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, 2021

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)

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

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

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

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

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

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

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

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

At July 30, 2021, the registrant had 8,645,924 shares of common stock, $0.01 par value, outstanding.

HOME BANCORP, INC. and SUBSIDIARY

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	Page
	Consolidated Statements of Financial Condition	1
	Consolidated Statements of Income	2
	Consolidated Statements of Comprehensive Income	3
	Consolidated Statements of Changes in Shareholders’ Equity	4
	Consolidated Statements of Cash Flows	6
	Notes to Unaudited Consolidated Financial Statements	7
Item 2.	Managements’ Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	54
Item 4.	Controls and Procedures	54
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	55
Item 1A.	Risk Factors	55
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55
Item 3.	Defaults Upon Senior Securities	56
Item 4.	Mine Safety Disclosures	56
Item 5.	Other Information	56
Item 6.	Exhibits	56
SIGNATURES		57

i

HOME BANCORP, INC. and SUBSIDIARY

GLOSSARY OF DEFINED TERMS

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

ACL	–	Allowance for credit losses
ALL	–	Allowance for loan losses
AOCI	–	Accumulated other comprehensive income
ASC	–	Accounting Standards Codification
ASU	–	Accounting Standards Update
Bank	–	Home Bank, N. A., a wholly-owned subsidiary of the Company
BOLI	–	Bank-owned life insurance
bps	–	basis points, 100 basis points being equal to 1.0%
C&D	–	Construction and land
C&I	–	Commercial and industrial
CARES Act	–	Coronavirus Aid, Relief, and Economic Security Act
CECL	–	Current expected credit losses
Company	–	Home Bancorp, Inc., a Louisiana corporation and the holding company for Home Bank, N. A.
COVID-19	–	The novel coronavirus
CRE	–	Commercial real estate
EPS	–	Earnings per common share
FASB	–	Financial Accounting Standards Board
FHLB	–	Federal Home Loan Bank
GAAP	–	Generally Accepted Accounting Principles
LTV	–	Loan-to-value
NPA(s)	–	Nonperforming asset(s)
OCI	–	Other comprehensive income
ORE	–	Other real estate
PCD	–	Purchased credit deteriorated
PCI	–	Purchased credit impaired
PPP	–	Paycheck Protection Program
SBA	–	Small Business Association
SEC	–	Securities and Exchange Commission
TDR	–	Troubled debt restructuring
TE	–	Taxable equivalent
U.S.	–	United States

ii

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

	(Unaudited)		(Audited)
(dollars in thousands)	June 30, 2021		December 31, 2020
Assets
Cash and cash equivalents	$	393,203	$	187,952
Interest-bearing deposits in banks	349		349
Investment securities available for sale, at fair value	285,185		254,752
Investment securities held to maturity (fair values of $2,164 and $2,996, respectively)	2,118		2,934
Mortgage loans held for sale	3,752		9,559
Loans, net of unearned income	1,918,488		1,979,954
Allowance for loan losses	(26,687)		(32,963)
Total loans, net of unearned income and allowance for loan losses	1,891,801		1,946,991
Office properties and equipment, net	44,232		45,497
Cash surrender value of bank-owned life insurance	40,781		40,334
Goodwill and core deposit intangibles	62,520		63,112
Accrued interest receivable and other assets	40,815		40,370
Total Assets	$	2,764,756	$	2,591,850
Liabilities
Deposits:
Noninterest-bearing	$	715,167	$	615,700
Interest-bearing	1,655,597		1,598,121
Total Deposits	2,370,764		2,213,821
Other borrowings	5,539		5,539
Long-term Federal Home Loan Bank advances	27,502		28,824
Accrued interest payable and other liabilities	23,139		21,824
Total Liabilities	2,426,944		2,270,008
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; 8,678,686 and 8,740,104 shares issued and outstanding, respectively	87		87
Additional paid-in capital	165,296		164,988
Unallocated common stock held by:
Employee Stock Ownership Plan (ESOP)	(2,589)		(2,767)
Recognition and Retention Plan (RRP)	(15)		(22)
Retained earnings	171,644		154,282
Accumulated other comprehensive income	3,389		5,274
Total Shareholders’ Equity	337,812		321,842
Total Liabilities and Shareholders’ Equity	$	2,764,756	$	2,591,850

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

1

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
(dollars in thousands, except per share data)	2021		2020		2021		2020
Interest Income
Loans, including fees	$	24,500	$	24,371	$	50,317	$	48,070
Investment securities:
Taxable interest	1,043		1,103		1,961		2,411
Tax-exempt interest	87		79		181		183
Other investments and deposits	133		117		232		255
Total interest income	25,763		25,670		52,691		50,919
Interest Expense
Deposits	1,480		3,012		3,136		6,679
Other borrowings	53		53		106		106
Short-term Federal Home Loan Bank advances	—		20		—		23
Long-term Federal Home Loan Bank advances	120		168		244		371
Total interest expense	1,653		3,253		3,486		7,179
Net interest income	24,110		22,417		49,205		43,740
(Reversal) provision for loan losses	(3,425)		6,471		(5,128)		12,728
Net interest income after (reversal) provision for loan losses	27,535		15,946		54,333		31,012
Noninterest Income
Service fees and charges	1,146		942		2,218		2,406
Bank card fees	1,591		1,127		2,897		2,264
Gain on sale of loans, net	559		642		1,727		939
Income from bank-owned life insurance	221		228		446		487
Loss on sale of assets, net	(457)		(13)		(457)		(11)
Other income	234		177		523		376
Total noninterest income	3,294		3,103		7,354		6,461
Noninterest Expense
Compensation and benefits	9,687		9,362		19,351		18,778
Occupancy	1,733		1,653		3,429		3,389
Marketing and advertising	268		160		439		458
Data processing and communication	2,159		1,760		4,145		3,579
Professional services	217		255		451		468
Forms, printing and supplies	163		160		322		331
Franchise and shares tax	359		389		719		778
Regulatory fees	306		362		685		478
Foreclosed assets and ORE, net	101		145		224		162
Amortization of acquisition intangible	293		342		593		695
Provision for credit losses on unfunded commitments	375		—		375		—
Other expenses	907		865		1,801		1,753
Total noninterest expense	16,568		15,453		32,534		30,869
Income before income tax expense	14,261		3,596		29,153		6,604
Income tax expense	2,865		675		5,829		1,201
Net Income	$	11,396	$	2,921	$	23,324	$	5,403
Earnings per share:
Basic	$	1.35	$	0.33	$	2.76	$	0.60
Diluted	$	1.34	$	0.33	$	2.75	$	0.60
Cash dividends declared per common share	$	0.23	$	0.22	$	0.45	$	0.44

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

2

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
(dollars in thousands)	2021		2020		2021		2020
Net Income	$	11,396	$	2,921	$	23,324	$	5,403
Other Comprehensive Income (Loss)
Unrealized gains (losses) on available for sale investment securities	1,453		(211)		(3,304)		5,776
Unrealized (losses) gains on cash flow hedges	(398)		(158)		919		(158)
Tax effect	(222)		77		500		(1,180)
Other comprehensive income (loss), net of taxes	833		(292)		(1,885)		4,438
Comprehensive Income	$	12,229	$	2,629	$	21,439	$	9,841

 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, except per share data)	Common stock		Additional Paid-in capital		Unallocated Common Stock Held by ESOP		Unallocated Common Stock Held by RRP		Retained Earnings		Accumulated Other Comprehensive Income		Total
Balance, March 31, 2020	$	91	$	167,249	$	(3,035)	$	(28)	$	143,114	$	5,422	$	312,813
Net income									2,921				2,921
Other comprehensive loss											(292)		(292)
Purchase of Company’s common stock at cost, 115,327 shares	(1)		(1,152)						(1,693)				(2,846)
Cash dividends declared, $0.22 per share									(1,981)				(1,981)
Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 13,508 shares	—		(3)						(34)				(37)
Exercise of stock options													—
RRP shares released for allocation			(4)				4						—
ESOP shares released for allocation			198		89								287
Share-based compensation cost			206										206
Balance, June 30, 2020	$	90	$	166,494	$	(2,946)	$	(24)	$	142,327	$	5,130	$	311,071
Balance, March 31, 2021	$	87	$	165,155	$	(2,678)	$	(17)	$	163,507	$	2,556	$	328,610
Net income									11,396				11,396
Other comprehensive income											833		833
Purchase of Company’s common stock at cost, 42,258 shares	—		(422)						(1,207)				(1,629)
Cash dividends declared, $0.23 per share									(2,003)				(2,003)
Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 10,720 shares	—		52						(49)				3
Exercise of stock options	—		10										10
RRP shares released for allocation			(2)				2						—
ESOP shares released for allocation			315		89								404
Share-based compensation cost			188										188
Balance, June 30, 2021	$	87	$	165,296	$	(2,589)	$	(15)	$	171,644	$	3,389	$	337,812

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, except per share data)	Common stock		Additional Paid-in capital		Unallocated Common Stock Held by ESOP		Unallocated Common Stock Held by RRP		Retained Earnings		Accumulated Other Comprehensive Income		Total
Balance, December 31, 2019	$	93	$	168,545	$	(3,124)	$	(35)	$	150,158	$	692	$	316,329
Cumulative effect of change in accounting principle due the adoption of ASC Topic 326, net of tax									(3,985)				(3,985)
Net income									5,403				5,403
Other comprehensive income											4,438		4,438
Purchase of Company’s common stock at cost, 303,668 shares	(3)		(3,033)						(5,199)				(8,235)
Cash dividends declared, $0.44 per share									(4,008)				(4,008)
Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 15,646 shares	—		34						(42)				(8)
Exercise of stock options	—		30										30
RRP shares released for allocation			(11)				11						—
ESOP shares released for allocation			479		178								657
Share-based compensation cost			450										450
Balance, June 30, 2020	$	90	$	166,494	$	(2,946)	$	(24)	$	142,327	$	5,130	$	311,071
Balance, December 31, 2020	$	87	$	164,988	$	(2,767)	$	(22)	$	154,282	$	5,274	$	321,842
Net income									23,324				23,324
Other comprehensive loss											(1,885)		(1,885)
Purchase of Company’s common stock at cost, 83,735 shares	—		(837)						(1,977)				(2,814)
Cash dividends declared, $0.45 per share									(3,918)				(3,918)
Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 18,724 shares	—		158						(67)				91
Exercise of stock options	—		54										54
RRP shares released for allocation			(7)				7						—
ESOP shares released for allocation			580		178								758
Share-based compensation cost			360										360
Balance, June 30, 2021	$	87	$	165,296	$	(2,589)	$	(15)	$	171,644	$	3,389	$	337,812

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)	2021		2020
Cash flows from operating activities:
Net income	$	23,324	$	5,403
Adjustments to reconcile net income to net cash provided by operating activities:
(Reversal) provision for loan losses	(5,128)		12,728
Depreciation	1,532		1,525
Amortization and accretion of purchase accounting valuations and intangibles	1,914		2,272
Net amortization of mortgage servicing asset	—		38
Federal Home Loan Bank stock dividends	(8)		(45)
Net amortization of discount on investments	1,099		1,358
Gain on loans sold, net	(1,727)		(939)
Proceeds, including principal payments, from loans held for sale	130,051		105,307
Originations of loans held for sale	(122,517)		(110,737)
Loss on sale of assets, net	457		11
Non-cash compensation	1,118		1,107
Deferred income tax expense (benefit)	1,307		(2,527)
Increase in accrued interest receivable and other assets	(1,468)		(1,683)
Increase in cash surrender value of bank-owned life insurance	(446)		(487)
Increase (decrease) in accrued interest payable and other liabilities	2,243		(481)
Net cash provided by operating activities	31,751		12,850
Cash flows from investing activities:
Purchases of securities available for sale	(80,483)		(36,435)
Proceeds from maturities, prepayments and calls on securities available for sale	45,663		41,317
Proceeds from maturities, prepayments and calls on securities held to maturity	800		2,750
Decrease (increase) in loans, net	57,085		(253,820)
Proceeds from sale of foreclosed assets	2,138		2,516
Purchases of office properties and equipment	(1,127)		(1,080)
Proceeds from sale of office properties and equipment	400		4
Purchase of Federal Home Loan Bank stock	—		(1,592)
Net cash provided by (used in) investing activities	24,476		(246,340)
Cash flows from financing activities:
Increase in deposits, net	156,942		445,720
Borrowings on Federal Home Loan Bank advances	—		119,700
Repayments of Federal Home Loan Bank advances	(1,331)		(125,301)
Proceeds from exercise of stock options	54		30
Issuance of stock under incentive plans	91		(8)
Dividends paid to shareholders	(3,918)		(4,008)
Purchase of Company’s common stock	(2,814)		(8,235)
Net cash provided by financing activities	149,024		427,898
Net change in cash and cash equivalents	205,251		194,408
Cash and cash equivalents, beginning	187,952		39,847
Cash and cash equivalents, ending	$	393,203	$	234,255

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 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 months ended June 30, 2021 and 2020 are not necessarily indicative of the results which may be expected for the entire fiscal year. These statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2020.

