.1% of the Company’s total amortized cost basis of the investment securities portfolio. At such date, 353 of the 6436 securities had been in a continuous loss position for over 12 months. ~~The 35~~Management has determined that the declines in the fair value of these securities ~~had an aggregate amortized cost basis of $47,162,000 and an unrealized loss of $450,000~~were not attributable to credit losses. As a result, 0 ACL was recorded for available for sale investment securities at September 30, ~~2019. Management has~~2020.

At September 30, 2020, it was determined that 0 ACL was required for the ~~intent and ability to hold these~~Company's held-to-maturity investment securities. The Company monitors credit quality of debt securities ~~until maturity, or until anticipated recovery; hence, no declines in these~~held-to-maturity through the use of credit ratings. The following table presents the amortized cost of the Company's held-to-maturity securities ~~were deemed other-than-temporary~~by credit quality rating at September 30, ~~2019.~~2020.

~~As of~~

Credit Ratings

(dollars in thousands)

AAA/AA/A

BBB/BB/B

Total

September 30, 2020

Held to maturity:

Municipal bonds

2,942

Accrued interest receivable on the Company's investment securities was $695,000 and $894,000 at September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. These amounts are recorded in accrued interest receivable and other assets on the Consolidated Statements of Financial Condition.

At September 30, 2020 and December 31, 2019, the Company had ~~$172,339,000~~$131,668,000 and ~~$157,198,000,~~$157,091,000, respectively, of securities pledged to secure public deposits.

4. Earnings Per Share

Earnings per common share were computed based on the following:


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share data)	(in thousands, except per share data)	2019		2018		2019		2018		(in thousands, except per share data)	2020		2019		2020		2019
Numerator:	Numerator:									Numerator:
Net income available to common shareholders	Net income available to common shareholders	$	6,856	$	8,262	$	21,326	$	23,501	Net income available to common shareholders	$	8,782	$	6,856	$	13,180	$	21,326
Denominator:	Denominator:									Denominator:
Weighted average common shares outstanding	Weighted average common shares outstanding	9,059		9,098		9,114		9,053		Weighted average common shares outstanding	8,627		9,059		8,737		9,114
Effect of dilutive securities:	Effect of dilutive securities:									Effect of dilutive securities:
Restricted stock	Restricted stock	9		19		12		21		Restricted stock	7		9		9		12
Stock options	Stock options	39		204		63		223		Stock options	17		39		23		63
Weighted average common shares outstanding – assuming dilution	Weighted average common shares outstanding – assuming dilution	9,107		9,321		9,189		9,297		Weighted average common shares outstanding – assuming dilution	8,651		9,107		8,769		9,189
Basic earnings per common share	Basic earnings per common share	$	0.76	$	0.91	$	2.34	$	2.59	Basic earnings per common share	$	1.01	$	0.76	$	1.51	$	2.34
Diluted earnings per common share	Diluted earnings per common share	$	0.75	$	0.89	$	2.32	$	2.53	Diluted earnings per common share	$	1.01	$	0.75	$	1.51	$	2.32

Options on ~~100,288~~160,282 and ~~27,934~~100,288 shares of common stock were not included in the computation of diluted ~~earnings per share~~EPS for the three months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively, because the effect of these shares was anti-dilutive. Options on ~~90,511~~129,559 and ~~15,850~~90,511 shares of common stock were not included in the computation of diluted ~~earnings per share~~EPS for the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively, because the effect of these shares was anti-dilutive.

5. Credit Quality and Allowance for ~~Loan~~Credit Losses

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

Originated Loans

Loans originated for investment are reported at the principal balance outstanding net of unearned income. Interest on loans and 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 on an originated loan is discontinued when it is probable the borrower will not be able to meet payment obligations as they become due. ~~The~~For reporting periods prior to January 1, 2020, the Company ~~maintains~~maintained an ~~allowance for loan losses~~ALL on originated loans that ~~represents~~represented management’s estimate of probable losses incurred in this portfolio category. For reporting periods beginning on and after January 1, 2020, the Company maintains an ACL on all loans that reflects management's estimate of expected credit losses for the full life of the loan portfolio due to the adoption of the guidance under ASC Topic 326. Refer to Note 2 for more information on the adoption of ASC Topic 326.

Acquired Loans

Loans that were acquired as a result of business combinations are referred to as “acquired loans.” ~~Acquired~~The Company's acquired loans were purchased prior to the adoption of ASC Topic 326 on January 1, 2020 and were recorded at estimated fair value at the acquisition date with no carryover of the related ~~allowance for loan losses.~~ALL. The acquired loans were segregated between those considered to be performing ~~(“acquired performing”)~~ and those with evidence of credit deterioration ~~(“acquired impaired”~~(purchased credit impaired or "PCI"), and then further segregated into loan pools designed to facilitate the estimation of expected cash flows. The fair value estimate for each pool of acquired performing and ~~acquired impaired~~PCI loans was based on the estimate of expected cash flows, both principal and interest, from that pool, discounted at prevailing market interest rates.

The difference between the fair value of an acquired ~~performing~~ loan pool and the contractual amounts due at the acquisition date (the “fair value discount”) is accreted into income over the estimated life of the pool.

For reporting periods beginning on and after January 1, 2020 and the adoption of ASC Topic 326:

Management estimates ~~an allowance~~the ACL for acquired loans under the same methodology as originated loans. Changes in the ACL for acquired loans are recognized through the provision for loan losses and the provision for credit losses on unfunded lending commitments.

ASC Topic 326 replaced the guidance for PCI loans with the concept of purchased credit deteriorated ("PCD"). For reporting periods beginning on and after January 1, 2020, PCI loans have been re-classified as PCD loans. For PCD loans, the Company applied the guidance under ASC Topic 326 using the prospective transition approach. As a result, the Company adjusted the amortized cost basis of the PCD loans to reclassify $1.0 million of purchase discount to the ALL on January 1, 2020. The Company applied the guidance under ASC Topic 326 using the modified retrospective approach for all non-PCD assets, which resulted in an increase in the ALL and a corresponding decrease to retained earnings. Refer to Note 2 for more information on the adoption of ASC Topic 326.

PCD loans, under prior accounting policies, were excluded from nonperforming loans because they continued to earn interest income from the accretable yield at the pool level. With the adoption of ASC Topic 326, the pools were discontinued and performance is based on contractual terms for individual loans.

For reporting periods prior to January 1, 2020 and the adoption of ASC Topic 326:

Management estimated the ALL for acquired performing loans using a methodology similar to that used for originated loans. The allowance determined for each loan pool iswas compared to the remaining fair value discount for that pool. If the allowance amount calculated under the Company’s methodology iswas greater than the Company’s remaining discount, the additional amount called for iswas added to the reported allowance through a provision for loan losses. If the allowance amount calculated under the Company’s methodology iswas less than the Company’s recorded discount, no additional allowance or provision iswas recognized. Actual losses first ~~reduce~~reduced any remaining nonaccretable discount for the loan pool. Once the nonaccretable discount iswas fully depleted, losses ~~are~~were applied against the allowance established for that pool. Acquired performing loans ~~are~~were placed on nonaccrual status and were considered and reported as nonperforming or past due using the same criteria applied to the originated portfolio.

The excess of cash flows expected to be collected from ~~an acquired impaired~~a PCI loan pool over the pool’s estimated fair value at acquisition iswas referred to as the accretable yield and iswas recognized in interest income using an effective yield method over the remaining life

of the pool. Each pool of ~~acquired impaired~~PCI loans iswas accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows.

Management ~~recasts the estimate of~~estimated cash flows expected to be collected on each ~~acquired impaired~~PCI loan pool periodically. If the present value of expected cash flows for a pool iswas less than its carrying value, an impairment iswas recognized by an increase in the ~~allowance for loan losses~~ALL and a charge to the provision for loan losses. If the present value of expected cash flows for a pool iswas greater than its carrying value, any previously established ~~allowance for loan losses is~~ALL was reversed and any remaining difference ~~increases~~increased the accretable yield, which ~~will be~~was taken into interest income over the remaining life of the loan pool. ~~Acquired impaired~~PCI loans ~~are~~were generally not subject to individual evaluation for impairment and ~~are~~were not reported with impaired loans, even if they ~~would~~ otherwise ~~qualify~~qualified for such treatment.

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


(dollars in thousands)	(dollars in thousands)	September 30, 2019		December 31, 2018		(dollars in thousands)	September 30, 2020		December 31, 2019
Real estate loans:	Real estate loans:					Real estate loans:
One- to four-family first mortgage	One- to four-family first mortgage	$	432,964	$	450,363	One- to four-family first mortgage	$	409,282	$	430,820
Home equity loans and lines	Home equity loans and lines	81,835		83,976		Home equity loans and lines	67,766		79,812
Commercial real estate	Commercial real estate	719,392		640,575		Commercial real estate	707,638		722,807
Construction and land	Construction and land	188,879		193,597		Construction and land	201,575		195,748
Multi-family residential	Multi-family residential	56,733		54,455		Multi-family residential	86,619		54,869
Total real estate loans	Total real estate loans	1,479,803		1,422,966		Total real estate loans	1,472,880		1,484,056
Other loans:	Other loans:					Other loans:
Commercial and industrial	Commercial and industrial	180,264		172,934		Commercial and industrial	443,480		184,701
Consumer	Consumer	47,375		53,854		Consumer	38,937		45,604
Total other loans	Total other loans	227,639		226,788		Total other loans	482,417		230,305
Total loans	Total loans	$	1,707,442	$	1,649,754	Total loans	$	1,955,297	$	1,714,361

The net discount on the Company’s loans was ~~$14,016,000~~$8,343,000 and ~~$18,811,000~~$12,315,000 at September 30, ~~2019~~2020 and December 31, ~~2018, respectively, of which $6,228,000 and $7,865,000 for the same time periods, respectively, were related to impaired loans.~~2019, respectively. In addition, loan balances as of September 30, ~~2019~~2020 and December 31, ~~2018~~2019 are reported net of unearned income of ~~$2,922,000~~$10,621,000 and ~~$2,716,000,~~$3,114,000, respectively. Unearned income at September 30, 2020 included $7,606,000 of deferred lender fees related to PPP loans.

Accrued interest receivable on the Company's loans was $9,435,000 and $6,575,000 at September 30, 2020 and December 31, 2019, respectively, and is excluded from the estimate of the ACL. These amounts are recorded in accrued interest receivable and other assets on the Consolidated Statements of Financial Condition.

1116

Allowance for ~~Loan~~Credit Losses

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


		September 30, 2019
		Originated Loans											September 30, 2020
(dollars in thousands)	(dollars in thousands)	Collectively Evaluated for Impairment		Individually Evaluated for Impairment		Acquired Loans		Total		(dollars in thousands)	Collectively Evaluated		Individually Evaluated		Total
Allowance for loan losses:
Allowance for credit losses:										Allowance for credit losses:
One- to four-family first mortgage	One- to four-family first mortgage	$	1,939	$	—	$	464	$	2,403	One- to four-family first mortgage	$	3,413	$	0	$	3,413
Home equity loans and lines	Home equity loans and lines	711		348		29		1,088		Home equity loans and lines	771		0		771
Commercial real estate	Commercial real estate	5,631		361		823		6,815		Commercial real estate	17,662		689		18,351
Construction and land	Construction and land	2,168		—		4		2,172		Construction and land	4,078		0		4,078
Multi-family residential	Multi-family residential	572		—		—		572		Multi-family residential	1,067		0		1,067
Commercial and industrial	Commercial and industrial	2,813		701		336		3,850		Commercial and industrial	4,006		431		4,437
Consumer	Consumer	450		—		248		698		Consumer	885		0		885
Total allowance for loan losses	Total allowance for loan losses	$	14,284	$	1,410	$	1,904	$	17,598	Total allowance for loan losses	$	31,882	$	1,120	$	33,002

Unfunded lending commitments(1)										Unfunded lending commitments(1)	3,637		0		3,637
Total allowance for credit losses										Total allowance for credit losses	$	35,519	$	1,120	$	36,639


		September 30, 2019
		Originated Loans											September 30, 2020
(dollars in thousands)	(dollars in thousands)	Collectively Evaluated for Impairment		Individually Evaluated for Impairment		Acquired Loans⁽¹⁾		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	$	242,256	$	187	$	190,521	$	432,964	One- to four-family first mortgage	$	409,282	$	0	$	409,282
Home equity loans and lines	Home equity loans and lines	56,542		800		24,493		81,835		Home equity loans and lines	67,766		0		67,766
Commercial real estate	Commercial real estate	510,913		6,830		201,649		719,392		Commercial real estate	700,402		7,236		707,638
Construction and land	Construction and land	164,444		—		24,435		188,879		Construction and land	201,575		0		201,575
Multi-family residential	Multi-family residential	48,731		—		8,002		56,733		Multi-family residential	86,619		0		86,619
Commercial and industrial	Commercial and industrial	147,555		1,233		31,476		180,264		Commercial and industrial	442,868		612		443,480
Consumer	Consumer	36,048		—		11,327		47,375		Consumer	38,937		0		38,937
Total loans	Total loans	$	1,206,489	$	9,050	$	491,903	$	1,707,442	Total loans	$	1,947,449	$	7,848	$	1,955,297

		December 31, 2018
		Originated Loans
(dollars in thousands)		Collectively Evaluated for Impairment		Individually Evaluated for Impairment		Acquired Loans		Total
Allowance for loan losses:
One- to four-family first mortgage		$	1,937	$	—	$	199	$	2,136
Home equity loans and lines		682		349		48		1,079
Commercial real estate		5,272		484		369		6,125
Construction and land		2,280		—		5		2,285
Multi-family residential		522		—		28		550
Commercial and industrial		2,541		321		366		3,228
Consumer		472		—		473		945
Total allowance for loan losses		$	13,706	$	1,154	$	1,488	$	16,348

1217

December 31, 2018
Originated Loans
(dollars in thousands) Collectively
Evaluated
for
Impairment Individually
Evaluated
for
Impairment
Acquired
Loans⁽¹⁾
Total
Loans:
One- to four-family first mortgage $ 227,602 $ — $ 222,761 $ 450,363
Home equity loans and lines 53,049 866 30,061 83,976
Commercial real estate 432,217 7,059 201,299 640,575
Construction and land 161,232 — 32,365 193,597
Multi-family residential 42,222 — 12,233 54,455
Commercial and industrial 131,250 1,952 39,732 172,934
Consumer 37,711 — 16,143 53,854
Total loans $ 1,085,283 $ 9,877 $ 554,594 $ 1,649,754

^{December 31, 2019
(dollars in thousands) Collectively
Evaluated
for
Impairment Individually
Evaluated
for
Impairment Acquired with Deteriorated Credit Quality Total
Allowance for loan losses:
One- to four-family first mortgage $ 2,715 $ 0 $ 0 $ 2,715
Home equity loans and lines 736 348 0 1,084
Commercial real estate 6,243 298 0 6,541
Construction and land 2,670 0 0 2,670
Multi-family residential 572 0 0 572
Commercial and industrial 2,969 701 24 3,694
Consumer 592 0 592
Total allowance for loan losses $ 16,497 $ 1,347 $ 24 $ 17,868
December 31, 2019
(dollars in thousands) Collectively
Evaluated
for
Impairment Individually
Evaluated
for
Impairment Acquired with Deteriorated Credit Quality(3) Total
Loans:
One- to four-family first mortgage $ 429,745 $ 187 $ 888 $ 430,820
Home equity loans and lines 78,446 784 582 79,812
Commercial real estate 711,282 6,518 5,007 722,807
Construction and land 195,374 0 374 195,748
Multi-family residential 54,690 0 179 54,869
Commercial and industrial 183,141 1,223 337 184,701
Consumer 45,573 0 31 45,604
Total loans $ 1,698,251 $ 8,712 $ 7,398 $ 1,714,361}

(1)~~$8.9~~At September 30, 2020, $3.6 million of the ACL related to unfunded lending commitments of $326.8 million. The ACL on unfunded lending commitments is recorded within accrued interest payable and ~~$10.0~~other liabilities on the Consolidated Statements of Financial Condition.

(2)At September 30, 2020, loans individually evaluated for impairment included $1.9 million ~~in Acquired Loans~~of loans acquired with deteriorated credit quality.

(3)At December 31, 2019, loans acquired with deteriorated credit quality were deemed to be ~~acquired impaired loans~~PCI and were accounted for under ASC ~~310-30 at September 30, 2019 and December 31, 2018, respectively.~~310-30.

A summary of activity in the ~~allowance for loan losses~~ACL and ALL for the nine months ended September 30, ~~2019~~2020 and September 30, ~~2018~~2019 follows.

Nine Months Ended September 30, 2019
(dollars in thousands) Beginning
Balance Charge-offs Recoveries Provision Ending
Balance
Originated loans:
Allowance for loan losses:
One- to four-family first mortgage $ 1,937 $ (4) $ — $ 6 $ 1,939
Home equity loans and lines 1,031 (42) 10 60 1,059
Commercial real estate 5,756 (139) — 375 5,992
Construction and land 2,280 — — (112) 2,168
Multi-family residential 522 — — 50 572
Commercial and industrial 2,862 (744) 23 1,373 3,514
Consumer 472 (104) 34 48 450
Total allowance for loan losses $ 14,860 $ (1,033) 67 $ 1,800 $ 15,694
Acquired loans:
Allowance for loan losses:
One- to four-family first mortgage $ 199 $ — $ — $ 265 $ 464
Home equity loans and lines 48 — — (19) 29
Commercial real estate 369 — — 454 823
Construction and land 5 — — (1) 4
Multi-family residential 28 — — (28) —
Commercial and industrial 366 — — (30) 336
Consumer 473 (85) — (140) 248
Total allowance for loan losses $ 1,488 $ (85) $ — $ 501 $ 1,904


Total loans:
Allowance for loan losses:
													Nine Months Ended September 30, 2020
(dollars in thousands)												(dollars in thousands)	Beginning Balance		ASC Topic 326 Adoption Impact(1)		Charge-offs		Recoveries		Provision		Ending Balance
Allowance for credit losses:												Allowance for credit losses:
One- to four-family first mortgage	One- to four-family first mortgage	$	2,136	$	(4)	$	—	$	271	$	2,403	One- to four-family first mortgage	$	2,715	$	986	$	(55)	$	12	$	(245)	$	3,413
Home equity loans and lines	Home equity loans and lines	1,079		(42)		10		41		1,088		Home equity loans and lines	1,084		(1)		(575)		15		248		771
Commercial real estate	Commercial real estate	6,125		(139)		—		829		6,815		Commercial real estate	6,541		1,974		(5)		55		9,786		18,351
Construction and land	Construction and land	2,285		—		—		(113)		2,172		Construction and land	2,670		519		(688)		0		1,577		4,078
Multi-family residential	Multi-family residential	550		—		—		22		572		Multi-family residential	572		(245)		0		0		740		1,067
Commercial and industrial	Commercial and industrial	3,228		(744)		23		1,343		3,850		Commercial and industrial	3,694		1,243		(977)		91		386		4,437
Consumer	Consumer	945		(189)		34		(92)		698		Consumer	592		157		(222)		122		236		885
Total allowance for loan losses	Total allowance for loan losses	$	16,348	$	(1,118)	$	67	$	2,301	$	17,598	Total allowance for loan losses	$	17,868	$	4,633	$	(2,522)	$	295	$	12,728	$	33,002

Unfunded lending commitments												Unfunded lending commitments	0		2,365		0		0		1,272		3,637
Total allowance for credit losses												Total allowance for credit losses	$	17,868	$	6,998	$	(2,522)	$	295	$	14,000	$	36,639

(1)On January 1, 2020 the Company adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduced a new model known as CECL. Refer to Note 2 for more information on the adoption of ASC Topic 326.


