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, 2016

or

☐ 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)

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 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    YES  ☒    NO  ☐

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

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐  (Do not check if a smaller reporting company)	Smaller reporting company	☐

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

At November 3, 2016, the registrant had 7,322,320 shares of common stock, $0.01 par value, outstanding.

HOME BANCORP, INC. and SUBSIDIARY

TABLE OF CONTENTS

		Page
PART I
Item 1.	Financial Statements (unaudited)
	Consolidated Statements of Financial Condition		1
	Consolidated Statements of Income		2
	Consolidated Statements of Comprehensive Income		3
	Consolidated Statements of Changes in Shareholders’ Equity		4
	Consolidated Statements of Cash Flows		5
	Notes to Unaudited Consolidated Financial Statements		6
Item 2.	Managements’ Discussion and Analysis of Financial Condition and Results of Operations		25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		40
Item 4.	Controls and Procedures		40
PART II
Item 1.	Legal Proceedings		40
Item 1A.	Risk Factors		41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		41
Item 3.	Defaults Upon Senior Securities		41
Item 4.	Mine Safety Disclosures		41
Item 5.	Other Information		41
Item 6.	Exhibits		41
SIGNATURES			42

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

	(Unaudited)			(Audited)
	September 30,			December 31,
	2016			2015
Assets
Cash and cash equivalents	$	23,953,080		$	24,797,599
Interest-bearing deposits in banks		2,129,000			5,143,585
Investment securities available for sale, at fair value		170,992,673			176,762,200
Investment securities held to maturity (fair values of $13,736,492 and $14,120,842, respectively)		13,448,484			13,926,861
Mortgage loans held for sale		10,643,389			5,651,250
Loans, net of unearned income		1,233,369,734			1,224,365,916
Allowance for loan losses		(12,193,181	)		(9,547,487	)
Total loans, net of unearned income and allowance for loan losses		1,221,176,553			1,214,818,429
Office properties and equipment, net		39,359,536			40,815,744
Cash surrender value of bank-owned life insurance		20,028,198			19,666,900
Accrued interest receivable and other assets		47,810,976			50,329,032
Total Assets	$	1,549,541,889		$	1,551,911,600
Liabilities
Deposits:
Noninterest-bearing	$	289,835,449		$	296,616,693
Interest-bearing		930,994,779			947,599,823
Total deposits		1,220,830,228			1,244,216,516
Short-term Federal Home Loan Bank (FHLB) advances		59,200,000			39,939,375
Long-term Federal Home Loan Bank (FHLB) advances		79,629,490			85,213,222
Accrued interest payable and other liabilities		12,520,553			17,496,133
Total Liabilities		1,372,180,271			1,386,865,246
Shareholders’ Equity
Preferred stock, $0.01 par value - 10,000,000 shares authorized; none issued		—			—
Common stock, $0.01 par value - 40,000,000 shares authorized; 7,321,837 and 7,239,821 shares issued and outstanding, respectively		73,219			72,399
Additional paid-in capital		78,853,758			76,948,914
Unallocated common stock held by:
Employee Stock Ownership Plan (ESOP)		(4,284,860	)		(4,552,670	)
Recognition and Retention Plan (RRP)		(141,741	)		(158,590	)
Retained earnings		101,257,222			91,864,543
Accumulated other comprehensive income		1,604,020			871,758
Total Shareholders’ Equity		177,361,618			165,046,354
Total Liabilities and Shareholders’ Equity	$	1,549,541,889		$	1,551,911,600

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

1

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Interest Income
Loans, including fees	$	15,889,132		$	13,435,467		$	47,760,159		$	38,417,015
Investment securities:
Taxable interest		722,238			757,385			2,295,632			2,214,227
Tax-exempt interest		166,968			181,705			510,493			537,098
Other investments and deposits		68,860			50,613			195,449			149,684
Total interest income		16,847,198			14,425,170			50,761,733			41,318,024
Interest Expense
Deposits		912,756			730,045			2,763,761			2,115,681
Securities sold under repurchase agreement		—			2,062			—			39,126
Short-term FHLB advances		53,829			9,761			143,412			15,894
Long-term FHLB advances		341,693			152,461			1,040,522			359,521
Total interest expense		1,308,278			894,329			3,947,695			2,530,222
Net interest income		15,538,920			13,530,841			46,814,038			38,787,802
Provision for loan losses		800,000			568,665			2,700,000			1,401,290
Net interest income after provision for loan losses		14,738,920			12,962,176			44,114,038			37,386,512
Noninterest Income
Service fees and charges		1,045,591			1,027,938			3,083,858			2,874,602
Bank card fees		658,799			619,799			1,936,305			1,823,071
Gain on sale of loans, net		418,276			478,380			1,205,815			1,119,392
Income from bank-owned life insurance		120,618			123,943			361,297			380,410
Gain (loss) on sale of properties and equipment, net		—			(358,653	)		640,580			(492,268	)
Gain on sale of investment securities, net		—			3,053			—			3,053
Other income		271,391			302,671			1,301,616			606,378
Total noninterest income		2,514,675			2,197,131			8,529,471			6,314,638
Noninterest Expense
Compensation and benefits		6,723,365			6,267,791			20,845,310			18,091,203
Occupancy		1,307,336			1,218,193			3,939,275			3,556,403
Marketing and advertising		193,483			129,197			649,498			352,179
Data processing and communication		1,133,136			974,099			3,824,169			2,832,571
Professional services		244,278			648,278			797,829			1,361,688
Forms, printing and supplies		137,336			130,395			487,794			408,233
Franchise and shares tax		219,773			155,872			659,318			450,415
Regulatory fees		319,482			273,754			971,197			851,163
Foreclosed assets, net		(472,275	)		(17,817	)		(46,472	)		477,753
Other expenses		836,706			742,347			2,711,401			2,087,916
Total noninterest expense		10,642,620			10,522,109			34,839,319			30,469,524
Income before income tax expense		6,610,975			4,637,198			17,804,190			13,231,626
Income tax expense		2,250,866			1,737,789			6,077,908			4,644,617
Net Income	$	4,360,109		$	2,899,409		$	11,726,282		$	8,587,009
Earnings per share:
Basic	$	0.63		$	0.43		$	1.72		$	1.28
Diluted	$	0.61		$	0.41		$	1.65		$	1.23
Cash dividends declared per common share	$	0.12		$	0.08		$	0.32		$	0.23

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

2

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Net Income	$	4,360,109		$	2,899,409		$	11,726,282		$	8,587,009
Other Comprehensive Income
Unrealized gain (loss) on investment securities	$	(626,747	)	$	1,209,078		$	1,126,558		$	923,145
Reclassification adjustment for gains included in net income					(3,053	)					(3,053	)
Tax effect		219,361			(422,109	)		(394,296	)		(322,032	)
Other comprehensive income, net of taxes	$	(407,386	)	$	783,916		$	732,262		$	598,060
Comprehensive Income	$	3,952,723		$	3,683,325		$	12,458,544		$	9,185,069

(1) The tax effect for the three and nine months ended September 30, 2016 on the change in unrealized gains (losses) on investment securities was $(219,361) and $394,296, respectively, compared to $423,178 and $323,101, respectively, for the three and nine months ended September 30, 2015. The tax effect for the three and nine months ended September 30, 2015 on the reclassification adjustment for gains included in net income had a tax effect of $1,069 and $1,069, respectively.

