UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended: ~~September 30, 2020~~March 31, 2021


☐			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 ~~November 4, 2020,~~May 5, 2021, the registrant had ~~8,755,250~~8,711,449 shares of common stock, $0.01 par value, outstanding.

HOME BANCORP, INC. and SUBSIDIARY

TABLE OF CONTENTS


		~~Page~~
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	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	65
	Notes to Unaudited Consolidated Financial Statements	76
Item 2.	Managements’ Discussion and Analysis of Financial Condition and Results of Operations	3534
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5450
Item 4.	Controls and Procedures	5450
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	5551
Item 1A.	Risk Factors	5551
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5551
Item 3.	Defaults Upon Senior Securities	5652
Item 4.	Mine Safety Disclosures	5652
Item 5.	Other Information	5652
Item 6.	Exhibits	5652
SIGNATURES		5753

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.~~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.~~N. A.
COVID-19	–	The novel coronavirus
CRE	–	Commercial real estate
EPS	–	Earnings per common share
FASB	–	Financial Accounting Standards Board
FHLB	–	Federal Home Loan Bank
GAAP	–	Generally Accepted Accounting Principles
LTV	–	Loan-to-value
NPA(s)	–	Nonperforming asset(s)
OCI	–	Other comprehensive income
ORE	–	Other real estate
PCD	–	Purchased credit deteriorated
PCI	–	Purchased credit impaired
PPP	–	Paycheck Protection Program
SBA	–	Small Business Association
SEC	–	Securities and Exchange Commission
TDR	–	Troubled debt restructuring
TE	–	Taxable equivalent
U.S.	–	United States

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


		(Unaudited)		(Audited)
		September 30,		December 31,			(Unaudited)		(Audited)
(dollars in thousands)	(dollars in thousands)	2020		2019		(dollars in thousands)	March 31, 2021		December 31, 2020
Assets	Assets					Assets
Cash and cash equivalents	Cash and cash equivalents	$	185,836	$	39,847	Cash and cash equivalents	$	282,700	$	187,952
Interest-bearing deposits in banks	Interest-bearing deposits in banks	349		449		Interest-bearing deposits in banks	349		349
Investment securities available for sale, at fair value	Investment securities available for sale, at fair value	251,578		257,321		Investment securities available for sale, at fair value	274,965		254,752
Investment securities held to maturity (fair values of $3,008 and $7,194, respectively)		2,942		7,149
Investment securities held to maturity (fair values of $2,176 and $2,996, respectively)						Investment securities held to maturity (fair values of $2,176 and $2,996, respectively)	2,126		2,934
Mortgage loans held for sale	Mortgage loans held for sale	21,045		6,990		Mortgage loans held for sale	5,304		9,559
Loans, net of unearned income	Loans, net of unearned income	1,955,297		1,714,361		Loans, net of unearned income	1,979,868		1,979,954
Allowance for loan losses	Allowance for loan losses	(33,002)		(17,868)		Allowance for loan losses	(29,993)		(32,963)
Total loans, net of unearned income and allowance for loan losses	Total loans, net of unearned income and allowance for loan losses	1,922,295		1,696,493		Total loans, net of unearned income and allowance for loan losses	1,949,875		1,946,991
Office properties and equipment, net	Office properties and equipment, net	45,696		46,425		Office properties and equipment, net	45,138		45,497
Cash surrender value of bank-owned life insurance	Cash surrender value of bank-owned life insurance	40,184		39,466		Cash surrender value of bank-owned life insurance	40,559		40,334
Goodwill and core deposit intangibles	Goodwill and core deposit intangibles	63,439		64,472		Goodwill and core deposit intangibles	62,813		63,112
Accrued interest receivable and other assets	Accrued interest receivable and other assets	45,836		41,853		Accrued interest receivable and other assets	43,688		40,370
Total Assets	Total Assets	2,579,200		2,200,465		Total Assets	$	2,707,517	$	2,591,850
Liabilities	Liabilities					Liabilities
Deposits:	Deposits:					Deposits:
Noninterest-bearing	Noninterest-bearing	629,345		437,828		Noninterest-bearing	$	687,254	$	615,700
Interest-bearing	Interest-bearing	1,578,149		1,383,147		Interest-bearing	1,641,111		1,598,121
Total Deposits	Total Deposits	2,207,494		1,820,975		Total Deposits	2,328,365		2,213,821
Other borrowings	Other borrowings	5,539		5,539		Other borrowings	5,539		5,539
Long-term Federal Home Loan Bank advances	Long-term Federal Home Loan Bank advances	31,445		40,620		Long-term Federal Home Loan Bank advances	28,106		28,824
Accrued interest payable and other liabilities	Accrued interest payable and other liabilities	21,398		17,002		Accrued interest payable and other liabilities	16,897		21,824
Total Liabilities	Total Liabilities	2,265,876		1,884,136		Total Liabilities	2,378,907		2,270,008
Shareholders’ Equity	Shareholders’ Equity					Shareholders’ Equity
Preferred stock, $0.01 par value - 10,000,000 shares authorized; NaN issued	Preferred stock, $0.01 par value - 10,000,000 shares authorized; NaN issued	0		0		Preferred stock, $0.01 par value - 10,000,000 shares authorized; NaN issued	0		0
Common stock, $0.01 par value - 40,000,000 shares authorized; 8,831,406 and 9,252,418 shares issued and outstanding, respectively		88		93
Common stock, $0.01 par value - 40,000,000 shares authorized; 8,709,631 and 8,740,104 shares issued and outstanding, respectively						Common stock, $0.01 par value - 40,000,000 shares authorized; 8,709,631 and 8,740,104 shares issued and outstanding, respectively	87		87
Additional paid-in capital	Additional paid-in capital	165,522		168,545		Additional paid-in capital	165,155		164,988
Unallocated common stock held by:	Unallocated common stock held by:					Unallocated common stock held by:
Employee Stock Ownership Plan (ESOP)	Employee Stock Ownership Plan (ESOP)	(2,857)		(3,124)		Employee Stock Ownership Plan (ESOP)	(2,678)		(2,767)
Recognition and Retention Plan (RRP)	Recognition and Retention Plan (RRP)	(23)		(35)		Recognition and Retention Plan (RRP)	(17)		(22)
Retained earnings	Retained earnings	145,373		150,158		Retained earnings	163,507		154,282
Accumulated other comprehensive income	Accumulated other comprehensive income	5,221		692		Accumulated other comprehensive income	2,556		5,274
Total Shareholders’ Equity	Total Shareholders’ Equity	313,324		316,329		Total Shareholders’ Equity	328,610		321,842
Total Liabilities and Shareholders’ Equity	Total Liabilities and Shareholders’ Equity	$	2,579,200	$	2,200,465	Total Liabilities and Shareholders’ Equity	$	2,707,517	$	2,591,850

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

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
(dollars in thousands, except per share data)	(dollars in thousands, except per share data)	2020		2019		2020		2019		(dollars in thousands, except per share data)	2021		2020
Interest Income	Interest Income									Interest Income
Loans, including fees	Loans, including fees	$	24,769	$	23,562	$	72,839	$	70,572	Loans, including fees	$	25,817	$	23,699
Investment securities:	Investment securities:									Investment securities:
Taxable interest	Taxable interest	897		1,401		3,308		4,655		Taxable interest	918		1,308
Tax-exempt interest	Tax-exempt interest	70		114		253		397		Tax-exempt interest	94		104
Other investments and deposits	Other investments and deposits	106		397		361		1,140		Other investments and deposits	99		138
Total interest income	Total interest income	25,842		25,474		76,761		76,764		Total interest income	26,928		25,249
Interest Expense	Interest Expense									Interest Expense
Deposits	Deposits	2,368		4,050		9,047		11,116		Deposits	1,656		3,667
Other borrowings	Other borrowings	53		53		159		159		Other borrowings	53		53
Short-term Federal Home Loan Bank advances	Short-term Federal Home Loan Bank advances	0		0		23		0		Short-term Federal Home Loan Bank advances	0		3
Long-term Federal Home Loan Bank advances	Long-term Federal Home Loan Bank advances	149		230		520		751		Long-term Federal Home Loan Bank advances	124		203
Total interest expense	Total interest expense	2,570		4,333		9,749		12,026		Total interest expense	1,833		3,926
Net interest income	Net interest income	23,272		21,141		67,012		64,738		Net interest income	25,095		21,323
Provision for loan losses		0		1,146		12,728		2,301
Net interest income after provision for loan losses		23,272		19,995		54,284		62,437
(Reversal) provision for loan losses										(Reversal) provision for loan losses	(1,703)		6,257
Net interest income after (reversal) provision for loan losses										Net interest income after (reversal) provision for loan losses	26,798		15,066
Noninterest Income	Noninterest Income									Noninterest Income
Service fees and charges	Service fees and charges	1,123		1,516		3,529		4,396		Service fees and charges	1,072		1,464
Bank card fees	Bank card fees	1,331		1,141		3,595		3,414		Bank card fees	1,306		1,137
Gain on sale of loans, net	Gain on sale of loans, net	904		355		1,843		758		Gain on sale of loans, net	1,168		297
Income from bank-owned life insurance	Income from bank-owned life insurance	231		1,464		718		1,831		Income from bank-owned life insurance	225		259
Loss on sale of assets, net	Loss on sale of assets, net	0		(8)		(11)		(336)		Loss on sale of assets, net	0		2
Other income	Other income	205		306		581		853		Other income	289		199
Total noninterest income	Total noninterest income	3,794		4,774		10,255		10,916		Total noninterest income	4,060		3,358
Noninterest Expense	Noninterest Expense									Noninterest Expense
Compensation and benefits	Compensation and benefits	9,740		10,266		28,518		28,977		Compensation and benefits	9,664		9,416
Occupancy	Occupancy	1,686		1,791		5,075		5,405		Occupancy	1,696		1,736
Marketing and advertising	Marketing and advertising	288		418		746		997		Marketing and advertising	171		298
Data processing and communication	Data processing and communication	1,851		1,764		5,430		4,782		Data processing and communication	1,986		1,819
Professional services	Professional services	197		227		665		684		Professional services	234		213
Forms, printing and supplies	Forms, printing and supplies	140		172		471		514		Forms, printing and supplies	159		171
Franchise and shares tax	Franchise and shares tax	378		399		1,156		1,196		Franchise and shares tax	360		389
Regulatory fees	Regulatory fees	526		127		1,004		717		Regulatory fees	379		116
Foreclosed assets and ORE, net	Foreclosed assets and ORE, net	162		47		324		328		Foreclosed assets and ORE, net	123		17
Amortization of acquisition intangible	Amortization of acquisition intangible	338		393		1,033		1,201		Amortization of acquisition intangible	300		353
Provision for credit losses on unfunded commitments		0		0		1,272		0
Other expenses	Other expenses	810		1,006		2,563		3,052		Other expenses	894		888
Total noninterest expense	Total noninterest expense	16,116		16,610		48,257		47,853		Total noninterest expense	15,966		15,416
Income before income tax expense	Income before income tax expense	10,950		8,159		16,282		25,500		Income before income tax expense	14,892		3,008
Income tax expense	Income tax expense	2,168		1,303		3,102		4,174		Income tax expense	2,964		526
Net Income	Net Income	$	8,782	$	6,856	$	13,180	$	21,326	Net Income	$	11,928	$	2,482
Earnings per share:	Earnings per share:									Earnings per share:
Basic	Basic	$	1.01	$	0.76	$	1.51	$	2.34	Basic	$	1.41	$	0.27
Diluted	Diluted	$	1.01	$	0.75	$	1.51	$	2.32	Diluted	$	1.41	$	0.27
Cash dividends declared per common share	Cash dividends declared per common share	$	0.22	$	0.21	$	0.66	$	0.62	Cash dividends declared per common share	$	0.22	$	0.22

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

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
(dollars in thousands)	(dollars in thousands)	2020		2019		2020		2019		(dollars in thousands)	2021		2020
Net Income	Net Income	$	8,782	$	6,856	$	13,180	$	21,326	Net Income	$	11,928	$	2,482
Other Comprehensive Income
Unrealized gains on available for sale investment securities		39		14		5,815		4,287
Unrealized gains (losses) on cash flow hedges		76		0		(82)		0
Other Comprehensive (Loss) Income										Other Comprehensive (Loss) Income
Unrealized (losses) gains on available for sale investment securities										Unrealized (losses) gains on available for sale investment securities	(4,757)		5,987
Unrealized gains on cash flow hedges										Unrealized gains on cash flow hedges	1,317		0
Tax effect	Tax effect	(24)		(3)		(1,204)		(900)		Tax effect	722		(1,257)
Other comprehensive income, net of taxes		91		11		4,529		3,387
Other comprehensive (loss) income, net of taxes										Other comprehensive (loss) income, net of taxes	(2,718)		4,730
Comprehensive Income	Comprehensive Income	$	8,873	$	6,867	$	17,709	$	24,713	Comprehensive Income	$	9,210	$	7,212

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

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

(dollars in thousands, except per share data) Common
stock Additional
Paid-in
capital Unallocated
Common Stock
Held by ESOP Unallocated
Common Stock
Held by RRP Retained
Earnings Accumulated Other Comprehensive Income Total
Balance, June 30, 2019 $ 94 $ 169,233 $ (3,303) $ (48) $ 146,348 $ 1,170 $ 313,494
Net income 6,856 6,856
Other comprehensive income 11 11
Purchase of Company’s common stock at cost, 123,902 shares (1) (1,238) (3,385) (4,624)
Cash dividends declared, $0.21 per share (1,976) (1,976)
Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 5,071 shares — 130 (2) 128
Exercise of stock options 0 143 143
RRP shares released for allocation (1) 1 0
ESOP shares released for allocation 318 90 408
Share-based compensation cost 237 237
Balance, September 30, 2019 $ 93 $ 168,822 $ (3,213) $ (47) $ 147,841 $ 1,181 $ 314,677
Balance, June 30, 2020 $ 90 $ 166,494 $ (2,946) $ (24) $ 140,582 $ 5,130 $ 309,326
Net income 8,782 8,782
Other comprehensive income 91 91
Purchase of Company’s common stock at cost, 135,224 shares (2) (1,351) (2,020) (3,373)
Cash dividends declared, $0.22 per share (1,970) (1,970)
Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 529 shares — 0 (1) (1)
Exercise of stock options 0 0 0
RRP shares released for allocation (1) 1 0
ESOP shares released for allocation 201 89 290
Share-based compensation cost 179 179
Balance, September 30, 2020 $ 88 $ 165,522 $ (2,857) $ (23) $ 145,373 $ 5,221 $ 313,324


(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									2,482				2,482
Other comprehensive income											4,730		4,730
Purchase of Company’s common stock at cost, 188,341 shares	(2)		(1,881)						(3,506)				(5,389)
Cash dividends declared, $0.22 per share									(2,027)				(2,027)
Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 2,138 shares	—		37						(8)				29
Exercise of stock options	—		30										30
RRP shares released for allocation			(7)				7						0
ESOP shares released for allocation			281		89								370
Share-based compensation cost			244										244
Balance, March 31, 2020	$	91	$	167,249	$	(3,035)	$	(28)	$	143,114	$	5,422	$	312,813
Balance, December 31, 2020	$	87	$	164,988	$	(2,767)	$	(22)	$	154,282	$	5,274	$	321,842
Net income									11,928				11,928
Other comprehensive loss											(2,718)		(2,718)
Purchase of Company’s common stock at cost, 41,477 shares	0		(415)						(770)				(1,185)
Cash dividends declared, $0.22 per share									(1,915)				(1,915)
Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 8,004 shares	—		106						(18)				88
Exercise of stock options	—		44										44
RRP shares released for allocation			(5)				5						0
ESOP shares released for allocation			265		89								354
Share-based compensation cost			172										172
Balance, March 31, 2021	$	87	$	165,155	$	(2,678)	$	(17)	$	163,507	$	2,556	$	328,610

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

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF ~~CHANGES IN SHAREHOLDERS’ EQUITY - CONTINUED~~CASH FLOWS

(Unaudited)

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


	For the Three Months Ended March 31,
(dollars in thousands)	2021		2020
Cash flows from operating activities:
Net income	$	11,928	$	2,482
Adjustments to reconcile net income to net cash provided by operating activities:
(Reversal) provision for loan losses	(1,703)		6,257
Depreciation	765		755
Amortization and accretion of purchase accounting valuations and intangibles	1,035		1,178
Net amortization of mortgage servicing asset	0		19
Federal Home Loan Bank stock dividends	(5)		(30)
Net amortization of discount on investments	605		635
Gain on loans sold, net	(1,168)		(297)
Proceeds, including principal payments, from loans held for sale	85,481		36,182
Originations of loans held for sale	(80,058)		(38,648)
Non-cash compensation	526		614
Deferred income tax expense (benefit)	700		(1,383)
(Increase) decrease in accrued interest receivable and other assets	(3,094)		744
Increase in cash surrender value of bank-owned life insurance	(225)		(259)
Decrease in accrued interest payable and other liabilities	(3,604)		(325)
Net cash provided by operating activities	11,183		7,924
Cash flows from investing activities:
Purchases of securities available for sale	(48,958)		(21,996)
Proceeds from maturities, prepayments and calls on securities available for sale	23,390		19,065
Proceeds from maturities, prepayments and calls on securities held to maturity	800		500
Increase in loans, net	(3,731)		(25,071)


Proceeds from sale of foreclosed assets	1,619		1,854


Purchases of office properties and equipment	(409)		(873)
Proceeds from sale of office properties and equipment	0		4

Net cash used in investing activities	(27,289)		(26,517)
Cash flows from financing activities:
Increase in deposits, net	114,543		36,519
Borrowings on Federal Home Loan Bank advances	0		69,700
Repayments of Federal Home Loan Bank advances	(721)		(56,014)
Proceeds from exercise of stock options	44		30
Issuance of stock under incentive plans	88		29
Dividends paid to shareholders	(1,915)		(2,027)
Purchase of Company’s common stock	(1,185)		(5,389)
Net cash provided by financing activities	110,854		42,848
Net change in cash and cash equivalents	94,748		24,255
Cash and cash equivalents, beginning	187,952		39,847
Cash and cash equivalents, ending	$	282,700	$	64,102

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

~~HOME BANCORP, INC. AND SUBSIDIARY~~

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(Unaudited)~~

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

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

HOME BANCORP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company were prepared in accordance with instructions for Form 10-Q and Regulation S-X and do not include information or footnotes necessary for a complete presentation of financial condition, results of operations, comprehensive income, changes in shareholders’ equity and cash flows in conformity with accounting principles generally accepted in the United States of America. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial statements have been included. Certain reclassifications have been made to prior period balances to conform to the current period presentation. The results of operations for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ are not necessarily indicative of the results which may be expected for the entire fiscal year. These statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, ~~2019.~~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, ~~2019.~~

~~Accounting Policy for the Allowance for Credit Losses~~

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

~~Accounting Policy for Derivative Instruments and Hedging Activities~~

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

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

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

There have been no ~~other~~ material changes from the critical accounting policies disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019.~~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 ~~2020~~

~~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. ASC Topic 326 requires financial assets measured on an amortized cost basis, including loans and held to maturity debt securities, to be presented at an amount net of an allowance for credit losses, which reflects expected losses for the full life of the financial asset. Unfunded lending commitments are also within the scope of this amendment. Under former GAAP, credit losses were not recognized until the occurrence of the loss was probable and entities, in general, did not attempt to estimate credit losses for the full life of financial assets.