		Nine Months Ended September 30, 2018																			Nine Months Ended September 30, 2019
(dollars in thousands)	(dollars in thousands)	Beginning Balance		Charge-offs		Recoveries		Provision		Ending Balance		(dollars in thousands)	Beginning Balance		Charge-offs		Recoveries		Provision		Ending Balance
Originated loans:
Allowance for loan losses:	Allowance for loan losses:											Allowance for loan losses:
One- to four-family first mortgage	One- to four-family first mortgage	$	1,574	$	(1)	$	—	$	288	$	1,861	One- to four-family first mortgage	$	2,136	$	(4)	$	0	$	271	$	2,403
Home equity loans and lines	Home equity loans and lines	1,024		—		3		13		1,040		Home equity loans and lines	1,079		(42)		10		41		1,088
Commercial real estate	Commercial real estate	4,766		—		—		565		5,331		Commercial real estate	6,125		(139)		0		829		6,815
Construction and land	Construction and land	1,742		—		—		279		2,021		Construction and land	2,285		0		0		(113)		2,172
Multi-family residential	Multi-family residential	355		—		—		185		540		Multi-family residential	550		0		0		22		572
Commercial and industrial	Commercial and industrial	4,346		(1,503)		153		119		3,115		Commercial and industrial	3,228		(744)		23		1,343		3,850
Consumer	Consumer	496		(60)		13		35		484		Consumer	945		(189)		34		(92)		698
Total allowance for loan losses	Total allowance for loan losses	$	14,303	$	(1,564)	$	169	$	1,484	$	14,392	Total allowance for loan losses	$	16,348	$	(1,118)	$	67	$	2,301	$	17,598
Acquired loans:
Allowance for loan losses:
One- to four-family first mortgage		$	89	$	—	$	—	$	(36)	$	53
Home equity loans and lines		78		—		—		(26)		52
Commercial real estate		140		—		—		97		237
Construction and land		7		—		—		(1)		6
Multi-family residential		—		—		—		60		60
Commercial and industrial		184		—		—		391		575
Consumer		6		—		—		362		368
Total allowance for loan losses		$	504	$	—	$	—	$	847	$	1,351
Total loans:
Allowance for loan losses:
One- to four-family first mortgage		$	1,663	$	(1)	$	—	$	252	$	1,914
Home equity loans and lines		1,102		—		3		(13)		1,092
Commercial real estate		4,906		—		—		662		5,568
Construction and land		1,749		—		—		278		2,027
Multi-family residential		355		—		—		245		600
Commercial and industrial		4,530		(1,503)		153		510		3,690
Consumer		502		(60)		13		397		852
Total allowance for loan losses		$	14,807	$	(1,564)	$	169	$	2,331	$	15,743

1419

Credit Quality

The following table presents the Company’s loan portfolio by credit quality classification and origination year as of September 30, 2020


	Term Loans by Origination Year
(dollars in thousands)	2020		2019		2018		2017		2016		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total
One- to four-family first mortgage:
Pass	$	41,018	$	70,884	$	50,516	$	51,480	$	39,087	$	128,564	$	18,474	$	1,149	$	401,172
Special Mention	0		123		170		796		23		1,057		0		0		2,169
Substandard	134		0		0		239		1,270		4,298		0		0		5,941
Doubtful	0		0		0		0		0		0		0		0		0
Total one- to four-family first mortgages	$	41,152	$	71,007	$	50,686	$	52,515	$	40,380	$	133,919	$	18,474	$	1,149	$	409,282

Home equity loans and lines:
Pass	$	707	$	1,341	$	2,155	$	1,133	$	2,098	$	6,409	$	53,065	$	420	$	67,328
Special Mention	0		43		0		43		0		77		0		166		329
Substandard	0		0		0		1		0		108		0		0		109
Doubtful	0		0		0		0		0		0		0		0		0
Total home equity loans and lines	$	707	$	1,384	$	2,155	$	1,177	$	2,098	$	6,594	$	53,065	$	586	$	67,766

Commercial real estate:
Pass	$	161,064	$	167,785	$	99,240	$	106,999	$	63,987	$	71,310	$	18,890	$	55	$	689,330
Special Mention	1,015		0		0		54		54		0		0		0		1,123
Substandard	475		1,758		2,285		321		2,306		10,040		0		0		17,185
Doubtful	0		0		0		0		0		0		0		0		0
Total commercial real estate loans	$	162,554	$	169,543	$	101,525	$	107,374	$	66,347	$	81,350	$	18,890	$	55	$	707,638

Construction and land:
Pass	$	56,923	$	99,081	$	19,765	$	5,858	$	2,735	$	2,109	$	2,141	$	449	$	189,061
Special Mention	875		0		0		0		0		624		0		10,415		11,914
Substandard	0		53		0		0		285		262		0		0		600
Doubtful	0		0		0		0		0		0		0		0		0
Total construction and land loans	$	57,798	$	99,134	$	19,765	$	5,858	$	3,020	$	2,995	$	2,141	$	10,864	$	201,575


	Term Loans by Origination Year
(dollars in thousands)	2020		2019		2018		2017		2016		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total

Multi-family residential:
Pass	$	34,726	$	26,721	$	10,466	$	3,892	$	2,944	$	5,550	$	2,121	$	0	$	86,420
Special Mention	0		0		0		0		0		0		0		0		0
Substandard	0		92		0		0		0		107		0		0		199
Doubtful	0		0		0		0		0		0		0		0		0
Total multi-family residential loans	$	34,726	$	26,813	$	10,466	$	3,892	$	2,944	$	5,657	$	2,121	$	0	$	86,619

Commercial and industrial:
Pass	$	287,757	$	35,391	$	22,512	$	7,150	$	7,010	$	3,030	$	71,928	$	506	$	435,284
Special Mention	2,725		1,156		164		15		0		0		1,000		553		5,613
Substandard	27		0		433		25		156		18		1,924		0		2,583
Doubtful	0		0		0		0		0		0		0		0		0
Total commercial and industrial loans	$	290,509	$	36,547	$	23,109	$	7,190	$	7,166	$	3,048	$	74,852	$	1,059	$	443,480

Consumer:
Pass	$	4,533	$	3,312	$	1,399	$	2,388	$	1,383	$	19,357	$	6,090	$	15	$	38,477
Special Mention	0		0		4		0		21		159		0		0		184
Substandard	0		29		2		15		16		213		1		0		276
Doubtful	0		0		0		0		0		0		0		0		0
Total consumer loans	$	4,533	$	3,341	$	1,405	$	2,403	$	1,420	$	19,729	$	6,091	$	15	$	38,937

Total loans:
Pass	$	586,728	$	404,515	$	206,053	$	178,900	$	119,244	$	236,329	$	172,709	$	2,594	$	1,907,072
Special Mention	4,615		1,322		338		908		98		1,917		1,000		11,134		21,332
Substandard	636		1,932		2,720		601		4,033		15,046		1,925		0		26,893
Doubtful	0		0		0		0		0		0		0		0		0
Total loans	$	591,979	$	407,769	$	209,111	$	180,409	$	123,375	$	253,292	$	175,634	$	13,728	$	1,955,297

The following tables present the Company’s loan portfolio by credit quality classification as of ~~the dates indicated.~~December 31, 2019.

September 30, 2019
(dollars in thousands) Pass Special
Mention Substandard Doubtful Total
Originated loans:
One- to four-family first mortgage $ 238,197 $ 1,985 $ 2,261 $ — $ 242,443
Home equity loans and lines 56,176 43 1,123 — 57,342
Commercial real estate 504,930 3,786 9,027 — 517,743
Construction and land 162,368 859 1,217 — 164,444
Multi-family residential 48,731 — — — 48,731
Commercial and industrial 144,554 407 3,827 — 148,788
Consumer 35,734 267 47 — 36,048
Total originated loans $ 1,190,690 $ 7,347 $ 17,502 $ — $ 1,215,539
Acquired loans:
One- to four-family first mortgage $ 183,205 $ 1,696 $ 5,620 $ — $ 190,521
Home equity loans and lines 24,036 278 179 — 24,493
Commercial real estate 186,766 1,514 13,369 — 201,649
Construction and land 22,259 661 1,515 — 24,435
Multi-family residential 7,260 515 227 — 8,002
Commercial and industrial 27,035 46 4,395 — 31,476
Consumer 10,953 193 181 — 11,327
Total acquired loans $ 461,514 $ 4,903 $ 25,486 $ — $ 491,903
Total loans:
One- to four-family first mortgage $ 421,402 $ 3,681 $ 7,881 $ — $ 432,964
Home equity loans and lines 80,212 321 1,302 — 81,835
Commercial real estate 691,696 5,300 22,396 — 719,392
Construction and land 184,627 1,520 2,732 — 188,879
Multi-family residential 55,991 515 227 — 56,733
Commercial and industrial 171,589 453 8,222 — 180,264
Consumer 46,687 460 228 — 47,375
Total loans $ 1,652,204 $ 12,250 $ 42,988 $ — $ 1,707,442


		December 31, 2018																			December 31, 2019
(dollars in thousands)	(dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total		(dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Originated loans:	Originated loans:											Originated loans:
One- to four-family first mortgage	One- to four-family first mortgage	$	221,930	$	1,852	$	3,820	$	—	$	227,602	One- to four-family first mortgage	$	248,483	$	730	$	2,133	$	0	$	251,346
Home equity loans and lines	Home equity loans and lines	52,344		69		1,502		—		53,915		Home equity loans and lines	56,029		53		882		0		56,964
Commercial real estate	Commercial real estate	425,851		4,463		8,962		—		439,276		Commercial real estate	517,615		207		11,317		0		529,139
Construction and land	Construction and land	159,428		—		1,804		—		161,232		Construction and land	164,310		8,107		1,270		0		173,687
Multi-family residential	Multi-family residential	42,222		—		—		—		42,222		Multi-family residential	48,661		0		0		0		48,661
Commercial and industrial	Commercial and industrial	126,126		1,717		5,359		—		133,202		Commercial and industrial	153,286		0		2,438		0		155,724
Consumer	Consumer	37,312		126		273		—		37,711		Consumer	35,545		46		89		0		35,680
Total originated loans	Total originated loans	$	1,065,213	$	8,227	$	21,720	$	—	$	1,095,160	Total originated loans	$	1,223,929	$	9,143	$	18,129	$	0	$	1,251,201
Acquired loans:	Acquired loans:											Acquired loans:
One- to four-family first mortgage	One- to four-family first mortgage	$	213,199	$	2,474	$	7,088	$	—	$	222,761	One- to four-family first mortgage	$	173,482	$	1,429	$	4,563	$	0	$	179,474
Home equity loans and lines	Home equity loans and lines	29,451		270		340		—		30,061		Home equity loans and lines	22,370		128		350		0		22,848
Commercial real estate	Commercial real estate	183,514		5,189		12,596		—		201,299		Commercial real estate	181,090		1,593		10,985		0		193,668
Construction and land	Construction and land	30,005		917		1,443		—		32,365		Construction and land	19,877		747		1,437		0		22,061
Multi-family residential	Multi-family residential	11,401		582		250		—		12,233		Multi-family residential	5,487		502		219		0		6,208
Commercial and industrial	Commercial and industrial	35,918		1,376		2,438		—		39,732		Commercial and industrial	24,856		56		4,065		0		28,977
Consumer	Consumer	15,521		262		360		—		16,143		Consumer	9,668		166		90		0		9,924
Total acquired loans	Total acquired loans	$	519,009	$	11,070	$	24,515	$	—	$	554,594	Total acquired loans	$	436,830	$	4,621	$	21,709	$	0	$	463,160
Total loans:	Total loans:											Total loans:
One- to four-family first mortgage	One- to four-family first mortgage	$	435,129	$	4,326	$	10,908	$	—	$	450,363	One- to four-family first mortgage	$	421,965	$	2,159	$	6,696	$	0	$	430,820
Home equity loans and lines	Home equity loans and lines	81,795		339		1,842		—		83,976		Home equity loans and lines	78,399		181		1,232		0		79,812
Commercial real estate	Commercial real estate	609,365		9,652		21,558		—		640,575		Commercial real estate	698,705		1,800		22,302		0		722,807
Construction and land	Construction and land	189,433		917		3,247		—		193,597		Construction and land	184,187		8,854		2,707		0		195,748
Multi-family residential	Multi-family residential	53,623		582		250		—		54,455		Multi-family residential	54,148		502		219		0		54,869
Commercial and industrial	Commercial and industrial	162,044		3,093		7,797		—		172,934		Commercial and industrial	178,142		56		6,503		0		184,701
Consumer	Consumer	52,833		388		633		—		53,854		Consumer	45,213		212		179		0		45,604
Total loans	Total loans	$	1,584,222	$	19,297	$	46,235	$	—	$	1,649,754	Total loans	$	1,660,759	$	13,764	$	39,838	$	0	$	1,714,361

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.

1622

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


		September 30, 2019																							September 30, 2020
(dollars in thousands)	(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current Loans		Total Loans		(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current Loans		Total Loans
Originated loans:	Originated loans:													Originated loans:
Real estate loans:	Real estate loans:													Real estate loans:
One- to four-family first mortgage	One- to four-family first mortgage	$	1,641	$	701	$	702	$	3,044	$	239,399	$	242,443	One- to four-family first mortgage	$	500	$	36	$	1,147	$	1,683	$	259,246	$	260,929
Home equity loans and lines	Home equity loans and lines	354		43		40		437		56,905		57,342		Home equity loans and lines	106		0		45		151		51,491		51,642
Commercial real estate	Commercial real estate	554		3,602		6,811		10,967		506,776		517,743		Commercial real estate	75		0		7,000		7,075		533,126		540,201
Construction and land	Construction and land	872		—		494		1,366		163,078		164,444		Construction and land	525		0		0		525		186,044		186,569
Multi-family residential	Multi-family residential	—		—		—		—		48,731		48,731		Multi-family residential	1,499		0		0		1,499		79,692		81,191
Total real estate loans	Total real estate loans	3,421		4,346		8,047		15,814		1,014,889		1,030,703		Total real estate loans	2,705		36		8,192		10,933		1,109,599		1,120,532
Other loans:	Other loans:													Other loans:
Commercial and industrial	Commercial and industrial	63		303		1,160		1,526		147,262		148,788		Commercial and industrial	638		0		607		1,245		422,464		423,709
Consumer	Consumer	138		81		29		248		35,800		36,048		Consumer	221		52		130		403		31,950		32,353
Total other loans	Total other loans	201		384		1,189		1,774		183,062		184,836		Total other loans	859		52		737		1,648		454,414		456,062
Total originated loans	Total originated loans	$	3,622	$	4,730	$	9,236	$	17,588	$	1,197,951	$	1,215,539	Total originated loans	$	3,564	$	88	$	8,929	$	12,581	$	1,564,013	$	1,576,594
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	$	4,567	$	454	$	1,482	$	6,503	$	184,018	$	190,521	One- to four-family first mortgage	$	3,567	$	437	$	1,210	$	5,214	$	143,139	$	148,353
Home equity loans and lines	Home equity loans and lines	160		68		120		348		24,145		24,493		Home equity loans and lines	44		0		20		64		16,060		16,124
Commercial real estate	Commercial real estate	372		549		2,592		3,513		198,136		201,649		Commercial real estate	1,860		0		4,198		6,058		161,379		167,437
Construction and land	Construction and land	386		370		1,224		1,980		22,455		24,435		Construction and land	0		0		434		434		14,572		15,006
Multi-family residential	Multi-family residential	—		—		—		—		8,002		8,002		Multi-family residential	0		0		0		0		5,428		5,428
Total real estate loans	Total real estate loans	5,485		1,441		5,418		12,344		436,756		449,100		Total real estate loans	5,471		437		5,862		11,770		340,578		352,348
Other loans:	Other loans:													Other loans:
Commercial and industrial	Commercial and industrial	630		213		459		1,302		30,174		31,476		Commercial and industrial	4		0		945		949		18,822		19,771
Consumer	Consumer	274		48		110		432		10,895		11,327		Consumer	67		23		63		153		6,431		6,584
Total other loans	Total other loans	904		261		569		1,734		41,069		42,803		Total other loans	71		23		1,008		1,102		25,253		26,355
Total acquired loans	Total acquired loans	$	6,389	$	1,702	$	5,987	$	14,078	$	477,825	$	491,903	Total acquired loans	$	5,542	$	460	$	6,870	$	12,872	$	365,831	$	378,703
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	$	6,208	$	1,155	$	2,184	$	9,547	$	423,417	$	432,964	One- to four-family first mortgage	$	4,067	$	473	$	2,357	$	6,897	$	402,385	$	409,282
Home equity loans and lines	Home equity loans and lines	514		111		160		785		81,050		81,835		Home equity loans and lines	150		0		65		215		67,551		67,766
Commercial real estate	Commercial real estate	926		4,151		9,403		14,480		704,912		719,392		Commercial real estate	1,935		0		11,198		13,133		694,505		707,638
Construction and land	Construction and land	1,258		370		1,718		3,346		185,533		188,879		Construction and land	525		0		434		959		200,616		201,575
Multi-family residential	Multi-family residential	—		—		—		—		56,733		56,733		Multi-family residential	1,499		0		0		1,499		85,120		86,619
Total real estate loans	Total real estate loans	8,906		5,787		13,465		28,158		1,451,645		1,479,803		Total real estate loans	8,176		473		14,054		22,703		1,450,177		1,472,880
Other loans:	Other loans:													Other loans:
Commercial and industrial	Commercial and industrial	693		516		1,619		2,828		177,436		180,264		Commercial and industrial	642		0		1,552		2,194		441,286		443,480
Consumer	Consumer	412		129		139		680		46,695		47,375		Consumer	288		75		193		556		38,381		38,937
Total other loans	Total other loans	1,105		645		1,758		3,508		224,131		227,639		Total other loans	930		75		1,745		2,750		479,667		482,417
Total loans	Total loans	$	10,011	$	6,432	$	15,223	$	31,666	$	1,675,776	$	1,707,442	Total loans	$	9,106	$	548	$	15,799	$	25,453	$	1,929,844	$	1,955,297

