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, ~~2021~~2022


☐			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 ~~October 29, 2021,~~November 2, 2022, the registrant had ~~8,523,524~~8,281,634 shares of common stock, $0.01 par value, outstanding.

HOME BANCORP, INC. and SUBSIDIARY

TABLE OF CONTENTS



PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	Page
	Consolidated Statements of Financial Condition	1
	Consolidated Statements of Income	2
	Consolidated Statements of Comprehensive Income	3
	Consolidated Statements of Changes in Shareholders’ Equity	4
	Consolidated Statements of Cash Flows	6
	Notes to Unaudited Consolidated Financial Statements	7
Item 2.	~~Managements’~~Management 's Discussion and Analysis of Financial Condition and Results of Operations	3638
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	54
Item 4.	Controls and Procedures	54
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	55
Item 1A.	Risk Factors	55
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55
Item 3.	Defaults Upon Senior Securities	56
Item 4.	Mine Safety Disclosures	56
Item 5.	Other Information	56
Item 6.	Exhibits	56
SIGNATURES		57

HOME BANCORP, INC. and SUBSIDIARY

GLOSSARY OF DEFINED TERMS

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


ACL	–	Allowance for credit losses
ALL	–	Allowance for loan losses
AOCI	–	Accumulated other comprehensive income
ASC	–	Accounting Standards Codification
ASU	–	Accounting Standards Update
Bank	–	Home Bank, N. A., a wholly-owned subsidiary of the Company
BOLI	–	Bank-owned life insurance
bps	–	basis points, 100 basis points being equal to 1.0%
C&D	–	Construction and land
C&I	–	Commercial and industrial
CARES Act	–	Coronavirus Aid, Relief, and Economic Security Act
CECL	–	Current expected credit losses
Company	–	Home Bancorp, Inc., a Louisiana corporation and the holding company for Home Bank, N. A.
COVID-19	–	The novel coronavirus
CRE	–	Commercial real estate
EPS	–	Earnings per common share
FASB	–	Financial Accounting Standards Board
FHLB	–	Federal Home Loan Bank
GAAP	–	Generally Accepted Accounting Principles
LTV	–	Loan-to-value
NPA(s)	–	Nonperforming asset(s)
OCI	–	Other comprehensive income
ORE	–	Other real estate
PCD	–	Purchased credit deteriorated
PCI	–	Purchased credit impaired
PPP	–	Paycheck Protection Program
SBA	–	U.S. Small Business Association
SEC	–	U.S. 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)			(Unaudited)		(Audited)
(dollars in thousands)	(dollars in thousands)	September 30, 2021		December 31, 2020		(dollars in thousands)	September 30, 2022		December 31, 2021
Assets	Assets					Assets
Cash and cash equivalents	Cash and cash equivalents	$	413,694	$	187,952	Cash and cash equivalents	$	150,556	$	601,443
Interest-bearing deposits in banks	Interest-bearing deposits in banks	349		349		Interest-bearing deposits in banks	349		349
Investment securities available for sale, at fair value	Investment securities available for sale, at fair value	304,125		254,752		Investment securities available for sale, at fair value	492,758		327,632
Investment securities held to maturity (fair values of $2,147 and $2,996, respectively)		2,110		2,934
Investment securities held to maturity (fair values of $1,066 and $2,132, respectively)						Investment securities held to maturity (fair values of $1,066 and $2,132, respectively)	1,080		2,102
Mortgage loans held for sale	Mortgage loans held for sale	3,476		9,559		Mortgage loans held for sale	169		1,104
Loans, net of unearned income	Loans, net of unearned income	1,875,176		1,979,954		Loans, net of unearned income	2,303,279		1,840,093
Allowance for loan losses	Allowance for loan losses	(24,149)		(32,963)		Allowance for loan losses	(27,351)		(21,089)
Total loans, net of unearned income and allowance for loan losses	Total loans, net of unearned income and allowance for loan losses	1,851,027		1,946,991		Total loans, net of unearned income and allowance for loan losses	2,275,928		1,819,004
Office properties and equipment, net	Office properties and equipment, net	44,331		45,497		Office properties and equipment, net	43,685		43,542
Cash surrender value of bank-owned life insurance	Cash surrender value of bank-owned life insurance	40,142		40,334		Cash surrender value of bank-owned life insurance	46,019		40,361
Goodwill and core deposit intangibles	Goodwill and core deposit intangibles	62,229		63,112		Goodwill and core deposit intangibles	87,839		61,949
Accrued interest receivable and other assets	Accrued interest receivable and other assets	41,983		40,370		Accrued interest receivable and other assets	69,283		40,758
Total Assets	Total Assets	$	2,763,466	$	2,591,850	Total Assets	$	3,167,666	$	2,938,244
Liabilities	Liabilities					Liabilities
Deposits:	Deposits:					Deposits:
Noninterest-bearing	Noninterest-bearing	$	728,352	$	615,700	Noninterest-bearing	$	921,089	$	766,385
Interest-bearing	Interest-bearing	1,637,365		1,598,121		Interest-bearing	1,817,335		1,769,464
Total Deposits	Total Deposits	2,365,717		2,213,821		Total Deposits	2,738,424		2,535,849
Other borrowings	Other borrowings	5,539		5,539		Other borrowings	5,539		5,539
Subordinated debt, net of issuance cost						Subordinated debt, net of issuance cost	53,958		—
Long-term Federal Home Loan Bank advances	Long-term Federal Home Loan Bank advances	26,430		28,824		Long-term Federal Home Loan Bank advances	24,816		26,046
Accrued interest payable and other liabilities	Accrued interest payable and other liabilities	21,631		21,824		Accrued interest payable and other liabilities	28,273		18,907
Total Liabilities	Total Liabilities	2,419,317		2,270,008		Total Liabilities	2,851,010		2,586,341
Shareholders’ Equity	Shareholders’ Equity					Shareholders’ Equity
Preferred stock, $0.01 par value - 10,000,000 shares authorized; none issued	Preferred stock, $0.01 par value - 10,000,000 shares authorized; none issued	—		—		Preferred stock, $0.01 par value - 10,000,000 shares authorized; none issued	—		—
Common stock, $0.01 par value - 40,000,000 shares authorized; 8,523,473 and 8,740,104 shares issued and outstanding, respectively		85		87
Common stock, $0.01 par value - 40,000,000 shares authorized; 8,273,334 and 8,526,907 shares issued and outstanding, respectively						Common stock, $0.01 par value - 40,000,000 shares authorized; 8,273,334 and 8,526,907 shares issued and outstanding, respectively	83		85
Additional paid-in capital	Additional paid-in capital	164,316		164,988		Additional paid-in capital	164,024		164,982
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)	(2,499)		(2,767)		Employee Stock Ownership Plan (ESOP)	(2,142)		(2,410)
Recognition and Retention Plan (RRP)	Recognition and Retention Plan (RRP)	(14)		(22)		Recognition and Retention Plan (RRP)	(8)		(13)
Retained earnings	Retained earnings	180,327		154,282		Retained earnings	197,553		188,515
Accumulated other comprehensive income		1,934		5,274
Accumulated other comprehensive (loss) income						Accumulated other comprehensive (loss) income	(42,854)		744
Total Shareholders’ Equity	Total Shareholders’ Equity	344,149		321,842		Total Shareholders’ Equity	316,656		351,903
Total Liabilities and Shareholders’ Equity	Total Liabilities and Shareholders’ Equity	$	2,763,466	$	2,591,850	Total Liabilities and Shareholders’ Equity	$	3,167,666	$	2,938,244

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 September 30,				Nine Months Ended September 30,
(dollars in thousands, except per share data)	(dollars in thousands, except per share data)	2021		2020		2021		2020		(dollars in thousands, except per share data)	2022		2021		2022		2021
Interest Income	Interest Income									Interest Income
Loans, including fees	Loans, including fees	$	27,045	$	24,769	$	77,362	$	72,839	Loans, including fees	$	29,859	$	27,045	$	79,834	$	77,362
Investment securities:	Investment securities:									Investment securities:
Taxable interest	Taxable interest	1,108		897		3,069		3,308		Taxable interest	2,812		1,108		6,576		3,069
Tax-exempt interest	Tax-exempt interest	81		70		262		253		Tax-exempt interest	146		81		338		262
Other investments and deposits	Other investments and deposits	189		106		421		361		Other investments and deposits	1,447		189		2,587		421
Total interest income	Total interest income	28,423		25,842		81,114		76,761		Total interest income	34,264		28,423		89,335		81,114
Interest Expense	Interest Expense									Interest Expense
Deposits	Deposits	1,120		2,368		4,256		9,047		Deposits	1,270		1,120		3,266		4,256
Other borrowings	Other borrowings	53		53		159		159		Other borrowings	53		53		160		159
Short-term Federal Home Loan Bank advances		—		—		—		23
Subordinated debt expense										Subordinated debt expense	859		—		859		—

Long-term Federal Home Loan Bank advances	Long-term Federal Home Loan Bank advances	116		149		360		520		Long-term Federal Home Loan Bank advances	105		116		321		360
Total interest expense	Total interest expense	1,289		2,570		4,775		9,749		Total interest expense	2,287		1,289		4,606		4,775
Net interest income	Net interest income	27,134		23,272		76,339		67,012		Net interest income	31,977		27,134		84,729		76,339
(Reversal) provision for loan losses		(2,385)		—		(7,513)		12,728
Net interest income after (reversal) provision for loan losses		29,519		23,272		83,852		54,284
Provision (reversal) for loan losses										Provision (reversal) for loan losses	1,696		(2,385)		5,502		(7,513)
Net interest income after provision (reversal) for loan losses										Net interest income after provision (reversal) for loan losses	30,281		29,519		79,227		83,852
Noninterest Income	Noninterest Income									Noninterest Income
Service fees and charges	Service fees and charges	1,260		1,123		3,478		3,529		Service fees and charges	1,300		1,260		3,722		3,478
Bank card fees	Bank card fees	1,519		1,331		4,416		3,595		Bank card fees	1,623		1,519		4,713		4,416
Gain on sale of loans, net	Gain on sale of loans, net	415		904		2,142		1,843		Gain on sale of loans, net	78		415		641		2,142
Income from bank-owned life insurance	Income from bank-owned life insurance	1,938		231		2,384		718		Income from bank-owned life insurance	231		1,938		658		2,384
Loss on sale of assets, net		(3)		—		(460)		(11)
Gain (loss) on sale of assets, net										Gain (loss) on sale of assets, net	18		(3)		17		(460)
Other income	Other income	254		205		777		581		Other income	224		254		795		777
Total noninterest income	Total noninterest income	5,383		3,794		12,737		10,255		Total noninterest income	3,474		5,383		10,546		12,737
Noninterest Expense	Noninterest Expense									Noninterest Expense
Compensation and benefits	Compensation and benefits	9,809		9,740		29,160		28,518		Compensation and benefits	12,128		9,809		34,870		29,160
Occupancy	Occupancy	1,717		1,686		5,146		5,075		Occupancy	2,297		1,717		6,454		5,146
Marketing and advertising	Marketing and advertising	399		288		838		746		Marketing and advertising	658		399		1,713		838
Data processing and communication	Data processing and communication	2,118		1,851		6,263		5,430		Data processing and communication	2,284		2,118		7,012		6,263
Professional services	Professional services	234		197		685		665		Professional services	331		234		1,348		685
Forms, printing and supplies	Forms, printing and supplies	158		140		480		471		Forms, printing and supplies	185		158		584		480
Franchise and shares tax	Franchise and shares tax	360		378		1,079		1,156		Franchise and shares tax	633		360		1,415		1,079
Regulatory fees	Regulatory fees	301		526		986		1,004		Regulatory fees	467		301		1,611		986
Foreclosed assets and ORE, net	Foreclosed assets and ORE, net	74		162		298		324		Foreclosed assets and ORE, net	101		74		493		298
Amortization of acquisition intangible	Amortization of acquisition intangible	291		338		884		1,033		Amortization of acquisition intangible	453		291		1,159		884
Provision for credit losses on unfunded commitments	Provision for credit losses on unfunded commitments	—		—		375		—		Provision for credit losses on unfunded commitments	146		—		448		375
Other expenses	Other expenses	970		810		2,771		2,563		Other expenses	1,040		970		3,621		2,771
Total noninterest expense	Total noninterest expense	16,431		16,116		48,965		46,985		Total noninterest expense	20,723		16,431		60,728		48,965
Income before income tax expense	Income before income tax expense	18,471		10,950		47,624		17,554		Income before income tax expense	13,032		18,471		29,045		47,624
Income tax expense	Income tax expense	3,412		2,168		9,241		3,369		Income tax expense	2,598		3,412		5,749		9,241
Net Income	Net Income	$	15,059	$	8,782	$	38,383	$	14,185	Net Income	$	10,434	$	15,059	$	23,296	$	38,383
Earnings per share:	Earnings per share:									Earnings per share:
Basic	Basic	$	1.80	$	1.01	$	4.56	$	1.61	Basic	$	1.29	$	1.80	$	2.86	$	4.56
Diluted	Diluted	$	1.79	$	1.01	$	4.54	$	1.61	Diluted	$	1.28	$	1.79	$	2.84	$	4.54
Cash dividends declared per common share	Cash dividends declared per common share	$	0.23	$	0.22	$	0.68	$	0.66	Cash dividends declared per common share	$	0.23	$	0.23	$	0.69	$	0.68

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,
(dollars in thousands) 2021 2020 2021 2020
Net Income $ 15,059 $ 8,782 $ 38,383 $ 14,185
Other Comprehensive (Loss) Income
Unrealized (losses) gains on available for sale investment securities (1,897) 39 (5,201) 5,815
Unrealized gains (losses) on cash flow hedges 55 76 974 (82)
Tax effect 387 (24) 887 (1,204)
Other comprehensive (loss) income, net of taxes (1,455) 91 (3,340) 4,529
Comprehensive Income $ 13,604 $ 8,873 $ 35,043 $ 18,714


	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2022		2021		2022		2021
Net Income	$	10,434	$	15,059	$	23,296	$	38,383
Other Comprehensive Loss
Unrealized losses on available for sale investment securities	(25,149)		(1,897)		(58,980)		(5,201)
Unrealized gains on cash flow hedges	1,297		55		3,793		974
Tax effect	5,009		387		11,589		887
Other comprehensive loss, net of taxes	(18,843)		(1,455)		(43,598)		(3,340)
Comprehensive (Loss) Income	$	(8,409)	$	13,604	$	(20,302)	$	35,043

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)	(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		(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 (Loss)		Total
Balance, June 30, 2020		$	90	$	166,494	$	(2,946)	$	(24)	$	142,327	$	5,130	$	311,071
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)						(2,021)				(3,374)
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		—		—						(1)				(1)
Exercise of stock options		—		—										—
RRP shares released for allocation				(1)				1						—
ESOP shares released for allocation				201		89								290
Share-based compensation cost				179										179
Balance, September 30, 2020		$	88	$	165,522	$	(2,857)	$	(23)	$	147,117	$	5,221	$	315,068
Balance, June 30, 2021	Balance, June 30, 2021	$	87	$	165,296	$	(2,589)	$	(15)	$	171,644	$	3,389	$	337,812	Balance, June 30, 2021	$	87	$	165,296	$	(2,589)	$	(15)	$	171,644	$	3,389	$	337,812
Net income	Net income									15,059				15,059		Net income									15,059				15,059
Other comprehensive loss	Other comprehensive loss											(1,455)		(1,455)		Other comprehensive loss											(1,455)		(1,455)
Purchase of Company’s common stock at cost, 159,762 shares	Purchase of Company’s common stock at cost, 159,762 shares	(2)		(1,596)						(4,386)				(5,984)		Purchase of Company’s common stock at cost, 159,762 shares	(2)		(1,596)						(4,386)				(5,984)
Cash dividends declared, $0.23 per share	Cash dividends declared, $0.23 per share									(1,988)				(1,988)		Cash dividends declared, $0.23 per share									(1,988)				(1,988)
Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 3,549 shares	Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 3,549 shares	—		87						(2)				85		Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 3,549 shares	—		87						(2)				85
Exercise of stock options	Exercise of stock options	—		26										26		Exercise of stock options	—		26										26
RRP shares released for allocation	RRP shares released for allocation			(1)				1						—		RRP shares released for allocation			(1)				1						—
ESOP shares released for allocation	ESOP shares released for allocation			269		90								359		ESOP shares released for allocation			269		90								359
Share-based compensation cost	Share-based compensation cost			235										235		Share-based compensation cost			235										235
Balance, September 30, 2021	Balance, September 30, 2021	$	85	$	164,316	$	(2,499)	$	(14)	$	180,327	$	1,934	$	344,149	Balance, September 30, 2021	$	85	$	164,316	$	(2,499)	$	(14)	$	180,327	$	1,934	$	344,149
Balance, June 30, 2022																Balance, June 30, 2022	$	84	$	164,177	$	(2,231)	$	(9)	$	191,114	$	(24,011)	$	329,124
Net income																Net income									10,434				10,434
Other comprehensive loss																Other comprehensive loss											(18,843)		(18,843)
Purchase of Company’s common stock at cost, 77,021 shares																Purchase of Company’s common stock at cost, 77,021 shares	(1)		(770)						(2,084)				(2,855)
Cash dividends declared, $0.23 per share																Cash dividends declared, $0.23 per share									(1,910)				(1,910)
Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 3,260 shares																Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 3,260 shares	—		97						(1)				96
Exercise of stock options																Exercise of stock options	—		53										53
RRP shares released for allocation																RRP shares released for allocation			(1)				1						—
ESOP shares released for allocation																ESOP shares released for allocation			309		89								398
Share-based compensation cost																Share-based compensation cost			159										159
Balance, September 30, 2022																Balance, September 30, 2022	$	83	$	164,024	$	(2,142)	$	(8)	$	197,553	$	(42,854)	$	316,656

