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, 2019

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 (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    YES  ☒    NO  ☐

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

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

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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

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

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

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

At August 2, 2019, the registrant had 9,407,142 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		6
	Notes to Unaudited Consolidated Financial Statements		7
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		40
SIGNATURES			41

i

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Dollars in thousands)	(Unaudited) June 30, 2019			(Audited) December 31, 2018
Assets
Cash and cash equivalents	$	71,325		$	59,618
Interest-bearing deposits in banks		694			939
Investment securities available for sale, at fair value		261,626			260,131
Investment securities held to maturity (fair values of $8,207 and $10,841, respectively)		8,163			10,872
Mortgage loans held for sale		4,501			2,086
Loans, net of unearned income		1,692,948			1,649,754
Allowance for loan losses		(17,239	)		(16,348	)
Total loans, net of unearned income and allowance for loan losses		1,675,709			1,633,406
Office properties and equipment, net		47,698			47,124
Cash surrender value of bank-owned life insurance		39,927			29,560
Goodwill and core deposit intangibles		65,247			66,055
Accrued interest receivable and other assets		45,496			43,867
Total Assets		2,220,386			2,153,658
Liabilities
Deposits:
Noninterest-bearing		449,402			438,146
Interest-bearing		1,379,767			1,335,071
Total Deposits		1,829,169			1,773,217
Other borrowings		5,539			5,539
Long-term Federal Home Loan Bank advances		54,615			58,698
Accrued interest payable and other liabilities		17,569			12,164
Total Liabilities		1,906,892			1,849,618
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; 9,441,800 and 9,459,050 shares issued and outstanding, respectively		94			95
Additional paid-in capital		169,233			168,243
Unallocated common stock held by:
Employee Stock Ownership Plan (ESOP)		(3,303	)		(3,481	)
Recognition and Retention Plan (RRP)		(48	)		(58	)
Retained earnings		146,348			141,447
Accumulated other comprehensive income (loss)		1,170			(2,206	)
Total Shareholders’ Equity		313,494			304,040
Total Liabilities and Shareholders’ Equity	$	2,220,386		$	2,153,658

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,
(Dollars in thousands)	2019			2018		2019			2018
Interest Income
Loans, including fees	$	23,812		$	23,527	$	47,010		$	46,331
Investment securities:
Taxable interest		1,601			1,531		3,254			2,839
Tax-exempt interest		128			179		283			365
Other investments and deposits		380			338		743			765
Total interest income		25,921			25,575		51,290			50,300
Interest Expense
Deposits		3,735			1,927		7,066			3,829
Other borrowings expense		53			—		106			—
Short-term Federal Home Loan Bank advances		—			16		—			33
Long-term Federal Home Loan Bank advances		258			296		521			597
Total interest expense		4,046			2,239		7,693			4,459
Net interest income		21,875			23,336		43,597			45,841
Provision for loan losses		765			581		1,155			1,545
Net interest income after provision for loan losses		21,110			22,755		42,442			44,296
Noninterest Income
Service fees and charges		1,413			1,520		2,880			3,174
Bank card fees		1,212			1,196		2,273			2,295
Gain on sale of loans, net		248			201		403			408
Income from bank-owned life insurance		202			164		367			324
(Loss) gain on sale of assets, net		(327	)		—		(328	)		145
Other income		229			264		547			481
Total noninterest income		2,977			3,345		6,142			6,827
Noninterest Expense
Compensation and benefits		9,613			9,222		18,711			18,164
Occupancy		2,008			1,719		3,614			3,394
Marketing and advertising		308			329		579			610
Data processing and communication		1,596			2,344		3,018			4,023
Professional services		218			306		457			592
Forms, printing and supplies		181			274		342			631
Franchise and shares tax		398			363		797			729
Regulatory fees		283			343		590			722
Foreclosed assets, net		40			87		281			190
Amortization of acquisition intangible		398			455		808			957
Other expenses		909			880		2,046			1,900
Total noninterest expense		15,952			16,322		31,243			31,912
Income before income tax expense		8,135			9,778		17,341			19,211
Income tax expense		1,555			2,002		2,871			3,972
Net Income	$	6,580		$	7,776	$	14,470		$	15,239
Earnings per share:
Basic	$	0.72		$	0.85	$	1.58		$	1.68
Diluted	$	0.71		$	0.83	$	1.56		$	1.64
Cash dividends declared per common share	$	0.21		$	0.17	$	0.41		$	0.32

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,
(Dollars in thousands)	2019			2018			2019			2018
Net Income	$	6,580		$	7,776		$	14,470		$	15,239
Other Comprehensive Income (Loss)
Unrealized gains (losses) on investment securities		2,502			(1,013	)		4,274			(3,009	)
Tax effect		(526	)		213			(898	)		632
Other comprehensive income (loss), net of taxes		1,976			(800	)		3,376			(2,377	)
Comprehensive Income	$	8,556		$	6,976		$	17,846		$	12,862

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)

(Dollars in thousands)	Common stock			Additional Paid-in capital			Unallocated Common Stock Held by ESOP			Unallocated Common Stock Held by RRP			Retained Earnings			Accumulated Other Comprehensive (Loss) Income			Total
Balance, December 31, 2017	$	94		$	165,341		$	(3,838	)	$	(84	)	$	117,313		$	(955	)	$	277,871
Net income														15,239						15,239
Other comprehensive loss																	(2,377	)		(2,377	)
Reclassification of stranded tax effects in accumulated other comprehensive income(1)														206			(206	)		—
Purchase of Company’s common stock at cost, 1,077 shares		—			(11	)								(38	)					(49	)
Cash dividends declared, $0.32 per share														(3,011	)					(3,011	)
Common Stock issued under incentive plans, net of shares surrendered in payment, including tax tax benefit, 16,528 shares		—			170									(64	)					106
Exercise of stock options		—			339															339
RRP shares released for allocation					(4	)					7									3
ESOP shares released for allocation					719			178												897
Share-based compensation cost					343															343
Balance, June 30, 2018	$	94		$	166,897		$	(3,660	)	$	(77	)	$	129,645		$	(3,538	)	$	289,361
Balance, December 31, 2018	$	95		$	168,243		$	(3,481	)	$	(58	)	$	141,447		$	(2,206	)	$	304,040
Net income														14,470						14,470
Other comprehensive income																	3,376			3,376
Purchase of Company’s common stock at cost, 217,193 shares		(2	)		(2,170	)								(5,623	)					(7,795	)
Cash dividends declared, $0.41 per share														(3,882	)					(3,882	)
Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 19,321 shares		—			103									(64	)					39
Exercise of stock options		1			2,085															2,086
RRP shares released for allocation					(10	)					10									—
ESOP shares released for allocation					604			178												782
Share-based compensation cost					378															378
Balance, June 30, 2019	$	94		$	169,233		$	(3,303	)	$	(48	)	$	146,348		$	1,170		$	313,494

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

4

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY - CONTINUED

(Unaudited)

(Dollars in thousands)	Common stock			Additional Paid-in capital			Unallocated Common Stock Held by ESOP			Unallocated Common Stock Held by RRP			Retained Earnings			Accumulated Other Comprehensive (Loss) Income			Total
Balance, March 31, 2018	$	94		$	165,991		$	(3,749	)	$	(80	)	$	123,571		$	(2,738	)	$	283,089
Net income														7,776						7,776
Other comprehensive loss																	(800	)		(800	)
Purchase of Company’s common stock at cost, 1,036 shares		—			(11	)								(36	)					(47	)
Cash dividends declared, $0.17 per share														(1,602	)					(1,602	)
Common Stock issued under incentive plans, net of shares surrendered in payment, including tax tax benefit, 15,814 shares		—			152									(64	)					88
Exercise of stock options		—			186															186
RRP shares released for allocation					(1	)					3									2
ESOP shares released for allocation					375			89												464
Share-based compensation cost					205															205
Balance, June 30, 2018	$	94		$	166,897		$	(3,660	)	$	(77	)	$	129,645		$	(3,538	)	$	289,361
Balance, March 31, 2019	$	95		$	169,091		$	(3,392	)	$	(51	)	$	143,998		$	(806	)	$	308,935
Net income														6,580						6,580
Other comprehensive income																	1,976			1,976
Purchase of Company’s common stock at cost, 83,188 shares		(1	)		(831	)								(2,178	)					(3,010	)
Cash dividends declared, $0.21 per share														(1,988	)					(1,988	)
Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 17,881 shares		—			68									(64	)					4
Exercise of stock options		—			409															409
RRP shares released for allocation					(3	)					3									—
ESOP shares released for allocation					307			89												396
Share-based compensation cost					192															192
Balance, June 30, 2019	$	94		$	169,233		$	(3,303	)	$	(48	)	$	146,348		$	1,170		$	313,494