ASC Topic 326 also amended the accounting model for purchased financial assets and replaced the guidance for PCI financial assets with the concept of PCD financial assets. For non-PCD assets, the CECL estimate is recognized through an ACL and provision for credit losses. For PCD assets, the CECL estimate is recognized through an ACL with an offset to the cost basis of the PCD asset at the date of acquisition. Subsequent changes in the ACL for PCD assets are recognized through a provision for loan losses. The financial assets formerly classified as PCI are now classified as PCD assets under ASC Topic 326. Under former GAAP, an allowance and related provision expense was only recorded for purchased financial assets if the amount of estimated probable losses exceeded the fair value discount for the financial assets.

In addition, ASC Topic 326 requires expected credit related losses for available for sale debt securities to be recorded through an ACL, while non-credit related losses will continue to be recognized through OCI. The guidance under ASC Topic 326 had no impact on the Company's available for sale debt securities at January 1 or September 30, 2020. Management determined that the declines in the fair value of these securities at such dates were not attributable to credit losses. The Company’s held to maturity debt securities are also required to utilize the CECL approach to estimate expected credit losses. The guidance under ASC Topic 326 had no impact on the Company's held to maturity debt securities at January 1 or September 30, 2020.

~~The Company applied the guidance under~~ ~~ASC Topic 326~~ using the modified retrospective approach for all non-PCD loans and unfunded lending commitments. Upon adoption on January 1, 2020, the Company recorded an after-tax decrease to retained earnings of $4.7 million. The transition adjustment included $3.6 million due to the increase in allowance for non-PCD loan losses and $2.4 million due to the ACL on unfunded lending commitments.

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

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

(dollars in thousands) December 31, 2019 ASC Topic 326 Adoption Impact January 1, 2020
Allowance for credit losses

One- to four-family first mortgage $ 2,715 $ 986 $ 3,701
Home equity loans and lines 1,084 (1) 1,083
Commercial real estate 6,541 1,974 8,515
Construction and land 2,670 519 3,189
Multi-family residential 572 (245) 327
Commercial and industrial 3,694 1,243 4,937
Consumer 592 157 749
Total allowance for loan losses 17,868 4,633 22,501
Unfunded lending commitments(1)
0 2,365 2,365
Total allowance for credit losses $ 17,868 $ 6,998 $ 24,866
Retained Earnings
Total allowance increase $ 6,998
Balance sheet reclassification(2)
(996)
Decrease to retained earnings, pre-tax 6,002
Tax effect (1,277)
Decrease to retained earnings, net of tax effect $ 4,725

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

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

Under ASC Topic 326, the ACL is measured on a pool basis when similar risk characteristics exist and is maintained at an amount which management believes is a current estimate of the expected credit losses for the full life of the relevant pool of loans and related unfunded lending commitments. The Company's CECL calculation estimates loan losses using the discounted cash flow method for all loan pools, except for the Company's credit card portfolio. Loan losses for the credit card portfolio are estimated using the remaining life method due to the limited complexity and size of this portfolio. The discounted cash flow analysis uses loan-level term information (e.g., maturity date, payment amount, interest rate, etc.) and pool-level assumptions (e.g., default rates, prepayment speeds, etc.) to produce expected future cash flows for the full life of every loan in the pool. The expected future cash flows are discounted and results are then aggregated to produce a net present value of the pool and ultimately the ACL requirement for the pool. The remaining life method applies a loss rate to a given pool of loans over the estimate remaining life of the given pool. The remaining life of the pool is based on historical data. The loss rates computed for each pool and expected pool-level funding rates are applied to the related unfunded lending commitments to calculate an ACL on unfunded amounts. For each pool of loans, management also evaluates and applies qualitative adjustments to the calculated ACL based on several factors, including, but not limited to, changes in current and expected future economic conditions, changes in industry experience and loan concentrations, changes in the volume and severity of nonperforming assets, changes in lending policies and personnel and changes in the competitive and regulatory environment of the banking industry.

Loans that do not share similar risk characteristics are individually evaluated and are excluded from the pooled loan analysis. Individually analyzed loans generally include larger commercial real estate loans, multi-family residential loans, construction and land loans, commercial and industrial loans and other loans as deem appropriate by management for which it is probable that all the amounts due under the contractual terms of the loan will not be collected. The ACL for loans that are individually evaluated is based on 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.

~~The Company has identified the following portfolio segments based on the risk characteristics described in the table for its pooled loan analysis under ASC Topic 326:~~


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

In August 2018, the FASB issued ASU No. 2018-13, “Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” The ASU removed, modified and added certain disclosure requirements for fair value measurements. Under the ASU, public entities are no longer required to disclose the valuation processes for Level 3 fair value measurements, but will be required to disclose the range and weighted average used to develop significant unobservable inputs and the change in unrealized gains and losses included in other comprehensive income for Level 3 fair value measurements. The ASU also removed the requirement to disclose transfers between Level 1 and Level 2 fair value measurements and the policy for those transfers. ASU No. 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019 and did not impact our Consolidated Financial Statements, as the update only revises disclosure requirements.

~~Issued but Not Yet Adopted Accounting Standards~~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 ~~Company does not expect the~~ adoption of this ASU todid not impact ~~the~~our Consolidated Financial Statements.

3. Investment Securities

The following ~~table summarizes~~tables summarize the Company’s available for sale and held to maturity investment securities at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020.


(dollars in thousands)	(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses				Fair Value		(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
September 30, 2020						Less Than 1 Year		Over 1 Year
March 31, 2021												March 31, 2021
Available for sale:	Available for sale:											Available for sale:
U.S. agency mortgage-backed	U.S. agency mortgage-backed	$	118,843	$	4,352	$	43	$	0	$	123,152	U.S. agency mortgage-backed	$	162,982	$	2,997	$	1,895	$	164,084
Collateralized mortgage obligations	Collateralized mortgage obligations	97,371		1,853		62		5		99,157		Collateralized mortgage obligations	60,573		1,157		10		61,720
Municipal bonds	Municipal bonds	20,315		549		47		0		20,817		Municipal bonds	38,101		302		781		37,622
U.S. government agency	U.S. government agency	6,358		67		0		12		6,413		U.S. government agency	6,111		5		86		6,030
Corporate bonds	Corporate bonds	2,000		39		0		0		2,039		Corporate bonds	5,500		9		0		5,509
Total available for sale	Total available for sale	$	244,887	$	6,860	$	152	$	17	$	251,578	Total available for sale	$	273,267	$	4,470	$	2,772	$	274,965
Held to maturity:	Held to maturity:											Held to maturity:
Municipal bonds	Municipal bonds	$	2,942	$	66	$	0	$	0	$	3,008	Municipal bonds	$	2,126	$	50	$	0	$	2,176
Total held to maturity	Total held to maturity	$	2,942	$	66	$	0	$	0	$	3,008	Total held to maturity	$	2,126	$	50	$	0	$	2,176


(dollars in thousands)	(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses				Fair Value		(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
December 31, 2019						Less Than 1 Year		Over 1 Year
December 31, 2020												December 31, 2020
Available for sale:	Available for sale:											Available for sale:
U.S. agency mortgage-backed	U.S. agency mortgage-backed	$	94,446	$	1,081	$	292	$	63	$	95,172	U.S. agency mortgage-backed	$	138,669	$	4,162	$	19	$	142,812
Collateralized mortgage obligations	Collateralized mortgage obligations	142,408		701		300		358		142,451		Collateralized mortgage obligations	74,112		1,565		57		75,620
Municipal bonds	Municipal bonds	15,895		166		56		0		16,005		Municipal bonds	27,306		717		12		28,011
U.S. government agency	U.S. government agency	3,696		11		4		10		3,693		U.S. government agency	6,210		55		10		6,255
Corporate bonds												Corporate bonds	2,000		54		0		2,054
Total available for sale	Total available for sale	$	256,445	$	1,959	$	652	$	431	$	257,321	Total available for sale	$	248,297	$	6,553	$	98	$	254,752
Held to maturity:	Held to maturity:											Held to maturity:
Municipal bonds	Municipal bonds	$	7,149	$	45	$	0	$	0	$	7,194	Municipal bonds	$	2,934	$	62	$	0	$	2,996
Total held to maturity	Total held to maturity	$	7,149	$	45	$	0	$	0	$	7,194	Total held to maturity	$	2,934	$	62	$	0	$	2,996

117

The estimated fair value and amortized cost by contractual maturity of the Company’s investment securities as of ~~September 30, 2020~~March 31, 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)	(dollars in thousands)	One Year or Less		After One Year through Five Years		After Five Years through Ten Years		After Ten Years		Total		(dollars in thousands)	One Year or Less		After One Year through Five Years		After Five Years through Ten Years		After Ten Years		Total
Fair Value	Fair Value											Fair Value
Available for sale:	Available for sale:											Available for sale:
U.S. agency mortgage-backed	U.S. agency mortgage-backed	$	16	$	16,352	$	47,727	$	59,057	$	123,152	U.S. agency mortgage-backed	$	3,226	$	13,967	$	48,341	$	98,550	$	164,084
Collateralized mortgage obligations	Collateralized mortgage obligations	1,455		15,591		30,339		51,772		99,157		Collateralized mortgage obligations	0		21,055		15,521		25,144		61,720
Municipal bonds	Municipal bonds	1,325		2,297		8,659		8,536		20,817		Municipal bonds	1,280		1,569		8,825		25,948		37,622
U.S. government agency	U.S. government agency	0		0		5,991		422		6,413		U.S. government agency	0		0		5,617		413		6,030
Corporate bonds	Corporate bonds	0		0		2,039		0		2,039		Corporate bonds	0		0		5,509		0		5,509
Total securities available for sale		$	2,796	$	34,240	$	94,755	$	119,787	$	251,578
Total available for sale												Total available for sale	$	4,506	$	36,591	$	83,813	$	150,055	$	274,965
Held to maturity:	Held to maturity:											Held to maturity:
Municipal bonds	Municipal bonds	$	0	$	803	$	2,205	$	0	$	3,008	Municipal bonds	$	0	$	557	$	1,619	$	0	$	2,176
Total securities held to maturity		$	0	$	803	$	2,205	$	0	$	3,008
Total held to maturity												Total held to maturity	$	0	$	557	$	1,619	$	0	$	2,176

(dollars in thousands)	(dollars in thousands)	One Year or Less		After One Year through Five Years		After Five Years through Ten Years		After Ten Years		Total		(dollars in thousands)	One Year or Less		After One Year through Five Years		After Five Years through Ten Years		After Ten Years		Total
Amortized Cost	Amortized Cost											Amortized Cost
Available for sale:	Available for sale:											Available for sale:
U.S. agency mortgage-backed	U.S. agency mortgage-backed	$	16	$	15,802	$	45,105	$	57,920	$	118,843	U.S. agency mortgage-backed	$	3,200	$	13,503	$	46,935	$	99,344	$	162,982
Collateralized mortgage obligations	Collateralized mortgage obligations	1,455		14,930		29,529		51,457		97,371		Collateralized mortgage obligations	0		20,349		15,352		24,872		60,573
Municipal bonds	Municipal bonds	1,318		2,273		8,265		8,459		20,315		Municipal bonds	1,276		1,556		8,685		26,584		38,101
U.S. government agency	U.S. government agency	0		0		5,929		429		6,358		U.S. government agency	0		0		5,693		418		6,111
Corporate bonds	Corporate bonds	0		0		2,000		0		2,000		Corporate bonds	0		0		5,500		0		5,500
Total securities available for sale		$	2,789	$	33,005	$	90,828	$	118,265	$	244,887
Total available for sale												Total available for sale	$	4,476	$	35,408	$	82,165	$	151,218	$	273,267
Held to maturity:	Held to maturity:											Held to maturity:
Municipal bonds	Municipal bonds	$	0	$	800	$	2,142	$	0	$	2,942	Municipal bonds	$	0	$	541	$	1,585	$	0	$	2,126
Total securities held to maturity		$	0	$	800	$	2,142	$	0	$	2,942
Total held to maturity												Total held to maturity	$	0	$	541	$	1,585	$	0	$	2,126

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.

128

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)	(dollars in thousands)	Less Than 1 Year				Over 1 Year				Total				(dollars in thousands)	Less Than 1 Year				Over 1 Year				Total
September 30, 2020		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Securities available for sale:
March 31, 2021														March 31, 2021	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available for sale:														Available for sale:
U.S. agency mortgage-backed	U.S. agency mortgage-backed	$	14,660	$	43	$	0	$	0	$	14,660	$	43	U.S. agency mortgage-backed	$	82,025	$	1,895	$	0	$	0	$	82,025	$	1,895
Collateralized mortgage obligations	Collateralized mortgage obligations	21,557		62		2,314		5		23,871		67		Collateralized mortgage obligations	4,634		9		2,075		1		6,709		10
Municipal bonds	Municipal bonds	4,222		47		0		0		4,222		47		Municipal bonds	25,575		781		0		0		25,575		781
U.S. government agency	U.S. government agency	0		0		1,276		12		1,276		12		U.S. government agency	3,172		77		1,165		9		4,337		86
Corporate bonds	Corporate bonds	0		0		0		0		0		0		Corporate bonds	0		0		0		0		0		0
Total available for sale	Total available for sale	$	40,439	$	152	$	3,590	$	17	$	44,029	$	169	Total available for sale	$	115,406	$	2,762	$	3,240	$	10	$	118,646	$	2,772
Held to maturity:	Held to maturity:													Held to maturity:
Municipal bonds	Municipal bonds	$	0	$	0	$	0	$	0	$	0	$	0	Municipal bonds	$	0	$	0	$	0	$	0	$	0	$	0
Total held to maturity	Total held to maturity	$	0	$	0	$	0	$	0	$	0	$	0	Total held to maturity	$	0	$	0	$	0	$	0	$	0	$	0


(dollars in thousands)	(dollars in thousands)	Less Than 1 Year				Over 1 Year				Total				(dollars in thousands)	Less Than 1 Year				Over 1 Year				Total
December 31, 2019		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Securities available for sale:
December 31, 2020														December 31, 2020	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available for sale:														Available for sale:
U.S. agency mortgage-backed	U.S. agency mortgage-backed	$	28,847	$	292	$	5,148	$	63	$	33,995	$	355	U.S. agency mortgage-backed	$	13,666	$	19	$	0	$	0	$	13,666	$	19
Collateralized mortgage obligations	Collateralized mortgage obligations	50,004		300		37,131		358		87,135		658		Collateralized mortgage obligations	13,615		55		2,309		2		15,924		57
Municipal bonds	Municipal bonds	3,044		56		0		0		3,044		56		Municipal bonds	1,278		12		0		0		1,278		12
U.S. government agency	U.S. government agency	1,213		4		466		10		1,679		14		U.S. government agency	0		0		1,196		10		1,196		10
Corporate bonds														Corporate bonds	0		0		0		0		0		0
Total available for sale	Total available for sale	$	83,108	$	652	$	42,745	$	431	$	125,853	$	1,083	Total available for sale	$	28,559	$	86	$	3,505	$	12	$	32,064	$	98
Held to maturity:	Held to maturity:													Held to maturity:
Municipal bonds	Municipal bonds	$	0	$	0	$	0	$	0	$	0	$	0	Municipal bonds	$	0	$	0	$	0	$	0	$	0	$	0
Total held to maturity	Total held to maturity	$	0	$	0	$	0	$	0	$	0	$	—	Total held to maturity	$	0	$	0	$	0	$	0	$	0	$	0

At ~~September 30, 2020, 36~~March 31, 2021, 57 of the Company’s debt securities had unrealized losses totaling ~~0.4%~~2.3% of the individual securities’ amortized cost basis and ~~0.1%~~1.0% of the Company’s total amortized cost basis of the investment securities portfolio. At such date, 3 of the 3657 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, 0 ACL was recorded for available for sale investment securities at ~~September 30, 2020.~~March 31, 2021.

At ~~September 30, 2020,~~March 31, 2021, it was determined that 0 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 ~~table presents~~tables present the amortized cost of the Company's held-to-maturity securities by credit quality rating at ~~September 30,~~March 31, 2021 and December 31, 2020.

Credit Ratings

(dollars in thousands)

AAA/AA/A

BBB/BB/B

Total

(dollars in thousands)

AAA/AA/A

BBB/BB/B

Total

September 30, 2020

March 31, 2021

Held to maturity:

Municipal bonds

2,942

Municipal bonds

2,126


	Credit Ratings
(dollars in thousands)	AAA/AA/A		BBB/BB/B		Total
December 31, 2020
Held to maturity:
Municipal bonds	$	2,934	$	0	$	2,934

Accrued interest receivable on the Company's investment securities was ~~$695,000~~$688,000 and ~~$894,000~~$744,000 at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively. These amounts are recorded in accrued interest receivable and other assets on the Consolidated Statements of Financial Condition.

At ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the Company had ~~$131,668,000~~$144,527,000 and ~~$157,091,000,~~$125,889,000, respectively, of securities pledged to secure public deposits.

4. Earnings Per Share

Earnings per common share ~~were~~was computed based on the following:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
(in thousands, except per share data)	(in thousands, except per share data)	2020		2019		2020		2019		(in thousands, except per share data)	2021		2020
Numerator:	Numerator:									Numerator:
Net income available to common shareholders	Net income available to common shareholders	$	8,782	$	6,856	$	13,180	$	21,326	Net income available to common shareholders	$	11,928	$	2,482
Denominator:	Denominator:									Denominator:
Weighted average common shares outstanding	Weighted average common shares outstanding	8,627		9,059		8,737		9,114		Weighted average common shares outstanding	8,437		8,883
Effect of dilutive securities:	Effect of dilutive securities:									Effect of dilutive securities:
Restricted stock	Restricted stock	7		9		9		12		Restricted stock	11		13
Stock options	Stock options	17		39		23		63		Stock options	28		31
Weighted average common shares outstanding – assuming dilution	Weighted average common shares outstanding – assuming dilution	8,651		9,107		8,769		9,189		Weighted average common shares outstanding – assuming dilution	8,476		8,927
Basic earnings per common share	Basic earnings per common share	$	1.01	$	0.76	$	1.51	$	2.34	Basic earnings per common share	$	1.41	$	0.27
Diluted earnings per common share	Diluted earnings per common share	$	1.01	$	0.75	$	1.51	$	2.32	Diluted earnings per common share	$	1.41	$	0.27

Options ~~on 160,282~~for 96,422 and ~~100,288~~96,750 shares of common stock were not included in the computation of diluted EPS for the three months ended ~~September 30,~~March 31, 2021 and 2020, and 2019, respectively, because the effect of these shares was anti-dilutive. Options on 129,559 and 90,511 shares of common stock were not included in the computation of diluted EPS for the nine months ended September 30, 2020 and 2019, respectively, because the effect of these shares was anti-dilutive.

1410

5. Credit Quality and Allowance for Credit Losses

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

~~Originated~~ Loans

Loans ~~originated for investment~~ are reported at the principal balance outstanding net of unearned ~~income.~~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 ~~on an originated loan~~ is discontinued when it is probable the borrower will not be able to meet payment obligations as they become due. ~~For reporting periods prior~~It is our policy, with certain limited exceptions, to ~~January 1, 2020,~~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 ~~Company maintained~~borrower’s financial condition and payment record demonstrate an ~~ALL on originated loans~~ability to service the debt. If it is determined that ~~represented management’s estimate~~all or pat of ~~probable losses incurred in this portfolio category. For reporting periods beginning on and after January 1, 2020,~~a loan is uncollectible, the ~~Company maintains an ACL on all loans that reflects management's estimate of expected credit losses for the full life~~potion of the loan ~~portfolio due~~deemed uncollectible is charged to the ~~adoption of the guidance under ASC Topic 326. Refer to~~ ~~Note 2~~allowance for ~~more information on the adoption of ASC Topic 326.~~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.”~~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 ALL. ~~The~~Since the adoption of ASC 326, loans that were acquired ~~loans were segregated between those considered to be performing and those~~ with evidence of credit deterioration ~~(purchased~~are referred to as "purchased credit ~~impaired or "PCI"~~deteriorated ("PCD")~~, and then further~~ 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 ~~performing and PCI~~ loans was based on the estimate of expected cash flows, both principal and interest, from that pool, discounted at prevailing market interest rates. The difference between the fair value of an acquired loan pool and the contractual amounts due at the acquisition date (the “fair value discount”) is accreted into income over the estimated life of the pool.