Critical Accounting Policies and Estimates

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties and could reflect materially different results under different assumptions and conditions. Methodologies the Company uses when applying critical accounting policies and developing critical accounting estimates are included in its Annual Report on Form 10-K for the year ended December 31, 2020.

There have been no material changes from the critical accounting policies disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020. 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

Accounting Standards Adopted in 2021

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

7

3. Investment Securities

The following tables summarize the Company’s available for sale and held to maturity investment securities at June 30, 2021 and December 31, 2020.

(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
June 30, 2021
Available for sale:
U.S. agency mortgage-backed	$	179,704	$	3,026	$	1,062	$	181,668
Collateralized mortgage obligations	46,417		1,074		3		47,488
Municipal bonds	44,420		452		472		44,400
U.S. government agency	5,993		70		8		6,055
Corporate bonds	5,500		74		—		5,574
Total available for sale	$	282,034	$	4,696	$	1,545	$	285,185
Held to maturity:
Municipal bonds	$	2,118	$	46	$	—	$	2,164
Total held to maturity	$	2,118	$	46	$	—	$	2,164

(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
December 31, 2020
Available for sale:
U.S. agency mortgage-backed	$	138,669	$	4,162	$	19	$	142,812
Collateralized mortgage obligations	74,112		1,565		57		75,620
Municipal bonds	27,306		717		12		28,011
U.S. government agency	6,210		55		10		6,255
Corporate bonds	2,000		54		—		2,054
Total available for sale	$	248,297	$	6,553	$	98	$	254,752
Held to maturity:
Municipal bonds	$	2,934	$	62	$	—	$	2,996
Total held to maturity	$	2,934	$	62	$	—	$	2,996

8

The estimated fair value and amortized cost by contractual maturity of the Company’s investment securities as of June 30, 2021 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
Available for sale:
U.S. agency mortgage-backed	$	4,164	$	12,407	$	55,844	$	109,253	$	181,668
Collateralized mortgage obligations	—		20,886		9,749		16,853		47,488
Municipal bonds	1,142		1,558		9,122		32,578		44,400
U.S. government agency	—		—		5,647		408		6,055
Corporate bonds	—		—		5,574		—		5,574
Total available for sale	$	5,306	$	34,851	$	85,936	$	159,092	$	285,185
Held to maturity:
Municipal bonds	$	—	$	555	$	1,609	$	—	$	2,164
Total held to maturity	$	—	$	555	$	1,609	$	—	$	2,164
(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
Available for sale:
U.S. agency mortgage-backed	$	4,145	$	11,995	$	54,139	$	109,425	$	179,704
Collateralized mortgage obligations	—		20,197		9,592		16,628		46,417
Municipal bonds	1,140		1,552		8,877		32,851		44,420
U.S. government agency	—		—		5,581		412		5,993
Corporate bonds	—		—		5,500		—		5,500
Total available for sale	$	5,285	$	33,744	$	83,689	$	159,316	$	282,034
Held to maturity:
Municipal bonds	$	—	$	540	$	1,578	$	—	$	2,118
Total held to maturity	$	—	$	540	$	1,578	$	—	$	2,118

Management evaluates securities for impairment from credit losses at least quarterly, and more frequently when economic and market conditions warrant such evaluations. Consideration is given to numerous factors including, but not limited to, the extent to which the fair value is less than the amortized cost basis; adverse conditions causing changes in the financial condition of the issuer of the security or underlying loan guarantors; changes to the rating of the security by a rating agency; and the Company’s intent to sell a security or whether it is more likely than not the Company will be required to sell the security before the recovery of its amortized cost, which may extend to maturity.

The Company performs a process to determine whether the decline in the fair value of securities has resulted from credit losses or other factors. This process involves evaluating each security for impairment by monitoring credit performance, collateral type, collateral geography, bond credit support, loan-to-value ratios, credit scores, loss severity levels, pricing levels, downgrades by rating agencies, cash flow projections and other factors as indicators of potential credit issues. If this evaluation indicates the existence of credit losses, the Company compares the present value of cash flows expected to be collected from the security with the amortized cost basis. If the present value of expected cash flows is less than the amortized cost basis, an ACL is recorded, limited by the amount that the fair value of the security is less than its amortized cost.

9

The Company's investment securities with unrealized losses, aggregated by type and length of time that individual securities have been in a continuous loss position, are summarized in the following tables.

(dollars in thousands)	Less Than 1 Year				Over 1 Year				Total
June 30, 2021	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available for sale:
U.S. agency mortgage-backed	$	86,422	$	1,062	$	—	$	—	$	86,422	$	1,062
Collateralized mortgage obligations	544		1		2,758		2		3,302		3
Municipal bonds	25,448		472		—		—		25,448		472
U.S. government agency	—		—		1,114		8		1,114		8
Corporate bonds	—		—		—		—		—		—
Total available for sale	$	112,414	$	1,535	$	3,872	$	10	$	116,286	$	1,545
Held to maturity:
Municipal bonds	$	—	$	—	$	—	$	—	$	—	$	—
Total held to maturity	$	—	$	—	$	—	$	—	$	—	$	—

(dollars in thousands)	Less Than 1 Year				Over 1 Year				Total
December 31, 2020	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available for sale:
U.S. agency mortgage-backed	$	13,666	$	19	$	—	$	—	$	13,666	$	19
Collateralized mortgage obligations	13,615		55		2,309		2		15,924		57
Municipal bonds	1,278		12		—		—		1,278		12
U.S. government agency	—		—		1,196		10		1,196		10
Corporate bonds	—		—		—		—		—		—
Total available for sale	$	28,559	$	86	$	3,505	$	12	$	32,064	$	98
Held to maturity:
Municipal bonds	$	—	$	—	$	—	$	—	$	—	$	—
Total held to maturity	$	—	$	—	$	—	$	—	$	—	$	—

At June 30, 2021, 50 of the Company’s debt securities had unrealized losses totaling 1.3% of the individual securities’ amortized cost basis and 0.5% of the Company’s total amortized cost basis of the investment securities portfolio. At such date, 7 of the 50 securities had been in a continuous loss position for over 12 months. Management has determined that the declines in the fair value of these securities were not attributable to credit losses. As a result, no ACL was recorded for available for sale investment securities at June 30, 2021.

10

At June 30, 2021, it was determined that no ACL was required for the Company's held-to-maturity investment securities. The Company monitors credit quality of debt securities held-to-maturity through the use of credit ratings. The following tables present the amortized cost of the Company's held-to-maturity securities by credit quality rating at June 30, 2021 and December 31, 2020.

	Credit Ratings
(dollars in thousands)	AAA/AA/A		BBB/BB/B		Total
June 30, 2021
Held to maturity:
Municipal bonds	$	2,118	$	—	$	2,118

	Credit Ratings
(dollars in thousands)	AAA/AA/A		BBB/BB/B		Total
December 31, 2020
Held to maturity:
Municipal bonds	$	2,934	$	—	$	2,934

Accrued interest receivable on the Company's investment securities was $891,000 and $744,000 at June 30, 2021 and December 31, 2020, respectively. These amounts are recorded in accrued interest receivable and other assets on the Consolidated Statements of Financial Condition.

At June 30, 2021 and December 31, 2020, the Company had $153,841,000 and $125,889,000, respectively, of securities pledged to secure public deposits.

4. Earnings Per Share

Earnings per common share was computed based on the following:

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except per share data)	2021		2020		2021		2020
Numerator:
Net income available to common shareholders	$	11,396	$	2,921	$	23,324	$	5,403
Denominator:
Weighted average common shares outstanding	8,449		8,702		8,443		8,792
Effect of dilutive securities:
Restricted stock	13		8		12		11
Stock options	37		20		33		26
Weighted average common shares outstanding – assuming dilution	8,499		8,730		8,488		8,829
Basic earnings per common share	$	1.35	$	0.33	$	2.76	$	0.60
Diluted earnings per common share	$	1.34	$	0.33	$	2.75	$	0.60

Options for 92,068 and 131,382 shares of common stock were not included in the computation of diluted EPS for the three months ended June 30, 2021 and 2020, respectively, because the effect of these shares was anti-dilutive. For the six months ended June 30, 2021 and 2020, options on 94,233 and 114,028, respectively, shares of common stock were not included in the computation of diluted EPS because the effect of these shares was anti-dilutive.

11

5. Credit Quality and Allowance for Credit Losses

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

Loans

Loans are reported at the principal balance outstanding net of unearned income and fair value discounts, if applicable. Interest on loans and the accretion of unearned income are computed in a manner that approximates a level yield on recorded principal. Interest on loans is recorded as income is earned. The accrual of interest is discontinued when it is probable the borrower will not be able to meet payment obligations as they become due. It is our policy, with certain limited exceptions, to discontinue accruing interest and reverse any interest accrued on any loan which is 90 days or more past due. Interest income is not accrued on these loans until the borrower’s financial condition and payment record demonstrate an ability to service the debt. If it is determined that all or part of a loan is uncollectible, the potion of the loan deemed uncollectible is charged to the allowance for credit losses.

Originated vs. Acquired Loans

"Originated loans" are loans that were originated for investment by the Company. Loans that were acquired as a result of business combinations are referred to as “acquired loans” and are recorded at the principal balance net of unearned income and fair value discounts. The Company's acquired loans were purchased prior to the adoption of ASC Topic 326 on January 1, 2020 and were recorded at estimated fair value at the acquisition date with no carryover of the related allowance for loan losses ("ALL"). Since the adoption of ASC 326, loans that were acquired with evidence of credit deterioration are referred to as "purchased credit deteriorated ("PCD") loans." At acquisition, acquired loans were segregated into loan pools designed to facilitate the estimation of expected cash flows. The fair value estimate for each pool of acquired 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 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.

Allowance for Credit Losses

Due to the adoption of ASC Topic 326 on January 1, 2020, management maintains, based on current and forecasted information, an allowance for credit losses ("ACL") that reflects a current estimate of expected credit losses ("CECL") for the estimated life of the loan portfolio at reporting periods subsequent to the adoption date.

The ACL, which equals the sum of the ALL and the ACL on unfunded lending commitments, is established through provisions for credit losses. Management recalculates the ACL at least quarterly to reassess the estimate of credit losses for the total portfolio at the relevant reporting date. Under ASC Topic 326, the ACL is measured on a pool basis when similar risk characteristics exist. For each pool of loans, management also evaluates and applies qualitative adjustments to the calculated ACL based on several factors, including, but not limited to, changes in current and expected future economic conditions, changes in industry experience and industry loan concentrations, changes in the volume and severity of nonperforming assets, changes in lending policies and personnel and changes in the competitive and regulatory environment of the banking industry. Loans that do not share similar risk characteristics are individually evaluated and are excluded from the pooled loan analysis.

The ACL policy described above is supplemented by periodic reviews and validations performed by independent loan reviewers. The results of the reviews are reported to the Audit Committee of the Board of Directors. The establishment of the ACL is significantly affected by management judgment. There is likelihood that different amounts would be reported under different conditions or assumptions. Federal regulatory agencies, as an integral part of their examination process, periodically review our ACL. Such agencies may require management to make additional provisions for estimated losses based upon judgments different from those of management.

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

12

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

(dollars in thousands)	June 30, 2021		December 31, 2020
Real estate loans:
One- to four-family first mortgage	$	365,640	$	395,638
Home equity loans and lines	64,614		67,700
Commercial real estate	755,707		750,623
Construction and land	233,714		221,823
Multi-family residential	82,966		87,332
Total real estate loans	1,502,641		1,523,116
Other loans:
Commercial and industrial	380,751		417,926
Consumer	35,096		38,912
Total other loans	415,847		456,838
Total loans	$	1,918,488	$	1,979,954

The net investment in PPP loans, which is included in commercial and industrial loans, was $197,614,000 and $221,220,000 at June 30, 2021 and December 31, 2020, respectively.

The net discount on the Company’s loans was $5,329,000 and $6,650,000 at June 30, 2021 and December 31, 2020, respectively. In addition, loan balances as of June 30, 2021 and December 31, 2020 are reported net of unearned income of $11,096,000 and $8,727,000, respectively. Unearned income at June 30, 2021 and December 31, 2020 included PPP deferred lender fees of $7,693,000 and $5,449,000, respectively.

Accrued interest receivable on the Company's loans was $7,224,000 and $8,635,000 at June 30, 2021 and December 31, 2020, respectively, and is excluded from the estimate of the ACL. These amounts are recorded in accrued interest receivable and other assets on the Consolidated Statements of Financial Condition.