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

(Unaudited)


(dollars in thousands, except per share data)	(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		(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 (Loss)		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										14,185				14,185
Other comprehensive income												4,529		4,529
Purchase of Company’s common stock at cost, 438,892 shares		(5)		(4,384)						(7,220)				(11,609)
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		—		30										30
RRP shares released for allocation				(12)				12						—
ESOP shares released for allocation				680		267								947
Share-based compensation cost				629										629
Balance, September 30, 2020		$	88	$	165,522	$	(2,857)	$	(23)	$	147,117	$	5,221	$	315,068
Balance, December 31, 2020	Balance, December 31, 2020	$	87	$	164,988	$	(2,767)	$	(22)	$	154,282	$	5,274	$	321,842	Balance, December 31, 2020	$	87	$	164,988	$	(2,767)	$	(22)	$	154,282	$	5,274	$	321,842

Net income	Net income									38,383				38,383		Net income									38,383				38,383
Other comprehensive loss	Other comprehensive loss											(3,340)		(3,340)		Other comprehensive loss											(3,340)		(3,340)
Purchase of Company’s common stock at cost, 243,497 shares	Purchase of Company’s common stock at cost, 243,497 shares	(2)		(2,433)						(6,363)				(8,798)		Purchase of Company’s common stock at cost, 243,497 shares	(2)		(2,433)						(6,363)				(8,798)
Cash dividends declared, $0.68 per share	Cash dividends declared, $0.68 per share									(5,906)				(5,906)		Cash dividends declared, $0.68 per share									(5,906)				(5,906)
Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 22,273 shares	Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 22,273 shares	—		245						(69)				176		Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 22,273 shares	—		245						(69)				176
Exercise of stock options	Exercise of stock options	—		80										80		Exercise of stock options	—		80										80
RRP shares released for allocation	RRP shares released for allocation			(8)				8						—		RRP shares released for allocation			(8)				8						—
ESOP shares released for allocation	ESOP shares released for allocation			849		268								1,117		ESOP shares released for allocation			849		268								1,117
Share-based compensation cost	Share-based compensation cost			595										595		Share-based compensation cost			595										595
Balance, September 30, 2021	Balance, September 30, 2021	$	85	$	164,316	$	(2,499)	$	(14)	$	180,327	$	1,934	$	344,149	Balance, September 30, 2021	$	85	$	164,316	$	(2,499)	$	(14)	$	180,327	$	1,934	$	344,149
Balance, December 31, 2021																Balance, December 31, 2021	$	85	$	164,982	$	(2,410)	$	(13)	$	188,515	$	744	$	351,903
Net income																Net income									23,296				23,296
Other comprehensive loss																Other comprehensive loss											(43,598)		(43,598)
Purchase of Company’s common stock at cost, 287,035 shares																Purchase of Company’s common stock at cost, 287,035 shares	(2)		(2,868)						(8,407)				(11,277)
Cash dividends declared, $0.69 per share																Cash dividends declared, $0.69 per share									(5,790)				(5,790)
Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 22,837 shares																Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 22,837 shares			304						(61)				243
Exercise of stock options																Exercise of stock options	—		182										182
RRP shares released for allocation																RRP shares released for allocation			(5)				5						—
ESOP shares released for allocation																ESOP shares released for allocation			933		268								1,201
Share-based compensation cost																Share-based compensation cost			496										496
Balance, September 30, 2022																Balance, September 30, 2022	$	83	$	164,024	$	(2,142)	$	(8)	$	197,553	$	(42,854)	$	316,656

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,					For the Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2021		2020		(dollars in thousands)	2022		2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	38,383	$	14,185	Net income	$	23,296	$	38,383
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
(Reversal) provision for loan losses		(7,513)		12,728
Provision (reversal) for loan losses						Provision (reversal) for loan losses	5,502		(7,513)
Depreciation	Depreciation	2,301		2,288		Depreciation	2,538		2,301
Amortization and accretion of purchase accounting valuations and intangibles	Amortization and accretion of purchase accounting valuations and intangibles	2,762		3,458		Amortization and accretion of purchase accounting valuations and intangibles	3,020		2,762
Net amortization of mortgage servicing asset		—		56

Federal Home Loan Bank stock dividends	Federal Home Loan Bank stock dividends	(11)		(56)		Federal Home Loan Bank stock dividends	(22)		(11)
Net amortization of discount on investments	Net amortization of discount on investments	1,484		2,168		Net amortization of discount on investments	871		1,484
Amortization of subordinated debt issuance cost						Amortization of subordinated debt issuance cost	60		—
Gain on loans sold, net	Gain on loans sold, net	(2,142)		(1,843)		Gain on loans sold, net	(641)		(2,142)
Proceeds, including principal payments, from loans held for sale	Proceeds, including principal payments, from loans held for sale	165,995		192,232		Proceeds, including principal payments, from loans held for sale	64,755		165,995
Originations of loans held for sale	Originations of loans held for sale	(157,770)		(204,444)		Originations of loans held for sale	(63,179)		(157,770)
Loss on sale of assets, net		460		11
(Gain) loss on sale of assets, net						(Gain) loss on sale of assets, net	(17)		460
Non-cash compensation	Non-cash compensation	1,712		1,576		Non-cash compensation	1,697		1,712
Deferred income tax expense (benefit)		1,747		(2,424)
Deferred income tax (benefit) expense						Deferred income tax (benefit) expense	(425)		1,747
Increase in accrued interest receivable and other assets	Increase in accrued interest receivable and other assets	(3,612)		(1,818)		Increase in accrued interest receivable and other assets	(9,207)		(3,612)
Increase in cash surrender value of bank-owned life insurance	Increase in cash surrender value of bank-owned life insurance	(667)		(718)		Increase in cash surrender value of bank-owned life insurance	(658)		(667)
Increase in accrued interest payable and other liabilities	Increase in accrued interest payable and other liabilities	793		711		Increase in accrued interest payable and other liabilities	9,085		793
Net cash provided by operating activities	Net cash provided by operating activities	43,922		18,110		Net cash provided by operating activities	36,675		43,922
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Purchases of securities available for sale	Purchases of securities available for sale	(125,380)		(57,187)		Purchases of securities available for sale	(236,236)		(125,380)
Proceeds from maturities, prepayments and calls on securities available for sale	Proceeds from maturities, prepayments and calls on securities available for sale	64,278		66,653		Proceeds from maturities, prepayments and calls on securities available for sale	44,692		64,278
Proceeds from maturities, prepayments and calls on securities held to maturity	Proceeds from maturities, prepayments and calls on securities held to maturity	800		4,130		Proceeds from maturities, prepayments and calls on securities held to maturity	1,000		800
Proceeds from sales of securities available for sale	Proceeds from sales of securities available for sale	5,068		—		Proceeds from sales of securities available for sale	—		5,068
Decrease (increase) in loans, net		99,621		(245,440)
Increase in interest-bearing deposits in banks		—		100
(Increase) decrease in loans, net						(Increase) decrease in loans, net	(151,039)		99,621

Proceeds from sale of foreclosed assets	Proceeds from sale of foreclosed assets	2,274		3,039		Proceeds from sale of foreclosed assets	2,557		2,274
Purchases of office properties and equipment	Purchases of office properties and equipment	(1,998)		(1,570)		Purchases of office properties and equipment	(1,904)		(1,998)
Net cash disbursed in sale of banking center						Net cash disbursed in sale of banking center	(11,182)		—
Net cash disbursed in business combination						Net cash disbursed in business combination	(16,123)		—
Purchase of bank-owned life insurance						Purchase of bank-owned life insurance	(5,000)		—
Proceeds from bank-owned life insurance	Proceeds from bank-owned life insurance	1,717		—		Proceeds from bank-owned life insurance	—		1,717
Proceeds from sale of office properties and equipment	Proceeds from sale of office properties and equipment	400		4		Proceeds from sale of office properties and equipment	73		400
Purchase of Federal Home Loan Bank stock		—		(1,592)
Net cash provided by (used in) investing activities		46,780		(231,863)

Net cash (used in) provided by investing activities						Net cash (used in) provided by investing activities	(373,162)		46,780
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Increase in deposits, net		151,896		386,509
(Decrease) increase in deposits, net						(Decrease) increase in deposits, net	(150,411)		151,896
Borrowings on Federal Home Loan Bank advances	Borrowings on Federal Home Loan Bank advances	—		119,700		Borrowings on Federal Home Loan Bank advances	—		—
Repayments of Federal Home Loan Bank advances	Repayments of Federal Home Loan Bank advances	(2,408)		(128,901)		Repayments of Federal Home Loan Bank advances	(1,245)		(2,408)
Proceeds from issuance of subordinated debt, net of issuance cost						Proceeds from issuance of subordinated debt, net of issuance cost	53,898		—
Proceeds from exercise of stock options	Proceeds from exercise of stock options	80		30		Proceeds from exercise of stock options	182		80
Issuance of stock under incentive plans, net	Issuance of stock under incentive plans, net	176		(9)		Issuance of stock under incentive plans, net	243		176
Dividends paid to shareholders	Dividends paid to shareholders	(5,906)		(5,978)		Dividends paid to shareholders	(5,790)		(5,906)
Purchase of Company’s common stock	Purchase of Company’s common stock	(8,798)		(11,609)		Purchase of Company’s common stock	(11,277)		(8,798)
Net cash provided by financing activities		135,040		359,742
Net cash (used in) provided by financing activities						Net cash (used in) provided by financing activities	(114,400)		135,040
Net change in cash and cash equivalents	Net change in cash and cash equivalents	225,742		145,989		Net change in cash and cash equivalents	(450,887)		225,742
Cash and cash equivalents, beginning	Cash and cash equivalents, beginning	187,952		39,847		Cash and cash equivalents, beginning	601,443		187,952
Cash and cash equivalents, ending	Cash and cash equivalents, ending	$	413,694	$	185,836	Cash and cash equivalents, ending	$	150,556	$	413,694

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, ~~2021~~2022 and ~~2020~~2021 are not necessarily indicative of the results which may be expected for the entire fiscal year. These statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, ~~2020.~~2021.

~~Purchase and Assumption Agreement~~

On August 27, 2021, the Company entered into a Purchase and Assumption Agreement ("Agreement") to sell its deposit accounts, certain loans and branch office located in Vicksburg, Mississippi to Vidalia, Louisiana-based Delta Bank. Pursuant to the Agreement, the Bank will sell branch deposits of approximately $15.7 million, approximately $2.3 million in loans, which is included in Loans, net of unearned income on the Consolidated Statements of Financial Condition, and substantially all branch-related real estate, fixed assets and equipment. The Bank will receive a premium based on specified percentages of deposit and loan categories. The Company estimates that it will record a pre-tax loss of approximately $23,000 when the transaction closes, which is expected to occur in the first quarter of 2022.

Critical Accounting Policies and Estimates

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties and could reflect materially different results under different assumptions and conditions. Methodologies the Company uses when applying critical accounting policies and developing critical accounting estimates are included in its Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

There have been no material changes from the critical accounting policies previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021. In preparing ~~the~~its 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.

Reclassifications

Certain reclassifications have been made to prior period balances to conform to the current period presentation.

2. Recent Accounting Pronouncements

Issued but Not Yet Adopted Accounting Standards ~~Adopted~~

Accounting Standard Update (“ASU”) ASU 2022-01, “Derivatives and Hedging (Topic 815)” (“ASU 2022-01”) clarifies the guidance in ~~2021~~

~~In December 2019,~~ASC 815 on fair value hedge accounting of interest rate risk for portfolios and financial assets. Among other things, the ~~FASB issued ASU No. 2019-12, "Simplifying~~amended guidance established the ~~Accounting~~“last-of-layer” method for ~~Income Taxes (Topic 740)." The amendments in this ASU simplified~~making the fair value hedge accounting for ~~income taxes~~these portfolios more accessible and renamed that method the “portfolio layer” method. ASU 2022-01 is effective January 1, 2023 and is not expected to have a significant impact on our consolidated financial statements.

ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326)” (“ASU 2022-02”) eliminates the guidance on troubled debt restructurings and requires entities to evaluate all loan modifications to determine if they result in a new loan or a continuation of the existing loan. ASU 2022-02 also requires that entities disclose current-period gross charge-offs by ~~removing certain exceptions~~year of origination for loans and leases. ASU 2022-02 is effective January 1, 2023 and is not expected to have a significant impact on our financial statement disclosures.

ASU 2022-03, "Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions" was issued to improve fair value guidance for equity securities subject to contractual sale restrictions. These amendments clarify that a contractual restriction on the ~~general principles~~sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in ~~Topic 740.~~measuring fair value. The amendments also ~~improved the consistent application~~clarify that an entity cannot, as a separate unit of account, recognize and ~~simplified GAAP for other areas of Topic 740 by clarifying and amending existing guidance.~~measure a contractual sale restriction. The amendments ~~in the ASU~~also require additional disclosures for equity securities subject to contractual sale restrictions. These amendments are effective for fiscal years ~~and interim periods~~ beginning after December 15, ~~2020. The adoption of this ASU did~~2023, and are not expected to have a significant impact on our ~~Consolidated Financial Statements.~~financial statement disclosures.

3. Acquisition Activity

On March 26, 2022, the Company completed the acquisition of Friendswood Capital Corporation (“Friendswood”), the former holding company of Texan Bank, N. A. (“Texan Bank”) of Houston, Texas. Shareholders of Friendswood received $15.34 per share in cash, yielding an aggregate purchase price of $64,864,000.

The acquisition was accounted for under the purchase method of accounting in accordance with ASC 805, Business Combinations. In accordance with ASC 805, the Company recorded goodwill totaling $22,452,000 from the acquisition as a result of consideration transferred over net assets acquired. Both the assets acquired and liabilities assumed were recorded at their respective acquisition date fair values. Identifiable intangible assets, including core deposit intangible assets, were recorded at fair value.

The fair value estimates of the Friendswood assets and liabilities are preliminary and require management to make estimates about discount rates, expected cash flows, market conditions, and other future events that are highly subjective in nature and are subject to refinement for a one year period after the date of the acquisition. Under current accounting principles, the Company’s estimates of fair values may be adjusted for a period of up to one year from the acquisition date.

The assets acquired and liabilities assumed, as well as the adjustments to record the assets and liabilities at fair value, are presented in the following table as of March 26, 2022.


(dollars in thousands)	As Acquired		Fair Value Adjustments			As recorded by Home Bancorp
Assets
Cash and cash equivalents	$	48,741	$	—		$	48,741
Investment securities	33,679		(268)		(a)	33,411
Loans	320,050		(2,558)		(b)	317,492
Repossessed assets	950		(246)		(c)	704
Office properties and equipment, net	1,663		(116)		(d)	1,547
Core deposit intangible	—		4,597		(e)	4,597
Other assets	9,687		(1,688)		(f)	7,999
Total assets acquired	$	414,770	$	(279)		$	414,491
Liabilities
Noninterest-bearing deposits	$	97,668	—			$	97,668
Interest-bearing deposits	269,301		1,022		(g)	270,323
Other liabilities	3,873		215		(h)	4,088
Total liabilities assumed	$	370,842	$	1,237		$	372,079
Excess of assets acquired over liabilities assumed						42,412
Cash consideration paid						(64,864)
Total goodwill recorded						$	22,452

(a) The adjustment represents the market value adjustments on Friendswood's investment securities based on their interest rate risk and credit risk.

(b) The adjustment to reflect the fair value of loans includes:

•Adjustment of $3.0 million to reflect the removal of Friendswood's allowance for loan losses, net of the allowance for credit losses on PCD loans at the acquisition date, in accordance with ASC 805.

•Net discount of $5.5 million for all remaining loans determined not to be within the scope of ASC 310-30 which totaled $309.8 million. In determining the fair value of the loans which were not within the scope of ASC 310-30, the acquired loan portfolio was evaluated based on risk characteristics and other credit and market criteria to determine credit quality and interest adjustments to the fair value of the loans acquired. The acquired loan balance was reduced by the net amount of the credit quality and interest adjustments in determining the fair value of the loans.

(c) The adjustment represents the write-down of the book value of Friendswood's repossessed assets to their estimated fair value, as adjusted for estimated costs to sell.

(d) The adjustment represents the write-down of the book value of Friendswood’s office properties and equipment to their estimated fair value at the acquisition date.

(e) The adjustment represents the value of the core deposit base assumed in the acquisition. The core deposit asset was recorded as an identifiable intangible asset and will be amortized on an accelerated basis over the estimated life of the deposit base of 10 years.

(f) The adjustment is to record the deferred tax asset on the transaction and the estimated fair value on other assets.

(g) Adjustment to reflect the fair value of certificates of deposit acquired based on current interest rates for similar instruments. The adjustment will be recognized using a level yield amortization method based on maturities of the deposit liabilities.

(h) Adjustment to reflect the fair value of liabilities at the acquisition date.