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

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

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

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

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

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

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

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

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

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

(dollars in thousands) September 30,
2020 December 31,
2019
Real estate loans:
One- to four-family first mortgage $ 409,282 $ 430,820
Home equity loans and lines 67,766 79,812
Commercial real estate 707,638 722,807
Construction and land 201,575 195,748
Multi-family residential 86,619 54,869
Total real estate loans 1,472,880 1,484,056
Other loans:
Commercial and industrial 443,480 184,701
Consumer 38,937 45,604
Total other loans 482,417 230,305
Total loans $ 1,955,297 $ 1,714,361

The net discount on the Company’s loans was $8,343,000 and $12,315,000 at September 30, 2020 and December 31, 2019, respectively. In addition, loan balances as of September 30, 2020 and December 31, 2019 are reported net of unearned income of $10,621,000 and $3,114,000, respectively. Unearned income at September 30, 2020 included $7,606,000 of deferred lender fees related to PPP loans.

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

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.

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


(dollars in thousands)	March 31, 2021		December 31, 2020
Real estate loans:
One- to four-family first mortgage	$	380,207	$	395,638
Home equity loans and lines	65,556		67,700
Commercial real estate	744,971		750,623
Construction and land	242,156		221,823
Multi-family residential	82,726		87,332
Total real estate loans	1,515,616		1,523,116
Other loans:
Commercial and industrial	428,019		417,926
Consumer	36,233		38,912
Total other loans	464,252		456,838
Total loans	$	1,979,868	$	1,979,954

The net investment in PPP loans, which is included in commercial and industrial loans, was $235,681,000 and $221,220,000 at March 31, 2021 and December 31, 2020, respectively.

The net discount on the Company’s loans was $5,914,000 and $6,650,000 at March 31, 2021 and December 31, 2020, respectively. In addition, loan balances as of March 31, 2021 and December 31, 2020 are reported net of unearned income of $11,692,000 and $8,727,000, respectively. Unearned income at March 31, 2021 and December 31, 2020 included PPP deferred lender fees of $8,335,000 and $5,449,000, respectively.

Accrued interest receivable on the Company's loans was $7,937,000 and $8,635,000 at March 31, 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.

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.


		September 30, 2020							March 31, 2021
(dollars in thousands)	(dollars in thousands)	Collectively Evaluated		Individually Evaluated		Total		(dollars in thousands)	Collectively Evaluated		Individually Evaluated		Total
Allowance for credit losses:	Allowance for credit losses:							Allowance for credit losses:
One- to four-family first mortgage	One- to four-family first mortgage	$	3,413	$	0	$	3,413	One- to four-family first mortgage	$	2,779	$	100	$	2,879
Home equity loans and lines	Home equity loans and lines	771		0		771		Home equity loans and lines	649		0		649
Commercial real estate	Commercial real estate	17,662		689		18,351		Commercial real estate	16,191		333		16,524
Construction and land	Construction and land	4,078		0		4,078		Construction and land	4,448		0		4,448
Multi-family residential	Multi-family residential	1,067		0		1,067		Multi-family residential	967		0		967
Commercial and industrial	Commercial and industrial	4,006		431		4,437		Commercial and industrial	3,521		234		3,755
Consumer	Consumer	885		0		885		Consumer	771		0		771
Total allowance for loan losses	Total allowance for loan losses	$	31,882	$	1,120	$	33,002	Total allowance for loan losses	$	29,326	$	667	$	29,993

Unfunded lending commitments(1)	Unfunded lending commitments(1)	3,637		0		3,637		Unfunded lending commitments(1)	$	1,425	$	0	$	1,425
Total allowance for credit losses	Total allowance for credit losses	$	35,519	$	1,120	$	36,639	Total allowance for credit losses	$	30,751	$	667	$	31,418


		September 30, 2020							March 31, 2021
(dollars in thousands)	(dollars in thousands)	Collectively Evaluated		Individually Evaluated(2)		Total		(dollars in thousands)	Collectively Evaluated		Individually Evaluated(2)		Total
Loans:	Loans:							Loans:
One- to four-family first mortgage	One- to four-family first mortgage	$	409,282	$	0	$	409,282	One- to four-family first mortgage	$	379,210	$	997	$	380,207
Home equity loans and lines	Home equity loans and lines	67,766		0		67,766		Home equity loans and lines	65,556		0		65,556
Commercial real estate	Commercial real estate	700,402		7,236		707,638		Commercial real estate	740,691		4,280		744,971
Construction and land	Construction and land	201,575		0		201,575		Construction and land	242,156		0		242,156
Multi-family residential	Multi-family residential	86,619		0		86,619		Multi-family residential	82,726		0		82,726
Commercial and industrial	Commercial and industrial	442,868		612		443,480		Commercial and industrial	427,116		903		428,019
Consumer	Consumer	38,937		0		38,937		Consumer	36,233		0		36,233
Total loans	Total loans	$	1,947,449	$	7,848	$	1,955,297	Total loans	$	1,973,688	$	6,180	$	1,979,868

1713


		December 31, 2019									December 31, 2020
(dollars in thousands)	(dollars in thousands)	Collectively Evaluated for Impairment		Individually Evaluated for Impairment		Acquired with Deteriorated Credit Quality		Total		(dollars in thousands)	Collectively Evaluated		Individually Evaluated		Total
Allowance for loan losses:	Allowance for loan losses:									Allowance for loan losses:
One- to four-family first mortgage	One- to four-family first mortgage	$	2,715	$	0	$	0	$	2,715	One- to four-family first mortgage	$	2,965	$	100	$	3,065
Home equity loans and lines	Home equity loans and lines	736		348		0		1,084		Home equity loans and lines	676		0		676
Commercial real estate	Commercial real estate	6,243		298		0		6,541		Commercial real estate	17,843		1,008		18,851
Construction and land	Construction and land	2,670		0		0		2,670		Construction and land	4,155		0		4,155
Multi-family residential	Multi-family residential	572		0		0		572		Multi-family residential	1,077		0		1,077
Commercial and industrial	Commercial and industrial	2,969		701		24		3,694		Commercial and industrial	3,845		431		4,276
Consumer	Consumer	592		0				592		Consumer	863		0		863
Total allowance for loan losses	Total allowance for loan losses	$	16,497	$	1,347	$	24	$	17,868	Total allowance for loan losses	$	31,424	$	1,539	$	32,963

Unfunded lending commitments(1)										Unfunded lending commitments(1)	$	1,425	$	0	$	1,425
Total allowance for credit losses										Total allowance for credit losses	$	32,849	$	1,539	$	34,388

		December 31, 2019									December 31, 2020
(dollars in thousands)	(dollars in thousands)	Collectively Evaluated for Impairment		Individually Evaluated for Impairment		Acquired with Deteriorated Credit Quality(3)		Total		(dollars in thousands)	Collectively Evaluated		Individually Evaluated(2)		Total
Loans:	Loans:									Loans:
One- to four-family first mortgage	One- to four-family first mortgage	$	429,745	$	187	$	888	$	430,820	One- to four-family first mortgage	$	394,632	$	1,006	$	395,638
Home equity loans and lines	Home equity loans and lines	78,446		784		582		79,812		Home equity loans and lines	67,700		0		67,700
Commercial real estate	Commercial real estate	711,282		6,518		5,007		722,807		Commercial real estate	743,223		7,400		750,623
Construction and land	Construction and land	195,374		0		374		195,748		Construction and land	221,823		0		221,823
Multi-family residential	Multi-family residential	54,690		0		179		54,869		Multi-family residential	87,332		0		87,332
Commercial and industrial	Commercial and industrial	183,141		1,223		337		184,701		Commercial and industrial	417,320		606		417,926
Consumer	Consumer	45,573		0		31		45,604		Consumer	38,912		0		38,912
Total loans	Total loans	$	1,698,251	$	8,712	$	7,398	$	1,714,361	Total loans	$	1,970,942	$	9,012	$	1,979,954

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

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

~~(3)~~At$277,000 at March 31, 2021 and December 31, ~~2019, loans acquired with deteriorated credit quality were deemed to be PCI and were accounted for under ASC 310-30.~~2020.

1814

A summary of activity in the ACL ~~and ALL~~ for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and March 31, 2020 ~~and September 30, 2019~~ follows.


		Nine Months Ended September 30, 2020													Three Months Ended March 31, 2021
(dollars in thousands)	(dollars in thousands)	Beginning Balance		ASC Topic 326 Adoption Impact(1)		Charge-offs		Recoveries		Provision		Ending Balance		(dollars in thousands)	Beginning Balance		Charge-offs		Recoveries		Provision		Ending Balance
Allowance for credit losses:	Allowance for credit losses:													Allowance for credit losses:
One- to four-family first mortgage	One- to four-family first mortgage	$	2,715	$	986	$	(55)	$	12	$	(245)	$	3,413	One- to four-family first mortgage	$	3,065	$	(56)	$	2	$	(132)	$	2,879
Home equity loans and lines	Home equity loans and lines	1,084		(1)		(575)		15		248		771		Home equity loans and lines	676		0		2		(29)		649
Commercial real estate	Commercial real estate	6,541		1,974		(5)		55		9,786		18,351		Commercial real estate	18,851		(1,003)		0		(1,324)		16,524
Construction and land	Construction and land	2,670		519		(688)		0		1,577		4,078		Construction and land	4,155		0		0		293		4,448
Multi-family residential	Multi-family residential	572		(245)		0		0		740		1,067		Multi-family residential	1,077		0		0		(110)		967
Commercial and industrial	Commercial and industrial	3,694		1,243		(977)		91		386		4,437		Commercial and industrial	4,276		(220)		29		(330)		3,755
Consumer	Consumer	592		157		(222)		122		236		885		Consumer	863		(51)		30		(71)		771
Total allowance for loan losses	Total allowance for loan losses	$	17,868	$	4,633	$	(2,522)	$	295	$	12,728	$	33,002	Total allowance for loan losses	$	32,963	$	(1,330)	$	63	$	(1,703)	$	29,993

Unfunded lending commitments	Unfunded lending commitments	0		2,365		0		0		1,272		3,637		Unfunded lending commitments	$	1,425	$	0	$	0	$	0	$	1,425
Total allowance for credit losses	Total allowance for credit losses	$	17,868	$	6,998	$	(2,522)	$	295	$	14,000	$	36,639	Total allowance for credit losses	$	34,388	$	(1,330)	$	63	$	(1,703)	$	31,418


	Three Months Ended March 31, 2020
(dollars in thousands)	Beginning Balance		ASC Topic 326 Adoption Impact		Charge-offs		Recoveries		Provision		Ending Balance
Allowance for credit losses:
One- to four-family first mortgage	$	2,715	$	986	$	(46)	$	1	$	440	$	4,096
Home equity loans and lines	1,084		(1)		(130)		4		606		1,563
Commercial real estate	6,541		1,974		0		0		3,427		11,942
Construction and land	2,670		519		0		55		660		3,904
Multi-family residential	572		(245)		0		0		231		558
Commercial and industrial	3,694		1,243		(71)		13		471		5,350
Consumer	592		157		(141)		47		422		1,077
Total allowance for loan losses	$	17,868	$	4,633	$	(388)	$	120	$	6,257	$	28,490

Unfunded lending commitments	$	0	$	1,425	$	0	$	0	$	0	$	1,425
Total allowance for credit losses	$	17,868	$	6,058	$	(388)	$	120	$	6,257	$	29,915

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

Nine Months Ended September 30, 2019
(dollars in thousands) Beginning
Balance Charge-offs Recoveries Provision Ending
Balance
Allowance for loan losses:
One- to four-family first mortgage $ 2,136 $ (4) $ 0 $ 271 $ 2,403
Home equity loans and lines 1,079 (42) 10 41 1,088
Commercial real estate 6,125 (139) 0 829 6,815
Construction and land 2,285 0 0 (113) 2,172
Multi-family residential 550 0 0 22 572
Commercial and industrial 3,228 (744) 23 1,343 3,850
Consumer 945 (189) 34 (92) 698
Total allowance for loan losses $ 16,348 $ (1,118) $ 67 $ 2,301 $ 17,598

1915

Credit Quality

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


																					March 31, 2021
		Term Loans by Origination Year																			Term Loans by Origination Year
(dollars in thousands)	(dollars in thousands)	2020		2019		2018		2017		2016		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total		(dollars in thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total
One- to four-family first mortgage:	One- to four-family first mortgage:																			One- to four-family first mortgage:
Pass	Pass	$	41,018	$	70,884	$	50,516	$	51,480	$	39,087	$	128,564	$	18,474	$	1,149	$	401,172	Pass	$	17,271	$	55,342	$	57,111	$	43,083	$	44,315	$	141,311	$	16,422	$	92	$	374,947
Special Mention	Special Mention	0		123		170		796		23		1,057		0		0		2,169		Special Mention	0		0		0		0		16		523		0		0		539
Substandard	Substandard	134		0		0		239		1,270		4,298		0		0		5,941		Substandard	0		123		118		334		351		3,795		0		0		4,721
Doubtful	Doubtful	0		0		0		0		0		0		0		0		0		Doubtful	0		0		0		0		0		0		0		0		0
Total one- to four-family first mortgages	Total one- to four-family first mortgages	$	41,152	$	71,007	$	50,686	$	52,515	$	40,380	$	133,919	$	18,474	$	1,149	$	409,282	Total one- to four-family first mortgages	$	17,271	$	55,465	$	57,229	$	43,417	$	44,682	$	145,629	$	16,422	$	92	$	380,207

Home equity loans and lines:	Home equity loans and lines:																			Home equity loans and lines:
Pass	Pass	$	707	$	1,341	$	2,155	$	1,133	$	2,098	$	6,409	$	53,065	$	420	$	67,328	Pass	$	591	$	1,041	$	1,515	$	2,035	$	1,457	$	6,396	$	52,465	$	0	$	65,500
Special Mention	Special Mention	0		43		0		43		0		77		0		166		329		Special Mention	0		0		0		0		0		0		0		0		0
Substandard	Substandard	0		0		0		1		0		108		0		0		109		Substandard	0		0		0		0		43		13		0		0		56
Doubtful	Doubtful	0		0		0		0		0		0		0		0		0		Doubtful	0		0		0		0		0		0		0		0		0
Total home equity loans and lines	Total home equity loans and lines	$	707	$	1,384	$	2,155	$	1,177	$	2,098	$	6,594	$	53,065	$	586	$	67,766	Total home equity loans and lines	$	591	$	1,041	$	1,515	$	2,035	$	1,500	$	6,409	$	52,465	$	0	$	65,556

Commercial real estate:	Commercial real estate:																			Commercial real estate:
Pass	Pass	$	161,064	$	167,785	$	99,240	$	106,999	$	63,987	$	71,310	$	18,890	$	55	$	689,330	Pass	$	47,188	$	223,627	$	142,692	$	91,905	$	99,575	$	105,470	$	20,488	$	452	$	731,397
Special Mention	Special Mention	1,015		0		0		54		54		0		0		0		1,123		Special Mention	0		0		0		0		0		895		0		0		895
Substandard	Substandard	475		1,758		2,285		321		2,306		10,040		0		0		17,185		Substandard	0		379		3,725		1,724		318		6,533		0		0		12,679
Doubtful	Doubtful	0		0		0		0		0		0		0		0		0		Doubtful	0		0		0		0		0		0		0		0		0
Total commercial real estate loans	Total commercial real estate loans	$	162,554	$	169,543	$	101,525	$	107,374	$	66,347	$	81,350	$	18,890	$	55	$	707,638	Total commercial real estate loans	$	47,188	$	224,006	$	146,417	$	93,629	$	99,893	$	112,898	$	20,488	$	452	$	744,971

Construction and land:	Construction and land:																			Construction and land:
Pass	Pass	$	56,923	$	99,081	$	19,765	$	5,858	$	2,735	$	2,109	$	2,141	$	449	$	189,061	Pass	$	34,220	$	87,816	$	78,608	$	14,053	$	5,335	$	3,274	$	2,340	$	0	$	225,646
Special Mention	Special Mention	875		0		0		0		0		624		0		10,415		11,914		Special Mention	0		1,421		0		0		0		610		0		0		2,031
Substandard	Substandard	0		53		0		0		285		262		0		0		600		Substandard	0		14,151		0		0		0		328		0		0		14,479
Doubtful	Doubtful	0		0		0		0		0		0		0		0		0		Doubtful	0		0		0		0		0		0		0		0		0
Total construction and land loans	Total construction and land loans	$	57,798	$	99,134	$	19,765	$	5,858	$	3,020	$	2,995	$	2,141	$	10,864	$	201,575	Total construction and land loans	$	34,220	$	103,388	$	78,608	$	14,053	$	5,335	$	4,212	$	2,340	$	0	$	242,156

2016


																					March 31, 2021
		Term Loans by Origination Year																			Term Loans by Origination Year
(dollars in thousands)	(dollars in thousands)	2020		2019		2018		2017		2016		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total		(dollars in thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total

Multi-family residential:	Multi-family residential:																			Multi-family residential:
Pass	Pass	$	34,726	$	26,721	$	10,466	$	3,892	$	2,944	$	5,550	$	2,121	$	0	$	86,420	Pass	$	2,293	$	40,328	$	22,297	$	9,234	$	3,399	$	4,118	$	952	$	0	$	82,621
Special Mention	Special Mention	0		0		0		0		0		0		0		0		0		Special Mention	0		0		0		0		0		0		0		0		0
Substandard	Substandard	0		92		0		0		0		107		0		0		199		Substandard	0		0		0		0		0		105		0		0		105
Doubtful	Doubtful	0		0		0		0		0		0		0		0		0		Doubtful	0		0		0		0		0		0		0		0		0
Total multi-family residential loans	Total multi-family residential loans	$	34,726	$	26,813	$	10,466	$	3,892	$	2,944	$	5,657	$	2,121	$	0	$	86,619	Total multi-family residential loans	$	2,293	$	40,328	$	22,297	$	9,234	$	3,399	$	4,223	$	952	$	0	$	82,726

Commercial and industrial:	Commercial and industrial:																			Commercial and industrial:
Pass	Pass	$	287,757	$	35,391	$	22,512	$	7,150	$	7,010	$	3,030	$	71,928	$	506	$	435,284	Pass	$	117,931	$	167,056	$	26,461	$	19,547	$	5,258	$	4,760	$	77,929	$	491	$	419,433
Special Mention	Special Mention	2,725		1,156		164		15		0		0		1,000		553		5,613		Special Mention	0		1,208		749		69		0		0		1,749		0		3,775
Substandard	Substandard	27		0		433		25		156		18		1,924		0		2,583		Substandard	0		2,697		33		422		22		129		1,508		0		4,811
Doubtful	Doubtful	0		0		0		0		0		0		0		0		0		Doubtful	0		0		0		0		0		0		0		0		0
Total commercial and industrial loans	Total commercial and industrial loans	$	290,509	$	36,547	$	23,109	$	7,190	$	7,166	$	3,048	$	74,852	$	1,059	$	443,480	Total commercial and industrial loans	$	117,931	$	170,961	$	27,243	$	20,038	$	5,280	$	4,889	$	81,186	$	491	$	428,019