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

5

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the Six Months Ended June 30,
(Dollars in thousands)	2019			2018
Cash flows from operating activities:
Net income	$	14,470		$	15,239
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		1,155			1,545
Depreciation		1,375			1,200
Amortization and accretion of purchase accounting valuations and intangibles		3,254			4,212
Net amortization of mortgage servicing asset		55			75
Federal Home Loan Bank stock dividends		(78	)		(56	)
Net amortization of discount on investments		962			983
Gain on loans sold, net		(403	)		(408	)
Proceeds, including principal payments, from loans held for sale		42,246			43,425
Originations of loans held for sale		(44,258	)		(46,855	)
Non-cash compensation		1,160			1,240
Deferred income tax expense		213			318
Increase in accrued interest receivable and other assets		(2,100	)		(3,183	)
Increase in cash surrender value of bank-owned life insurance		(367	)		(324	)
Change in accrued interest payable and other liabilities		5,405			(157	)
Net cash provided by operating activities		23,089			17,254
Cash flows from investing activities:
Purchases of securities available for sale		(31,332	)		(58,268	)
Proceeds from maturities, prepayments and calls on securities available for sale		33,266			25,174
Proceeds from maturities, prepayments and calls on securities held to maturity		2,593			—
(Increase) decrease in loans, net		(47,074	)		27,288
Reimbursement from FDIC for covered assets		142			—
Decrease in interest-bearing deposits in banks		245			992
Proceeds from sale of repossessed assets		801			540
Purchases of office properties and equipment		(2,300	)		(1,500	)
Purchase of bank-owned life insurance		(10,000	)		—
Proceeds from sale of office properties and equipment		24			839
Net cash used in investing activities		(53,635	)		(4,935	)
Cash flows from financing activities:
Increase (decrease) in deposits, net		55,925			(77,728	)
Borrowings on Federal Home Loan Bank advances		4,010			—
Repayments of Federal Home Loan Bank advances		(8,130	)		(1,905	)
Proceeds from exercise of stock options		2,086			339
Issuance of stock under incentive plans		39			106
Dividends paid to shareholders		(3,882	)		(3,011	)
Purchase of Company’s common stock		(7,795	)		(49	)
Net cash provided by (used in) financing activities		42,253			(82,248	)
Net change in cash and cash equivalents		11,707			(69,929	)
Cash and cash equivalents at beginning of year		59,618			150,418
Cash and cash equivalents at end of period	$	71,325		$	80,489

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

6

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. Certain reclassifications have been made to prior period balances to conform to the current period presentation. The results of operations for the three- and six-month periods ended June 30, 2019 and 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, 2018.

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, 2018.

In preparing the financial statements, the Company is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.    

2. Recent Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, “Conforming Amendments Related to Leases”. This ASU amends the codification regarding leases in order to increase transparency and comparability. Under former GAAP, the recognition of lease assets and lease liabilities by lessees was not required if the terms of the lease qualify it as an operating lease. ASU No. 2016-02 requires companies to recognize lease assets and liabilities on the statement of condition and disclose key information about leasing arrangements, for both operating and capital or finance leases. A lessee must recognize a liability to make lease payments and a right-of-use asset representing its right to use the leased asset for the lease term. The ASU is effective for annual and interim periods beginning after December 15, 2018. The Company implemented an accounting policy election to keep leases with an initial term of 12 months or less off the Company’s consolidated balance sheet. As of June 30, 2019, the Company’s right-of-use assets and liabilities, net of amortization, was $5.5 million. The Company reports its right-of-use assets and liabilities within accrued interest receivable and other assets and accrued interest payable and other liabilities on the Consolidated Statements of Financial Condition. The ASU did not have material impact on the consolidated income statement.

In June 2016, the FASB issued ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments”. The standard introduces a new impairment model known as CECL (Current Expected Credit Losses). The ASU requires a financial asset (or a group of financial assets) measured on an amortized cost basis to be presented at an amount net of an allowance for credit losses, which reflects expected losses for the full life of the financial asset. Under current GAAP, credit losses are not recognized until the occurrence of the loss is probable and entities, in general, only consider past events and current conditions when measuring incurred losses. ASU No. 2016-13 will require entities to recognize a current estimate of all expected credit losses, thus eliminating the “probable” recognition threshold. To produce a current estimate of expected credit losses, the standard will require entities to incorporate forecasted information along with relevant information about past events, including historical experience, and current conditions that affect the collectability of the reported amount of financial assets. The ASU also amends the accounting model for purchased financial assets with a more-than-insignificant

7

amount of credit deterioration since origination. The initial estimate of expected credit losses for the related purchased financial assets will be recognized through the allowance for credit losses with an offset to the cost basis of the purchased asset. Off-balance-sheet arrangements, such as commitments to extend credit, guarantees and standby letters of credit that are not unconditionally cancellable, are also within the scope of this amendment. In addition, ASU 2016-13 will require expected credit related losses for debt securities to be recorded through an allowance for credit losses, while non-credit related losses will continue to be recognized through Other Comprehensive Income (“OCI”). 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 testing several models to determine the potential impact to our Consolidated Financial Statements upon the implementation of CECL. Currently, the Company expects the adoption of the ASU to increase the allowance for loan losses and the provision for loan losses. The extent of the impact upon adoption is not known and 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 does not anticipate it will have a material impact on our Consolidated Financial Statements.

In August 2018, the FASB issued ASU No. 2018-13, “Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” The ASU removes, modifies and adds certain disclosure requirements for fair value measurements. For example, public entities will no longer be required to disclose the valuation processes for Level 3 fair value measurements, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU No. 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019. In addition, entities may early adopt the modified or eliminated disclosure requirements and delay adoption of the additional disclosure requirements until their effective date. The Company does not believe ASU No. 2018-13 will have a material impact on our Consolidated Financial Statements, as the update only revises disclosure requirements.

3. Investment Securities

Summary information regarding the Company’s investment securities classified as available for sale and held to maturity as of June 30, 2019 and December 31, 2018 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, 2019
Available for sale:
U.S. agency mortgage-backed	$	79,789	$	1,101	$	2	$	131	$	80,757
Collateralized mortgage obligations		158,181		941		54		551		158,517
Municipal bonds		13,892		171		—		—		14,063
U.S. government agency		8,282		23		—		16		8,289
Total available for sale	$	260,144	$	2,236	$	56	$	698	$	261,626
Held to maturity:
Municipal bonds	$	8,163	$	50	$	—	$	6	$	8,207
Total held to maturity	$	8,163	$	50	$	—	$	6	$	8,207

8

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

The estimated fair value and amortized cost by contractual maturity of the Company’s investment securities as of June 30, 2019 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	$	46	$	17,460	$	34,000	$	29,251	$	80,757
Collateralized mortgage obligations		—		4,898		29,837		123,782		158,517
Municipal bonds		1,520		7,740		3,396		1,407		14,063
U.S. government agency		3,998		—		3,515		776		8,289
Total securities available for sale	$	5,564	$	30,098	$	70,748	$	155,216	$	261,626
Securities held to maturity:
Municipal bonds	$	—	$	3,943	$	4,264	$	—	$	8,207
Total securities held to maturity	$	—	$	3,943	$	4,264	$	—	$	8,207
(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	$	45	$	17,360	$	33,759	$	28,625	$	79,789
Collateralized mortgage obligations		—		4,864		29,446		123,871		158,181
Municipal bonds		1,515		7,691		3,325		1,361		13,892
U.S. government agency		4,000		—		3,491		791		8,282
Total securities available for sale	$	5,560	$	29,915	$	70,021	$	154,648	$	260,144
Securities held to maturity:
Municipal bonds	$	—	$	3,927	$	4,236	$	—	$	8,163
Total securities held to maturity	$	—	$	3,927	$	4,236	$	—	$	8,163

9

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, 2019, 76 of the Company’s investment securities had unrealized losses totaling 0.8% of the individual securities’ amortized cost basis and 0.3% of the Company’s total amortized cost basis of the investment securities portfolio. At such date, 68 of the 76 securities had been in a continuous loss position for over 12 months. The 68 securities had an aggregate amortized cost basis of $87,398,000 and an unrealized loss of $704,000 at June 30, 2019. 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, 2019.

As of June 30, 2019 and December 31, 2018, the Company had $182,310,000 and $157,198,000, 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)	2019		2018		2019		2018
Numerator:
Net income available to common shareholders	$	6,580	$	7,776	$	14,470	$	15,239
Denominator:
Weighted average common shares outstanding		9,155		9,048		9,143		9,030
Effect of dilutive securities:
Restricted stock		11		20		13		22
Stock options		42		231		75		232
Weighted average common shares outstanding – assuming dilution		9,208		9,299		9,231		9,284
Basic earnings per common share	$	0.72	$	0.85	$	1.58	$	1.68
Diluted earnings per common share	$	0.71	$	0.83	$	1.56	$	1.64

Options on 96,110 and 19,172 shares of common stock were not included in the computation of diluted earnings per share for the three months ended June 30, 2019 and 2018, respectively, because the effect of these shares was anti-dilutive. Options on 85,623 and 9,808 shares of common stock were not included in the computation of diluted earnings per share for the six months ended June 30, 2019 and 2018, respectively, because the effect of these shares was anti-dilutive.

10

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.

11

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

(dollars in thousands)	June 30, 2019		December 31, 2018
Real estate loans:
One- to four-family first mortgage	$	442,896	$	450,363
Home equity loans and lines		81,794		83,976
Commercial real estate		691,939		640,575
Construction and land		200,153		193,597
Multi-family residential		47,827		54,455
Total real estate loans		1,464,609		1,422,966
Other loans:
Commercial and industrial		179,394		172,934
Consumer		48,945		53,854
Total other loans		228,339		226,788
Total loans	$	1,692,948	$	1,649,754

The net discount on the Company’s loans was $15,293,000 and $18,811,000 at June 30, 2019 and December 31, 2018, respectively, of which $6,679,000 and $7,865,000 for the same time periods, respectively, were related to impaired loans. In addition, loan balances as of June 30, 2019 and December 31, 2018 are reported net of unearned income of $2,832,000 and $2,716,000, respectively.