1723


		December 31, 2018																							December 31, 2019
(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	$	3,913	$	270	$	64	$	4,247	$	223,355	$	227,602	One- to four-family first mortgage	$	1,524	$	173	$	967	$	2,664	$	248,682	$	251,346
Home equity loans and lines	Home equity loans and lines	326		61		41		428		53,487		53,915		Home equity loans and lines	174		0		98		272		56,692		56,964
Commercial real estate	Commercial real estate	714		34		168		916		438,360		439,276		Commercial real estate	1,124		1,448		8,056		10,628		518,511		529,139
Construction and land	Construction and land	576		—		740		1,316		159,916		161,232		Construction and land	0		0		1,171		1,171		172,516		173,687
Multi-family residential	Multi-family residential	—		—		—		—		42,222		42,222		Multi-family residential	0		0		0		0		48,661		48,661
Total real estate loans	Total real estate loans	5,529		365		1,013		6,907		917,340		924,247		Total real estate loans	2,822		1,621		10,292		14,735		1,045,062		1,059,797
Other loans:	Other loans:													Other loans:
Commercial and industrial	Commercial and industrial	362		1,369		265		1,996		131,206		133,202		Commercial and industrial	213		100		869		1,182		154,542		155,724
Consumer	Consumer	319		131		196		646		37,065		37,711		Consumer	533		57		34		624		35,056		35,680
Total other loans	Total other loans	681		1,500		461		2,642		168,271		170,913		Total other loans	746		157		903		1,806		189,598		191,404
Total originated loans	Total originated loans	$	6,210	$	1,865	$	1,474	$	9,549	$	1,085,611	$	1,095,160	Total originated loans	$	3,568	$	1,778	$	11,195	$	16,541	$	1,234,660	$	1,251,201
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	$	4,196	$	1,258	$	3,702	$	9,156	$	213,605	$	222,761	One- to four-family first mortgage	$	4,555	$	1,116	$	1,108	$	6,779	$	172,695	$	179,474
Home equity loans and lines	Home equity loans and lines	462		116		163		741		29,320		30,061		Home equity loans and lines	267		93		330		690		22,158		22,848
Commercial real estate	Commercial real estate	3,104		265		1,143		4,512		196,787		201,299		Commercial real estate	337		466		1,945		2,748		190,920		193,668
Construction and land	Construction and land	1,050		488		813		2,351		30,014		32,365		Construction and land	413		0		1,170		1,583		20,478		22,061
Multi-family residential	Multi-family residential	84		—		—		84		12,149		12,233		Multi-family residential	0		0		0		0		6,208		6,208
Total real estate loans	Total real estate loans	8,896		2,127		5,821		16,844		481,875		498,719		Total real estate loans	5,572		1,675		4,553		11,800		412,459		424,259
Other loans:	Other loans:													Other loans:
Commercial and industrial	Commercial and industrial	4,315		109		329		4,753		34,979		39,732		Commercial and industrial	3		57		792		852		28,125		28,977
Consumer	Consumer	357		277		262		896		15,247		16,143		Consumer	259		127		60		446		9,478		9,924
Total other loans	Total other loans	4,672		386		591		5,649		50,226		55,875		Total other loans	262		184		852		1,298		37,603		38,901
Total acquired loans	Total acquired loans	$	13,568	$	2,513	$	6,412	$	22,493	$	532,101	$	554,594	Total acquired loans	$	5,834	$	1,859	$	5,405	$	13,098	$	450,062	$	463,160
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	$	8,109	$	1,528	$	3,766	$	13,403	$	436,960	$	450,363	One- to four-family first mortgage	$	6,079	$	1,289	$	2,075	$	9,443	$	421,377	$	430,820
Home equity loans and lines	Home equity loans and lines	788		177		204		1,169		82,807		83,976		Home equity loans and lines	441		93		428		962		78,850		79,812
Commercial real estate	Commercial real estate	3,818		299		1,311		5,428		635,147		640,575		Commercial real estate	1,461		1,914		10,001		13,376		709,431		722,807
Construction and land	Construction and land	1,626		488		1,553		3,667		189,930		193,597		Construction and land	413		0		2,341		2,754		192,994		195,748
Multi-family residential	Multi-family residential	84		—		—		84		54,371		54,455		Multi-family residential	0		0		0		0		54,869		54,869
Total real estate loans	Total real estate loans	14,425		2,492		6,834		23,751		1,399,215		1,422,966		Total real estate loans	8,394		3,296		14,845		26,535		1,457,521		1,484,056
Other loans:	Other loans:													Other loans:
Commercial and industrial	Commercial and industrial	4,677		1,478		594		6,749		166,185		172,934		Commercial and industrial	216		157		1,661		2,034		182,667		184,701
Consumer	Consumer	676		408		458		1,542		52,312		53,854		Consumer	792		184		94		1,070		44,534		45,604
Total other loans	Total other loans	5,353		1,886		1,052		8,291		218,497		226,788		Total other loans	1,008		341		1,755		3,104		227,201		230,305
Total loans	Total loans	$	19,778	$	4,378	$	7,886	$	32,042	$	1,617,712	$	1,649,754	Total loans	$	9,402	$	3,637	$	16,600	$	29,639	$	1,684,722	$	1,714,361

~~The increase in~~At September 30, 2020, $10,000 of loans were greater than 90 days past due ~~for the nine months ending September 30,~~and accruing. At December 31, 2019, ~~was primarily due to a $6.4 million non-performing commercial relationship which filed for bankruptcy during the third quarter of 2019. Excluding Acquired Loans with deteriorated credit quality,~~excluding PCI loans, the Company did 0t have any loans greater than 90 days past due and ~~accruing as of September 30, 2019 or December 31, 2018.~~

accruing.

1824

~~The following table summarizes the accretable discount on loans accounted for under ASC 310-30 as of the dates indicated.~~

Nine Months Ended
(dollars in thousands) September 30,
2019 September 30,
2018
Balance at beginning of period $ (9,147) $ (9,303)
Accretion 1,571 1,849
Transfers from nonaccretable difference to accretable discount (462) (2,559)
Balance at end of period $ (8,038) $ (10,013)

~~The following table summarizes information pertaining to originated loans, which were deemed impaired loans as of the dates indicated.~~

For the Period Ended September 30, 2019
(dollars in thousands) Recorded
Investment Unpaid
Principal
Balance Related
Allowance Average
Recorded
Investment Interest
Income
Recognized
With no related allowance recorded:
One- to four-family first mortgage $ 187 $ 187 $ — $ 84 $ —
Home equity loans and lines 410 453 — 423 —
Commercial real estate 19 22 — 48 —
Construction and land — — — — —
Multi-family residential — — — — —
Commercial and industrial 295 332 — 1,320 —
Consumer — — — — —
Total $ 911 $ 994 $ — $ 1,875 $ —
With an allowance recorded:
One- to four-family first mortgage $ — $ — $ — $ — $ —
Home equity loans and lines 390 432 348 406 —
Commercial real estate 6,811 6,885 361 6,836 —
Construction and land — — — — —
Multi-family residential — — — — —
Commercial and industrial 938 1,217 701 443 —
Consumer — — — — —
Total $ 8,139 $ 8,534 $ 1,410 $ 7,685 $ —
Total impaired loans:
One- to four-family first mortgage $ 187 $ 187 $ — $ 84 $ —
Home equity loans and lines 800 885 348 829 —
Commercial real estate 6,830 6,907 361 6,884 —
Construction and land — — — — —
Multi-family residential — — — — —
Commercial and industrial 1,233 1,549 701 1,763 —
Consumer — — — — —
Total $ 9,050 $ 9,528 $ 1,410 $ 9,560 $ —

For the Period Ended December 31, 2018
(dollars in thousands) Recorded
Investment Unpaid
Principal
Balance Related
Allowance Average
Recorded
Investment Interest
Income
Recognized
With no related allowance recorded:
One- to four-family first mortgage $ — $ — $ — $ — $ —
Home equity loans and lines 441 476 — 454 —
Commercial real estate 149 161 — 32 7
Construction and land — — — — —
Multi-family residential — — — — —
Commercial and industrial 1,540 1,904 — 438 —
Consumer — — — — —
Total $ 2,130 $ 2,541 $ — $ 924 $ 7
With an allowance recorded:
One- to four-family first mortgage $ — $ — $ — $ — $ —
Home equity loans and lines 425 457 349 440 —
Commercial real estate 6,910 6,910 484 2,057 38
Construction and land — — — — —
Multi-family residential — — — — —
Commercial and industrial 412 442 321 1,367 1
Consumer — — — — —
Total $ 7,747 $ 7,809 $ 1,154 $ 3,864 $ 39
Total impaired loans:
One- to four-family first mortgage $ — $ — $ — $ — $ —
Home equity loans and lines 866 933 349 894 —
Commercial real estate 7,059 7,071 484 2,089 45
Construction and land — — — — —
Multi-family residential — — — — —
Commercial and industrial 1,952 2,346 321 1,805 1
Consumer — — — — —
Total $ 9,877 $ 10,350 $ 1,154 $ 4,788 $ 46
For the Period Ended September 30, 2018
(dollars in thousands) Recorded
Investment Unpaid
Principal
Balance Related
Allowance Average
Recorded
Investment Interest
Income
Recognized
With no related allowance recorded:
One- to four-family first mortgage $ — $ — $ — $ — $ —
Home equity loans and lines 450 476 — 458 —
Commercial real estate 21 33 — 22 —
Construction and land — — — — —
Multi-family residential — — — — —
Commercial and industrial 324 440 — 347 —
Consumer — — — — —
Total $ 795 $ 949 $ — $ 827 $ —

With an allowance recorded:
One- to four-family first mortgage $ — $ — $ — $ — $ —
Home equity loans and lines 435 461 348 443 —
Commercial real estate 5,923 5,923 187 658 —
Construction and land — — — — —
Multi-family residential — — — — —
Commercial and industrial 2,686 2,905 862 1,186 —
Consumer — — — — —
Total $ 9,044 $ 9,289 $ 1,397 $ 2,287 $ —
Total impaired loans:
One- to four-family first mortgage $ — $ — $ — $ — $ —
Home equity loans and lines 885 937 348 901 —
Commercial real estate 5,944 5,956 187 680 —
Construction and land — — — — —
Multi-family residential — — — — —
Commercial and industrial 3,010 3,345 862 1,533 —
Consumer — — — — —
Total $ 9,839 $ 10,238 $ 1,397 $ 3,114 $ —

The following table summarizes information pertaining to nonaccrual loans as of dates indicated.


		September 30, 2019										December 31, 2018											September 30, 2020	December 31, 2019
(dollars in thousands)	(dollars in thousands)	Originated		Acquired⁽¹⁾		Total		Originated		Acquired⁽¹⁾		Total		(dollars in thousands)	With Related Allowance		Without Related Allowance		Total(1)		Total(2)
Nonaccrual loans:	Nonaccrual loans:													Nonaccrual loans:
One- to four-family first mortgage	One- to four-family first mortgage	$	2,022	$	2,392	$	4,414	$	1,984	$	3,188	$	5,172	One- to four-family first mortgage	$	4,609	$	0	$	4,609	$	3,948
Home equity loans and lines	Home equity loans and lines	840		185		1,025		1,457		242		1,699		Home equity loans and lines	109		0		109		1,244
Commercial real estate	Commercial real estate	7,710		5,876		13,586		7,940		3,403		11,343		Commercial real estate	15,486		0		15,486		13,325
Construction and land	Construction and land	494		1,373		1,867		740		854		1,594		Construction and land	515		0		515		2,469
Multi-family residential	Multi-family residential	—		—		—		—		—		—		Multi-family residential	95		0		95		0
Commercial and industrial	Commercial and industrial	2,108		1,778		3,886		2,986		1,002		3,988		Commercial and industrial	1,750		0		1,750		3,224
Consumer	Consumer	47		181		228		273		343		616		Consumer	279		0		279		176
Total	Total	$	13,221	$	11,785	$	25,006	$	15,380	$	9,032	$	24,412	Total	$	22,843	$	0	$	22,843	$	24,386

⁽¹⁾~~Table excludes Acquired Loans~~Due to the adoption of ASC Topic 326, PCD loans of $2.1 million are included in nonaccrual loans at September 30, 2020. Prior to January 1, 2020, these loans were classified as PCI and excluded from nonperforming loans because they continued to earn interest income from the accretable yield at the pool level. At adoption, the pools were discontinued and performance is based on contractual terms for individual loans.

(2)PCI loans which were being accounted for under ASC 310-30 were excluded from nonaccrual loans because they ~~continue~~continued to earn interest from accretable yield regardless of their status as past due or otherwise not in compliance with their contractual terms. ~~Acquired Loans with deteriorated credit quality~~PCI loans which were being accounted for under ASC 310-30 and which were 90 days or more past due totaled ~~$2.4 million and $1.7~~$2.2 million as of December 31, 2019.

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 impairment at September 30, ~~2019~~2020 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 table below summarizes collateral dependent loans and the related ACL at September 30, 2020 for which the borrower is experiencing financial difficulty.


(dollars in thousands)	Loans		ACL
One- to four-family first mortgage	$	0	$	0
Home equity loans and lines	0		0
Commercial real estate	7,236		689
Construction and land	0		0
Multi-family residential	0		0
Commercial and industrial	612		431
Consumer	0		0
Total	$	7,848	$	1,120

At September 30, 2020, collateral dependent commercial real estate loans included 1 loan acquired with deteriorated credit quality totaling $1.9 million.

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 $1,985,000 and 4,156,000 at September 30, 2020 and December 31, ~~2018,~~2019, respectively. These amounts are recorded in accrued interest receivable and other assets on the Consolidated Statements of Financial Condition.

AsThe carrying amount of foreclosed residential real estate properties held at September 30, 2020 and December 31, 2019 totaled $996,000 and $1,737,000, respectively.

Foreclosed assets and ORE included certain bank buildings that meet the criteria to be classified as assets held for sale. The carrying value of these assets totaled $729,000 and $1,275,000 at September 30, 2020 and December 31, 2019, respectively. During the nine months ended September 30, 2020, the Company ~~had 0 outstanding commitments~~sold 5 of these properties, with a total carrying value of $410,000, for a gain of $64,000 recorded in foreclosed assets and ORE, net expense on the Consolidated Statements of Income. The expected timing of the sale of the remaining properties is uncertain due to ~~lend additional funds to any customer whose loan was classified as impaired.~~the effects of the COVID-19 pandemic.

Troubled Debt Restructurings

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

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

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

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

•a reduction of accrued interest receivable on the debt.

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

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

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

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

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

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

If the Company concludes that both a concession has been granted and the concession was granted to a customer experiencing financial difficulties, the Company identifies the loan as a TDR. For purposes of the determination of an ~~allowance~~ACL, larger (i.e., TDRs with balances of $250,000 or greater) commercial TDRs are individually evaluated for impairment. The ACL for loans that are individually evaluated is based on a comparison of the recorded investment in the loan ~~losses~~with either the expected cash flows discounted using the loan’s original effective interest rate, observable market price for the loan or the fair value of the collateral underlying certain collateral-dependent loans. Residential, consumer and smaller balance commercial TDRs are included in the Company's pooled-loan analysis to calculate the ACL and, generally, do not have a material impact on ~~TDRs, such~~the overall ACL.

As of September 30, 2020, the Company had modified loans ~~are reviewed~~with an aggregate outstanding loan balance of $70.2 million, or 4% of total outstanding loans, via payment relief in the nature of principal and/or interest deferrals for ~~specific impairment~~90 days. These modifications were done in accordance with the Company’s allowance for loan loss methodology. If it is determined that losses are probable on such TDRs, either because of delinquency or other credit quality indicators, the Company specifically allocates a portionSection 4013 of the ~~allowance~~Coronavirus Aid, Relief, and Economic Security ("CARES") Act and the Interagency Statement on Loan Modifications on Reporting for ~~loan losses to~~Financial Institutions Working With Customers Affected by the Coronavirus. Accordingly, these ~~loans.~~loans were not categorized as TDRs.

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

Nine Months Ended September 30,
2019 2018
(dollars in thousands) Number of
Contracts Pre-
modification
Outstanding
Recorded
Investment Post-
modification
Outstanding
Recorded
Investment Number of
Contracts Pre-
modification
Outstanding
Recorded
Investment Post-
modification
Outstanding
Recorded
Investment
Troubled debt restructurings:
One- to four-family first mortgage 6 $ 924 $ 911 2 $ 1,132 $ 1,131
Home equity loans and lines — — — — — —
Commercial real estate 1 89 88 1 6,423 5,923
Construction and land — — — — —
Multi-family residential — — — — — —
Commercial and industrial — — — 2 738 676
Other consumer 2 11 10 3 20 20
Total 9 $ 1,024 $ 1,009 8 $ 8,313 $ 7,750


	Nine Months Ended September 30,
	2020					2019
(dollars in thousands)	Number of Contracts	Pre- modification Outstanding Recorded Investment		Post- modification Outstanding Recorded Investment		Number of Contracts	Pre- modification Outstanding Recorded Investment		Post- modification Outstanding Recorded Investment
Troubled debt restructurings:
One- to four-family first mortgage	7	$	990	$	385	6	$	924	$	911
Home equity loans and lines	0	0		0		0	0		0
Commercial real estate	4	1,044		992		1	89		88
Construction and land	0	0		0		0	0		0
Multi-family residential	0	0		0		0	0		0
Commercial and industrial	3	41		38		0	0		0
Other consumer	2	13		10		2	11		10
Total	16	$	2,088	$	1,425	9	$	1,024	$	1,009

NaN residential mortgages totaling $543,000, 1 commercial real estate loan totaling $77,000 and 1 consumer loan totaling $4,000 were modified during the nine months ended September 30, 2020 and defaulted during the same period. The defaults did not have a significant impact on our allowance for credit losses at September 30, 2020.

NaN residential mortgages totaling $619,000 and 1 consumer loan totaling $6,000 were modified during nine months ended September 30, 2019 and defaulted within twelve months of modification. The defaults did not have a significant impact on our allowance for loan losses at September 30, 2019.

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, during the quarter ended June 30, 2020, the Company entered into certain derivative financial instruments in its efforts 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 derivative financial instruments are used to manage differences in the amount, timing, and duration of the ~~performing troubled debt restructurings~~Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s variable rate liabilities.

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, during the second quarter of 2020, 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. During 2020, 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 $63,000 will be reclassified as additional interest expense.

Fair Values of Derivative Instruments

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Statement of Financial Condition as of September 30, ~~2019~~2020.