Consumer:	Consumer:																			Consumer:
Pass	Pass	$	4,533	$	3,312	$	1,399	$	2,388	$	1,383	$	19,357	$	6,090	$	15	$	38,477	Pass	$	1,403	$	5,717	$	2,234	$	922	$	1,723	$	18,152	$	5,852	$	0	$	36,003
Special Mention	Special Mention	0		0		4		0		21		159		0		0		184		Special Mention	0		0		0		0		5		37		0		0		42
Substandard	Substandard	0		29		2		15		16		213		1		0		276		Substandard	0		0		0		0		4		184		0		0		188
Doubtful	Doubtful	0		0		0		0		0		0		0		0		0		Doubtful	0		0		0		0		0		0		0		0		0
Total consumer loans	Total consumer loans	$	4,533	$	3,341	$	1,405	$	2,403	$	1,420	$	19,729	$	6,091	$	15	$	38,937	Total consumer loans	$	1,403	$	5,717	$	2,234	$	922	$	1,732	$	18,373	$	5,852	$	0	$	36,233

Total loans:	Total loans:																			Total loans:
Pass	Pass	$	586,728	$	404,515	$	206,053	$	178,900	$	119,244	$	236,329	$	172,709	$	2,594	$	1,907,072	Pass	$	220,897	$	580,927	$	330,918	$	180,779	$	161,062	$	283,481	$	176,448	$	1,035	$	1,935,547
Special Mention	Special Mention	4,615		1,322		338		908		98		1,917		1,000		11,134		21,332		Special Mention	0		2,629		749		69		21		2,065		1,749		0		7,282
Substandard	Substandard	636		1,932		2,720		601		4,033		15,046		1,925		0		26,893		Substandard	0		17,350		3,876		2,480		738		11,087		1,508		0		37,039
Doubtful	Doubtful	0		0		0		0		0		0		0		0		0		Doubtful	0		0		0		0		0		0		0		0		0
Total loans	Total loans	$	591,979	$	407,769	$	209,111	$	180,409	$	123,375	$	253,292	$	175,634	$	13,728	$	1,955,297	Total loans	$	220,897	$	600,906	$	335,543	$	183,328	$	161,821	$	296,633	$	179,705	$	1,035	$	1,979,868

2117

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

December 31, 2019
(dollars in thousands) Pass Special
Mention Substandard Doubtful Total
Originated loans:
One- to four-family first mortgage $ 248,483 $ 730 $ 2,133 $ 0 $ 251,346
Home equity loans and lines 56,029 53 882 0 56,964
Commercial real estate 517,615 207 11,317 0 529,139
Construction and land 164,310 8,107 1,270 0 173,687
Multi-family residential 48,661 0 0 0 48,661
Commercial and industrial 153,286 0 2,438 0 155,724
Consumer 35,545 46 89 0 35,680
Total originated loans $ 1,223,929 $ 9,143 $ 18,129 $ 0 $ 1,251,201
Acquired loans:
One- to four-family first mortgage $ 173,482 $ 1,429 $ 4,563 $ 0 $ 179,474
Home equity loans and lines 22,370 128 350 0 22,848
Commercial real estate 181,090 1,593 10,985 0 193,668
Construction and land 19,877 747 1,437 0 22,061
Multi-family residential 5,487 502 219 0 6,208
Commercial and industrial 24,856 56 4,065 0 28,977
Consumer 9,668 166 90 0 9,924
Total acquired loans $ 436,830 $ 4,621 $ 21,709 $ 0 $ 463,160
Total loans:
One- to four-family first mortgage $ 421,965 $ 2,159 $ 6,696 $ 0 $ 430,820
Home equity loans and lines 78,399 181 1,232 0 79,812
Commercial real estate 698,705 1,800 22,302 0 722,807
Construction and land 184,187 8,854 2,707 0 195,748
Multi-family residential 54,148 502 219 0 54,869
Commercial and industrial 178,142 56 6,503 0 184,701
Consumer 45,213 212 179 0 45,604
Total loans $ 1,660,759 $ 13,764 $ 39,838 $ 0 $ 1,714,361


	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	0		0		167		16		0		1,057		0		0		1,240
Substandard	129		34		0		335		1,069		2,694		0		0		4,261
Doubtful	0		0		0		0		0		0		0		0		0
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	0		0		0		43		0		0		0		0		43
Substandard	0		0		0		0		0		58		4		0		62
Doubtful	0		0		0		0		0		0		0		0		0
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	0		0		0		15		951		0		0		0		966
Substandard	1,606		1,994		1,742		323		1,344		8,164		0		22		15,195
Doubtful	0		0		0		0		0		0		0		0		0
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		0		0		0		0		618		0		627		2,122
Substandard	451		50		0		0		252		249		0		11,222		12,224
Doubtful	0		0		0		0		0		0		0		0		0
Total construction and land loans	$	88,868	$	91,387	$	16,703	$	5,486	$	2,837	$	2,372	$	1,892	$	12,278	$	221,823


	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	$	0	$	87,226
Special Mention	0		0		0		0		0		0		0		0		0
Substandard	0		0		0		0		0		106		0		0		106
Doubtful	0		0		0		0		0		0		0		0		0
Total multi-family residential loans	$	40,462	$	24,329	$	9,711	$	3,844	$	2,889	$	4,645	$	1,452	$	0	$	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		0		0		1		1,801		0		4,814
Substandard	592		0		427		23		141		16		1,955		0		3,154
Doubtful	0		0		0		0		0		0		0		0		0
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		0		4		0		13		120		0		5		146
Substandard	0		34		3		12		17		223		0		1		290
Doubtful	0		0		0		0		0		0		0		0		0
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	0		0		0		0		0		0		0		0		0
Total loans	$	700,703	$	373,375	$	195,683	$	170,152	$	113,118	$	220,861	$	189,516	$	16,546	$	1,979,954

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.

2220

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


		September 30, 2020													March 31, 2021
(dollars in thousands)	(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current Loans		Total Loans		(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current Loans		Total Loans
Originated loans:	Originated loans:													Originated loans:
Real estate loans:	Real estate loans:													Real estate loans:
One- to four-family first mortgage	One- to four-family first mortgage	$	500	$	36	$	1,147	$	1,683	$	259,246	$	260,929	One- to four-family first mortgage	$	1,849	$	183	$	401	$	2,433	$	253,166	$	255,599
Home equity loans and lines	Home equity loans and lines	106		0		45		151		51,491		51,642		Home equity loans and lines	0		244		0		244		52,290		52,534
Commercial real estate	Commercial real estate	75		0		7,000		7,075		533,126		540,201		Commercial real estate	1,036		0		6,044		7,080		591,051		598,131
Construction and land	Construction and land	525		0		0		525		186,044		186,569		Construction and land	0		0		0		0		229,255		229,255
Multi-family residential	Multi-family residential	1,499		0		0		1,499		79,692		81,191		Multi-family residential	0		0		0		0		77,826		77,826
Total real estate loans	Total real estate loans	2,705		36		8,192		10,933		1,109,599		1,120,532		Total real estate loans	2,885		427		6,445		9,757		1,203,588		1,213,345
Other loans:	Other loans:													Other loans:
Commercial and industrial	Commercial and industrial	638		0		607		1,245		422,464		423,709		Commercial and industrial	28		0		440		468		411,700		412,168
Consumer	Consumer	221		52		130		403		31,950		32,353		Consumer	76		0		114		190		31,022		31,212
Total other loans	Total other loans	859		52		737		1,648		454,414		456,062		Total other loans	104		0		554		658		442,722		443,380
Total originated loans	Total originated loans	$	3,564	$	88	$	8,929	$	12,581	$	1,564,013	$	1,576,594	Total originated loans	$	2,989	$	427	$	6,999	$	10,415	$	1,646,310	$	1,656,725
Acquired loans:	Acquired loans:													Acquired loans:
Real estate loans:	Real estate loans:													Real estate loans:
One- to four-family first mortgage	One- to four-family first mortgage	$	3,567	$	437	$	1,210	$	5,214	$	143,139	$	148,353	One- to four-family first mortgage	$	1,530	$	192	$	1,192	$	2,914	$	121,694	$	124,608
Home equity loans and lines	Home equity loans and lines	44		0		20		64		16,060		16,124		Home equity loans and lines	25		39		43		107		12,915		13,022
Commercial real estate	Commercial real estate	1,860		0		4,198		6,058		161,379		167,437		Commercial real estate	457		0		651		1,108		145,732		146,840
Construction and land	Construction and land	0		0		434		434		14,572		15,006		Construction and land	0		0		86		86		12,815		12,901
Multi-family residential	Multi-family residential	0		0		0		0		5,428		5,428		Multi-family residential	92		0		0		92		4,808		4,900
Total real estate loans	Total real estate loans	5,471		437		5,862		11,770		340,578		352,348		Total real estate loans	2,104		231		1,972		4,307		297,964		302,271
Other loans:	Other loans:													Other loans:
Commercial and industrial	Commercial and industrial	4		0		945		949		18,822		19,771		Commercial and industrial	42		3		900		945		14,906		15,851
Consumer	Consumer	67		23		63		153		6,431		6,584		Consumer	94		14		14		122		4,899		5,021
Total other loans	Total other loans	71		23		1,008		1,102		25,253		26,355		Total other loans	136		17		914		1,067		19,805		20,872
Total acquired loans	Total acquired loans	$	5,542	$	460	$	6,870	$	12,872	$	365,831	$	378,703	Total acquired loans	$	2,240	$	248	$	2,886	$	5,374	$	317,769	$	323,143
Total loans:	Total loans:													Total loans:
Real estate loans:	Real estate loans:													Real estate loans:
One- to four-family first mortgage	One- to four-family first mortgage	$	4,067	$	473	$	2,357	$	6,897	$	402,385	$	409,282	One- to four-family first mortgage	$	3,379	$	375	$	1,593	$	5,347	$	374,860	$	380,207
Home equity loans and lines	Home equity loans and lines	150		0		65		215		67,551		67,766		Home equity loans and lines	25		283		43		351		65,205		65,556
Commercial real estate	Commercial real estate	1,935		0		11,198		13,133		694,505		707,638		Commercial real estate	1,493		0		6,695		8,188		736,783		744,971
Construction and land	Construction and land	525		0		434		959		200,616		201,575		Construction and land	0		0		86		86		242,070		242,156
Multi-family residential	Multi-family residential	1,499		0		0		1,499		85,120		86,619		Multi-family residential	92		0		0		92		82,634		82,726
Total real estate loans	Total real estate loans	8,176		473		14,054		22,703		1,450,177		1,472,880		Total real estate loans	4,989		658		8,417		14,064		1,501,552		1,515,616
Other loans:	Other loans:													Other loans:
Commercial and industrial	Commercial and industrial	642		0		1,552		2,194		441,286		443,480		Commercial and industrial	70		3		1,340		1,413		426,606		428,019
Consumer	Consumer	288		75		193		556		38,381		38,937		Consumer	170		14		128		312		35,921		36,233
Total other loans	Total other loans	930		75		1,745		2,750		479,667		482,417		Total other loans	240		17		1,468		1,725		462,527		464,252
Total loans	Total loans	$	9,106	$	548	$	15,799	$	25,453	$	1,929,844	$	1,955,297	Total loans	$	5,229	$	675	$	9,885	$	15,789	$	1,964,079	$	1,979,868

2321


		December 31, 2019													December 31, 2020
(dollars in thousands)	(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current Loans		Total Loans		(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current Loans		Total Loans
Originated loans:	Originated loans:													Originated loans:
Real estate loans:	Real estate loans:													Real estate loans:
One- to four-family first mortgage	One- to four-family first mortgage	$	1,524	$	173	$	967	$	2,664	$	248,682	$	251,346	One- to four-family first mortgage	$	1,651	$	66	$	365	$	2,082	$	258,386	$	260,468
Home equity loans and lines	Home equity loans and lines	174		0		98		272		56,692		56,964		Home equity loans and lines	117		148		0		265		52,101		52,366
Commercial real estate	Commercial real estate	1,124		1,448		8,056		10,628		518,511		529,139		Commercial real estate	518		532		6,770		7,820		581,524		589,344
Construction and land	Construction and land	0		0		1,171		1,171		172,516		173,687		Construction and land	0		0		0		0		207,928		207,928
Multi-family residential	Multi-family residential	0		0		0		0		48,661		48,661		Multi-family residential	94		0		0		94		82,051		82,145
Total real estate loans	Total real estate loans	2,822		1,621		10,292		14,735		1,045,062		1,059,797		Total real estate loans	2,380		746		7,135		10,261		1,181,990		1,192,251
Other loans:	Other loans:													Other loans:
Commercial and industrial	Commercial and industrial	213		100		869		1,182		154,542		155,724		Commercial and industrial	797		3		603		1,403		398,377		399,780
Consumer	Consumer	533		57		34		624		35,056		35,680		Consumer	219		42		145		406		32,702		33,108
Total other loans	Total other loans	746		157		903		1,806		189,598		191,404		Total other loans	1,016		45		748		1,809		431,079		432,888
Total originated loans	Total originated loans	$	3,568	$	1,778	$	11,195	$	16,541	$	1,234,660	$	1,251,201	Total originated loans	$	3,396	$	791	$	7,883	$	12,070	$	1,613,069	$	1,625,139
Acquired loans:	Acquired loans:													Acquired loans:
Real estate loans:	Real estate loans:													Real estate loans:
One- to four-family first mortgage	One- to four-family first mortgage	$	4,555	$	1,116	$	1,108	$	6,779	$	172,695	$	179,474	One- to four-family first mortgage	$	1,823	$	502	$	1,154	$	3,479	$	131,691	$	135,170
Home equity loans and lines	Home equity loans and lines	267		93		330		690		22,158		22,848		Home equity loans and lines	34		43		25		102		15,232		15,334
Commercial real estate	Commercial real estate	337		466		1,945		2,748		190,920		193,668		Commercial real estate	603		303		2,462		3,368		157,911		161,279
Construction and land	Construction and land	413		0		1,170		1,583		20,478		22,061		Construction and land	0		0		142		142		13,753		13,895
Multi-family residential	Multi-family residential	0		0		0		0		6,208		6,208		Multi-family residential	92		0		0		92		5,095		5,187
Total real estate loans	Total real estate loans	5,572		1,675		4,553		11,800		412,459		424,259		Total real estate loans	2,552		848		3,783		7,183		323,682		330,865
Other loans:	Other loans:													Other loans:
Commercial and industrial	Commercial and industrial	3		57		792		852		28,125		28,977		Commercial and industrial	3		0		907		910		17,236		18,146
Consumer	Consumer	259		127		60		446		9,478		9,924		Consumer	126		50		66		242		5,562		5,804
Total other loans	Total other loans	262		184		852		1,298		37,603		38,901		Total other loans	129		50		973		1,152		22,798		23,950
Total acquired loans	Total acquired loans	$	5,834	$	1,859	$	5,405	$	13,098	$	450,062	$	463,160	Total acquired loans	$	2,681	$	898	$	4,756	$	8,335	$	346,480	$	354,815
Total loans:	Total loans:													Total loans:
Real estate loans:	Real estate loans:													Real estate loans:
One- to four-family first mortgage	One- to four-family first mortgage	$	6,079	$	1,289	$	2,075	$	9,443	$	421,377	$	430,820	One- to four-family first mortgage	$	3,474	$	568	$	1,519	$	5,561	$	390,077	$	395,638
Home equity loans and lines	Home equity loans and lines	441		93		428		962		78,850		79,812		Home equity loans and lines	151		191		25		367		67,333		67,700
Commercial real estate	Commercial real estate	1,461		1,914		10,001		13,376		709,431		722,807		Commercial real estate	1,121		835		9,232		11,188		739,435		750,623
Construction and land	Construction and land	413		0		2,341		2,754		192,994		195,748		Construction and land	0		0		142		142		221,681		221,823
Multi-family residential	Multi-family residential	0		0		0		0		54,869		54,869		Multi-family residential	186		0		0		186		87,146		87,332
Total real estate loans	Total real estate loans	8,394		3,296		14,845		26,535		1,457,521		1,484,056		Total real estate loans	4,932		1,594		10,918		17,444		1,505,672		1,523,116
Other loans:	Other loans:													Other loans:
Commercial and industrial	Commercial and industrial	216		157		1,661		2,034		182,667		184,701		Commercial and industrial	800		3		1,510		2,313		415,613		417,926
Consumer	Consumer	792		184		94		1,070		44,534		45,604		Consumer	345		92		211		648		38,264		38,912
Total other loans	Total other loans	1,008		341		1,755		3,104		227,201		230,305		Total other loans	1,145		95		1,721		2,961		453,877		456,838
Total loans	Total loans	$	9,402	$	3,637	$	16,600	$	29,639	$	1,684,722	$	1,714,361	Total loans	$	6,077	$	1,689	$	12,639	$	20,405	$	1,959,549	$	1,979,954

At ~~September 30, 2020, $10,000 of loans were greater than 90 days past due and accruing. At December~~March 31, ~~2019, excluding PCI loans,~~2021 the Company did 0t have any loans greater than 90 days past due and accruing. At December 31, 2020, loans greater than 90 days past due and accruing totaled $2,000.

2422

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


		September 30, 2020						December 31, 2019			March 31, 2021
(dollars in thousands)	(dollars in thousands)	With Related Allowance		Without Related Allowance		Total(1)		Total(2)		(dollars in thousands)	With Related Allowance		Without Related Allowance		Total(1)
Nonaccrual loans:	Nonaccrual loans:									Nonaccrual loans:
One- to four-family first mortgage	One- to four-family first mortgage	$	4,609	$	0	$	4,609	$	3,948	One- to four-family first mortgage	$	4,092	$	0	$	4,092
Home equity loans and lines	Home equity loans and lines	109		0		109		1,244		Home equity loans and lines	58		0		58
Commercial real estate	Commercial real estate	15,486		0		15,486		13,325		Commercial real estate	9,409		22		9,431
Construction and land	Construction and land	515		0		515		2,469		Construction and land	345		0		345
Multi-family residential	Multi-family residential	95		0		95		0		Multi-family residential	0		0		0
Commercial and industrial	Commercial and industrial	1,750		0		1,750		3,224		Commercial and industrial	1,065		512		1,577
Consumer	Consumer	279		0		279		176		Consumer	190		0		190
Total	Total	$	22,843	$	0	$	22,843	$	24,386	Total	$	15,159	$	534	$	15,693

											December 31, 2020
(dollars in thousands)										(dollars in thousands)	With Related Allowance		Without Related Allowance		Total(1)
Nonaccrual loans:										Nonaccrual loans:
One- to four-family first mortgage										One- to four-family first mortgage	$	3,838	$	0	$	3,838
Home equity loans and lines										Home equity loans and lines	63		0		63
Commercial real estate										Commercial real estate	12,298		0		12,298
Construction and land										Construction and land	469		0		469
Multi-family residential										Multi-family residential	0		0		0
Commercial and industrial										Commercial and industrial	1,717		0		1,717
Consumer										Consumer	292		0		292
Total										Total	$	18,677	$	0	$	18,677

(1)~~Due to the adoption of ASC Topic 326,~~ PCD loans of ~~$2.1 million~~$409,000 and $390,000 are included in nonaccrual loans at ~~September 30, 2020. Prior to January 1, 2020, these loans were classified as PCI~~March 31, 2021 and excluded from nonperforming loans because they continued to earn interest income from the accretable yield at the pool level. At adoption, the pools were discontinued and performance is based on contractual terms for individual loans.