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, 2019
	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	$	2,056	$	—	$	368	$	2,424
Home equity loans and lines		678		348		47		1,073
Commercial real estate		5,768		361		646		6,775
Construction and land		2,384		—		4		2,388
Multi-family residential		492		—		—		492
Commercial and industrial		2,795		301		252		3,348
Consumer		452		—		287		739
Total allowance for loan losses	$	14,625	$	1,010	$	1,604	$	17,239

12

	As of June 30, 2019
	Originated Loans
(dollars in thousands)	Collectively Evaluated for Impairment		Individually Evaluated for Impairment		Acquired Loans(1)		Total
Loans:
One- to four-family first mortgage	$	242,332	$	188	$	200,376	$	442,896
Home equity loans and lines		53,948		821		27,025		81,794
Commercial real estate		480,838		6,855		204,246		691,939
Construction and land		173,486		—		26,667		200,153
Multi-family residential		37,020		—		10,807		47,827
Commercial and industrial		144,163		1,897		33,334		179,394
Consumer		36,082		—		12,863		48,945
Total loans	$	1,167,869	$	9,761	$	515,318	$	1,692,948
	As of December 31, 2018
	Originated Loans
(dollars in thousands)	Collectively Evaluated for Impairment		Individually Evaluated for Impairment		Acquired Loans		Total
Allowance for loan losses:
One- to four-family first mortgage	$	1,937	$	—	$	199	$	2,136
Home equity loans and lines		682		349		48		1,079
Commercial real estate		5,272		484		369		6,125
Construction and land		2,280		—		5		2,285
Multi-family residential		522		—		28		550
Commercial and industrial		2,541		321		366		3,228
Consumer		472		—		473		945
Total allowance for loan losses	$	13,706	$	1,154	$	1,488	$	16,348
	As of December 31, 2018
	Originated Loans
(dollars in thousands)	Collectively Evaluated for Impairment		Individually Evaluated for Impairment		Acquired Loans(1)		Total
Loans:
One- to four-family first mortgage	$	227,602	$	—	$	222,761	$	450,363
Home equity loans and lines		53,049		866		30,061		83,976
Commercial real estate		432,217		7,059		201,299		640,575
Construction and land		161,232		—		32,365		193,597
Multi-family residential		42,222		—		12,233		54,455
Commercial and industrial		131,250		1,952		39,732		172,934
Consumer		37,711		—		16,143		53,854
Total loans	$	1,085,283	$	9,877	$	554,594	$	1,649,754

⁽¹⁾ $9.2 million and $10.0 million in Acquired Loans were deemed to be acquired impaired loans and were accounted for under ASC 310-30 at June 30, 2019 and December 31, 2018, respectively.

13

A summary of activity in the allowance for loan losses for the six months ended June 30, 2019 and June 30, 2018 follows.

	For the Six Months Ended June 30, 2019
(dollars in thousands)	Beginning Balance		Charge-offs			Recoveries		Provision			Ending Balance
Originated loans:
Allowance for loan losses:
One- to four-family first mortgage	$	1,937	$	(4	)	$	—	$	123		$	2,056
Home equity loans and lines		1,031		(12	)		4		3			1,026
Commercial real estate		5,756		(128	)		—		501			6,129
Construction and land		2,280		—			—		104			2,384
Multi-family residential		522		—			—		(30	)		492
Commercial and industrial		2,862		(85	)		8		311			3,096
Consumer		472		(59	)		12		27			452
Total allowance for loan losses	$	14,860	$	(288	)		24	$	1,039		$	15,635
Acquired loans:
Allowance for loan losses:
One- to four-family first mortgage	$	199	$	—		$	—	$	169		$	368
Home equity loans and lines		48		—			—		(1	)		47
Commercial real estate		369		—			—		277			646
Construction and land		5		—			—		(1	)		4
Multi-family residential		28		—			—		(28	)		—
Commercial and industrial		366		—			—		(114	)		252
Consumer		473		—			—		(186	)		287
Total allowance for loan losses	$	1,488	$	—		$	—	$	116		$	1,604
Total loans:
Allowance for loan losses:
One- to four-family first mortgage	$	2,136	$	(4	)	$	—	$	292		$	2,424
Home equity loans and lines		1,079		(12	)		4		2			1,073
Commercial real estate		6,125		(128	)		—		778			6,775
Construction and land		2,285		—			—		103			2,388
Multi-family residential		550		—			—		(58	)		492
Commercial and industrial		3,228		(85	)		8		197			3,348
Consumer		945		(59	)		12		(159	)		739
Total allowance for loan losses	$	16,348	$	(288	)	$	24	$	1,155		$	17,239

14

	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		22			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

Credit Quality

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

	June 30, 2019
(dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Originated loans:
One- to four-family first mortgage	$	237,709	$	1,482	$	3,329	$	—	$	242,520
Home equity loans and lines		53,539		43		1,187		—		54,769
Commercial real estate		479,609		191		7,893		—		487,693
Construction and land		172,047		—		1,439		—		173,486
Multi-family residential		37,020		—		—		—		37,020
Commercial and industrial		140,414		495		5,151		—		146,060
Consumer		35,613		231		238		—		36,082
Total originated loans	$	1,155,951	$	2,442	$	19,237	$	—	$	1,177,630
Acquired loans:
One- to four-family first mortgage	$	192,856	$	1,680	$	5,840	$	—	$	200,376
Home equity loans and lines		26,403		434		188		—		27,025
Commercial real estate		186,858		4,863		12,525		—		204,246
Construction and land		24,155		1,117		1,395		—		26,667
Multi-family residential		10,040		531		236		—		10,807
Commercial and industrial		27,809		1,062		4,463		—		33,334
Consumer		12,390		224		249		—		12,863
Total acquired loans	$	480,511	$	9,911	$	24,896	$	—	$	515,318
Total loans:
One- to four-family first mortgage	$	430,565	$	3,162	$	9,169	$	—	$	442,896
Home equity loans and lines		79,942		477		1,375		—		81,794
Commercial real estate		666,467		5,054		20,418		—		691,939
Construction and land		196,202		1,117		2,834		—		200,153
Multi-family residential		47,060		531		236		—		47,827
Commercial and industrial		168,223		1,557		9,614		—		179,394
Consumer		48,003		455		487		—		48,945
Total loans	$	1,636,462	$	12,353	$	44,133	$	—	$	1,692,948

15

	December 31, 2018
(dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Originated loans:
One- to four-family first mortgage	$	221,930	$	1,852	$	3,820	$	—	$	227,602
Home equity loans and lines		52,344		69		1,502		—		53,915
Commercial real estate		425,851		4,463		8,962		—		439,276
Construction and land		159,428		—		1,804		—		161,232
Multi-family residential		42,222		—		—		—		42,222
Commercial and industrial		126,126		1,717		5,359		—		133,202
Consumer		37,312		126		273		—		37,711
Total originated loans	$	1,065,213	$	8,227	$	21,720	$	—	$	1,095,160
Acquired loans:
One- to four-family first mortgage	$	213,199	$	2,474	$	7,088	$	—	$	222,761
Home equity loans and lines		29,451		270		340		—		30,061
Commercial real estate		183,514		5,189		12,596		—		201,299
Construction and land		30,005		917		1,443		—		32,365
Multi-family residential		11,401		582		250		—		12,233
Commercial and industrial		35,918		1,376		2,438		—		39,732
Consumer		15,521		262		360		—		16,143
Total acquired loans	$	519,009	$	11,070	$	24,515	$	—	$	554,594
Total loans:
One- to four-family first mortgage	$	435,129	$	4,326	$	10,908	$	—	$	450,363
Home equity loans and lines		81,795		339		1,842		—		83,976
Commercial real estate		609,365		9,652		21,558		—		640,575
Construction and land		189,433		917		3,247		—		193,597
Multi-family residential		53,623		582		250		—		54,455
Commercial and industrial		162,044		3,093		7,797		—		172,934
Consumer		52,833		388		633		—		53,854
Total loans	$	1,584,222	$	19,297	$	46,235	$	—	$	1,649,754

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.