The Company acquired loans at the acquisition date of Friendswood with more than significant deterioration of credit quality since origination (purchased credit deteriorated loans or "PCD" loans). The carrying amount of these loans at acquisition was as follows:


(in thousands)	Acquisition Date of March 26, 2022
Purchase price of PCD loans at acquisition	$	10,228
Allowance for credit losses on PCD loans at acquisition	1,415
Par value of PCD acquired loans at acquisition	$	11,643

The following pro forma information for the nine months ended September 30, 2022 and 2021 reflects the Company’s estimated consolidated results of operations as if the acquisition of Friendswood occurred at January 1, 2021, unadjusted for potential cost savings. Merger-related costs for the nine months ended September 30, 2022 and 2021 were approximately $1,971,000 and $299,000, respectively, and have been excluded from the pro-forma information presented below.


(dollars in thousands except per share information)	2022		2021
Net interest income	$	89,764	$	91,007
Noninterest income	11,450		15,024
Noninterest expense	64,263		60,522
Net income	24,845		41,887
Earnings per share - basic	$	3.07	$	4.98
Earnings per share - diluted	3.05		4.95

The selected pro forma financial information presented above is for illustrative purposes only and is not necessarily indicative of the financial results of the combined companies had the acquisition actually been completed at the beginning of the periods presented, nor does it indicate future results for any other interim or full-year period.

4. Investment Securities

The following tables summarize the Company’s available for sale and held to maturity investment securities at September 30, ~~2021~~2022 and December 31, ~~2020.~~2021.


(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, 2021
September 30, 2022										September 30, 2022
Available for sale:	Available for sale:									Available for sale:
U.S. agency mortgage-backed	U.S. agency mortgage-backed	$	213,091	$	2,580	$	2,155	$	213,516	U.S. agency mortgage-backed	$	361,235	$	7	$	42,025	$	319,217
Collateralized mortgage obligations	Collateralized mortgage obligations	35,201		965		1		36,165		Collateralized mortgage obligations	95,699		—		5,163		90,536
Municipal bonds	Municipal bonds	43,348		384		634		43,098		Municipal bonds	67,629		2		10,726		56,905
U.S. government agency	U.S. government agency	5,731		39		9		5,761		U.S. government agency	20,849		2		1,238		19,613
Corporate bonds	Corporate bonds	5,500		94		9		5,585		Corporate bonds	6,979		—		492		6,487
Total available for sale	Total available for sale	$	302,871	$	4,062	$	2,808	$	304,125	Total available for sale	$	552,391	$	11	$	59,644	$	492,758
Held to maturity:	Held to maturity:									Held to maturity:
Municipal bonds	Municipal bonds	$	2,110	$	37	$	—	$	2,147	Municipal bonds	$	1,080	$	—	$	14	$	1,066
Total held to maturity	Total held to maturity	$	2,110	$	37	$	—	$	2,147	Total held to maturity	$	1,080	$	—	$	14	$	1,066


(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, 2020
December 31, 2021										December 31, 2021
Available for sale:	Available for sale:									Available for sale:
U.S. agency mortgage-backed	U.S. agency mortgage-backed	$	138,669	$	4,162	$	19	$	142,812	U.S. agency mortgage-backed	$	234,720	$	1,793	$	2,740	$	233,773
Collateralized mortgage obligations	Collateralized mortgage obligations	74,112		1,565		57		75,620		Collateralized mortgage obligations	31,356		557		1		31,912
Municipal bonds	Municipal bonds	27,306		717		12		28,011		Municipal bonds	51,094		402		777		50,719
U.S. government agency	U.S. government agency	6,210		55		10		6,255		U.S. government agency	5,615		8		9		5,614
Corporate bonds	Corporate bonds	2,000		54		—		2,054		Corporate bonds	5,500		114		—		5,614
Total available for sale	Total available for sale	$	248,297	$	6,553	$	98	$	254,752	Total available for sale	$	328,285	$	2,874	$	3,527	$	327,632
Held to maturity:	Held to maturity:									Held to maturity:
Municipal bonds	Municipal bonds	$	2,934	$	62	$	—	$	2,996	Municipal bonds	$	2,102	$	30	$	—	$	2,132
Total held to maturity	Total held to maturity	$	2,934	$	62	$	—	$	2,996	Total held to maturity	$	2,102	$	30	$	—	$	2,132

810

The estimated fair value and amortized cost by contractual maturity of the Company’s investment securities as of September 30, ~~2021~~2022 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	$	4,150	$	18,271	$	70,572	$	120,523	$	213,516	U.S. agency mortgage-backed	$	4,104	$	38,846	$	121,211	$	155,056	$	319,217
Collateralized mortgage obligations	Collateralized mortgage obligations	638		19,095		6,034		10,398		36,165		Collateralized mortgage obligations	—		50,855		16,609		23,072		90,536
Municipal bonds	Municipal bonds	356		1,351		10,234		31,157		43,098		Municipal bonds	500		5,330		21,401		29,674		56,905
U.S. government agency	U.S. government agency	—		—		5,358		403		5,761		U.S. government agency	—		5,971		13,292		350		19,613
Corporate bonds	Corporate bonds	—		—		5,585		—		5,585		Corporate bonds	—		—		6,487		—		6,487
Total available for sale	Total available for sale	$	5,144	$	38,717	$	97,783	$	162,481	$	304,125	Total available for sale	$	4,604	$	101,002	$	179,000	$	208,152	$	492,758
Held to maturity:	Held to maturity:											Held to maturity:
Municipal bonds	Municipal bonds	$	—	$	1,127	$	1,020	$	—	$	2,147	Municipal bonds	$	—	$	1,066	$	—	$	—	$	1,066
Total held to maturity	Total held to maturity	$	—	$	1,127	$	1,020	$	—	$	2,147	Total held to maturity	$	—	$	1,066	$	—	$	—	$	1,066

(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	$	4,145	$	17,646	$	69,870	$	121,430	$	213,091	U.S. agency mortgage-backed	$	4,126	$	41,683	$	135,526	$	179,900	$	361,235
Collateralized mortgage obligations	Collateralized mortgage obligations	627		18,514		5,825		10,235		35,201		Collateralized mortgage obligations	—		53,238		18,154		24,307		95,699
Municipal bonds	Municipal bonds	355		1,349		10,004		31,640		43,348		Municipal bonds	500		5,407		24,284		37,438		67,629
U.S. government agency	U.S. government agency	—		—		5,324		407		5,731		U.S. government agency	—		6,083		14,414		352		20,849
Corporate bonds	Corporate bonds	—		—		5,500		—		5,500		Corporate bonds	—		—		6,979		—		6,979
Total available for sale	Total available for sale	$	5,127	$	37,509	$	96,523	$	163,712	$	302,871	Total available for sale	$	4,626	$	106,411	$	199,357	$	241,997	$	552,391
Held to maturity:	Held to maturity:											Held to maturity:
Municipal bonds	Municipal bonds	$	—	$	1,099	$	1,011	$	—	$	2,110	Municipal bonds	$	—	$	1,080	$	—	$	—	$	1,080
Total held to maturity	Total held to maturity	$	—	$	1,099	$	1,011	$	—	$	2,110	Total held to maturity	$	—	$	1,080	$	—	$	—	$	1,080

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.

911

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, 2021		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
September 30, 2022														September 30, 2022	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available for sale:	Available for sale:													Available for sale:
U.S. agency mortgage-backed	U.S. agency mortgage-backed	$	141,158	$	2,155	$	—	$	—	$	141,158	$	2,155	U.S. agency mortgage-backed	$	221,881	$	22,585	$	96,763	$	19,440	$	318,644	$	42,025
Collateralized mortgage obligations	Collateralized mortgage obligations	134		—		1,658		1		1,792		1		Collateralized mortgage obligations	89,820		5,160		698		3		90,518		5,163
Municipal bonds	Municipal bonds	29,182		601		1,253		33		30,435		634		Municipal bonds	36,410		4,846		19,493		5,880		55,903		10,726
U.S. government agency	U.S. government agency	—		—		1,049		9		1,049		9		U.S. government agency	17,862		1,232		666		6		18,528		1,238
Corporate bonds	Corporate bonds	3,491		9		—		—		3,491		9		Corporate bonds	3,301		178		3,186		314		6,487		492
Total available for sale	Total available for sale	$	173,965	$	2,765	$	3,960	$	43	$	177,925	$	2,808	Total available for sale	$	369,274	$	34,001	$	120,806	$	25,643	$	490,080	$	59,644
Held to maturity:	Held to maturity:													Held to maturity:
Municipal bonds	Municipal bonds	$	—	$	—	$	—	$	—	$	—	$	—	Municipal bonds	$	1,066	$	14	$	—	$	—	$	1,066	$	14
Total held to maturity	Total held to maturity	$	—	$	—	$	—	$	—	$	—	$	—	Total held to maturity	$	1,066	$	14	$	—	$	—	$	1,066	$	14


(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, 2020		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
December 31, 2021														December 31, 2021	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available for sale:	Available for sale:													Available for sale:
U.S. agency mortgage-backed	U.S. agency mortgage-backed	$	13,666	$	19	$	—	$	—	$	13,666	$	19	U.S. agency mortgage-backed	$	158,908	$	2,382	$	11,575	$	358	$	170,483	$	2,740
Collateralized mortgage obligations	Collateralized mortgage obligations	13,615		55		2,309		2		15,924		57		Collateralized mortgage obligations	254		1		988		—		1,242		1
Municipal bonds	Municipal bonds	1,278		12		—		—		1,278		12		Municipal bonds	29,047		719		1,228		58		30,275		777
U.S. government agency	U.S. government agency	—		—		1,196		10		1,196		10		U.S. government agency	—		—		1,001		9		1,001		9
Corporate bonds	Corporate bonds	—		—		—		—		—		—		Corporate bonds	3,499		—		—		—		3,499		—
Total available for sale	Total available for sale	$	28,559	$	86	$	3,505	$	12	$	32,064	$	98	Total available for sale	$	191,708	$	3,102	$	14,792	$	425	$	206,500	$	3,527
Held to maturity:	Held to maturity:													Held to maturity:
Municipal bonds	Municipal bonds	$	—	$	—	$	—	$	—	$	—	$	—	Municipal bonds	$	—	$	—	$	—	$	—	$	—	$	—
Total held to maturity	Total held to maturity	$	—	$	—	$	—	$	—	$	—	$	—	Total held to maturity	$	—	$	—	$	—	$	—	$	—	$	—

At September 30, ~~2021, 62~~2022, 324 of the Company’s debt securities had unrealized losses totaling ~~1.6%~~10.8% of the individual securities’ amortized cost basis and ~~0.9%~~10.8% of the Company’s total amortized cost basis of the investment securities portfolio. At such date, 451 of the 62324 securities had been in a continuous loss position for over 12 months. Management has determined that the declines in the fair value of these securities were not attributable to credit losses. As a result, no ACL was recorded for available for sale investment securities at September 30, ~~2021.~~2022.

1012

At September 30, ~~2021,~~2022, it was determined that no ACL was required for the Company's held-to-maturity investment securities. The Company monitors credit quality of debt securities held-to-maturity through the use of credit ratings. The following tables present the amortized cost of the Company's held-to-maturity securities by credit quality rating at September 30, ~~2021~~2022 and December 31, ~~2020.~~2021.

Credit Ratings

(dollars in thousands)

AAA/AA/A

BBB/BB/B

Total

(dollars in thousands)

AAA/AA/A

BBB/BB/B

Total

September 30, 2021

September 30, 2022

Held to maturity:

Municipal bonds

2,110

—

2,110

Municipal bonds

1,080

—

1,080

Credit Ratings

(dollars in thousands)

AAA/AA/A

BBB/BB/B

Total

(dollars in thousands)

AAA/AA/A

BBB/BB/B

Total

December 31, 2020

December 31, 2021

Held to maturity:

Municipal bonds

2,934

—

2,934

Municipal bonds

2,102

—

2,102

Accrued interest receivable on the Company's investment securities was ~~$773,000~~$1,548,000 and ~~$744,000~~$942,000 at September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. These amounts are recorded in accrued interest receivable and other assets on the Consolidated Statements of Financial Condition.

At September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company had ~~$151,330,000~~$182,022,000 and ~~$125,889,000,~~$156,492,000, respectively, of securities pledged to secure public deposits.

4.5. Earnings Per Share

Earnings per common share was computed based on the following:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share data)	(in thousands, except per share data)	2021		2020		2021		2020		(in thousands, except per share data)	2022		2021		2022		2021
Numerator:	Numerator:									Numerator:
Net income available to common shareholders	Net income available to common shareholders	$	15,059	$	8,782	$	38,383	$	14,185	Net income available to common shareholders	$	10,434	$	15,059	$	23,296	$	38,383
Denominator:	Denominator:									Denominator:
Weighted average common shares outstanding	Weighted average common shares outstanding	8,354		8,627		8,413		8,737		Weighted average common shares outstanding	8,089		8,354		8,162		8,413
Effect of dilutive securities:	Effect of dilutive securities:									Effect of dilutive securities:
Restricted stock	Restricted stock	12		7		12		9		Restricted stock	11		12		14		12
Stock options	Stock options	40		17		35		23		Stock options	38		40		43		35
Weighted average common shares outstanding – assuming dilution	Weighted average common shares outstanding – assuming dilution	8,406		8,651		8,460		8,769		Weighted average common shares outstanding – assuming dilution	8,138		8,406		8,219		8,460
Basic earnings per common share	Basic earnings per common share	$	1.80	$	1.01	$	4.56	$	1.61	Basic earnings per common share	$	1.29	$	1.80	$	2.86	$	4.56
Diluted earnings per common share	Diluted earnings per common share	$	1.79	$	1.01	$	4.54	$	1.61	Diluted earnings per common share	$	1.28	$	1.79	$	2.84	$	4.54

Options for ~~106,190~~75,789 and ~~160,282~~106,190 shares of common stock were not included in the computation of diluted EPS for the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively, because the effect of ~~these~~those shares was anti-dilutive. For the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, options on ~~98,262~~66,866 and ~~129,559,~~98,262, respectively, shares of common stock were not included in the computation of diluted EPS because the effect of these shares was anti-dilutive.

1113

5.6. Credit Quality and Allowance for Credit Losses

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

Loans

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

Originated vs. Acquired Loans

"Originated loans" are loans that were originated for investment by the Company. Loans that were acquired as a result of business combinations are referred to as “acquired loans” and are recorded at ~~the principal balance net of unearned income and~~their estimated fair value ~~discounts.~~on the acquisition date. The Company's acquired loans ~~were~~ purchased prior to the adoption of ASC Topic 326 on January 1, 2020 were initially classified as either purchased credit impaired (“PCI”) loans (i.e., loans that reflect credit deterioration since origination and for which it was probable at acquisition that the Company would be unable to collect all contractually required payments) or purchased non-impaired loans (i.e., “performing acquired loans”). The Company estimated the fair value of PCI loans based on the amount and timing of expected principal, interest and other cash flows for each loan. The excess of the loan’s contractual principal and interest payments over all cash flows expected to be collected at acquisition was considered an amount that should not be accreted. These credit discounts (“nonaccretable marks”) were included in the determination of the initial fair value for acquired loans; therefore, no allowance for credit losses was recorded at the acquisition date. Differences between the estimated fair ~~value~~values and expected cash flows of acquired loans at the acquisition date ~~with no carryover of the related allowance for loan losses ("ALL"). Since the adoption of ASC 326, loans~~ that were ~~acquired with evidence of credit deterioration are referred~~not credit-based (“accretable marks”) were subsequently accreted to as "purchased credit deteriorated ("PCD") loans." At acquisition, acquired loans were segregated into loan pools designed to facilitate the estimation of expected cash flows. The fair value estimate for each pool of acquired loans was based on the estimate of expected cash flows, both principal and interest from that pool, discounted at prevailing market interest rates. The difference between the fair value of an acquired loan pool and the contractual amounts due at the acquisition date (the “fair value discount”) is accreted into income over the estimated life of the ~~pool.~~loans. Subsequent to the acquisition date for PCI loans, increases in cash flows over those expected at the acquisition date resulted in a move of the discount from nonaccretable to accretable, while decreases in expected cash flows after the acquisition date were recognized through the provision for credit losses.

Subsequent to January 1, 2020, acquired loans that have evidence of more-than-insignificant deterioration in credit quality since origination are considered purchased credit deteriorated (“PCD”) loans. At acquisition, an estimate of expected credit losses is made for PCD loans. This initial allowance for credit losses is allocated to individual PCD loans and added to the purchase price or acquisition date fair value to establish the initial amortized cost basis of the PCD loans. Any difference between the unpaid principal balance of PCD loans and the amortized cost basis is considered to relate to noncredit factors, resulting in a discount or premium that is amortized to interest income. For acquired loans not deemed PCD loans at acquisition, the difference between the initial fair value mark and the unpaid principal balance are recognized in interest income over the estimated life of the loans. In addition, an initial allowance for expected credit losses is estimated and recorded as provision expense at the acquisition date. The subsequent measurement of expected credit losses for all acquired loans is the same as the subsequent measurement of expected credit losses for originated loans.

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.