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

3

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

																			Accumulated
				Additional						Unallocated			Unallocated						Other
	Common			Paid-in			Treasury			Common Stock			Common Stock			Retained			Comprehensive
	Stock			Capital			Stock			Held by ESOP			Held by RRP			Earnings			Income		Total
Balance, December 31, 2014(1)	$	90,088		$	93,332,108		$	(28,572,891	)	$	(4,909,750	)	$	(202,590	)	$	93,101,915		$	1,304,876	$	154,143,756
Net income																	8,587,009					8,587,009
Other comprehensive income																				598,060		598,060
Purchase of Company’s common shares at cost, 11,298 shares								(3,188,770	)													(3,188,770	)
Reclassification of treasury stock per Louisiana law		(20,302	)		(20,282,138	)		31,761,661									(11,459,221	)				—
Cash dividends declared, $0.23 per share																	(1,583,379	)				(1,583,379	)
Exercise of stock options		2,466			2,843,499																	2,845,965
Restricted stock vesting					(16,042	)								22,490								6,448
ESOP shares released for allocation					459,391						267,810											727,201
Share-based compensation cost					149,816																	149,816
Balance, September 30, 2015	$	72,252		$	76,486,634		$	—		$	(4,641,940	)	$	(180,100	)	$	88,646,324		$	1,902,936	$	162,286,106
Balance, December 31, 2015(1)	$	72,399		$	76,948,914		$	—		$	(4,552,670	)	$	(158,590	)	$	91,864,543		$	871,758	$	165,046,354
Net income																	11,726,282					11,726,282
Other comprehensive income																				732,262		732,262
Purchase of Company’s common shares at cost, 12,091 shares		(126	)		(125,944	)											(223,814	)				(349,884	)
Cash dividends declared, $0.32 per share																	(2,109,789	)				(2,109,789	)
Exercise of stock options		902			1,175,117																	1,176,019
ESOP shares released for allocation					591,341						267,810											859,151
Restricted stock vesting		44			(3,083	)								16,849								13,810
Share-based compensation cost					267,413																	267,413
Balance, September 30, 2016	$	73,219		$	78,853,758		$	—		$	(4,284,860	)	$	(141,741	)	$	101,257,222		$	1,604,020	$	177,361,618

⁽¹⁾  Balances as of December 31, 2014 and December 31, 2015 are audited.

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

4

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	For the Nine Months Ended
	September 30,
	2016			2015
Cash flows from operating activities, net of effect of acquisition:
Net income	$	11,726,282		$	8,587,009
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses		2,700,000			1,401,290
Depreciation		1,334,181			1,331,635
Amortization of purchase accounting valuations and intangibles		2,409,426			3,273,960
Net amortization of mortgage servicing asset		190,558			101,231
Federal Home Loan Bank stock dividends		(63,200	)		(7,300	)
Net amortization of premium on investments		1,185,643			1,146,875
Gain on sale of investment securities, net		—			(3,053	)
Gain on loans sold, net		(1,205,815	)		(1,119,392	)
Proceeds, including principal payments, from loans held for sale		119,140,089			106,889,999
Originations of loans held for sale		(122,926,413	)		(108,424,058	)
Non-cash compensation		994,511			726,982
Deferred income tax provision (benefit)		809,823			(175,272	)
(Increase) decrease in interest receivable and other assets		(1,211,900	)		7,592,246
Increase in cash surrender value of bank-owned life insurance		(361,298	)		(380,410	)
(Decrease) increase in accrued interest payable and other liabilities		(4,893,141	)		8,197,772
Net cash provided by operating activities		9,828,746			29,139,514
Cash flows from investing activities, net of effect of acquisition:
Purchases of securities available for sale		(21,751,932	)		(18,713,313	)
Purchases of securities held to maturity		—			(2,927,988	)
Proceeds from maturities, prepayments and calls on securities available for sale		27,705,751			22,432,941
Proceeds from maturities, prepayments and calls on securities held to maturity		235,000			—
Proceeds from sales of securities available for sale		—			16,694,015
Net change in loans		(10,845,158	)		(24,444,345	)
Reimbursement from FDIC for covered assets		51,128			403,866
Decrease in interest bearing deposits in other banks		3,014,585			245,000
Proceeds from sale of repossessed assets		883,798			2,135,948
Purchases of office properties and equipment		(3,399,917	)		(578,097	)
Proceeds from sale of properties and equipment		4,335,095			1,309,339
Net cash disbursed in business combination		—			(56,404,340	)
Purchases of Federal Home Loan Bank stock		—			(4,751,000	)
Proceeds from redemption of Federal Home Loan Bank stock		—			2,444,900
Net cash provided by (used in) investing activities		228,350			(62,153,074	)
Cash flows from financing activities, net of effect of acquisition:
(Decrease) increase in deposits		(23,308,435	)		19,400,716
Borrowings on Federal Home Loan Bank advances		2,496,429,496			2,060,550,000
Repayments of Federal Home Loan Bank advances		(2,482,629,802	)		(2,030,550,000	)
Decrease in securities sold under repurchase agreements		—			(20,000,000	)
Purchase of Company’s common stock		(349,884	)		(3,188,770	)
Proceeds from exercise of stock options		1,066,800			2,845,965
Payment of dividends on common stock		(2,109,790	)		(1,583,379	)
Net cash (used in) provided by financing activities		(10,901,615	)		27,474,532
Net change in cash and cash equivalents		(844,519	)		(5,539,028	)
Cash and cash equivalents at beginning of year		24,797,599			29,077,907
Cash and cash equivalents at end of period	$	23,953,080		$	23,538,879

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

5

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”) 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. The results of operations for the three-month and nine-month periods ended September 30, 2016 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”) for the year ended December 31, 2015.

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. The financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the Company’s financial condition, results of operations, comprehensive income, changes in shareholders’ equity and cash flows for the interim periods presented. These adjustments are of a normal recurring nature and include appropriate estimated provisions.

Certain amounts reported in prior periods have been reclassified to conform to the current period presentation. Such reclassifications had no effect on previously reported shareholders’ equity or net income.

2. Recent Accounting Pronouncements

In January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities”. The ASU amendments include changes related to how certain equity investments are measured, recognize changes in the fair value of certain financial liabilities measured under the fair value option, and disclose and present financial assets and liabilities on the Company’s consolidated financial statements. Additionally, the ASU will also require entities to present financial assets and financial liabilities separately, grouped by measurement category and form of financial asset in the statement of financial position or in the accompanying notes to the financial statements. Entities will also no longer have to disclose the methods and significant assumptions for financial instruments measured at amortized cost, but will be required to measure such instruments under the “exit price” notion for disclosure purposes. The ASU is effective for annual and interim periods beginning after December 15, 2017. The adoption of this ASU is not expected to have a material effect on our Consolidated Financial Statements.

In February 2016, the FASB issued ASU 2016-02, “Conforming Amendments Related to Leases”. This ASU amends the codification regarding leases in order to increase transparency and comparability. The ASU requires companies to recognize lease assets and liabilities on the statement of condition and disclose key information about leasing arrangements. A lessee would 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 adoption of this ASU is not expected to have a material effect on our Consolidated Financial Statements.

6

In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting”. The ASU amends the codification to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification in the statement of cash flows. This ASU is effective for annual and interim periods beginning after December 15, 2016, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this guidance on our Consolidated Financial Statements.