	Derivative Liabilities(1)
(dollars in thousands)	Notional Amount		Fair Value
Derivatives designated as hedging instruments:
Interest rate swaps - variable rate liabilities	$	40,000	$	87

Netting adjustments			0

Less: Cash posted as collateral(2)			(87)
Net derivative amounts			$	0

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

(2)Cash posted as collateral is held by the Company's derivative counterparties. At September 30, 2020, the Company had ~~defaulted subsequent~~excess collateral compared to total exposure due to initial margin requirements for day-to-day volatility. The excess collateral is not reflected above.

Effect of Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income

The tables below present the ~~restructuring through~~effect of cash flow hedge accounting on Accumulated Other Comprehensive Income as of September 30, 2020.


	Three Months Ended September 30, 2020
	Amount of Gain Recognized in OCI				Location of Gain Reclassified from AOCI into Income	Amount of Loss Reclassified from AOCI into Income
(dollars in thousands)	Total		Included Component			Total		Included Component
Derivatives in cash flows hedging relationships:
Interest rate swaps - variable rate liabilities	$	60	$	60	Interest expense	$	(16)	$	(16)


	Nine Months Ended September 30, 2020
	Amount of Loss Recognized in OCI				Location of Loss Reclassified from AOCI into Income	Amount of Loss Reclassified from AOCI into Income
(dollars in thousands)	Total		Included Component			Total		Included Component
Derivatives in cash flows hedging relationships:
Interest rate swaps - variable rate liabilities	$	(110)	$	(110)	Interest expense	$	(28)	$	(28)

Effect of Cash Flow Hedge Accounting on the ~~date~~Consolidated Statements of Income

The table below presents the effect of the Company’s derivative financial ~~statements were available~~instruments on the Consolidated Statements of Income as of September 30, 2020.

(dollars in thousands)

Location of Loss Reclassified from AOCI into Income

Three Months Ended September 30, 2020

Nine Months Ended September 30, 2020

Effects of cash flow hedging

Interest rate swaps - variable rate liabilities

Interest expense

(16)

(28)

Credit-risk-related Contingent Features

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

As of September 30, 2020, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $87,000. As of September 30, 2020, the Company had minimum collateral posting thresholds with certain of its derivative counterparties and posted collateral of $493,000 in excess of thresholds. If the Company had breached any of these provisions at September 30, 2020, it could have been required to settle its obligations under the agreements at their termination value of $87,000.

6.7. Fair Value Measurements and Disclosures

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

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

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

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

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

Recurring Basis

Investment Securities Available for Sale

Fair values of investment securities available for sale are primarily measured using information from a third-party pricing service. This pricing service provides pricing information by utilizing pricing models supported with market data information. Standard inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities bids, offers and other reference data from market research publications. If quoted prices are available in an active market, investment securities are classified as Level 1 measurements. If quoted prices are not available in an active market, fair values are estimated primarily by the use of pricing models. Level 2 investment securities are primarily comprised of mortgage-backed securities issued by government agencies and U.S. government-sponsored enterprises. In certain cases, where there is limited or less transparent information provided by the Company’s third-party pricing service, fair value is estimated by the use

of secondary pricing services or through the use of non-binding third-party broker quotes. Investment securities are classified within Level 3 when little or no market activity supports the fair value.

Management primarily identifies investment securities which may have traded in illiquid or inactive markets, by identifying instances of a significant decrease in the volume and frequency of trades, relative to historical levels, as well as instances of a significant widening of the bid-ask spread in the brokered markets. Investment securities that are deemed to have been trading in illiquid or inactive markets may require the use of significant unobservable inputs. For example, management may use quoted prices for similar investment securities in the absence of a liquid and active market for the investment securities being valued. As of September 30, ~~2019,~~2020, management did not make adjustments to prices provided by the third-party pricing service as a result of illiquid or inactive markets.

Derivative Liabilities

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

The following tables present the balances of assets measured for fair value on a recurring basis as of September 30, ~~2019~~2020 and December 31, ~~2018.~~2019.


(dollars in thousands)	(dollars in thousands)	September 30, 2019		Level 1		Level 2		Level 3		(dollars in thousands)	September 30, 2020		Level 1		Level 2		Level 3
Assets										Assets
Available for sale securities:	Available for sale securities:									Available for sale securities:
U.S. agency mortgage-backed	U.S. agency mortgage-backed	$	83,695	$	—	$	83,695	$	—	U.S. agency mortgage-backed	$	123,152	$	0	$	123,152	$	0
Collateralized mortgage obligations	Collateralized mortgage obligations	152,384		—		152,384		—		Collateralized mortgage obligations	99,157		0		99,157		0
Municipal bonds	Municipal bonds	15,214		—		15,214		—		Municipal bonds	20,817		0		20,817		0
U.S. government agency	U.S. government agency	3,821		—		3,821		—		U.S. government agency	6,413		0		6,413		0
Corporate bonds										Corporate bonds	2,039		0		2,039		0
Total	Total	$	255,114	$	—	$	255,114	$	—	Total	$	251,578	$	0	$	251,578	$	0

Liabilities										Liabilities
Derivative liabilities(1)										Derivative liabilities(1)	$	87	$	0	$	87	$	0

(dollars in thousands) December 31, 2018 Level 1 Level 2 Level 3
Available for sale securities:
U.S. agency mortgage-backed $ 85,909 $ — $ 85,909 $ —
Collateralized mortgage obligations 143,591 — 143,591 —
Municipal bonds 21,477 — 21,477 —
U.S. government agency 9,154 — 9,154 —
Total $ 260,131 $ — $ 260,131 $ —

(1)For more information, refer to Note 6. Derivatives and Hedging Activities.


(dollars in thousands)	December 31, 2019		Level 1		Level 2		Level 3
Assets
Available for sale securities:
U.S. agency mortgage-backed	$	95,172	$	0	$	95,172	$	0
Collateralized mortgage obligations	142,451		0		142,451		0
Municipal bonds	16,005		0		16,005		0
U.S. government agency	3,693		0		3,693		0
Total	$	257,321	$	0	$	257,321	$	0

The Company did ~~not~~0t record any liabilities at fair value as of December 31, 2019 for which the measurement of the fair value was made on a recurring basis.

Nonrecurring Basis

~~In accordance with the provisions of ASC 310,~~ ~~Receivables, the~~The Company records loans ~~considered impaired~~individually evaluated for impairment at fair ~~value.~~value on a nonrecurring basis. A loan is considered impaired if it is probable the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. 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. Impaired loans 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. ~~Surplus real estate ("ORE")~~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)	September 30, 2019		Level 1		Level 2		Level 3		(dollars in thousands)	September 30, 2020		Level 1		Level 2		Level 3
Assets	Assets									Assets
Impaired loans		$	7,640	$	—	$	—	$	7,640
Individually evaluated for impairment										Individually evaluated for impairment	$	6,728	$	0	$	0	$	6,728
Foreclosed assets and ORE	Foreclosed assets and ORE	2,592		—		—		2,592		Foreclosed assets and ORE	1,985		0		0		1,985
Total	Total	$	10,232	$	—	$	—	$	10,232	Total	$	8,713	$	0	$	0	$	8,713
				Fair Value Measurements Using
													Fair Value Measurements Using
(dollars in thousands)	(dollars in thousands)	December 31, 2018		Level 1		Level 2		Level 3		(dollars in thousands)	December 31, 2019		Level 1		Level 2		Level 3
Assets	Assets									Assets
Impaired loans		$	8,723	$	—	$	—	$	8,723
Individually evaluated for impairment										Individually evaluated for impairment	$	7,365	$	0	$	0	$	7,365
Foreclosed assets and ORE	Foreclosed assets and ORE	1,558		—		—		1,558		Foreclosed assets and ORE	4,156		0		0		4,156
Total	Total	$	10,281	$	—	$	—	$	10,281	Total	$	11,521	$	0	$	0	$	11,521

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

As of September 30, 2019:

Impaired loans

7,640

Third party appraisals and discounted cash flows

Collateral values, market discounts and estimated costs to sell

0% - 89%

17%

As of September 30, 2020:

Individually evaluated for impairment

6,728

Third party appraisals and discounted cash flows

Collateral values, market discounts and estimated costs to sell

3% - 80%

14%

Foreclosed assets and ORE

2,592

Third party appraisals, sales contracts, broker price opinions

Collateral values, market discounts and estimated costs to sell

6% - 100%

37%

Foreclosed assets and ORE

1,985

Third party appraisals, sales contracts, broker price opinions

Collateral values, market discounts and estimated costs to sell

6% - 52%

12%

(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

As of December 31, 2018:

Impaired loans

8,723

Third party appraisals and discounted cash flows

Collateral values, market discounts and estimated costs to sell

0% - 100%

12%

As of December 31, 2019:

Individually evaluated for impairment

7,365

Third party appraisals and discounted cash flows

Collateral values, market discounts and estimated costs to sell

0% - 84%

13%

Foreclosed assets and ORE

1,558

Third party appraisals, sales contracts, broker price opinions

Collateral values, market discounts and estimated costs to sell

6% - 68%

20%

Foreclosed assets and ORE

4,156

Third party appraisals, sales contracts, broker price opinions

Collateral values, market discounts and estimated costs to sell

6% - 61%

14%

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.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that ~~value.~~value:

•The carrying value of cash and cash equivalents and interest-bearing deposits in banks approximate their fair value.

•The fair value for investment securities is determined from quoted market prices when available. If a quoted market price is not available, fair value is estimated using third party pricing services or quoted market prices of securities with similar characteristics.

•The carrying value of mortgage loans held for sale approximates their fair value.

•The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturity.

•The cash surrender value of ~~bank-owned life insurance (“BOLI”)~~BOLI approximates its fair value.

•The fair value of customer deposits, excluding certificates of deposit, is the amount payable on demand. The fair value of fixed-maturity certificates of deposit is estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities.

•The fair value of other borrowings and long-term FHLB advances is estimated by discounting the future cash flows using the rates currently offered for ~~advances~~borrowings of similar maturities.

•The fair value of derivative liabilities are obtained from a third-party pricing service that uses the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts).

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


				Fair Value Measurements at September 30, 2019																	Fair Value Measurements at September 30, 2020
(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	$	61,289	$	61,289	$	61,289	$	—	$	—	Cash and cash equivalents	$	185,836	$	185,836	$	185,836	$	0	$	0
Interest-bearing deposits in banks	Interest-bearing deposits in banks	449		449		449		—		—		Interest-bearing deposits in banks	349		349		349		0		0
Investment securities available for sale	Investment securities available for sale	255,114		255,114		—		255,114		—		Investment securities available for sale	251,578		251,578		0		251,578		0
Investment securities held to maturity	Investment securities held to maturity	7,193		7,238		—		7,238		—		Investment securities held to maturity	2,942		3,008		0		3,008		0
Mortgage loans held for sale	Mortgage loans held for sale	6,909		6,909		—		6,909		—		Mortgage loans held for sale	21,045		21,045		0		21,045		0
Loans, net	Loans, net	1,689,844		1,684,650		—		1,677,010		7,640		Loans, net	1,922,295		1,945,125		0		1,938,397		6,728
Cash surrender value of BOLI	Cash surrender value of BOLI	39,228		39,228		39,228		—		—		Cash surrender value of BOLI	40,184		40,184		40,184		0		0
Financial Liabilities	Financial Liabilities											Financial Liabilities
Deposits	Deposits	$	1,831,406	$	1,832,247	$	—	$	1,832,247	$	—	Deposits	$	2,207,494	$	2,210,331	$	0	$	2,210,331	$	0
Other borrowings	Other borrowings	5,539		5,951		—		5,951		—		Other borrowings	5,539		6,233		0		6,233		0
Long-term FHLB advances	Long-term FHLB advances	47,853		47,749		—		47,749		—		Long-term FHLB advances	31,445		32,399		0		32,399		0
Derivative liabilities(1)												Derivative liabilities(1)	87		87		0		87		0
(1)Derivative liabilities are reported at fair value in accrued interest payable and other liabilities in the Consolidated Statements of Financial Condition.												(1)Derivative liabilities are reported at fair value in accrued interest payable and other liabilities in the Consolidated Statements of Financial Condition.

															Fair Value Measurements at December 31, 2019
(dollars in thousands)												(dollars in thousands)	Carrying Amount		Total		Level 1		Level 2		Level 3
Financial Assets												Financial Assets
Cash and cash equivalents												Cash and cash equivalents	$	39,847	$	39,847	$	39,847	$	0	$	0
Interest-bearing deposits in banks												Interest-bearing deposits in banks	449		449		449		0		0
Investment securities available for sale												Investment securities available for sale	257,321		257,321		0		257,321		0
Investment securities held to maturity												Investment securities held to maturity	7,149		7,194		0		7,194		0
Mortgage loans held for sale												Mortgage loans held for sale	6,990		6,990		0		6,990		0
Loans, net												Loans, net	1,696,493		1,690,308		0		1,682,943		7,365
Cash surrender value of BOLI												Cash surrender value of BOLI	39,466		39,466		39,466		0		0
Financial Liabilities												Financial Liabilities
Deposits												Deposits	$	1,820,975	$	1,821,868	$	0	$	1,821,868	$	0
Other borrowings												Other borrowings	5,539		5,895		0		5,895		0
Long-term FHLB advances												Long-term FHLB advances	40,620		40,580		0		40,580		0

2534

Fair Value Measurements at December 31, 2018
(dollars in thousands) Carrying
Amount Total Level 1 Level 2 Level 3
Financial Assets
Cash and cash equivalents $ 59,618 $ 59,618 $ 59,618 $ — $ —
Interest-bearing deposits in banks 939 939 939 — —
Investment securities available for sale 260,131 260,131 — 260,131 —
Investment securities held to maturity 10,872 10,841 — 10,841 —
Mortgage loans held for sale 2,086 2,086 — 2,086 —
Loans, net 1,633,406 1,623,920 — 1,615,197 8,723
Cash surrender value of BOLI 29,560 29,560 29,560 — —
Financial Liabilities
Deposits $ 1,773,217 $ 1,769,087 $ — $ 1,769,087 $ —
Other borrowings 5,539 5,542 — 5,542 —
Long-term FHLB advances 58,698 57,527 — 57,527 —


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 ~~Home Bancorp, Inc. (the “Company”)~~the Company and ~~its wholly owned subsidiary, Home~~the Bank, ~~N. A. (the “Bank”),~~ from December 31, ~~2018~~2019 through September 30, ~~2019~~2020 and on its results of operations for the three and nine months ended September 30, ~~2019~~2020 and ~~2018.~~2019. 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. Factors that may cause actual results to differ materially from these forward-looking statements include, but are not limited to, the risk factors described under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K filed with the ~~Securities Exchange Commission (“SEC”)~~SEC for the year ended December 31, ~~2018.~~ 2019, as supplemented by the additional risk factor included in Part II, Item 1A of this Quarterly Report on Form 10-Q.

The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments have ordered non-essential businesses to close and residents to shelter in place at home. Given its ongoing and dynamic nature, it is difficult to predict the full impact of COVID-19 on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the national and local economies may be reopened. As a result of the COVID-19 pandemic and the related adverse local and national economic consequences, our forward-looking statements are subject to the following additional risks, uncertainties and assumptions, among others:

•Demand for our products and services may decline;

•If high levels of unemployment continue, our loan delinquencies, non-performing assets and loan foreclosures may increase;

•Collateral for loans, especially real estate, may decline in value;

•Our allowance for loan losses may have to be increased if our borrowers continue to experience financial difficulties;

•As a result of the reduction in the Federal Reserve Board's target federal funds rate to near 0%, the yield on our interest-earning assets may decline more than the decline in the cost of our interest-bearing liabilities;

•A material decrease in our net income or a net loss over several quarters could result in a suspension of our stock repurchase program and/or a reduction of our quarterly stock dividend;

•Our cyber security risks may be increased as a result of more of our employees working remotely; and

•FDIC deposit insurance premiums may increase if the agency experiences additional resolution costs.

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

~~During the third quarter of 2019, the~~The Company ~~earned $6.9 million, a decrease of $1.4 million, or 17.0%, compared to the third quarter of 2018. Diluted earnings per share~~reported net income for the third quarter of ~~2019 were~~2020 of $8.8 million, or $1.01 diluted EPS, compared to $6.9 million, or $0.75 ~~a decrease of $0.14, or 15.7%, compared to~~diluted EPS, reported for the third quarter of ~~2018.~~

~~During~~2019. For the nine months ended September 30, ~~2019,~~2020, the Company ~~earned~~reported net income of $13.2 million, or $1.51 diluted EPS, compared to $21.3 million, ~~a decrease of $2.2 million,~~ or ~~9.3%, compared to the nine months ended September 30, 2018. Diluted earnings per share~~$2.32 diluted EPS, reported for the nine months ended September 30, 2019 were $2.32, a decrease of $0.21, or 8.3%, compared to the nine months ended September 30, 2018. Net income for the nine months ended September 30, 2018 included merger-related expenses of $1.6 million, net of tax.2019.

Key components of the Company’s performance during the three and nine months ended September 30, ~~2019~~2020 include:

•~~Total assets~~Assets increased ~~$64.4~~$378.7 million, or ~~3.0%~~17.2%, from December 31, ~~2018~~2019 to ~~$2.2~~$2.6 billion at September 30, ~~2019.~~2020.

•~~Loans increased of $57.7~~Total loans were $2.0 billion, up $240.9 million, or ~~3.5%~~14.1%, from December 31, ~~2018~~2019, primarily due to ~~$1.7 billion~~the recorded net investment in PPP loans of $254.5 million.

•On January 1, 2020, the Company adopted the CECL framework, which resulted in a $7.0 million, or 39.2%, increase in the ACL at the adoption date.

•The Company recorded no provisions for credit losses for the third quarter of 2020 primarily due to limited changes to our assessment of the economic impact of the COVID-19 pandemic and the absence of loan growth from the previous quarter. In the aggregate, the provisions for credit losses on loans and unfunded lending commitments totaled $14.0 million for the nine months ended September 30, 2020.

•The ALL totaled $33.0 million, or 1.69% of total loans, at September 30, 2020. The ACL, which includes the allowance for unfunded lending commitments, totaled $36.6 million, or 1.87% of total loans at September 30, 2020. Excluding PPP loans, the ratios of ALL to total loans and ACL to total loans were 1.94% and 2.15%, respectively.

•Nonperforming assets were down $3.7 million, or 13.0%, from the December 31, 2019.

•Total deposits increased ~~$58.2~~$386.5 million, or ~~3.3%~~21.2%, from December 31, ~~2018~~2019 to ~~$1.8~~$2.2 billion at September 30, ~~2019.~~2020.

