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: June 30, 2018

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, 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	☐  (Do not check if a smaller reporting company)	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 Act).    YES  ☐    NO  ☒

At July 31, 2018, the registrant had 9,460,512 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		27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		39
Item 4.	Controls and Procedures		39
PART II
Item 1.	Legal Proceedings		40
Item 1A.	Risk Factors		40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		40
Item 3.	Defaults Upon Senior Securities		40
Item 4.	Mine Safety Disclosures		40
Item 5.	Other Information		40
Item 6.	Exhibits		41
SIGNATURES			42

i

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

	(Unaudited) June 30, 2018			(Audited) December 31, 2017
Assets
Cash and cash equivalents	$	80,489,229		$	150,417,829
Interest-bearing deposits in banks		1,429,000			2,421,000
Investment securities available for sale, at fair value		264,258,591			234,993,436
Investment securities held to maturity (fair values of $12,849,714 and $13,055,073, respectively)		12,869,388			13,033,590
Mortgage loans held for sale		9,710,992			5,873,132
Loans, net of unearned income		1,625,679,017			1,657,794,751
Allowance for loan losses		(14,972,574	)		(14,807,278	)
Total loans, net of unearned income and allowance for loan losses		1,610,706,443			1,642,987,473
Office properties and equipment, net		45,191,944			45,604,752
Cash surrender value of bank-owned life insurance		29,228,142			28,903,913
Goodwill and core deposit intangibles		67,035,203			68,033,472
Accrued interest receivable and other assets		39,056,995			35,852,241
Total Assets	$	2,159,975,927		$	2,228,120,838
Liabilities
Deposits:
Noninterest-bearing	$	455,676,218		$	461,999,611
Interest-bearing		1,332,868,982			1,404,227,717
Total deposits		1,788,545,200			1,866,227,328
Short-term Federal Home Loan Bank advances		3,578,172			3,642,422
Long-term Federal Home Loan Bank advances		66,395,569			68,183,173
Accrued interest payable and other liabilities		12,096,106			12,197,189
Total Liabilities		1,870,615,047			1,950,250,112
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; 9,437,654 and 9,395,488 shares issued and outstanding, respectively		94,377			93,955
Additional paid-in capital		166,897,088			165,341,415
Unallocated common stock held by:
Employee Stock Ownership Plan (ESOP)		(3,659,970	)		(3,838,510	)
Recognition and Retention Plan (RRP)		(77,450	)		(83,903	)
Retained earnings		129,645,221			117,312,630
Accumulated other comprehensive loss		(3,538,386	)		(954,861	)
Total Shareholders’ Equity		289,360,880			277,870,726
Total Liabilities and Shareholders’ Equity	$	2,159,975,927		$	2,228,120,838

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 Six Months Ended
	June 30,					June 30,
	2018		2017			2018		2017
Interest Income
Loans, including fees	$	23,527,220	$	16,167,363		$	46,330,848	$	32,410,631
Investment securities:
Taxable interest		1,530,688		958,583			2,839,639		1,824,496
Tax-exempt interest		179,113		156,297			365,221		319,017
Other investments and deposits		338,259		116,526			765,198		207,891
Total interest income		25,575,280		17,398,769			50,300,906		34,762,035
Interest Expense
Deposits		1,926,555		1,149,489			3,828,752		2,141,929
Short-term Federal Home Loan Bank advances		16,409		30,628			32,985		94,606
Long-term Federal Home Loan Bank advances		295,719		321,201			596,024		658,848
Total interest expense		2,238,683		1,501,318			4,457,761		2,895,383
Net interest income		23,336,597		15,897,451			45,843,145		31,866,652
Provision for loan losses		580,621		150,000			1,544,878		456,832
Net interest income after provision for loan losses		22,755,976		15,747,451			44,298,267		31,409,820
Noninterest Income
Service fees and charges		1,519,743		990,432			3,174,488		1,927,361
Bank card fees		1,196,082		766,607			2,294,632		1,450,121
Gain on sale of loans, net		200,864		327,549			407,901		615,612
Income from bank-owned life insurance		163,610		121,649			324,229		240,365
Gain (loss) on sale of assets, net		69		(460,029	)		145,275		(104,489	)
Other income		263,665		417,739			478,459		860,784
Total noninterest income		3,344,033		2,163,947			6,824,984		4,989,754
Noninterest Expense
Compensation and benefits		9,222,132		6,892,412			18,163,605		13,667,861
Occupancy		1,719,081		1,272,246			3,393,950		2,492,129
Marketing and advertising		306,434		287,807			565,989		514,403
Data processing and communication		2,344,224		1,073,303			4,023,270		2,148,510
Professional services		305,569		181,517			591,623		412,887
Forms, printing and supplies		273,995		155,144			630,599		290,443
Franchise and shares tax		363,248		191,816			728,548		393,782
Regulatory fees		342,947		312,437			722,284		635,275
Foreclosed assets, net		86,643		(101,096	)		189,641		(159,871	)
Other expenses		1,357,355		785,290			2,902,081		1,686,170
Total noninterest expense		16,321,628		11,050,876			31,911,590		22,081,589
Income before income tax expense		9,778,381		6,860,522			19,211,661		14,317,985
Income tax expense		2,002,631		2,374,725			3,972,364		4,826,487
Net Income	$	7,775,750	$	4,485,797		$	15,239,297	$	9,491,498
Earnings per share:
Basic	$	0.86	$	0.64		$	1.69	$	1.36
Diluted	$	0.84	$	0.62		$	1.64	$	1.31
Cash dividends declared per common share	$	0.17	$	0.14		$	0.32	$	0.27