13

Allowance for Credit Losses

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

	June 30, 2021
(dollars in thousands)	Collectively Evaluated		Individually Evaluated		Total
Allowance for credit losses:
One- to four-family first mortgage	$	2,397	$	—	$	2,397
Home equity loans and lines	582		—		582
Commercial real estate	15,219		218		15,437
Construction and land	3,585		—		3,585
Multi-family residential	745		—		745
Commercial and industrial	2,790		478		3,268
Consumer	673		—		673
Total allowance for loan losses	$	25,991	$	696	$	26,687
Unfunded lending commitments(1)	$	1,800	$	—	$	1,800
Total allowance for credit losses	$	27,791	$	696	$	28,487

	June 30, 2021
(dollars in thousands)	Collectively Evaluated		Individually Evaluated(2)		Total
Loans:
One- to four-family first mortgage	$	365,640	$	—	$	365,640
Home equity loans and lines	64,614		—		64,614
Commercial real estate	751,488		4,219		755,707
Construction and land	233,714		—		233,714
Multi-family residential	82,966		—		82,966
Commercial and industrial	379,951		800		380,751
Consumer	35,096		—		35,096
Total loans	$	1,913,469	$	5,019	$	1,918,488

14

	December 31, 2020
(dollars in thousands)	Collectively Evaluated		Individually Evaluated		Total
Allowance for loan losses:
One- to four-family first mortgage	$	2,965	$	100	$	3,065
Home equity loans and lines	676		—		676
Commercial real estate	17,843		1,008		18,851
Construction and land	4,155		—		4,155
Multi-family residential	1,077		—		1,077
Commercial and industrial	3,845		431		4,276
Consumer	863		—		863
Total allowance for loan losses	$	31,424	$	1,539	$	32,963
Unfunded lending commitments(1)	$	1,425	$	—	$	1,425
Total allowance for credit losses	$	32,849	$	1,539	$	34,388
	December 31, 2020
(dollars in thousands)	Collectively Evaluated		Individually Evaluated(2)		Total
Loans:
One- to four-family first mortgage	$	394,632	$	1,006	$	395,638
Home equity loans and lines	67,700		—		67,700
Commercial real estate	743,223		7,400		750,623
Construction and land	221,823		—		221,823
Multi-family residential	87,332		—		87,332
Commercial and industrial	417,320		606		417,926
Consumer	38,912		—		38,912
Total loans	$	1,970,942	$	9,012	$	1,979,954

(1)The ACL on unfunded lending commitments is recorded within accrued interest payable and other liabilities on the Consolidated Statements of Financial Condition.

(2)Loans individually evaluated included PCD loans of $277,000 at June 30, 2021 and December 31, 2020.

15

A summary of activity in the ACL for the six months ended June 30, 2021 and June 30, 2020 follows.

 

	Six Months Ended June 30, 2021
(dollars in thousands)	Beginning Balance		Charge-offs		Recoveries		Provision (Reversal)		Ending Balance
Allowance for credit losses:
One- to four-family first mortgage	$	3,065	$	(172)	$	10	$	(506)	$	2,397
Home equity loans and lines	676		—		4		(98)		582
Commercial real estate	18,851		(1,003)		—		(2,411)		15,437
Construction and land	4,155		—		63		(633)		3,585
Multi-family residential	1,077		—		—		(332)		745
Commercial and industrial	4,276		(324)		282		(966)		3,268
Consumer	863		(60)		52		(182)		673
Total allowance for loan losses	$	32,963	$	(1,559)	$	411	$	(5,128)	$	26,687
Unfunded lending commitments	$	1,425	$	—	$	—	$	375	$	1,800
Total allowance for credit losses	$	34,388	$	(1,559)	$	411	$	(4,753)	$	28,487

	Six Months Ended June 30, 2020
(dollars in thousands)	Beginning Balance		ASC Topic 326 Adoption Impact(1)		Charge-offs		Recoveries		Provision		Ending Balance
Allowance for credit losses:
One- to four-family first mortgage	$	2,715	$	986	$	(55)	$	2	$	792	$	4,440
Home equity loans and lines	1,084		(1)		(161)		12		613		1,547
Commercial real estate	6,541		1,974		—		—		9,297		17,812
Construction and land	2,670		519		(657)		55		1,204		3,791
Multi-family residential	572		(245)		—		—		613		940
Commercial and industrial	3,694		1,243		(565)		59		(194)		4,237
Consumer	592		157		(189)		93		403		1,056
Total allowance for loan losses	$	17,868	$	4,633	$	(1,627)	$	221	$	12,728	$	33,823
Unfunded lending commitments	$	—	$	1,425	$	—	$	—	$	—	$	1,425
Total allowance for credit losses	$	17,868	$	6,058	$	(1,627)	$	221	$	12,728	$	35,248

(1)On January 1, 2020 the Company adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduced a new model known as CECL.

16

Credit Quality

The following tables present the Company’s loan portfolio by credit quality classification and origination year as of June 30, 2021 and December 31, 2020.

	June 30, 2021
	Term Loans by Origination Year
(dollars in thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total
One- to four-family first mortgage:
Pass	$	41,653	$	50,880	$	51,469	$	39,590	$	39,692	$	124,502	$	14,004	$	388	$	362,178
Special Mention	—		—		—		—		15		435		—		—		450
Substandard	—		133		115		332		260		2,172		—		—		3,012
Doubtful	—		—		—		—		—		—		—		—		—
Total one- to four-family first mortgages	$	41,653	$	51,013	$	51,584	$	39,922	$	39,967	$	127,109	$	14,004	$	388	$	365,640
Home equity loans and lines:
Pass	$	948	$	1,005	$	1,353	$	1,608	$	1,039	$	5,550	$	52,869	$	35	$	64,407
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		5		202		—		—		—		207
Doubtful	—		—		—		—		—		—		—		—		—
Total home equity loans and lines	$	948	$	1,005	$	1,353	$	1,613	$	1,241	$	5,550	$	52,869	$	35	$	64,614
Commercial real estate:
Pass	$	85,793	$	210,270	$	154,433	$	86,160	$	93,877	$	90,930	$	21,636	$	599	$	743,698
Special Mention	—		—		—		—		—		881		—		—		881
Substandard	—		832		1,948		1,679		314		6,355		—		—		11,128
Doubtful	—		—		—		—		—		—		—		—		—
Total commercial real estate loans	$	85,793	$	211,102	$	156,381	$	87,839	$	94,191	$	98,166	$	21,636	$	599	$	755,707
Construction and land:
Pass	$	74,769	$	71,635	$	52,454	$	10,185	$	3,265	$	2,604	$	3,512	$	—	$	218,424
Special Mention	—		601		—		—		—		—		—		—		601
Substandard	—		14,451		—		—		—		238		—		—		14,689
Doubtful	—		—		—		—		—		—		—		—		—
Total construction and land loans	$	74,769	$	86,687	$	52,454	$	10,185	$	3,265	$	2,842	$	3,512	$	—	$	233,714

17

	June 30, 2021
	Term Loans by Origination Year
(dollars in thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total
Multi-family residential:
Pass	$	10,589	$	40,262	$	14,764	$	9,150	$	3,126	$	4,123	$	952	$	—	$	82,966
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Total multi-family residential loans	$	10,589	$	40,262	$	14,764	$	9,150	$	3,126	$	4,123	$	952	$	—	$	82,966
Commercial and industrial:
Pass	$	143,207	$	108,508	$	23,661	$	17,025	$	4,259	$	3,936	$	73,231	$	496	$	374,323
Special Mention	—		—		150		—		—		—		1,761		—		1,911
Substandard	—		2,856		—		421		7		33		1,200		—		4,517
Doubtful	—		—		—		—		—		—		—		—		—
Total commercial and industrial loans	$	143,207	$	111,364	$	23,811	$	17,446	$	4,266	$	3,969	$	76,192	$	496	$	380,751
Consumer:
Pass	$	2,898	$	4,718	$	1,801	$	694	$	1,455	$	17,154	$	6,145	$	—	$	34,865
Special Mention	—		—		—		—		—		8		—		—		8
Substandard	—		35		4		—		17		167		—		—		223
Doubtful	—		—		—		—		—		—		—		—		—
Total consumer loans	$	2,898	$	4,753	$	1,805	$	694	$	1,472	$	17,329	$	6,145	$	—	$	35,096
Total loans:
Pass	$	359,857	$	487,278	$	299,935	$	164,412	$	146,713	$	248,799	$	172,349	$	1,518	$	1,880,861
Special Mention	—		601		150		—		15		1,324		1,761		—		3,851
Substandard	—		18,307		2,067		2,437		800		8,965		1,200		—		33,776
Doubtful	—		—		—		—		—		—		—		—		—
Total loans	$	359,857	$	506,186	$	302,152	$	166,849	$	147,528	$	259,088	$	175,310	$	1,518	$	1,918,488

18

	December 31, 2020
	Term Loans by Origination Year
(dollars in thousands)	2020		2019		2018		2017		2016		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total
One- to four-family first mortgage:
Pass	$	58,958	$	65,070	$	46,412	$	48,851	$	37,039	$	114,588	$	17,762	$	1,457	$	390,137
Special Mention	—		—		167		16		—		1,057		—		—		1,240
Substandard	129		34		—		335		1,069		2,694		—		—		4,261
Doubtful	—		—		—		—		—		—		—		—		—
Total one- to four-family first mortgages	$	59,087	$	65,104	$	46,579	$	49,202	$	38,108	$	118,339	$	17,762	$	1,457	$	395,638
Home equity loans and lines:
Pass	$	1,172	$	1,307	$	2,028	$	964	$	1,889	$	5,537	$	53,309	$	1,389	$	67,595
Special Mention	—		—		—		43		—		—		—		—		43
Substandard	—		—		—		—		—		58		4		—		62
Doubtful	—		—		—		—		—		—		—		—		—
Total home equity loans and lines	$	1,172	$	1,307	$	2,028	$	1,007	$	1,889	$	5,595	$	53,313	$	1,389	$	67,700
Commercial real estate:
Pass	$	235,900	$	156,646	$	96,153	$	102,166	$	59,859	$	60,720	$	22,962	$	56	$	734,462
Special Mention	—		—		—		15		951		—		—		—		966
Substandard	1,606		1,994		1,742		323		1,344		8,164		—		22		15,195
Doubtful	—		—		—		—		—		—		—		—		—
Total commercial real estate loans	$	237,506	$	158,640	$	97,895	$	102,504	$	62,154	$	68,884	$	22,962	$	78	$	750,623
Construction and land:
Pass	$	87,540	$	91,337	$	16,703	$	5,486	$	2,585	$	1,505	$	1,892	$	429	$	207,477
Special Mention	877		—		—		—		—		618		—		627		2,122
Substandard	451		50		—		—		252		249		—		11,222		12,224
Doubtful	—		—		—		—		—		—		—		—		—
Total construction and land loans	$	88,868	$	91,387	$	16,703	$	5,486	$	2,837	$	2,372	$	1,892	$	12,278	$	221,823

19

	December 31, 2020
	Term Loans by Origination Year
(dollars in thousands)	2020		2019		2018		2017		2016		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total
Multi-family residential:
Pass	$	40,462	$	24,329	$	9,711	$	3,844	$	2,889	$	4,539	$	1,452	$	—	$	87,226
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		106		—		—		106
Doubtful	—		—		—		—		—		—		—		—		—
Total multi-family residential loans	$	40,462	$	24,329	$	9,711	$	3,844	$	2,889	$	4,645	$	1,452	$	—	$	87,332
Commercial and industrial:
Pass	$	264,079	$	29,115	$	21,053	$	6,001	$	3,952	$	2,408	$	82,039	$	1,311	$	409,958
Special Mention	2,089		792		131		—		—		1		1,801		—		4,814
Substandard	592		—		427		23		141		16		1,955		—		3,154
Doubtful	—		—		—		—		—		—		—		—		—
Total commercial and industrial loans	$	266,760	$	29,907	$	21,611	$	6,024	$	4,093	$	2,425	$	85,795	$	1,311	$	417,926
Consumer:
Pass	$	6,844	$	2,667	$	1,149	$	2,073	$	1,118	$	18,258	$	6,340	$	27	$	38,476
Special Mention	4		—		4		—		13		120		—		5		146
Substandard	—		34		3		12		17		223		—		1		290
Doubtful	—		—		—		—		—		—		—		—		—
Total consumer loans	$	6,848	$	2,701	$	1,156	$	2,085	$	1,148	$	18,601	$	6,340	$	33	$	38,912
Total loans:
Pass	$	694,955	$	370,471	$	193,209	$	169,385	$	109,331	$	207,555	$	185,756	$	4,669	$	1,935,331
Special Mention	2,970		792		302		74		964		1,796		1,801		632		9,331
Substandard	2,778		2,112		2,172		693		2,823		11,510		1,959		11,245		35,292
Doubtful	—		—		—		—		—		—		—		—		—
Total loans	$	700,703	$	373,375	$	195,683	$	170,152	$	113,118	$	220,861	$	189,516	$	16,546	$	1,979,954

20

The above classifications follow regulatory guidelines and can generally be described as follows:

•Pass loans are of satisfactory quality.

•Special mention loans have an existing weakness that could cause future impairment, including the deterioration of financial ratios, past due status, questionable management capabilities and possible reduction in the collateral values.

•Substandard loans have an existing specific and well-defined weakness that may include poor liquidity and deterioration of financial performance. Such loans may be past due and related deposit accounts experiencing overdrafts. Immediate corrective action is necessary.

•Doubtful loans have specific weaknesses that are severe enough to make collection or liquidation in full highly questionable and improbable.

In addition, residential loans are classified using an inter-agency regulatory methodology that incorporates, among other factors, the extent of delinquencies and loan-to-value ratios. These classifications were the most current available as of the dates indicated and were generally updated within the quarter.