16

• 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, 2019
(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	$	2,241	$	35	$	955	$	3,231	$	239,289	$	242,520
Home equity loans and lines		19		100		76		195		54,574		54,769
Commercial real estate		1,392		193		6,846		8,431		479,262		487,693
Construction and land		621		—		684		1,305		172,181		173,486
Multi-family residential		—		—		—		—		37,020		37,020
Total real estate loans		4,273		328		8,561		13,162		982,326		995,488
Other loans:
Commercial and industrial		137		22		2,131		2,290		143,770		146,060
Consumer		366		2		178		546		35,536		36,082
Total other loans		503		24		2,309		2,836		179,306		182,142
Total originated loans	$	4,776	$	352	$	10,870	$	15,998	$	1,161,632	$	1,177,630
Acquired loans:
Real estate loans:
One- to four-family first mortgage	$	4,781	$	1,049	$	1,858	$	7,688	$	192,688	$	200,376
Home equity loans and lines		39		59		125		223		26,802		27,025
Commercial real estate		188		1,236		2,173		3,597		200,649		204,246
Construction and land		571		15		1,094		1,680		24,987		26,667
Multi-family residential		—		—		—		—		10,807		10,807
Total real estate loans		5,579		2,359		5,250		13,188		455,933		469,121
Other loans:
Commercial and industrial		87		65		1,252		1,404		31,930		33,334
Consumer		228		44		177		449		12,414		12,863
Total other loans		315		109		1,429		1,853		44,344		46,197
Total acquired loans	$	5,894	$	2,468	$	6,679	$	15,041	$	500,277	$	515,318
Total loans:
Real estate loans:
One- to four-family first mortgage	$	7,022	$	1,084	$	2,813	$	10,919	$	431,977	$	442,896
Home equity loans and lines		58		159		201		418		81,376		81,794
Commercial real estate		1,580		1,429		9,019		12,028		679,911		691,939
Construction and land		1,192		15		1,778		2,985		197,168		200,153
Multi-family residential		—		—		—		—		47,827		47,827
Total real estate loans		9,852		2,687		13,811		26,350		1,438,259		1,464,609
Other loans:
Commercial and industrial		224		87		3,383		3,694		175,700		179,394
Consumer		594		46		355		995		47,950		48,945
Total other loans		818		133		3,738		4,689		223,650		228,339
Total loans	$	10,670	$	2,820	$	17,549	$	31,039	$	1,661,909	$	1,692,948

17

	December 31, 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	$	3,913	$	270	$	64	$	4,247	$	223,355	$	227,602
Home equity loans and lines		326		61		41		428		53,487		53,915
Commercial real estate		714		34		168		916		438,360		439,276
Construction and land		576		—		740		1,316		159,916		161,232
Multi-family residential		—		—		—		—		42,222		42,222
Total real estate loans		5,529		365		1,013		6,907		917,340		924,247
Other loans:
Commercial and industrial		362		1,369		265		1,996		131,206		133,202
Consumer		319		131		196		646		37,065		37,711
Total other loans		681		1,500		461		2,642		168,271		170,913
Total originated loans	$	6,210	$	1,865	$	1,474	$	9,549	$	1,085,611	$	1,095,160
Acquired loans:
Real estate loans:
One- to four-family first mortgage	$	4,196	$	1,258	$	3,702	$	9,156	$	213,605	$	222,761
Home equity loans and lines		462		116		163		741		29,320		30,061
Commercial real estate		3,104		265		1,143		4,512		196,787		201,299
Construction and land		1,050		488		813		2,351		30,014		32,365
Multi-family residential		84		—		—		84		12,149		12,233
Total real estate loans		8,896		2,127		5,821		16,844		481,875		498,719
Other loans:
Commercial and industrial		4,315		109		329		4,753		34,979		39,732
Consumer		357		277		262		896		15,247		16,143
Total other loans		4,672		386		591		5,649		50,226		55,875
Total acquired loans	$	13,568	$	2,513	$	6,412	$	22,493	$	532,101	$	554,594
Total loans:
Real estate loans:
One- to four-family first mortgage	$	8,109	$	1,528	$	3,766	$	13,403	$	436,960	$	450,363
Home equity loans and lines		788		177		204		1,169		82,807		83,976
Commercial real estate		3,818		299		1,311		5,428		635,147		640,575
Construction and land		1,626		488		1,553		3,667		189,930		193,597
Multi-family residential		84		—		—		84		54,371		54,455
Total real estate loans		14,425		2,492		6,834		23,751		1,399,215		1,422,966
Other loans:
Commercial and industrial		4,677		1,478		594		6,749		166,185		172,934
Consumer		676		408		458		1,542		52,312		53,854
Total other loans		5,353		1,886		1,052		8,291		218,497		226,788
Total loans	$	19,778	$	4,378	$	7,886	$	32,042	$	1,617,712	$	1,649,754

18

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, 2019 or December 31, 2018.

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

	For the Six Months Ended
(dollars in thousands)	June 30, 2019			June 30, 2018
Balance at beginning of period	$	(9,147	)	$	(9,303	)
Accretion		1,854			1,222
Transfers from nonaccretable difference to accretable discount		(44	)		(1,880	)
Balance at end of period	$	(7,337	)	$	(9,961	)

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, 2019
(dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
One- to four-family first mortgage	$	188	$	187	$	—	$	31	$	—
Home equity loans and lines		419		459		—		428		—
Commercial real estate		20		22		—		63		—
Construction and land		—		—		—		—		—
Multi-family residential		—		—		—		—		—
Commercial and industrial		1,526		1,800		—		1,532		—
Consumer		—		—		—		—		—
Total	$	2,153	$	2,468	$	—	$	2,054	$	—
With an allowance recorded:
One- to four-family first mortgage	$	—	$	—	$	—	$	—	$	—
Home equity loans and lines		402		441		348		412		—
Commercial real estate		6,835		6,909		361		6,848		—
Construction and land		—		—		—		—		—
Multi-family residential		—		—		—		—		—
Commercial and industrial		371		407		301		386		—
Consumer		—		—		—		—		—
Total	$	7,608	$	7,757	$	1,010	$	7,646	$	—
Total impaired loans:
One- to four-family first mortgage	$	188	$	187	$	—	$	31	$	—
Home equity loans and lines		821		900		348		840		—
Commercial real estate		6,855		6,931		361		6,911		—
Construction and land		—		—		—		—		—
Multi-family residential		—		—		—		—		—
Commercial and industrial		1,897		2,207		301		1,918		—
Consumer		—		—		—		—		—
Total	$	9,761	$	10,225	$	1,010	$	9,700	$	—

19

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

20

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

	June 30, 2019						December 31, 2018
(dollars in thousands)	Originated		Acquired(1)		Total		Originated		Acquired(1)		Total
Nonaccrual loans:
One- to four-family first mortgage	$	2,707	$	2,653	$	5,360	$	1,984	$	3,188	$	5,172
Home equity loans and lines		1,131		176		1,307		1,457		242		1,699
Commercial real estate		7,289		4,894		12,183		7,940		3,403		11,343
Construction and land		684		1,239		1,923		740		854		1,594
Multi-family residential		—		—		—		—		—		—
Commercial and industrial		2,978		1,734		4,712		2,986		1,002		3,988
Consumer		238		249		487		273		343		616
Total	$	15,027	$	10,945	$	25,972	$	15,380	$	9,032	$	24,412

⁽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 $2.4 million and $1.7 million as of June 30, 2019 and December 31, 2018, respectively.

As of June 30, 2019, 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,

• 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.

21

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.

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

	For the Six Months Ended June 30,
	2019						2018
(dollars in thousands)	Number of Contracts		Pre- modification Outstanding Recorded Investment		Post- modification Outstanding Recorded Investment		Number of Contracts		Pre- modification Outstanding Recorded Investment		Post- modification Outstanding Recorded Investment
Troubled debt restructurings:
One- to four-family first mortgage		5	$	710	$	705		2	$	1,146	$	1,146
Home equity loans and lines		—		—		—		—		—		—
Commercial real estate		1		91		91		2		6,461		5,950
Construction and land		—		—		—		—		—		—
Multi-family residential		—		—		—		—		—		—
Commercial and industrial		—		—		—		2		775		713
Other consumer		2		13		12		1		8		8
Total		8	$	814	$	808		7	$	8,390	$	7,817

None of the performing troubled debt restructurings as of June 30, 2019 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.

22

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

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

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

Recurring Basis

Investment Securities Available for Sale

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

Management primarily identifies investment securities which may have traded in illiquid or inactive markets, by identifying instances of a significant decrease in the volume and frequency of trades, relative to historical levels, as well as instances of a significant widening of the bid-ask spread in the brokered markets. Investment securities that are deemed to have been trading in illiquid or inactive markets may require the use of significant unobservable inputs. For example, management may use quoted prices for similar investment securities in the absence of a liquid and active market for the investment securities being valued. As of June 30, 2019, 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, 2019 and December 31, 2018.

(dollars in thousands)	June 30, 2019		Level 1		Level 2		Level 3
Available for sale securities:
U.S. agency mortgage-backed	$	80,757	$	—	$	80,757	$	—
Collateralized mortgage obligations		158,517		—		158,517		—
Municipal bonds		14,063		—		14,063		—
U.S. government agency		8,289		—		8,289		—
Total	$	261,626	$	—	$	261,626	$	—

23

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

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 third 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 as reflected in the table below.

			Fair Value Measurements Using
(dollars in thousands)	June 30, 2019		Level 1		Level 2		Level 3
Assets
Impaired loans	$	8,751	$	—	$	—	$	8,751
Repossessed assets		1,980		—		—		1,980
Total	$	10,731	$	—	$	—	$	10,731
			Fair Value Measurements Using
(dollars in thousands)	December 31, 2018		Level 1		Level 2		Level 3
Assets
Impaired loans	$	8,723	$	—	$	—	$	8,723
Repossessed assets		1,558		—		—		1,558
Total	$	10,281	$	—	$	—	$	10,281

24

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

(dollars in thousands)	Fair Value		Valuation Technique	Unobservable Inputs	Range of Discounts			Weighted Average Discount
As of June 30, 2019:
Impaired loans	$	8,751	Third party appraisals and discounted cash flows	Collateral values, market discounts and estimated costs to sell		0% - 87	%		10	%
Repossessed assets	$	1,980	Third party appraisals, sales contracts, broker price opinions	Collateral values, market discounts and estimated costs to sell		6% - 79	%		20	%
(dollars in thousands)	Fair Value		Valuation Technique	Unobservable Inputs	Range of Discounts			Weighted Average Discount
As of December 31, 2018:
Impaired loans	$	8,723	Third party appraisals and discounted cash flows	Collateral values, market discounts and estimated costs to sell		0% - 100	%		12	%
Repossessed assets	$	1,558	Third party appraisals, sales contracts, broker price opinions	Collateral values, market discounts and estimated costs to sell		6% - 68	%		20	%

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.