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 Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
Net Income	$	7,775,750		$	4,485,797		$	15,239,297		$	9,491,498
Other Comprehensive (Loss) Income
Unrealized (losses) gains on investment securities		(1,012,656	)		57,467			(3,009,953	)		162,647
Tax effect		212,657			(20,113	)		632,090			(56,926	)
Other comprehensive (loss) income, net of taxes		(799,999	)		37,354			(2,377,863	)		105,721
Comprehensive Income	$	6,975,751		$	4,523,151		$	12,861,434		$	9,597,219

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)

	Common Stock			Additional Paid-in Capital			Unallocated Common Stock Held by ESOP			Unallocated Common Stock Held by RRP			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balance, December 31, 2016	$	73,502		$	79,425,604		$	(4,195,590	)	$	(119,633	)	$	104,647,375		$	11,766		$	179,843,024
Net income														9,491,498						9,491,498
Other comprehensive income																	105,721			105,721
Purchase of Company’s common stock at cost, 91 shares		(1	)		(539	)								(1,684	)					(2,224	)
Cash dividends declared, $0.27 per share														(1,991,459	)					(1,991,459	)
Common stock issued under incentive plans, net of shares surrendered in payment, including tax benefit 7,805 shares		78			17,055									(35,036	)					(17,903	)
Exercise of stock options		436			508,205															508,641
RRP shares released for allocation					(3,553	)					7,648									4,095
ESOP shares released for allocation					578,954			178,540												757,494
Share-based compensation cost					239,978															239,978
Balance, June 30, 2017	$	74,015		$	80,765,704		$	(4,017,050	)	$	(111,985	)	$	112,110,694		$	117,487		$	188,938,865
Balance, December 31, 2017	$	93,955		$	165,341,415		$	(3,838,510	)	$	(83,903	)	$	117,312,630		$	(954,861	)	$	277,870,726
Net income														15,239,297						15,239,297
Other comprehensive loss																	(2,377,863	)		(2,377,863	)
Reclassification of stranded tax effects in accumulated other comprehensive income(1)														205,662			(205,662	)		—
Purchase of Company’s common stock at cost, 1,077 shares		(11	)		(10,759	)								(37,536	)					(48,306	)
Cash dividends declared, $0.32 per share														(3,010,689	)					(3,010,689	)
Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 16,528 shares		165			169,891									(64,143	)					105,913
Exercise of stock options		268			338,528															338,796
RRP shares released for allocation					(4,190	)					6,453									2,263
ESOP shares released for allocation					719,115			178,540												897,655
Share-based compensation cost					343,088															343,088
Balance, June 30, 2018	$	94,377		$	166,897,088		$	(3,659,970	)	$	(77,450	)	$	129,645,221		$	(3,538,386	)	$	289,360,880

⁽¹⁾ See Note 2 - Recent Accounting Pronouncements

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 Six Months Ended
	June 30,
	2018			2017
Cash flows from operating activities:
Net income	$	15,239,297		$	9,491,498
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		1,544,878			456,832
Depreciation		1,199,431			957,910
Amortization and accretion of purchase accounting valuations and intangibles		4,211,869			2,348,298
Net amortization of mortgage servicing asset		75,256			100,009
Federal Home Loan Bank stock dividends		(55,500	)		(53,300	)
Net amortization of discount on investments		983,158			827,562
Gain on loans sold, net		(407,901	)		(615,612	)
Proceeds, including principal payments, from loans held for sale		43,424,958			64,813,882
Originations of loans held for sale		(46,854,917	)		(64,340,005	)
Non-cash compensation		1,240,743			997,472
Deferred income tax expense (benefit)		317,512			(183,150	)
(Increase) decrease in accrued interest receivable and other assets		(3,182,933	)		607,288
Increase in cash surrender value of bank-owned life insurance		(324,229	)		(240,365	)
Decrease in accrued interest payable and other liabilities		(157,423	)		(1,772,297	)
Net cash provided by operating activities		17,254,199			13,396,022
Cash flows from investing activities:
Purchases of securities available for sale		(58,268,456	)		(33,716,007	)
Proceeds from maturities, prepayments and calls on securities available for sale		25,173,733			19,569,009
Decrease (increase) in loans, net		27,288,000			7,216,038
Decrease in interest-bearing deposits in banks		992,000			493,000
Proceeds from sale of repossessed assets		540,040			2,632,000
Purchases of office properties and equipment		(1,500,090	)		(667,584	)
Proceeds from sale of office properties and equipment		839,402			639,290
Proceeds from redemption of Federal Home Loan Bank stock		—			4,180,100
Net cash (used in) provided by investing activities		(4,935,371	)		345,846
Cash flows from financing activities:
(Decrease) increase in deposits, net		(77,728,187	)		61,170,327
Borrowings on Federal Home Loan Bank advances		—			130,750,000
Repayments of Federal Home Loan Bank advances		(1,904,955	)		(181,771,583	)
Proceeds from exercise of stock options		338,796			508,641
Issuance of stock under incentive plans		105,913			(17,903	)
Dividends paid to shareholders		(3,010,689	)		(1,991,459	)
Purchase of Company’s common stock		(48,306	)		(2,224	)
Net cash (used in) provided by financing activities		(82,247,428	)		8,645,799
Net change in cash and cash equivalents		(69,928,600	)		22,387,667
Cash and cash equivalents at beginning of year		150,417,829			29,314,741
Cash and cash equivalents at end of year	$	80,489,229		$	51,702,408

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 six-month period ended June 30, 2018 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, 2017.

Critical Accounting Policies and Estimates

There were no material changes or developments during the reporting period with respect to methodologies the Company uses when applying critical accounting policies and developing critical accounting estimates as disclosed in its Annual Report on Form 10-K for the year ended December 31, 2017.

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.