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)	(dollars in thousands)	September 30, 2021		December 31, 2020		(dollars in thousands)	September 30, 2022		December 31, 2021
Real estate loans:	Real estate loans:					Real estate loans:
One- to four-family first mortgage	One- to four-family first mortgage	$	360,150	$	395,638	One- to four-family first mortgage	$	376,028	$	350,843
Home equity loans and lines	Home equity loans and lines	59,667		67,700		Home equity loans and lines	60,624		60,312
Commercial real estate	Commercial real estate	802,401		750,623		Commercial real estate	1,086,656		801,624
Construction and land	Construction and land	241,286		221,823		Construction and land	328,753		259,652
Multi-family residential	Multi-family residential	92,062		87,332		Multi-family residential	97,212		90,518
Total real estate loans	Total real estate loans	1,555,566		1,523,116		Total real estate loans	1,949,273		1,562,949
Other loans:	Other loans:					Other loans:
Commercial and industrial	Commercial and industrial	284,831		417,926		Commercial and industrial	320,900		244,123
Consumer	Consumer	34,779		38,912		Consumer	33,106		33,021
Total other loans	Total other loans	319,610		456,838		Total other loans	354,006		277,144
Total loans	Total loans	$	1,875,176	$	1,979,954	Total loans	$	2,303,279	$	1,840,093

Loans increased during the first quarter of 2022 with the addition of Friendswood's loan portfolio, which amounted to $317.5 million on March 26, 2022 (the date of acquisition). The net investment in PPP loans, which is included in commercial and industrial loans, was ~~$95,560,000~~$7,094,000 and ~~$221,220,000~~$43,637,000 at September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

The net discount on the Company’s acquired loans was ~~$4,773,000~~$7,616,000 and ~~$6,650,000~~$4,289,000 at September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. In addition, loan balances as of September 30, ~~2021~~2022 and December 31, ~~2020~~2021 are reported net of unearned income of ~~$6,879,000~~$4,244,000 and ~~$8,727,000,~~$4,924,000, respectively. Unearned income at September 30, ~~2021~~2022 and December 31, ~~2020~~2021 included PPP deferred lender fees of ~~$3,334,000~~$103,000 and ~~$5,449,000,~~$1,301,000, respectively.

Accrued interest receivable on the Company's loans was ~~$6,482,000~~$7,742,000 and ~~$8,635,000~~$6,496,000 at September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively, and is excluded from the estimate of the ACL. ~~These~~Those 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, 2021							September 30, 2022
(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	$	2,145	$	—	$	2,145	One- to four-family first mortgage	$	2,293	$	32	$	2,325
Home equity loans and lines	Home equity loans and lines	521		—		521		Home equity loans and lines	500		—		500
Commercial real estate	Commercial real estate	12,872		455		13,327		Commercial real estate	12,504		1,193		13,697
Construction and land	Construction and land	3,628		—		3,628		Construction and land	4,973		—		4,973
Multi-family residential	Multi-family residential	627		—		627		Multi-family residential	498		—		498
Commercial and industrial	Commercial and industrial	2,815		435		3,250		Commercial and industrial	4,523		188		4,711
Consumer	Consumer	651		—		651		Consumer	647		—		647
Total allowance for loan losses	Total allowance for loan losses	$	23,259	$	890	$	24,149	Total allowance for loan losses	$	25,938	$	1,413	$	27,351

Unfunded lending commitments(1)	Unfunded lending commitments(1)	$	1,800	$	—	$	1,800	Unfunded lending commitments(1)	$	2,263	$	—	$	2,263
Total allowance for credit losses	Total allowance for credit losses	$	25,059	$	890	$	25,949	Total allowance for credit losses	$	28,201	$	1,413	$	29,614


		September 30, 2021							September 30, 2022
(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	$	360,150	$	—	$	360,150	One- to four-family first mortgage	$	375,916	$	112	$	376,028
Home equity loans and lines	Home equity loans and lines	59,667		—		59,667		Home equity loans and lines	60,624		—		60,624
Commercial real estate	Commercial real estate	798,520		3,881		802,401		Commercial real estate	1,075,964		10,692		1,086,656
Construction and land	Construction and land	241,286		—		241,286		Construction and land	328,753		—		328,753
Multi-family residential	Multi-family residential	92,062		—		92,062		Multi-family residential	97,212		—		97,212
Commercial and industrial	Commercial and industrial	284,055		776		284,831		Commercial and industrial	320,656		244		320,900
Consumer	Consumer	34,779		—		34,779		Consumer	33,020		86		33,106
Total loans	Total loans	$	1,870,519	$	4,657	$	1,875,176	Total loans	$	2,292,145	$	11,134	$	2,303,279


	December 31, 2021
(dollars in thousands)	Collectively Evaluated		Individually Evaluated		Total
Allowance for credit losses:
One- to four-family first mortgage	$	1,944	$	—	$	1,944
Home equity loans and lines	508		—		508
Commercial real estate	10,207		247		10,454
Construction and land	3,572		—		3,572
Multi-family residential	457		—		457
Commercial and industrial	3,095		425		3,520
Consumer	634		—		634
Total allowance for loan losses	$	20,417	$	672	$	21,089

Unfunded lending commitments(1)	$	1,815	$	—	$	1,815
Total allowance for credit losses	$	22,232	$	672	$	22,904

1416


		December 31, 2020
(dollars in thousands)		Collectively Evaluated		Individually Evaluated		Total
Allowance for loan losses:
One- to four-family first mortgage		$	2,965	$	100	$	3,065
Home equity loans and lines		676		—		676
Commercial real estate		17,843		1,008		18,851
Construction and land		4,155		—		4,155
Multi-family residential		1,077		—		1,077
Commercial and industrial		3,845		431		4,276
Consumer		863		—		863
Total allowance for loan losses		$	31,424	$	1,539	$	32,963

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

		December 31, 2020							December 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	$	394,632	$	1,006	$	395,638	One- to four-family first mortgage	$	350,843	$	—	$	350,843
Home equity loans and lines	Home equity loans and lines	67,700		—		67,700		Home equity loans and lines	60,312		—		60,312
Commercial real estate	Commercial real estate	743,223		7,400		750,623		Commercial real estate	797,751		3,873		801,624
Construction and land	Construction and land	221,823		—		221,823		Construction and land	259,652		—		259,652
Multi-family residential	Multi-family residential	87,332		—		87,332		Multi-family residential	90,518		—		90,518
Commercial and industrial	Commercial and industrial	417,320		606		417,926		Commercial and industrial	243,379		744		244,123
Consumer	Consumer	38,912		—		38,912		Consumer	33,021		—		33,021
Total loans	Total loans	$	1,970,942	$	9,012	$	1,979,954	Total loans	$	1,835,476	$	4,617	$	1,840,093

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

(2)~~There were no~~Three and zero PCD loans were individually evaluated at September 30, ~~2021. At~~2022 and December 31, ~~2020, loans individually evaluated included PCD loans of $277,000.~~2021, respectively.

1517

A summary of activity in the ACL for the nine months ended September 30, ~~2021~~2022 and September 30, ~~2020~~2021 follows.


		Nine Months Ended September 30, 2021											Nine Months Ended September 30, 2022
(dollars in thousands)	(dollars in thousands)	Beginning Balance		Charge-offs		Recoveries		Provision (Reversal)		Ending Balance		(dollars in thousands)	Beginning Balance		Allowance for Acquired PCD Loans(1)		Charge-offs		Recoveries		Provision (Reversal)		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	$	3,065	$	(176)	$	13	$	(757)	$	2,145	One- to four-family first mortgage	$	1,944	$	—	$	—	$	6	$	375	$	2,325
Home equity loans and lines	Home equity loans and lines	676		(6)		6		(155)		521		Home equity loans and lines	508		—		—		7		(15)		500
Commercial real estate	Commercial real estate	18,851		(1,024)		—		(4,500)		13,327		Commercial real estate	10,454		1,220		(270)		—		2,293		13,697
Construction and land	Construction and land	4,155		—		63		(590)		3,628		Construction and land	3,572		—		—		—		1,401		4,973
Multi-family residential	Multi-family residential	1,077		—		—		(450)		627		Multi-family residential	457		—		—		—		41		498
Commercial and industrial	Commercial and industrial	4,276		(522)		307		(811)		3,250		Commercial and industrial	3,520		195		(750)		468		1,278		4,711
Consumer	Consumer	863		(79)		117		(250)		651		Consumer	634		—		(240)		124		129		647
Total allowance for loan losses	Total allowance for loan losses	$	32,963	$	(1,807)	$	506	$	(7,513)	$	24,149	Total allowance for loan losses	$	21,089	$	1,415	$	(1,260)	$	605	$	5,502	$	27,351

Unfunded lending commitments	Unfunded lending commitments	$	1,425	$	—	$	—	$	375	$	1,800	Unfunded lending commitments	$	1,815	$	—	$	—	$	—	$	448	$	2,263
Total allowance for credit losses	Total allowance for credit losses	$	34,388	$	(1,807)	$	506	$	(7,138)	$	25,949	Total allowance for credit losses	$	22,904	$	1,415	$	(1,260)	$	605	$	5,950	$	29,614


		Nine Months Ended September 30, 2020													Nine Months Ended September 30, 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 (Reversal)		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	$	(176)	$	13	$	(757)	$	2,145
Home equity loans and lines	Home equity loans and lines	1,084		(1)		(575)		15		248		771		Home equity loans and lines	676		(6)		6		(155)		521
Commercial real estate	Commercial real estate	6,541		1,974		(5)		55		9,786		18,351		Commercial real estate	18,851		(1,024)		—		(4,500)		13,327
Construction and land	Construction and land	2,670		519		(688)		—		1,577		4,078		Construction and land	4,155		—		63		(590)		3,628
Multi-family residential	Multi-family residential	572		(245)		—		—		740		1,067		Multi-family residential	1,077		—		—		(450)		627
Commercial and industrial	Commercial and industrial	3,694		1,243		(977)		91		386		4,437		Commercial and industrial	4,276		(522)		307		(811)		3,250
Consumer	Consumer	592		157		(222)		122		236		885		Consumer	863		(79)		117		(250)		651
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	$	(1,807)	$	506	$	(7,513)	$	24,149

Unfunded lending commitments	Unfunded lending commitments	$	—	$	1,425	$	—	$	—	$	—	$	1,425	Unfunded lending commitments	$	1,425	$	—	$	—	$	375	$	1,800
Total allowance for credit losses	Total allowance for credit losses	$	17,868	$	6,058	$	(2,522)	$	295	$	12,728	$	34,427	Total allowance for credit losses	$	34,388	$	(1,807)	$	506	$	(7,138)	$	25,949

(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.

1618

Credit Quality

The following tables present the Company’s loan portfolio by credit quality classification and origination year as of September 30, ~~2021~~2022 and December 31, ~~2020.~~2021.

September 30, 2021
Term Loans by Origination Year
(dollars in thousands) 2021 2020 2019 2018 2017 Prior Revolving Loans Revolving Loans Converted to Term Loans Total
One- to four-family first mortgage:
Pass $ 60,900 $ 48,750 $ 48,301 $ 37,619 $ 36,930 $ 108,990 $ 12,806 $ 383 $ 354,679
Special Mention — — — — 15 652 — — 667
Substandard — 596 720 269 456 2,763 — — 4,804
Doubtful — — — — — — — — —
Total one- to four-family first mortgages $ 60,900 $ 49,346 $ 49,021 $ 37,888 $ 37,401 $ 112,405 $ 12,806 $ 383 $ 360,150
Home equity loans and lines:
Pass $ 892 $ 983 $ 1,147 $ 1,008 $ 991 $ 3,775 $ 50,483 $ 187 $ 59,466
Special Mention — — — — — — — — —
Substandard — — — — 201 — — — 201
Doubtful — — — — — — — — —
Total home equity loans and lines $ 892 $ 983 $ 1,147 $ 1,008 $ 1,192 $ 3,775 $ 50,483 $ 187 $ 59,667
Commercial real estate:
Pass $ 171,569 $ 206,657 $ 148,886 $ 79,170 $ 90,403 $ 71,890 $ 20,350 $ 1,734 $ 790,659
Special Mention — — — — — 1,238 — — 1,238
Substandard — 826 885 1,770 310 6,105 — 608 10,504
Doubtful — — — — — — — — —
Total commercial real estate loans $ 171,569 $ 207,483 $ 149,771 $ 80,940 $ 90,713 $ 79,233 $ 20,350 $ 2,342 $ 802,401
Construction and land:
Pass $ 118,216 $ 56,019 $ 49,358 $ 7,387 $ 3,052 $ 2,297 $ 3,528 $ — $ 239,857
Special Mention 587 417 — — — — — — 1,004
Substandard — — 189 — 8 228 — — 425
Doubtful — — — — — — — — —
Total construction and land loans $ 118,803 $ 56,436 $ 49,547 $ 7,387 $ 3,060 $ 2,525 $ 3,528 $ — $ 241,286

September 30, 2021
Term Loans by Origination Year
(dollars in thousands) 2021 2020 2019 2018 2017 Prior Revolving Loans Revolving Loans Converted to Term Loans Total
Multi-family residential:
Pass $ 12,018 $ 38,482 $ 14,633 $ 6,382 $ 2,624 $ 3,236 $ 187 $ — $ 77,562
Special Mention — — — — — — — — —
Substandard 500 14,000 — — — — — — 14,500
Doubtful — — — — — — — — —
Total multi-family residential loans $ 12,518 $ 52,482 $ 14,633 $ 6,382 $ 2,624 $ 3,236 $ 187 $ — $ 92,062
Commercial and industrial:
Pass $ 115,701 $ 45,219 $ 16,539 $ 9,992 $ 3,633 $ 2,495 $ 83,901 $ 758 $ 278,238
Special Mention 539 528 140 — — — 1,607 — 2,814
Substandard — 2,082 — 420 6 22 1,249 — 3,779
Doubtful — — — — — — — — —
Total commercial and industrial loans $ 116,240 $ 47,829 $ 16,679 $ 10,412 $ 3,639 $ 2,517 $ 86,757 $ 758 $ 284,831
Consumer:
Pass $ 4,649 $ 3,340 $ 1,492 $ 493 $ 1,243 $ 16,245 $ 7,080 $ 3 $ 34,545
Special Mention — — — — — 3 — — 3
Substandard — 34 — — 14 183 — — 231
Doubtful — — — — — — — — —
Total consumer loans $ 4,649 $ 3,374 $ 1,492 $ 493 $ 1,257 $ 16,431 $ 7,080 $ 3 $ 34,779
Total loans:
Pass $ 483,945 $ 399,450 $ 280,356 $ 142,051 $ 138,876 $ 208,928 $ 178,335 $ 3,065 $ 1,835,006
Special Mention 1,126 945 140 — 15 1,893 1,607 — 5,726
Substandard 500 17,538 1,794 2,459 995 9,301 1,249 608 34,444
Doubtful — — — — — — — — —
Total loans $ 485,571 $ 417,933 $ 282,290 $ 144,510 $ 139,886 $ 220,122 $ 181,191 $ 3,673 $ 1,875,176


		December 31, 2020																			September 30, 2022
		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)	2022		2021		2020		2019		2018		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	$	58,958	$	65,070	$	46,412	$	48,851	$	37,039	$	114,588	$	17,762	$	1,457	$	390,137	Pass	$	79,286	$	80,482	$	39,464	$	35,406	$	27,804	$	99,681	$	7,975	$	1,715	$	371,813
Special Mention	Special Mention	—		—		167		16		—		1,057		—		—		1,240		Special Mention	150		189		—		—		—		358		—		500		1,197
Substandard	Substandard	129		34		—		335		1,069		2,694		—		—		4,261		Substandard	277		29		392		93		172		2,055		—		—		3,018
Doubtful	Doubtful	—		—		—		—		—		—		—		—		—		Doubtful	—		—		—		—		—		—		—		—		—
Total one- to four-family first mortgages	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	Total one- to four-family first mortgages	$	79,713	$	80,700	$	39,856	$	35,499	$	27,976	$	102,094	$	7,975	$	2,215	$	376,028
Home equity loans and lines:	Home equity loans and lines:																			Home equity loans and lines:
Pass	Pass	$	1,172	$	1,307	$	2,028	$	964	$	1,889	$	5,537	$	53,309	$	1,389	$	67,595	Pass	$	1,460	$	1,554	$	804	$	1,165	$	633	$	3,579	$	51,264	$	132	$	60,591
Special Mention	Special Mention	—		—		—		43		—		—		—		—		43		Special Mention	—		—		—		—		—		—		—		—		—
Substandard	Substandard	—		—		—		—		—		58		4		—		62		Substandard	—		—		—		—		—		33		—		—		33
Doubtful	Doubtful	—		—		—		—		—		—		—		—		—		Doubtful	—		—		—		—		—		—		—		—		—
Total home equity loans and lines	Total home equity loans and lines	$	1,172	$	1,307	$	2,028	$	1,007	$	1,889	$	5,595	$	53,313	$	1,389	$	67,700	Total home equity loans and lines	$	1,460	$	1,554	$	804	$	1,165	$	633	$	3,612	$	51,264	$	132	$	60,624
Commercial real estate:	Commercial real estate:																			Commercial real estate:
Pass	Pass	$	235,900	$	156,646	$	96,153	$	102,166	$	59,859	$	60,720	$	22,962	$	56	$	734,462	Pass	$	232,390	$	273,789	$	206,929	$	156,285	$	68,110	$	102,580	$	29,227	$	443	$	1,069,753
Special Mention	Special Mention	—		—		—		15		951		—		—		—		966		Special Mention	1,118		—		350		585		—		351		751		—		3,155
Substandard	Substandard	1,606		1,994		1,742		323		1,344		8,164		—		22		15,195		Substandard	101		—		170		5,476		534		7,467		—		—		13,748
Doubtful	Doubtful	—		—		—		—		—		—		—		—		—		Doubtful	—		—		—		—		—		—		—		—		—
Total commercial real estate loans	Total commercial real estate loans	$	237,506	$	158,640	$	97,895	$	102,504	$	62,154	$	68,884	$	22,962	$	78	$	750,623	Total commercial real estate loans	$	233,609	$	273,789	$	207,449	$	162,346	$	68,644	$	110,398	$	29,978	$	443	$	1,086,656
Construction and land:	Construction and land:																			Construction and land:
Pass	Pass	$	87,540	$	91,337	$	16,703	$	5,486	$	2,585	$	1,505	$	1,892	$	429	$	207,477	Pass	$	119,984	$	141,095	$	32,738	$	20,991	$	3,671	$	3,602	$	4,013	$	1,618	$	327,712
Special Mention	Special Mention	877		—		—		—		—		618		—		627		2,122		Special Mention	184		533		—		—		—		—		—		—		717
Substandard	Substandard	451		50		—		—		252		249		—		11,222		12,224		Substandard	87		—		151		—		—		86		—		—		324
Doubtful	Doubtful	—		—		—		—		—		—		—		—		—		Doubtful	—		—		—		—		—		—		—		—		—
Total construction and land loans	Total construction and land loans	$	88,868	$	91,387	$	16,703	$	5,486	$	2,837	$	2,372	$	1,892	$	12,278	$	221,823	Total construction and land loans	$	120,255	$	141,628	$	32,889	$	20,991	$	3,671	$	3,688	$	4,013	$	1,618	$	328,753