25

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

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

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

The cash surrender value of bank-owned life insurance (“BOLI”) 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 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, 2019
(dollars in thousands)	Carrying Amount		Total		Level 1		Level 2		Level 3
Financial Assets
Cash and cash equivalents	$	71,325	$	71,325	$	71,325	$	—	$	—
Interest-bearing deposits in banks		694		694		694		—		—
Investment securities available for sale		261,626		261,626		—		261,626		—
Investment securities held to maturity		8,163		8,207		—		8,207		—
Mortgage loans held for sale		4,501		4,501		—		4,501		—
Loans, net		1,675,709		1,664,617		—		1,655,866		8,751
Cash surrender value of BOLI		39,927		39,927		39,927		—		—
Financial Liabilities
Deposits	$	1,829,169	$	1,829,578	$	—	$	1,829,578	$	—
Other borrowings		5,539		5,856		—		5,856		—
Long-term FHLB advances		54,615		54,378		—		54,378		—
			Fair Value Measurements at December 31, 2018
(dollars in thousands)	Carrying Amount		Total		Level 1		Level 2		Level 3
Financial Assets
Cash and cash equivalents	$	59,618	$	59,618	$	59,618	$	—	$	—
Interest-bearing deposits in banks		939		939		939		—		—
Investment securities available for sale		260,131		260,131		—		260,131		—
Investment securities held to maturity		10,872		10,841		—		10,841		—
Mortgage loans held for sale		2,086		2,086		—		2,086		—
Loans, net		1,633,406		1,623,920		—		1,615,197		8,723
Cash surrender value of BOLI		29,560		29,560		29,560		—		—
Financial Liabilities
Deposits	$	1,773,217	$	1,769,087	$	—	$	1,769,087	$	—
Other borrowings		5,539		5,542		—		5,542		—
Long-term FHLB advances		58,698		57,527		—		57,527		—

26

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, 2018 through June 30, 2019 and on its results of operations for the three and six months ended June 30, 2019 and 2018. This discussion and analysis is intended to highlight and supplement information presented elsewhere in this quarterly report on Form 10-Q, particularly the consolidated financial statements and related notes appearing in Item 1.

Forward-Looking Statements

To the extent that statements in this Form 10-Q relate to future plans, objectives, financial results or performance of the Company or Bank, these statements are deemed to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements, which are based on management’s current information, estimates and assumptions and the current economic environment, are generally identified by the use of words such as “plan”, “believe”, “expect”, “intend”, “anticipate”, “estimate”, “project” or similar expressions, or by future or conditional terms such as “will”, “would”, “should”, “could”, “may”, “likely”, “probably”, or “possibly”. The Company’s or the Bank’s actual strategies and results in future periods may differ materially from those currently expected due to various risks and uncertainties. Factors that may cause actual results to differ materially from these forward-looking statements include, but are not limited to, the risk factors described under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K filed with the Securities Exchange Commission (“SEC”) for the year ended December 31, 2018. 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 second quarter of 2019, the Company earned $6.6 million, a decrease of $1.2 million, or 15.4%, compared to the second quarter of 2018. Diluted earnings per share for the second quarter of 2019 were $0.71, a decrease of $0.12, or 14.5%, compared to the second quarter of 2018. Net income for the second quarter of 2019 included facilities-related charges of $504,000, net of tax. Net income for the second quarter of 2018 included merger-related expenses of $894,000, net of tax.

During the six months ended June 30, 2019, the Company earned $14.5 million, a decrease of $769,000, or 5.0%, compared to the six months ended June 30, 2018. Diluted earnings per share for the six months ended June 30, 2019 were $1.56, a decrease of $0.08, or 4.9%, compared to the six months ended June 30, 2018. Net income for the six months ended June 30, 2019 included facilities-related charges of $504,000, net of tax. Net income for the six months ended June 30, 2018 included merger-related expenses of $1.6 million, net of tax.

Key components of the Company’s performance during the three and six months ended June 30, 2019 include:

• Assets increased $66.7 million, or 3.1%, from December 31, 2018 to $2.2 billion at June 30, 2019.

• Loans increased of $43.2 million, or 2.6%, from December 31, 2018 to $1.7 billion at June 30, 2019.

• Deposits increased $56.0 million, or 3.2%, from December 31, 2018 to $1.8 billion at June 30, 2019.

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• Interest income increased $346,000, or 1.4%, in the second quarter of 2019 compared to the second quarter of 2018. For the six months ended June 30, 2019, interest income increased $990,000, or 2.0%, compared to the six months ended June 30, 2018.

• Interest expense increased $1.8 million, or 80.7%, in the second quarter of 2019 compared to the second quarter of 2018. For the six months ended June 30, 2019, interest expense increased $3.2 million, or 72.5%, compared to the six months ended June 30, 2018.

• The provision for loan losses for the second quarter of 2019 increased $184,000, or 31.7%, to $765,000, compared to the second quarter of 2018. The provision increased primarily due to loan growth. The ratio of allowance for loan losses to total loans was 1.02% at June 30, 2019, compared to 0.99% at December 31, 2018.

• Noninterest income for the second quarter of 2019 decreased $368,000, or 11.0%, compared to the second quarter of 2018. For the six months ended June 30, 2019, noninterest income decreased $685,000, or 10.0%, compared to the six months ended June 30, 2018. The three and six months ended June 30, 2019 included asset write-downs totaling $347,000 (pre-tax).

• Noninterest expense for the second quarter of 2019 decreased $370,000, or 2.3%, compared to the second quarter of 2018. Noninterest expense for the six months ended June 30, 2019 decreased $669,000, or 2.1%, compared to the six months ended June 30, 2018. Noninterest expense for the three and six months ended June 30, 2019 included $291,000 (pre-tax) of costs incurred to terminate leased space acquired through a previous merger. Noninterest expense for the second quarter of 2018 and the six months ended June 30, 2018 included $1.1 million and $2.0 million, respectively, of merger-related expenses.

FINANCIAL CONDITION

Loans, Asset Quality and Allowance for Loan Losses

Loans – Loans outstanding as of June 30, 2019 were $1.7 billion, an increase of $43.2 million, or 2.6%, from December 31, 2018. Growth in commercial real estate loans (up $51.4 million), construction and land loans (up $6.6 million) and commercial and industrial loans (up $6.5 million) was partially offset by reductions in certain other loan categories. Commercial real estate loan growth was spread across the Company’s Louisiana markets in a variety of industries. Construction and land loans increased primarily due to growth in existing health care and real estate development relationships located in the Acadiana and Baton Rouge markets. Commercial and industrial loan growth was due primarily to increases in agriculture production and farm-related loans in the southwest Acadiana market.

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

	June 30,		December 31,		Increase/(Decrease)
(dollars in thousands)	2019		2018		Amount			Percent
Real estate loans:
One-to four-family first mortgage	$	442,896	$	450,363	$	(7,467	)		(1.7	)%
Home equity loans and lines		81,794		83,976		(2,182	)		(2.6	)
Commercial real estate		691,939		640,575		51,364			8.0
Construction and land		200,153		193,597		6,556			3.4
Multi-family residential		47,827		54,455		(6,628	)		(12.2	)
Total real estate loans		1,464,609		1,422,966		41,643			2.9
Other loans:
Commercial and industrial		179,394		172,934		6,460			3.7
Consumer		48,945		53,854		(4,909	)		(9.1	)
Total other loans		228,339		226,788		1,551			0.7
Total loans	$	1,692,948	$	1,649,754	$	43,194			2.6	%

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The outstanding balance of direct loans to borrowers in the energy sector totaled $40.5 million, or 2.4% of total outstanding loans, at June 30, 2019 compared to $45.6 million, or 2.8% of total outstanding loans, at December 31, 2018. Unfunded loan commitments to customers in the energy sector total $7.3 million at June 30, 2019, compared to $10.1 million at December 31, 2018. At June 30, 2019 and December 31, 2018, loans constituting 93.9% and 96.7%, respectively, of the balance of our direct energy related portfolio were performing in accordance with their original loan agreements.

Asset Quality – One of management’s key objectives has been, and continues to be, maintaining a high level of asset quality. In addition to maintaining credit standards for new loan originations, we proactively monitor loans and collection and workout processes of delinquent or problem loans. When a borrower fails to make a scheduled payment, we attempt to cure the deficiency by making personal contact with the borrower. Initial contacts are generally made within 10 days after the date payment is due. In most cases, deficiencies are promptly resolved. If the delinquency continues, late charges are assessed and additional efforts are made to collect the deficiency. All loans which are designated as “special mention,” classified or which are delinquent 90 days or more are reported to the Board of Directors of the Bank monthly. For loans where the collection of principal or interest payments is doubtful, the accrual of interest income ceases. It is our policy, with certain limited exceptions, to discontinue accruing interest and reverse any interest accrued on any loan which is 90 days or more past due. On occasion, this action may be taken earlier if the financial condition of the borrower raises significant concern with regard to their ability to service the debt in accordance with the terms of the loan agreement. Interest income is not accrued on these loans until the borrower’s financial condition and payment record demonstrate an ability to service the debt.