In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments”. The ASU requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net carrying value at the amount expected to be collected on the financial assets. The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount of financial assets. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. The allowance for credit losses for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination that are measured at amortized cost basis is determined in a similar manner to other financial assets measured at amortized cost basis; however, the initial allowance for credit losses is added to the purchase price rather than being reported as a credit loss expense. Only subsequent changes in the allowance for credit losses are recorded as a credit loss expense for these assets. Off-balance-sheet arrangements such as commitments to extend credit, guarantees, and standby letters of credit that and are not unconditionally cancellable are also within the scope of this amendment. Credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses. This ASU is effective for fiscal years beginning after December 31, 2019. An entity will apply the amendments in this update on a modified retrospective basis, through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company is currently planning for the implementation of this accounting standard. It is too early to assess the impact that this guidance will have on our Consolidated Financial Statements.

3. Investment Securities

Summary information regarding the Company’s investment securities classified as available for sale and held to maturity as of September 30, 2016 and December 31, 2015 is as follows.

(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses				Fair Value
					Less Than 1 Year		Over 1 Year
September 30, 2016
Available for sale:
U.S. agency mortgage-backed	$	132,206	$	1,925	$	81	$	113	$	133,937
Non-U.S. agency mortgage-backed		5,370		41		1		47		5,363
Municipal bonds		21,292		555		1		—		21,846
U.S. government agency		9,657		190		—		—		9,847
Total available for sale	$	168,525	$	2,711	$	83	$	160	$	170,993
Held to maturity:
Municipal bonds	$	13,448	$	288	$	—	$	—	$	13,736

7

(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses				Fair Value
					Less Than 1 Year		Over 1 Year
December 31, 2015
Available for sale:
U.S. agency mortgage-backed	$	134,748	$	1,464	$	287	$	447	$	135,478
Non-U.S. agency mortgage-backed		6,055		51		—		41		6,065
Municipal bonds		22,453		490		10		—		22,933
U.S. government agency		12,166		145		25		—		12,286
Total available for sale	$	175,422	$	2,150	$	322	$	488	$	176,762
Held to maturity:
Municipal bonds	$	13,927	$	239	$	45	$	—	$	14,121

The estimated fair value and amortized cost by contractual maturity of the Company’s investment securities as of September 30, 2016 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)	One Year or Less		One Year to Five Years		Five to Ten Years		Over Ten Years		Total
Fair Value
Securities available for sale:
U.S. agency mortgage-backed	$	65	$	4,778	$	35,022	$	94,072	$	133,937
Non-U.S. agency mortgage-backed		—		—		—		5,363		5,363
Municipal bonds		1,890		10,203		8,931		822		21,846
U.S. government agency		—		6,105		—		3,742		9,847
Total available for sale	$	1,955	$	21,086	$	43,953	$	103,999	$	170,993
Securities held to maturity:
Municipal bonds	$	—	$	2,774	$	8,182	$	2,780	$	13,736
Total investment securities	$	1,955	$	23,860	$	52,135	$	106,779	$	184,729

(dollars in thousands)	One Year or Less		One Year to Five Years		Five to Ten Years		Over Ten Years		Total
Amortized Cost
Securities available for sale:
U.S. agency mortgage-backed	$	63	$	4,722	$	34,551	$	92,870	$	132,206
Non-U.S. agency mortgage-backed		—		—		—		5,370		5,370
Municipal bonds		1,885		9,960		8,686		761		21,292
U.S. government agency		—		5,991		—		3,666		9,657
Total available for sale	$	1,948	$	20,673	$	43,237	$	102,667	$	168,525
Securities held to maturity:
Municipal bonds	$	—	$	2,745	$	7,946	$	2,757	$	13,448
Total investment securities	$	1,948	$	23,418	$	51,183	$	105,424	$	181,973

8

Management evaluates securities for other-than-temporary impairment at least quarterly, and more frequently when economic and market conditions warrant such evaluations. Consideration is given to (1) the extent and length of time the fair value has been below cost; (2) the reasons for the decline in value; 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 securities that could potentially have a credit impairment that is other-than-temporary. 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 the Company determines that a security is deemed to be other-than-temporarily impaired, an impairment loss is recognized.

As of September 30, 2016, 26 of the Company’s debt securities had unrealized losses totaling 0.7% of the individual securities’ amortized cost basis and 0.1% of the Company’s total amortized cost basis of the investment securities portfolio. At such date, 10 of the 26 securities had been in a continuous loss position for over 12 months. The 10 securities had an aggregate amortized cost basis of $24.3 million and unrealized loss of $83,000 at September 30, 2016. Management has the intent and ability to hold these debt securities until maturity, or until anticipated recovery; hence, no declines in these 10 securities were deemed to be other-than-temporary at September 30, 2016.

As of September 30, 2016 and December 31, 2015, the Company had $89,360,000 and $94,661,000, 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,
(in thousands, except per share data)	2016		2015		2016		2015
Numerator:
Net income available to common shareholders	$	4,360	$	2,899	$	11,726	$	8,587
Denominator:
Weighted average common shares outstanding		6,872		6,743		6,824		6,690
Effect of dilutive securities:
Restricted stock		4		5		4		4
Stock options		248		275		260		292
Weighted average common shares outstanding – assuming dilution		7,124		7,023		7,088		6,986
Basic earnings per common share	$	0.63	$	0.43	$	1.72	$	1.28
Diluted earnings per common share	$	0.61	$	0.41	$	1.65	$	1.23

Options on 91,372 and 52,258 shares of common stock were not included in the computation of diluted earnings per share for the three months ended September 30, 2016 and September 30, 2015, respectively, because the effect of these shares was anti-dilutive. Options on 64,549 and 39,177 shares of common stock were not included in the computation of diluted earnings per share for the nine months ended September 30, 2016 and September 30, 2015, respectively, because the effect of these shares was anti-dilutive.

5. Credit Quality and Allowance for Loan Losses

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

9

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 Company maintains an allowance for loan losses on originated loans that represents management’s estimate of probable losses incurred in this portfolio category.

Acquired Loans

Loans that were acquired as a result of our acquisitions of certain assets and liabilities of Statewide Bank (“Statewide”) of Covington, Louisiana, on March 12, 2010, and the acquisitions of GS Financial Corp. (“GSFC”), the former holding company of Guaranty Savings Bank of Metairie, Louisiana, on July 15, 2011, Britton & Koontz Capital Corporation (“Britton & Koontz”), the former holding company of Britton & Koontz Bank, N.A. (“Britton & Koontz Bank”) of Natchez, Mississippi on February 14, 2014, and Louisiana Bancorp, Inc. (“Louisiana Bancorp”), the former holding company of Bank of New Orleans (“BNO”) of Metairie, Louisiana on September 15, 2015 are referred to as “Acquired Loans.”

Acquired Loans were recorded at estimated fair value at the acquisition date with no carryover of the related allowance for loan losses. The acquired loans were segregated between those considered to be performing (“acquired performing”) and those with evidence of credit deterioration (“acquired impaired”), 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 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. Management estimates an allowance for loan losses for acquired performing loans using a methodology similar to that used for originated loans. The allowance determined for each loan pool is compared to the remaining fair value discount for that pool. If the allowance amount calculated under the Company’s methodology is greater than the Company’s remaining discount, the additional amount called for is added to the reported allowance through a provision for loan losses. If the allowance amount calculated under the Company’s methodology is less than the Company’s recorded discount, no additional allowance or provision is recognized. Actual losses first reduce any remaining nonaccretable discount for the loan pool. Once the nonaccretable discount is fully depleted, losses are applied against the allowance established for that pool. Acquired performing loans are placed on nonaccrual status and 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 loan pool over the pool’s estimated fair value at acquisition is referred to as the accretable yield and is recognized in interest income using an effective yield method over the remaining life of the pool. Each pool of acquired impaired loans is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows.