		December 31, 2020																			September 30, 2022
		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)	2022		2021		2020		2019		2018		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total
Multi-family residential:	Multi-family residential:																			Multi-family residential:
Pass	Pass	$	40,462	$	24,329	$	9,711	$	3,844	$	2,889	$	4,539	$	1,452	$	—	$	87,226	Pass	$	25,111	$	20,687	$	26,163	$	13,207	$	2,269	$	3,351	$	176	$	2,859	$	93,823
Special Mention	Special Mention	—		—		—		—		—		—		—		—		—		Special Mention	—		—		—		—		3,312		—		—		—		3,312
Substandard	Substandard	—		—		—		—		—		106		—		—		106		Substandard	—		—		—		—		77		—		—		—		77
Doubtful	Doubtful	—		—		—		—		—		—		—		—		—		Doubtful	—		—		—		—		—		—		—		—		—
Total multi-family residential loans	Total multi-family residential loans	$	40,462	$	24,329	$	9,711	$	3,844	$	2,889	$	4,645	$	1,452	$	—	$	87,332	Total multi-family residential loans	$	25,111	$	20,687	$	26,163	$	13,207	$	5,658	$	3,351	$	176	$	2,859	$	97,212
Commercial and industrial:	Commercial and industrial:																			Commercial and industrial:
Pass	Pass	$	264,079	$	29,115	$	21,053	$	6,001	$	3,952	$	2,408	$	82,039	$	1,311	$	409,958	Pass	$	81,508	$	53,550	$	17,678	$	11,214	$	12,140	$	3,337	$	136,107	$	672	$	316,206
Special Mention	Special Mention	2,089		792		131		—		—		1		1,801		—		4,814		Special Mention	941		—		278		—		7		—		1,154		—		2,380
Substandard	Substandard	592		—		427		23		141		16		1,955		—		3,154		Substandard	—		—		1,946		—		—		17		325		26		2,314
Doubtful	Doubtful	—		—		—		—		—		—		—		—		—		Doubtful	—		—		—		—		—		—		—		—		—
Total commercial and industrial loans	Total commercial and industrial loans	$	266,760	$	29,907	$	21,611	$	6,024	$	4,093	$	2,425	$	85,795	$	1,311	$	417,926	Total commercial and industrial loans	$	82,449	$	53,550	$	19,902	$	11,214	$	12,147	$	3,354	$	137,586	$	698	$	320,900
Consumer:	Consumer:																			Consumer:
Pass	Pass	$	6,844	$	2,667	$	1,149	$	2,073	$	1,118	$	18,258	$	6,340	$	27	$	38,476	Pass	$	6,165	$	2,573	$	1,759	$	733	$	173	$	13,643	$	7,509	$	5	$	32,560
Special Mention	Special Mention	4		—		4		—		13		120		—		5		146		Special Mention	—		—		—		—		—		—		—		—		—
Substandard	Substandard	—		34		3		12		17		223		—		1		290		Substandard	—		312		—		—		—		234		—		—		546
Doubtful	Doubtful	—		—		—		—		—		—		—		—		—		Doubtful	—		—		—		—		—		—		—		—		—
Total consumer loans	Total consumer loans	$	6,848	$	2,701	$	1,156	$	2,085	$	1,148	$	18,601	$	6,340	$	33	$	38,912	Total consumer loans	$	6,165	$	2,885	$	1,759	$	733	$	173	$	13,877	$	7,509	$	5	$	33,106
Total loans:	Total loans:																			Total loans:
Pass	Pass	$	694,955	$	370,471	$	193,209	$	169,385	$	109,331	$	207,555	$	185,756	$	4,669	$	1,935,331	Pass	$	545,904	$	573,730	$	325,535	$	239,001	$	114,800	$	229,773	$	236,271	$	7,444	$	2,272,458
Special Mention	Special Mention	2,970		792		302		74		964		1,796		1,801		632		9,331		Special Mention	2,393		722		628		585		3,319		709		1,905		500		10,761
Substandard	Substandard	2,778		2,112		2,172		693		2,823		11,510		1,959		11,245		35,292		Substandard	465		341		2,659		5,569		783		9,892		325		26		20,060
Doubtful	Doubtful	—		—		—		—		—		—		—		—		—		Doubtful	—		—		—		—		—		—		—		—		—
Total loans	Total loans	$	700,703	$	373,375	$	195,683	$	170,152	$	113,118	$	220,861	$	189,516	$	16,546	$	1,979,954	Total loans	$	548,762	$	574,793	$	328,822	$	245,155	$	118,902	$	240,374	$	238,501	$	7,970	$	2,303,279


	December 31, 2021
	Term Loans by Origination Year
(dollars in thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total
One- to four-family first mortgage:
Pass	$	77,865	$	44,152	$	45,542	$	34,301	$	35,048	$	96,975	$	12,412	$	351	$	346,646
Special Mention	—		—		—		—		—		369		—		—		369
Substandard	—		347		716		266		463		2,036		—		—		3,828
Doubtful	—		—		—		—		—		—		—		—		—
Total one- to four-family first mortgages	$	77,865	$	44,499	$	46,258	$	34,567	$	35,511	$	99,380	$	12,412	$	351	$	350,843
Home equity loans and lines:
Pass	$	1,688	$	873	$	1,114	$	919	$	816	$	3,567	$	50,323	$	975	$	60,275
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		37		—		—		—		37
Doubtful	—		—		—		—		—		—		—		—		—
Total home equity loans and lines	$	1,688	$	873	$	1,114	$	919	$	853	$	3,567	$	50,323	$	975	$	60,312
Commercial real estate:
Pass	$	226,989	$	193,637	$	142,045	$	68,949	$	73,555	$	59,396	$	23,310	$	1,699	$	789,580
Special Mention	—		—		—		—		1,841		366		—		—		2,207
Substandard	437		821		381		1,741		306		5,991		—		160		9,837
Doubtful	—		—		—		—		—		—		—		—		—
Total commercial real estate loans	$	227,426	$	194,458	$	142,426	$	70,690	$	75,702	$	65,753	$	23,310	$	1,859	$	801,624
Construction and land:
Pass	$	148,054	$	50,062	$	48,432	$	4,832	$	2,867	$	1,738	$	2,845	$	—	$	258,830
Special Mention	575		—		—		—		—		—		—		—		575
Substandard	—		—		—		—		5		242		—		—		247
Doubtful	—		—		—		—		—		—		—		—		—
Total construction and land loans	$	148,629	$	50,062	$	48,432	$	4,832	$	2,872	$	1,980	$	2,845	$	—	$	259,652


	December 31, 2021
	Term Loans by Origination Year
(dollars in thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total
Multi-family residential:
Pass	$	31,236	$	31,805	$	14,467	$	6,363	$	2,588	$	2,762	$	1,297	$	—	$	90,518
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Total multi-family residential loans	$	31,236	$	31,805	$	14,467	$	6,363	$	2,588	$	2,762	$	1,297	$	—	$	90,518
Commercial and industrial:
Pass	$	82,765	$	32,465	$	14,794	$	8,737	$	3,066	$	1,690	$	96,648	$	296	$	240,461
Special Mention	—		—		—		—		—		—		267		—		267
Substandard	—		2,013		—		417		5		18		942		—		3,395
Doubtful	—		—		—		—		—		—		—		—		—
Total commercial and industrial loans	$	82,765	$	34,478	$	14,794	$	9,154	$	3,071	$	1,708	$	97,857	$	296	$	244,123
Consumer:
Pass	$	5,472	$	2,627	$	1,211	$	411	$	1,041	$	15,530	$	6,488	$	37	$	32,817
Special Mention	—		—		—		—		—		2		—		—		2
Substandard	16		—		—		—		7		179		—		—		202
Doubtful	—		—		—		—		—		—		—		—		—
Total consumer loans	$	5,488	$	2,627	$	1,211	$	411	$	1,048	$	15,711	$	6,488	$	37	$	33,021
Total loans:
Pass	$	574,069	$	355,621	$	267,605	$	124,512	$	118,981	$	181,658	$	193,323	$	3,358	$	1,819,127
Special Mention	575		—		—		—		1,841		737		267		—		3,420
Substandard	453		3,181		1,097		2,424		823		8,466		942		160		17,546
Doubtful	—		—		—		—		—		—		—		—		—
Total loans	$	575,097	$	358,802	$	268,702	$	126,936	$	121,645	$	190,861	$	194,532	$	3,518	$	1,840,093

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.

2123

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


		September 30, 2021													September 30, 2022
(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	$	1,089	$	1,161	$	499	$	2,749	$	255,156	$	257,905	One- to four-family first mortgage	$	1,502	$	205	$	446	$	2,153	$	280,343	$	282,496
Home equity loans and lines	Home equity loans and lines	14		—		163		177		47,734		47,911		Home equity loans and lines	—		—		—		—		51,635		51,635
Commercial real estate	Commercial real estate	200		679		5,312		6,191		668,947		675,138		Commercial real estate	154		—		27		181		789,988		790,169
Construction and land	Construction and land	211		—		189		400		231,232		231,632		Construction and land	—		—		151		151		288,952		289,103
Multi-family residential	Multi-family residential	—		—		—		—		88,617		88,617		Multi-family residential	—		—		—		—		90,021		90,021
Total real estate loans	Total real estate loans	1,514		1,840		6,163		9,517		1,291,686		1,301,203		Total real estate loans	1,656		205		624		2,485		1,500,939		1,503,424
Other loans:	Other loans:													Other loans:
Commercial and industrial	Commercial and industrial	457		—		362		819		272,692		273,511		Commercial and industrial	95		490		236		821		280,852		281,673
Consumer	Consumer	149		25		92		266		30,684		30,950		Consumer	187		20		190		397		28,817		29,214
Total other loans	Total other loans	606		25		454		1,085		303,376		304,461		Total other loans	282		510		426		1,218		309,669		310,887
Total originated loans	Total originated loans	$	2,120	$	1,865	$	6,617	$	10,602	$	1,595,062	$	1,605,664	Total originated loans	$	1,938	$	715	$	1,050	$	3,703	$	1,810,608	$	1,814,311
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	$	1,454	$	532	$	1,018	$	3,004	$	99,241	$	102,245	One- to four-family first mortgage	$	1,152	$	387	$	408	$	1,947	$	91,585	$	93,532
Home equity loans and lines	Home equity loans and lines	39		—		—		39		11,717		11,756		Home equity loans and lines	23		—		—		23		8,966		8,989
Commercial real estate	Commercial real estate	—		1,720		637		2,357		124,906		127,263		Commercial real estate	—		—		629		629		295,858		296,487
Construction and land	Construction and land	102		163		73		338		9,316		9,654		Construction and land	—		—		139		139		39,511		39,650
Multi-family residential	Multi-family residential	88		—		—		88		3,357		3,445		Multi-family residential	—		—		—		—		7,191		7,191
Total real estate loans	Total real estate loans	1,683		2,415		1,728		5,826		248,537		254,363		Total real estate loans	1,175		387		1,176		2,738		443,111		445,849
Other loans:	Other loans:													Other loans:
Commercial and industrial	Commercial and industrial	20		27		420		467		10,853		11,320		Commercial and industrial	309		294		—		603		38,624		39,227
Consumer	Consumer	109		8		15		132		3,697		3,829		Consumer	47		—		35		82		3,810		3,892
Total other loans	Total other loans	129		35		435		599		14,550		15,149		Total other loans	356		294		35		685		42,434		43,119
Total acquired loans	Total acquired loans	$	1,812	$	2,450	$	2,163	$	6,425	$	263,087	$	269,512	Total acquired loans	$	1,531	$	681	$	1,211	$	3,423	$	485,545	$	488,968
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	$	2,543	$	1,693	$	1,517	$	5,753	$	354,397	$	360,150	One- to four-family first mortgage	$	2,654	$	592	$	854	$	4,100	$	371,928	$	376,028
Home equity loans and lines	Home equity loans and lines	53		—		163		216		59,451		59,667		Home equity loans and lines	23		—		—		23		60,601		60,624
Commercial real estate	Commercial real estate	200		2,399		5,949		8,548		793,853		802,401		Commercial real estate	154		—		656		810		1,085,846		1,086,656
Construction and land	Construction and land	313		163		262		738		240,548		241,286		Construction and land	—		—		290		290		328,463		328,753
Multi-family residential	Multi-family residential	88		—		—		88		91,974		92,062		Multi-family residential	—		—		—		—		97,212		97,212
Total real estate loans	Total real estate loans	3,197		4,255		7,891		15,343		1,540,223		1,555,566		Total real estate loans	2,831		592		1,800		5,223		1,944,050		1,949,273
Other loans:	Other loans:													Other loans:
Commercial and industrial	Commercial and industrial	477		27		782		1,286		283,545		284,831		Commercial and industrial	404		784		236		1,424		319,476		320,900
Consumer	Consumer	258		33		107		398		34,381		34,779		Consumer	234		20		225		479		32,627		33,106
Total other loans	Total other loans	735		60		889		1,684		317,926		319,610		Total other loans	638		804		461		1,903		352,103		354,006
Total loans	Total loans	$	3,932	$	4,315	$	8,780	$	17,027	$	1,858,149	$	1,875,176	Total loans	$	3,469	$	1,396	$	2,261	$	7,126	$	2,296,153	$	2,303,279

2224


		December 31, 2020													December 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	$	1,651	$	66	$	365	$	2,082	$	258,386	$	260,468	One- to four-family first mortgage	$	1,267	$	266	$	1,151	$	2,684	$	254,880	$	257,564
Home equity loans and lines	Home equity loans and lines	117		148		—		265		52,101		52,366		Home equity loans and lines	—		—		—		—		48,561		48,561
Commercial real estate	Commercial real estate	518		532		6,770		7,820		581,524		589,344		Commercial real estate	438		—		4,854		5,292		682,323		687,615
Construction and land	Construction and land	—		—		—		—		207,928		207,928		Construction and land	428		—		—		428		249,802		250,230
Multi-family residential	Multi-family residential	94		—		—		94		82,051		82,145		Multi-family residential	—		—		—		—		87,316		87,316
Total real estate loans	Total real estate loans	2,380		746		7,135		10,261		1,181,990		1,192,251		Total real estate loans	2,133		266		6,005		8,404		1,322,882		1,331,286
Other loans:	Other loans:													Other loans:
Commercial and industrial	Commercial and industrial	797		3		603		1,403		398,377		399,780		Commercial and industrial	51		31		271		353		232,569		232,922
Consumer	Consumer	219		42		145		406		32,702		33,108		Consumer	289		—		25		314		29,247		29,561
Total other loans	Total other loans	1,016		45		748		1,809		431,079		432,888		Total other loans	340		31		296		667		261,816		262,483
Total originated loans	Total originated loans	$	3,396	$	791	$	7,883	$	12,070	$	1,613,069	$	1,625,139	Total originated loans	$	2,473	$	297	$	6,301	$	9,071	$	1,584,698	$	1,593,769
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	$	1,823	$	502	$	1,154	$	3,479	$	131,691	$	135,170	One- to four-family first mortgage	$	1,233	$	428	$	1,322	$	2,983	$	90,296	$	93,279
Home equity loans and lines	Home equity loans and lines	34		43		25		102		15,232		15,334		Home equity loans and lines	141		—		—		141		11,610		11,751
Commercial real estate	Commercial real estate	603		303		2,462		3,368		157,911		161,279		Commercial real estate	54		—		2,139		2,193		111,816		114,009
Construction and land	Construction and land	—		—		142		142		13,753		13,895		Construction and land	—		—		241		241		9,181		9,422
Multi-family residential	Multi-family residential	92		—		—		92		5,095		5,187		Multi-family residential	—		—		—		—		3,202		3,202
Total real estate loans	Total real estate loans	2,552		848		3,783		7,183		323,682		330,865		Total real estate loans	1,428		428		3,702		5,558		226,105		231,663
Other loans:	Other loans:													Other loans:
Commercial and industrial	Commercial and industrial	3		—		907		910		17,236		18,146		Commercial and industrial	81		—		430		511		10,690		11,201
Consumer	Consumer	126		50		66		242		5,562		5,804		Consumer	53		3		21		77		3,383		3,460
Total other loans	Total other loans	129		50		973		1,152		22,798		23,950		Total other loans	134		3		451		588		14,073		14,661
Total acquired loans	Total acquired loans	$	2,681	$	898	$	4,756	$	8,335	$	346,480	$	354,815	Total acquired loans	$	1,562	$	431	$	4,153	$	6,146	$	240,178	$	246,324
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	$	3,474	$	568	$	1,519	$	5,561	$	390,077	$	395,638	One- to four-family first mortgage	$	2,500	$	694	$	2,473	$	5,667	$	345,176	$	350,843
Home equity loans and lines	Home equity loans and lines	151		191		25		367		67,333		67,700		Home equity loans and lines	141		—		—		141		60,171		60,312
Commercial real estate	Commercial real estate	1,121		835		9,232		11,188		739,435		750,623		Commercial real estate	492		—		6,993		7,485		794,139		801,624
Construction and land	Construction and land	—		—		142		142		221,681		221,823		Construction and land	428		—		241		669		258,983		259,652
Multi-family residential	Multi-family residential	186		—		—		186		87,146		87,332		Multi-family residential	—		—		—		—		90,518		90,518
Total real estate loans	Total real estate loans	4,932		1,594		10,918		17,444		1,505,672		1,523,116		Total real estate loans	3,561		694		9,707		13,962		1,548,987		1,562,949
Other loans:	Other loans:													Other loans:
Commercial and industrial	Commercial and industrial	800		3		1,510		2,313		415,613		417,926		Commercial and industrial	132		31		701		864		243,259		244,123
Consumer	Consumer	345		92		211		648		38,264		38,912		Consumer	342		3		46		391		32,630		33,021
Total other loans	Total other loans	1,145		95		1,721		2,961		453,877		456,838		Total other loans	474		34		747		1,255		275,889		277,144
Total loans	Total loans	$	6,077	$	1,689	$	12,639	$	20,405	$	1,959,549	$	1,979,954	Total loans	$	4,035	$	728	$	10,454	$	15,217	$	1,824,876	$	1,840,093

~~At September 30, 2021~~There were $3,000 and ~~December 31, 2020,~~$6,000 of loans greater than 90 days past due and accruing ~~totaled $13,000~~at September 30, 2022 and ~~$2,000,~~December 31, 2021, respectively.