Repossessed assets, which are acquired as a result of foreclosure, are classified as repossessed assets until sold. Third party property valuations are obtained at the time the asset is repossessed and periodically until the property is liquidated. Repossessed assets are initially recorded at fair value less estimated costs to sell. Costs associated with acquiring and improving a foreclosed property are usually capitalized to the extent that the carrying value does not exceed fair value less estimated selling costs. Holding costs are charged to expense. Gains and losses on the sale of repossessed assets are charged to operations, as incurred.

An impaired loan generally is one for which it is probable, based on current information, that the lender will not collect all the amounts due under the contractual terms of the loan. Large groups of smaller balance, homogeneous loans are collectively evaluated for impairment. Loans collectively evaluated for impairment include smaller balance commercial loans, residential real estate loans and consumer loans. These loans are evaluated as a group because they have similar characteristics and performance experience. Larger (i.e., loans with balances of $250,000 or greater) commercial real estate loans, multi-family residential loans, construction and land loans and commercial and industrial loans are individually evaluated for impairment. Third party property valuations are obtained at the time of origination for real estate secured loans. When a determination is made that a loan has deteriorated to the point of becoming a problem loan, updated valuations may be ordered to help determine if there is impairment, which may lead to a recommendation for partial charge off or appropriate allowance allocation. Property valuations are ordered through, and are reviewed by, an appraisal officer at the bank. The Company typically orders an “as is” valuation for collateral property if a loan is in a criticized loan classification. The Board of Directors is provided with monthly reports on impaired loans. As of June 30, 2019 and December 31, 2018, loans identified as impaired and individually evaluated for impairment, excluding Acquired Loans, amounted to $9.8 million and $9.9 million, respectively. As of June 30, 2019 and December 31, 2018, acquired impaired loans (loans considered to have deteriorated credit quality at the time of acquisition) amounted to $9.2 million and $10.0 million, respectively. As of June 30, 2019 and December 31, 2018, substandard loans, excluding Acquired Loans, amounted to $19.2 million and $21.7 million, respectively. As of June 30, 2019 and December 31, 2018, Acquired Loans considered substandard amounted to $24.9 million and $24.5 million, respectively. The amount of the allowance for loan losses allocated to originated impaired loans totaled $1.0 million as of June 30, 2019 and $1.2 million as of December 31, 2018. The amount of the allowance for loan losses allocated to Acquired Loans totaled $1.6 million and $1.5 million, respectively, at such dates. There were no assets classified as doubtful or loss as of June 30, 2019 or December 31, 2018.

Federal regulations and our policies require that we utilize an internal asset classification system as a means of reporting problem and potential problem assets. We have incorporated an internal asset classification system,

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

A bank’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by Federal bank regulators which can order the establishment of additional general or specific loss allowances. The Federal banking agencies have adopted an interagency policy statement on the allowance for loan and lease losses. The policy statement provides guidance for financial institutions on both the responsibilities of management for the assessment and establishment of allowances and guidance for banking agency examiners to use in determining the adequacy of general valuation guidelines. Generally, the policy statement recommends that institutions have effective systems and controls to identify, monitor and address asset quality problems; that management analyze all significant factors that affect the collectability of the portfolio in a reasonable manner; and that management establish acceptable allowance evaluation processes that meet the objectives set forth in the policy statement. Our management believes that, based on information currently available, our allowance for loan losses is maintained at a level which covers all known and inherent losses that are both probable and reasonably estimable as of each reporting date. However, actual losses are dependent upon future events and, as such, further additions to the level of allowance for loan losses may become necessary.

Real estate, or other collateral, which is acquired as a result of foreclosure is classified as a foreclosed asset until sold. Foreclosed assets are recorded at the lesser of the balance of the loan or fair value less estimated selling costs, at the date acquired or upon receiving new property valuations. Holding costs are charged to expense. Gains and losses on the sale of real estate owned are charged to operations, as incurred.

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

	June 30, 2019							December 31, 2018
(dollars in thousands)	Originated		Acquired(1)		Total			Originated		Acquired(1)		Total
Nonaccrual loans(2):
Real estate loans:
One- to four-family first mortgage	$	2,707	$	2,653	$	5,360		$	1,984	$	3,188	$	5,172
Home equity loans and lines		1,131		176		1,307			1,457		242		1,699
Commercial real estate		7,289		4,894		12,183			7,940		3,403		11,343
Construction and land		684		1,239		1,923			740		854		1,594
Multi-family residential		—		—		—			—		—		—
Other loans:
Commercial and industrial		2,978		1,734		4,712			2,986		1,002		3,988
Consumer		238		249		487			273		343		616
Total nonaccrual loans		15,027		10,945		25,972			15,380		9,032		24,412
Accruing loans 90 days or more past due		—		—		—			—		—		—
Total nonperforming loans		15,027		10,945		25,972			15,380		9,032		24,412
Foreclosed assets		87		1,893		1,980			146		1,412		1,558
Total nonperforming assets		15,114		12,838		27,952			15,526		10,444		25,970
Performing troubled debt restructurings		1,080		217		1,297			1,117		289		1,406
Total nonperforming assets and troubled debt restructurings	$	16,194	$	13,055	$	29,249		$	16,643	$	10,733	$	27,376
Nonperforming loans to total loans						1.53	%						1.48	%
Nonperforming loans to total assets						1.17	%						1.13	%
Nonperforming assets to total assets						1.26	%						1.21	%

⁽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 $2.4 million and $1.7 million as of June 30, 2019 and December 31, 2018, respectively.

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⁽²⁾  Nonaccrual loans include originated restructured loans placed on nonaccrual totaling $9.9 million and $10.3 million at June 30, 2019 and December 31, 2018, respectively. Acquired restructured loans placed on nonaccrual totaled $1.9 million and $4.2 million at June 30, 2019 and December 31, 2018, respectively.

The Company recorded net loan charge-offs for the second quarter of 2019 of $96,000 and net loan charge-offs for the six months ended June 30, 2019 of $264,000. The Company recorded net loan recoveries for the second quarter of 2018 of $123,000, and net loan charge-offs for the six months ended June 30, 2018 of $1.4 million.

Allowance for Loan Losses – The allowance for loan losses is established through provisions for loan losses. The Company maintains the allowance at a level believed, to the best of management’s knowledge, to cover all known and inherent losses in the portfolio that are both probable and reasonable to estimate at each reporting date. Management reviews the allowance for loan losses at least quarterly in order to identify those inherent losses and to assess the overall collection probability for the loan portfolio. The evaluation process includes, among other things, an analysis of delinquency trends, nonperforming loan trends, the level of charge-offs and recoveries, prior loss experience, total loans outstanding, the volume of loan originations, the type, size and geographic concentration of loans, the value of collateral securing loans, the borrower’s ability to repay and repayment performance, the number of loans requiring heightened management oversight, economic conditions and industry experience. Based on this evaluation, management assigns risk ratings to segments of the loan portfolio. Such risk ratings are periodically reviewed by management and revised as deemed appropriate. These efforts are supplemented by reviews and validations performed by independent loan reviewers. The results of the reviews are reported to the Audit Committee of the Board of Directors. The establishment of the allowance for loan losses is significantly affected by management judgment. There is likelihood that different amounts would be reported under different conditions or assumptions. Federal regulatory agencies, as an integral part of their examination process, periodically review our allowance for loan losses. Such agencies may require management to make additional provisions for estimated loan losses based upon judgments different from those of management.

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

Acquired Loans were recorded at their acquisition date fair value, which was based on expected cash flows and included an estimation of expected future loan losses. If the present value of expected cash flows for a pool is less than its carrying value, an impairment is recognized by an increase in the allowance for loan losses and a charge to the provision for loan losses. As of June 30, 2019 and December 31, 2018, $1.6 million and $1.5 million, respectively, of our allowance for loan losses was allocated to Acquired Loans.

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

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

(dollars in thousands)	Originated			Acquired		Total
Balance, December 31, 2018	$	14,860		$	1,488	$	16,348
Provision charged to operations		1,039			116		1,155
Loans charged off		(288	)		—		(288	)
Recoveries on charged off loans		24			—		24
Balance, June 30, 2019	$	15,635		$	1,604	$	17,239

At June 30, 2019, the Company’s ratio of the allowance for loan losses to total loans was 1.02%, compared to 0.99% and 0.92% at December 31, 2018 and June 30, 2018, respectively. Excluding Acquired Loans, the ratio of the allowance for loan losses to total loans was 1.33% at June 30, 2019, compared to 1.36% and 1.40% at December 31, 2018 and June 30, 2018, respectively.    

The allowance for loan losses attributable to originated energy-sector loans totaled 2.58% of the outstanding balance of originated energy-sector loans at June 30, 2019, compared to 2.39% and 2.61% at December 31, 2018 and June 30, 2018, respectively.