2. Recent Accounting Pronouncements

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. Upon implementation, lessee will 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 is currently assessing the amendment but does not anticipate it will have a material impact on our Consolidated Financial Statements. Based on the Company’s preliminary assessment of its current leases, the impact to the Company’s consolidated balance sheet is estimated to be less than a 1% increase in assets and liabilities.

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 collectability 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

6

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 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 assessing this accounting standard and the implementation of a new software application during 2018 to assist in determining the impact to our Consolidated Financial Statements. The adoption of this ASU could result in material changes in our accounting for credit losses. The extent of the impact upon adoption will depend on the characteristics of the Company’s loan portfolio and economic conditions on that date as well as forecasted conditions thereafter.

In January 2017, FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other, Simplifying the Test for Goodwill Impairment”. The amendment in this ASU eliminates the requirement to calculate the implied fair value of goodwill in order to measure a goodwill impairment charge. An entity will record an impairment charge based on the excess of the carrying amount over its fair value. This ASU is effective for fiscal and interim testing periods beginning after December 15, 2019. The Company is currently assessing the amendment and does not anticipate it will have a material impact on our Consolidated Financial Statements.

In April 2017, FASB issued ASU No. 2017-8, “Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities”. This ASU shortens the amortization period for the premium on certain purchased callable debt securities to the earliest call date. The accounting for purchased callable debt securities held at a discount does not change under the new guidance. This ASU is effective for fiscal and interim periods beginning after December 15, 2018. The Company is currently assessing the amendment and does not anticipate it will have an impact on our Consolidated Financial Statements.

ASU 2018-02, “Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” ASU 2018-02 was issued to address the income tax accounting treatment of the stranded tax effects within accumulated other comprehensive income as a result of tax reform. This issue came about from the enactment of the Tax Cuts and Jobs Act of 2017 on December 22, 2017 that changed the Company’s statutory income tax rate from 35% to 21%. The ASU changed current accounting whereby an entity may elect to reclassify the stranded tax effect from accumulated other comprehensive income to retained earnings. The ASU is effective for periods beginning after December 15, 2018 although early adoption is permitted. The Company adopted ASU 2018-02 in the first quarter of 2018 and reclassified its stranded tax credit of $206,000 from accumulated other comprehensive income to retained earnings.

3. Investment Securities

Summary information regarding the Company’s investment securities classified as available for sale and held to maturity as of June 30, 2018 and December 31, 2017 is as follows.

(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses				Fair Value
					Less Than 1 Year		Over 1 Year
June 30, 2018
Available for sale:
U.S. agency mortgage-backed	$	85,883	$	483	$	1,122	$	467	$	84,777
Collateralized mortgage obligations		149,983		58		1,706		1,771		146,564
Municipal bonds		22,372		111		42		—		22,441
U.S. government agency		10,500		33		56		—		10,477
Total available for sale	$	268,738	$	685	$	2,926	$	2,238	$	264,259
Held to maturity:
Municipal bonds	$	12,869	$	30	$	18	$	31	$	12,850
Total held to maturity	$	12,869	$	30	$	18	$	31	$	12,850

7

(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses				Fair Value
					Less Than 1 Year		Over 1 Year
December 31, 2017
Available for sale:
U.S. agency mortgage-backed	$	84,639	$	619	$	270	$	298	$	84,690
Collateralized mortgage obligations		115,435		46		671		1,075		113,735
Municipal bonds		25,362		177		17		1		25,521
U.S. government agency		11,026		42		21		—		11,047
Total available for sale	$	236,462	$	884	$	979	$	1,374	$	234,993
Held to maturity:
Municipal bonds	$	13,034	$	54	$	18	$	15	$	13,055
Total held to maturity	$	13,034	$	54	$	18	$	15	$	13,055

The estimated fair value and amortized cost by contractual maturity of the Company’s investment securities as of June 30, 2018 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		After One Year through Five Years		After Five Years through Ten Years		After Ten Years		Total
Fair Value
Securities available for sale:
U.S. agency mortgage-backed	$	1,749	$	11,805	$	40,672	$	30,551	$	84,777
Collateralized mortgage obligations		—		5,806		15,863		124,895		146,564
Municipal bonds		3,609		9,021		6,968		2,843		22,441
U.S. government agency		1,002		3,962		4,051		1,462		10,477
Total securities available for sale	$	6,360	$	30,594	$	67,554	$	159,751	$	264,259
Securities held to maturity:
Municipal bonds	$	—	$	6,568	$	5,222	$	1,060	$	12,850
Total securities held to maturity	$	—	$	6,568	$	5,222	$	1,060	$	12,850

8

(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
Securities available for sale:
U.S. agency mortgage-backed	$	1,749	$	12,117	$	41,564	$	30,453	$	85,883
Collateralized mortgage obligations		—		5,848		16,208		127,927		149,983
Municipal bonds		3,593		8,981		6,942		2,856		22,372
U.S. government agency		999		3,998		4,022		1,481		10,500
Total securities available for sale	$	6,341	$	30,944	$	68,736	$	162,717	$	268,738
Securities held to maturity:
Municipal bonds	$	—	$	6,550	$	5,253	$	1,066	$	12,869
Total securities held to maturity	$	—	$	6,550	$	5,253	$	1,066	$	12,869

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 other-than-temporarily impaired, an impairment loss is recognized.

As of June 30, 2018, 155 of the Company’s investment securities had unrealized losses totaling 2.4% of the individual securities’ amortized cost basis and 1.9% of the Company’s total amortized cost basis of the investment securities portfolio. At such date, 41 of the 155 securities had been in a continuous loss position for over 12 months. The 41 securities had an aggregate amortized cost basis of $58.0 million and an unrealized loss of $2.3 million at June 30, 2018. Management has the intent and ability to hold these securities until maturity, or until anticipated recovery; hence, no declines in these securities were deemed other-than-temporary at June 30, 2018.