2325

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


		September 30, 2021							September 30, 2022
(dollars in thousands)	(dollars in thousands)	With Related Allowance		Without Related Allowance		Total(1)		(dollars in thousands)		With Related Allowance		Without Related Allowance		Total
Nonaccrual loans:
Nonaccrual loans(1):								Nonaccrual loans(1):
One- to four-family first mortgage	One- to four-family first mortgage	$	3,694	$	—	$	3,694	One- to four-family first mortgage		$	2,463	$	—	$	2,463
Home equity loans and lines	Home equity loans and lines	202		—		202		Home equity loans and lines		34		—		34
Commercial real estate	Commercial real estate	5,755		3,310		9,065		Commercial real estate		10,304		3,031		13,335
Construction and land	Construction and land	437		—		437		Construction and land		327		—		327
Multi-family residential	Multi-family residential	—		—		—		Multi-family residential		—		—		—
Commercial and industrial	Commercial and industrial	834		23		857		Commercial and industrial		352		16		368
Consumer	Consumer	233		—		233		Consumer		467		86		553
Total	Total	$	11,155	$	3,333	$	14,488	Total		$	13,947	$	3,133	$	17,080

		December 31, 2020							December 31, 2021
(dollars in thousands)	(dollars in thousands)	With Related Allowance		Without Related Allowance		Total(1)		(dollars in thousands)		With Related Allowance		Without Related Allowance		Total
Nonaccrual loans:
Nonaccrual loans(1):								Nonaccrual loans(1):
One- to four-family first mortgage	One- to four-family first mortgage	$	3,838	$	—	$	3,838	One- to four-family first mortgage		$	3,575	$	—	$	3,575
Home equity loans and lines	Home equity loans and lines	63		—		63		Home equity loans and lines		38		—		38
Commercial real estate	Commercial real estate	12,298		—		12,298		Commercial real estate		8,315		116		8,431
Construction and land	Construction and land	469		—		469		Construction and land		258		—		258
Multi-family residential	Multi-family residential	—		—		—		Multi-family residential		—		—		—
Commercial and industrial	Commercial and industrial	1,717		—		1,717		Commercial and industrial		743		20		763
Consumer	Consumer	292		—		292		Consumer		204		—		204
Total	Total	$	18,677	$	—	$	18,677	Total		$	13,133	$	136	$	13,269

(1)Nonaccrual acquired loans include PCD loans of ~~$122,000 and $390,000 are included in nonaccrual loans~~$7,693,000 at September 30, ~~2021 and~~2022. There were no nonaccrual acquired PCD loans at December 31, ~~2020, respectively.~~2021.

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

2426

Collateral Dependent Loans

The Company held loans that were individually evaluated for credit losses at September 30, ~~2021~~2022 and December 31, ~~2020~~2021 for which the repayment, on the basis of our assessment at the reporting date, is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. The ACL for these collateral-dependent loans is primarily based on the fair value of the underlying collateral at the reporting date. The following describes the types of collateral that secure collateral dependent loans:

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

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

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

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

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

The tables below summarize collateral dependent loans and the related ACL at September 30, ~~2021~~2022 and December 31, ~~2020.~~2021.


		September 30, 2021					September 30, 2022
(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	$	—	$	—	One- to four-family first mortgage	$	112	$	32
Home equity loans and lines	Home equity loans and lines	—		—		Home equity loans and lines	—		—
Commercial real estate	Commercial real estate	3,881		455		Commercial real estate	10,692		1,193
Construction and land	Construction and land	—		—		Construction and land	—		—
Multi-family residential	Multi-family residential	—		—		Multi-family residential	—		—
Commercial and industrial	Commercial and industrial	776		435		Commercial and industrial	244		188
Consumer	Consumer	—		—		Consumer	86		—
Total	Total	$	4,657	$	890	Total	$	11,134	$	1,413

		December 31, 2020					December 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	$	1,006	$	100	One- to four-family first mortgage	$	—	$	—
Home equity loans and lines	Home equity loans and lines	—		—		Home equity loans and lines	—		—
Commercial real estate	Commercial real estate	7,400		1,008		Commercial real estate	3,873		247
Construction and land	Construction and land	—		—		Construction and land	—		—
Multi-family residential	Multi-family residential	—		—		Multi-family residential	—		—
Commercial and industrial	Commercial and industrial	606		431		Commercial and industrial	744		425
Consumer	Consumer	—		—		Consumer	—		—
Total	Total	$	9,012	$	1,539	Total	$	4,617	$	672

There were no PCD loans included in collateral dependent loans. At December 31, 2020, collateral dependent commercial real estate loans included 1 loan acquired with deteriorated credit quality totaling $277,000.

2527

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 ~~$1,031,000~~$390,000 and ~~1,302,000~~$1,189,000 at September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, 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, ~~2021~~2022 and December 31, ~~2020~~2021 totaled ~~$136,000~~$147,000 and ~~$877,000,~~$136,000, respectively. Loans secured by single family residential real estate that were in the process of foreclosure at September 30, ~~2021~~2022 and December 31, ~~2020~~2021 totaled ~~$1,377,000~~$314,000 and ~~$446,000,~~$505,000, 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 ~~$179,000 and $212,000~~$423,000 at ~~September 30, 2021 and~~ December 31, ~~2020, respectively.~~2021. During the nine months ended September 30, ~~2021,~~2022, the ~~company wrote-down an~~Company sold the asset held for sale ~~by $45,000, which is~~at the recorded ~~in foreclosed assets and ORE, net expense on the Consolidated Statements~~carrying value of ~~Income. The Company expects the sale of the asset to occur during the fourth quarter of~~$423,000 at December 31, 2021.

Troubled Debt Restructurings

During the course of its lending operations, the Company periodically grants concessions to its customers in an attempt to protect as much of its investment as possible and to minimize risk of loss. These concessions may include restructuring the terms of a customer loan to alleviate the burden of the customer’s near-term cash requirements. Loans are TDRs when the Company agrees to restructure a loan to a borrower who is experiencing financial difficulties in a manner that is deemed to be a “concession”. The Company defines a concession as a modification of existing terms granted to a borrower for economic or legal reasons related to the borrower’s financial difficulties that the Company would otherwise not consider. The concession either is granted through an agreement with the customer or is imposed by a court or by law. Concessions include modifying original loan terms to reduce or defer cash payments required as part of the loan agreement, including but not limited to:

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

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

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

•a reduction of accrued interest receivable on the debt.

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

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

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

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

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

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

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

2628

As of September 30, 2021, the Company had modified loans with an aggregate outstanding loan balance of $4.5 million, or less than 1% of total outstanding loans, via payment relief in the nature of principal and/or interest deferrals for 90 days. These modifications were done in accordance with Section 4013 of the ~~Coronavirus Aid, Relief, and Economic Security ("CARES") Act~~ ~~and the~~ ~~Interagency Statement on Loan Modifications on Reporting for Financial Institutions Working With Customers Affected by the Coronavirus. Accordingly, these loans were not categorized as TDRs.~~

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


		Nine Months Ended September 30,											Nine Months Ended September 30,
		2021					2020						2022					2021
(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	2	$	77	$	74	8	$	1,095	$	484	One- to four-family first mortgage	6	$	1,185	$	1,142	2	$	77	$	74
Home equity loans and lines	Home equity loans and lines	—	—		—		—	—		—		Home equity loans and lines	—	—		—		—	—		—
Commercial real estate	Commercial real estate	2	479		445		4	1,044		992		Commercial real estate	2	407		344		2	479		445
Construction and land	Construction and land	—	—		—		—	—		—		Construction and land	—	—		—		—	—		—
Multi-family residential	Multi-family residential	—	—		—		—	—		—		Multi-family residential	—	—		—		—	—		—
Commercial and industrial	Commercial and industrial	2	2,397		2,308		4	74		66		Commercial and industrial	1	7		7		2	2,397		2,308
Other consumer	Other consumer	1	5		2		2	13		10		Other consumer	1	19		16		1	5		2
Total	Total	7	$	2,958	$	2,829	18	$	2,226	$	1,552	Total	10	$	1,618	$	1,509	7	$	2,958	$	2,829

None of the the loans modified during the nine months ended September 30, ~~2021~~2022 defaulted during the same period.

~~NaN~~One commercial real estate loan totaling $342,000, two one- to four-family first mortgage loans totaling ~~$674,000, 2 commercial real estate loans totaling $282,000, 3~~$73,000, and one commercial and industrial ~~loans~~loan totaling ~~$35,000, and 2 consumer loans totaling $8,000~~$304,000 were modified during the nine months ended September 30, ~~2020~~2021 and defaulted within twelve months of modification. The defaults did not have a significant impact on our allowance for credit losses at September 30, ~~2020.~~2021.

6.7. Derivatives and Hedging Activities

Risk Management Objective of Using Derivatives

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

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

Cash Flow Hedges of Interest Rate Risk

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

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

During the next twelve months, the Company estimates that an additional ~~$62,000~~$1,554,000 will be reclassified as additional interest ~~expense.~~income.

Non-designated Hedges

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

Fair Values of Derivative Instruments

The tables below present the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Statement of Financial Condition as of September 30, ~~2021~~2022 and December 31, ~~2020.~~2021.


		September 30, 2021									September 30, 2022
		Derivative Assets(1)				Derivative Liabilities(1)					Derivative Assets(1)				Derivative Liabilities(1)
(dollars in thousands)	(dollars in thousands)	Notional Amount		Fair Value		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	$	1,188	$	—	$	—	Interest rate swaps - variable rate liabilities	$	40,000	$	5,462	$	—	$	—

Derivatives not designated as hedging instruments:	Derivatives not designated as hedging instruments:									Derivatives not designated as hedging instruments:
Risk participation agreements	Risk participation agreements	—		—		10,000		33		Risk participation agreements	—		—		10,000		10

Netting adjustments	Netting adjustments			—				—		Netting adjustments			—				—

Net derivative amounts	Net derivative amounts			$	1,188			$	33	Net derivative amounts			$	5,462			$	10

		December 31, 2020									December 31, 2021
		Derivative Assets(1)				Derivative Liabilities(1)					Derivative Assets(1)				Derivative Liabilities(1)
(dollars in thousands)	(dollars in thousands)	Notional Amount		Fair Value		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	$	214	$	—	$	—	Interest rate swaps - variable rate liabilities	$	40,000	$	1,589	$	—	$	—

Derivatives not designated as hedging instruments:	Derivatives not designated as hedging instruments:									Derivatives not designated as hedging instruments:
Risk participation agreements	Risk participation agreements	—		—		10,000		58		Risk participation agreements	—		—		10,000		43

Netting adjustments	Netting adjustments			—				—		Netting adjustments			—				—

Net derivative amounts	Net derivative amounts			$	214			$	58	Net derivative amounts			$	1,589			$	43

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

At September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, accumulated unrealized gains, net of taxes, on derivative instruments totaled ~~$943,000~~$4,256,000 and ~~$174,000,~~$1,259,000, respectively.

2830

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, ~~2021~~2022 and September 30, ~~2020.~~2021.


	Three Months Ended September 30, 2022
	Amount of Gain Recognized in OCI				Location of Gain Reclassified from AOCI into Income	Amount of Gain 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	$	1,490	$	1,490	Interest income	$	193	$	193


	Nine Months Ended September 30, 2022

	Amount of Gain Recognized in OCI				Location of Gain Reclassified from AOCI into Income	Amount of Gain 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	$	4,024	$	4,024	Interest income	$	231	$	231


	Three Months Ended September 30, 2021
	Amount of Gain Recognized in OCI				Location of Loss Reclassified from AOCI into Income	Amount of Loss Reclassified from AOCI into Income
(dollars in thousands)	Total		Included Component			Total		Included Component
Derivatives in cash flows hedging relationships:
Interest rate swaps - variable rate liabilities	$	39	$	39	Interest expense	$	(16)	$	(16)


	Nine Months Ended September 30, 2021
	Amount of Gain Recognized in OCI				Location of Loss Reclassified from AOCI into Income	Amount of Loss Reclassified from AOCI into Income
(dollars in thousands)	Total		Included Component			Total		Included Component
Derivatives in cash flows hedging relationships:
Interest rate swaps - variable rate liabilities	$	926	$	926	Interest expense	$	(48)	$	(48)

Three Months Ended September 30, 2020
Amount of Gain Recognized in OCI Location of Loss Reclassified from AOCI into Income Amount of Loss Reclassified from AOCI into Income
(dollars in thousands) Total Included Component Total Included Component
Derivatives in cash flows hedging relationships:
Interest rate swaps - variable rate liabilities $ 60 $ 60 Interest expense $ (16) $ (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) $ (110) Interest expense $ (28) $ (28)

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

The table below presents the effect of the Company’s derivative financial instruments that are not designated as hedging instruments on the Consolidated Statements of Income as of September 30, ~~2021.~~2022.

(dollars in thousands) Location of Income Recognized on Non-designated Hedges Three Months Ended September 30, 2021 Nine Months Ended September 30, 2021
Effects of non-designated hedges
Risk participation agreements Other noninterest income $ 6 $ 26

(dollars in thousands)

Location of Income Recognized on Non-designated Hedges

Three Months Ended September 30, 2022

Nine Months Ended September 30, 2022

Effects of non-designated hedges

Risk participation agreements

Other noninterest income

(dollars in thousands)

Location of Income Recognized on Non-designated Hedges

Three months ended September 30, 2021

Nine months ended September 30, 2021

Effects of non-designated hedges

Risk participation agreements

Other noninterest income

At and during the three and nine months ended September 30, ~~2020,~~2021, the Company was not a party to derivative contracts not designated as hedging instruments.

Credit-risk-related Contingent Features

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

The Company has agreements with certain of its derivative counterparties that contain a provision to the effect that, if the ~~company~~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, ~~2021,~~2022, there were no derivatives with credit-risk-related contingent features in a net liability position. Such derivatives are measured at fair value, which includes accrued interest but excludes any adjustment for nonperformance risk. If the Company had breached any provisions at September 30, ~~2021,~~2022, it would not have been required to settle any obligations under the agreements since the termination value was $0.

7.8. Long Term Debt

On June 30, 2022, the Company issued $55,000,000 in aggregate principal amount of its 5.75% Fixed-to-Floating Rate Subordinated Notes (the "Notes") due 2032. The Notes were issued at a price equal to 100% of the aggregate principal amount. The Notes have a stated maturity date of June 30, 2032 and will bear interest at a fixed rate of 5.75% per year from and including the issue date to but excluding June 30, 2027. From June 30, 2027, the Notes will bear interest at a floating rate equal to the then current three-month term secured overnight financing rate (“SOFR”), plus 282 basis points. The Notes may be redeemed by the Company, in whole or in part, on or after June 30, 2027. The Notes are intended to qualify as Tier 2 capital for regulatory purposes.

The carrying value of subordinated debt was $53,958,000 at September 30, 2022. The subordinated debt was recorded net of issuance costs of $1,102,000 at September 30, 2022, which is being amortized using the straight-line method over five years.

9. 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, ~~2021,~~2022, 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 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. 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.

3133

The following tables present the balances of assets measured for fair value on a recurring basis as of September 30, ~~2021~~2022 and December 31, ~~2020.~~2021.