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

10

The allowance for loan losses and recorded investment in loans as of the dates indicated are as follows.

	As of September 30, 2016
	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	$	1,375	$	29	$	100	$	1,504
Home equity loans and lines		662		—		74		736
Commercial real estate		3,972		64		—		4,036
Construction and land		1,671		—		74		1,745
Multi-family residential		342		—		—		342
Commercial and industrial		2,628		547		123		3,298
Consumer		532		—		—		532
Total allowance for loan losses	$	11,182	$	640	$	371	$	12,193
	As of September 30, 2016
	Originated Loans
(dollars in thousands)	Collectively Evaluated for Impairment		Individually Evaluated for Impairment		Acquired Loans(1)		Total
Recorded investment in loans:
One- to four-family first mortgage	$	176,137	$	75	$	176,881	$	353,093
Home equity loans and lines		48,364		—		44,944		93,308
Commercial real estate		311,551		619		110,265		422,435
Construction and land		132,976		—		2,286		135,262
Multi-family residential		25,776		—		21,000		46,776
Commercial and industrial		127,060		3,554		8,247		138,861
Consumer		42,041		—		1,594		43,635
Total loans	$	863,905	$	4,248	$	365,217	$	1,233,370
	As of December 31, 2015
	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	$	1,338	$	34	$	92	$	1,464
Home equity loans and lines		536		—		224		760
Commercial real estate		3,066		86		—		3,152
Construction and land		1,360		—		57		1,417
Multi-family residential		173		—		—		173
Commercial and industrial		1,977		33		—		2,010
Consumer		571		—		—		571
Total allowance for loan losses	$	9,021	$	153	$	373	$	9,547

11

	As of December 31, 2015
	Originated Loans
(dollars in thousands)	Collectively Evaluated for Impairment		Individually Evaluated for Impairment		Acquired Loans(1)		Total
Recorded investment in loans:
One- to four-family first mortgage	$	165,774	$	78	$	205,386	$	371,238
Home equity loans and lines		40,251		—		53,809		94,060
Commercial real estate		285,856		181		119,342		405,379
Construction and land		129,035		—		7,768		136,803
Multi-family residential		14,962		—		28,901		43,863
Commercial and industrial		115,360		707		9,041		125,108
Consumer		45,641		—		2,274		47,915
Total loans	$	796,879	$	966	$	426,521	$	1,224,366

⁽¹⁾ $15.9 million and $20.0 million in acquired loans were deemed to be acquired impaired loans and were accounted for under ASC 310-30 at September 30, 2016 and December 31, 2015, respectively.

A summary of activity in the allowance for loan losses during the nine months ended September 30, 2016 and September 30, 2015 follows.

	For the Nine Months Ended September 30, 2016
(dollars in thousands)	Beginning Balance		Charge-offs			Recoveries		Provision			Ending Balance
Originated loans:
Allowance for loan losses:
One- to four-family first mortgage	$	1,372	$	—		$	—	$	32		$	1,404
Home equity loans and lines		536		(9	)		2		133			662
Commercial real estate		3,152		—			1		883			4,036
Construction and land		1,360		—			51		260			1,671
Multi-family residential		173		—			—		169			342
Commercial and industrial		2,010		(128	)		43		1,250			3,175
Consumer		571		(112	)		4		69			532
Total allowance for loan losses	$	9,174	$	(249	)	$	101	$	2,796		$	11,822
Acquired loans:
Allowance for loan losses:
One- to four-family first mortgage	$	92	$	—		$	—	$	8		$	100
Home equity loans and lines		224		—			—		(150	)		74
Commercial real estate		—		—			—		—			—
Construction and land		57		—			—		17			74
Multi-family residential		—		—			—		—			—
Commercial and industrial		—		—			94		29			123
Consumer		—		—			—		—			—
Total allowance for loan losses	$	373	$	—		$	94	$	(96	)	$	371
Total loans:
Allowance for loan losses:
One- to four-family first mortgage	$	1,464	$	—		$	—	$	40		$	1,504
Home equity loans and lines		760		(9	)		2		(17	)		736
Commercial real estate		3,152		—			1		883			4,036
Construction and land		1,417		—			51		277			1,745
Multi-family residential		173		—			—		169			342
Commercial and industrial		2,010		(128	)		137		1,279			3,298
Consumer		571		(112	)		4		69			532
Total allowance for loan losses	$	9,547	$	(249	)	$	195	$	2,700		$	12,193

12

	For the Nine Months Ended September 30, 2015
(dollars in thousands)	Beginning Balance		Charge-offs			Recoveries		Provision			Ending Balance
Originated loans:
Allowance for loan losses:
One- to four-family first mortgage	$	1,136	$	—		$	30	$	203		$	1,369
Home equity loans and lines		442		(14	)		5		105			538
Commercial real estate		2,922		—			1		226			3,149
Construction and land		968		—			—		218			1,186
Multi-family residential		192		—			—		—			192
Commercial and industrial		1,161		(133	)		111		394			1,533
Consumer		521		(79	)		1		134			577
Total allowance for loan losses	$	7,342	$	(226	)	$	148	$	1,280		$	8,544
Acquired loans:
Allowance for loan losses:
One- to four-family first mortgage	$	174	$	(42	)	$	—	$	(39	)	$	93
Home equity loans and lines		111		—			—		125			236
Commercial real estate		—		—			—		—			—
Construction and land		133		(109	)		—		35			59
Multi-family residential		—		—			—		—			—
Commercial and industrial		—		—			—		—			—
Consumer		—		—			—		—			—
Total allowance for loan losses	$	418	$	(151	)	$	—	$	121		$	388
Total loans:
Allowance for loan losses:
One- to four-family first mortgage	$	1,310	$	(42	)	$	30	$	164		$	1,462
Home equity loans and lines		553		(14	)		5		230			774
Commercial real estate		2,922		—			1		226			3,149
Construction and land		1,101		(109	)		—		253			1,245
Multi-family residential		192		—			—		—			192
Commercial and industrial		1,161		(133	)		111		394			1,533
Consumer		521		(79	)		1		134			577
Total allowance for loan losses	$	7,760	$	(377	)	$	148	$	1,401		$	8,932

The following tables present the Company’s loan portfolio by credit quality classification as of the dates indicated.