21

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

	June 30, 2021
(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current Loans		Total Loans
Originated loans:
Real estate loans:
One- to four-family first mortgage	$	1,632	$	21	$	327	$	1,980	$	252,876	$	254,856
Home equity loans and lines	—		—		168		168		51,851		52,019
Commercial real estate	—		191		6,414		6,605		612,555		619,160
Construction and land	147		—		—		147		222,547		222,694
Multi-family residential	—		—		—		—		78,167		78,167
Total real estate loans	1,779		212		6,909		8,900		1,217,996		1,226,896
Other loans:
Commercial and industrial	461		179		412		1,052		366,544		367,596
Consumer	131		4		91		226		30,475		30,701
Total other loans	592		183		503		1,278		397,019		398,297
Total originated loans	$	2,371	$	395	$	7,412	$	10,178	$	1,615,015	$	1,625,193
Acquired loans:
Real estate loans:
One- to four-family first mortgage	$	1,285	$	531	$	769	$	2,585	$	108,199	$	110,784
Home equity loans and lines	40		—		—		40		12,555		12,595
Commercial real estate	2,017		—		647		2,664		133,883		136,547
Construction and land	—		9		80		89		10,931		11,020
Multi-family residential	—		—		—		—		4,799		4,799
Total real estate loans	3,342		540		1,496		5,378		270,367		275,745
Other loans:
Commercial and industrial	30		2		421		453		12,702		13,155
Consumer	16		18		16		50		4,345		4,395
Total other loans	46		20		437		503		17,047		17,550
Total acquired loans	$	3,388	$	560	$	1,933	$	5,881	$	287,414	$	293,295
Total loans:
Real estate loans:
One- to four-family first mortgage	$	2,917	$	552	$	1,096	$	4,565	$	361,075	$	365,640
Home equity loans and lines	40		—		168		208		64,406		64,614
Commercial real estate	2,017		191		7,061		9,269		746,438		755,707
Construction and land	147		9		80		236		233,478		233,714
Multi-family residential	—		—		—		—		82,966		82,966
Total real estate loans	5,121		752		8,405		14,278		1,488,363		1,502,641
Other loans:
Commercial and industrial	491		181		833		1,505		379,246		380,751
Consumer	147		22		107		276		34,820		35,096
Total other loans	638		203		940		1,781		414,066		415,847
Total loans	$	5,759	$	955	$	9,345	$	16,059	$	1,902,429	$	1,918,488

22

	December 31, 2020
(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current Loans		Total Loans
Originated loans:
Real estate loans:
One- to four-family first mortgage	$	1,651	$	66	$	365	$	2,082	$	258,386	$	260,468
Home equity loans and lines	117		148		—		265		52,101		52,366
Commercial real estate	518		532		6,770		7,820		581,524		589,344
Construction and land	—		—		—		—		207,928		207,928
Multi-family residential	94		—		—		94		82,051		82,145
Total real estate loans	2,380		746		7,135		10,261		1,181,990		1,192,251
Other loans:
Commercial and industrial	797		3		603		1,403		398,377		399,780
Consumer	219		42		145		406		32,702		33,108
Total other loans	1,016		45		748		1,809		431,079		432,888
Total originated loans	$	3,396	$	791	$	7,883	$	12,070	$	1,613,069	$	1,625,139
Acquired loans:
Real estate loans:
One- to four-family first mortgage	$	1,823	$	502	$	1,154	$	3,479	$	131,691	$	135,170
Home equity loans and lines	34		43		25		102		15,232		15,334
Commercial real estate	603		303		2,462		3,368		157,911		161,279
Construction and land	—		—		142		142		13,753		13,895
Multi-family residential	92		—		—		92		5,095		5,187
Total real estate loans	2,552		848		3,783		7,183		323,682		330,865
Other loans:
Commercial and industrial	3		—		907		910		17,236		18,146
Consumer	126		50		66		242		5,562		5,804
Total other loans	129		50		973		1,152		22,798		23,950
Total acquired loans	$	2,681	$	898	$	4,756	$	8,335	$	346,480	$	354,815
Total loans:
Real estate loans:
One- to four-family first mortgage	$	3,474	$	568	$	1,519	$	5,561	$	390,077	$	395,638
Home equity loans and lines	151		191		25		367		67,333		67,700
Commercial real estate	1,121		835		9,232		11,188		739,435		750,623
Construction and land	—		—		142		142		221,681		221,823
Multi-family residential	186		—		—		186		87,146		87,332
Total real estate loans	4,932		1,594		10,918		17,444		1,505,672		1,523,116
Other loans:
Commercial and industrial	800		3		1,510		2,313		415,613		417,926
Consumer	345		92		211		648		38,264		38,912
Total other loans	1,145		95		1,721		2,961		453,877		456,838
Total loans	$	6,077	$	1,689	$	12,639	$	20,405	$	1,959,549	$	1,979,954

At June 30, 2021 and December 31, 2020, loans greater than 90 days past due and accruing totaled $4,000 and $2,000, respectively.

23

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

	June 30, 2021
(dollars in thousands)	With Related Allowance		Without Related Allowance		Total(1)
Nonaccrual loans:
One- to four-family first mortgage	$	2,530	$	—	$	2,530
Home equity loans and lines	209		—		209
Commercial real estate	6,290		3,367		9,657
Construction and land	250		—		250
Multi-family residential	—		—		—
Commercial and industrial	916		185		1,101
Consumer	225		—		225
Total	$	10,420	$	3,552	$	13,972
	December 31, 2020
(dollars in thousands)	With Related Allowance		Without Related Allowance		Total(1)
Nonaccrual loans:
One- to four-family first mortgage	$	3,838	$	—	$	3,838
Home equity loans and lines	63		—		63
Commercial real estate	12,298		—		12,298
Construction and land	469		—		469
Multi-family residential	—		—		—
Commercial and industrial	1,717		—		1,717
Consumer	292		—		292
Total	$	18,677	$	—	$	18,677

(1)PCD loans of $413,000 and $390,000 are included in nonaccrual loans at June 30, 2021 and December 31, 2020, respectively.

All interest accrued but not received for loans placed on nonaccrual status is reversed against interest income. All payments received while on nonaccrual status are applied against the principal balance of nonaccrual loans. The Company does not recognize interest income while loans are on nonaccrual status.

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Collateral Dependent Loans

The Company held loans that were individually evaluated for credit losses at June 30, 2021 and December 31, 2020 for which the repayment, on the basis of our assessment at the reporting date, is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. The ACL for these collateral-dependent loans is primarily based on the fair value of the underlying collateral at the reporting date. The following describes the types of collateral that secure collateral dependent loans:

•One- to four-family first mortgages are primarily secured by first liens on residential real estate.

•Home equity loans and lines are primarily secured by first and junior liens on residential real estate.

•Commercial real estate loans are primarily secured by office and industrial buildings, warehouses, retail shopping facilities and various special purpose properties, including hotels and restaurants.

•Construction and land loans are primarily secured by residential and commercial properties, which are under construction and/or redevelopment, and by raw land.

•Commercial and industrial loans considered collateral dependent are primarily secured by accounts receivable, inventory and equipment.

The tables below summarize collateral dependent loans and the related ACL at June 30, 2021 and December 31, 2020.

	June 30, 2021
(dollars in thousands)	Loans		ACL
One- to four-family first mortgage	$	—	$	—
Home equity loans and lines	—		—
Commercial real estate	4,219		218
Construction and land	—		—
Multi-family residential	—		—
Commercial and industrial	800		478
Consumer	—		—
Total	$	5,019	$	696
	December 31, 2020
(dollars in thousands)	Loans		ACL
One- to four-family first mortgage	$	1,006	$	100
Home equity loans and lines	—		—
Commercial real estate	7,400		1,008
Construction and land	—		—
Multi-family residential	—		—
Commercial and industrial	606		431
Consumer	—		—
Total	$	9,012	$	1,539

At June 30, 2021 and December 31, 2020, collateral dependent commercial real estate loans included one loan acquired with deteriorated credit quality totaling $277,000.

25

Foreclosed Assets and ORE

Foreclosed assets and ORE include real property and other assets that have been acquired as a result of foreclosure, and real property no longer used in the Bank's business. Foreclosed assets and ORE totaled $1,113,000 and 1,302,000 at June 30, 2021 and December 31, 2020, respectively. These amounts are recorded in accrued interest receivable and other assets on the Consolidated Statements of Financial Condition.

The carrying amount of foreclosed residential real estate properties held at June 30, 2021 and December 31, 2020 totaled $178,000 and $877,000, respectively. Loans secured by single family residential real estate that were in the process of foreclosure at June 30, 2021 and December 31, 2020 totaled $385,000 and $446,000, respectively.

Foreclosed assets and ORE included certain bank buildings that meet the criteria to be classified as assets held for sale. The carrying value of these assets totaled $212,000 at June 30, 2021 and December 31, 2020. The expected timing of the sale of the properties is uncertain.

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 TDRs when the Company agrees to restructure a loan to a borrower who is experiencing financial difficulties in a manner that is deemed to be a “concession”. The Company defines a concession as a modification of existing terms granted to a borrower for economic or legal reasons related to the borrower’s financial difficulties that the Company would otherwise not consider. The concession either is granted through an agreement with the customer or is imposed by a court or by law. Concessions include modifying original loan terms to reduce or defer cash payments required as part of the loan agreement, including but not limited to:

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

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

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

•a reduction of accrued interest receivable on the debt.

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

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

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

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

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

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

If the Company concludes that both a concession has been granted and the concession was granted to a customer experiencing financial difficulties, the Company identifies the loan as a TDR. At least quarterly, the Company evaluates larger commercial TDRs (i.e., TDRs with balances of $500,000 or greater) to determine if the assets should be individually evaluated for credit losses. The ACL for loans that are individually evaluated is based on a comparison of the recorded investment in the loan with either the expected cash flows discounted using the loan’s original effective interest rate, observable market price for the loan or the fair value of the collateral underlying certain collateral-dependent loans. Residential, consumer and smaller balance commercial TDRs are included in the Company's pooled-loan analysis to calculate the ACL and, generally, do not have a material impact on the overall ACL.

As of June 30, 2021, the Company had modified loans with an aggregate outstanding loan balance of $7.0 million, or less than 1% of total outstanding loans, via payment relief in the nature of principal and/or interest deferrals for 90 days. These modifications were done in accordance with Section 4013 of the Coronavirus Aid, Relief, and Economic Security ("CARES") Act and the Interagency Statement on Loan Modifications on Reporting for Financial Institutions Working With Customers Affected by the Coronavirus. Accordingly, these loans were not categorized as TDRs.

26

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

	Six Months Ended June 30,
	2021					2020
(dollars in thousands)	Number of Contracts	Pre-modification Outstanding Recorded Investment		Post-modification Outstanding Recorded Investment		Number of Contracts	Pre-modification Outstanding Recorded Investment		Post-modification Outstanding Recorded Investment
Troubled debt restructurings:
One- to four-family first mortgage	—	$	—	$	—	7	$	967	$	472
Home equity loans and lines	—	—		—		—	—		—
Commercial real estate	2	479		450		4	1,044		1,025
Construction and land	—	—		—		—	—		—
Multi-family residential	—	—		—		—	—		—
Commercial and industrial	2	2,397		2,370		1	33		32
Other consumer	1	5		3		1	4		4
Total	5	$	2,881	$	2,823	13	$	2,048	$	1,533

None of the the loans modified during the six months ended June 30, 2021 defaulted during the same period.

Five residential mortgage loans totaling $674,000, two commercial real estate loans totaling $282,000 and one consumer loan totaling $4,000 were modified during the six months ended June 30, 2020 and defaulted within twelve months of modification. The defaults did not have a significant impact on our allowance for credit losses at June 30, 2020.

6. Derivatives and Hedging Activities

Risk Management Objective of Using Derivatives

The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates.

The Company’s existing credit derivatives result from loan participation arrangements, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. The Company occasionally enters into credit risk participation agreements with counterparty banks to accept a portion of the credit risk related to interest rate swaps. The agreements, which are typically executed in conjunction with a participation in a loan with the same customer, allow customers to execute an interest rate swap with one bank while allowing for the distribution of the credit risk among participating members. Collateral used to support the credit risk for the underlying lending relationship is also available to offset the risk of credit risk participations and customer derivative positions.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. As part of its efforts to accomplish this objective, the Company entered into certain interest rate swap agreements as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Such derivatives were used to hedge the variable cash flows associated with existing variable rate liabilities.

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in Accumulated Other Comprehensive Income and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable rate liabilities. During the next twelve months, the Company estimates that an additional $63,000 will be reclassified as additional interest expense.

27

Non-designated Hedges

The Company’s existing credit derivatives result from participations in interest rate swaps provided by external lenders as part of loan participation arrangements, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain lenders which participate in loans. For derivative instruments that are not designated as hedging instruments, changes in the fair value of the derivatives are recognized in earnings immediately.

Fair Values of Derivative Instruments

The tables below present the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Statement of Financial Condition as of June 30, 2021 and December 31, 2020.