(dollars in thousands)	(dollars in thousands)	September 30, 2021		Level 1		Level 2		Level 3		(dollars in thousands)	September 30, 2022		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	$	213,516	$	—	$	213,516	$	—	U.S. agency mortgage-backed	$	319,217	$	—	$	319,217	$	—
Collateralized mortgage obligations	Collateralized mortgage obligations	36,165		—		36,165		—		Collateralized mortgage obligations	90,536		—		90,536		—
Municipal bonds	Municipal bonds	43,098		—		43,098		—		Municipal bonds	56,905		—		56,905		—
U.S. government agency	U.S. government agency	5,761		—		5,761		—		U.S. government agency	19,613		—		19,613		—
Corporate bonds	Corporate bonds	5,585		—		5,585		—		Corporate bonds	6,487		—		6,487		—
Total	Total	$	304,125	$	—	$	304,125	$	—	Total	$	492,758	$	—	$	492,758	$	—

Derivative assets	Derivative assets	$	1,188	$	—	$	1,188	$	—	Derivative assets	$	5,462	$	—	$	5,462	$	—
Total	Total	$	305,313	$	—	$	305,313	$	—	Total	$	498,220	$	—	$	498,220	$	—

Liabilities	Liabilities									Liabilities
Derivative liabilities	Derivative liabilities	$	33	$	—	$	33	$	—	Derivative liabilities	$	10	$	—	$	10	$	—


(dollars in thousands)	(dollars in thousands)	December 31, 2020		Level 1		Level 2		Level 3		(dollars in thousands)	December 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	$	142,812	$	—	$	142,812	$	—	U.S. agency mortgage-backed	$	233,773	$	—	$	233,773	$	—
Collateralized mortgage obligations	Collateralized mortgage obligations	75,620		—		75,620		—		Collateralized mortgage obligations	31,912		—		31,912		—
Municipal bonds	Municipal bonds	28,011		—		28,011		—		Municipal bonds	50,719		—		50,719		—
U.S. government agency	U.S. government agency	6,255		—		6,255		—		U.S. government agency	5,614		—		5,614		—
Corporate bonds	Corporate bonds	2,054		—		2,054		—		Corporate bonds	5,614		—		5,614		—
Total	Total	$	254,752	$	—	$	254,752	$	—	Total	$	327,632	$	—	$	327,632	$	—

Derivative assets	Derivative assets	$	214	$	—	$	214	$	—	Derivative assets	$	1,589	$	—	$	1,589	$	—
Total	Total	$	254,966	$	—	$	254,966	$	—	Total	$	329,221	$	—	$	329,221	$	—

Liabilities	Liabilities									Liabilities
Derivative liabilities	Derivative liabilities	$	58	$	—	$	58	$	—	Derivative liabilities	$	43	$	—	$	43	$	—

3234

Nonrecurring Basis

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

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

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


				Fair Value Measurements Using									Fair Value Measurements Using
(dollars in thousands)	(dollars in thousands)	September 30, 2021		Level 1		Level 2		Level 3		(dollars in thousands)	September 30, 2022		Level 1		Level 2		Level 3
Assets	Assets									Assets
Loans individually evaluated	Loans individually evaluated	$	3,767	$	—	$	—	$	3,767	Loans individually evaluated	$	9,721	$	—	$	—	$	9,721
Foreclosed assets and ORE	Foreclosed assets and ORE	1,031		—		—		1,031		Foreclosed assets and ORE	390		—		—		390
Total	Total	$	4,798	$	—	$	—	$	4,798	Total	$	10,111	$	—	$	—	$	10,111

				Fair Value Measurements Using									Fair Value Measurements Using
(dollars in thousands)	(dollars in thousands)	December 31, 2020		Level 1		Level 2		Level 3		(dollars in thousands)	December 31, 2021		Level 1		Level 2		Level 3
Assets	Assets									Assets
Loans individually evaluated	Loans individually evaluated	$	7,473	$	—	$	—	$	7,473	Loans individually evaluated	$	3,945	$	—	$	—	$	3,945
Foreclosed assets and ORE	Foreclosed assets and ORE	1,302		—		—		1,302		Foreclosed assets and ORE	1,189		—		—		1,189
Total	Total	$	8,775	$	—	$	—	$	8,775	Total	$	5,134	$	—	$	—	$	5,134

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

September 30, 2021

September 30, 2022

Loans individually evaluated

3,767

Third party appraisals and discounted cash flows

Collateral values, market discounts and estimated costs to sell

0% - 100%

19%

Loans individually evaluated

9,721

Third party appraisals and discounted cash flows

Collateral values, market discounts and estimated costs to sell

0% - 83%

13%

Foreclosed assets and ORE

1,031

Third party appraisals, sales contracts, broker price opinions

Collateral values, market discounts and estimated costs to sell

6% - 61%

Foreclosed assets and ORE

390

Third party appraisals, sales contracts, broker price opinions

Collateral values, market discounts and estimated costs to sell

0% - 27%

(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

December 31, 2020

December 31, 2021

Loans individually evaluated

7,473

Third party appraisals and discounted cash flows

Collateral values, market discounts and estimated costs to sell

3% - 87%

17%

Loans individually evaluated

3,945

Third party appraisals and discounted cash flows

Collateral values, market discounts and estimated costs to sell

0% - 100%

15%

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%

Foreclosed assets and ORE

1,189

Third party appraisals, sales contracts, broker price opinions

Collateral values, market discounts and estimated costs to sell

6% - 16%

12%

3335

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

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

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

Methods and assumptions used to estimate fair value of each class of financial instruments for which it is practicable to estimate fair value are described in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021. The fair value of subordinated debt is estimated based on current market rates on similar debt in the market. The Company classifies this debt in Level 2 of the fair value table. There have been no other material changes from the fair value estimate methods and assumptions previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2020.~~

2021.

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


				Fair Value Measurements at September 30, 2021											Fair Value Measurements at September 30, 2022
(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	$	413,694	$	413,694	$	413,694	$	—	$	—	Cash and cash equivalents	$	150,556	$	150,556	$	150,556	$	—	$	—
Interest-bearing deposits in banks	Interest-bearing deposits in banks	349		349		349		—		—		Interest-bearing deposits in banks	349		349		349		—		—
Investment securities available for sale	Investment securities available for sale	304,125		304,125		—		304,125		—		Investment securities available for sale	492,758		492,758		—		492,758		—
Investment securities held to maturity	Investment securities held to maturity	2,110		2,147		—		2,147		—		Investment securities held to maturity	1,080		1,066		—		1,066		—
Mortgage loans held for sale	Mortgage loans held for sale	3,476		3,476		—		3,476		—		Mortgage loans held for sale	169		169		—		169		—
Loans, net	Loans, net	1,851,027		1,856,000		—		1,852,233		3,767		Loans, net	2,275,928		2,174,834		—		2,165,113		9,721
Cash surrender value of BOLI	Cash surrender value of BOLI	40,142		40,142		40,142		—		—		Cash surrender value of BOLI	46,019		46,019		46,019		—		—
Derivative assets(1)	Derivative assets(1)	1,188		1,188		—		1,188		—		Derivative assets(1)	5,462		5,462		—		5,462		—
Financial Liabilities	Financial Liabilities											Financial Liabilities
Deposits	Deposits	$	2,365,717	$	2,366,388	$	—	$	2,366,388	$	—	Deposits	$	2,738,424	$	2,725,412	$	—	$	2,725,412	$	—
Other borrowings	Other borrowings	5,539		5,993		—		5,993		—		Other borrowings	5,539		4,890		—		4,890		—
Subordinated debt												Subordinated debt	53,958		52,299		—		52,299		—
Long-term FHLB advances	Long-term FHLB advances	26,430		26,843		—		26,843		—		Long-term FHLB advances	24,816		23,571		—		23,571		—
Derivative liabilities(1)	Derivative liabilities(1)	33		33		—		33		—		Derivative liabilities(1)	10		10		—		10		—

				Fair Value Measurements at December 31, 2020
(dollars in thousands)		Carrying Amount		Total		Level 1		Level 2		Level 3
Financial Assets
Cash and cash equivalents		$	187,952	$	187,952	$	187,952	$	—	$	—
Interest-bearing deposits in banks		349		349		349		—		—
Investment securities available for sale		254,752		254,752		—		254,752		—
Investment securities held to maturity		2,934		2,996		—		2,996		—
Mortgage loans held for sale		9,559		9,559		—		9,559		—
Loans, net		1,946,991		1,957,705		—		1,950,232		7,473
Cash surrender value of BOLI		40,334		40,334		40,334		—		—
Derivative assets(1)		214		214		—		214		—
Financial Liabilities
Deposits		$	2,213,821	$	2,216,002	$	—	$	2,216,002	$	—
Other borrowings		5,539		6,224		—		6,224		—
Long-term FHLB advances		28,824		29,662		—		29,662		—
Derivative liabilities(1)		58		58		—		58		—



			Fair Value Measurements at December 31, 2021
(dollars in thousands)	Carrying Amount		Total		Level 1		Level 2		Level 3
Financial Assets
Cash and cash equivalents	$	601,443	$	601,443	$	601,443	$	—	$	—
Interest-bearing deposits in banks	349		349		349		—		—
Investment securities available for sale	327,632		327,632		—		327,632		—
Investment securities held to maturity	2,102		2,132		—		2,132		—
Mortgage loans held for sale	1,104		1,104		—		1,104		—
Loans, net	1,819,004		1,834,023		—		1,830,078		3,945
Cash surrender value of BOLI	40,361		40,361		40,361		—		—
Derivative assets(1)	1,589		1,589		—		1,589		—
Financial Liabilities
Deposits	$	2,535,849	$	2,533,951	$	—	$	2,533,951	$	—
Other borrowings	5,539		5,860		—		5,860		—
Long-term FHLB advances	26,046		26,263		—		26,263		—
Derivative liabilities(1)	43		43		—		43		—

3537


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

The purpose of this discussion and analysis is to focus on significant changes in the financial condition of the Company and the Bank from December 31, ~~2020~~2021 through September 30, ~~2021~~2022 and on its results of operations for the three and nine months ended September 30, ~~2021~~2022 and ~~2020.~~2021. 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~~Certain risks, uncertainties and other factors, ~~described~~including those set forth under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, ~~2020.~~

~~The~~2021 and any subsequent Quarterly Report on Form 10-Q or Current Report on Form 8-K, may cause actual results to differ materially from the results discussed in the forward-looking statements appearing in this discussion and analysis and may include factors such as, but not limited to, credit quality and risk, the COVID-19 pandemic, ~~has caused significant~~industry and technological changes, cyber incidents or other failures, disruptions or security breaches, interest rates, commercial and residential real estate values, economic ~~dislocation~~and market conditions in the United States ~~as many state~~or internationally, fund availability, accounting estimates and ~~local governments have ordered non-essential businesses to close~~risk management processes, the transition away from the London Interbank Offered Rate (LIBOR), legislative and ~~residents to shelter in place at home. Given its ongoing~~regulatory changes, business strategy execution, key personnel, competition, mortgage markets, fraud, environmental liability and ~~dynamic nature, it is difficult to predict the full impact~~severe weather, natural disasters, acts 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~~war or ~~a net loss over several quarters could result in a suspension of our stock repurchase program and/~~terrorism 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.~~

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

Non-GAAP Financial Measures

Management's Discussion and Analysis of Financial Condition and Results of Operations contains financial information determined by methods other than in accordance with generally accepted accounting principles (“GAAP”). The Company's management uses this non-GAAP financial information in its analysis of the Company's performance. In this Item 2, information is included which excludes PPP loans, ~~and~~ the effect of PPP loans on ~~income.~~income and the effect of acquired loans on the provision for loan losses. Management believes the presentation of this non-GAAP financial information provides useful information that is helpful to a full understanding of the Company’s financial position and operating results. This non-GAAP financial information should not be viewed as a substitute for financial information determined in accordance with GAAP, nor is it necessarily comparable to non-GAAP financial information presented by other companies. A reconciliation on non-GAAP information included herein to GAAP is presented at the end of this ~~item.~~item under the heading "Reconciliation of Non-GAAP Measures".

EXECUTIVE OVERVIEW

The Company reported net income for the third quarter of ~~2021~~2022 of ~~$15.1~~$10.4 million, or ~~$1.79~~$1.28 diluted EPS, ~~up $6.3~~down $4.6 million compared to the ~~the~~ third quarter of ~~2020.~~2021. Net income for the third quarter of ~~2020~~2021 totaled ~~$8.8~~$15.1 million, or ~~$1.01~~$1.79 diluted EPS. The third quarter of 2022 includes merger expenses related to the acquisition of Friendswood Capital Corporation (“Friendswood”) totaling $41,000, net of taxes. The third quarter of 2021 includes a non-taxable BOLI benefit totaling $1.7 million following the death of a former employee.

For the nine months ended September 30, ~~2021,~~2022, the Company reported net income of$23.3 million, or $2.84 diluted EPS, down $15.1 million from $38.4 million, or $4.54 diluted EPS, ~~up $24.2 million from $14.2 million, or $1.61 diluted EPS,~~reported for the nine months ended September 30, ~~2020.~~2021. The nine months ended September 30, 2022 includes merger expenses related to the acquisition of Friendswood totaling $1.6 million, net of taxes, compared to a net loss on the sale of a banking center totaling $361,000, net of taxes, and a non-taxable BOLI benefit following the death of a former employee totaling $1.7 million for the nine months ended September 30, 2021.

Key components of the Company’s performance during the three and nine months ended September 30, ~~2021~~2022 include:

•Assets increased ~~$171.6~~$229.4 million, or ~~6.6%~~7.8%, from December 31, ~~2020~~2021 to ~~$2.8~~$3.2 billion at September 30, ~~2021.~~2022.

•Total loans were ~~$1.9~~$2.3 billion at September 30, ~~2021, down $104.8~~2022, up $463.2 million, or ~~5.3%~~25.2%, from December 31, ~~2020.~~2021. The loan growth resulted primarily from the addition of Friendswood's loan portfolio, which amounted to $317.5 million on March 26, 2022 (the date of acquisition).

•PPP loans totaled ~~$95.6~~$7.1 million at September 30, ~~2021,~~2022, down ~~$125.7~~$36.5 million, or ~~56.8%~~83.7%, from December 31, ~~2020.~~2021.

•During the three and nine months ended September 30, ~~2021,~~2022, the Company ~~reversed $2.4~~provisioned $1.7 million and ~~$7.5~~$5.5 million, respectively, ofto the allowance for loan losses, primarily due to ~~improvements in our assessment~~the acquisition of Friendswood's loan portfolio and loan growth. During the ~~economic impact of the COVID-19 pandemic. During~~three and nine months ended September 30, ~~2020,~~2021, the Company ~~provisioned $12.7 million~~recorded a reversal to the allowance for loan ~~losses.~~losses of $2.4 million and $7.5 million, respectively.

•The ALL totaled ~~$24.1~~$27.4 million, or ~~1.29%~~1.19% of total loans, at September 30, ~~2021~~2022 compared to ~~$33.0~~$21.1 million, or ~~1.66%~~1.15% of total loans, at December 31, ~~2020.~~2021. Excluding PPP loans, the ratio of the ALL to total loans was ~~1.36%~~1.19% and ~~1.87%~~1.17% at September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

•Nonperforming assets ~~decreased $4.4~~increased $3.0 million, or ~~22.3%~~20.8%, from ~~$20.0~~$14.5 million, or ~~0.77%~~0.49% of total assets, at December 31, ~~2020~~2021 to ~~$15.5~~$17.5 million, or ~~0.56%~~0.55% of total assets, at September 30, ~~2021.~~2022. The increase in NPAs was primarily due to NPAs acquired from Friendswood, which amounted to $10.2 million on March 26, 2022 (the date of acquisition), which was partially offset by paydowns and improvements in credit quality of loans.

•Total deposits increased ~~$151.9~~$202.6 million, or ~~6.9%~~8.0%, from ~~$2.2~~$2.5 billion at December 31, ~~2020~~2021 to ~~$2.4~~$2.7 billion at September 30, ~~2021.~~2022. The increase was primarily from the addition of Friendswood''s deposits, which amounted to $368.0 million on March 26, 2022 (the date of acquisition), which was partially offset by a $40.6 million decline in public funds and a $53.1 million decline in surge deposits related to three current customers.

•The Company issued $55.0 million in aggregate principal amount of its 5.75% Fixed-to-Floating Rate Subordinated Notes (the "Notes") due 2032. The Notes were issued at a price equal to 100% of the aggregate principal amount. The carrying value of subordinated debt was $54.0 million at September 30, 2022. The subordinated debt was recorded net of issuance costs of $1.1 million at September 30, 2022.

•The net interest margin was ~~4.16%~~4.11% and ~~4.01%~~3.77% for the three and nine months ended September 30, ~~2021,~~2022, respectively, ~~up 34~~down 5 bps and 10down 24 bps, ~~respectively,~~ from the ~~comparable periods in 2020.~~three and nine months ended September 30, 2021, respectively. Excluding the impact of PPP loans, the net interest margin was 4.11% and 3.73% for the three and nine months ended September 30, 2022, respectively, compared to 3.64% and 3.74% for the three and nine months ended September 30, 2021, ~~respectively, compared to 3.96% and 3.98% for the three and nine months ended September 30, 2020,~~ respectively.

•The average rate paid on total interest-bearing deposits was 0.27%, down 33 bps from the third quarter of 2020. For the nine months ended September 30, 2021, the average rate paid on total interest-bearing deposits was 0.35%, down 45 bps from the nine months ended September 30, 2020.