	September 30, 2016
(dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Originated loans:
One- to four-family first mortgage	$	174,806	$	291	$	1,115	$	—	$	176,212
Home equity loans and lines		47,016		407		941		—		48,364
Commercial real estate		299,625		951		11,594		—		312,170
Construction and land		132,318		—		658		—		132,976
Multi-family residential		25,776		—		—		—		25,776
Commercial and industrial		114,783		5,346		10,485		—		130,614
Consumer		41,503		105		433		—		42,041
Total originated loans	$	835,827	$	7,100	$	25,226	$	—	$	868,153

13

	September 30, 2016
(dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Acquired loans:
One- to four-family first mortgage	$	173,657	$	265	$	2,959	$	—	$	176,881
Home equity loans and lines		44,762		49		133		—		44,944
Commercial real estate		104,399		4,191		1,675		—		110,265
Construction and land		1,620		103		563		—		2,286
Multi-family residential		20,082		5		913		—		21,000
Commercial and industrial		4,844		—		3,403		—		8,247
Consumer		1,541		31		22		—		1,594
Total acquired loans	$	350,905	$	4,644	$	9,668	$	—	$	365,217
Total:
One- to four-family first mortgage	$	348,463	$	556	$	4,074	$	—	$	353,093
Home equity loans and lines		91,778		456		1,074		—		93,308
Commercial real estate		404,024		5,142		13,269		—		422,435
Construction and land		133,938		103		1,221		—		135,262
Multi-family residential		45,858		5		913		—		46,776
Commercial and industrial		119,627		5,346		13,888		—		138,861
Consumer		43,044		136		455		—		43,635
Total loans	$	1,186,732	$	11,744	$	34,894	$	—	$	1,233,370
	December 31, 2015
(dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Originated loans:
One- to four-family first mortgage	$	163,835	$	439	$	1,578	$	—	$	165,852
Home equity loans and lines		39,736		394		121		—		40,251
Commercial real estate		282,963		988		2,086		—		286,037
Construction and land		127,929		—		1,106		—		129,035
Multi-family residential		14,962		—		—		—		14,962
Commercial and industrial		113,108		585		2,374		—		116,067
Consumer		45,133		38		470		—		45,641
Total originated loans	$	787,666	$	2,444	$	7,735	$	—	$	797,845
Acquired loans:
One- to four-family first mortgage	$	200,966	$	791	$	3,629	$	—	$	205,386
Home equity loans and lines		53,352		20		437		—		53,809
Commercial real estate		112,802		4,085		2,455		—		119,342
Construction and land		4,573		1,819		1,376		—		7,768
Multi-family residential		27,931		12		958		—		28,901
Commercial and industrial		7,071		1,191		779		—		9,041
Consumer		2,160		51		63		—		2,274
Total acquired loans	$	408,855	$	7,969	$	9,697	$	—	$	426,521
Total:
One- to four-family first mortgage	$	364,801	$	1,230	$	5,207	$	—	$	371,238
Home equity loans and lines		93,088		414		558		—		94,060
Commercial real estate		395,765		5,073		4,541		—		405,379
Construction and land		132,502		1,819		2,482		—		136,803
Multi-family residential		42,893		12		958		—		43,863
Commercial and industrial		120,179		1,776		3,153		—		125,108
Consumer		47,293		89		533		—		47,915
Total loans	$	1,196,521	$	10,413	$	17,432	$	—	$	1,224,366

14

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 the extent of delinquencies and loan-to-value ratios. These classifications were the most current available as of the dates indicated and were generally updated within the quarter.

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

	September 30, 2016
(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current Loans		Total Loans
Originated loans:
Real estate loans:
One- to four-family first mortgage	$	1,813	$	30	$	226	$	2,069	$	174,143	$	176,212
Home equity loans and lines		247		—		1		248		48,116		48,364
Commercial real estate		—		—		282		282		311,888		312,170
Construction and land		796		108		87		991		131,985		132,976
Multi-family residential		—		—		—		—		25,776		25,776
Total real estate loans		2,856		138		596		3,590		691,908		695,498
Other loans:
Commercial and industrial		131		33		1,367		1,531		129,083		130,614
Consumer		668		137		253		1,058		40,983		42,041
Total other loans		799		170		1,620		2,589		170,066		172,655
Total originated loans	$	3,655	$	308	$	2,216	$	6,179	$	861,974	$	868,153
Acquired loans:
Real estate loans:
One- to four-family first mortgage	$	3,573	$	661	$	1,753	$	5,987	$	170,894	$	176,881
Home equity loans and lines		95		55		103		253		44,691		44,944
Commercial real estate		7		—		1,403		1,410		108,855		110,265
Construction and land		18		29		—		47		2,239		2,286
Multi-family residential		—		—		—		—		21,000		21,000
Total real estate loans		3,693		745		3,259		7,697		347,679		355,376
Other loans:
Commercial and industrial		105		—		—		105		8,142		8,247
Consumer		3		7		11		21		1,573		1,594
Total other loans		108		7		11		126		9,715		9,841
Total acquired loans	$	3,801	$	752	$	3,270	$	7,823	$	357,394	$	365,217

15

	September 30, 2016
(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
Total loans:
Real estate loans:
One- to four-family first mortgage	$	5,386	$	691	$	1,979	$	8,056	$	345,037	$	353,093
Home equity loans and lines		342		55		104		501		92,807		93,308
Commercial real estate		7		—		1,685		1,692		420,743		422,435
Construction and land		814		137		87		1,038		134,224		135,262
Multi-family residential		—		—		—		—		46,776		46,776
Total real estate loans		6,549		883		3,855		11,287		1,039,587		1,050,874
Other loans:
Commercial and industrial		236		33		1,367		1,636		137,225		138,861
Consumer		671		144		264		1,079		42,556		43,635
Total other loans		907		177		1,631		2,715		179,781		182,496
Total loans	$	7,456	$	1,060	$	5,486	$	14,002	$	1,219,368	$	1,233,370

	December 31, 2015
(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current Loans		Total Loans
Originated loans:
Real estate loans:
One- to four-family first mortgage	$	2,174	$	435	$	890	$	3,499	$	162,353	$	165,852
Home equity loans and lines		87		—		121		208		40,043		40,251
Commercial real estate		438		—		602		1,040		284,997		286,037
Construction and land		117		—		87		204		128,831		129,035
Multi-family residential		—		—		—		—		14,962		14,962
Total real estate loans		2,816		435		1,700		4,951		631,186		636,137
Other loans:
Commercial and industrial		411		15		707		1,133		114,934		116,067
Consumer		533		277		358		1,168		44,473		45,641
Total other loans		944		292		1,065		2,301		159,407		161,708
Total originated loans	$	3,760	$	727	$	2,765	$	7,252	$	790,593	$	797,845
Acquired loans:
Real estate loans:
One- to four-family first mortgage	$	1,976	$	885	$	2,582	$	5,443	$	199,943	$	205,386
Home equity loans and lines		327		40		317		684		53,125		53,809
Commercial real estate		140		6		1,441		1,587		117,755		119,342
Construction and land		592		7		48		647		7,121		7,768
Multi-family residential		—		14		12		26		28,875		28,901
Total real estate loans		3,035		952		4,400		8,387		406,819		415,206
Other loans:
Commercial and industrial		14		7		429		450		8,591		9,041
Consumer		64		4		48		116		2,158		2,274
Total other loans		78		11		477		566		10,749		11,315
Total acquired loans	$	3,113	$	963	$	4,877	$	8,953	$	417,568	$	426,521

16

	December 31, 2015
(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
Total loans:
Real estate loans:
One- to four-family first mortgage	$	4,150	$	1,320	$	3,472	$	8,942	$	362,296	$	371,238
Home equity loans and lines		414		40		438		892		93,168		94,060
Commercial real estate		578		6		2,043		2,627		402,752		405,379
Construction and land		709		7		135		851		135,952		136,803
Multi-family residential		—		14		12		26		43,837		43,863
Total real estate loans		5,851		1,387		6,100		13,338		1,038,005		1,051,343
Other loans:
Commercial and industrial		425		22		1,136		1,583		123,525		125,108
Consumer		597		281		406		1,284		46,631		47,915
Total other loans		1,022		303		1,542		2,867		170,156		173,023
Total loans	$	6,873	$	1,690	$	7,642	$	16,205	$	1,208,161	$	1,224,366

Excluding Acquired Loans with deteriorated credit quality, as of September 30, 2016 and December 31, 2015, the Company did not have any loans greater than 90 days past due and accruing.