~~(2)~~PCI loans which were being accounted for under ASC 310-30 were excluded from nonaccrual loans because they continued to earn interest from accretable yield regardless of their status as past due or otherwise not in compliance with their contractual terms. PCI loans which were being accounted for under ASC 310-30 and which were 90 days or more past due totaled $2.2 million as of December 31, ~~2019.~~2020, respectively.

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.

2523

Collateral Dependent Loans

The Company held loans that were individually evaluated for ~~impairment~~credit losses at ~~September 30,~~March 31, 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 ~~table~~tables below ~~summarizes~~summarize collateral dependent loans and the related ACL at ~~September 30, 2020 for which the borrower is experiencing financial difficulty.~~March 31, 2021 and December 31, 2020.


							March 31, 2021
(dollars in thousands)	(dollars in thousands)	Loans		ACL		(dollars in thousands)	Loans		ACL
One- to four-family first mortgage	One- to four-family first mortgage	$	0	$	0	One- to four-family first mortgage	$	997	$	100
Home equity loans and lines	Home equity loans and lines	0		0		Home equity loans and lines	0		0
Commercial real estate	Commercial real estate	7,236		689		Commercial real estate	4,280		333
Construction and land	Construction and land	0		0		Construction and land	0		0
Multi-family residential	Multi-family residential	0		0		Multi-family residential	0		0
Commercial and industrial	Commercial and industrial	612		431		Commercial and industrial	903		234
Consumer	Consumer	0		0		Consumer	0		0
Total	Total	$	7,848	$	1,120	Total	$	6,180	$	667

							December 31, 2020
(dollars in thousands)						(dollars in thousands)	Loans		ACL
One- to four-family first mortgage						One- to four-family first mortgage	$	1,006	$	100
Home equity loans and lines						Home equity loans and lines	0		0
Commercial real estate						Commercial real estate	7,400		1,008
Construction and land						Construction and land	0		0
Multi-family residential						Multi-family residential	0		0
Commercial and industrial						Commercial and industrial	606		431
Consumer						Consumer	0		0
Total						Total	$	9,012	$	1,539

At ~~September 30,~~March 31, 2021 and December 31, 2020, collateral dependent commercial real estate loans included 1 loan acquired with deteriorated credit quality totaling ~~$1.9 million.~~$277,000.

2624

Foreclosed Assets and ORE

Foreclosed assets and ORE include real property and other assets that have been acquired as a result of foreclosure, and real property no longer used in the Bank's business. Foreclosed assets and ORE totaled ~~$1,985,000~~$1,581,000 and ~~4,156,000~~1,302,000 at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~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 ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 totaled ~~$996,000~~$409,000 and ~~$1,737,000,~~$877,000, respectively. Loans secured by single family residential real estate that were in the process of foreclosure at March 31, 2021 and December 31, 2020 totaled $172,000 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 ~~$729,000 and $1,275,000~~$212,000 at ~~September 30, 2020~~March 31, 2021 and December 31, 2019, respectively. During the nine months ended September 30, 2020, the Company sold 5 of these properties, with a total carrying value of $410,000, for a gain of $64,000 recorded in foreclosed assets and ORE, net expense on the Consolidated Statements of Income.2020. The expected timing of the sale of the ~~remaining~~ properties is ~~uncertain due to the effects of the COVID-19 pandemic.~~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. For purposes of the determination of an ACL, larger (i.e., TDRs with balances of $250,000 or greater) commercial TDRs are individually ~~evaluated for impairment.~~evaluated. 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 ~~September 30, 2020,~~March 31, 2021, the Company had modified loans with an aggregate outstanding loan balance of ~~$70.2~~$27.7 million, or 4%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.

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


		Nine Months Ended September 30,											Three Months Ended March 31,
		2020					2019						2021					2020
(dollars in thousands)	(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		(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:	Troubled debt restructurings:											Troubled debt restructurings:
One- to four-family first mortgage	One- to four-family first mortgage	7	$	990	$	385	6	$	924	$	911	One- to four-family first mortgage	0	$	0	$	0	5	$	837	$	834
Home equity loans and lines	Home equity loans and lines	0	0		0		0	0		0		Home equity loans and lines	0	0		0		0	0		0
Commercial real estate	Commercial real estate	4	1,044		992		1	89		88		Commercial real estate	2	479		479		4	1,029		1,029
Construction and land	Construction and land	0	0		0		0	0		0		Construction and land	0	0		0		0	0		0
Multi-family residential	Multi-family residential	0	0		0		0	0		0		Multi-family residential	0	0		0		0	0		0
Commercial and industrial	Commercial and industrial	3	41		38		0	0		0		Commercial and industrial	0	0		0		0	0		0
Other consumer	Other consumer	2	13		10		2	11		10		Other consumer	1	5		4		1	10		4
Total	Total	16	$	2,088	$	1,425	9	$	1,024	$	1,009	Total	3	$	484	$	483	10	$	1,876	$	1,867

NaN of the the loans modified during the three months ended March 31, 2021 defaulted during the same period.

NaN residential ~~mortgages~~mortgage loans totaling ~~$543,000, 1~~$546,000, 2 commercial real estate ~~loan~~loans totaling ~~$77,000~~$282,000 and 1 consumer loan totaling $4,000 were modified during ~~the nine~~three months ended ~~September 30,~~March 31, 2020 ~~and defaulted during the same period. The defaults did not have a significant impact on our allowance for credit losses at September 30, 2020.~~

~~NaN residential mortgages totaling $619,000 and 1 consumer loan totaling $6,000 were modified during nine months ended September 30, 2019~~ and defaulted within twelve months of modification. The defaults did not have a significant impact on our allowance for ~~loan~~credit losses at ~~September 30, 2019.~~March 31, 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, ~~during the quarter ended June 30, 2020,~~ the Company ~~entered~~enters into ~~certain~~ derivative financial instruments ~~in its efforts~~ to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates.

The Company’s ~~derivative financial instruments~~existing credit derivatives result from loan participation arrangements, therefore, are not used to manage ~~differences~~interest rate risk in the ~~amount, timing, and duration~~Company’s assets or liabilities. The Company occasionally enters into credit risk participation agreements with counterparty banks to accept a portion of the ~~Company’s known or expected cash receipts and its known or expected cash payments principally~~credit risk related to interest rate swaps. The agreements, which are typically executed in conjunction with a participation in a loan with the ~~Company’s variable~~same customer, allow customers to execute an interest rate ~~liabilities.~~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, ~~during the second quarter of 2020,~~ the Company entered into certain interest rate swap agreements as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. ~~During 2020, such~~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~~$1,602,000 will be reclassified as additional interest expense.

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 ~~table~~tables below ~~presents~~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 ~~September 30,~~March 31, 2021 and December 31, 2020.


							March 31, 2021
		Derivative Liabilities(1)					Derivative Assets(1)				Derivative Liabilities(1)
(dollars in thousands)	(dollars in thousands)	Notional Amount		Fair Value		(dollars in thousands)	Notional Amount		Fair Value		Notional Amount		Fair Value
Derivatives designated as hedging instruments:	Derivatives designated as hedging instruments:					Derivatives designated as hedging instruments:
Interest rate swaps - variable rate liabilities	Interest rate swaps - variable rate liabilities	$	40,000	$	87	Interest rate swaps - variable rate liabilities	$	40,000	$	1,531	$	0	$	0

Derivatives not designated as hedging instruments:						Derivatives not designated as hedging instruments:
Risk participation agreements						Risk participation agreements	0		0		10,000		20

Netting adjustments	Netting adjustments			0		Netting adjustments			0				0

Less: Cash posted as collateral(2)				(87)

Net derivative amounts	Net derivative amounts			$	0	Net derivative amounts			$	1,531			$	20

							December 31, 2020
							Derivative Assets(1)				Derivative Liabilities(1)
(dollars in thousands)						(dollars in thousands)	Notional Amount		Fair Value		Notional Amount		Fair Value
Derivatives designated as hedging instruments:						Derivatives designated as hedging instruments:
Interest rate swaps - variable rate liabilities						Interest rate swaps - variable rate liabilities	$	40,000	$	214	$	0	$	0

Derivatives not designated as hedging instruments:						Derivatives not designated as hedging instruments:
Risk participation agreements						Risk participation agreements	0		0		10,000		58

Netting adjustments						Netting adjustments			0				0

Net derivative amounts						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.

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

Effect of Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income 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 ~~September 30, 2020.~~March 31, 2021.

Three Months Ended September 30, 2020

Three Months Ended March 31, 2021

Amount of Gain Recognized in OCI

Location of Gain Reclassified from AOCI into Income

Amount of Loss Reclassified from AOCI into Income

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

(dollars in thousands)

Total

Included Component

Total

Included Component

Derivatives in cash flows hedging relationships:

Interest rate swaps - variable rate liabilities

Interest expense

(16)

Interest rate swaps - variable rate liabilities

1,301

Interest expense

(16)

Nine Months Ended September 30, 2020

Amount of Loss Recognized in OCI

Location of Loss Reclassified from AOCI into Income

Amount of Loss Reclassified from AOCI into Income

(dollars in thousands)

Total

Included Component

Total

Included Component

Derivatives in cash flows hedging relationships:

Interest rate swaps - variable rate liabilities

(110)

Interest expense

(28)

At March 31, 2021 and December 31, 2020, accumulated unrealized gains, net of taxes, on derivative instruments totaled $1,214,000 and $174,000, respectively.

Effect of ~~Cash Flow Hedge Accounting~~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 ~~September 30, 2020.~~

(dollars in thousands) Location of Loss Reclassified from AOCI into Income Three Months Ended September 30, 2020 Nine Months Ended September 30, 2020
Effects of cash flow hedging
Interest rate swaps - variable rate liabilities Interest expense $ (16) $ (28)
March 31, 2021.

(dollars in thousands)

Location of Income Recognized on Non-designated Hedges

Three Months Ended March 31, 2021

Effects of non-designated hedges

Risk participation agreements

Other noninterest income

At and during the three months ended March 31, 2020, the Company was not a party to any derivative contracts.

Credit-risk-related Contingent Features

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

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

As of ~~September 30, 2020, the fair value of~~March 31, 2021, there were 0 derivatives with credit-risk-related contingent features in a net liability ~~position,~~position. Such derivatives are measured at fair value, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $87,000. As of September 30, 2020, the Company had minimum collateral posting thresholds with certain of its derivative counterparties and posted collateral of $493,000 in excess of thresholds.risk. If the Company had breached any ~~of these~~ provisions at ~~September 30, 2020,~~March 31, 2021, it ~~could~~would not have been required to settle ~~its~~any obligations under the agreements ~~at their~~since the termination value ~~of $87,000.~~was $0.

7. Fair Value Measurements and Disclosures

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

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

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

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

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

Recurring Basis

Investment Securities Available for Sale

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

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

Management primarily identifies investment securities which may have traded in illiquid or inactive markets, by identifying instances of a significant decrease in the volume and frequency of trades, relative to historical levels, as well as instances of a significant widening of the bid-ask spread in the brokered markets. Investment securities that are deemed to have been trading in illiquid or inactive markets may require the use of significant unobservable inputs. For example, management may use quoted prices for similar investment securities in the absence of a liquid and active market for the investment securities being valued. As of ~~September 30, 2020,~~March 31, 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.

The following tables present the balances of assets measured for fair value on a recurring basis as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020.


(dollars in thousands)	(dollars in thousands)	September 30, 2020		Level 1		Level 2		Level 3		(dollars in thousands)	March 31, 2021		Level 1		Level 2		Level 3
Assets	Assets									Assets
Available for sale securities:	Available for sale securities:									Available for sale securities:
U.S. agency mortgage-backed	U.S. agency mortgage-backed	$	123,152	$	0	$	123,152	$	0	U.S. agency mortgage-backed	$	164,084	$	0	$	164,084	$	0
Collateralized mortgage obligations	Collateralized mortgage obligations	99,157		0		99,157		0		Collateralized mortgage obligations	61,720		0		61,720		0
Municipal bonds	Municipal bonds	20,817		0		20,817		0		Municipal bonds	37,622		0		37,622		0
U.S. government agency	U.S. government agency	6,413		0		6,413		0		U.S. government agency	6,030		0		6,030		0
Corporate bonds	Corporate bonds	2,039		0		2,039		0		Corporate bonds	5,509		0		5,509		0
Total	Total	$	251,578	$	0	$	251,578	$	0	Total	$	274,965	$	0	$	274,965	$	0

Derivative assets										Derivative assets	$	1,531	$	0	$	1,531	$	0
Total										Total	$	276,496	$	0	$	276,496	$	0

Liabilities	Liabilities									Liabilities
Derivative liabilities(1)		$	87	$	0	$	87	$	0
Derivative liabilities										Derivative liabilities	$	20	$	0	$	20	$	0


(dollars in thousands)	December 31, 2020		Level 1		Level 2		Level 3
Assets
Available for sale securities:
U.S. agency mortgage-backed	$	142,812	$	0	$	142,812	$	0
Collateralized mortgage obligations	75,620		0		75,620		0
Municipal bonds	28,011		0		28,011		0
U.S. government agency	6,255		0		6,255		0
Corporate bonds	2,054		0		2,054		0
Total	$	254,752	$	0	$	254,752	$	0

Derivative assets	$	214	$	0	$	214	$	0
Total	$	254,966	$	0	$	254,966	$	0

Liabilities
Derivative liabilities	$	58	$	0	$	58	$	0

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

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

~~The Company did 0t record any liabilities at fair value as of December 31, 2019 for which the measurement of the fair value was made on a recurring basis.~~

3130

Nonrecurring Basis

The Company records loans individually evaluated for ~~impairment~~credit losses at fair value on a nonrecurring basis. ~~A loan is considered impaired if it is probable the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement.~~ Fair value is measured at the fair value of the collateral for collateral-dependent loans. For non-collateral-dependent loans, fair value is measured by present valuing expected future cash flows. ~~Impaired loans~~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									Fair Value Measurements Using
(dollars in thousands)	(dollars in thousands)	September 30, 2020		Level 1		Level 2		Level 3		(dollars in thousands)	March 31, 2021		Level 1		Level 2		Level 3
Assets	Assets									Assets
Individually evaluated for impairment		$	6,728	$	0	$	0	$	6,728
Loans individually evaluated										Loans individually evaluated	$	5,513	$	0	$	0	$	5,513
Foreclosed assets and ORE	Foreclosed assets and ORE	1,985		0		0		1,985		Foreclosed assets and ORE	1,581		0		0		1,581
Total	Total	$	8,713	$	0	$	0	$	8,713	Total	$	7,094	$	0	$	0	$	7,094

				Fair Value Measurements Using									Fair Value Measurements Using
(dollars in thousands)	(dollars in thousands)	December 31, 2019		Level 1		Level 2		Level 3		(dollars in thousands)	December 31, 2020		Level 1		Level 2		Level 3
Assets	Assets									Assets
Individually evaluated for impairment		$	7,365	$	0	$	0	$	7,365
Loans individually evaluated										Loans individually evaluated	$	7,473	$	0	$	0	$	7,473
Foreclosed assets and ORE	Foreclosed assets and ORE	4,156		0		0		4,156		Foreclosed assets and ORE	1,302		0		0		1,302
Total	Total	$	11,521	$	0	$	0	$	11,521	Total	$	8,775	$	0	$	0	$	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

(dollars in thousands)

Fair Value

Valuation Technique

Unobservable Inputs

Range of Discounts

Weighted Average Discount

As of September 30, 2020:

Individually evaluated for impairment

6,728

Third party appraisals and discounted cash flows

Collateral values, market discounts and estimated costs to sell

3% - 80%

14%

March 31, 2021

Loans individually evaluated

5,513

Third party appraisals and discounted cash flows

Collateral values, market discounts and estimated costs to sell

0% - 92%

11%

Foreclosed assets and ORE

1,985

Third party appraisals, sales contracts, broker price opinions

Collateral values, market discounts and estimated costs to sell

6% - 52%

12%

Foreclosed assets and ORE

1,581

Third party appraisals, sales contracts, broker price opinions

Collateral values, market discounts and estimated costs to sell

6% - 25%

(dollars in thousands)

Fair
Value

Valuation Technique

Unobservable
Inputs

Range of
Discounts

Weighted
Average
Discount

(dollars in thousands)

Fair Value

Valuation Technique

Unobservable Inputs

Range of
Discounts

Weighted Average Discount

As of December 31, 2019:

Individually evaluated for impairment

7,365

Third party appraisals and discounted cash flows

Collateral values, market discounts and estimated costs to sell

0% - 84%

13%

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

4,156

Third party appraisals, sales contracts, broker price opinions

Collateral values, market discounts and estimated costs to sell

6% - 61%

14%

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%

3231

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

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

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

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

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

•~~The~~ fair value are described in the Company's Annual Report on Form 10-K for ~~investment securities is determined~~the year ended December 31, 2020. There have been no material changes from ~~quoted market prices when available. If a quoted market price is not available,~~the fair value ~~is estimated using third party pricing services or quoted market prices of securities with similar characteristics.~~

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

•~~The fair value of loans is estimated by discounting~~estimate methods and assumptions disclosed in the ~~future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and~~Company's Annual Report on Form 10-K for the ~~same remaining maturity.~~

•~~The cash surrender value of BOLI approximates its fair value.~~

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

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

•The fair value of derivative liabilities are obtained from a third-party pricing service that uses the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts).fiscal year ended December 31, 2020.

3332

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


				Fair Value Measurements at September 30, 2020											Fair Value Measurements at March 31, 2021
(dollars in thousands)	(dollars in thousands)	Carrying Amount		Total		Level 1		Level 2		Level 3		(dollars in thousands)	Carrying Amount		Total		Level 1		Level 2		Level 3
Financial Assets	Financial Assets											Financial Assets
Cash and cash equivalents	Cash and cash equivalents	$	185,836	$	185,836	$	185,836	$	0	$	0	Cash and cash equivalents	$	282,700	$	282,700	$	282,700	$	0	$	0
Interest-bearing deposits in banks	Interest-bearing deposits in banks	349		349		349		0		0		Interest-bearing deposits in banks	349		349		349		0		0
Investment securities available for sale	Investment securities available for sale	251,578		251,578		0		251,578		0		Investment securities available for sale	274,965		274,965		0		274,965		0
Investment securities held to maturity	Investment securities held to maturity	2,942		3,008		0		3,008		0		Investment securities held to maturity	2,126		2,176		0		2,176		0
Mortgage loans held for sale	Mortgage loans held for sale	21,045		21,045		0		21,045		0		Mortgage loans held for sale	5,304		5,304		0		5,304		0
Loans, net	Loans, net	1,922,295		1,945,125		0		1,938,397		6,728		Loans, net	1,949,875		1,950,917		0		1,945,404		5,513
Cash surrender value of BOLI	Cash surrender value of BOLI	40,184		40,184		40,184		0		0		Cash surrender value of BOLI	40,559		40,559		40,559		0		0
Derivative assets(1)												Derivative assets(1)	1,531		1,531		0		1,531		0
Financial Liabilities	Financial Liabilities											Financial Liabilities
Deposits	Deposits	$	2,207,494	$	2,210,331	$	0	$	2,210,331	$	0	Deposits	$	2,328,365	$	2,329,790	$	0	$	2,329,790	$	0
Other borrowings	Other borrowings	5,539		6,233		0		6,233		0		Other borrowings	5,539		6,060		0		6,060		0
Long-term FHLB advances	Long-term FHLB advances	31,445		32,399		0		32,399		0		Long-term FHLB advances	28,106		28,692		0		28,692		0
Derivative liabilities(1)	Derivative liabilities(1)	87		87		0		87		0		Derivative liabilities(1)	20		20		0		20		0
(1)Derivative liabilities are reported at fair value in accrued interest payable and other liabilities in the Consolidated Statements of Financial Condition.