As of June 30, 2018 and December 31, 2017, the Company had $157,479,000 and $121,984,000, 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				Six Months Ended
	June 30,				June 30,
(in thousands, except per share data)	2018		2017		2018		2017
Numerator:
Net income available to common shareholders	$	7,776	$	4,486	$	15,239	$	9,491
Denominator:
Weighted average common shares outstanding		9,048		6,972		9,030		6,954
Effect of dilutive securities:
Restricted stock		20		3		22		3
Stock options		231		259		232		264
Weighted average common shares outstanding – assuming dilution		9,299		7,234		9,284		7,221
Basic earnings per common share	$	0.86	$	0.64	$	1.69	$	1.36
Diluted earnings per common share	$	0.84	$	0.62	$	1.64	$	1.31

9

Options on 19,172 and 62,196 shares of common stock were not included in the computation of diluted earnings per share for the three months ended June 30, 2018 and June 30, 2017, respectively, because the effect of these shares was anti-dilutive. Options on 9,808 and 52,761 shares of common stock were not included in the computation of diluted earnings per share for the six months ended June 30, 2018 and June 30, 2017, 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.

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 business combinations 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

Allowance for Loan Losses

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

	As of June 30, 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	$	1,763	$	—	$	25	$	1,788
Home equity loans and lines		701		348		71		1,120
Commercial real estate		5,173		—		209		5,382
Construction and land		1,970		—		8		1,978
Multi-family residential		423		—		111		534
Commercial and industrial		2,614		346		575		3,535
Consumer		490		—		146		636
Total allowance for loan losses	$	13,134	$	694	$	1,145	$	14,973

	As of June 30, 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	$	211,485	$	—	$	246,945	$	458,430
Home equity loans and lines		53,392		896		35,942		90,230
Commercial real estate		387,348		22		217,369		604,739
Construction and land		135,072		—		45,563		180,635
Multi-family residential		33,763		—		14,158		47,921
Commercial and industrial		126,380		946		57,690		185,016
Consumer		38,338		—		20,370		58,708
Total loans	$	985,778	$	1,864	$	638,037	$	1,625,679

	As of December 31, 2017
	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	$	1,574	$	—	$	89	$	1,663
Home equity loans and lines		676		348		78		1,102
Commercial real estate		4,766		—		140		4,906
Construction and land		1,742		—		7		1,749
Multi-family residential		355		—		—		355
Commercial and industrial		2,721		1,625		184		4,530
Consumer		496		—		6		502
Total allowance for loan losses	$	12,330	$	1,973	$	504	$	14,807

11

	As of December 31, 2017
	Originated Loans
(dollars in thousands)	Collectively Evaluated for Impairment		Individually Evaluated for Impairment		Acquired Loans(1)		Total
Loans:
One- to four-family first mortgage	$	199,199	$	—	$	278,012	$	477,211
Home equity loans and lines		53,349		925		40,171		94,445
Commercial real estate		369,740		22		241,596		611,358
Construction and land		124,963		—		52,300		177,263
Multi-family residential		30,540		—		20,438		50,978
Commercial and industrial		120,818		2,512		61,954		185,284
Consumer		39,854		—		21,402		61,256
Total loans	$	938,463	$	3,459	$	715,873	$	1,657,795

(1) $11.9 million and $14.2 million in Acquired Loans were deemed to be acquired impaired loans and were accounted for under ASC 310-30 at June 30, 2018 and December 31, 2017, respectively.

A summary of activity in the allowance for loan losses for the six months ended June 30, 2018 and June 30, 2017 follows.

	For the Six Months Ended June 30, 2018
(dollars in thousands)	Beginning Balance		Charge-offs			Recoveries		Provision			Ending Balance
Originated loans:
Allowance for loan losses:
One- to four-family first mortgage	$	1,574	$	—		$	—	$	189		$	1,763
Home equity loans and lines		1,024		—			3		23			1,049
Commercial real estate		4,766		—			—		407			5,173
Construction and land		1,742		—			—		228			1,970
Multi-family residential		355		—			—		68			423
Commercial and industrial		4,346		(1,500	)		152		(38	)		2,960
Consumer		496		(45	)		11		28			490
Total allowance for loan losses	$	14,303	$	(1,545	)		166	$	904		$	13,828
Acquired loans:
Allowance for loan losses:
One- to four-family first mortgage	$	89	$	—		$	—	$	(64	)	$	25
Home equity loans and lines		78		—			—		(7	)		71
Commercial real estate		140		—			—		69			209
Construction and land		7		—			—		1			8
Multi-family residential		—		—			—		111			111
Commercial and industrial		184		—			—		391			575
Consumer		6		—			—		140			146
Total allowance for loan losses	$	504	$	—		$	—	$	641		$	1,145
Total loans:
Allowance for loan losses:
One- to four-family first mortgage	$	1,663	$	—		$	—	$	125		$	1,788
Home equity loans and lines		1,102		—			3		15			1,120
Commercial real estate		4,906		—			—		476			5,382
Construction and land		1,749		—			—		229			1,978
Multi-family residential		355		—			—		179			534
Commercial and industrial		4,530		(1,500	)		152		353			3,535
Consumer		502		(45	)		11		168			636
Total allowance for loan losses	$	14,807	$	(1,545	)	$	166	$	1,545		$	14,973