Investment Securities

The Company’s investment securities portfolio totaled $269.8 million as of June 30, 2019, a decrease of $1.2 million, or 0.5%, from December 31, 2018. As of June 30, 2019, the Company had a net unrealized gain on its available for sale investment securities portfolio of $1.5 million, compared to a net unrealized loss of $2.8 million as of December 31, 2018.

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

(dollars in thousands)	Available for Sale			Held to Maturity
Balance, December 31, 2018	$	260,131		$	10,872
Purchases		31,332			—
Sales		—			—
Principal maturities, prepayments and calls		(33,266	)		(2,593	)
Amortization of premiums and accretion of discounts		(845	)		(116	)
Increase in market value		4,274			—
Balance, June 30, 2019	$	261,626		$	8,163

Funding Sources

Deposits – Deposits totaled $1.8 billion as of June 30, 2019, an increase of $56.0 million, or 3.2%, compared to December 31, 2018. Core deposits (i.e. checking, savings and money market accounts) totaled $1.4 billion as of June 30, 2019, an increase of $17.5 million, or 1.2%, compared to December 31, 2018. Certificates of deposit totaled $389.4 million as of June 30, 2019, an increase of $38.4 million, or 11.0%, compared to December 31, 2018.

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The following table sets forth the composition of the Company’s deposits at the dates indicated.

	June 30,		December 31,		Increase/(Decrease)
(dollars in thousands)	2019		2018		Amount			Percent
Demand deposit	$	449,402	$	438,146	$	11,256			2.6	%
Savings		205,798		201,393		4,405			2.2
Money market		278,514		295,705		(17,191	)		(5.8	)
NOW		506,025		486,979		19,046			3.9
Certificates of deposit		389,430		350,994		38,436			11.0
Total deposits	$	1,829,169	$	1,773,217	$	55,952			3.2	%

Federal Home Loan Bank Advances – Long-term FHLB advances totaled $54.6 million as of June 30, 2019 a decrease of $4.1 million, or 7.0%, compared to $58.7 million as of December 31, 2018. The decrease in FHLB advances are primarily due to paydowns on maturing obligations.

Shareholders’ Equity – Shareholders’ equity increased $9.5 million, or 3.1%, from $304.0 million as of December 31, 2018 to $313.5 million as of June 30, 2019, primarily due to earnings during the period.

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

	Actual					Minimum Capital Required – Basel III Fully Phased-In					To Be Well Capitalized Under Prompt Corrective Action Provisions
(dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
Bank:
Common equity Tier 1 capital (to risk-weighted assets)	$	236,445		14.28	%	$	115,867		7.00	%	$	107,591		6.50	%
Tier 1 risk-based capital		236,445		14.28			140,696		8.50			132,419		8.00
Total risk-based capital		253,684		15.33			173,800		10.50			165,524		10.00
Tier 1 leverage capital		236,445		11.15			84,855		4.00			106,069		5.00

LIQUIDITY AND ASSET/LIABILITY MANAGEMENT

Liquidity Management

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

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As of June 30, 2019, cash and cash equivalents totaled $71.3 million. At such date, investment securities available for sale totaled $261.6 million.

The Company uses its liquidity to fund existing and future loan commitments, to fund maturing certificates of deposit and demand deposit withdrawals, to invest in other interest-earning assets and to meet operating expenses. As of June 30, 2019, certificates of deposit maturing within the next 12 months totaled $250.9 million. Based upon historical experience, the Company anticipates that a significant portion of the maturing certificates of deposit will be redeposited with us. For the three months ended June 30, 2019, the average balance of outstanding FHLB advances was $57.2 million. As of June 30, 2019, the Company had $54.6 million in total outstanding FHLB advances and had $717.5 million in additional FHLB advances available.

In addition to cash flow from loan and securities payments and prepayments as well as from sales of securities available for sale, the Company has significant borrowing capacity available to fund liquidity needs. In recent years, the Company has utilized borrowings as a cost efficient addition to deposits as a source of funds. Borrowings consist of advances from the FHLB of Dallas, of which the Company is a member. Under terms of the collateral agreement with the FHLB, the Company pledges residential mortgage loans and investment securities as well as the Company’s stock in the FHLB as collateral for such advances.

Asset/Liability Management

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

Shift in Interest Rates (in bps)	% Change in Projected Net Interest Income
+200	(0.8)
+100	—
-100	(1.5)

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

Off-Balance Sheet Activities

To meet the financing needs of its customers, the Bank issues financial instruments which represent conditional obligations that are not recognized, wholly or in part, in the statements of financial condition. These financial instruments include commitments to extend credit and standby letters of credit. Such instruments expose the Company to varying degrees of credit and interest rate risk in much the same way as funded loans. The same credit policies are used in these commitments as for on-balance sheet instruments. The Company’s exposure to credit losses from these financial instruments is represented by their contractual amounts.

The following table summarizes our outstanding commitments to originate loans and to advance additional amounts pursuant to outstanding letters of credit, lines of credit and undisbursed construction loans as of June 30, 2019 and December 31, 2018.

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	Contract Amount
	June 30,		December 31,
(dollars in thousands)	2019		2018
Standby letters of credit	$	5,216	$	4,288
Available portion of lines of credit		221,562		186,446
Undisbursed portion of loans in process		125,676		108,307
Commitments to originate loans		78,434		92,656

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to be drawn upon, the total commitment amounts generally represent future cash requirements.

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

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

RESULTS OF OPERATIONS

During the second quarter of 2019, the Company earned $6.6 million, a decrease of $1.2 million, or 15.4%, compared to the second quarter of 2018. Diluted earnings per share for the second quarter of 2019 were $0.71, a decrease of $0.12, or 14.5%, compared to the second quarter of 2018. Net income for the six months ended June 30, 2019 included facilities-related charges of $504,000, net of tax. Net income for the second quarter of 2018 included merger-related expenses of $894,000, net of tax.

During the six months ended June 30, 2019, the Company earned $14.5 million, a decrease of $769,000, or 5.0%, compared to the six months ended June 30, 2018. Diluted earnings per share for the six months ended June 30, 2019 were $1.56, a decrease of $0.08, or 4.9%, compared to the six months ended June 30, 2018. Net income for the six months ended June 30, 2019 included facilities-related charges of $504,000, net of tax. Net income for the six months ended June 30, 2018 included merger-related expenses of $1.6 million, net of tax.

Net Interest Income – Net interest income is the difference between the interest income earned on interest-earning assets, such as loans and investment securities, and the interest expense paid on interest-bearing liabilities, such as deposits and borrowings. The Company’s net interest income is largely determined by our net interest spread, which is the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities, and the relative amounts of interest-earning assets and interest-bearing liabilities. The Company’s tax-equivalent net interest spread was 4.05% and 4.51% for the three months ended June 30, 2019 and June 30, 2018, respectively, and 4.08% and 4.42% for the six months ended June 30, 2019 and June 30, 2018, respectively. The Company’s tax-equivalent net interest margin, which is net interest income as a percentage of average interest-earning assets, was 4.36% and 4.69% for the three months ended June 30, 2019 and June 30, 2018, respectively, and 4.39% and 4.59% for the six months ended June 30, 2019 and June 30, 2018, respectively. The decreases in our spread and margin noted above were largely due to increased funding costs.

Net interest income totaled $21.9 million for the three months ended June 30, 2019, a decrease of $1.5 million, or 6.3%, compared to the three months ended June 30, 2018. For the six months ended June 30, 2019 net interest income totaled $43.6 million, a decrease of $2.2 million, or 4.9%, compared to the six months ended June 30, 2018. Net interest income decreased primarily due to an increase in the cost of deposits in both the three- and six-month periods ended June 30, 2019 over the comparable periods.

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

	Three Months Ended June 30,
	2019							2018
					Average							Average
	Average				Yield/			Average				Yield/
(dollars in thousands)	Balance		Interest		Rate (1)			Balance		Interest		Rate(1)
Interest-earning assets:
Loans receivable(1)
Originated loans	$	1,136,566	$	15,841		5.53	%	$	938,453	$	13,061		5.53	%
Acquired loans		529,275		7,971		5.99			695,857		10,466		5.98
Total loans receivable(1)		1,665,841		23,812		5.68			1,634,310		23,527		5.72
Investment securities
Taxable		248,171		1,601		2.58			247,304		1,531		2.48
Tax-exempt (TE)		23,096		128		2.80			34,694		179		2.61
Total investment securities		271,267		1,729		2.60			281,998		1,710		2.49
Other interest-earning assets		55,959		380		2.72			65,402		338		2.07
Total interest-earning assets (TE)		1,993,067	$	25,921		5.18			1,981,710	$	25,575		5.14
Noninterest-earning assets		197,537							182,954
Total assets	$	2,190,604						$	2,164,664
Interest-bearing liabilities:
Deposits:
Savings, checking and money market	$	985,349	$	2,097		0.85	%	$	992,449	$	1,030		0.42	%
Certificates of deposit		383,345		1,638		1.71			354,597		897		1.02
Total interest-bearing deposits		1,368,694		3,735		1.09			1,347,046		1,927		0.57
Other borrowings		5,539		53		3.84			—		—		—
Short-term FHLB advances		—		—		—			3,586		16		1.81
Long term FHLB advances		57,182		258		1.80			66,690		296		1.77
Total interest-bearing liabilities		1,431,415	$	4,046		1.13			1,417,322	$	2,239		0.63
Noninterest-bearing liabilities		447,881							460,860
Total liabilities		1,879,296							1,878,182
Shareholders’ equity		311,308							286,482
Total liabilities and shareholders’ equity	$	2,190,604						$	2,164,664
Net interest-earning assets	$	561,652						$	564,388
Net interest spread (TE)			$	21,875		4.05	%			$	23,336		4.51	%
Net interest margin (TE)						4.36	%						4.69	%