	June 30, 2021
	Derivative Assets(1)				Derivative Liabilities(1)
(dollars in thousands)	Notional Amount		Fair Value		Notional Amount		Fair Value
Derivatives designated as hedging instruments:
Interest rate swaps - variable rate liabilities	$	40,000	$	1,133	$	—	$	—
Derivatives not designated as hedging instruments:
Risk participation agreements	—		—		10,000		38
Netting adjustments			—				—
Net derivative amounts			$	1,133			$	38
	December 31, 2020
	Derivative Assets(1)				Derivative Liabilities(1)
(dollars in thousands)	Notional Amount		Fair Value		Notional Amount		Fair Value
Derivatives designated as hedging instruments:
Interest rate swaps - variable rate liabilities	$	40,000	$	214	$	—	$	—
Derivatives not designated as hedging instruments:
Risk participation agreements	—		—		10,000		58
Netting adjustments			—				—
Net derivative amounts			$	214			$	58

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

At June 30, 2021 and December 31, 2020, accumulated unrealized gains, net of taxes, on derivative instruments totaled $900,000 and $174,000, respectively.

28

Effect of Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income and the Consolidated Statements of Income

The tables below present the effect of cash flow hedge accounting on Accumulated Other Comprehensive Income and the Consolidated Statements of Income as of June 30, 2021 and June 30, 2020.

	Three Months Ended June 30, 2021
	Amount of Loss Recognized in OCI				Location of Loss Reclassified from AOCI into Income	Amount of Loss Reclassified from AOCI into Income
(dollars in thousands)	Total		Included Component			Total		Included Component
Derivatives in cash flows hedging relationships:
Interest rate swaps - variable rate liabilities	$	(414)	$	(414)	Interest expense	$	(16)	$	(16)
	Six Months Ended June 30, 2021
	Amount of Gain Recognized in OCI				Location of Loss Reclassified from AOCI into Income	Amount of Loss Reclassified from AOCI into Income
(dollars in thousands)	Total		Included Component			Total		Included Component
Derivatives in cash flows hedging relationships:
Interest rate swaps - variable rate liabilities	$	887	$	887	Interest expense	$	(32)	$	(32)

	Three Months Ended June 30, 2020
	Amount of Loss Recognized in OCI				Location of Loss Reclassified from AOCI into Income	Amount of Loss Reclassified from AOCI into Income
(dollars in thousands)	Total		Included Component			Total		Included Component
Derivatives in cash flows hedging relationships:
Interest rate swaps - variable rate liabilities	$	(170)	$	(170)	Interest expense	$	(12)	$	(12)
	Six Months Ended June 30, 2020
	Amount of Loss Recognized in OCI				Location of Loss Reclassified from AOCI into Income	Amount of Loss Reclassified from AOCI into Income
(dollars in thousands)	Total		Included Component			Total		Included Component
Derivatives in cash flows hedging relationships:
Interest rate swaps - variable rate liabilities	$	(170)	$	(170)	Interest expense	$	(12)	$	(12)

29

Effect of Derivatives Not Designated as Hedging Instruments on the Consolidated Statements of Income

The table below presents the effect of the Company’s derivative financial instruments that are not designated as hedging instruments on the Consolidated Statements of Income as of June 30, 2021.

(dollars in thousands)	Location of (Loss) Income Recognized on Non-designated Hedges	Three Months Ended June 30, 2021		Six Months Ended June 30, 2021
Effects of non-designated hedges
Risk participation agreements	Other noninterest income	$	(18)	$	20

At and during the three and six months ended June 30, 2020, the Company was not a party to derivative contracts not designated as hedging instruments.

Credit-risk-related Contingent Features

The Company has agreements with each of its derivative counterparties that contain a provision to the effect that, if the Company (either) defaults (or is capable of being declared in default) on any of its indebtedness, then the Company could also be declared in default on its derivative obligations.

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

As of June 30, 2021, there were no derivatives with credit-risk-related contingent features in a net liability position. Such derivatives are measured at fair value, which includes accrued interest but excludes any adjustment for nonperformance risk. If the Company had breached any provisions at June 30, 2021, it would not have been required to settle any obligations under the agreements since the termination value was $0.

30

7. Fair Value Measurements and Disclosures

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

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

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

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

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

Recurring Basis

Investment Securities Available for Sale

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

Management primarily identifies investment securities which may have traded in illiquid or inactive markets, by identifying instances of a significant decrease in the volume and frequency of trades, relative to historical levels, as well as instances of a significant widening of the bid-ask spread in the brokered markets. Investment securities that are deemed to have been trading in illiquid or inactive markets may require the use of significant unobservable inputs. For example, management may use quoted prices for similar investment securities in the absence of a liquid and active market for the investment securities being valued. As of June 30, 2021, management did not make adjustments to prices provided by the third-party pricing service as a result of illiquid or inactive markets.

Derivative Assets and Liabilities

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

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The following tables present the balances of assets measured for fair value on a recurring basis as of June 30, 2021 and December 31, 2020.

(dollars in thousands)	June 30, 2021		Level 1		Level 2		Level 3
Assets
Available for sale securities:
U.S. agency mortgage-backed	$	181,668	$	—	$	181,668	$	—
Collateralized mortgage obligations	47,488		—		47,488		—
Municipal bonds	44,400		—		44,400		—
U.S. government agency	6,055		—		6,055		—
Corporate bonds	5,574		—		5,574		—
Total	$	285,185	$	—	$	285,185	$	—
Derivative assets	$	1,133	$	—	$	1,133	$	—
Total	$	286,318	$	—	$	286,318	$	—
Liabilities
Derivative liabilities	$	38	$	—	$	38	$	—

(dollars in thousands)	December 31, 2020		Level 1		Level 2		Level 3
Assets
Available for sale securities:
U.S. agency mortgage-backed	$	142,812	$	—	$	142,812	$	—
Collateralized mortgage obligations	75,620		—		75,620		—
Municipal bonds	28,011		—		28,011		—
U.S. government agency	6,255		—		6,255		—
Corporate bonds	2,054		—		2,054		—
Total	$	254,752	$	—	$	254,752	$	—
Derivative assets	$	214	$	—	$	214	$	—
Total	$	254,966	$	—	$	254,966	$	—
Liabilities
Derivative liabilities	$	58	$	—	$	58	$	—

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Nonrecurring Basis

The Company records loans individually evaluated for credit losses at fair value on a nonrecurring basis. Fair value is measured at the fair value of the collateral for collateral-dependent loans. For non-collateral-dependent loans, fair value is measured by present valuing expected future cash flows. Loans individually evaluated are classified as Level 3 assets when measured using appraisals from third parties of the collateral less any prior liens and when there is no observable market price.

Foreclosed assets and ORE are also recorded at fair value on a nonrecurring basis. Foreclosed assets are initially recorded at fair value less estimated costs to sell. ORE is recorded at the lower of its net book value or fair value at the date of transfer to ORE. The fair value of foreclosed assets and ORE is based on property appraisals and an analysis of similar properties available. As such, the Company classifies foreclosed and ORE assets as Level 3 assets.

The Company has segregated all financial assets that are measured at fair value on a nonrecurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date as reflected in the table below.

			Fair Value Measurements Using
(dollars in thousands)	June 30, 2021		Level 1		Level 2		Level 3
Assets
Loans individually evaluated	$	4,323	$	—	$	—	$	4,323
Foreclosed assets and ORE	1,113		—		—		1,113
Total	$	5,436	$	—	$	—	$	5,436
			Fair Value Measurements Using
(dollars in thousands)	December 31, 2020		Level 1		Level 2		Level 3
Assets
Loans individually evaluated	$	7,473	$	—	$	—	$	7,473
Foreclosed assets and ORE	1,302		—		—		1,302
Total	$	8,775	$	—	$	—	$	8,775

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
June 30, 2021
Loans individually evaluated	$	4,323	Third party appraisals and discounted cash flows	Collateral values, market discounts and estimated costs to sell	0% - 95%	14%
Foreclosed assets and ORE	$	1,113	Third party appraisals, sales contracts, broker price opinions	Collateral values, market discounts and estimated costs to sell	6% - 41%	7%
(dollars in thousands)	Fair Value		Valuation Technique	Unobservable Inputs	Range of Discounts	Weighted Average Discount
December 31, 2020
Loans individually evaluated	$	7,473	Third party appraisals and discounted cash flows	Collateral values, market discounts and estimated costs to sell	3% - 87%	17%
Foreclosed assets and ORE	$	1,302	Third party appraisals, sales contracts, broker price opinions	Collateral values, market discounts and estimated costs to sell	6% - 42%	11%

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ASC 820, Fair Value Measurements and Disclosures, requires the disclosure of each class of financial instruments for which it is practicable to estimate. The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. ASC 820 excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial statements. These estimates are subjective in nature, involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates included herein are based on existing on- and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business and the fair value of assets and liabilities that are not required to be recorded or disclosed at fair value like premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

Methods and assumptions used to estimate fair value of each class of financial instruments for which it is practicable to estimate fair value are described in the Company's Annual Report on Form 10-K for the year ended December 31, 2020. There have been no material changes from the fair value estimate methods and assumptions disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

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

			Fair Value Measurements at June 30, 2021
(dollars in thousands)	Carrying Amount		Total		Level 1		Level 2		Level 3
Financial Assets
Cash and cash equivalents	$	393,203	$	393,203	$	393,203	$	—	$	—
Interest-bearing deposits in banks	349		349		349		—		—
Investment securities available for sale	285,185		285,185		—		285,185		—
Investment securities held to maturity	2,118		2,164		—		2,164		—
Mortgage loans held for sale	3,752		3,752		—		3,752		—
Loans, net	1,891,801		1,893,253		—		1,888,930		4,323
Cash surrender value of BOLI	40,781		40,781		40,781		—		—
Derivative assets(1)	1,133		1,133		—		1,133		—
Financial Liabilities
Deposits	$	2,370,764	$	2,371,879	$	—	$	2,371,879	$	—
Other borrowings	5,539		6,050		—		6,050		—
Long-term FHLB advances	27,502		28,028		—		28,028		—
Derivative liabilities(1)	38		38		—		38		—
			Fair Value Measurements at December 31, 2020
(dollars in thousands)	Carrying Amount		Total		Level 1		Level 2		Level 3
Financial Assets
Cash and cash equivalents	$	187,952	$	187,952	$	187,952	$	—	$	—
Interest-bearing deposits in banks	349		349		349		—		—
Investment securities available for sale	254,752		254,752		—		254,752		—
Investment securities held to maturity	2,934		2,996		—		2,996		—
Mortgage loans held for sale	9,559		9,559		—		9,559		—
Loans, net	1,946,991		1,957,705		—		1,950,232		7,473
Cash surrender value of BOLI	40,334		40,334		40,334		—		—
Derivative assets(1)	214		214		—		214		—
Financial Liabilities
Deposits	$	2,213,821	$	2,216,002	$	—	$	2,216,002	$	—
Other borrowings	5,539		6,224		—		6,224		—
Long-term FHLB advances	28,824		29,662		—		29,662		—
Derivative liabilities(1)	58		58		—		58		—

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

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The purpose of this discussion and analysis is to focus on significant changes in the financial condition of the Company and the Bank from December 31, 2020 through June 30, 2021 and on its results of operations for the three and six months ended June 30, 2021 and 2020. 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 SEC for the year ended December 31, 2020.

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

•Demand for our products and services may decline;

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

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

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

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

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

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

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

The Company undertakes no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made.

Non-GAAP Financial Measures

Management's Discussion and Analysis of Financial Condition and Results of Operations contains financial information determined by methods other than in accordance with generally accepted accounting principles (“GAAP”). The Company's management uses this non-GAAP financial information in its analysis of the Company's performance. In this item, information is included which excludes PPP loans. Management believes the presentation of this non-GAAP financial information provides useful information that is helpful to a full understanding of the Company’s financial position and operating results. This non-GAAP financial information should not be viewed as a substitute for financial information determined in accordance with GAAP, nor is it necessarily comparable to non-GAAP financial information presented by other companies. A reconciliation on non-GAAP information included herein to GAAP is presented at the end of this item.

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EXECUTIVE OVERVIEW

The Company reported net income for the second quarter of 2021 of $11.4 million, or $1.34 diluted EPS, up $8.5 million compared to the the second quarter of 2020. Net income for the second quarter of 2020 totaled $2.9 million, or $0.33 diluted EPS. For the six months ended June 30, 2021, the Company reported net income of $23.3 million, or $2.75 diluted EPS, up $17.9 million from $5.4 million, or $0.60 diluted EPS, reported for the six months ended June 30, 2020.

Key components of the Company’s performance during the three and six months ended June 30, 2021 include:

•Assets increased $172.9 million, or 6.7%, from December 31, 2020 to $2.8 billion at June 30, 2021.

•Total loans were $1.9 billion, down $61.5 million, or 3.1%, from December 31, 2020.

•PPP loans totaled $197.6 million, down $23.6 million, or 10.7%, from December 31, 2020.

•During three and six months ended June 30, 2021, the Company reversed $3.4 million and $5.1 million, respectively, of the allowance for loan losses primarily due to improvements in our assessment of the economic impact of the COVID-19 pandemic and an increase in prepayments on loans.