12

	For the Six Months Ended June 30, 2017
(dollars in thousands)	Beginning Balance		Charge-offs			Recoveries		Provision			Ending Balance
Originated loans:
Allowance for loan losses:
One- to four-family first mortgage	$	1,436	$	—		$	—	$	67		$	1,503
Home equity loans and lines		654		(10	)		16		369			1,029
Commercial real estate		4,177		—			—		270			4,447
Construction and land		1,763		—			—		(223	)		1,540
Multi-family residential		361		—			—		12			373
Commercial and industrial		3,316		(58	)		113		(21	)		3,350
Consumer		513		(23	)		4		(9	)		485
Total allowance for loan losses	$	12,220	$	(91	)	$	133	$	465		$	12,727
Acquired loans:
Allowance for loan losses:
One- to four-family first mortgage	$	75	$	—		$	—	$	(16	)	$	59
Home equity loans and lines		74		—			—		(12	)		62
Commercial real estate		—		—			—		—			—
Construction and land		19		—			—		(12	)		7
Multi-family residential		—		—			—		—			—
Commercial and industrial		123		—			—		30			153
Consumer		—		—			—		2			2
Total allowance for loan losses	$	291	$	—		$	—	$	(8	)	$	283
Total loans:
Allowance for loan losses:
One- to four-family first mortgage	$	1,511	$	—		$	—	$	51		$	1,562
Home equity loans and lines		728		(10	)		16		357			1,091
Commercial real estate		4,177		—			—		270			4,447
Construction and land		1,782		—			—		(235	)		1,547
Multi-family residential		361		—			—		12			373
Commercial and industrial		3,439		(58	)		113		9			3,503
Consumer		513		(23	)		4		(7	)		487
Total allowance for loan losses	$	12,511	$	(91	)	$	133	$	457		$	13,010

Credit Quality

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

	June 30, 2018
(dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Originated loans:
One- to four-family first mortgage	$	206,903	$	1,625	$	2,957	$	—	$	211,485
Home equity loans and lines		52,549		—		1,739		—		54,288
Commercial real estate		374,122		4,590		8,658		—		387,370
Construction and land		132,756		1,136		1,180		—		135,072
Multi-family residential		33,763		—		—		—		33,763
Commercial and industrial		113,521		6,730		7,075		—		127,326
Consumer		38,033		144		161		—		38,338
Total originated loans	$	951,647	$	14,225	$	21,770	$	—	$	987,642

13

Acquired loans:
One- to four-family first mortgage	$	239,509	$	1,746	$	5,690	$	—	$	246,945
Home equity loans and lines		35,438		322		182		—		35,942
Commercial real estate		196,435		10,868		10,066		—		217,369
Construction and land		43,569		1,386		608		—		45,563
Multi-family residential		13,300		598		260		—		14,158
Commercial and industrial		53,194		1,989		2,507		—		57,690
Consumer		19,773		312		285		—		20,370
Total acquired loans	$	601,218	$	17,221	$	19,598	$	—	$	638,037
Total loans:
One- to four-family first mortgage	$	446,412	$	3,371	$	8,647	$	—	$	458,430
Home equity loans and lines		87,987		322		1,921		—		90,230
Commercial real estate		570,557		15,458		18,724		—		604,739
Construction and land		176,325		2,522		1,788		—		180,635
Multi-family residential		47,063		598		260		—		47,921
Commercial and industrial		166,715		8,719		9,582		—		185,016
Consumer		57,806		456		446		—		58,708
Total loans	$	1,552,865	$	31,446	$	41,368	$	—	$	1,625,679
	December 31, 2017
(dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Originated loans:
One- to four-family first mortgage	$	196,203	$	990	$	2,006	$	—	$	199,199
Home equity loans and lines		52,492		283		1,499		—		54,274
Commercial real estate		356,020		5,080		8,662		—		369,762
Construction and land		122,076		2,043		844		—		124,963
Multi-family residential		30,540		—		—		—		30,540
Commercial and industrial		105,097		4,640		13,593		—		123,330
Consumer		39,335		120		399		—		39,854
Total originated loans	$	901,763	$	13,156	$	27,003	$	—	$	941,922
Acquired loans:
One- to four-family first mortgage	$	269,144	$	2,825	$	6,043	$	—	$	278,012
Home equity loans and lines		39,603		307		261		—		40,171
Commercial real estate		218,234		12,522		10,840		—		241,596
Construction and land		48,748		3,056		496		—		52,300
Multi-family residential		19,644		636		158		—		20,438
Commercial and industrial		56,635		2,998		2,321		—		61,954
Consumer		21,172		69		161		—		21,402
Total acquired loans	$	673,180	$	22,413	$	20,280	$	—	$	715,873
Total loans:
One- to four-family first mortgage	$	465,347	$	3,815	$	8,049	$	—	$	477,211
Home equity loans and lines		92,095		590		1,760		—		94,445
Commercial real estate		574,254		17,602		19,502		—		611,358
Construction and land		170,824		5,099		1,340		—		177,263
Multi-family residential		50,184		636		158		—		50,978
Commercial and industrial		161,732		7,638		15,914		—		185,284
Consumer		60,507		189		560		—		61,256
Total loans	$	1,574,943	$	35,569	$	47,283	$	—	$	1,657,795