The following is a summary of information pertaining to Originated Loans which were deemed to be impaired loans as of the dates indicated.

	As of Period Ended September 30, 2016
(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		—		—		—		—		—
Commercial real estate		—		—		—		—		—
Construction and land		—		—		—		—		—
Multi-family residential		—		—		—		—		—
Commercial and industrial		—		—		—		—		—
Consumer		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—
With an allowance recorded:
One- to four-family first mortgage	$	75	$	81	$	28	$	79	$	4
Home equity loans and lines		—		—		—		—		—
Commercial real estate		619		650		64		375		17
Construction and land		—		—		—		—		—
Multi-family residential		—		—		—		—		—
Commercial and industrial		3,554		3,593		547		1,290		149
Consumer		—		—		—		—		—
Total	$	4,248	$	4,324	$	639	$	1,744	$	170
Total impaired Originated Loans:
One- to four-family first mortgage	$	75	$	81	$	28	$	79	$	4
Home equity loans and lines		—		—		—		—		—
Commercial real estate		619		650		64		375		17
Construction and land		—		—		—		—		—
Multi-family residential		—		—		—		—		—
Commercial and industrial		3,554		3,593		547		1,290		149
Consumer		—		—		—		—		—
Total	$	4,248	$	4,324	$	639	$	1,744	$	170

17

	As of Period Ended December 31, 2015
(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	$	—	$	—	$	—	$	72	$	—
Home equity loans and lines		—		—		—		—		—
Commercial real estate		—		—		—		—		—
Construction and land		—		—		—		—		—
Multi-family residential		—		—		—		—		—
Commercial and industrial		—		—		—		213		—
Consumer		—		—		—		—		—
Total	$	—	$	—	$	—	$	285	$	—
With an allowance recorded:
One- to four-family first mortgage	$	78	$	78	$	34	$	6	$	5
Home equity loans and lines		—		—		—		—		—
Commercial real estate		181		181		86		461		11
Construction and land		—		—		—		—		—
Multi-family residential		—		—		—		—		—
Commercial and industrial		707		707		33		729		39
Consumer		—		—		—		—		—
Total	$	966	$	966	$	153	$	1,196	$	55
Total impaired Originated Loans:
One- to four-family first mortgage	$	78	$	78	$	34	$	78	$	5
Home equity loans and lines		—		—		—		—		—
Commercial real estate		181		181		86		461		11
Construction and land		—		—		—		—		—
Multi-family residential		—		—		—		—		—
Commercial and industrial		707		707		33		942		39
Consumer		—		—		—		—		—
Total	$	966	$	966	$	153	$	1,481	$	55

A summary of information pertaining to nonaccrual loans as of dates indicated is as follows.

	September 30, 2016						December 31, 2015
(dollars in thousands)	Originated		Acquired(1)		Total		Originated		Acquired(1)		Total
Nonaccrual loans:
One- to four-family first mortgage	$	553	$	622	$	1,175	$	928	$	530	$	1,458
Home equity loans and lines		941		95		1,036		121		139		260
Commercial real estate		4,737		419		5,156		1,671		1,013		2,684
Construction and land		87		—		87		86		69		155
Multi-family residential		—		—		—		—		763		763
Commercial and industrial		10,404		321		10,725		2,374		84		2,458
Consumer		433		—		433		471		6		477
Total	$	17,155	$	1,457	$	18,612	$	5,651	$	2,604	$	8,255

⁽¹⁾ Table excludes acquired loans which were being accounted for under ASC 310-30 because they continue 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, which were being accounted for under ASC 310-30 and which were 90 days or more past due, totaled $2.6 million and $4.0 million as of September 30, 2016 and December 31, 2015, respectively.

As of September 30, 2016, the Company had no outstanding commitments to lend additional funds to any customer whose loan was classified as impaired.

18

Troubled Debt Restructurings

During the course of its lending operations, the Company may periodically grant 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’s loan to alleviate the burden of the customer’s near-term cash requirements. In order to be considered a troubled debt restructuring (“TDR”), the Company must conclude that the restructuring of a loan to a borrower who is experiencing financial difficulties constitutes 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 is either granted through an agreement with the customer or is imposed by a court or by a 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 for loan losses on TDRs, such loans are reviewed for specific impairment 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 portion of the allowance for loan losses to these loans.

Information about the Company’s TDRs is presented in the following tables.

	As of September 30, 2016
(dollars in thousands)	Current		Past Due Greater Than 30 Days and Accruing		Nonaccrual TDRs		Total TDRs
Originated loans:
Real estate loans:
One- to four-family first mortgage	$	277	$	—	$	309	$	586
Home equity loans and lines		335		—		931		1,266
Commercial real estate		104		—		1,914		2,018
Construction and land		211		—		87		298
Multi-family residential		—		—		—		—
Total real estate loans		927		—		3,241		4,168

19

	As of September 30, 2016
(dollars in thousands)	Current		Past Due Greater Than 30 Days and Accruing		Nonaccrual TDRs		Total TDRs
Other loans:
Commercial and industrial		—		—		2,895		2,895
Consumer		—		—		181		181
Total other loans		—		—		3,076		3,076
Total originated loans	$	927	$	—	$	6,317	$	7,244
Acquired loans:
Real estate loans:
One- to four-family first mortgage	$	378	$	12	$	62	$	452
Home equity loans and lines		—		—		—		—
Commercial real estate		289		860		—		1,149
Construction and land		—		—		—		—
Multi-family residential		—		—		—		—
Total real estate loans		667		872		62		1,601
Other loans:
Commercial and industrial		1,884		—		321		2,205
Consumer		—		—		—		—
Total other loans		1,884		—		321		2,205
Total acquired loans	$	2,551	$	872	$	383	$	3,806
Total loans:
Real estate loans:
One- to four-family first mortgage	$	655	$	12	$	371	$	1,038
Home equity loans and lines		335		—		931		1,266
Commercial real estate		393		860		1,914		3,167
Construction and land		211		—		87		298
Multi-family residential		—		—		—		—
Total real estate loans		1,594		872		3,303		5,769
Other loans:
Commercial and industrial		1,884		—		3,216		5,100
Consumer		—		—		181		181
Total other loans		1,884		—		3,397		5,281
Total loans	$	3,478	$	872	$	6,700	$	11,050

	As of December 31, 2015
(dollars in thousands)	Current		Past Due Greater Than 30 Days and Accruing		Nonaccrual TDRs		Total TDRs
Originated loans:
Real estate loans:
One- to four-family first mortgage	$	281	$	—	$	38	$	319
Home equity loans and lines		383		—		3		386
Commercial real estate		107		—		1,069		1,176
Construction and land		—		—		87		87
Multi-family residential		—		—		—		—
Total real estate loans		771		—		1,197		1,968
Other loans:
Commercial and industrial		—		—		2,374		2,374
Consumer		27		—		142		169
Total other loans		27		—		2,516		2,543
Total originated loans	$	798	$	—	$	3,713	$	4,511

20

	As of December 31, 2015
(dollars in thousands)	Current		Past Due Greater Than 30 Days and Accruing		Nonaccrual TDRs		Total TDRs
Acquired loans:
Real estate loans:
One- to four-family first mortgage	$	419	$	88	$	—	$	507
Home equity loans and lines		—		—		—		—
Commercial real estate		316		876		—		1,192
Construction and land		—		52		—		52
Multi-family residential		—		—		—		—
Total real estate loans		735		1,016		—		1,751
Other loans:
Commercial and industrial		—		—		—		—
Consumer		—		—		—		—
Total other loans		—		—		—		—
Total acquired loans	$	735	$	1,016	$	—	$	1,751
Total loans:
Real estate loans:
One- to four-family first mortgage	$	700	$	88	$	38	$	826
Home equity loans and lines		383		—		3		386
Commercial real estate		423		876		1,069		2,368
Construction and land		—		52		87		139
Multi-family residential		—		—		—		—
Total real estate loans		1,506		1,016		1,197		3,719
Other loans:
Commercial and industrial		—		—		2,374		2,374
Consumer		27		—		142		169
Total other loans		27		—		2,516		2,543
Total loans	$	1,533	$	1,016	$	3,713	$	6,262

None of the above referenced TDRs defaulted subsequent to the restructuring through the date the financial statements were issued. The Company restructured, as a TDR, loans totaling $5.6 million during the third quarter of 2016.