•The ALL totaled $26.7 million, or 1.39% of total loans, at June 30, 2021 compared to $33.0 million, or 1.66% of total loans, at December 31, 2020. Excluding PPP loans, the ratios of the ALL to total loans were 1.55% and 1.87% at June 30, 2021 and December 31, 2020, respectively.

•Nonperforming assets decreased $4.9 million, or 24.5%, from $20.0 million, or 0.77% of total assets, at December 31, 2020 to $15.1 million, or 0.55% of total assets, at June 30, 2021.

•Total deposits increased $156.9 million, or 7.1%, from $2.2 billion at December 31, 2020 to $2.4 billion at June 30, 2021.

•The net interest margin was 3.75% and 3.94% for the three and six months ended June 30, 2021, respectively, down one basis point from the comparable periods in 2020. Excluding the impact of PPP loans, the net interest margin was 3.71% and 3.79% for the three and six months ended June 30, 2021, respectively, compared to 3.82% and 3.99% for the three and six months ended June 30, 2020, respectively.

•The average rate paid on total interest-bearing deposits was 0.36%, down 42 bps from the second quarter of 2020. For the six months ended June 30, 2021, the average yield paid on total interest-bearing deposits was 0.39%, down 53 bps from the six months ended June 30, 2020.

•Total interest expense for the second quarter of 2021 was down $1.6 million, or 49.2%, compared to the second quarter of 2020. For the six months ended June 30, 2021, total interest expense was down $3.7 million, or 51.4%, from the comparable period in 2020.

•Noninterest income for the second quarter of 2021 was up $191,000, or 6.2%, compared to the second quarter of 2020 primarily due to income from bank card fees (up $464,000) and service fees and charges (up $204,000), partially offset by an increase in net losses on the sale of assets (up $444,000). For the six months ended June 30, 2021, noninterest income was up $893,000, or 13.8%, from the comparable period in 2020 primarily due gains on the sale of loans (up $788,000) and income from bank card fees (up $633,000), partially offset by an increase in net losses on the sale of assets (up $446,000).

•Noninterest expense for the second quarter of 2021 was up $1.1 million, or 7.2%, compared to the second quarter of 2020 primarily due to increases in expenses for data processing and communication (up $399,000), the provision for credit losses on unfunded commitments (up $375,000) compensation and benefits (up $325,000) and marketing and advertising (up $108,000). For the six months ended June 30, 2021, noninterest expense was up $1.7 million, or 5.4%, from the comparable period in 2020 primarily due increases in expenses for compensation and benefits (up $573,000), data processing and communication (up $566,000), the provision for credit losses on unfunded commitments (up $375,000) and regulatory fees (up $207,000).

37

COVID-19 IMPACTS

Nearly all COVID-19 related restrictions were removed in Mississippi during the first quarter of 2021, while Louisiana lifted its mask mandate in April 2021 and ended capacity limits in May 2021.

Under the Small Business Administration's ("SBA") Paycheck Protection Program ("PPP"), the Company funded 3,072 PPP loans totaling $262.2 million during 2020. During 2021, the Company funded an additional 1,803 PPP loans totaling $126.5 million. At June 30, 2021, the total recorded net investment in PPP loans was $197.6 million, of which 2,209 loans with an aggregate outstanding balance of $64.1 million were for amounts of $150,000 or less.

To give immediate financial support to our customers, the Company began providing principal and/or interest payment deferral options in March 2020. At June 30, 2021, $7.0 million, or less than 1% of total loans, were under deferral agreements. The level of COVID-19 related deferrals formerly totaled $558.8 million, or 28% of total loans, at June 30, 2020. Of the loans that have exited deferral agreements, $443.7 million, or 99%, were current and performing as of June 30, 2021.

FINANCIAL CONDITION

Loans, Allowance for Credit Losses and Asset Quality

Loans

Total loans at June 30, 2021 were $1.9 billion, down $61.5 million, or 3.1%, from December 31, 2020. PPP loans, included in commercial and industrial loans, totaled $197.6 million at June 30, 2021, down $23.6 million, or 10.7%, from December 31, 2020. Excluding PPP loans, loans decreased $37.9 million, or 2.2%, from December 31, 2020.

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

(dollars in thousands)	June 30, 2021		December 31, 2020		Increase/(Decrease)
Real estate loans:
One-to four-family first mortgage	$	365,640	$	395,638	$	(29,998)	(7.6)	%
Home equity loans and lines	64,614		67,700		(3,086)		(4.6)
Commercial real estate	755,707		750,623		5,084		0.7
Construction and land	233,714		221,823		11,891		5.4
Multi-family residential	82,966		87,332		(4,366)		(5.0)
Total real estate loans	1,502,641		1,523,116		(20,475)		(1.3)	%
Other loans:
Commercial and industrial	380,751		417,926		(37,175)		(8.9)
Consumer	35,096		38,912		(3,816)		(9.8)
Total other loans	415,847		456,838		(40,991)		(9.0)
Total loans	$	1,918,488	$	1,979,954	$	(61,466)	(3.1)	%

During the first half of 2021, the Company experienced significant pay-downs across nearly all segments of the loan portfolio. The increase in commercial real estate loans was primarily due to the conversion of existing construction loans to permanent financing during the second quarter of 2021. Construction and land loan growth was strongest in our New Orleans and Northshore markets.

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Allowance for Credit Losses

Due to the adoption of ASC Topic 326 on January 1, 2020, management maintains, based on current and forecasted information, an ACL that reflects a current estimate of expected credit losses ("CECL") for the estimated life of the loan portfolio at reporting periods subsequent to the adoption date.

The ACL which equals the sum of the ALL and the ACL on unfunded lending commitments, is established through provisions for credit losses. Management recalculates the ACL at least quarterly to reassess the estimate of credit losses for the total portfolio at the relevant reporting date. Under ASC Topic 326, the ACL is measured on a pool basis when similar risk characteristics exist. For each pool of loans, management also evaluates and applies qualitative adjustments to the calculated ACL based on several factors, including, but not limited to, changes in current and expected future economic conditions, changes in industry experience and industry loan concentrations, changes in the volume and severity of nonperforming assets, changes in lending policies and personnel and changes in the competitive and regulatory environment of the banking industry. Loans that do not share similar risk characteristics are individually evaluated and are excluded from the pooled loan analysis.

The ACL policy described above is supplemented by periodic reviews and validations performed by independent loan reviewers. The results of the reviews are reported to the Audit Committee of the Board of Directors. The establishment of the ACL is significantly affected by management judgment. There is likelihood that different amounts would be reported under different conditions or assumptions. Federal regulatory agencies, as an integral part of their examination process, periodically review our ACL. Such agencies may require management to make additional provisions for estimated losses based upon judgments different from those of management.

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

Additional Information on Loan Portfolio Composition and Allowance for Credit Losses

At June 30, 2021, the ALL totaled $26.7 million, or 1.39% of total loans, down $6.3 million from $33.0 million, or 1.66% of total loans, at December 31, 2020. During the six months ended June 30, 2021, the Company reversed $5.1 million of the allowance loan losses primarily due to improvements in our assessment of the economic impact of the COVID-19 pandemic and an increase in prepayments on loans. Net loan charge-offs totaled $1.1 million for the six months ended June 30, 2021 and were primarily attributable to an acquired hotel loan and one originated commercial relationship, both of which were nonperforming prior to the COVID-19 crisis.

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

39

The following table provides a summary of the loan portfolio and related reserves at June 30, 2021. We have separately identified certain information regarding PPP loans which, due to the existence of full repayment guarantees from the SBA as well as the likelihood that the vast majority of such loans will be forgiven, we believe entail minimal credit risk to the Company.

	Loans				Allowance for Credit Losses
(dollars in thousands)	Total Loans		PPP Loans		Total ACL		ACL to Total Loans		ACL to Total Non-PPP Loans
June 30, 2021
Retail CRE	$	180,608	$	—	$	5,267	2.92	%	2.92	%
Hotels and short-term rentals	102,542		6,661		4,718		4.60		4.92
Restaurants and bars	92,928		31,927		2,255		2.43		3.70
Energy	41,944		8,818		1,024		2.44		3.09
Credit cards	3,826		—		306		8.00		8.00
Other loans	1,496,640		150,208		13,117		0.88		0.97
Total	$	1,918,488	$	197,614	$	26,687	1.39	%	1.55	%
Unfunded lending commitments(1)	$	—	$	—	$	1,800	—		—
Total	$	1,918,488	$	197,614	$	28,487	1.48	%	1.66	%

(1)The ACL on unfunded lending commitments is recorded within accrued interest payable and other liabilities on the Consolidated Statements of Financial Condition.

Asset Quality

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

Under our allowance policy, credit losses are measured on a pool basis when similar risk characteristics exist. Loans that do not share similar risk characteristics are individually evaluated for credit losses and are excluded from the pooled loan analysis. At least quarterly, management evaluates the loan portfolio to determine which loans should be individually evaluated for credit losses. Management's evaluation involves an analysis of larger (i.e., loans with balances of $500,000 or greater) commercial real estate loans, multi-family residential loans, construction and land loans and commercial and industrial loans. Third party property valuations are obtained at the time of origination for real estate secured loans. When a determination is made that a loan has deteriorated to the point of becoming a problem loan, updated valuations may be ordered to determine if a short-fall exists, which may lead to a recommendation for partial charge off or appropriate allowance allocation. Property valuations are ordered through, and are reviewed by, an appraisal officer at the Bank. The Company typically orders an “as is” valuation for collateral property if a loan is in a criticized loan classification. Loans individually evaluated for credit losses are reported to the Board of Directors monthly.

40

At June 30, 2021 and December 31, 2020, loans individually evaluated for credit losses were $5.0 million and $9.0 million, respectively. Total loans individually evaluated for credit losses at June 30, 2021 included $1.0 million of acquired loans, of which $277,000 was acquired with deteriorated credit quality. At December 31, 2020, loans individually evaluated for credit losses included $2.4 million of acquired loans, of which $277,000 was acquired with deteriorated credit quality.

The following tables provide a summary of loans individually evaluated for credit losses as of the dates indicated.

	June 30, 2021
(dollars in thousands)	Recorded investment		Allowance for Loan Losses		Allowance to Total Loans
Loans Individually Evaluated
One- to four-family first mortgage	$	—	$	—	—	%
Home equity loans and lines	—		—		—
Commercial real estate	4,219		218		5.17
Construction and land	—		—		—
Multi-family residential	—		—		—
Commercial and industrial	800		478		59.75
Consumer	—		—		—
Total	$	5,019	$	696	13.87	%
	December 31, 2020
(dollars in thousands)	Recorded investment		Allowance for Loan Losses		Allowance to Total Loans
Loans Individually Evaluated
One- to four-family first mortgage	$	1,006	$	100	9.94	%
Home equity loans and lines	—		—		—
Commercial real estate	7,400		1,008		13.62
Construction and land	—		—		—
Multi-family residential	—		—		—
Commercial and industrial	606		431		71.12
Consumer	—		—		—
Total	$	9,012	$	1,539	17.08	%

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

41

At June 30, 2021 and December 31, 2020, loans classified as substandard totaled $33.8 million and $35.3 million, respectively. There were no assets classified as doubtful at either date. For additional information, refer to Note 5 to the Consolidated Financial Statements.

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

(dollars in thousands)	June 30, 2021		December 31, 2020		Increase/(Decrease)
Special Mention Loans
One- to four-family first mortgage	$	450	$	1,240	$	(790)	(63.7)	%
Home equity loans and lines	—		43		(43)		(100.0)
Commercial real estate	881		966		(85)		(8.8)
Construction and land	601		2,122		(1,521)		(71.7)
Multi-family residential	—		—		—		—
Commercial and industrial	1,911		4,814		(2,903)		(60.3)
Consumer	8		146		(138)		(94.5)
Total special mention loans	$	3,851	$	9,331	$	(5,480)	(58.7)	%
(dollars in thousands)	June 30, 2021		December 31, 2020		Increase/(Decrease)
Substandard Loans
One- to four-family first mortgage	$	3,012	$	4,261	$	(1,249)	(29.3)	%
Home equity loans and lines	207		62		145		233.9
Commercial real estate	11,128		15,195		(4,067)		(26.8)
Construction and land	14,689		12,224		2,465		20.2
Multi-family residential	—		106		(106)		(100.0)
Commercial and industrial	4,517		3,154		1,363		43.2
Consumer	223		290		(67)		(23.1)
Total substandard loans	$	33,776	$	35,292	$	(1,516)	(4.3)	%

Special mention loans decreased $5.5 million from December 31, 2020 to June 30, 2021 primarily due to upgrades of special mention loans to a pass rating.