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

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	Six Months Ended June 30,
	2019							2018
					Average							Average
	Average				Yield/			Average				Yield/
(dollars in thousands)	Balance		Interest		Rate (1)			Balance		Interest		Rate(1)
Interest-earning assets:
Loans receivable(1)
Originated loans	$	1,121,482	$	30,785		5.48	%	$	924,740	$	25,338		5.47	%
Acquired loans		536,296		16,225		6.05			716,130		20,993		5.85
Total loans receivable(1)		1,657,778		47,010		5.66			1,640,870		46,331		5.64
Investment securities
Taxable		246,120		3,254		2.64			235,409		2,839		2.41
Tax-exempt (TE)		25,881		283		2.77			35,564		365		2.60
Total investment securities		272,001		3,537		2.66			270,973		3,204		2.44
Other interest-earning assets		55,756		743		2.69			84,266		765		1.83
Total interest-earning assets (TE)		1,985,535	$	51,290		5.17			1,996,109	$	50,300		5.04
Noninterest-earning assets		192,992							188,567
Total assets	$	2,178,527						$	2,184,676
Interest-bearing liabilities:
Deposits:
Savings, checking and money market	$	984,272	$	4,103		0.84	%	$	1,001,663	$	2,042		0.41	%
Certificates of deposit		375,523		2,963		1.59			365,219		1,787		0.99
Total interest-bearing deposits		1,359,795		7,066		1.05			1,366,882		3,829		0.56
Other Borrowings		5,539		106		3.87			—		—		—
Short-term FHLB advances		22		—		2.65			3,603		33		1.82
Long term FHLB advances		57,664		521		1.81			67,130		597		1.78
Total interest-bearing liabilities		1,423,020	$	7,693		1.09			1,437,615	$	4,459		0.62
Noninterest-bearing liabilities		446,719							462,881
Total liabilities		1,869,739							1,900,496
Shareholders’ equity		308,788							284,180
Total liabilities and shareholders’ equity	$	2,178,527						$	2,184,676
Net interest-earning assets	$	562,515						$	558,494
Net interest spread (TE)			$	43,597		4.08	%			$	45,841		4.42	%
Net interest margin (TE)						4.39	%						4.59	%

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

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

	For the Three Months Ended									For the Six Months Ended
	June 30,									June 30,
	2019 Compared to 2018									2019 Compared to 2018
	Change Attributable To									Change Attributable To
							Total									Total
							Increase									Increase
(dollars in thousands)	Rate			Volume			(Decrease)			Rate			Volume			(Decrease)
Interest income:
Loans receivable	$	(102	)	$	387		$	285		$	230		$	449		$	679
Investment securities		86			(67	)		19			241			92			333
Other interest-earning assets		98			(56	)		42			297			(319	)		(22	)
Total interest income		82			264			346			768			222			990
Interest expense:
Savings, checking and money market accounts		1,074			(7	)		1,067			2,104			(43	)		2,061
Certificates of deposit		643			98			741			1,110			66			1,176
Other borrowings		27			26			53			53			53			106
FHLB advances		(3	)		(51	)		(54	)		(19	)		(90	)		(109	)
Total interest expense		1,741			66			1,807			3,248			(14	)		3,234
Increase (decrease) in net interest income	$	(1,659	)	$	198		$	(1,461	)	$	(2,480	)	$	236		$	(2,244	)

Provision for Loan Losses – For the quarter ended June 30, 2019, the Company recorded a provision for loan losses of $765,000, an increase of $184,000, or 31.7%, compared to the $581,000 recorded for the comparable period in 2018. The increase in provision for the quarter ended June 30, 2019 over the comparable period in the prior year resulted primarily from growth in the loan portfolio.

For the six months ended June 30, 2019, the provision for loan losses totaled $1.2 million, a decrease of $390,000, or 25.2%, compared to $1.5 million recorded for the same period in 2018. The provision for loan losses for the six months ended June 30, 2019 decreased compared to the comparable period in 2018 primarily due to fewer loan downgrades during the 2019 period.

The Company recorded net loan charge-offs of $96,000 during the second quarter of 2019, compared to $123,000 of net loan recoveries in the second quarter of 2018. The Company recorded net loan charge-offs of $264,000 during the six months ended June 30, 2019 and net loan charge-offs of $1.4 million for the six months ended June 30, 2018. Charge-offs were elevated for the six months ended June 30, 2018 primarily due to two loan relationships identified as problem credits in prior periods.

At June 30, 2019, the Company’s ratio of the allowance for loan losses to total loans was 1.02%, compared to 0.99% and 0.92% at December 31, 2018 and June 30, 2018, respectively. Excluding Acquired Loans, the ratio of the allowance for loan losses to total loans was 1.33% at June 30, 2019, compared to 1.36% and 1.40% at December 31, 2018 and June 30, 2018, respectively. The ratio of nonperforming loans to total assets was 1.17% at June 30, 2019, compared to 1.13% and 1.03% at December 31, 2018 and June 30, 2018, respectively.

Noninterest Income – The Company’s noninterest income was $3.0 million for the quarter ended June 30, 2019, a decrease of $368,000, or 11.0%, compared to the $3.3 million earned for the same period in 2018. Noninterest income for the quarter ended June 30, 2019 included $347,000 (pre-tax) in total write-downs of three buildings acquired through mergers and two relocating branch locations.

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Noninterest income decreased $685,000, or 10.0%, to $6.1 million for the six months ended June 30, 2019, compared to $6.8 million earned for the comparable period in 2018. Noninterest income decreased over the comparable six-month periods primarily due to asset write-downs and a decrease in service fees and charges.

Noninterest Expense – Noninterest expense decreased $370,000, or 2.3%, to $16.0 million for the quarter ended June 30, 2019, compared to the $16.3 million recorded for the same period in 2018. Noninterest expense decreased over the comparable quarters primarily due to the absence of merger-related expenses in the second quarter of 2019, which was partially offset by a rise in compensation and benefits (up $391,000, or 4.2%) and $291,000 (pre-tax) of costs incurred during the second quarter of 2019 to terminate an office lease acquired through a previous merger. Noninterest expense for the quarter ended June 30, 2018 included merger-related expenses of $1.1 million (pre-tax).

Noninterest expense decreased $669,000, or 2.1%, to $31.2 million for the six months ended June 30, 2019, compared to the $31.9 million for the same period in 2018. Noninterest expense for the six months ended June 30, 2018 included merger-related expenses of $2.0 million (pre-tax). Noninterest expense decreased over the comparable six-month periods primarily due to decreases in data processing and communications, forms, printing and supplies and professional services expenses, offset by increases in compensation and benefits and occupancy expenses.    

Income Taxes – For the quarters ended June 30, 2019 and 2018, the Company incurred income tax expense of $1.6 million and $2.0 million, respectively. For the same periods, the Company’s effective tax rate was 19.1% and 20.5%, respectively. For the six months ended June 30, 2019 and June 30, 2018, the Company incurred income tax expense of $2.9 million and $4.0 million, respectively. The Company had an effective tax rate of 16.6% and 20.7% for the six months ended June 30, 2019 and June 30, 2018, respectively. The effective tax rate decreased over the comparable six-month periods primarily due to elevated levels of stock option exercises.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Quantitative and qualitative disclosures about market risk are presented in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2018, under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Asset/Liability Management and Market Risk”. Additional information at June 30, 2019 is included herein under Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Asset/Liability Management”.

Item 4. Controls and Procedures.

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

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934) occurred during the second quarter of 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

Not applicable.

Item 1A. Risk Factors.

There have been no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commission.

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

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

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet be Purchased Under the Plan or Programs(1)
April 1 – April 30, 2019		28,405	$	35.94		28,405		173,672
May 1 – May 31, 2019		23,160		36.46		23,160		150,512
June 1 – June 30, 2019		31,623		36.17		31,623		118,889
Total		83,188	$	36.17		83,188		118,889

⁽¹⁾  On April 26, 2016, the Company announced a stock repurchase program (the “2016 Repurchase Program”). Under the 2016 Repurchase Program, the Company can repurchase up to 365,000 shares, or approximately 5% of its common stock outstanding, through open market or privately negotiated transactions.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

None.

Item 6. Exhibits and Financial Statement Schedules.

No.	Description
31.1	Rule 13(a)-14(a) Certification of the Chief Executive Officer
31.2	Rule 13(a)-14(a) Certification of the Chief Financial Officer
32.0	Section 1350 Certification
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definitions Linkbase Document

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SIGNATURES

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

		HOME BANCORP, INC.
August 9, 2019	By:	/s/ John W. Bordelon
		John W. Bordelon
		President, Chief Executive Officer and Director
August 9, 2019	By:	/s/ Joseph B. Zanco
		Joseph B. Zanco
		Executive Vice President and Chief Financial Officer
August 9, 2019	By:	/s/ Mary H. Hopkins
		Mary H. Hopkins
		Home Bank, N.A. Senior Vice President and Director of Financial Management

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