•~~Interest income decreased $635,000, or 2.4%,~~The net interest margin was 3.82% for the third quarter of ~~2019~~2020, down 30 bps compared to the third quarter of ~~2018. For~~2019, and 3.91% for the nine months ended September 30, ~~2019, interest income increased $355,000, or 0.5%,~~2020, down 39 bps compared to the nine months ended September 30, ~~2018. Interest income for the three and nine months ended September 30,~~ 2019, ~~included a $680,000 (pre-tax) charge~~primarily due to the ~~write-off of the FDIC loss sharing indemnification receivable.~~

•Interest expense increased $1.7 million, or 66.7%, in the third quarter of 2019 compared to the third quarter of 2018. For the nine months ended September 30, 2019, interest expense increased $5.0 million, or 70.4%, compared to the nine months ended September 30, 2018. Interest expense increased over the comparable periods primarily due to increasesdecrease in the average ~~rate paid~~yield on ~~deposits.~~interest-earning assets during 2020.

•The ~~provision for loan losses for the third quarter of 2019 increased $360,000, or 45.8%~~average yield paid on total interest-bearing deposits was 0.60%, ~~to $1.1 million, compared to the third quarter of 2018. The provision increased primarily due to a nonperforming commercial loan relationship which filed for bankruptcy during~~down 56 bps from the third quarter of 2019. For the nine months ended September 30, ~~2019,~~2020, the ~~Company recorded a provision for loan losses of $2.3 million, a decrease of $30,000, or 1.3%~~average yield paid on total interest-bearing deposits was 0.80%, ~~compared to~~down 29 bps from the ~~same period in 2018. The ratio of allowance for loan losses to total loans was 1.03% at~~nine months ended September 30, ~~2019, compared to 0.99% at December 31, 2018.~~2019.

•Noninterest income decreased $980,000, or 20.5%, and $661,000, or 6.1%, for the ~~third quarter of~~three and nine months ended September 30, 2020, respectively, from the comparable periods in 2019. Income from BOLI for the for the three months ended September 30, 2019 ~~increased $1.4 million, or 42.9%, compared to the third quarter of 2018 primarily due to~~included a non-taxable ~~bank-owned life insurance ("BOLI")~~death benefit of $1.2 million. For the nine months ended September 30, 2019, the impact of the BOLI benefit on noninterest income ~~increased $748,000, or 7.4%, compared to the nine months ended September 30, 2018 primarily due to the third quarter 2019 life insurance benefit,~~was partially offset by asset write-downs oftotaling $347,000 (pre-tax) recorded induring the second quarter of 2019.

•Noninterest expense for the third quarter of ~~2019 increased $914,000,~~2020 decreased $494,000, or ~~5.8%~~3.0%, compared to the third quarter of ~~2018~~2019 primarily due to ~~an increase~~decreases in compensation and benefits ~~expense. Noninterest expense for~~(down $526,000), marketing and advertising (down $130,000) and occupancy expenses (down $105,000), partiality offset by an increase in regulatory fees (up $399,000). For the nine months ended September 30, ~~2019 increased $245,000,~~2020, noninterest expense was up $404,000, or ~~0.5%~~0.8%, ~~compared to~~from the ~~same~~comparable period in ~~2018~~2019 primarily due to ~~increases~~the provisions for credit losses on unfunded lending commitments recorded during the first half of 2020 ($1.3 million) and an increase in ~~compensation~~data processing and ~~benefits and occupancy expenses,~~communication expense (up $648,000), partially offset by decreases in ~~certain other expenses. The Company incurred $291,000 (pre-tax) in occupancy expense to terminate an office lease during the second quarter of 2019 and $287,000 (pre-tax) in~~ compensation and benefits ~~expense related to the departure of a former executive during the third quarter of 2019. Noninterest expense for the nine months ended September 30, 2018 included merger-related~~(down $459,000), occupancy (down $330,000), marketing and advertising (down $251,000) and other expenses ~~of $2.0 million (pre-tax)~~(down $489,000).

~~FINANCIAL CONDITION~~

~~Loans, Asset Quality and Allowance for Loan Losses~~

~~Loans –~~

~~Loans~~

COVID-19 RESPONSE

Banking operations have not been restrained by state and local government COVID-19 restrictions. However, we have adapted to protect our employees and customers by working remotely, enhancing cleaning procedures, and enacting several other measures to reduce the risk of transmission of the virus. State government imposed restrictions were relaxed in September 2020 within our Louisiana and Mississippi markets, though the states have not fully reopened. The changes in restrictions primarily increased capacity limits of certain businesses and relaxed social distancing guidelines.

During the second and third quarters of 2020, the Company funded approximately 3,072 loans totaling $262.2 million under the Small Business Administration's ("SBA") Paycheck Protection Program ("PPP"). At September 30, 2020, the total recorded net investment in PPP loans was $254.5 million, of which approximately 2,160 loans with an aggregate outstanding balance of $35.2 million were for amounts of $50,000 or less.

To give immediate financial support to our customers, the Company began providing principal and/or interest payment relief options in March 2020. When we last reported the level of such deferrals in our second quarter Form 10-Q (as of August 4, 2020), $113.9 million, or 6% of total loans, were under deferral agreements. As of September 30, 2020, the level of deferrals decreased to $70.2 million, or 4% of total loans. The level of COVID-19 related deferrals formerly totaled $558.8 million, or 28% of total loans, at June 30, 2020. Of the loans that have exited deferral agreements, $469.0 million, or 98%, were current and performing as of September 30, ~~2019~~2020.

FINANCIAL CONDITION

Loans, Allowance for Credit Losses and Asset Quality

Loans

Loans outstanding at September 30, 2020 were ~~$1.7~~$2.0 billion, an increase of ~~$57.7~~$240.9 million, or ~~3.5%~~14.1%, from December 31, ~~2018. The increase~~2019 primarily due to PPP loans. At September 30, 2020, the total recorded investment in PPP loans was ~~primarily the result of commercial real estate ("CRE") loan growth of $78.8~~$254.5 million, ~~or 12.3%, offset partially by declines in residential mortgage loans (down $17.4 million, or 3.9%). CRE loan growth was strongest in the Acadiana and New Orleans markets.~~

~~The Company also experienced growth in~~which is included with commercial and industrial ~~("C&I")~~loans. The recorded investment in PPP loans ~~(up $7.3~~is net of $7.6 million in deferred lender fees, which will be amortized into interest income over the life of the loans. Excluding PPP loans, loans decreased $13.6 million, or ~~4.2%) and multi-family residential loans (up $2.3 million, or 4.2%)~~0.8%, offset by declines in consumer loans (down $6.5 million, or 12.0%) and construction and land loans (down $4.7 million, or 2.4%). C&I loan growth was due primarily to increases in agriculture production and farm-related loans in the southwest Acadiana market. Multi-family residential loan growth was primarily within the New Orleans market. The decline in construction and land loans was primarily due to the completion of the construction phase of certain larger construction loans and their conversion to permanent CRE loans.from December 31, 2019.

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

September 30, December 31, Increase/(Decrease)
(dollars in thousands) 2019 2018 Amount Percent
Real estate loans:
One-to four-family first mortgage $ 432,964 $ 450,363 $ (17,399) (3.9) %
Home equity loans and lines 81,835 83,976 (2,141) (2.5)
Commercial real estate 719,392 640,575 78,817 12.3
Construction and land 188,879 193,597 (4,718) (2.4)
Multi-family residential 56,733 54,455 2,278 4.2
Total real estate loans 1,479,803 1,422,966 56,837 4.0 %
Other loans:
Commercial and industrial 180,264 172,934 7,330 4.2
Consumer 47,375 53,854 (6,479) (12.0)
Total other loans 227,639 226,788 851 0.4
Total loans $ 1,707,442 $ 1,649,754 $ 57,688 3.5 %


	September 30,		December 31,		Increase/(Decrease)
(dollars in thousands)	2020		2019		Amount		Percent
Real estate loans:
One-to four-family first mortgage	$	409,282	$	430,820	$	(21,538)	(5.0)	%
Home equity loans and lines	67,766		79,812		(12,046)		(15.1)
Commercial real estate	707,638		722,807		(15,169)		(2.1)
Construction and land	201,575		195,748		5,827		3.0
Multi-family residential	86,619		54,869		31,750		57.9
Total real estate loans	1,472,880		1,484,056		(11,176)		(0.8)	%
Other loans:
Commercial and industrial	443,480		184,701		258,779		140.1
Consumer	38,937		45,604		(6,667)		(14.6)
Total other loans	482,417		230,305		252,112		109.5
Total loans	$	1,955,297	$	1,714,361	$	240,936	14.1	%

Adoption of ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

Due to the adoption of ASC Topic 326 on January 1, 2020, management maintains, based on current and forecasted information, an ACL that reflects a current estimate of expected credit losses ("CECL") for the estimated life of the loan portfolio at reporting periods subsequent to the adoption date. For reporting periods prior to January 1, 2020, management maintained an ALL at a level which reflected losses that were probable and reasonably estimable at the relevant reporting date.

The ACL and ALL policies described below are 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 and ALL is and was 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 and ALL. 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.

For reporting periods beginning on and after January 1, 2020 and the adoption of ASC Topic 326:

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. Refer to Note 2 of the Consolidated Financial Statements for more information on the adoption of ASC Topic 326 and its impact on the Consolidated Financial Statements.

For reporting periods prior to January 1, 2020 and the adoption of ASC Topic 326:

The ALL estimation process included, among other things, an analysis of delinquency trends, nonperforming loan trends, the level of charge-offs and recoveries, prior loss experience, total loans outstanding, ~~balance~~the volume of ~~direct~~loan originations, the type, size and geographic concentration of loans, the value of collateral securing loans, the borrower’s ability to repay and repayment performance, the number of loans requiring heightened management oversight, economic conditions and industry experience. Based on the evaluation, management assigned risk ratings to segments of the loan portfolio. Such risk ratings were periodically reviewed by management and revised as deemed appropriate.

With respect to acquired loans, prior to January 1, 2020, the Company followed the reserve standard set forth in ASC 310, Receivables. At acquisition, the Company reviewed each loan to determine whether there is evidence of deterioration in credit quality since origination and if it was probable that the Company would be unable to collect all amounts due according to the loan’s contractual terms. The Company considered expected prepayments and estimated the amount and timing of undiscounted expected principal, interest and other cash flows for each loan pool meeting the criteria above, and determined the excess of the loan pool’s scheduled contractual principal and interest payments in excess of cash flows expected at acquisition as an amount that should not be accreted (nonaccretable difference). The remaining amount, representing the excess of the pool’s cash flows expected to be collected over the fair value, was accreted into interest income over the remaining life of the pool (accretable yield). The Company recorded a discount on these loans at acquisition to record them at their estimated fair values. As a result, acquired loans subject to ASC 310 were excluded from the calculation of the ALL at the acquisition date. If the present value of expected cash flows for a pool was less than its carrying value, an impairment was recognized by an increase in the ALL and a charge to the provision for loan losses. See Note 5 to the Unaudited Consolidated Financial Statements for additional information concerning our allowance for acquired loans prior to the adoption of ASC Topic 326.

Reserve Build and Additional Information on Loan Portfolio Composition

At September 30, 2020, the ALL totaled $33.0 million, or 1.69% of total loans, and the ACL, which includes the reserve for unfunded lending commitments, totaled $36.6 million, or 1.87% of total loans. The Company recorded no provision for loan losses for the third quarter of 2020 primarily due to limited changes in our assessment of the economic impact of the COVID-19 pandemic, our assessment of all other risk factors in the loan portfolio and the absence of loan growth from the previous quarter. For the nine months ended September 30, 2020, the provision for loan losses was $12.7 million, up $10.4 million from the nine months ended September 30, 2019. The provision for loan losses during 2020 reflected our assessment of the change in expected losses due primarily to the economic impact of the COVID-19 pandemic.

As the fallout of the COVID-19 pandemic continues to impact the national, regional and local economies, management continues to proactively monitor the loan portfolio to identify potential weaknesses that may develop. Specifically, management has identified and is monitoring exposures to borrowers and industries that may be impacted more immediately and acutely than others. In many instances, management has directly reached out to specific borrowers to provide guidance and assistance as appropriate. On a portfolio level, management continues to monitor aggregate exposures to highly sensitive segments for changes in asset quality, payment performance and liquidity levels. Additionally, management is monitoring unfunded commitments, such as lines of credit and overdraft protection, to monitor liquidity and funding issues that may arise with our customers.

The following table provides a summary of the ~~energy sector totaled $40.1 million, or 2.4% of total outstanding loans,~~loan portfolio and related reserves at September 30, ~~2019, compared~~2020. We have separately identified certain information regarding PPP loans which, due to ~~$45.6 million, or 2.8%~~the existence of ~~total outstanding~~full repayment guarantees from the SBA as well as the likelihood that the vast majority of such loans ~~at December 31, 2018. Unfunded loan commitments~~will be forgiven, we believe entail minimal credit risk to ~~customers in~~ the ~~energy sector totaled $6.0 million at September 30, 2019, compared to $10.1 million at December 31, 2018.~~ Company.


(dollars in thousands)	Total Loans		PPP Loans		Total ACL		ACL to Total Loans		ACL to Total Non-PPP Loans
September 30, 2020
Retail CRE	$	189,757	$	—	$	6,833	3.60	%	3.60	%
Hotels and short-term rentals	100,029		4,067		5,099		5.10		5.31
Restaurants and bars	92,715		31,488		3,108		3.35		5.08
Energy	31,652		—		1,701		5.37		5.37
Credit cards	3,725		—		375		10.07		10.07
Other loans	1,537,419		218,932		15,886		1.03		1.20
Total	$	1,955,297	$	254,487	$	33,002	1.69	%	1.94	%

Unfunded lending commitments(2)	—		—		3,637		—		—
Total	$	1,955,297	$	254,487	$	36,639	1.87	%	2.15	%

(1)At September 30, ~~2019~~2020, the allowance of $3.6 million related to unfunded lending commitments of $326.8 million. The ACL on unfunded lending commitments is recorded within accrued interest payable and ~~December 31, 2018, loans constituting 94.9% and 96.7%, respectively,~~other liabilities on the Consolidated Statements of ~~the balance of our direct energy related portfolio were performing in accordance with their original loan agreements.~~Financial Condition.

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.

An impaired loan generally is one for which it is probable, based on current information, that the lender will not collect all the amounts due under the contractual terms of the loan. Large groups of smaller balance, homogeneous loans are collectively evaluated for impairment. Loans collectively evaluated for impairment include smaller balance commercial loans, residential real estate loans and consumer loans. These loans are evaluated as a group because they have similar characteristics and performance experience. Larger (i.e., loans with balances of $250,000 or greater) commercial real estate loans, multi-family residential loans, construction and land loans and commercial and industrial loans are individually evaluated for impairment. 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 help determine if there is impairment, 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. The Board of Directors is provided with monthly reports on impaired loans. ~~As of~~

At September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, loans identified as impaired and individually evaluated for impairment ~~excluding Acquired Loans, amounted to $9.1~~were $7.8 million and ~~$9.9~~$8.7 million, respectively. AsDue to the adoption of ASC Topic 326, total loans identified as impaired and individually evaluated at September 30, ~~2019~~2020 included $2.2 million of acquired loans, of which $1.9 million was acquired with deteriorated credit quality. Under the former accounting guidance, acquired loans were evaluated on a pool basis and excluded from total loans individually evaluated for impairment at December 31, ~~2018, acquired impaired~~2019.

The following tables provide a summary of loans (loans considered to have deteriorated credit quality at the time of acquisition) amounted to $8.9 million and $10.0 million, respectively. As of September 30, 2019 and December 31, 2018, substandard loans, excluding Acquired Loans, amounted to $17.5 million and $21.7 million, respectively. As of September 30, 2019 and December 31, 2018, Acquired Loans considered substandard amounted to $25.5 million and $24.5 million, respectively. The amountindividually evaluated for impairment as of the allowance for loan losses allocated to originated impaired loans totaled $1.4 million as of September 30, 2019 and $1.2 million as of December 31, 2018. The amount of the allowance for loan losses allocated to Acquired Loans totaled $1.9 million and $1.5 millions, respectively, at such dates. There were no assets classified as doubtful or loss as of September 30, 2019 or December 31, 2018.dates indicated.


	September 30, 2020
(dollars in thousands)	Recorded investment		Allowance for Loan Losses		Allowance to Total Loans
Loans Individually Evaluated for Impairment
One- to four-family first mortgage	$	—	$	—	—	%
Home equity loans and lines	—		—		—
Commercial real estate	7,236		689		9.52
Construction and land	—		—		—
Multi-family residential	—		—		—
Commercial and industrial	612		431		70.42
Consumer	—		—		—
Total	$	7,848	$	1,120	14.27	%


	December 31, 2019
(dollars in thousands)	Recorded investment		Allowance for Loan Losses		Allowance to Total Loans
Loans Individually Evaluated for Impairment
One- to four-family first mortgage	$	187	$	—	—	%
Home equity loans and lines	784		348		44.39
Commercial real estate	6,518		298		4.57
Construction and land	—		—		—
Multi-family residential	—		—		—
Commercial and industrial	1,223		701		57.32
Consumer	—		—		—
Total	$	8,712	$	1,347	15.46	%

Federal regulations and our policies require that we utilize an internal asset classification system as a means of reporting problem and potential problem assets. We have incorporated an internal asset classification system, substantially consistent with Federal banking regulations, as a part of our credit monitoring system. Federal banking regulations set forth a classification scheme for problem and potential problem assets as “substandard,” “doubtful” or “loss” assets. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted.

At September 30, 2020 and December 31, 2019, substandard loans, excluding acquired loans, were $12.7 million and $18.1 million, respectively. At September 30, 2020 and December 31, 2019, acquired loans classified as substandard were $14.2 million and $21.7 million, respectively. There were no assets classified as doubtful or loss at September 30, 2020 and December 31, 2019.

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


	September 30,		December 31,		Increase/(Decrease)
(dollars in thousands)	2020		2019		Amount		Percent
Special Mention Loans
One- to four-family first mortgage	$	2,169	$	2,159	$	10	0.5	%
Home equity loans and lines	329		181		148		81.8
Commercial real estate	1,123		1,800		(677)		(37.6)
Construction and land	11,914		8,854		3,060		34.6
Multi-family residential	—		502		(502)		(100.0)
Commercial and industrial	5,613		56		5,557		9923.2
Consumer	184		212		(28)		(13.2)
Total special mention loans	$	21,332	$	13,764	$	7,568	55.0	%


	September 30,		December 31,		Increase/(Decrease)
(dollars in thousands)	2020		2019		Amount		Percent
Substandard Loans
One- to four-family first mortgage	$	5,941	$	6,696	$	(755)	(11.3)	%
Home equity loans and lines	109		1,232		(1,123)		(91.2)
Commercial real estate	17,185		22,302		(5,117)		(22.9)
Construction and land	600		2,707		(2,107)		(77.8)
Multi-family residential	199		219		(20)		(9.1)
Commercial and industrial	2,583		6,503		(3,920)		(60.3)
Consumer	276		179		97		54.2
Total substandard loans	$	26,893	$	39,838	$	(12,945)	(32.5)	%

Substandard loans decreased $12.9 million, or 32.5%, from December 31, 2019 to $26.9 million at September 30, 2020 primarily due to pay-downs.