				Fair Value Measurements at December 31, 2019											Fair Value Measurements at December 31, 2020
(dollars in thousands)	(dollars in thousands)	Carrying Amount		Total		Level 1		Level 2		Level 3		(dollars in thousands)	Carrying Amount		Total		Level 1		Level 2		Level 3
Financial Assets	Financial Assets											Financial Assets
Cash and cash equivalents	Cash and cash equivalents	$	39,847	$	39,847	$	39,847	$	0	$	0	Cash and cash equivalents	$	187,952	$	187,952	$	187,952	$	0	$	0
Interest-bearing deposits in banks	Interest-bearing deposits in banks	449		449		449		0		0		Interest-bearing deposits in banks	349		349		349		0		0
Investment securities available for sale	Investment securities available for sale	257,321		257,321		0		257,321		0		Investment securities available for sale	254,752		254,752		0		254,752		0
Investment securities held to maturity	Investment securities held to maturity	7,149		7,194		0		7,194		0		Investment securities held to maturity	2,934		2,996		0		2,996		0
Mortgage loans held for sale	Mortgage loans held for sale	6,990		6,990		0		6,990		0		Mortgage loans held for sale	9,559		9,559		0		9,559		0
Loans, net	Loans, net	1,696,493		1,690,308		0		1,682,943		7,365		Loans, net	1,946,991		1,957,705		0		1,950,232		7,473
Cash surrender value of BOLI	Cash surrender value of BOLI	39,466		39,466		39,466		0		0		Cash surrender value of BOLI	40,334		40,334		40,334		0		0
Derivative assets(1)												Derivative assets(1)	214		214		0		214		0
Financial Liabilities	Financial Liabilities											Financial Liabilities
Deposits	Deposits	$	1,820,975	$	1,821,868	$	0	$	1,821,868	$	0	Deposits	$	2,213,821	$	2,216,002	$	0	$	2,216,002	$	0
Other borrowings	Other borrowings	5,539		5,895		0		5,895		0		Other borrowings	5,539		6,224		0		6,224		0
Long-term FHLB advances	Long-term FHLB advances	40,620		40,580		0		40,580		0		Long-term FHLB advances	28,824		29,662		0		29,662		0
Derivative liabilities(1)												Derivative liabilities(1)	58		58		0		58		0

3433


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, ~~2019~~2020 through ~~September 30, 2020~~March 31, 2021 and on its results of operations for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 and ~~2019.~~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, ~~2019, as supplemented by the additional risk factor included in Part II, Item 1A of this Quarterly Report on Form 10-Q.~~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.

3534

EXECUTIVE OVERVIEW

The Company reported net income for the ~~third~~first quarter of 2021 of $11.9 million, or $1.41 diluted EPS, up $9.4 million compared to the the first quarter of 2020. Net income for the first quarter of 2020 ~~of $8.8~~totaled $2.5 million, or ~~$1.01~~$0.27 diluted EPS, compared to $6.9 million, or $0.75 diluted EPS, reported for the third quarter of 2019. For the nine months ended September 30, 2020, the Company reported net income of $13.2 million, or $1.51 diluted EPS, compared to $21.3 million, or $2.32 diluted EPS, reported for the nine months ended September 30, 2019.EPS.

Key components of the Company’s performance during the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 include:

•Assets increased ~~$378.7~~$115.7 million, or ~~17.2%~~4.5%, from December 31, ~~2019~~2020 to ~~$2.6~~$2.7 billion at ~~September 30, 2020.~~March 31, 2021.

•Total loans were $2.0 billion, ~~up $240.9 million,~~down $86,000, or ~~14.1%~~less than 1%, from December 31, ~~2019, primarily due to~~ t~~he recorded net investment in PPP loans of $254.5 million.~~2020.

•~~On January 1, 2020, the Company adopted the CECL framework, which resulted in a $7.0~~PPP loans totaled $235.7 million, up $14.5 million, or ~~39.2%~~6.5%, ~~increase in the ACL at the adoption date.~~from December 31, 2020.

•The Company recorded ~~no provisions~~a $1.7 million reversal to the allowance for ~~credit~~loan losses ~~for the third quarter of 2020~~ primarily due to ~~limited changes to~~improvements in our assessment of the economic impact of the COVID-19 pandemic and the absence of loan growth from the previous quarter. In the aggregate, the provisions for credit losses on loans and unfunded lending commitments totaled $14.0 million for the nine months ended September 30, 2020.pandemic.

•The ALL totaled ~~$33.0~~$30.0 million, or ~~1.69%~~1.51% of total loans, at ~~September 30, 2020. The ACL, which includes the allowance for unfunded lending commitments, totaled $36.6~~March 31, 2021 compared to $33.0 million, or ~~1.87%~~1.66% of total loans, at ~~September 30,~~December 31, 2020. Excluding PPP loans, the ratios of the ALL to total loans were 1.72% and ~~ACL to total loans were 1.94%~~1.87% at March 31, 2021 and ~~2.15%,~~December 31, 2020, respectively.

•Nonperforming assets were down ~~$3.7~~$2.7 million, or ~~13.0%~~13.5%, from the December 31, ~~2019.~~2020.

•Total deposits increased ~~$386.5~~$114.5 million, or ~~21.2%~~5.2%, from ~~December 31, 2019 to~~ $2.2 billion at ~~September 30, 2020.~~December 31, 2020 to $2.3 billion at March 31, 2021.

•The net interest margin was ~~3.82%~~4.14% for the ~~third~~first quarter of ~~2020,~~2021, down 304 bps compared to the ~~third~~first quarter of ~~2019, and 3.91% for the nine months ended September 30,~~ 2020, ~~down 39 bps compared to the nine months ended September 30, 2019,~~ primarily due to the decrease in the average yield on interest-earning assets during ~~2020.~~2021.

•The average ~~yield~~rate paid on total interest-bearing deposits was ~~0.60%~~0.42%, down 5665 bps from the ~~third~~first quarter of ~~2019. For the nine months ended September 30, 2020, the average yield paid on total interest-bearing deposits was 0.80%, down 29 bps from the nine months ended September 30, 2019.~~2020.

•Noninterest income ~~decreased $980,000, or 20.5%, and $661,000, or 6.1%,~~ for the three and nine months ended September 30, 2020, respectively, from the comparable periods in 2019. Income from BOLI for the for the three months ended September 30, 2019 included a non-taxable death benefit of $1.2 million. For the nine months ended September 30, 2019, the impact of the BOLI benefit on noninterest income was partially offset by asset write-downs totaling $347,000 (pre-tax) recorded during the secondfirst quarter of ~~2019.~~2021 increased $702,000, or 20.9%, compared to the first quarter of 2020 primarily due to an increase in gains on the sale of loans.

•Noninterest expense for the ~~third~~first quarter of ~~2020 decreased $494,000,~~2021 increased $550,000, or ~~3.0%~~3.6%, compared to the ~~third~~first quarter of ~~2019~~2020 primarily due to ~~decreases in compensation and benefits (down $526,000), marketing and advertising (down $130,000) and occupancy expenses (down $105,000), partiality offset by an increase~~increases in regulatory fees (up ~~$399,000). For the nine months ended September 30, 2020, noninterest expense was up $404,000, or 0.8%~~$263,000), ~~from the comparable period in 2019 primarily due to the provisions for credit losses on unfunded lending commitments recorded during the first half of 2020 ($1.3 million)~~compensation and ~~an increase in~~benefits (up $248,000), data processing and communication expense (up ~~$648,000)~~$167,000), and foreclosed assets expense (up $106,000), partially offset by ~~decreases~~a decrease in ~~compensation and benefits (down $459,000), occupancy (down $330,000),~~ marketing and advertising expense (down ~~$251,000) and other expenses (down $489,000)~~$127,000).

3635

COVID-19 RESPONSE

Banking operations ~~have not been restrained~~remain unencumbered by state and local government COVID-19 restrictions. ~~However, we~~We have ~~adapted~~continued to protect our employees and customers by working remotely, enhancing cleaning procedures, and enacting several other measures to reduce the risk of transmission of the virus. State government imposed COVID-19 restrictions were relaxed in ~~September 2020~~March 2021 within our Louisiana and Mississippi ~~markets, though the states have not fully reopened. The changes~~markets. Nearly all restrictions were removed in ~~restrictions~~Mississippi, while Louisiana moved to Phase 3 of its reopening plan. Restrictions in Louisiana primarily ~~increased~~include mask mandates and place capacity limits offor certain ~~businesses and relaxed social distancing guidelines.~~businesses.

During the ~~second and third quarters~~first quarter of ~~2020,~~2021, the Company funded ~~approximately 3,072~~1,451 loans totaling ~~$262.2~~$111.5 million under the Small Business Administration's ("SBA") Paycheck Protection Program ("PPP"). During the first quarter of 2020, the Company funded 3,072 PPP loans totaling $262.2 million. At ~~September 30, 2020,~~March 31, 2021, the total recorded net investment in PPP loans was ~~$254.5~~$235.7 million, of which ~~approximately 2,160~~2,533 loans with an aggregate outstanding balance of ~~$35.2~~$79.1 million were for amounts of ~~$50,000~~$150,000 or less.

To give immediate financial support to our customers, the Company began providing principal and/or interest payment ~~relief~~deferral options in March 2020. ~~When we last reported the level of such deferrals in our second quarter Form 10-Q (as of August 4, 2020), $113.9~~At March 31, 2021, $27.7 million, or 6%1% of total loans were under deferral agreements. ~~As of September 30, 2020, the level of deferrals decreased to $70.2 million, or 4% of total loans.~~ The level of COVID-19 related deferrals formerly totaled $558.8 million, or 28% of total loans, at June 30, 2020. Of the loans that have exited deferral agreements, ~~$469.0~~$443.0 million, or ~~98%~~99%, were current and performing as of ~~September 30, 2020.~~March 31, 2021.

FINANCIAL CONDITION

Loans, Allowance for Credit Losses and Asset Quality

Loans

Loans outstanding at ~~September 30, 2020~~March 31, 2021 were $2.0 billion, ~~an increase of $240.9 million,~~down $86,000, or ~~14.1%~~less than 1%, from December 31, ~~2019 primarily due to PPP loans. At September 30, 2020, the total recorded investment in~~ 2020. PPP loans, ~~was $254.5 million, which is~~ included ~~with~~in commercial and industrial ~~loans. The recorded investment in~~loans, increased $14.5 million, or 7%, from December 31, 2020. At March 31, 2021, PPP loans ~~is net of $7.6 million in deferred lender fees, which will be amortized into interest income over the life of the loans.~~totaled $235.7 million. Excluding PPP loans, loans decreased ~~$13.6~~$14.5 million, or 0.8%, from December 31, ~~2019.~~2020.

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


		September 30,		December 31,		Increase/(Decrease)
(dollars in thousands)	(dollars in thousands)	2020		2019		Amount		Percent		(dollars in thousands)	March 31, 2021		December 31, 2020		Increase/(Decrease)
Real estate loans:	Real estate loans:									Real estate loans:
One-to four-family first mortgage	One-to four-family first mortgage	$	409,282	$	430,820	$	(21,538)	(5.0)	%	One-to four-family first mortgage	$	380,207	$	395,638	$	(15,431)	(3.9)	%
Home equity loans and lines	Home equity loans and lines	67,766		79,812		(12,046)		(15.1)		Home equity loans and lines	65,556		67,700		(2,144)		(3.2)
Commercial real estate	Commercial real estate	707,638		722,807		(15,169)		(2.1)		Commercial real estate	744,971		750,623		(5,652)		(0.8)
Construction and land	Construction and land	201,575		195,748		5,827		3.0		Construction and land	242,156		221,823		20,333		9.2
Multi-family residential	Multi-family residential	86,619		54,869		31,750		57.9		Multi-family residential	82,726		87,332		(4,606)		(5.3)
Total real estate loans	Total real estate loans	1,472,880		1,484,056		(11,176)		(0.8)	%	Total real estate loans	1,515,616		1,523,116		(7,500)		(0.5)	%
Other loans:	Other loans:									Other loans:
Commercial and industrial	Commercial and industrial	443,480		184,701		258,779		140.1		Commercial and industrial	428,019		417,926		10,093		2.4
Consumer	Consumer	38,937		45,604		(6,667)		(14.6)		Consumer	36,233		38,912		(2,679)		(6.9)
Total other loans	Total other loans	482,417		230,305		252,112		109.5		Total other loans	464,252		456,838		7,414		1.6
Total loans	Total loans	$	1,955,297	$	1,714,361	$	240,936	14.1	%	Total loans	$	1,979,868	$	1,979,954	$	(86)	—	%

During the first quarter of 2021, construction and land loan growth was offset by pay-downs across certain other segments of the loan portfolio. In particular, the Company continued to experience declines in residential mortgage loans primarily due to refinances as borrowers sought to acquire lower interest rates. Construction and land ("C&D") loan growth was primarily driven by non-residential construction projects in our New Orleans and Northshore markets.

3736

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

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

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

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

The ACL which equals the sum of the ALL and the ACL on unfunded lending commitments, is established through provisions for credit losses. Management recalculates the ACL at least quarterly to reassess the estimate of credit losses for the total portfolio at the relevant reporting date. Under ASC Topic 326, the ACL is measured on a pool basis when similar risk characteristics exist. For each pool of loans, management also evaluates and applies qualitative adjustments to the calculated ACL based on several factors, including, but not limited to, changes in current and expected future economic conditions, changes in industry experience and industry loan concentrations, changes in the volume and severity of nonperforming assets, changes in lending policies and personnel and changes in the competitive and regulatory environment of the banking industry. Loans that do not share similar risk characteristics are individually evaluated and are excluded from the pooled loan analysis. ~~Refer to~~ ~~Note 2~~ ~~of the Consolidated Financial Statements for more information on the adoption of ASC Topic 326 and its impact on the Consolidated Financial Statements.~~

~~For reporting periods prior to January 1, 2020~~The ACL policy described above is supplemented by periodic reviews and ~~the adoption of ASC Topic 326:~~

validations performed by independent loan reviewers. The ALL estimation process included, among other things, an analysis of delinquency trends, nonperforming loan trends, the level of charge-offs and recoveries, prior loss experience, total loans outstanding, the volume of loan originations, the type, size and geographic concentration of loans, the value of collateral securing loans, the borrower’s ability to repay and repayment performance, the number of loans requiring heightened management oversight, economic conditions and industry experience. Based on the evaluation, management assigned risk ratings to segmentsresults of the ~~loan portfolio. Such risk ratings were periodically reviewed~~reviews are reported to the Audit Committee of the Board of Directors. The establishment of the ACL is significantly affected by management ~~and revised as deemed appropriate.~~

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

38We 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.

~~Reserve Build and~~ Additional Information on Loan Portfolio Composition

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

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

The following table provides a summary of the loan portfolio and related reserves at ~~September 30, 2020.~~March 31, 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)	(dollars in thousands)	Total Loans		PPP Loans		Total ACL		ACL to Total Loans		ACL to Total Non-PPP Loans		(dollars in thousands)	Total Loans		PPP Loans		Total ACL		ACL to Total Loans		ACL to Total Non-PPP Loans
September 30, 2020
March 31, 2021												March 31, 2021
Retail CRE	Retail CRE	$	189,757	$	—	$	6,833	3.60	%	3.60	%	Retail CRE	$	184,807	$	—	$	6,027	3.26	%	3.26	%
Hotels and short-term rentals	Hotels and short-term rentals	100,029		4,067		5,099		5.10		5.31		Hotels and short-term rentals	102,282		7,168		5,052		4.94		5.31
Restaurants and bars	Restaurants and bars	92,715		31,488		3,108		3.35		5.08		Restaurants and bars	104,063		38,439		2,631		2.53		4.01
Energy	Energy	31,652		—		1,701		5.37		5.37		Energy	44,651		14,805		1,412		3.16		4.73
Credit cards	Credit cards	3,725		—		375		10.07		10.07		Credit cards	3,570		—		358		10.03		10.03
Other loans	Other loans	1,537,419		218,932		15,886		1.03		1.20		Other loans	1,540,495		175,269		14,513		0.94		1.06
Total	Total	$	1,955,297	$	254,487	$	33,002	1.69	%	1.94	%	Total	$	1,979,868	$	235,681	$	29,993	1.51	%	1.72	%

Unfunded lending commitments(2)		—		—		3,637		—		—
Unfunded lending commitments(1)												Unfunded lending commitments(1)	$	—	$	—	$	1,425	—		—
Total	Total	$	1,955,297	$	254,487	$	36,639	1.87	%	2.15	%	Total	$	1,979,868	$	235,681	$	31,418	1.59	%	1.80	%

(1)~~At September 30, 2020, the allowance of $3.6 million related to unfunded lending commitments of $326.8 million.~~ The ACL on unfunded lending commitments is recorded within accrued interest payable and 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.

~~An impaired loan generally is one for which it is probable, based~~Under our allowance policy, credit losses are measured on ~~current information,~~a pool basis when similar risk characteristics exist. Loans that ~~the lender will~~do not ~~collect all the amounts due under the contractual terms of the loan. Large groups of smaller balance, homogeneous loans~~share similar risk characteristics are ~~collectively~~individually evaluated for ~~impairment. Loans collectively~~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 impairment include smaller balance commercial loans, residential real estate loans and consumer loans. These loans are evaluated as a group because they have similar characteristics and performance experience. Largercredit losses. Management's evaluation involves an analysis of larger (i.e., loans with balances of $250,000 or greater) commercial real estate loans, multi-family residential loans, construction and land loans and commercial and industrial ~~loans are individually evaluated for impairment.~~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 ~~help~~ determine if ~~there is impairment,~~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. ~~The~~Loans individually evaluated for credit losses are reported to the Board of Directors ~~is provided with monthly reports on impaired loans.~~monthly.

At ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, loans ~~identified as impaired and~~ individually evaluated for ~~impairment~~credit losses were ~~$7.8~~$6.2 million and ~~$8.7~~$9.0 million, respectively. ~~Due to the adoption of ASC Topic 326, total~~Total loans ~~identified as impaired and~~ individually evaluated for credit losses at ~~September 30, 2020~~March 31, 2021 included ~~$2.2~~$1.1 million of acquired loans, of which ~~$1.9 million~~$277,000 was acquired with deteriorated credit quality. ~~Under the former accounting guidance, acquired loans were evaluated on a pool basis and excluded from total loans~~At December 31, 2020, loan individually evaluated for ~~impairment at December 31, 2019.~~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 ~~impairment~~credit losses as of the dates indicated.