6. 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.

21

Recurring Basis

Investment Securities Available for Sale

Fair values of investment securities available for sale are primarily measured using information from a first-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 first-party pricing service, fair value is estimated by the use of secondary pricing services or through the use of non-binding first-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, 2016, management did not make adjustments to prices provided by the first-party pricing service as a result of illiquid or inactive markets.

The following tables present the balances of assets measured for fair value on a recurring basis as of September 30, 2016 and December 31, 2015.

			Fair Value Measurements Using
(dollars in thousands)	September 30, 2016		Level 1		Level 2		Level 3
Available for sale securities:
U.S. agency mortgage-backed	$	133,937	$	—	$	133,937	$	—
Non-U.S. agency mortgage-backed		5,363		—		5,363		—
Municipal bonds		21,846		—		21,846		—
U.S. government agency		9,847		—		9,847		—
Total	$	170,993	$	—	$	170,993	$	—
			Fair Value Measurements Using
(dollars in thousands)	December 31, 2015		Level 1		Level 2		Level 3
Available for sale securities:
U.S. agency mortgage-backed	$	135,478	$	—	$	135,478	$	—
Non-U.S. agency mortgage-backed		6,065		—		6,065		—
Municipal bonds		22,933		—		22,933		—
U.S. government agency		12,286		—		12,286		—
Total	$	176,762	$	—	$	176,762	$	—

The Company did not record any liabilities at fair value for which measurement of the fair value was made on a recurring basis.

22

Nonrecurring Basis

In accordance with the provisions of ASC 310, Receivables, the Company records loans considered impaired at fair value. 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 external parties of the collateral less any prior liens and when there is no observable market price. Repossessed assets are initially recorded at fair value less estimated costs to sell. The fair value of repossessed assets is based on property appraisals and an analysis of similar properties available. As such, the Company classifies repossessed 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 in the table below.

			Fair Value Measurements Using
(dollars in thousands)	September 30, 2016		Level 1		Level 2		Level 3
Repossessed assets	$	2,551	$	—	$	—	$	2,551
Impaired loans		3,608		—		—		3,608
Total	$	6,159	$	—	$	—	$	6,159
			Fair Value Measurements Using
(dollars in thousands)	December 31, 2015		Level 1		Level 2		Level 3
Repossessed assets	$	3,128	$	—	$	—	$	3,128
Impaired loans		813		—		—		813
Total	$	3,941	$	—	$	—	$	3,941

The following table shows significant observable 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
As of September 30, 2016
Repossessed assets	$	2,551	Third party appraisals, sales contracts, broker price opinions	Collateral discounts and estimated costs to sell		6% - 99%		52%
Impaired loans	$	3,608	Third party appraisals and discounted cash flows	Collateral discounts and discount rates		0% - 100%		15%
As of December 31, 2015
Repossessed assets	$	3,128	Third party appraisals, sales contracts, broker price opinions	Collateral discounts and estimated costs to sell		6% - 96%		19%
Impaired loans	$	813	Third party appraisals and discounted cash flows	Collateral discounts and discount rates		0% - 100%		15%

23

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 and 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:

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 first 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”) 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 short-term FHLB advances is the amount payable at maturity. The fair value of long-term FHLB advances is estimated by discounting the future cash flows using the rates currently offered for advances of similar maturities.

24

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

			Fair Value Measurements at September 30, 2016
(dollars in thousands)	Carrying Amount		Total		Level 1		Level 2		Level 3
Financial Assets
Cash and cash equivalents	$	23,953	$	23,953	$	23,953	$	—	$	—
Interest-bearing deposits in banks		2,129		2,129		2,129		—		—
Investment securities available for sale		170,993		170,993		—		170,993		—
Investment securities held to maturity		13,448		13,736		—		13,736		—
Mortgage loans held for sale		10,643		10,643		—		10,643		—
Loans, net		1,221,177		1,227,591		—		—		1,227,591
Cash surrender value of BOLI		20,028		20,028		20,028		—		—
Financial Liabilities
Deposits	$	1,220,830	$	1,221,708	$	—	$	1,221,708	$	—
Short-term FHLB advances		59,200		59,200		59,200		—		—
Long-term FHLB advances		79,629		80,319		—		80,319		—

			Fair Value Measurements at December 31, 2015
(dollars in thousands)	Carrying Amount		Total		Level 1		Level 2		Level 3
Financial Assets
Cash and cash equivalents	$	24,798	$	24,798	$	24,798	$	—	$	—
Interest-bearing deposits in banks		5,144		5,144		5,144		—		—
Investment securities available for sale		176,762		176,762		—		176,762		—
Investment securities held to maturity		13,927		14,121		—		14,121		—
Mortgage loans held for sale		5,651		5,651		—		5,651		—
Loans, net		1,214,818		1,216,370		—		—		1,216,370
Cash surrender value of BOLI		19,667		19,667		19,667		—		—
Financial Liabilities
Deposits	$	1,244,217	$	1,243,698	$	—	$	1,243,698	$	—
Short-term FHLB advances		39,939		39,939		39,939		—		—
Long-term FHLB advances		85,213		84,711		—		84,711		—

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”) and its wholly owned subsidiary, Home Bank, N. A. (the “Bank”), from December 31, 2015 through September 30, 2016 and on its results of operations for the three and nine months ended September 30, 2016 and September 30, 2015. 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.

25

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”) for the year ended December 31, 2015. 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 2016, the Company earned $4.4 million, an increase of $1.5 million, or 50.4%, compared to the third quarter of 2015. Diluted earnings per share for the third quarter of 2016 were $0.61, an increase of $0.20, or 48.8%, compared to the third quarter of 2015. The third quarter of 2015 included merger-related expenses related to the Louisiana Bancorp, Inc. (“Louisiana Bancorp”) acquisition totaling $593,000 ($527,000, net of taxes). Excluding merger-related expenses, net income for the third quarter of 2016 increased 27.3% compared to the third quarter of 2015 (see the “Non-GAAP Reconciliation” on page 28). Excluding merger-related expenses, diluted earnings per share for the third quarter of 2016 increased 24.5% compared to the third quarter of 2015.