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. ~~Our~~Due to the adoption of ASC Topic 326 on January 1, 2020, management ~~believes that,~~maintains, based on current and forecasted information, ~~currently available, our allowance~~an ACL that reflects a current estimate of expected credit losses for the estimated life of the loan ~~losses is~~portfolio at reporting periods subsequent to the adoption date. For reporting periods prior to January 1, 2020, management maintained an ALL at a level which ~~covers all known and inherent~~reflected losses that ~~are both~~were probable and reasonably estimable ~~as of each~~at the relevant reporting date. ~~However,~~For all reporting periods, actual losses are uncertain and dependent upon future events and, as such, further additions to the level of ~~allowance for loan losses~~ACL may become necessary.

Foreclosed assets and ~~surplus real estate ("ORE")~~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 usually capitalized to the extent that the carrying value does not exceed fair value less estimated selling costs.

The following table sets forth the composition of the Company’s nonperforming assets ~~(“NPAs”)~~ and performing troubled debt restructurings as of the dates indicated.

September 30, 2019 December 31, 2018
(dollars in thousands) Originated
Acquired⁽¹⁾
Total Originated
Acquired⁽¹⁾
Total
Nonaccrual loans⁽²⁾:
Real estate loans:
One- to four-family first mortgage $ 2,022 $ 2,392 $ 4,414 $ 1,984 $ 3,188 $ 5,172
Home equity loans and lines 840 185 1,025 1,457 242 1,699
Commercial real estate 7,710 5,876 13,586 7,940 3,403 11,343
Construction and land 494 1,373 1,867 740 854 1,594
Multi-family residential — — — — — —
Other loans:
Commercial and industrial 2,108 1,778 3,886 2,986 1,002 3,988
Consumer 47 181 228 273 343 616
Total nonaccrual loans 13,221 11,785 25,006 15,380 9,032 24,412
Accruing loans 90 days or more past due — — — — — —
Total nonperforming loans 13,221 11,785 25,006 15,380 9,032 24,412
Foreclosed assets and ORE 712 1,880 2,592 146 1,412 1,558
Total nonperforming assets 13,933 13,665 27,598 15,526 10,444 25,970
Performing troubled debt restructurings 1,712 213 1,925 1,117 289 1,406
Total nonperforming assets and troubled debt restructurings $ 15,645 $ 13,878 $ 29,523 $ 16,643 $ 10,733 $ 27,376
Nonperforming loans to total loans 1.46 % 1.48 %
Nonperforming loans to total assets 1.13 % 1.13 %
Nonperforming assets to total assets 1.24 % 1.21 %

^{September 30, 2020 December 31, 2019
(dollars in thousands) Originated Acquired(1) Total Originated Acquired(1) Total
Nonaccrual loans(2):
Real estate loans:
One- to four-family first mortgage $ 2,287 $ 2,322 $ 4,609 $ 2,133 $ 1,815 $ 3,948
Home equity loans and lines 73 36 109 883 361 1,244
Commercial real estate 9,062 6,424 15,486 8,750 4,575 13,325
Construction and land — 515 515 1,170 1,299 2,469
Multi-family residential — 95 95 — — —
Other loans:
Commercial and industrial 607 1,143 1,750 1,603 1,621 3,224
Consumer 175 104 279 89 87 176
Total nonaccrual loans 12,204 10,639 22,843 14,628 9,758 24,386
Accruing loans 90 days or more past due 10 — 10 — — —
Total nonperforming loans 12,214 10,639 22,853 14,628 9,758 24,386
Foreclosed assets and ORE 956 1,029 1,985 1,793 2,363 4,156
Total nonperforming assets 13,170 11,668 24,838 16,421 12,121 28,542
Performing troubled debt restructurings 910 480 1,390 1,903 475 2,378
Total nonperforming assets and troubled debt restructurings $ 14,080 $ 12,148 $ 26,228 $ 18,324 $ 12,596 $ 30,920
Nonperforming loans to total loans 1.17 % 1.42 %
Nonperforming loans to total assets 0.89 % 1.11 %
Nonperforming assets to total assets 0.96 % 1.30 %}

(1)~~Table excludes Acquired Loans which~~Due to the adoption of ASC Topic 326, PCD loans of $2.1 million are included in nonperforming acquired loans at September 30, 2020. Prior to January 1, 2020, these loans were ~~being accounted for under ASC 310-30~~classified as PCI and excluded from nonperforming loans because they ~~continue~~continued to earn interest income from the accretable yield ~~regardless~~at the pool level. At adoption, the pools were discontinued and performance is based on contractual terms for individual loans. Refer to Note 2 to the Consolidated Financial statements for more information on the adoption of ~~their status as past due or otherwise not in compliance with their contractual terms. Acquired Loans with deteriorated credit quality which were being accounted for under~~ ASC ~~310-30, and which~~Topic 326. At December 31, 2019, PCI loans that were 90 days or more past due totaled ~~$2.4~~$2.2 million and ~~$1.7 million as of September 30, 2019 and December 31, 2018, respectively.~~were accounted for under ASC 310-30.

⁽²⁾Nonaccrual loans include originated restructured loans placed on nonaccrual totaling ~~$8.8~~$7.2 million and ~~$10.3~~$7.6 million at September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. Acquired restructured loans placed on nonaccrual totaled ~~$2.0~~$1.2 million and ~~$4.2~~$2.2 million at September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

~~The Company recorded net~~

As previously indicated, as a result of Section 4013 of the CARES Act and recent interagency guidance issued by Federal banking regulators, modifications, such as deferrals of principal and/or interest payments, to borrowers affected by the COVID-19 pandemic are not deemed to be TDRs if such modifications are made on loans that were current as of December 31, 2019. Such deferrals and loan ~~charge-offs for the third quarter~~modifications totaled $70.2 million, or 4% of ~~2019 of $787,000 and net loan charge-offs for the nine months ended~~total loans at September 30, ~~2019~~2020 compared to $558.8 million (28% of ~~$1.1 million. The Company recorded net loan charge-offs for~~total loans) at June 30, 2020. We will continue to follow the ~~third quarter~~guidance of ~~2018 of $15,000, and net loan charge-offs for the nine months ended September 30, 2018 of $1.4 million.~~Federal banking regulators in making any TDR determinations.

~~Allowance for Loan Losses –~~ The allowance for loan losses is established through provisions for loan losses. The Company maintains the allowance at a level believed, to the best of management’s knowledge, to cover all known and inherent losses in the portfolio that are both probable and reasonable to estimate at each reporting date. Management reviews the allowance for loan losses at least quarterly in order to identify those inherent losses and to assess the overall collection probability for the loan portfolio. The evaluation process includes, among other things, an analysis of delinquency trends, nonperforming loan trends, the level of charge-offs and recoveries, prior loss experience, total loans outstanding, the volume of loan originations, the type, size and geographic concentration of loans, the value of collateral securing loans, the borrower’s ability to repay and repayment performance, the number of loans requiring heightened management oversight, economic conditions and industry experience.

3044

Based on this evaluation, management assigns risk ratings to segments of the loan portfolio. Such risk ratings are periodically reviewed by management and revised as deemed appropriate. These efforts are supplemented by 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 allowance for loan losses 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 allowance for loan losses. Such agencies may require management to make additional provisions for estimated loan losses based upon judgments different from those of management.

~~With respect to Acquired Loans, the Company follows the reserve standard set forth in ASC 310,~~ ~~Receivables~~. At acquisition, the Company reviews each loan to determine whether there is evidence of deterioration in credit quality since origination and if it is probable that the Company will be unable to collect all amounts due according to the loan’s contractual terms. The Company considers expected prepayments and estimates the amount and timing of undiscounted expected principal, interest and other cash flows for each loan pool meeting the criteria above, and determines the excess of the loan pool’s scheduled contractual principal and interest payments in excess of cash flows expected at acquisition as an amount that should not be accreted (nonaccretable difference). The remaining amount, representing the excess of the pool’s cash flows expected to be collected over the fair value, is accreted into interest income over the remaining life of the pool (accretable yield). The Company records a discount on these loans at acquisition to record them at their estimated fair values. As a result, Acquired Loans subject to ASC 310 are excluded from the calculation of the allowance for loan losses as of the acquisition date. See Note 5 to the Unaudited Consolidated Financial Statements for additional information concerning our allowance for Acquired Loans.

Acquired Loans were recorded at their acquisition date fair value, which was based on expected cash flows and included an estimation of expected future loan losses. If the present value of expected cash flows for a pool is less than its carrying value, an impairment is recognized by an increase in the allowance for loan losses and a charge to the provision for loan losses. As of September 30, 2019 and December 31, 2018, $1.9 million and $1.5 million, respectively, of our allowance for loan losses was allocated to Acquired Loans.

We will continue to monitor and modify our allowance for loan losses as conditions warrant. No assurance can be given that our level of allowance for loan losses will cover all of the inherent losses on our loans or that future adjustments to the allowance for loan losses will not be necessary if economic and other conditions differ substantially from the conditions used by management to determine the current level of the allowance for loan losses or as a result of the implementation of the CECL model in 2020.

~~The following table presents the activity in the allowance for loan losses during the first nine months of 2019.~~

(dollars in thousands) Originated Acquired Total
Balance, December 31, 2018 $ 14,860 $ 1,488 $ 16,348
Provision charged to operations 1,800 501 2,301
Loans charged off (1,033) (85) (1,118)
Recoveries on charged off loans 67 — 67
Balance, September 30, 2019 $ 15,694 $ 1,904 $ 17,598

At September 30, 2019, the Company’s ratio of the allowance for loan losses to total loans was 1.03%, compared to 0.99% and 0.96% at December 31, 2018 and September 30, 2018, respectively. Excluding Acquired Loans, the ratio of the allowance for loan losses to total loans was 1.29% at September 30, 2019, compared to 1.36% and 1.38% at December 31, 2018 and September 30, 2018, respectively.

The allowance for loan losses attributable to originated energy-sector loans totaled 2.40% of the outstanding balance of originated energy-sector loans at September 30, 2019, compared to 2.39% and 2.50% at December 31, 2018 and September 30, 2018, respectively.

Investment Securities

The Company’s investment securities portfolio totaled ~~$262.3~~$254.5 million as of September 30, ~~2019,~~2020, a decrease of ~~$8.7~~$10.0 million, or ~~3.2%~~3.8%, from December 31, ~~2018. As of~~2019. At September 30, ~~2019,~~2020, the Company had a net unrealized gain on its available for sale investment securities portfolio of ~~$1.5~~$6.7 million, compared to a net unrealized ~~loss~~gain of ~~$2.8 million as of~~$876,000 at December 31, ~~2018.~~

2019.

The following table summarizes activity in the Company’s investment securities portfolio during the first nine months of ~~2019.~~2020.

(dollars in thousands) Available for Sale Held to Maturity
Balance, December 31, 2018 $ 260,131 $ 10,872
Purchases 46,914 —
Sales — —
Principal maturities, prepayments and calls (54,775) (3,517)
Amortization of premiums and accretion of discounts (1,443) (162)
Increase in market value 4,287 —
Balance, September 30, 2019 $ 255,114 $ 7,193


(dollars in thousands)	Available for Sale		Held to Maturity
Balance, December 31, 2019	$	257,321	$	7,149
Purchases	57,187		—
Sales	—		—
Principal maturities, prepayments and calls	(66,653)		(4,130)
Amortization of premiums and accretion of discounts	(2,092)		(77)
Increase in market value	5,815		—
Balance, September 30, 2020	$	251,578	$	2,942

Funding Sources

Deposits –

Deposits totaled ~~$1.8~~$2.2 billion ~~as of~~at September 30, ~~2019,~~2020, an increase of ~~$58.2~~$386.5 million, or ~~3.3%~~21.2%, compared to December 31, ~~2018. Core~~2019. The following table summarizes the changes in the Company’s deposits ~~(i.e. checking, savings and money market accounts) totaled $1.4 billion as of~~from December 31, 2019 to September 30, 2019, an increase of $15.3 million, or 1.1%, compared to December 31, 2018. Certificates of deposit totaled $393.9 million as of September 30, 2019, an increase of $42.9 million, or 12.2%, compared to December 31, 2018.2020.


	September 30,		December 31,		Increase/(Decrease)
(dollars in thousands)	2020		2019		Amount		Percent
Demand deposit	$	629,345	$	437,828	$	191,517	43.7	%
Savings	242,849		201,887		40,962		20.3
Money market	336,310		273,741		62,569		22.9
NOW	620,081		512,054		108,027		21.1
Certificates of deposit	378,909		395,465		(16,556)		(4.2)
Total deposits	$	2,207,494	$	1,820,975	$	386,519	21.2	%

The ~~following table sets forth~~average rate paid on interest-bearing deposits was 0.60% for the ~~composition~~third quarter of 2020, down 56 bps compared to the ~~Company’s~~third quarter of 2019. For the nine months ended September 30, 2020, the average rate paid on interest-bearing deposits atwas 0.80%, down 29 bps from the ~~dates indicated.~~comparable period in 2019.

At September 30, 2020, certificates of deposit maturing within the next 12 months totaled $290.8 million.

September 30, December 31, Increase/(Decrease)
(dollars in thousands) 2019 2018 Amount Percent
Demand deposit $ 446,742 $ 438,146 $ 8,596 2.0 %
Savings 204,807 201,393 3,414 1.7
Money market 272,489 295,705 (23,216) (7.9)
NOW 513,440 486,979 26,461 5.4
Certificates of deposit 393,928 350,994 42,934 12.2
Total deposits $ 1,831,406 $ 1,773,217 $ 58,189 3.3 %

Federal Home Loan Bank Advances – ~~Long-term~~

The average balance of total FHLB advances ~~totaled $47.9~~was $34.6 million asfor the third quarter of 2020, down $16.6 million compared to the third quarter of 2019. The average yield paid on total FHLB advances for the third quarter of 2020 was 1.73%, down 7 bps compared to the third quarter of 2019.

For the nine months ended September 30, ~~2019 a decrease~~2020, the average balance of ~~$10.8~~total FHLB advances was $50.2 million, down $5.3 million compared to the nine months ended September 30, 2019. The average yield paid on total FHLB advances for the nine months ended September 30, 2020 was 1.44%, down 36 bps compared to the nine months ended September 30, 2019.

At September 30, 2020, the Company had $31.4 million in total outstanding FHLB advances and had $775.3 million in additional FHLB advances available.

Shareholders’ Equity

Shareholders’ equity decreased $3.0 million, or ~~18.5%~~0.9%, ~~compared to $58.7~~from $316.3 million ~~as of~~at December 31, ~~2018. The decrease in FHLB advances is primarily due~~2019 to ~~pay-downs on maturing obligations.~~

~~Shareholders’ Equity~~ ~~– Shareholders’ equity increased $10.6~~$313.3 million ~~or 3.5%, from $304.0 million as of December 31, 2018 to $314.7 million as of~~at September 30, ~~2019, primarily due to earnings~~2020. The Company’s purchases of its common stock during the ~~period~~nine months ended September 30, 2020 and ~~an increase in accumulated other~~the transition adjustment for the adoption of ASC Topic 326 on January 1, 2020 decreased shareholders' equity by $11.6 million and $4.7 million, respectively. These decreases were partially offset by the net positive impact of comprehensive income ~~due to unrealized gains on available-for-sale investment securities.~~

As of $17.7 million less cash dividends of $6.0 million for the nine months ended September 30, ~~2019,~~2020.

At September 30, 2020, the Bank had regulatory capital amounts that were well in excess of regulatory requirements. The following table presents actual and required capital ratios for the Bank under the Basel III Capital Rules. The minimum required capital amounts presented include the minimum required capital levels as of September 30, ~~2019~~2020 based on the minimum 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
Bank:	Bank:													Bank:
Common equity Tier 1 capital (to risk-weighted assets)	Common equity Tier 1 capital (to risk-weighted assets)	$	238,964	14.21	%	$	117,740	7.00	%	$	109,330	6.50	%	Common equity Tier 1 capital (to risk-weighted assets)		$	237,231	14.03	%	$	118,367	7.00	%	$	109,912	6.50	%
Tier 1 risk-based capital	Tier 1 risk-based capital	238,964		14.21		142,970		8.50		134,560		8.00		Tier 1 risk-based capital		237,231		14.03		143,732		8.50		135,277		8.00
Total risk-based capital	Total risk-based capital	256,562		15.25		176,610		10.50		168,200		10.00		Total risk-based capital		258,559		15.29		177,551		10.50		169,096		10.00
Tier 1 leverage capital	Tier 1 leverage capital	238,964		11.12		85,930		4.00		107,413		5.00		Tier 1 leverage capital		237,231		9.44		100,546		4.00		125,682		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.

~~As of September 30, 2019, cash and cash equivalents totaled $61.3 million. At such date, investment securities available for sale totaled $255.1 million.~~

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. ~~As of~~At September 30, ~~2019,~~2020, certificates of deposit maturing within the next 12 months totaled ~~$293.9~~$290.8 million. Based upon historical experience, the Company anticipates that a significant portion of the maturing certificates of deposit will be redeposited with us. For the three months ended September 30, 2019, the average balance of outstanding FHLB advances was $51.2 million. As of September 30, 2019, the Company had $47.9 million in total outstanding FHLB advances and had $727.3 million in additional FHLB advances available.

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 months ended September 30, 2020, the average balance of outstanding FHLB advances was $34.6 million. At September 30, 2020, the Company had $31.4 million in total outstanding FHLB advances and had $775.3 million in additional FHLB advances available.

The following table summarizes the Company's primary and secondary sources of liquidity as of the date indicated.


	September 30,
(dollars in thousands)	2020
Cash and cash equivalents	$	185,836
Unpledged investment securities, amortized cost	116,161
FHLB advance availability	775,313
Unsecured lines of credit	55,000
Federal Reserve discount window availability	500
Total primary and secondary liquidity	$	1,132,810

Asset/Liability Management

The objective of asset/liability management is to implement strategies for the funding and deployment of the Company’s financial resources that are expected to maximize soundness and profitability over time at acceptable levels of risk. Interest rate sensitivity is the potential impact of changing rate environments on both net interest income and cash flows. The Company measures its interest rate sensitivity over the near term primarily by running net interest income simulations. Our interest rate sensitivity also is monitored by management through the use of a model which generates estimates of the change in its net interest income over a range of interest rate scenarios. Based on the Company’s interest rate risk model, the table below sets forth the results of immediate and sustained changes in interest rates as of September 30, ~~2019.~~2020.