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

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

	June 30, 2018
(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	$	1,790	$	377	$	561	$	2,728	$	208,757	$	211,485
Home equity loans and lines		116		46		69		231		54,057		54,288
Commercial real estate		765		167		142		1,074		386,296		387,370
Construction and land		467		35		—		502		134,570		135,072
Multi-family residential		—		—		—		—		33,763		33,763
Total real estate loans		3,138		625		772		4,535		817,443		821,978
Other loans:
Commercial and industrial		144		124		257		525		126,801		127,326
Consumer		160		35		63		258		38,080		38,338
Total other loans		304		159		320		783		164,881		165,664
Total originated loans	$	3,442	$	784	$	1,092	$	5,318	$	982,324	$	987,642
Acquired loans:
Real estate loans:
One- to four-family first mortgage	$	4,101	$	837	$	2,958	$	7,896	$	239,049	$	246,945
Home equity loans and lines		145		101		76		322		35,620		35,942
Commercial real estate		751		765		1,092		2,608		214,761		217,369
Construction and land		659		12		363		1,034		44,529		45,563
Multi-family residential		—		—		—		—		14,158		14,158
Total real estate loans		5,656		1,715		4,489		11,860		548,117		559,977
Other loans:
Commercial and industrial		79		257		747		1,083		56,607		57,690
Consumer		472		63		165		700		19,670		20,370
Total other loans		551		320		912		1,783		76,277		78,060
Total acquired loans	$	6,207	$	2,035	$	5,401	$	13,643	$	624,394	$	638,037

15

Total loans:
Real estate loans:
One- to four-family first mortgage	$	5,891	$	1,214	$	3,519	$	10,624	$	447,806	$	458,430
Home equity loans and lines		261		147		145		553		89,677		90,230
Commercial real estate		1,516		932		1,234		3,682		601,057		604,739
Construction and land		1,126		47		363		1,536		179,099		180,635
Multi-family residential		—		—		—		—		47,921		47,921
Total real estate loans		8,794		2,340		5,261		16,395		1,365,560		1,381,955
Other loans:
Commercial and industrial		223		381		1,004		1,608		183,408		185,016
Consumer		632		98		228		958		57,750		58,708
Total other loans		855		479		1,232		2,566		241,158		243,724
Total loans	$	9,649	$	2,819	$	6,493	$	18,961	$	1,606,718	$	1,625,679

	December 31, 2017
(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	$	837	$	131	$	44	$	1,012	$	198,187	$	199,199
Home equity loans and lines		1,018		—		26		1,044		53,230		54,274
Commercial real estate		670		—		—		670		369,092		369,762
Construction and land		744		—		200		944		124,019		124,963
Multi-family residential		—		—		—		—		30,540		30,540
Total real estate loans		3,269		131		270		3,670		775,068		778,738
Other loans:
Commercial and industrial		882		825		1,641		3,348		119,982		123,330
Consumer		380		9		278		667		39,187		39,854
Total other loans		1,262		834		1,919		4,015		159,169		163,184
Total originated loans	$	4,531	$	965	$	2,189	$	7,685	$	934,237	$	941,922
Acquired loans:
Real estate loans:
One- to four-family first mortgage	$	3,867	$	2,087	$	2,816	$	8,770	$	269,242	$	278,012
Home equity loans and lines		137		61		46		244		39,927		40,171
Commercial real estate		5,071		436		1,864		7,371		234,225		241,596
Construction and land		2,089		159		239		2,487		49,813		52,300
Multi-family residential		—		—		—		—		20,438		20,438
Total real estate loans		11,164		2,743		4,965		18,872		613,645		632,517
Other loans:
Commercial and industrial		809		678		185		1,672		60,282		61,954
Consumer		329		152		95		576		20,826		21,402
Total other loans		1,138		830		280		2,248		81,108		83,356
Total acquired loans	$	12,302	$	3,573	$	5,245	$	21,120	$	694,753	$	715,873

16

Total loans:
Real estate loans:
One- to four-family first mortgage	$	4,704	$	2,218	$	2,860	$	9,782	$	467,429	$	477,211
Home equity loans and lines		1,155		61		72		1,288		93,157		94,445
Commercial real estate		5,741		436		1,864		8,041		603,317		611,358
Construction and land		2,833		159		439		3,431		173,832		177,263
Multi-family residential		—		—		—		—		50,978		50,978
Total real estate loans		14,433		2,874		5,235		22,542		1,388,713		1,411,255
Other loans:
Commercial and industrial		1,691		1,503		1,826		5,020		180,264		185,284
Consumer		709		161		373		1,243		60,013		61,256
Total other loans		2,400		1,664		2,199		6,263		240,277		246,540
Total loans	$	16,833	$	4,538	$	7,434	$	28,805	$	1,628,990	$	1,657,795

Excluding Acquired Loans with deteriorated credit quality, the Company did not have any loans greater than 90 days past due and accruing as of June 30, 2018 or December 31, 2017.

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

	For the Six Months Ended
(dollars in thousands)	June 30, 2018			June 30, 2017
Balance at beginning of period	$	(9,303	)	$	(11,091	)
Accretion		1,222			1,746
Transfers from nonaccretable difference to accretable yield		(1,880	)		(1,538	)
Balance at end of period	$	(9,961	)	$	(10,883	)

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

	For the Period Ended June 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		455		476		—		461		—
Commercial real estate		22		23		—		22		—
Construction and land		—		—		—		—		—
Multi-family residential		—		—		—		—		—
Commercial and industrial		413		607		—		357		—
Consumer		—		—		—		—		—
Total	$	890	$	1,106	$	—	$	840	$	—
With an allowance recorded:
One- to four-family first mortgage	$	—	$	—	$	—	$	—	$	—
Home equity loans and lines		441		460		348		446		—
Commercial real estate		—		—		—		—		—
Construction and land		—		—		—		—		—
Multi-family residential		—		—		—		—		—
Commercial and industrial		533		554		346		1,161		1
Consumer		—		—		—		—		—
Total	$	974	$	1,014	$	694	$	1,607	$	1