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


		December 31, 2019							March 31, 2021
(dollars in thousands)	(dollars in thousands)	Recorded investment		Allowance for Loan Losses		Allowance to Total Loans		(dollars in thousands)	Recorded investment		Allowance for Loan Losses		Allowance to Total Loans
Loans Individually Evaluated for Impairment
Loans Individually Evaluated								Loans Individually Evaluated
One- to four-family first mortgage	One- to four-family first mortgage	$	187	$	—	—	%	One- to four-family first mortgage	$	997	$	100	10.03	%
Home equity loans and lines	Home equity loans and lines	784		348		44.39		Home equity loans and lines	—		—		—
Commercial real estate	Commercial real estate	6,518		298		4.57		Commercial real estate	4,280		333		7.78
Construction and land	Construction and land	—		—		—		Construction and land	—		—		—
Multi-family residential	Multi-family residential	—		—		—		Multi-family residential	—		—		—
Commercial and industrial	Commercial and industrial	1,223		701		57.32		Commercial and industrial	903		234		25.91
Consumer	Consumer	—		—		—		Consumer	—		—		—
Total	Total	$	8,712	$	1,347	15.46	%	Total	$	6,180	$	667	10.79	%

									December 31, 2020
(dollars in thousands)								(dollars in thousands)	Recorded investment		Allowance for Loan Losses		Allowance to Total Loans
Loans Individually Evaluated								Loans Individually Evaluated
One- to four-family first mortgage								One- to four-family first mortgage	$	1,006	$	100	9.94	%
Home equity loans and lines								Home equity loans and lines	—		—		—
Commercial real estate								Commercial real estate	7,400		1,008		13.62
Construction and land								Construction and land	—		—		—
Multi-family residential								Multi-family residential	—		—		—
Commercial and industrial								Commercial and industrial	606		431		71.12
Consumer								Consumer	—		—		—
Total								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.

At ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019, substandard loans, excluding acquired loans, were $12.7 million and $18.1 million, respectively. At September 30,~~ 2020, ~~and December 31, 2019, acquired~~ loans classified as substandard ~~were $14.2~~totaled $37.0 million and ~~$21.7~~$35.3 million, respectively. There were no assets classified as doubtful ~~or loss~~ at ~~September 30, 2020 and December 31, 2019.~~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)	March 31, 2021		December 31, 2020		Increase/(Decrease)
Special Mention Loans
One- to four-family first mortgage	$	539	$	1,240	$	(701)	(56.5)	%
Home equity loans and lines	—		43		(43)		(100.0)
Commercial real estate	895		966		(71)		(7.3)
Construction and land	2,031		2,122		(91)		(4.3)
Multi-family residential	—		—		—		—
Commercial and industrial	3,775		4,814		(1,039)		(21.6)
Consumer	42		146		(104)		(71.2)
Total special mention loans	$	7,282	$	9,331	$	(2,049)	(22.0)	%

(dollars in thousands)	March 31, 2021		December 31, 2020		Increase/(Decrease)
Substandard Loans
One- to four-family first mortgage	$	4,721	$	4,261	$	460	10.8	%
Home equity loans and lines	56		62		(6)		(9.7)
Commercial real estate	12,679		15,195		(2,516)		(16.6)
Construction and land	14,479		12,224		2,255		18.4
Multi-family residential	105		106		(1)		(0.9)
Commercial and industrial	4,811		3,154		1,657		52.5
Consumer	188		290		(102)		(35.2)
Total substandard loans	$	37,039	$	35,292	$	1,747	5.0	%

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

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

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

A bank’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by Federal bank regulators which can order the establishment of additional general or specific loss allowances. The Federal banking agencies have adopted an interagency policy statement on the allowance for loan and lease losses. The policy statement provides guidance for financial institutions on both the responsibilities of management for the assessment and establishment of allowances and guidance for banking agency examiners to use in determining the adequacy of general valuation guidelines. Generally, the policy statement recommends that institutions have effective systems and controls to identify, monitor and address asset quality problems; that management analyze all significant factors that affect the collectability of the portfolio in a reasonable manner; and that management establish acceptable allowance evaluation processes that meet the objectives set forth in the policy statement. 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 ~~reporting periods prior to January 1, 2020, management maintained an ALL at a level which reflected losses that were probable and reasonably estimable at the relevant reporting date. 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.

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


	March 31, 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	$	1,803	$	2,289	$	4,092		$	1,464	$	2,374	$	3,838
Home equity loans and lines	—		58		58			24		39		63
Commercial real estate	6,319		3,112		9,431			7,650		4,648		12,298
Construction and land	—		345		345			—		469		469
Multi-family residential	—		—		—			—		—		—
Other loans:
Commercial and industrial	467		1,110		1,577			603		1,114		1,717
Consumer	146		44		190			188		104		292
Total nonaccrual loans	8,735		6,958		15,693			9,929		8,748		18,677
Accruing loans 90 days or more past due	—		—		—			2		—		2
Total nonperforming loans	8,735		6,958		15,693			9,931		8,748		18,679
Foreclosed assets and ORE	1,082		499		1,581			422		880		1,302
Total nonperforming assets	9,817		7,457		17,274			10,353		9,628		19,981
Performing troubled debt restructurings	2,042		971		3,013			1,512		573		2,085
Total nonperforming assets and troubled debt restructurings	$	11,859	$	8,428	$	20,287		$	11,865	$	10,201	$	22,066

Nonperforming loans to total loans					0.79		%					0.94		%
Nonperforming loans to total assets					0.58		%					0.72		%
Nonperforming assets to total assets					0.64		%					0.77		%

(1)Nonaccrual acquired loans include PCD loans of $409,000 and $390,000 at March 31, 2021 and December 31, 2020, respectively.

(2)Nonaccrual loans include originated restructured loans placed on nonaccrual totaling $5.0 million and $6.5 million at March 31, 2021 and December 31, 2020, respectively. Acquired restructured loans placed on nonaccrual totaled $3.7 million and $3.5 million at March 31, 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 $27.7 million, or 1% of total loans, at March 31, 2021 compared to $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 usually capitalized to the extent that the carrying value does not exceed fair value less estimated selling costs.

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

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

~~(1)~~Due to the adoption of ASC Topic 326, PCD loans of $2.1 million are included in nonperforming acquired loans at September 30, 2020. Prior to January 1, 2020, these loans were classified as PCI and excluded from nonperforming loans because they continued to earn interest income from the accretable yield at the pool level. At adoption, the pools were discontinued and performance is based on contractual terms for individual loans. Refer to ~~Note 2~~ to the Consolidated Financial statements for more information on the adoption of ASC Topic 326. At December 31, 2019, PCI loans that were 90 days or more past due totaled $2.2 million and were accounted for under ASC 310-30.

~~(2)~~Nonaccrual loans include originated restructured loans placed on nonaccrual totaling $7.2 million and $7.6 million at September 30, 2020 and December 31, 2019, respectively. Acquired restructured loans placed on nonaccrual totaled $1.2 million and $2.2 million at September 30, 2020 and December 31, 2019, 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 $70.2 million, or 4% of total loans at September 30, 2020 compared to $558.8 million (28% of total loans) at June 30, 2020. We will continue to follow the guidance of Federal banking regulators in making any TDR determinations.

4441

Investment Securities

The Company’s investment securities portfolio totaled ~~$254.5~~$277.1 million as of ~~September 30, 2020, a decrease~~March 31, 2021, an increase of ~~$10.0~~$19.4 million, or ~~3.8%~~7.5%, from December 31, ~~2019.~~2020. At ~~September 30, 2020,~~March 31, 2021, the Company had a net unrealized gain on its available for sale investment securities portfolio of ~~$6.7~~$1.7 million, compared to a net unrealized gain of ~~$876,000~~$6.5 million at December 31, ~~2019.~~2020.

The following table summarizes activity in the Company’s investment securities portfolio during the ~~first nine~~three months ~~of 2020.~~ended March 31, 2021.


(dollars in thousands)	(dollars in thousands)	Available for Sale		Held to Maturity		(dollars in thousands)	Available for Sale		Held to Maturity
Balance, December 31, 2019		$	257,321	$	7,149
Balance, December 31, 2020						Balance, December 31, 2020	$	254,752	$	2,934
Purchases	Purchases	57,187		—		Purchases	48,958		—
Sales	Sales	—		—		Sales	—		—
Principal maturities, prepayments and calls	Principal maturities, prepayments and calls	(66,653)		(4,130)		Principal maturities, prepayments and calls	(23,390)		(800)
Amortization of premiums and accretion of discounts	Amortization of premiums and accretion of discounts	(2,092)		(77)		Amortization of premiums and accretion of discounts	(598)		(8)
Increase in market value		5,815		—
Balance, September 30, 2020		$	251,578	$	2,942
Decrease in market value						Decrease in market value	(4,757)		—
Balance, March 31, 2021						Balance, March 31, 2021	$	274,965	$	2,126

Funding Sources

Deposits

Deposits totaled ~~$2.2~~$2.3 billion at ~~September 30, 2020,~~March 31, 2021, an increase of ~~$386.5~~$114.5 million, or ~~21.2%~~5.2%, compared to December 31, ~~2019.~~2020. The following table summarizes the changes in the Company’s deposits from December 31, ~~2019~~2020 to ~~September 30, 2020.~~March 31, 2021.


		September 30,		December 31,		Increase/(Decrease)					March 31,		December 31,		Increase/(Decrease)
(dollars in thousands)	(dollars in thousands)	2020		2019		Amount		Percent		(dollars in thousands)	2021		2020		Amount		Percent
Demand deposit	Demand deposit	$	629,345	$	437,828	$	191,517	43.7	%	Demand deposit	$	687,254	$	615,700	$	71,554	11.6	%
Savings	Savings	242,849		201,887		40,962		20.3		Savings	272,021		250,165		21,856		8.7
Money market	Money market	336,310		273,741		62,569		22.9		Money market	346,662		333,078		13,584		4.1
NOW	NOW	620,081		512,054		108,027		21.1		NOW	679,130		646,085		33,045		5.1
Certificates of deposit	Certificates of deposit	378,909		395,465		(16,556)		(4.2)		Certificates of deposit	343,298		368,793		(25,495)		(6.9)
Total deposits	Total deposits	$	2,207,494	$	1,820,975	$	386,519	21.2	%	Total deposits	$	2,328,365	$	2,213,821	$	114,544	5.2	%

The average rate paid on interest-bearing deposits was ~~0.60%~~0.42% for the ~~third~~first quarter of ~~2020,~~2021, down 5665 bps compared to the ~~third~~first quarter of ~~2019. For the nine months ended September 30, 2020, the average rate paid on interest-bearing deposits was 0.80%, down 29 bps from the comparable period in 2019.~~2020.

At ~~September 30, 2020,~~March 31, 2021, certificates of deposit maturing within the next 12 months totaled ~~$290.8~~$289.7 million.

Federal Home Loan Bank Advances

The average balance of total FHLB advances was ~~$34.6~~$28.4 million for the ~~third~~first quarter of ~~2020,~~2021, down ~~$16.6~~$17.3 million compared to the ~~third~~first quarter of ~~2019.~~2020. The average yield ~~paid~~ on total FHLB advances for the ~~third~~first quarter of ~~2020~~2021 was ~~1.73%~~1.74%, down 76 bps compared to the ~~third~~first quarter of ~~2019.~~2020.

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

At ~~September 30, 2020,~~March 31, 2021, the Company had ~~$31.4~~$28.1 million in total outstanding FHLB advances and had ~~$775.3~~$808.8 million in additional FHLB advances available.

4542

Shareholders’ Equity

Shareholders’ equity ~~decreased $3.0~~increased $6.8 million, or ~~0.9%~~2.1%, from ~~$316.3~~$321.8 million at December 31, ~~2019~~2020 to ~~$313.3~~$328.6 million at ~~September 30, 2020. The Company’s purchases~~March 31, 2021. Shareholders’ equity increased primarily due to net income of ~~its common stock during the nine months ended September 30, 2020 and the transition adjustment~~$11.9 million for the ~~adoption~~first quarter of ~~ASC Topic 326 on January 1, 2020 decreased shareholders' equity by $11.6 million and $4.7 million, respectively. These decreases were~~2021, partially offset by ~~the net positive impact~~an other comprehensive loss of ~~comprehensive income of $17.7~~$2.7 million, ~~less~~ cash dividends of ~~$6.0~~$1.9 million ~~for~~and share repurchases of $1.2 million during the ~~nine months~~quarter ended ~~September 30, 2020.~~March 31, 2021.

At ~~September 30, 2020,~~March 31, 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 ~~September 30, 2020~~March 31, 2021 based on the ~~minimum~~ required capital levels as of January 1, 2019 when the Basel III Capital Rules were fully phased-in. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules.


		Actual				Minimum Capital Required – Basel III Fully Phased-In				To Be Well Capitalized Under Prompt Corrective Action Provisions					Actual				Minimum Capital Required – Basel III Fully Phased-In				To Be Well Capitalized Under Prompt Corrective Action Provisions
(dollars in thousands)	(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
Bank:	Bank:													Bank:
Common equity Tier 1 capital (to risk-weighted assets)	Common equity Tier 1 capital (to risk-weighted assets)	$	237,231	14.03	%	$	118,367	7.00	%	$	109,912	6.50	%	Common equity Tier 1 capital (to risk-weighted assets)	$	252,525	14.11	%	$	125,269	7.00	%	$	116,321	6.50	%
Tier 1 risk-based capital	Tier 1 risk-based capital	237,231		14.03		143,732		8.50		135,277		8.00		Tier 1 risk-based capital	252,525		14.11		152,113		8.50		143,165		8.00
Total risk-based capital	Total risk-based capital	258,559		15.29		177,551		10.50		169,096		10.00		Total risk-based capital	275,006		15.37		187,904		10.50		178,956		10.00
Tier 1 leverage capital	Tier 1 leverage capital	237,231		9.44		100,546		4.00		125,682		5.00		Tier 1 leverage capital	252,525		9.89		102,097		4.00		127,621		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 ~~September 30, 2020,~~March 31, 2021, certificates of deposit maturing within the next 12 months totaled ~~$290.8~~$289.7 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 months ended ~~September 30, 2020,~~March 31, 2021, the average balance of outstanding FHLB advances was ~~$34.6~~$28.4 million. At ~~September 30, 2020,~~March 31, 2021, the Company had ~~$31.4~~$28.1 million in total outstanding FHLB advances and had ~~$775.3~~$808.8 million in additional FHLB advances available.

4643

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


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

Asset/Liability Management

The objective of asset/liability management is to implement strategies for the funding and deployment of the Company’s financial resources that are expected to maximize soundness and profitability over time at acceptable levels of risk. Interest rate sensitivity is the potential impact of changing rate environments on both net interest income and cash flows. The Company measures its interest rate sensitivity over the near term primarily by running net interest income simulations. Our interest rate sensitivity also is monitored by management through the use of a model which generates estimates of the change in its net interest income over a range of interest rate scenarios. Based on the Company’s interest rate risk model, the table below sets forth the results of immediate and sustained changes in interest rates as of ~~September 30, 2020.~~March 31, 2021.

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


Shift in Interest Rates (in bps)						% Change in Projected Net Interest Income
+300						8.8%
+200						5.9%
+100						3.0%
-100						(4.3)%

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. Derivatives and Hedging Activities~~6 of the Consolidated Financial Statements for more information on the effects of the derivative financial instruments on the consolidated financial statements.

4744

Off-Balance Sheet Activities

To meet the financing needs of its customers, the Bank issues financial instruments which represent conditional obligations that are not recognized, wholly or in part, in the statements of financial condition. These financial instruments include commitments to extend credit and standby letters of credit. Such instruments expose the Company to varying degrees of credit and interest rate risk in much the same way as funded loans. The same credit policies are used in these commitments as for on-balance sheet instruments. ~~The Company’s exposure to~~At March 31, 2021 and December 31, 2020, the Company's allowance for credit losses ~~from these financial instruments is represented by their contractual amounts.~~on unfunded commitments totaled $1.4 million.

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
		September 30,		December 31,			Contract Amount
(dollars in thousands)	(dollars in thousands)	2020		2019		(dollars in thousands)	March 31, 2021		December 31, 2020
Standby letters of credit	Standby letters of credit	$	6,388	$	6,098	Standby letters of credit	$	4,782	$	5,781
Available portion of lines of credit	Available portion of lines of credit	267,546		247,670		Available portion of lines of credit	288,625		266,349
Undisbursed portion of loans in process	Undisbursed portion of loans in process	85,371		111,466		Undisbursed portion of loans in process	114,571		99,527
Commitments to originate loans	Commitments to originate loans	142,400		87,446		Commitments to originate loans	130,666		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.

4845

RESULTS OF OPERATIONS

Net income for the ~~third~~first quarter of ~~2020~~2021 was ~~$8.8~~$11.9 million, up ~~$1.9~~$9.4 million, or ~~28.1%~~380.6%, compared to the ~~third~~first quarter of ~~2019.~~2020. Diluted EPS for the ~~third~~first quarter of ~~2020~~2021 was ~~$1.01,~~$1.41, up ~~$0.26~~$1.14 compared to the ~~third~~first quarter of ~~2019.~~2020. The increase in net income for the ~~third~~first quarter of ~~2020~~2021 compared to the same period in 2019 was primarily due to a substantial decrease in interest expense and the absence of a provision for loan losses, partially offset by a reduction in income from BOLI due to a death benefit totaling $1.2 million received during the third quarter of 2019. The Company recorded no provision for loan losses for the third quarter of 2020 primarily due to limited changes in our assessment of the economic impact of the COVID-19 pandemic, our assessment of all other risk factors in the loan portfolio and the absence of loan growth from the previous quarter.

Net income for the nine months ended September 30, 2020 was $13.2 million, down $8.1 million, or 38.2%, compared to the nine months ended September 30, 2019. Diluted EPS for the nine months ended September 30, 2020 was $1.51, down $0.81 compared to the nine months ended September 30, 2019. The decrease in net income for the nine months ended September 30, 2020 compared to the same period in 2019 was primarily due to the ~~provisions~~change in the provision for loans losses and an increase in net interest income. During the the first quarter of 2021, the Company released $1.7 million in provision for loan losses and ~~unfunded lending commitments~~recognized $3.3 million of deferred PPP lender fees in loan income. During the first ~~and second quarters~~quarter of ~~2020. In aggregate,~~2020, the Company ~~made provisions of $14.0~~recorded $6.3 million ~~to the allowances~~in provision for loan losses and ~~unfunded lending commitments during the nine months ended September 30, 2020, reflecting our assessment of expected losses due primarily to the economic impact of the COVID-19 pandemic.~~did not hold any PPP loans.

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%~~3.98% and ~~3.79%~~3.86% for the quarters ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and 3.64% and 3.97% for the nine months ended September 30, 2020 and 2019,~~ respectively.

Net interest income totaled ~~$23.3~~$25.1 million for the ~~third~~first quarter of ~~2020,~~2021, up ~~$2.1~~$3.8 million, or ~~10.1%~~17.7%, compared to the ~~third~~first quarter of ~~2019. For the nine months ended September 30,~~ 2020 ~~net interest income totaled $67.0 million, up $2.3 million, or 3.5%, compared~~primarily due to the ~~nine months ended September 30, 2019.~~recognition of PPP lender fees. Loan income from deferred PPP lender fees totaled ~~$1.1~~$3.3 million during the ~~third~~first quarter of ~~2020 and $882,000~~2021. The Company began originating PPP loans during the second quarter of 2020. ~~The Company recognized $1.1 million and $1.9 million of~~Unrecognized PPP lender fees ~~in loan interest income for the three~~totaled $8.3 million at March 31, 2021 and ~~nine months ended September 30, 2020, respectively. The remaining balance of $7.6 million in deferred lender fees~~ will be amortized into interest income over the life of the ~~PPP~~ loans.