Shift in Interest Rates
(in bps) % Change in Projected
Net Interest Income
200 1.1
100 0.8
(100) (2.5)


Shift in Interest Rates (in bps)						% Change in Projected Net Interest Income
200						2.1
100						1.2
(100)						(3.2)

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

During the second quarter of 2020, the Company entered into certain interest rate swap agreements as part of its interest rate risk management strategy. The Company’s objectives in using interest rate derivatives are to manage its exposure to interest rate movements. During 2020, such derivatives were used to hedge the variable cost associated with existing variable rate liabilities. Refer to Note 6. Derivatives and Hedging Activitiesfor more information on the effects of the derivative financial instruments on the consolidated financial statements.

Off-Balance Sheet Activities

To meet the financing needs of its customers, the Bank 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. The Company’s exposure to credit losses from these financial instruments is represented by their contractual amounts.

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 ~~September 30, 2019 and December 31, 2018.~~the periods indicated.

Contract Amount
September 30, December 31,
(dollars in thousands) 2019 2018
Standby letters of credit $ 5,036 $ 4,288
Available portion of lines of credit 238,067 186,446
Undisbursed portion of loans in process 108,062 108,307
Commitments to originate loans 96,488 92,656


	Contract Amount
	September 30,		December 31,
(dollars in thousands)	2020		2019
Standby letters of credit	$	6,388	$	6,098
Available portion of lines of credit	267,546		247,670
Undisbursed portion of loans in process	85,371		111,466
Commitments to originate loans	142,400		87,446

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

~~During~~Net income for the third quarter of ~~2019, the Company earned $6.9~~2020 was $8.8 million, ~~a decrease of $1.4~~up $1.9 million, or ~~17.0%~~28.1%, compared to the third quarter of ~~2018.~~2019. Diluted ~~earnings per share~~EPS for the third quarter of ~~2019 were $0.75, a decrease of $0.14, or 15.7%,~~2020 was $1.01, up $0.26 compared to the third quarter of ~~2018.~~2019. The increase in net income for the third quarter of 2020 compared to the same period in 2019 was primarily due to a substantial decrease in interest expense and the absence of a provision for loan losses, partially offset by a reduction in income from BOLI due to a death benefit totaling $1.2 million received during the third quarter of 2019. The Company recorded no provision for loan losses for the third quarter of 2020 primarily due to limited changes in our assessment of the economic impact of the COVID-19 pandemic, our assessment of all other risk factors in the loan portfolio and the absence of loan growth from the previous quarter.

~~During~~

Net income for the nine months ended September 30, ~~2019, the Company earned $21.3~~2020 was $13.2 million, ~~a decrease of $2.2~~down $8.1 million, or ~~9.3%~~38.2%, compared to the nine months ended September 30, ~~2018.~~2019. Diluted ~~earnings per share~~EPS for the nine months ended September 30, ~~2019 were $2.32, a decrease of $0.21, or 8.3%,~~2020 was $1.51, down $0.81 compared to the nine months ended September 30, ~~2018. Net~~2019. The decrease in net income for the nine months ended September 30, ~~2018 included merger-related expenses~~2020 compared to the same period in 2019 was primarily due to the provisions for loan losses and unfunded lending commitments in the first and second quarters of ~~$1.6~~2020. In aggregate, the Company made provisions of $14.0 million ~~net~~to the allowances for loan losses and unfunded lending commitments during the nine months ended September 30, 2020, reflecting our assessment of ~~tax.~~expected losses due primarily to the economic impact of the COVID-19 pandemic.

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 ~~3.79%~~3.62% and ~~4.53%~~3.79% for the ~~three months~~quarters ended September 30, ~~2019~~2020 and ~~September 30, 2018,~~2019, respectively, and ~~3.97%~~3.64% and ~~4.46%~~3.97% for the nine months ended September 30, 2020 and 2019, ~~and September 30, 2018,~~ respectively. The Company’s tax-equivalent net interest margin, which is net interest income as a percentage of average interest-earning assets, was 4.12% and 4.74% for the three months ended September 30, 2019 and September 30, 2018, respectively, and 4.30% and 4.64% for the nine months ended September 30, 2019 and September 30, 2018, respectively.

Net interest income totaled ~~$21.1~~$23.3 million for the ~~three months ended September 30, 2019, a decrease~~third quarter of ~~$2.4~~2020, up $2.1 million, or 10.1%, compared to the ~~three months ended September 30, 2018.~~third quarter of 2019. For the nine months ended September 30, ~~2019~~2020, net interest income totaled ~~$64.7~~$67.0 million, ~~a decrease of $4.6~~up $2.3 million, or ~~6.7%~~3.5%, compared to the nine months ended September 30, ~~2018. Interest~~2019. Loan income ~~due~~from deferred PPP lender fees totaled $1.1 million during the third quarter of 2020 and $882,000 during the second quarter of 2020. The Company recognized $1.1 million and $1.9 million of PPP lender fees in loan interest income for the three and nine months ended September 30, 2020, respectively. The remaining balance of $7.6 million in deferred lender fees will be amortized into interest income over the life of the PPP loans.

Though net interest income increased, outstanding PPP loans negatively impacted the average loan yield by 34 bps and the net interest margin by 14 bps during the third quarter of 2020. During the nine months ended September 30, 2020, outstanding PPP loans negatively impacted the average loan yield by 19 bps and the net interest margin by 7 bps.

In addition, the increase in average cash and cash equivalents from the third quarter of 2019 to ~~acquired~~the third quarter of 2020 negatively impacted the average yield on total interest-earning assets and the net interest margin by 21 and 19 bps, respectively. For the nine months ended September 30, 2020, the increase in average cash and cash equivalents from the comparable period in 2019 negatively impacted the average yield on total interest-earning assets and the net interest margin by 15 and 12 bps, respectively. Average cash and cash equivalents are reflected in the increases in the average balances of other interest-earning assets. Average other interest-earning assets for the third quarter of 2020 were up $112.1 million compared to the average of $58.9 million during the third quarter of 2019. For the nine months ended September 30, 2020, average other interest-earning assets were up $71.7 million compared to the average of $56.8 million during the nine months ended September 30, 2019.

Acquired loan discount accretion included in interest income totaled ~~$420,000~~$847,000 and ~~$1.4 million~~$420,000 for the quarters ended September 30, 2020 and 2019, ~~and September 30, 2018, respectively, and $2.5 million and $4.4 million for the nine months ended September 30, 2019 and September 30, 2018,~~ respectively.

Acquired loan discount ~~accretion~~ for the third quarter of 2019 was reduced by $680,000 (pre-tax) due to the write-off of the Company's FDIC loss sharing indemnification receivable. ~~The receivable represented~~For the ~~present value of expected~~nine months ended September 30, 2020 and 2019, acquired loan discount accretion included in interest income totaled $2.4 million and $2.5 million, respectively.

~~reimbursable losses on acquired loans covered by~~The Company’s tax-equivalent net interest margin, which is net interest income as a ~~FDIC loss sharing agreement. Loans covered by~~percentage of average interest-earning assets, was 3.82% and 4.12% for the ~~agreement, which expires in March~~quarters ended September 30, 2020 ~~have performed better than originally projected,~~ and 2019, respectively. For the Company does not expect to incur any reimbursable losses during the remaining term of the loss sharing agreement. The loss sharing agreement was entered in connection with the Company's acquisition of certain assetsnine months ended September 30, 2020 and ~~liabilities of Statewide Bank in a FDIC assisted transaction in 2010. The write-off the of FDIC loss sharing indemnification receivable impacted~~2019, the Company's tax-equivalent net interest margin ~~by 14 basis points for the quarter ended September 30, 2019~~was 3.91% and by four basis points for the nine months ended September 30, 2019. During the first six months of 2019, amortization of the FDIC loss sharing indemnification receivable reduced net interest income by $293,000 (pre-tax).4.30%, respectively.

The following tables set 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 ~~(“TE”)~~ yields are calculated using a marginal tax rate of 21%.

Three Months Ended September 30,
2019 2018
Average Average
Yield/ Average Average
Yield/
(dollars in thousands) Balance Interest
Rate ⁽¹⁾
Balance Interest
Rate⁽¹⁾
Interest-earning assets:
Loans receivable⁽¹⁾
Originated loans $ 1,193,759 $ 16,534 5.45 % $ 961,917 $ 14,365 5.87 %
Acquired loans 504,287 7,028 5.49 669,922 9,753 5.74
Total loans receivable⁽¹⁾
1,698,046 23,562 5.46 1,631,839 24,118 5.82
Investment securities
Taxable 241,475 1,401 2.32 245,156 1,516 2.47
Tax-exempt (TE) 20,303 114 2.83 33,197 178 2.71
Total investment securities 261,778 1,515 2.36 278,353 1,694 2.50
Other interest-earning assets 58,878 397 2.68 47,759 297 2.47
Total interest-earning assets (TE) 2,018,702 $ 25,474 4.98 1,957,951 $ 26,109 5.27
Noninterest-earning assets 198,476 179,471
Total assets $ 2,217,178 $ 2,137,422
Interest-bearing liabilities:
Deposits:
Savings, checking and money market $ 991,248 $ 2,215 0.89 % $ 979,919 $ 1,379 0.56 %
Certificates of deposit 392,214 1,835 1.86 350,308 933 1.06
Total interest-bearing deposits 1,383,462 4,050 1.16 1,330,227 2,312 0.69
Other borrowings 5,550 53 3.80 — — —
Short-term FHLB advances 22 — 2.45 1,423 6 1.78
Long term FHLB advances 51,144 230 1.80 62,786 281 1.79
Total interest-bearing liabilities 1,440,178 $ 4,333 1.19 1,394,436 $ 2,599 0.74
Noninterest-bearing liabilities 462,227 449,619
Total liabilities 1,902,405 1,844,055
Shareholders’ equity 314,773 293,367
Total liabilities and shareholders’ equity $ 2,217,178 $ 2,137,422


	Three Months Ended September 30,
	2020						2019
(dollars in thousands)	Average Balance		Interest		Average Yield/Rate		Average Balance		Interest		Average Yield/Rate
Interest-earning assets:
Loans receivable(1)	$	1,971,174	$	24,769	4.94	%	$	1,698,046	$	23,562	5.46	%
Investment securities
Taxable	240,830		897		1.49		241,475		1,401		2.32
Tax-exempt (TE)	11,484		70		3.10		20,303		114		2.83
Total investment securities	252,314		967		1.56		261,778		1,515		2.36
Other interest-earning assets	170,957		106		0.25		58,878		397		2.68
Total interest-earning assets (TE)	2,394,445		$	25,842	4.25		2,018,702		$	25,474	4.98
Noninterest-earning assets	187,794						198,476
Total assets	$	2,582,239					$	2,217,178
Interest-bearing liabilities:
Deposits:
Savings, checking and money market	$	1,195,455	$	1,136	0.38	%	$	991,248	$	2,215	0.89	%
Certificates of deposit	381,949		1,232		1.28		392,214		1,835		1.86
Total interest-bearing deposits	1,577,404		2,368		0.60		1,383,462		4,050		1.16
Other borrowings	5,539		53		3.81		5,550		53		3.80
Short-term FHLB advances	—		—		—		22		—		2.45
Long term FHLB advances	34,612		149		1.73		51,144		230		1.80
Total interest-bearing liabilities	1,617,555		$	2,570	0.63		1,440,178		$	4,333	1.19
Noninterest-bearing liabilities	651,843						462,227
Total liabilities	2,269,398						1,902,405
Shareholders’ equity	312,841						314,773
Total liabilities and shareholders’ equity	$	2,582,239					$	2,217,178
Net interest-earning assets	$	776,890					$	578,524
Net interest spread (TE)			$	23,272	3.62	%			$	21,141	3.79	%
Net interest margin (TE)					3.82	%					4.12	%

Net interest-earning assets $ 578,524 $ 563,515
Net interest spread (TE) $ 21,141 3.79 % $ 23,510 4.53 %
Net interest margin (TE) 4.12 % 4.74 %

⁽¹⁾Nonperforming loans are included in the respective average loan balances, net of deferred fees, discounts and loans in process. ~~Acquired Loans were recorded at fair value upon acquisition and accrete interest income over the remaining lives of the respective loans.~~

Nine Months Ended September 30,
2019 2018
Average Average
Yield/ Average Average
Yield/
(dollars in thousands) Balance Interest
Rate ⁽¹⁾
Balance Interest
Rate⁽¹⁾
Interest-earning assets:
Loans receivable⁽¹⁾
Originated loans $ 1,145,839 $ 47,318 5.47 % $ 937,268 $ 39,707 5.61 %
Acquired loans 525,509 23,254 5.87 700,559 30,741 5.82
Total loans receivable⁽¹⁾
1,671,348 70,572 5.59 1,637,827 70,448 5.70
Investment securities
Taxable 244,555 4,655 2.54 238,694 4,355 2.43
Tax-exempt (TE) 24,001 397 2.79 34,766 543 2.64
Total investment securities 268,556 5,052 2.56 273,460 4,898 2.46
Other interest-earning assets 56,808 1,140 2.68 71,963 1,063 1.97
Total interest-earning assets (TE) 1,996,712 $ 76,764 5.10 1,983,250 $ 76,409 5.12
Noninterest-earning assets 194,840 185,501
Total assets $ 2,191,552 $ 2,168,751
Interest-bearing liabilities:
Deposits:
Savings, checking and money market $ 986,623 $ 6,318 0.86 % $ 994,336 $ 3,421 0.46 %
Certificates of deposit 381,148 4,798 1.68 360,194 2,721 1.01
Total interest-bearing deposits 1,367,771 11,116 1.09 1,354,530 6,142 0.61
Other Borrowings 5,543 159 3.84 — — —
Short-term FHLB advances 22 — 2.58 2,868 39 1.81
Long term FHLB advances 55,466 751 1.80 65,666 877 1.78
Total interest-bearing liabilities 1,428,802 $ 12,026 1.13 1,423,064 $ 7,058 0.66
Noninterest-bearing liabilities 451,945 458,411
Total liabilities 1,880,747 1,881,475
Shareholders’ equity 310,805 287,276
Total liabilities and shareholders’ equity $ 2,191,552 $ 2,168,751
Net interest-earning assets $ 567,910 $ 560,186
Net interest spread (TE) $ 64,738 3.97 % $ 69,351 4.46 %
Net interest margin (TE) 4.30 % 4.64 %


	Nine Months Ended September 30,
	2020						2019
(dollars in thousands)	Average Balance		Interest		Average Yield/Rate		Average Balance		Interest		Average Yield/Rate
Interest-earning assets:
Loans receivable(1)	$	1,878,533	$	72,839	5.12	%	$	1,671,348	$	70,572	5.59	%
Investment securities
Taxable	242,913		3,308		1.82		244,555		4,655		2.54
Tax-exempt (TE)	14,210		253		3.01		24,001		397		2.79
Total investment securities	257,123		3,561		1.88		268,556		5,052		2.56
Other interest-earning assets	128,518		361		0.37		56,808		1,140		2.68
Total interest-earning assets (TE)	2,264,174		$	76,761	4.48		1,996,712		$	76,764	5.10
Noninterest-earning assets	191,594						194,840
Total assets	$	2,455,768					$	2,191,552
Interest-bearing liabilities:
Deposits:
Savings, checking and money market	$	1,114,205	$	4,305	0.52	%	$	986,623	$	6,318	0.86	%
Certificates of deposit	388,642		4,742		1.63		381,148		4,798		1.68
Total interest-bearing deposits	1,502,847		9,047		0.80		1,367,771		11,116		1.09
Other borrowings	5,539		159		3.84		5,543		159		3.84
Short-term FHLB advances	10,795		23		0.28		22		—		2.58
Long term FHLB advances	39,415		520		1.76		55,466		751		1.80
Total interest-bearing liabilities	1,558,596		$	9,749	0.84		1,428,802		$	12,026	1.13
Noninterest-bearing liabilities	583,076						451,945
Total liabilities	2,141,672						1,880,747
Shareholders’ equity	314,096						310,805
Total liabilities and shareholders’ equity	$	2,455,768					$	2,191,552
Net interest-earning assets	$	705,578					$	567,910
Net interest spread (TE)			$	67,012	3.64	%			$	64,738	3.97	%
Net interest margin (TE)					3.91	%					4.30	%

(1)Nonperforming loans are included in the respective average loan balances, net of deferred fees, discounts and loans in process. ~~Acquired Loans were recorded at fair value upon acquisition and accrete interest income over the remaining lives of the respective loans.~~

3651

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

Three Months Ended September 30, Nine Months Ended September 30,
2019 Compared to 2018 2019 Compared to 2018
Change Attributable To Change Attributable To
Total
Increase Total
Increase
(dollars in thousands) Rate Volume (Decrease) Rate Volume (Decrease)
Interest income:
Loans receivable $ (1,444) $ 888 $ (556) $ (1,215) $ 1,339 $ 124
Investment securities (76) (103) (179) 133 21 154
Other interest-earning assets 34 66 100 346 (269) 77
Total interest income (1,486) 851 (635) (736) 1,091 355
Interest expense:
Savings, checking and money market accounts 806 30 836 2,915 (18) 2,897
Certificates of deposit 748 154 902 1,866 211 2,077
Other borrowings 27 26 53 80 79 159
FHLB advances 2 (59) (57) (49) (116) (165)
Total interest expense 1,583 151 1,734 4,812 156 4,968
Increase (decrease) in net interest income $ (3,069) $ 700 $ (2,369) $ (5,548) $ 935 $ (4,613)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2020 Compared to 2019						2020 Compared to 2019
	Change Attributable To						Change Attributable To
					Total Increase/						Total Increase/
(dollars in thousands)	Rate		Volume		(Decrease)		Rate		Volume		(Decrease)
Interest income:
Loans receivable	$	(2,372)	$	3,579	$	1,207	$	(1,301)	$	3,568	$	2,267
Investment securities	(485)		(63)		(548)		(920)		(571)		(1,491)
Other interest-earning assets	(704)		413		(291)		(797)		18		(779)
Total interest income	(3,561)		3,929		368		(3,018)		3,015		(3)
Interest expense:
Savings, checking and money market accounts	(1,409)		330		(1,079)		(1,573)		(440)		(2,013)
Certificates of deposit	(560)		(43)		(603)		(69)		13		(56)

FHLB advances	(8)		(73)		(81)		(106)		(102)		(208)
Total interest expense	(1,977)		214		(1,763)		(1,748)		(529)		(2,277)
Increase (decrease) in net interest income	$	(1,584)	$	3,715	$	2,131	$	(1,270)	$	3,544	$	2,274

~~Provision for Loan Losses –~~ For the quarter ended September 30, 2019, the Company recorded a provision for loan losses of $1.1 million, an increase of $360,000, or 45.8%, compared to the $786,000 recorded for the comparable period in 2018. For the nine months ended September 30, 2019, the provision for loan losses totaled $2.3 million, a decrease of $30,000, or 1.3%, compared to $2.3 million recorded for the same period in 2018.