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Total impaired loans:
One- to four-family first mortgage	$	—	$	—	$	—	$	—	$	—
Home equity loans and lines		896		936		348		907		—
Commercial real estate		22		23		—		22		—
Construction and land		—		—		—		—		—
Multi-family residential		—		—		—		—		—
Commercial and industrial		946		1,161		346		1,518		1
Consumer		—		—		—		—		—
Total	$	1,864	$	2,120	$	694	$	2,447	$	1
	For the Period Ended December 31, 2017
(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		470		476		—		395		1
Commercial real estate		22		32		—		19		—
Construction and land		—		—		—		—		—
Multi-family residential		—		—		—		—		—
Commercial and industrial		428		434		—		2,849		2
Consumer		—		—		—		—		—
Total	$	920	$	942	$	—	$	3,263	$	3
With an allowance recorded:
One- to four-family first mortgage	$	—	$	—	$	—	$	42	$	—
Home equity loans and lines		455		461		348		383		1
Commercial real estate		—		—		—		296		—
Construction and land		—		—		—		—		—
Multi-family residential		—		—		—		—		—
Commercial and industrial		2,084		2,157		1,625		1,985		52
Consumer		—		—		—		—		—
Total	$	2,539	$	2,618	$	1,973	$	2,706	$	53
Total impaired loans:
One- to four-family first mortgage	$	—	$	—	$	—	$	42	$	—
Home equity loans and lines		925		937		348		778		2
Commercial real estate		22		32		—		315		—
Construction and land		—		—		—		—		—
Multi-family residential		—		—		—		—		—
Commercial and industrial		2,512		2,591		1,625		4,834		54
Consumer		—		—		—		—		—
Total	$	3,459	$	3,560	$	1,973	$	5,969	$	56

	For the Period Ended June 30, 2017
(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		476		476		—		317		12
Commercial real estate		22		23		—		15		1
Construction and land		—		—		—		—		—
Multi-family residential		—		—		—		—		—
Commercial and industrial		3,203		3,336		—		3,359		95
Consumer		—		—		—		—		—
Total	$	3,701	$	3,835	$	—	$	3,691	$	108

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With an allowance recorded:
One- to four-family first mortgage	$	—	$	—	$	—	$	83	$	—
Home equity loans and lines		461		461		348		307		11
Commercial real estate		435		470		6		448		10
Construction and land		—		—		—		—		—
Multi-family residential		—		—		—		—		—
Commercial and industrial		2,083		2,170		934		1,967		56
Consumer		—		—		—		—		—
Total	$	2,979	$	3,101	$	1,288	$	2,805	$	77
Total impaired loans:
One- to four-family first mortgage	$	—	$	—	$	—	$	83	$	—
Home equity loans and lines		937		937		348		624		23
Commercial real estate		457		493		6		463		11
Construction and land		—		—		—		—		—
Multi-family residential		—		—		—		—		—
Commercial and industrial		5,286		5,506		934		5,326		151
Consumer		—		—		—		—		—
Total	$	6,680	$	6,936	$	1,288	$	6,496	$	185

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

	June 30, 2018						December 31, 2017
(dollars in thousands)	Originated		Acquired(1)		Total		Originated		Acquired(1)		Total
Nonaccrual loans:
One- to four-family first mortgage	$	2,957	$	1,544	$	4,501	$	2,006	$	1,167	$	3,173
Home equity loans and lines		1,678		157		1,835		1,434		108		1,542
Commercial real estate		8,659		463		9,122		8,662		95		8,757
Construction and land		6		379		385		200		249		449
Multi-family residential		—		—		—		—		—		—
Commercial and industrial		5,087		883		5,970		9,678		932		10,610
Consumer		161		270		431		399		103		502
Total	$	18,548	$	3,696	$	22,244	$	22,379	$	2,654	$	25,033

⁽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 accounting for under ASC 310-30 and which were 90 days or more past due totaled $2.7 million and $4.3 million as of June 30, 2018 and December 31, 2017, respectively.

As of June 30, 2018, the Company had no outstanding commitments to lend additional funds to any customer whose loan was classified as impaired.

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”) 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,

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• 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 June 30, 2018
(dollars in thousands)	Current		Past Due Greater Than 30 Days		Nonaccrual TDRs		Total TDRs
Originated loans:
Real estate loans:
One- to four-family first mortgage	$	221	$	—	$	1,867	$	2,088
Home equity loans and lines		—		61		556		617
Commercial real estate		119		—		7,342		7,461
Construction and land		153		—		—		153
Multi-family residential		—		—		—		—
Total real estate loans		493		61		9,765		10,319
Other loans:
Commercial and industrial		2,163		—		578		2,741
Consumer		—		—		98		98
Total other loans		2,163		—		676		2,839
Total loans	$	2,656	$	61	$	10,441	$	13,158
Acquired loans:
Real estate loans:
One- to four-family first mortgage	$	208	$	—	$	54	$	262
Home equity loans and lines		—		—		70		70
Commercial real estate		—		761		—		761
Construction and land		—		—		—		—
Multi-family residential		—		—		—		—
Total real estate loans		208		761		124		1,093
Other loans:
Commercial and industrial		77		—		824		901
Consumer		8		—		—		8
Total other loans		85		—		824		909
Total loans	$	293	$	761	$	948	$	2,002