A bank’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by Federal bank regulators which can order the establishment of additional general or specific loss allowances. The Federal banking agencies have adopted an interagency policy statement on the allowance for loan and lease losses. The policy statement provides guidance for financial institutions on both the responsibilities of management for the assessment and establishment of allowances and guidance for banking agency examiners to use in determining the adequacy of general valuation guidelines. Generally, the policy statement recommends that institutions have effective systems and controls to identify, monitor and address asset quality problems; that management analyze all significant factors that affect the collectability of the portfolio in a reasonable manner; and that management establish acceptable allowance evaluation processes that meet the objectives set forth in the policy statement. Due to the adoption of ASC Topic 326 on January 1, 2020, management maintains, based on current and forecasted information, an ACL that reflects a current estimate of expected credit losses for the estimated life of the loan portfolio at reporting periods subsequent to the adoption date. For all reporting periods, actual losses are uncertain and dependent upon future events and, as such, further additions to the level of ACL may become necessary.

42

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

	June 30, 2021							December 31, 2020
(dollars in thousands)	Originated		Acquired(1)		Total			Originated		Acquired(1)		Total
Nonaccrual loans(2):
Real estate loans:
One- to four-family first mortgage	$	686	$	1,844	$	2,530		$	1,464	$	2,374	$	3,838
Home equity loans and lines	168		41		209			24		39		63
Commercial real estate	6,627		3,030		9,657			7,650		4,648		12,298
Construction and land	—		250		250			—		469		469
Multi-family residential	—		—		—			—		—		—
Other loans:
Commercial and industrial	621		480		1,101			603		1,114		1,717
Consumer	177		48		225			188		104		292
Total nonaccrual loans	8,279		5,693		13,972			9,929		8,748		18,677
Accruing loans 90 days or more past due	4		—		4			2		—		2
Total nonperforming loans	8,283		5,693		13,976			9,931		8,748		18,679
Foreclosed assets and ORE	724		389		1,113			422		880		1,302
Total nonperforming assets	9,007		6,082		15,089			10,353		9,628		19,981
Performing troubled debt restructurings	4,117		1,103		5,220			1,512		573		2,085
Total nonperforming assets and troubled debt restructurings	$	13,124	$	7,185	$	20,309		$	11,865	$	10,201	$	22,066
Nonperforming loans to total loans					0.73		%					0.94		%
Nonperforming loans to total assets					0.51		%					0.72		%
Nonperforming assets to total assets					0.55		%					0.77		%

(1)Nonaccrual acquired loans include PCD loans of $413,000 and $390,000 at June 30, 2021 and December 31, 2020, respectively.

(2)Nonaccrual loans include originated restructured loans placed on nonaccrual totaling $4.1 million and $6.5 million at June 30, 2021 and December 31, 2020, respectively. Acquired restructured loans placed on nonaccrual totaled $3.5 million and $3.5 million at June 30, 2021 and December 31, 2020, respectively.

As previously indicated, as a result of Section 4013 of the CARES Act and recent interagency guidance issued by Federal banking regulators, modifications, such as deferrals of principal and/or interest payments, to borrowers affected by the COVID-19 pandemic are not deemed to be TDRs if such modifications are made on loans that were current as of December 31, 2019. Such deferrals and loan modifications totaled $7.0 million, or less than 1% of total loans, at June 30, 2021 and $36.0 million, or 2% of total loans, at December 31, 2020. We will continue to follow the guidance of Federal banking regulators in making any TDR determinations.

Foreclosed assets and ORE includes real property and other assets that have been acquired as a result of foreclosure, and real property no longer used in the Bank's business. Foreclosed assets and ORE are classified as such until sold or disposed. Foreclosed assets are recorded at fair value less estimated selling costs based on third party property valuations which are obtained at the time the asset is repossessed and periodically until the property is liquidated. ORE is recorded at the lower of its net book value or fair value at the date of transfer to ORE. Foreclosed assets and ORE holding costs are charged to expense. Gains and losses on the sale of foreclosed assets and ORE are charged to operations, as incurred. Costs associated with acquiring and improving a foreclosed property or ORE are capitalized to the extent that the carrying value does not exceed fair value less estimated selling costs.

43

Investment Securities

The Company’s investment securities portfolio totaled $287.3 million as of June 30, 2021, an increase of $29.6 million, or 11.5%, from December 31, 2020. At June 30, 2021, the Company had a net unrealized gain on its available for sale investment securities portfolio of $3.2 million, compared to a net unrealized gain of $6.5 million at December 31, 2020.

The following table summarizes activity in the Company’s investment securities portfolio during the six months ended June 30, 2021.

(dollars in thousands)	Available for Sale		Held to Maturity
Balance, December 31, 2020	$	254,752	$	2,934
Purchases	80,483		—
Sales	—		—
Principal maturities, prepayments and calls	(45,663)		(800)
Amortization of premiums and accretion of discounts	(1,083)		(16)
Decrease in market value	(3,304)		—
Balance, June 30, 2021	$	285,185	$	2,118

Funding Sources

Deposits

Deposits totaled $2.4 billion at June 30, 2021, an increase of $156.9 million, or 7.1%, compared to December 31, 2020. The following table summarizes the changes in the Company’s deposits from December 31, 2020 to June 30, 2021.

(dollars in thousands)	June 30, 2021		December 31, 2020		Increase/(Decrease)
Demand deposit	$	715,167	$	615,700	$	99,467	16.2	%
Savings	277,899		250,165		27,734		11.1
Money market	362,938		333,078		29,860		9.0
NOW	680,297		646,085		34,212		5.3
Certificates of deposit	334,463		368,793		(34,330)		(9.3)
Total deposits	$	2,370,764	$	2,213,821	$	156,943	7.1	%

The average rate paid on interest-bearing deposits was 0.36% for the second quarter of 2021, down 42 bps compared to the second quarter of 2020. For the six months ended June 30, 2021, the average rate paid on interest-bearing deposits was 0.39%, down 53 bps from the comparable period in 2020.

At June 30, 2021, certificates of deposit maturing within the next 12 months totaled $282.1 million.

Federal Home Loan Bank Advances

The average balance of total FHLB advances was $27.7 million for the second quarter of 2021, down $42.8 million compared to the second quarter of 2020. For the six months ended June 30, 2021, the average balance of total FHLB advances was $28.1 million, down $30.0 million compared to the six months ended June 30, 2020. Average total FHLB advances decreased over the comparable periods primarily due to the absence of short-term FHLB borrowings and paydowns during the six months ended June 30, 2021.

At June 30, 2021, the Company had $27.5 million in total outstanding FHLB advances and had $832.4 million in additional FHLB advances available.

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Shareholders’ Equity

Total shareholders’ equity increased $16.0 million, or 5.0%, from $321.8 million at December 31, 2020 to $337.8 million at June 30, 2021. Shareholders' equity increased primarily due to net income of $23.3 million, partially offset by an other comprehensive loss of $1.9 million, share repurchases of $2.8 million and cash dividends of $3.9 million during six months ended June 30, 2021.

At June 30, 2021, 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, 2021 based on the required capital levels as of January 1, 2019 when the Basel III Capital Rules were fully phased-in. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules.

	Actual				Minimum Capital Required – Basel III Fully Phased-In				To Be Well Capitalized Under Prompt Corrective Action Provisions
(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
Bank:
Common equity Tier 1 capital (to risk-weighted assets)	$	264,447	14.82	%	$	124,944	7.00	%	$	116,020	6.50	%
Tier 1 risk-based capital	264,447		14.82		151,718		8.50		142,793		8.00
Total risk-based capital	286,834		16.07		187,416		10.50		178,492		10.00
Tier 1 leverage capital	264,447		9.89		106,953		4.00		133,691		5.00

LIQUIDITY AND ASSET/LIABILITY MANAGEMENT

Liquidity Management

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

The Company uses its liquidity to fund existing and future loan commitments, to fund maturing certificates of deposit and demand deposit withdrawals, to invest in other interest-earning assets and to meet operating expenses. At June 30, 2021, certificates of deposit maturing within the next 12 months totaled $282.1 million. Based upon historical experience, the Company anticipates that a significant portion of the maturing certificates of deposit will be redeposited with us.

In addition to cash flow from loan and securities payments and prepayments as well as from sales of securities available for sale, the Company has significant borrowing capacity available to fund liquidity needs. In recent years, the Company has utilized borrowings as a cost efficient addition to deposits as a source of funds. Borrowings consist of advances from the FHLB of Dallas, of which the Company is a member. Under terms of the collateral agreement with the FHLB, the Company pledges residential mortgage loans and investment securities as well as the Company’s stock in the FHLB as collateral for such advances. For the three and six months ended June 30, 2021, the average balances of outstanding FHLB advances were $27.7 million and $28.1 million, respectively. At June 30, 2021, the Company had $27.5 million in total outstanding FHLB advances and had $832.4 million in additional FHLB advances available.

45

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, 2021.

Shift in Interest Rates (in bps)	% Change in Projected Net Interest Income
+300	17.1%
+200	11.4%
+100	5.7%
-100	(4.8)%

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

During the second quarter of 2020, the Company entered into certain interest rate swap agreements as part of its interest rate risk management strategy. The Company’s objectives in using interest rate derivatives are to manage its exposure to interest rate movements. During 2021 and 2020, such derivatives were used to hedge the variable cost associated with existing variable rate liabilities. Refer to Note 6 of the Consolidated Financial Statements for more information on the effects of the derivative financial instruments on the consolidated financial statements.

46

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. At June 30, 2021 and December 31, 2020, the Company's allowance for credit losses on unfunded commitments totaled $1.8 million and $1.4 million, respectively.

The following table summarizes our outstanding commitments to originate loans and to advance additional amounts pursuant to outstanding letters of credit, lines of credit and undisbursed construction loans as of the periods indicated.

	Contract Amount
(dollars in thousands)	June 30, 2021		December 31, 2020
Standby letters of credit	$	4,925	$	5,781
Available portion of lines of credit	282,130		266,349
Undisbursed portion of loans in process	141,578		99,527
Commitments to originate loans	162,638		139,471

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.

47

RESULTS OF OPERATIONS

Net income for the second quarter of 2021 was $11.4 million, up $8.5 million, compared to the second quarter of 2020. Diluted EPS for the second quarter of 2021 was $1.34, up $1.01 compared to the second quarter of 2020.

Net income for the six months ended June 30, 2021 was $23.3 million, up $17.9 million, compared to the six months ended June 30, 2020. Diluted EPS for the six months ended June 30, 2021 was $2.75, up $2.15 compared to the six months ended June 30, 2020.

The net income for the three and six months ended June 30, 2021 and 2020 were significantly impacted by the change in our estimate of the allowance for loan losses over the comparable periods. During the the three and six months ended June 30, 2021, the Company reversed $3.4 million and $5.1 million, respectively, of the allowance loan losses. During the three and six months ended June 30, 2020, the Company provisioned $6.5 million and $12.7 million, respectively, for expected credit losses on loans primarily due to the uncertainty and economic disruption brought on by the COVID-19 pandemic.

Net Interest Income

Net interest income is the difference between the interest income earned on interest-earning assets, such as loans and investment securities, and the interest expense paid on interest-bearing liabilities, such as deposits and borrowings. The Company’s net interest income is largely determined by our net interest spread, which is the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities, and the relative amounts of interest-earning assets and interest-bearing liabilities. The Company’s tax-equivalent net interest spread was 3.62% and 3.51% for the quarters ended June 30, 2021 and 2020, respectively, and 3.80% and 3.67% for the six months ended June 30, 2021 and 2020, respectively.

Net interest income totaled $24.1 million for the second quarter of 2021, up $1.7 million, or 7.6%, compared to the second quarter of 2020. For the six months ended June 30, 2021, net interest income totaled $49.2 million, up $5.5 million, or 12.5%, compared to the six months ended June 30, 2020.

Loan income from deferred PPP lender fees totaled $1.8 million for the second quarter of 2021, up $892,000, or 101.1%, compared to the second quarter of 2020. For the six months ended June 30, 2021, loan income from PPP lender fees totaled $5.0 million, up $4.2 million from the comparable period in 2020. Unrecognized PPP lender fees totaled $7.7 million at June 30, 2021 and will be amortized into interest income over the life of the loans.

The Company’s tax-equivalent net interest margin, which is net interest income as a percentage of average interest-earning assets, was 3.75% and 3.76% for the quarters ended June 30, 2021 and 2020, respectively. For the same periods, the average loan yield was 4.95% and 5.02%, respectively. PPP loans increased the the net interest margin by 4 bps and decreased the average loan yield by 11 bps during the second quarter of 2021. During the second quarter of 2020, PPP loans decreased the net interest margin by 6 bps and the average loan yield by 21 bps. Excluding the impact of PPP loans, the net interest margin and the average loan yield decreased by 11 and 17 bps, respectively, over the comparable quarters.

The net interest margin for the six months ended June 30, 2021 and 2020 was 3.94% and 3.95%, respectively. For the same periods, the average loan yield was 5.08% and 5.21%, respectively. PPP loans increased the the net interest margin by 15 bps and the average loan yield by 3 bps during the six months ended June 30, 2021. During the six months ended June 30, 2020, PPP loans decreased the net interest margin by 4 bps and the average loan yield by 12 bps. Excluding the impact of PPP loans, the net interest margin and the average loan yield decreased by 20 and 28 bps, respectively, over the comparable year-to-date periods.