~~The Company recorded net loan charge-offs of $787,000 during~~Noninterest Income

Noninterest income for the third quarter of ~~2019, compared to $15,000 of net loan charge-offs in the third quarter of 2018. For the nine months ended September 30, 2019 and September 30, 2018, the Company recorded net loan charge-offs of $1.1~~2020 totaled $3.8 million, ~~and $1.4 million, respectively.~~

The increase in provision and net loan charge-offs for the quarter ended September 30, 2019 over the comparable period in 2018 was primarily due to a previously recognized $6.4 million non-performing commercial loan relationship which filed for bankruptcy during the third quarter of 2019.

~~At September 30, 2019, the Company’s ratio of the allowance for loan losses to total loans was 1.03%~~down $980,000, or 20.5%, compared to 0.99% and 0.96% at December 31, 2018 and September 30, 2018, respectively. Excluding Acquired Loans, the ratio of the allowance for loan losses to total loans was 1.29% at September 30, 2019, compared to 1.36% and 1.38% at December 31, 2018 and September 30, 2018, respectively. The ratio of nonperforming loans to total assets was 1.13% at September 30, 2019, compared to 1.13% and 0.98% at December 31, 2018 and September 30, 2018, respectively.

~~Noninterest Income –~~ ~~Noninterest income was~~from $4.8 ~~million for the quarter ended September 30, 2019, an increase of $1.4 million, or 42.9%, compared to the $3.3~~ million earned for the same period in ~~2018.~~2019. Noninterest income ~~increased primarily due to~~for the ~~increase~~nine months ended September 30, 2020 totaled $10.3 million, down $661,000, or 6.1%, from $10.9 million earned for the same period in ~~income~~2019.

Income from ~~bank-owned life insurance. The~~BOLI for the three and nine months ended September 30, 2020 was down $1.2 million, or 84.2%, and $1.1 million, or 60.8%, respectively, from the comparable periods in 2019. During the third quarter of 2019, the Company received a non-taxable BOLI benefit of $1.2 million following the death of a former ~~employee~~employee.

Income from service fees and charges for the three and nine months ended September 30, 2020 was down $393,000, or 25.9%, and $867,000, or 19.7%, respectively, from the comparable periods in 2019. Service fees and charges decreased primarily due to a decline in income from overdraft fees on deposit accounts.

Gains on the sale of loans for the three and nine months ended September 30, 2020 were up $549,000, or 154.6%, and $1.1 million, or 143.1%, respectively, from the comparable periods in 2019. Due to the changes in the interest rate environment during ~~the third quarter of 2019.~~2020, borrowers found it advantageous to refinance residential mortgages.

~~Noninterest income increased $748,000, or 7.4%, to $10.9 million~~Losses on the sale of assets for the nine months ended September 30, ~~2019,~~2020 were down $325,000, or 96.7%, compared to ~~$10.2 million for~~ the ~~comparable~~same period in 2018. Noninterest income increased over the comparable nine-month period primarily due to the third quarter 2019 life insurance benefit mentioned above, which was partially offset by asset write-downs of $347,000 (pre-tax) recorded in2019. During the second quarter of ~~2019.~~2019, the Company recorded asset write-downs totaling $347,000 (pre-tax).

3752

Noninterest Expense – Noninterest expense increased $914,000, or 5.8%, to $16.6 million for the quarter ended September 30, 2019, compared to $15.7 million recorded for the same period in 2018. Noninterest expense increased over the comparable quarter primarily due to the increase in compensation and benefits (up $938,000, or 10.1%). The increase in compensation and benefits was primarily driven by elevated employee health care costs, routine annual salary adjustments and $287,000 (pre-tax) of costs related to the departure of a former executive.

Noninterest expense ~~increased $245,000,~~for the third quarter of 2020 totaled $16.1 million, down $494,000, or ~~0.5%~~3.0%, ~~to $47.9 million~~from the third quarter of 2019. Noninterest expense for the nine months ended September 30, ~~2019, compared to $47.6~~2020 totaled $48.3 million, ~~for~~up $404,000, or 0.8%, from the same period in ~~2018. Noninterest~~2019.

Compensation and benefits expense ~~increased over~~for the three and nine months ended September 30, 2020 was down $526,000, or 5.1%, and $459,000, or 1.6%, respectively, from the comparable periods in 2019 primarily due to ~~increases~~decreases in health insurance costs and compensation ~~and benefits (up $1.5 million, or 5.4%) and occupancy expenses (up $350,000, or 6.9%), partially offset by declines in certain other noninterest~~ expense ~~categories due to the absence of merger-related expenses in 2019. In addition to the $287,000 (pre-tax) in compensation and benefits~~ related to the ~~departure~~Company's ESOP driven primarily by the decline in market value of ~~a former executive during~~shares of the Company's common stock held by the ESOP.

Occupancy expense for the three and nine months ended September 30, 2020 was down $105,000, or 5.9%, and $330,000, or 6.1%, respectively, from the comparable periods in 2019. During the third quarter of ~~2019, noninterest~~2020, occupancy expense decreased primarily due to a decline in building maintenance costs. Occupancy expense for ~~the~~ nine months ended September 30, 2019 included $291,000 (pre-tax) of ~~occupancy~~ costs to terminate an office lease during the second quarter of 2019. ~~Noninterest~~

Marketing and advertising expense for the three and nine months ended September 30, 2020 was down $130,000, or 31.1%, and $251,000, or 25.2%, respectively, from the comparable periods in 2019 primarily due to a general decline across all marketing activities.

Data processing and communication expense for the three and nine months ended September 30, 2020 was up $87,000, or 4.9%, and $648,000, or 13.6%, respectively, from the comparable periods in 2019 primarily due to increased costs of software contracts.

Regulatory fees for the three and nine months ended September 30, 2020 were up $399,000, or 314.2%, and $287,000, or 40.0%, respectively, from the comparable periods in 2019 primarily due to an increase in FDIC assessments. Large provisions for loan losses, the impact of CECL adoption and dividends during the first half of 2020 reduced total shareholders' equity and resulted in a less favorable leverage ratio, which is used to compute FDIC assessments. In addition, the Company benefited from FDIC assessment credits during the third quarter of 2019. The credits were exhausted during the first quarter of 2020.

The provision for credit losses on unfunded lending commitments for the nine months ended September 30, ~~2018 included merger-related expenses~~2020 totaled $1.3 million. The Company recorded no provision for credit losses on unfunded lending commitments for the third quarter of ~~$2.0 million (pre-tax).~~2020 primarily due to limited changes in our assessment of the economic impact of the COVID-19 pandemic and the absence of growth in loan commitments from the previous quarter.

~~Income Taxes~~
~~– For~~

Other noninterest expense for the ~~quarters~~three and nine months ended September 30, 2020 was down $196,000, or 19.5%, and $489,000, or 16.0%, respectively, from the comparable periods in 2019 ~~and 2018, the Company incurred income tax~~primarily due to declines in several expense ~~of $1.3 million and $2.1 million, respectively. For the same periods, the Company’s effective tax rate was 16.0% and 20.3%, respectively.~~ categories.

Income Taxes

Income tax expense ~~decreased over~~for the ~~comparable quarters~~third quarter of 2020 increased $865,000, or 66.4%, compared to the third quarter of 2019 primarily due to ~~the~~an increase in ~~non-taxable earnings from bank-owned life insurance~~taxable earnings. The Company recorded no provisions for credit losses on loans and unfunded lending commitments during the third quarter of ~~2019.~~2020. During the third quarter of 2019, the Company received a non-taxable BOLI benefit of $1.2 million following the death of a former employee.

For the nine months ended September 30, ~~2019 and September 30, 2018, the Company incurred~~2020, income tax expense ~~of $4.2~~decreased $1.1 million, ~~and $6.1 million, respectively. For~~or 25.7%, from the ~~same periods,~~comparable period in 2019 primarily due to the decrease in taxable earnings. The Company's effective tax rate for the three and six months ended June 30, 2020 was ~~16.4%~~19.8% and ~~20.6%~~19.1%, ~~respectively. The effective tax rate decreased over~~respectively, compared to 16.0% and 16.4%, respectively, from the comparable ~~nine-month~~ periods ~~primarily due to elevated levels of stock option exercises and an increase~~ in ~~non-taxable earnings from bank-owned life insurance during~~ 2019.


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, ~~2018,~~2019, under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Asset/Liability Management and Market Risk”. Additional information at September 30, ~~2019~~2020 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~~the Bank's Senior Vice President and Director of Financial ~~Officer,~~Management (who was performing the duties of acting principal financial officer at the time of filing of this Form 10-Q, 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~~the Bank's Senior Vice President and Director of Financial ~~Officer~~Management (who was performing the duties of acting principal financial officer at the time of filing of this Form 10-Q have concluded that our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations and are operating in an effective manner.

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934) occurred during the third quarter of ~~2019~~2020 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~~Other than the following additional risk factor which supplements the “Risk Factors” section in Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2019 ("Form 10-K") filed with the Securities and Exchange Commission, there have been no material changes from the risk factors previously disclosed by the Company in the ~~Company’s Annual Report~~Form 10-K:

The COVID-19 pandemic has adversely impacted our business and financial results, and the ultimate impact will depend on ~~Form 10-K~~future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.

The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, lowered equity market valuations, created significant volatility and disruption in financial markets, and increased unemployment levels. In addition, the pandemic has resulted in temporary closures of many businesses and the institution of social distancing and sheltering in place requirements in Louisiana and many other states and communities. Global markets for oil and gas have, and may continue to be, adversely impacted by the ~~year ended December 31, 2018 filed~~COVID-19 pandemic and/or other events beyond our control, and further volatility in commodity prices could have a negative impact on the economies of energy-dominated states in which we operate. As a result, the demand for our products and services may be significantly impacted, which could adversely affect our revenue. Furthermore, the pandemic could continue to result in the recognition of credit losses in our loan portfolios and increases in our allowance for credit losses, particularly if businesses remain closed, the impact on the global economy worsens, or more customers draw on their lines of credit or seek additional loans to help finance their businesses. Similarly, because of changing economic and market conditions affecting issuers, we may be required to recognize impairments on the securities we hold as well as reductions in other comprehensive income. Our business operations may also be disrupted if significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions, or other restrictions in connection with the ~~Securities~~pandemic, and ~~Exchange Commission.~~we have already temporarily limited access to certain of our branches and offices. In response to the pandemic, we have also suspended residential property foreclosure sales, evictions, and involuntary automobile repossessions, and are offering fee waivers, payment deferrals, and other expanded assistance for credit card, automobile, mortgage, small business and personal lending customers, and future governmental actions may require these and other types of customer-related responses. The extent to which the COVID-19 pandemic impacts our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic.


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

The Company’s purchases of its common stock made during the quarter consisted of stock repurchases under the Company’s approved plans and are set forth in the following table.

Period Total
Number of
Shares
Purchased Average
Price Paid
per Share Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
Maximum
Number of Shares
that May Yet be
Purchased Under
the Plan or
Programs⁽¹⁾
July 1 – July 31, 2019 32,925 $ 36.89 32,925 555,964
August 1 – August 31, 2019 49,553 36.50 49,553 506,411
September 1 – September 30, 2019 41,424 38.64 41,424 464,987
Total 123,902 $ 37.32 123,902 464,987


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, 2020	10,894	$	24.91	10,894	516,022
August 1 – August 31, 2020	53,296	24.71		53,296	462,726
September 1 – September 30, 2020	71,034	25.11		71,034	391,692
Total	135,224	$	24.94	135,224	391,692

⁽¹⁾~~On April 26, 2016, the Company announced a stock repurchase program (the “2016 Repurchase Program”).~~ During the third quarter ~~ended September 30, 2019,~~of 2020, the Company completed the remaining share repurchases under the ~~2016~~2019 Repurchase ~~Program.~~Plan. On August ~~28, 2019,~~31, 2020, the Company announced the approval of a new ~~stock~~ repurchase program (the ~~"2019~~"2020 Repurchase Plan"). Under the ~~2019~~2020 Repurchase Plan, the Company may purchase up to ~~$470,000~~444,000 shares, or approximately 5% of the its common stock outstanding, through open market or privately negotiated transactions.


Item 3.			Defaults Upon Senior Securities.

None.


Item 4.			Mine Safety Disclosures.

None.


Item 5.			Other Information.

None.


Item 6.			Exhibits and Financial Statement Schedules.


No.	Description

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

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

32.0		Section 1350 Certification

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

~~101.DEF~~	~~XBRL Taxonomy Extension Definitions Linkbase Document~~

SIGNATURES

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

HOME BANCORP, INC.

November ~~8, 2019~~6, 2020

By:

/s/ John W. Bordelon

John W. Bordelon

Chairman of the Board, President and Chief Executive Officer ~~and Director~~

November ~~8, 2019~~6, 2020

By:

~~/s/ Joseph B. Zanco~~

~~Joseph B. Zanco~~

~~Executive Vice President and Chief Financial Officer~~

~~November 8, 2019~~

~~By:~~

/s/ Mary H. Hopkins

Mary H. Hopkins

Home Bank, N.A. Senior Vice President and Director of Financial Management (authorized to sign this report as acting principal financial officer at the time this Form 10-Q is signed)

4157


	Nine Months Ended
(dollars in thousands)	September 30, 2019		September 30, 2018
Balance at beginning of period	$	(9,147)	$	(9,303)
Accretion	1,571		1,849
Transfers from nonaccretable difference to accretable discount	(462)		(2,559)
Balance at end of period	$	(8,038)	$	(10,013)


	For the Period Ended September 30, 2019
(dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
One- to four-family first mortgage	$	187	$	187	$	—	$	84	$	—
Home equity loans and lines	410		453		—		423		—
Commercial real estate	19		22		—		48		—
Construction and land	—		—		—		—		—
Multi-family residential	—		—		—		—		—
Commercial and industrial	295		332		—		1,320		—
Consumer	—		—		—		—		—
Total	$	911	$	994	$	—	$	1,875	$	—
With an allowance recorded:
One- to four-family first mortgage	$	—	$	—	$	—	$	—	$	—
Home equity loans and lines	390		432		348		406		—
Commercial real estate	6,811		6,885		361		6,836		—
Construction and land	—		—		—		—		—
Multi-family residential	—		—		—		—		—
Commercial and industrial	938		1,217		701		443		—
Consumer	—		—		—		—		—
Total	$	8,139	$	8,534	$	1,410	$	7,685	$	—
Total impaired loans:
One- to four-family first mortgage	$	187	$	187	$	—	$	84	$	—
Home equity loans and lines	800		885		348		829		—
Commercial real estate	6,830		6,907		361		6,884		—
Construction and land	—		—		—		—		—
Multi-family residential	—		—		—		—		—
Commercial and industrial	1,233		1,549		701		1,763		—
Consumer	—		—		—		—		—
Total	$	9,050	$	9,528	$	1,410	$	9,560	$	—


	For the Period Ended December 31, 2018
(dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
One- to four-family first mortgage	$	—	$	—	$	—	$	—	$	—
Home equity loans and lines	441		476		—		454		—
Commercial real estate	149		161		—		32		7
Construction and land	—		—		—		—		—
Multi-family residential	—		—		—		—		—
Commercial and industrial	1,540		1,904		—		438		—
Consumer	—		—		—		—		—
Total	$	2,130	$	2,541	$	—	$	924	$	7
With an allowance recorded:
One- to four-family first mortgage	$	—	$	—	$	—	$	—	$	—
Home equity loans and lines	425		457		349		440		—
Commercial real estate	6,910		6,910		484		2,057		38
Construction and land	—		—		—		—		—
Multi-family residential	—		—		—		—		—
Commercial and industrial	412		442		321		1,367		1
Consumer	—		—		—		—		—
Total	$	7,747	$	7,809	$	1,154	$	3,864	$	39
Total impaired loans:
One- to four-family first mortgage	$	—	$	—	$	—	$	—	$	—
Home equity loans and lines	866		933		349		894		—
Commercial real estate	7,059		7,071		484		2,089		45
Construction and land	—		—		—		—		—
Multi-family residential	—		—		—		—		—
Commercial and industrial	1,952		2,346		321		1,805		1
Consumer	—		—		—		—		—
Total	$	9,877	$	10,350	$	1,154	$	4,788	$	46


	For the Period Ended September 30, 2018
(dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
One- to four-family first mortgage	$	—	$	—	$	—	$	—	$	—
Home equity loans and lines	450		476		—		458		—
Commercial real estate	21		33		—		22		—
Construction and land	—		—		—		—		—
Multi-family residential	—		—		—		—		—
Commercial and industrial	324		440		—		347		—
Consumer	—		—		—		—		—
Total	$	795	$	949	$	—	$	827	$	—


(dollars in thousands)	Originated		Acquired		Total
Balance, December 31, 2018	$	14,860	$	1,488	$	16,348
Provision charged to operations	1,800		501		2,301
Loans charged off	(1,033)		(85)		(1,118)
Recoveries on charged off loans	67		—		67
Balance, September 30, 2019	$	15,694	$	1,904	$	17,598


Net interest-earning assets	$	578,524					$	563,515
Net interest spread (TE)			$	21,141	3.79	%			$	23,510	4.53	%
Net interest margin (TE)					4.12	%					4.74	%


	Three Months Ended September 30,										Nine Months Ended September 30,
	2019 Compared to 2018										2019 Compared to 2018
	Change Attributable To										Change Attributable To
					Total Increase						Total Increase
(dollars in thousands)	Rate		Volume		(Decrease)		Rate		Volume		(Decrease)
Interest income:
Loans receivable	$	(1,444)	$	888	$	(556)	$	(1,215)	$	1,339	$	124
Investment securities	(76)		(103)		(179)		133		21		154
Other interest-earning assets	34		66		100		346		(269)		77
Total interest income	(1,486)		851		(635)		(736)		1,091		355
Interest expense:
Savings, checking and money market accounts	806		30		836		2,915		(18)		2,897
Certificates of deposit	748		154		902		1,866		211		2,077
Other borrowings	27		26		53		80		79		159
FHLB advances	2		(59)		(57)		(49)		(116)		(165)
Total interest expense	1,583		151		1,734		4,812		156		4,968
Increase (decrease) in net interest income	$	(3,069)	$	700	$	(2,369)	$	(5,548)	$	935	$	(4,613)


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, 2019	32,925	$	36.89	32,925	555,964
August 1 – August 31, 2019	49,553	36.50		49,553	506,411
September 1 – September 30, 2019	41,424	38.64		41,424	464,987
Total	123,902	$	37.32	123,902	464,987