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Total loans:
Real estate loans:
One- to four-family first mortgage	$	429	$	—	$	1,921	$	2,350
Home equity loans and lines		—		61		626		687
Commercial real estate		119		761		7,342		8,222
Construction and land		153		—		—		153
Multi-family residential		—		—		—		—
Total real estate loans		701		822		9,889		11,412
Other loans:
Commercial and industrial		2,240		—		1,402		3,642
Consumer		8		—		98		106
Total other loans		2,248		—		1,500		3,748
Total loans	$	2,949	$	822	$	11,389	$	15,160
	As of December 31, 2017
(dollars in thousands)	Current		Past Due Greater Than 30 Days		Nonaccrual TDRs		Total TDRs
Originated loans:
Real estate loans:
One- to four-family first mortgage	$	306	$	274	$	473	$	1,053
Home equity loans and lines		275		64		316		655
Commercial real estate		96		332		1,942		2,370
Construction and land		169		—		—		169
Multi-family residential		—		—		—		—
Total real estate loans		846		670		2,731		4,247
Other loans:
Commercial and industrial		—		—		4,581		4,581
Consumer		—		—		178		178
Total other loans		—		—		4,759		4,759
Total loans	$	846	$	670	$	7,490	$	9,006
Acquired loans:
Real estate loans:
One- to four-family first mortgage	$	214	$	3	$	59	$	276
Home equity loans and lines		—		—		91		91
Commercial real estate		—		803		—		803
Construction and land		—		—		—		—
Multi-family residential		—		—		—		—
Total real estate loans		214		806		150		1,170
Other loans:
Commercial and industrial		—		—		203		203
Consumer		—		—		—		—
Total other loans		—		—		203		203
Total loans	$	214	$	806	$	353	$	1,373

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Total loans:
Real estate loans:
One- to four-family first mortgage	$	520	$	277	$	532	$	1,329
Home equity loans and lines		275		64		407		746
Commercial real estate		96		1,135		1,942		3,173
Construction and land		169		—		—		169
Multi-family residential		—		—		—		—
Total real estate loans		1,060		1,476		2,881		5,417
Other loans:
Commercial and industrial		—		—		4,784		4,784
Consumer		—		—		178		178
Total other loans		—		—		4,962		4,962
Total loans	$	1,060	$	1,476	$	7,843	$	10,379

The following table summarizes information pertaining to loans modified as of the periods indicated.

	For the Six Months Ended June 30,
	2018						2017
(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		2	$	1,146	$	1,146		5	$	275	$	272
Home equity loans and lines		—		—		—		1		15		14
Commercial real estate		2		6,461		5,950		1		448		448
Construction and land		—		—		—		—		—		—
Multi-family residential		—		—		—		—		—		—
Commercial and industrial		2		775		713		1		1,461		1,169
Other consumer		1		8		8		2		60		57
Total		7	$	8,390	$	7,817		10	$	2,259	$	1,960

None of the performing troubled debt restructurings as of June 30, 2018 had defaulted subsequent to the restructuring through the date the financial statements were available to be issued.

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.

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• 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 June 30, 2018, management did not make adjustments to prices provided by the third-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 June 30, 2018 and December 31, 2017.

(dollars in thousands)	June 30, 2018		Level 1		Level 2		Level 3
Available for sale securities:
U.S. agency mortgage-backed	$	84,777	$	—	$	84,777	$	—
Collateralized mortgage obligations		146,564		—		146,564		—
Municipal bonds		22,441		—		22,441		—
U.S. government agency		10,477		—		10,477		—
Total	$	264,259	$	—	$	264,259	$	—

(dollars in thousands)	December 31, 2017		Level 1		Level 2		Level 3
Available for sale securities:
U.S. agency mortgage-backed	$	87,758	$	—	$	87,758	$	—
Collateralized mortgage obligations		113,735		—		113,735		—
Municipal bonds		25,521		—		25,521		—
U.S. government agency		7,980		—		7,980		—
Total	$	234,994	$	—	$	234,994	$	—

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

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)	June 30, 2018		Level 1		Level 2		Level 3
Assets
Impaired loans	$	1,170	$	—	$	—	$	1,170
Repossessed assets		492		—		—		492
Total	$	1,662	$	—	$	—	$	1,662

			Fair Value Measurements Using
(dollars in thousands)	December 31, 2017		Level 1		Level 2		Level 3
Assets
Impaired loans	$	1,486	$	—	$	—	$	1,486
Repossessed assets		728		—		—		728
Total	$	2,214	$	—	$	—	$	2,214

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 June 30, 2018:
Impaired loans	$	1,170	Third party appraisals and discounted cash flows	Collateral discounts and discount rates		0% - 93%		34	%
Repossessed assets	$	492	Third party appraisals, sales contracts, broker price opinions	Collateral discounts and estimated costs to sell		6% - 100%		45	%

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(dollars in thousands)	Fair Value		Valuation Technique	Unobservable Inputs	Range of Discounts		Weighted Average Discount
As of December 31, 2017:
Impaired loans	$	1,486	Third party appraisals and discounted cash flows	Collateral discounts and discount rates		0% - 100%		57	%
Repossessed assets	$	728	Third party appraisals, sales contracts, broker price opinions	Collateral discounts and estimated costs to sell		6% - 100%		28	%

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:

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.

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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.

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

			Fair Value Measurements at June 30, 2018
	Carrying
(dollars in thousands)	Amount		Total		Level 1		Level 2		Level 3
Financial Assets
Cash and cash equivalents	$	80,489	$	80,489	$	80,489	$	—	$	—
Interest-bearing deposits in banks		1,429		1,429		1,429		—		—
Investment securities available for sale		264,259		264,259		—		264,259		—
Investment securities held to maturity		12,869		12,850		—		12,850		—
Mortgage loans held for sale		9,711		9,711		—		9,711		—
Loans, net		1,610,706		1,597,731		—		1,596,561		1,170
Cash surrender value of BOLI		29,228		29,228		29,228		—		—
Financial Liabilities
Deposits	$	1,788,545	$	1,785,630	$	—	$	1,785,630	$	—
Short-term FHLB advances		3,578		3,578		3,578		—		—
Long-term FHLB advances		66,396		65,272		—		65,272		—

		Fair Value Measurements at December 31, 2017
	Carrying
(dollars in thousands)	Amount	Total	Level 1