During the nine months ended September 30, 2016, the Company earned $11.7 million, an increase of $3.1 million, or 36.6%, compared to the nine months ended September 30, 2015. Diluted earnings per share for the nine months ended September 30, 2016 were $1.65, an increase of $0.42, or 34.1%, compared to the nine months ended September 30, 2015. The nine months ended September 30, 2016 and 2015 included merger-related expenses related to the Louisiana Bancorp acquisition totaling $856,000 and $848,000, respectively ($560,000 and $759,000, respectively, net of taxes). The nine months ended September 30, 2016 included a $641,000 gain on the sale of a banking center in the New Orleans market following the Louisiana Bancorp systems conversion. The nine months ended September 30, 2015 included a $492,000 loss on the sale of a banking center. Excluding merger-related expenses and the banking center gain and loss, net income for the nine months ended September 30, 2016 increased 22.8% compared to the nine months ended September 30, 2015. Excluding merger-related expenses and the banking center gain, diluted earnings per share for the nine months ended September 30, 2016 increased 20.1% compared to the nine months ended September 30, 2015.

Key components of the Company’s performance during the three and nine months ended September 30, 2016 include:

• Assets totaled $1.5 billion as of September 30, 2016, down $2.4 million, or 0.2%, from December 31, 2015.

• Investment securities totaled $184.4 million as of September 30, 2016, a decrease of $6.2 million, or 3.3%, from December 31, 2015.

• Loans as of September 30, 2016 were $1.2 billion, an increase of $9.0 million, or 0.7%, from December 31, 2015. Growth in originated loans of 8.1% was partially offset by paydowns in acquired loans.

• Deposits as of September 30, 2016 were $1.2 billion, a decrease of $23.4 million, or 1.9%, from December 31, 2015. Core deposits (i.e., checking, savings, and money market accounts) totaled $957.0 million as of September 30, 2016, a decrease of $10.4 million, or 1.1%, from December 31, 2015.

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• Interest income increased $2.4 million, or 16.8%, in the third quarter of 2016, compared to the third quarter of 2015. For the nine months ended September 30, 2016, interest income increased $9.4 million, or 22.9%, compared to the nine months ended September 30, 2015. Interest income increased primarily due to higher loan volume as a result of the Louisiana Bancorp acquisition late in the third quarter of 2015.

• Interest expense increased $414,000, or 46.3%, in the third quarter of 2016 compared to the third quarter of 2015. For the nine months ended September 30, 2016, interest expense increased $1.4 million, or 56.0%, compared to the nine months ended September 30, 2015. Interest expense increased primarily due to a higher volume of interest-bearing liabilities as a result of the Louisiana Bancorp acquisition.

• The provision for loan losses totaled $800,000 for the third quarter of 2016, an increase of $231,000, or 40.7%, compared to the third quarter of 2015. For the nine months ended September 30, 2016, the provision for loan losses totaled $2.7 million, an increase of $1.3 million, or 92.7%, from the nine months ended September 30, 2015. At September 30, 2016, the Company’s ratio of the allowance for loan losses to total loans was 0.99%, compared to 0.74% at September 30, 2015. Excluding acquired loans, the ratio of the allowance for loan losses to total loans was 1.36% at September 30, 2016, compared to 1.12% at September 30, 2015. The Company recorded $54,000 in net loan charge-offs during the first nine months of 2016, compared to net loan charge-offs of $229,000 during the first nine months of 2015.

• Noninterest income for the third quarter of 2016 increased $318,000, or 14.5%, compared to the third quarter of 2015. For the nine months ended September 30, 2016, noninterest income increased $2.2 million, or 35.1%, compared to the nine months ended September 30, 2015. The increases resulted primarily from the change in net gains and losses on sale of properties and equipment in addition to increased service fees and charges and bank card fees.

• Noninterest expense for the third quarter of 2016 increased $121,000, or 1.2%, compared to the third quarter of 2015. Noninterest expense for the nine months ended September 30, 2016 increased $4.4 million, or 14.3%, compared to the nine months ended September 30, 2015. Noninterest expense included merger-related expenses related to the acquisition of Louisiana Bancorp totaling $593,000 for the third quarter of 2015, and $856,000 and $848,000 for the nine months ended September, 30, 2016 and September 30, 2015, respectively. Excluding merger-related expenses, noninterest expense increased $714,000, or 7.2%, for the third quarter of 2016 compared to the third quarter of 2015. Excluding merger-related expenses, noninterest expense increased $4.4 million, or 14.7%, for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015. The increases in noninterest expense relate primarily to the growth of the Company due to the addition of Louisiana Bancorp branches and employees in the third quarter of 2015. The increases were partially offset by lower expenses on foreclosed assets (down $780,000 resulting from a $560,000 net gain on the sale of foreclosed assets and lower foreclosed asset expenses in the third quarter).

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This discussion and analysis contains financial information prepared other than in accordance with generally accepted accounting principles (“GAAP”). The Company uses these non-GAAP financial measures in its analysis of the Company’s performance. Management believes that the non-GAAP information provides useful data in understanding the Company’s operations and in comparing the Company’s results of operation to peers. This non-GAAP information should be considered in addition to the Company’s financial information prepared in accordance with GAAP, and is not a substitute for, or superior to, GAAP results. Reconciliation of GAAP to non-GAAP disclosures is included in the table below.

Non-GAAP Reconciliation

	For the Three Months Ended				For the Nine Months Ended
(dollars in thousands)	September 30, 2016		September 30, 2015		September 30, 2016			September 30, 2015
Reported noninterest expense	$	10,643	$	10,522	$	34,839		$	30,470
Less: Merger-related expenses		—		593		856			848
Non-GAAP noninterest expense	$	10,643	$	9,929	$	33,983		$	29,622
Reported noninterest income	$	2,515	$	2,197	$	8,529		$	6,315
Less: (Gain) loss on sale of banking centers		—		—		(641	)		492
Non-GAAP noninterest income	$	2,515	$	2,197	$	7,888		$	6,807
Reported net income	$	4,360	$	2,899	$	11,726		$	8,587
Less: (Gain) loss on sale of banking centers, net of tax		—		—		(416	)		320
Add: Merger-related expenses, net of tax		—		527		560			759
Non-GAAP net income	$	4,360	$	3,426	$	11,870		$	9,666
Diluted EPS	$	0.61	$	0.41	$	1.65		$	1.23
Less: (Gain) loss on sale of banking center		—		—		(0.06	)		0.05
Add: Merger-related expenses		—		0.08		0.08			0.11
Non-GAAP diluted EPS	$	0.61	$	0.49	$	1.67		$	1.39

FINANCIAL CONDITION

Loans, Asset Quality and Allowance for Loan Losses

Loans – Loans outstanding as of September 30, 2016 were $1.2 billion, an increase of $9.0 million, or 0.7%, from December 31, 2015. Growth in originated loans of 8.1% was partially offset by paydowns in acquired loans.

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)	2016		2015		Amount			Percent
Real estate loans:
One- to four-family first mortgage	$	353,093	$	371,238	$	(18,145	)		(4.9	)%
Home equity loans and lines		93,308		94,060		(752	)		(0.8	)
Commercial real estate		422,435		405,379		17,056			4.2
Construction and land		135,262		136,803		(1,541	)		(1.1	)
Multi-family residential		46,776		43,863		2,913			6.6
Total real estate loans		1,050,874		1,051,343		(469	)		—
Other loans:
Commercial and industrial		138,861		125,108		13,753			11.0
Consumer		43,635		47,915		(4,280	)		(8.9	)
Total other loans		182,496		173,023		9,473			5.5
Total loans	$	1,233,370	$	1,224,366	$	9,004			0.7	%

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