~~Though~~The Company’s tax-equivalent net interest margin, which is net interest income ~~increased, outstanding~~as a percentage of average interest-earning assets, was 4.14% and 4.18% for the quarters ended March 31, 2021 and 2020, respectively. For the same periods, the average loan yield was 5.21% and 5.43%, respectively. Outstanding PPP loans ~~negatively~~positively impacted the the net interest margin by 26 bps and the average loan yield by 3418 bps ~~and~~during the first quarter of 2021.

The net interest margin ~~by 14 bps during the third quarter of 2020. During the nine months ended September 30, 2020, outstanding PPP loans negatively~~was also impacted ~~the average loan yield~~ by ~~19 bps and the net interest margin by 7 bps.~~

~~In addition,~~ the increase in average cash and cash equivalents ~~from~~when comparing the ~~third quarter~~first quarters of ~~2019 to~~2021 and 2020. The increase in average cash and cash equivalents negatively impacted the ~~third quarter of 2020 negatively impacted~~net interest margin and the average yield on total interest-earning assets by 27 and ~~the net interest margin by 21 and 19 bps, respectively. For the nine months ended September~~ 30 2020, the increase in average cash and cash equivalents from the comparable period in 2019 negatively impacted the average yield on total interest-earning assets and the net interest margin by 15 and 12 bps, respectively. Average cash and cash equivalents are reflected in the increases in the average balances of other interest-earning assets. Average other interest-earning assets for the ~~third~~first quarter of ~~2020~~2021 were up ~~$112.1~~$155.8 million compared to the average of ~~$58.9~~$28.0 million during the ~~third~~first quarter of 2019. For the nine months ended September 30, 2020, average other interest-earning assets were up $71.7 million compared to the average of $56.8 million during the nine months ended September 30, 2019.2020.

Acquired loan discount accretion included in interest income totaled ~~$847,000~~$736,000 and ~~$420,000~~$810,000 for the quarters ended ~~September 30,~~March 31, 2021 and 2020, and 2019, respectively. Acquired loan discount for the third quarter of 2019 was reduced by $680,000 (pre-tax) due to the write-off of the Company's FDIC loss sharing indemnification receivable. For the nine months ended September 30, 2020 and 2019, acquired loan discount accretion included in interest income totaled $2.4 million and $2.5 million, respectively.

The Company’s tax-equivalent net interest margin, which is net interest income as a percentage of average interest-earning assets, was 3.82% and 4.12% for the quarters ended September 30, 2020 and 2019, respectively. For the nine months ended September 30, 2020 and 2019, the Company's tax-equivalent net interest margin was 3.91% and 4.30%, respectively.

4946

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 September 30,													Three Months Ended March 31,
		2020						2019							2021						2020
(dollars in thousands)	(dollars in thousands)	Average Balance		Interest		Average Yield/Rate		Average Balance		Interest		Average Yield/Rate		(dollars in thousands)	Average Balance		Interest		Average Yield/Rate		Average Balance		Interest		Average Yield/Rate
Interest-earning assets:	Interest-earning assets:													Interest-earning assets:
Loans receivable(1)	Loans receivable(1)	$	1,971,174	$	24,769	4.94	%	$	1,698,046	$	23,562	5.46	%	Loans receivable(1)	$	1,987,264	$	25,817	5.21	%	$	1,735,224	$	23,699	5.43	%
Investment securities	Investment securities													Investment securities
Taxable	Taxable	240,830		897		1.49		241,475		1,401		2.32		Taxable	240,740		918		1.52		244,920		1,308		2.14
Tax-exempt (TE)	Tax-exempt (TE)	11,484		70		3.10		20,303		114		2.83		Tax-exempt (TE)	20,552		94		2.32		18,120		104		2.90
Total investment securities	Total investment securities	252,314		967		1.56		261,778		1,515		2.36		Total investment securities	261,292		1,012		1.59		263,040		1,412		2.19
Other interest-earning assets	Other interest-earning assets	170,957		106		0.25		58,878		397		2.68		Other interest-earning assets	183,771		99		0.22		28,002		138		1.99
Total interest-earning assets (TE)	Total interest-earning assets (TE)	2,394,445		$	25,842	4.25		2,018,702		$	25,474	4.98		Total interest-earning assets (TE)	2,432,327		$	26,928	4.44		2,026,266		$	25,249	4.96
Noninterest-earning assets	Noninterest-earning assets	187,794						198,476						Noninterest-earning assets	188,337						192,649
Total assets	Total assets	$	2,582,239					$	2,217,178					Total assets	$	2,620,664					$	2,218,915
Interest-bearing liabilities:	Interest-bearing liabilities:													Interest-bearing liabilities:
Deposits:	Deposits:													Deposits:
Savings, checking and money market	Savings, checking and money market	$	1,195,455	$	1,136	0.38	%	$	991,248	$	2,215	0.89	%	Savings, checking and money market	$	1,240,933	$	881	0.29	%	$	989,028	$	1,822	0.74	%
Certificates of deposit	Certificates of deposit	381,949		1,232		1.28		392,214		1,835		1.86		Certificates of deposit	352,501		775		0.89		392,670		1,845		1.89
Total interest-bearing deposits	Total interest-bearing deposits	1,577,404		2,368		0.60		1,383,462		4,050		1.16		Total interest-bearing deposits	1,593,434		1,656		0.42		1,381,698		3,667		1.07
Other borrowings	Other borrowings	5,539		53		3.81		5,550		53		3.80		Other borrowings	5,706		53		3.78		5,539		53		3.86
Short-term FHLB advances	Short-term FHLB advances	—		—		—		22		—		2.45		Short-term FHLB advances	—		—		—		634		3		1.82
Long term FHLB advances	Long term FHLB advances	34,612		149		1.73		51,144		230		1.80		Long term FHLB advances	28,424		124		1.74		45,095		203		1.80
Total interest-bearing liabilities	Total interest-bearing liabilities	1,617,555		$	2,570	0.63		1,440,178		$	4,333	1.19		Total interest-bearing liabilities	1,627,564		$	1,833	0.46		1,432,966		$	3,926	1.10
Noninterest-bearing liabilities	Noninterest-bearing liabilities	651,843						462,227						Noninterest-bearing liabilities	666,271						469,596
Total liabilities	Total liabilities	2,269,398						1,902,405						Total liabilities	2,293,835						1,902,562
Shareholders’ equity	Shareholders’ equity	312,841						314,773						Shareholders’ equity	326,829						316,353
Total liabilities and shareholders’ equity		$	2,582,239					$	2,217,178
Total liabilities and shareholders' equity														Total liabilities and shareholders' equity	$	2,620,664					$	2,218,915
Net interest-earning assets	Net interest-earning assets	$	776,890					$	578,524					Net interest-earning assets	$	804,763					$	593,300
Net interest spread (TE)	Net interest spread (TE)			$	23,272	3.62	%			$	21,141	3.79	%	Net interest spread (TE)			$	25,095	3.98	%			$	21,323	3.86	%
Net interest margin (TE)	Net interest margin (TE)					3.82	%					4.12	%	Net interest margin (TE)					4.14	%					4.18	%

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

5047

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

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

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


		Three Months Ended September 30,						Nine Months Ended September 30,
		2020 Compared to 2019						2020 Compared to 2019							Three Months Ended March 31,
		Change Attributable To						Change Attributable To							2021 Compared to 2020
						Total Increase/						Total Increase/			Change Attributable To
(dollars in thousands)	(dollars in thousands)	Rate		Volume		(Decrease)		Rate		Volume		(Decrease)		(dollars in thousands)	Rate		Volume		Increase/ (Decrease)
Interest income:	Interest income:													Interest income:
Loans receivable	Loans receivable	$	(2,372)	$	3,579	$	1,207	$	(1,301)	$	3,568	$	2,267	Loans receivable	$	(1,507)	$	3,625	$	2,118
Investment securities	Investment securities	(485)		(63)		(548)		(920)		(571)		(1,491)		Investment securities	(398)		(2)		(400)
Other interest-earning assets	Other interest-earning assets	(704)		413		(291)		(797)		18		(779)		Other interest-earning assets	(462)		423		(39)
Total interest income	Total interest income	(3,561)		3,929		368		(3,018)		3,015		(3)		Total interest income	(2,367)		4,046		1,679
Interest expense:	Interest expense:													Interest expense:
Savings, checking and money market accounts	Savings, checking and money market accounts	(1,409)		330		(1,079)		(1,573)		(440)		(2,013)		Savings, checking and money market accounts	(1,252)		311		(941)
Certificates of deposit	Certificates of deposit	(560)		(43)		(603)		(69)		13		(56)		Certificates of deposit	(925)		(145)		(1,070)

Other borrowings														Other borrowings	—		—		—
FHLB advances	FHLB advances	(8)		(73)		(81)		(106)		(102)		(208)		FHLB advances	(7)		(75)		(82)
Total interest expense	Total interest expense	(1,977)		214		(1,763)		(1,748)		(529)		(2,277)		Total interest expense	(2,184)		91		(2,093)
Increase (decrease) in net interest income	Increase (decrease) in net interest income	$	(1,584)	$	3,715	$	2,131	$	(1,270)	$	3,544	$	2,274	Increase (decrease) in net interest income	$	(183)	$	3,955	$	3,772

Noninterest Income

Noninterest income for the ~~third~~first quarter of ~~2020~~2021 totaled ~~$3.8~~$4.1 million, ~~down $980,000,~~up $702,000, or ~~20.5%~~20.9%, from ~~$4.8~~$3.4 million earned for the same period in ~~2019. Noninterest income~~2020.

Gains on the sale of loans for the ~~nine months ended September 30, 2020 totaled $10.3 million, down $661,000,~~first quarter of 2021 were up $871,000, or ~~6.1%~~293.3%, from ~~$10.9 million earned for~~ the ~~same~~comparable period in ~~2019.~~2020. As interest rates remain relatively low, the Company has continued to benefit from the increase in demand for mortgage loan originations and refinances.

Income from ~~BOLI~~bank card fees for the ~~three and nine months ended September 30, 2020~~first quarter of 2021 was ~~down $1.2 million,~~up $169,000, or ~~84.2%~~14.9%, ~~and $1.1 million, or 60.8%, respectively,~~ from the comparable ~~periods~~period in ~~2019. During~~2020 primarily due to a general increase in the ~~third quarter~~level of ~~2019, the Company received a non-taxable BOLI benefit of $1.2 million following the death of a former employee.~~customer spending.

Income from service fees and charges for the ~~three and nine months ended September 30, 2020~~first quarter of 2021 was down ~~$393,000,~~$392,000, or ~~25.9%~~26.8%, ~~and $867,000, or 19.7%, respectively,~~ from the comparable ~~periods~~period in ~~2019.~~2020. Service fees and charges decreased primarily due to a decline in income from overdraft fees on deposit accounts.

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

Losses on the sale of assets for the nine months ended September 30, 2020 were down $325,000, or 96.7%, compared to the same period in 2019. During the second quarter of 2019, the Company recorded asset write-downs totaling $347,000 (pre-tax).

5248

Noninterest Expense

Noninterest expense for the ~~third~~first quarter of ~~2020~~2021 totaled ~~$16.1~~$16.0 million, ~~down $494,000,~~up $550,000, or ~~3.0%~~3.6%, from the ~~third~~first quarter of ~~2019. Noninterest expense~~2020.

Regulatory fees for the ~~nine months ended September 30, 2020 totaled $48.3 million,~~the first quarter of 2021 were up ~~$404,000,~~$263,000, or ~~0.8%~~226.7%, from the ~~same~~comparable period in ~~2019.~~2020 primarily due to an increase in FDIC assessments. FDIC assessment credits were exhausted during the first quarter of 2020.

Compensation and benefits expense for the ~~three and nine months ended September 30, 2020~~first quarter of 2021 was ~~down $526,000,~~up $248,000, or ~~5.1%~~2.6%, ~~and $459,000, or 1.6%, respectively,~~ from the comparable ~~periods~~period in ~~2019~~2020 primarily due to ~~decreases~~an increase in incentive pay and an increase in health insurance ~~costs and compensation expense related to~~cost in the ~~Company's ESOP driven primarily by the decline in market value~~first quarter of ~~shares of the Company's common stock held by the ESOP.~~2021.

~~Occupancy~~Data processing and communication expense for the ~~three and nine months ended September 30, 2020~~first quarter of 2021 was ~~down $105,000,~~up $167,000, or ~~5.9%~~9.2%, ~~and $330,000, or 6.1%, respectively,~~ from the comparable ~~periods~~period in ~~2019. During the third quarter of~~ 2020 ~~occupancy expense decreased~~ primarily due to ~~a decline in building maintenance costs. Occupancy~~increased costs of software and service contracts.

Foreclosed assets expense for ~~nine months ended September 30, 2019 included $291,000 (pre-tax) of costs to terminate an office lease during~~ the ~~second~~first quarter of ~~2019.~~2021 was up $106,000, or 623.5%, from the comparable period in 2020 primarily due an increase in holding costs and a decrease in net gains on the sale of foreclosed assets in the first quarter of 2021.

Marketing and advertising expense for the ~~three and nine months ended September 30, 2020~~first quarter of 2021 was down ~~$130,000,~~$127,000, or ~~31.1%~~42.6%, ~~and $251,000, or 25.2%, respectively,~~ from the comparable ~~periods~~period in ~~2019~~2020 primarily due to a general decline across all marketing activities.

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

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

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

Other noninterest expense for the three and nine months ended September 30, 2020 was down $196,000, or 19.5%, and $489,000, or 16.0%, respectively, from the comparable periods in 2019 primarily due to declines in several expense categories.

Income Taxes

Income tax expense for the ~~third~~first quarter of ~~2020~~2021 increased ~~$865,000,~~$2.4 million, or ~~66.4%~~463.5%, compared to the ~~third~~first quarter of ~~2019~~2020 primarily due to an increase in taxable earnings. The Company recorded no provisions for credit losses on loans and unfunded lending commitments during the third quarter of 2020. During the third quarter of 2019, the Company received a non-taxable BOLI benefit of $1.2 million following the death of a former employee.

~~For the nine months ended September 30, 2020, income tax expense decreased $1.1 million, or 25.7%, from the comparable period in 2019 primarily due to the decrease~~ in taxable earnings. The Company's effective tax rate for the ~~three~~first quarters of 2021 and ~~six months ended June 30,~~ 2020 was ~~19.8%~~19.9% and ~~19.1%~~17.5%, ~~respectively, compared to 16.0% and 16.4%, respectively, from the comparable periods in 2019.~~respectively.

5349


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, ~~2019,~~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 ~~September 30, 2020~~March 31, 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 ~~the Bank's Senior Vice President and Director of~~Chief Financial ~~Management (who was performing the duties of acting principal financial officer at the time of filing of this Form 10-Q,~~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 ~~the Bank's Senior Vice President and Director of~~Chief Financial ~~Management (who was performing the duties of acting principal financial officer at the time of filing of this Form 10-Q~~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 ~~third~~first quarter of ~~2020~~2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

5450

PART II. OTHER INFORMATION


Item 1.			Legal Proceedings.

Not applicable.


Item 1A.			Risk Factors.

~~Other than the following additional risk factor which supplements the “Risk Factors” section in Item 1A of the Company's Annual Report on Form 10-K for the year ended~~ ~~December 31, 2019 ("Form 10-K") filed with the Securities and Exchange Commission, there~~There have been no material changes from the risk factors previously disclosed ~~by the Company~~ in the Company's Annual report on Form ~~10-K:~~

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

The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, lowered equity market valuations, created significant volatility and disruption in financial markets, and increased unemployment levels. In addition, the pandemic has resulted in temporary closures of many businesses and the institution of social distancing and sheltering in place requirements in Louisiana and many other states and communities. Global markets for oil and gas have, and may continue to be, adversely impacted by the COVID-19 pandemic and/or other events beyond our control, and further volatility in commodity prices could have a negative impact on the economies of energy-dominated states in which we operate. As a result, the demand for our products and services may be significantly impacted, which could adversely affect our revenue. Furthermore, the pandemic could continue to result in the recognition of credit losses in our loan portfolios and increases in our allowance for credit losses, particularly if businesses remain closed, the impact on the global economy worsens, or more customers draw on their lines of credit or seek additional loans to help finance their businesses. Similarly, because of changing economic and market conditions affecting issuers, we may be required to recognize impairments on the securities we hold as well as reductions in other comprehensive income. Our business operations may also be disrupted if significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions, or other restrictions in connectionyear ended December 31, 2020 filed with the ~~pandemic,~~Securities and we have already temporarily limited access to certain of our branches and offices. In response to the pandemic, we have also suspended residential property foreclosure sales, evictions, and involuntary automobile repossessions, and are offering fee waivers, payment deferrals, and other expanded assistance for credit card, automobile, mortgage, small business and personal lending customers, and future governmental actions may require these and other types of customer-related responses. The extent to which the COVID-19 pandemic impacts our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic.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)
July 1 – July 31, 2020 10,894 $ 24.91 10,894 516,022
August 1 – August 31, 2020 53,296 24.71 53,296 462,726
September 1 – September 30, 2020 71,034 25.11 71,034 391,692
Total 135,224 $ 24.94 135,224 391,692


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)
January 1 – January 31, 2021	39,282	$	28.54	39,282	260,798
February 1 – February 28, 2021	2,195	29.38		2,195	258,603
March 1 – March 31, 2021	—	—		—	258,603
Total	41,477	$	28.58	41,477	258,603

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

5551


Item 3.			Defaults Upon Senior Securities.

None.


Item 4.			Mine Safety Disclosures.

None.


Item 5.			Other Information.

None.


Item 6.			Exhibits and Financial Statement Schedules.


No.						Description

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

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

~~32.0~~32 .0						Section 1350 Certification

101.INS						XBRL Instance Document

101.SCH						XBRL Taxonomy Extension Schema Document

101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF						XBRL Taxonomy Extension Definitions Linkbase Document

101.LAB						XBRL Taxonomy Extension Label Linkbase Document

101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document

5652

SIGNATURES

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

HOME BANCORP, INC.

~~November 6, 2020~~May 7, 2021

By:

/s/ John W. Bordelon

John W. Bordelon

Chairman of the Board, President and Chief Executive Officer

May 7, 2021

By:

/s/ David T. Kirkley

David T. Kirkley

Executive Vice President and Chief Financial Officer

~~November 6, 2020~~May 7, 2021

By:

/s/ Mary H. Hopkins

Mary H. Hopkins

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

5753


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

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


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


(dollars in thousands)	September 30, 2020		December 31, 2019
Real estate loans:
One- to four-family first mortgage	$	409,282	$	430,820
Home equity loans and lines	67,766		79,812
Commercial real estate	707,638		722,807
Construction and land	201,575		195,748
Multi-family residential	86,619		54,869
Total real estate loans	1,472,880		1,484,056
Other loans:
Commercial and industrial	443,480		184,701
Consumer	38,937		45,604
Total other loans	482,417		230,305
Total loans	$	1,955,297	$	1,714,361


	Nine Months Ended September 30, 2019
(dollars in thousands)	Beginning Balance		Charge-offs		Recoveries		Provision		Ending Balance
Allowance for loan losses:
One- to four-family first mortgage	$	2,136	$	(4)	$	0	$	271	$	2,403
Home equity loans and lines	1,079		(42)		10		41		1,088
Commercial real estate	6,125		(139)		0		829		6,815
Construction and land	2,285		0		0		(113)		2,172
Multi-family residential	550		0		0		22		572
Commercial and industrial	3,228		(744)		23		1,343		3,850
Consumer	945		(189)		34		(92)		698
Total allowance for loan losses	$	16,348	$	(1,118)	$	67	$	2,301	$	17,598


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