Average PPP loans were $228.1 million and $180.7 million for the second quarters of 2021 and 2020, respectively. For the six months ended June 30, 2021 and 2020, average PPP loans were $233.4 million and $90.4 million, respectively.

The net interest margin was also impacted by the increase in average cash and cash equivalents when comparing the three and six months ended June 30, 2021 and 2020. During the second quarter of 2020, the increase in average cash and cash equivalents decreased the net interest margin and the average yield on total interest-earning assets by 19 and 21 bps, respectively. During the six months ended June 30, 2021, the increase in average cash and cash equivalents decreased the net interest margin and the average yield on total interest-earning assets by 23 and 25 bps, respectively.

Average cash and cash equivalents are reflected in the increases in the average balances of other interest-earning assets. Average other interest-earning assets for the three and six months ended June 30, 2021 were up $127.8 million, or 68.7%, and $142.2 million, or 132.8%, respectively, from the comparable periods in 2020.

48

Acquired loan discount accretion included in interest income totaled $585,000 and $746,000 for the quarters ended June 30, 2021 and 2020, respectively. For the six months ended June 30, 2021 and 2020, acquired loan discount accretion included in interest income totaled $1.3 million and $1.6 million, respectively.

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

	Three Months Ended June 30,
	2021						2020
(dollars in thousands)	Average Balance		Interest		Average Yield/Rate		Average Balance		Interest		Average Yield/Rate
Interest-earning assets:
Loans receivable(1)	$	1,963,935	$	24,500	4.95	%	$	1,928,185	$	24,371	5.02	%
Investment securities
Taxable	256,700		1,043		1.63		243,011		1,103		1.82
Tax-exempt (TE)	20,196		87		2.19		13,058		79		3.07
Total investment securities	276,896		1,130		1.67		256,069		1,182		1.88
Other interest-earning assets	313,954		133		0.17		186,127		117		0.25
Total interest-earning assets (TE)	2,554,785		$	25,763	4.01		2,370,381		$	25,670	4.31
Noninterest-earning assets	187,016						193,829
Total assets	$	2,741,801					$	2,564,210
Interest-bearing liabilities:
Deposits:
Savings, checking and money market	$	1,315,432	$	842	0.26	%	$	1,157,239	$	1,347	0.47	%
Certificates of deposit	341,300		638		0.75		391,380		1,665		1.71
Total interest-bearing deposits	1,656,732		1,480		0.36		1,548,619		3,012		0.78
Other borrowings	5,539		53		3.84		5,539		53		3.86
Short-term FHLB advances	—		—		—		31,868		20		0.25
Long term FHLB advances	27,699		120		1.73		38,592		168		1.74
Total interest-bearing liabilities	1,689,970		$	1,653	0.39		1,624,618		$	3,253	0.80
Noninterest-bearing liabilities	717,739						624,418
Total liabilities	2,407,709						2,249,036
Shareholders’ equity	334,092						315,174
Total liabilities and shareholders' equity	$	2,741,801					$	2,564,210
Net interest-earning assets	$	864,815					$	745,763
Net interest spread (TE)			$	24,110	3.62	%			$	22,417	3.51	%
Net interest margin (TE)					3.75	%					3.76	%

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

49

	Six Months Ended June 30,
	2021						2020
(dollars in thousands)	Average Balance		Interest		Average Yield/Rate		Average Balance		Interest		Average Yield/Rate
Interest-earning assets:
Loans receivable(1)	$	1,975,535	$	50,317	5.08	%	$	1,831,704	$	48,070	5.21	%
Investment securities
Taxable	248,765		1,961		1.58		243,965		2,411		1.98
Tax-exempt (TE)	20,373		181		2.25		15,589		183		2.98
Total investment securities	269,138		2,142		1.63		259,554		2,594		2.04
Other interest-earning assets	249,222		232		0.19		107,065		255		0.48
Total interest-earning assets (TE)	2,493,895		$	52,691	4.22		2,198,323		$	50,919	4.61
Noninterest-earning assets	187,672						193,239
Total assets	$	2,681,567					$	2,391,562
Interest-bearing liabilities:
Deposits:
Savings, checking and money market	$	1,278,388	$	1,723	0.27	%	$	1,073,133	$	3,169	0.59	%
Certificates of deposit	346,870		1,413		0.82		392,025		3,510		1.80
Total interest-bearing deposits	1,625,258		3,136		0.39		1,465,158		6,679		0.92
Other borrowings	5,622		106		3.81		5,539		106		3.86
Short-term FHLB advances	—		—		—		16,251		23		0.28
Long term FHLB advances	28,059		244		1.73		41,844		371		1.77
Total interest-bearing liabilities	1,658,939		$	3,486	0.42		1,528,792		$	7,179	0.94
Noninterest-bearing liabilities	692,147						547,007
Total liabilities	2,351,086						2,075,799
Shareholders’ equity	330,481						315,763
Total liabilities and shareholders’ equity	$	2,681,567					$	2,391,562
Net interest-earning assets	$	834,956					$	669,531
Net interest spread (TE)			$	49,205	3.80	%			$	43,740	3.67	%
Net interest margin (TE)					3.94	%					3.95	%

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

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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).

	Three Months Ended June 30,						Six Months Ended June 30,
	2021 Compared to 2020						2021 Compared to 2020
	Change Attributable To						Change Attributable To
(dollars in thousands)	Rate		Volume		Increase/ (Decrease)		Rate		Volume		Increase/ (Decrease)
Interest income:
Loans receivable	$	(311)	$	440	$	129	$	(138)	$	2,385	$	2,247
Investment securities	(157)		105		(52)		(392)		(60)		(452)
Other interest-earning assets	(51)		67		16		(135)		112		(23)
Total interest income	(519)		612		93		(665)		2,437		1,772
Interest expense:
Savings, checking and money market accounts	(630)		125		(505)		(1,295)		(151)		(1,446)
Certificates of deposit	(875)		(152)		(1,027)		(1,426)		(671)		(2,097)
Other borrowings	—		—		—		—		—		—
FHLB advances	(11)		(57)		(68)		(46)		(104)		(150)
Total interest expense	(1,516)		(84)		(1,600)		(2,767)		(926)		(3,693)
Increase (decrease) in net interest income	$	997	$	696	$	1,693	$	2,102	$	3,363	$	5,465

Noninterest Income

Noninterest income for the second quarter of 2021 totaled $3.3 million, up $191,000, or 6.2%, from $3.1 million earned for the same period in 2020. Noninterest income for the six months ended June 30, 2021 totaled $7.4 million, up $893,000, or 13.8%, from $6.5 million earned for the same period in 2020.

Income from service fees and charges for the second quarter of 2021 was up $204,000, or 21.7%, from the second quarter of 2020. For the six months ended June 30, 2021, income from service fees and charges was down $188,000, or 7.8%. The change in income from service fees and charges over the three- and six-month periods was primarily due to the change in income from overdraft fees on deposit accounts.

Income from bank card fees for the three and six months ended June 30, 2021 was up $464,000, or 41.2%, and $633,000, or 28.0%, respectively, from the comparable periods in 2020 primarily due to increased transaction activity by our cardholders.

Gains on the sale of loans for the second quarter of 2021 were down $83,000, or 12.9%, from the comparable period in 2020. For the six months ended June 30, 2021, gains on the sale of loans were up $788,000, or 83.9%, from the comparable period in 2020. The origination of mortgage loans held for sale slowed in the second quarter of 2021, however earnings from the sale of loans during the first quarter of 2021 were strong and resulted in a net increase in gains on the sale of loans for the six months ended June 30, 2021 compared to the same six-month period in 2020.

Losses on the sale of assets for the three and six months ended June 30, 2021 totaled $457,000. This was an increase of $444,000 and $446,000, from the three and six months ended June 30, 2020, respectively. During the second quarter of 2021, the Company sold and leased back one of its Mississippi branch locations. The sale transferred control to the buyer-lessor and all losses were recognized at the time of the sale. The Company believes that the sale/leaseback will reduce the operating expenses related to this branch office in future periods.

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Noninterest Expense

Noninterest expense for the second quarter of 2021 totaled $16.6 million, up $1.1 million, or 7.2%, from the second quarter of 2020. Noninterest expense for the six months ended June 30, 2021 totaled $32.5 million, up $1.7 million, or 5.4%, from the same period in 2020.

Compensation and benefits expense for the three and six months ended June 30, 2021 was up $325,000, or 3.5%, and $573,000, or 3.1%, respectively, from the comparable periods in 2020 primarily due to increases in wages and incentive pay, health insurance costs and compensation expense related to the Company's ESOP driven primarily by the increase in market value of shares of the Company's common stock held by the ESOP.

Marketing and advertising expense for the second quarter of 2021 was up $108,000, or 67.5%, from the comparable period in 2020 primarily due to an increase in sponsorships and donations. For the six months ended June 30, 2021, marketing and advertising expense was down $19,000, or 4.1%, from the comparable period in 2020.

Data processing and communication expense for the three and six months ended June 30, 2021 was up $399,000, or 22.7%, and $566,000, or 15.8%, respectively, from the comparable periods in 2020 primarily due to a general increase in the cost of software and data processing, increased costs related to higher PPP loan origination volume as well as costs related to the implementation of enhancements to our lending software.

Regulatory fees for the the second quarter of 2021 were down $56,000, or 15.5%, from the comparable period in 2020. For the six months ended June 30, 2021, regulatory fees were up $207,000, or 43.3%, primarily due to the absence of FDIC assessment credits during the first quarter of 2021. FDIC assessment credits were exhausted during the first quarter of 2020.

The Company provisioned $375,000 for credit losses on unfunded loan commitments for the second quarter of 2021 primarily due to the growth in unfunded construction loan commitments during the quarter. The Company did not record a provision for credit losses on unfunded commitments during the first quarter of 2021 or the six months ended June 30, 2020.

Income Taxes

Income tax expense for the three and six months ended June 30, 2021 totaled $2.9 million and $5.8 million, respectively, compared to $675,000 and $1.2 million for the three and six months ended June 30, 2020, respectively. The increases in income tax expense over the comparable periods were primarily due to increases in taxable earnings.

The Company's effective tax rates for the second quarters of 2021 and 2020 were 20.1% and 18.8%, respectively. For the six months ended June 30, 2021 and 2020, the Company's effective tax rates were 20.0% and 18.2%, respectively.

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Reconciliation of Non-GAAP Measures

Financial Condition

(dollars in thousands)	June 30, 2021			December 31, 2020
Total loans	$	1,918,488		$	1,979,954
Less: PPP loans	197,614			221,220
Total loans excluding PPP loans	$	1,720,874		$	1,758,734
Allowance for loan losses to total loans	1.39		%	1.66		%
Less: PPP loans	0.16			0.21
Non-GAAP allowance for loan losses to total loans	1.55		%	1.87		%

Results of Operations

	Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands)	2021			2020			2021			2020
Reported loan income	$	24,500		$	24,371		$	50,317		$	48,070
Less: PPP loan income	2,372			1,373			6,265			1,373
Loan income excluding PPP loan income	$	22,128		$	22,998		$	44,052		$	46,697
Average total loans	$	1,963,935		$	1,928,185		$	1,975,535		$	1,831,704
Less: average PPP loans	228,114			180,712			233,434			90,356
Average total loans excluding PPP loans	$	1,735,821		$	1,747,473		$	1,742,101		$	1,741,348
Loan yield	4.95		%	5.02		%	5.08		%	5.21		%
Negative (positive) impact of PPP loans	0.11			0.21			(0.03)			0.12
Loan yield excluding PPP loans	5.06		%	5.23		%	5.05		%	5.33		%
Net interest margin	3.75		%	3.76		%	3.94		%	3.95		%
(Positive) negative impact of PPP loans	(0.04)			0.06			(0.15)			0.04
Net interest margin excluding PPP loans	3.71		%	3.82		%	3.79		%	3.99		%

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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, 2020, 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, 2021 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 2021 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, 2020 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, 2021	29	$	37.76	29	258,574
May 1 – May 31, 2021	—	—		—	258,574
June 1 – June 30, 2021	42,229	38.55		42,229	216,345
Total	42,258	$	38.55	42,258	216,345

(1)On August 31, 2020, the Company announced the approval of a repurchase program (the "2020 Repurchase Plan"). Under the 2020 Repurchase Plan, the Company may purchase up to 444,000 shares, or approximately 5% of its common stock outstanding, through open market or privately negotiated transactions.

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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	Location
3.2	Amended and Restated Bylaws of Home Bancorp	Filed herewith
31.1	Rule 13(a)-14(a) Certification of the Chief Executive Officer	Filed herewith
31.2	Rule 13(a)-14(a) Certification of the Chief Financial Officer	Filed herewith
32.0	Section 1350 Certification	Filed herewith
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definitions Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

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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 5, 2021	By:	/s/ John W. Bordelon
		John W. Bordelon
		Chairman of the Board, President and Chief Executive Officer
August 5, 2021	By:	/s/ David T. Kirkley
		David T. Kirkley
		Executive Vice President and Chief Financial Officer
August 5, 2021	By:	/s/ Mary H. Hopkins
		Mary H. Hopkins
		Home Bank, N.A. Senior Vice President and Director of Financial Management

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