•~~Total interest expense~~ for the third quarter of ~~2021~~2022, which was ~~down $1.3 million, or 49.8%, compared to the third quarter of 2020. For the nine months ended September 30, 2021, total interest expense was down $5.0 million, or 51.0%,~~unchanged from ~~the comparable period in 2020.~~

•Noninterest income for the third quarter of 2021 was up $1.6 million, or 41.9%, compared to the third quarter of 2020, primarily due to a non-taxable bank-owned life insurance benefit (up $1.7 million), partially offset by a decrease in gains on the the sale of loans (down $489,000). The Company recognized a life insurance benefit of $1.7 million following the death of an employee during the third quarter of 2021. For the nine months ended September 30, ~~2021, noninterest income~~2022, the average rate paid on total interest-bearing deposits was 0.23%, down 12 bps from the nine months ended September 30, 2021.

•Total interest expense for the third quarter of 2022 was up ~~$2.5 million,~~$998,000, or ~~24.2%~~77.4%, compared to the third quarter of 2021. For the nine months ended September 30, 2022, total interest expense was down $169,000, or 3.5%, from the comparable period in ~~2020,~~2021.

•Noninterest income for the third quarter of 2022 was down $1.9 million, or 35.5%, compared to the third quarter of 2021, primarily due to the receipt in the third quarter of 2021 of a non-taxable BOLI benefit totaling $1.7 million following the death of a former employee. For the nine months ended September 30, 2022, noninterest income was down $2.2 million, or 17.2%, from ~~bank-owned life insurance (up~~the comparable period in 2021 primarily due to the absence of the $1.7 ~~million), income from bank card fees (up $821,000),~~million BOLI benefit received in the third quarter of 2021 and a decrease in gains on the sale of loans ~~(up $299,000)~~(down $1.5 million), ~~which were~~ partially offset by ~~an increase~~a difference of $477,000 in ~~net losses~~the gain/loss on the sale of ~~assets (up $449,000).~~assets.

•Noninterest expense for the third quarter of ~~2021~~2022 was up ~~$315,000,~~$4.3 million, or ~~2.0%~~26.1%, compared to the third quarter of 2020, primarily due to increases in expenses for data processing and communication (up $267,000), marketing and advertising (up $111,000), and other expenses (up $160,000), which were partially offset by a decrease in regulatory fees (down $225,000).2021. For the nine months ended September 30, ~~2021,~~2022, noninterest expense was up ~~$2.0~~$11.8 million, or ~~4.2%~~24.0%, from the comparable period in ~~2020,~~2021. Noninterest expense includes merger-related expenses, which totaled $60,000 (pre-tax) and $2.0 million (pre-tax) for the three and nine months ended September 30, 2022, respectively. The increase in noninterest expense related primarily ~~due~~ to ~~increases in expenses for compensation~~the Friendswood acquisition and ~~benefits (up $642,000),~~the attendant growth of the Company’s employee base as well as the resulting higher occupancy expense, regulatory fees, and data processing ~~and communication (up $833,000), the provision for losses on unfunded lending commitments (up $375,000), and other expenses (up $208,000).~~costs.

3739

~~COVID-19 IMPACTS~~

After an increase in COVID-19 cases during the third quarter of 2021, Louisiana reinstituted its indoor mask mandate in August 2021. Mississippi's COVID-19 restrictions were lifted during the first quarter of 2021.

Under the Small Business Administration's ("SBA") Paycheck Protection Program ("PPP"), the Company funded 4,875 PPP loans totaling $388.7 million during 2020 and 2021, in aggregate. At September 30, 2021, the total recorded net investment in PPP loans was $95.6 million, of which 565 loans with an aggregate outstanding balance of $17.9 million were for amounts of $150,000 or less.

To give immediate financial support to our customers, the Company began providing principal and/or interest payment deferral options in March 2020. At September 30, 2021, $4.5 million, or less than 1% of total loans, were under COVID-19 related deferral agreements. The level of COVID-19 deferrals previously totaled $558.8 million, or 28% of total loans, at June 30, 2020. Of the loans that have exited deferral agreements, $384.8 million, or 99%, were current and performing as of September 30, 2021.

FINANCIAL CONDITION

Loans, Allowance for Credit Losses and Asset Quality

Loans

Total loans at September 30, ~~2021~~2022 were ~~$1.9~~$2.3 billion, ~~down $104.8~~up $463.2 million, or ~~5.3%~~25.2%, from December 31, ~~2020.~~2021. The loan growth resulted primarily from the addition of Friendswood's loan portfolio, which amounted to $317.5 million on March 26, 2022 (the date of acquisition). PPP loans, included in commercial and industrial loans, totaled ~~$95.6~~$7.1 million at September 30, ~~2021,~~2022, down ~~$125.7~~$36.5 million, or ~~56.8%~~83.7%, from December 31, ~~2020.~~2021. Excluding PPP loans and Friendswood''s acquired loan portfolio, organic loans increased $180.8 million, or 10.1%, from December 31, 2021.

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


(dollars in thousands)	(dollars in thousands)	September 30, 2021		December 31, 2020		Increase/(Decrease)				(dollars in thousands)	September 30, 2022		December 31, 2021		Increase/(Decrease)
Real estate loans:	Real estate loans:									Real estate loans:
One-to four-family first mortgage	One-to four-family first mortgage	$	360,150	$	395,638	$	(35,488)	(9.0)	%	One-to four-family first mortgage	$	376,028	$	350,843	$	25,185	7.2	%
Home equity loans and lines	Home equity loans and lines	59,667		67,700		(8,033)		(11.9)		Home equity loans and lines	60,624		60,312		312		0.5
Commercial real estate	Commercial real estate	802,401		750,623		51,778		6.9		Commercial real estate	1,086,656		801,624		285,032		35.6
Construction and land	Construction and land	241,286		221,823		19,463		8.8		Construction and land	328,753		259,652		69,101		26.6
Multi-family residential	Multi-family residential	92,062		87,332		4,730		5.4		Multi-family residential	97,212		90,518		6,694		7.4
Total real estate loans	Total real estate loans	1,555,566		1,523,116		32,450		2.1	%	Total real estate loans	1,949,273		1,562,949		386,324		24.7	%
Other loans:	Other loans:									Other loans:
Commercial and industrial	Commercial and industrial	284,831		417,926		(133,095)		(31.8)		Commercial and industrial	320,900		244,123		76,777		31.5
Consumer	Consumer	34,779		38,912		(4,133)		(10.6)		Consumer	33,106		33,021		85		0.3
Total other loans	Total other loans	319,610		456,838		(137,228)		(30.0)		Total other loans	354,006		277,144		76,862		27.7
Total loans	Total loans	$	1,875,176	$	1,979,954	$	(104,778)	(5.3)	%	Total loans	$	2,303,279	$	1,840,093	$	463,186	25.2	%

Excluding PPP loans, loans increased $20.9 million, or 1.2%, from December 31, 2020. Commercial real estate and construction and land loan growth was primarily driven by our New Orleans and Northshore markets. The growth in multifamily loans was primarily due to the conversion of existing construction loans to permanent financing. The Company experienced significant pay-downs in commercial and industrial loans primarily due to PPP loans and our residential loans, primarily due to refinances as customers sought to acquire lower interest rates.

Allowance for Credit Losses

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

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

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

At September 30, ~~2021,~~2022, the ALL totaled ~~$24.1~~$27.4 million, or ~~1.29%~~1.19% of total loans, ~~down $8.8~~up $6.3 million from ~~$33.0~~$21.1 million, or ~~1.66%~~1.15% of total loans, at December 31, ~~2020.~~2021. During the nine months ended September 30, ~~2021,~~2022, the Company ~~reversed $7.5~~provisioned $5.5 million of the allowance loan losses primarily due to ~~improvements in our assessment~~the acquisition of ~~the economic impact of the COVID-19 pandemic.~~Friendswood and loan growth. Net loan charge-offs totaled ~~$1.3 million~~$655,000 for the nine months ended September 30, ~~2021 and were primarily attributable to an acquired hotel loan and one originated commercial relationship, both of which were nonperforming prior to the COVID-19 crisis.~~2022.

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.

Asset Quality

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

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

At September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, loans individually evaluated for credit losses were ~~$4.7~~$11.1 million and ~~$9.0~~$4.6 million, respectively. Total loans individually evaluated for credit losses at September 30, ~~2021~~2022 included ~~$0.7~~$7.7 million of acquired loans, of which nothree loans were acquired with deteriorated credit ~~quality.~~quality in the Friendswood acquisition. At December 31, ~~2020,~~2021, loans individually evaluated for credit losses included ~~$2.4~~$1.1 million of acquired loans, of which ~~$277,000 was~~none were acquired with deteriorated credit quality.

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


	September 30, 2022
(dollars in thousands)	Recorded investment		Allowance for Loan Losses		Allowance to Total Loans
Loans Individually Evaluated
One- to four-family first mortgage	$	112	$	32	28.57	%
Home equity loans and lines	—		—		—
Commercial real estate	10,692		1,193		11.16
Construction and land	—		—		—
Multi-family residential	—		—		—
Commercial and industrial	244		188		77.05
Consumer	86		—		—
Total	$	11,134	$	1,413	12.69	%

September 30, 2021
(dollars in thousands) Recorded investment Allowance for Loan Losses Allowance to Total Loans
Loans Individually Evaluated
One- to four-family first mortgage $ — $ — — %
Home equity loans and lines — — —
Commercial real estate 3,881 455 11.72
Construction and land — — —
Multi-family residential — — —
Commercial and industrial 776 435 56.06
Consumer — — —
Total $ 4,657 $ 890 19.11 %
December 31, 2020
(dollars in thousands) Recorded investment Allowance for Loan Losses Allowance to Total Loans
Loans Individually Evaluated
One- to four-family first mortgage $ 1,006 $ 100 9.94 %
Home equity loans and lines — — —
Commercial real estate 7,400 1,008 13.62
Construction and land — — —
Multi-family residential — — —
Commercial and industrial 606 431 71.12
Consumer — — —
Total $ 9,012 $ 1,539 17.08 %


	December 31, 2021
(dollars in thousands)	Recorded investment		Allowance for Loan Losses		Allowance to Total Loans
Loans Individually Evaluated
One- to four-family first mortgage	$	—	$	—	—	%
Home equity loans and lines	—		—		—
Commercial real estate	3,873		247		6.38
Construction and land	—		—		—
Multi-family residential	—		—		—
Commercial and industrial	744		425		57.12
Consumer	—		—		—
Total	$	4,617	$	672	14.55	%

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, ~~2021~~2022 and December 31, ~~2020,~~2021, loans classified as substandard totaled ~~$34.4~~$20.1 million and ~~$35.3~~$17.5 million, respectively. There were no assets classified as doubtful at either date. For additional information, refer to Note 56 to the Consolidated Financial Statements. The $2.5 million, or 14.3%, increase in substandard loans at September 30, 2022 compared to December 31, 2021 was due primarily to substandard commercial real estate loans acquired from Friendswood, which amounted to $7.7 million at September 30, 2022, partially offset by loan payoffs and improvements in loans.

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

(dollars in thousands) September 30, 2021 December 31, 2020 Increase/(Decrease)
Special Mention Loans
One- to four-family first mortgage $ 667 $ 1,240 $ (573) (46.2) %
Home equity loans and lines — 43 (43) (100.0)
Commercial real estate 1,238 966 272 28.2
Construction and land 1,004 2,122 (1,118) (52.7)
Multi-family residential — — — —
Commercial and industrial 2,814 4,814 (2,000) (41.5)
Consumer 3 146 (143) (97.9)
Total special mention loans $ 5,726 $ 9,331 $ (3,605) (38.6) %
(dollars in thousands) September 30, 2021 December 31, 2020 Increase/(Decrease)
Substandard Loans
One- to four-family first mortgage $ 4,804 $ 4,261 $ 543 12.7 %
Home equity loans and lines 201 62 139 224.2
Commercial real estate 10,504 15,195 (4,691) (30.9)
Construction and land 425 12,224 (11,799) (96.5)
Multi-family residential 14,500 106 14,394 13579.2
Commercial and industrial 3,779 3,154 625 19.8
Consumer 231 290 (59) (20.3)
Total substandard loans $ 34,444 $ 35,292 $ (848) (2.4) %


(dollars in thousands)	September 30, 2022		December 31, 2021		Increase/(Decrease)
Special Mention Loans
One- to four-family first mortgage	$	1,197	$	369	$	828	224.4	%
Home equity loans and lines	—		—		—		—
Commercial real estate	3,155		2,207		948		43.0
Construction and land	717		575		142		24.7
Multi-family residential	3,312		—		3,312		—
Commercial and industrial	2,380		267		2,113		791.4
Consumer	—		2		(2)		(100.0)
Total special mention loans	$	10,761	$	3,420	$	7,341	214.6	%

Special mention loans ~~decreased $3.6~~increased $7.3 million from December 31, ~~2020~~2021 to September 30, ~~2021~~2022 primarily due to ~~upgrades~~downgrades of ~~special mention~~pass loans to a ~~pass rating and pay-offs.~~special mention rating.


(dollars in thousands)	September 30, 2022		December 31, 2021		Increase/(Decrease)
Substandard Loans
One- to four-family first mortgage	$	3,018	$	3,828	$	(810)	(21.2)	%
Home equity loans and lines	33		37		(4)		(10.8)
Commercial real estate	13,748		9,837		3,911		39.8
Construction and land	324		247		77		31.2
Multi-family residential	77		—		77		—
Commercial and industrial	2,314		3,395		(1,081)		(31.8)
Consumer	546		202		344		170.3
Total substandard loans	$	20,060	$	17,546	$	2,514	14.3	%

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

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, 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 $ 1,723 $ 1,971 $ 3,694 $ 1,464 $ 2,374 $ 3,838
Home equity loans and lines 163 39 202 24 39 63
Commercial real estate 5,958 3,107 9,065 7,650 4,648 12,298
Construction and land 189 248 437 — 469 469
Multi-family residential — — — — — —
Other loans:
Commercial and industrial 385 472 857 603 1,114 1,717
Consumer 174 59 233 188 104 292
Total nonaccrual loans 8,592 5,896 14,488 9,929 8,748 18,677
Accruing loans 90 days or more past due 13 — 13 2 — 2
Total nonperforming loans 8,605 5,896 14,501 9,931 8,748 18,679
Foreclosed assets and ORE 772 259 1,031 422 880 1,302
Total nonperforming assets 9,377 6,155 15,532 10,353 9,628 19,981
Performing troubled debt restructurings 3,961 1,085 5,046 1,512 573 2,085
Total nonperforming assets and troubled debt restructurings $ 13,338 $ 7,240 $ 20,578 $ 11,865 $ 10,201 $ 22,066
Nonperforming loans to total loans 0.77 % 0.94 %
Nonperforming loans to total assets 0.52 % 0.72 %
Nonperforming assets to total assets 0.56 % 0.77 %


	September 30, 2022							December 31, 2021
(dollars in thousands)	Originated		Acquired(1)		Total			Originated		Acquired(1)		Total
Nonaccrual loans(2):
Real estate loans:
One- to four-family first mortgage	$	515	$	1,948	$	2,463		$	1,468	$	2,107	$	3,575
Home equity loans and lines	—		34		34			—		38		38
Commercial real estate	3,145		10,190		13,335			5,316		3,115		8,431
Construction and land	151		176		327			—		258		258
Multi-family residential	—		—		—			—		—		—
Other loans:
Commercial and industrial	253		115		368			291		472		763
Consumer	217		336		553			158		46		204
Total nonaccrual loans	4,281		12,799		17,080			7,233		6,036		13,269
Accruing loans 90 days or more past due	3		—		3			6		—		6
Total nonperforming loans	4,284		12,799		17,083			7,239		6,036		13,275
Foreclosed assets and ORE	14		376		390			1,109		80		1,189
Total nonperforming assets	4,298		13,175		17,473			8,348		6,116		14,464
Performing troubled debt restructurings	4,686		879		5,565			3,867		1,096		4,963
Total nonperforming assets and troubled debt restructurings	$	8,984	$	14,054	$	23,038		$	12,215	$	7,212	$	19,427

Nonperforming loans to total loans					0.74		%					0.72		%
Nonperforming loans to total assets					0.54		%					0.45		%
Nonperforming assets to total assets					0.55		%					0.49		%

(1)Nonaccrual acquired loans include PCD loans of ~~$122,000 and $390,000~~$7.7 million at September 30, ~~2021 and~~2022. There were no nonaccrual acquired PCD loans at December 31, ~~2020, respectively.~~2021.

(2)Nonaccrual loans include originated restructured loans placed on nonaccrual totaling ~~$4.1~~$3.3 million and ~~$6.5~~$3.7 million at September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. Acquired restructured loans placed on nonaccrual totaled ~~$3.5~~$4.7 million and $3.5 million at September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, 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 $4.5 million, or less than 1% of total loans, at September 30, 2021 and $36.0 million, or 2% of total loans, at December 31, 2020. We will continue to follow the guidance of Federal banking regulators in making any TDR determinations.

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

4344

Investment Securities

The Company’s investment securities portfolio totaled ~~$306.2~~$493.8 million as of September 30, ~~2021,~~2022, an increase of ~~$48.5~~$164.1 million, or ~~18.8%~~49.8%, from December 31, ~~2020.~~2021. At September 30, ~~2021,~~2022, the Company had a net unrealized ~~gain~~loss on its available for sale investment securities portfolio of ~~$1.3~~$59.6 million, compared to a net unrealized ~~gain~~loss of ~~$6.5 million~~$653,000 at December 31, ~~2020. For the period ended September 30, 2021, the Company recorded an immaterial amount of gross gains or losses related to the sale of investments.~~2021.

The following table summarizes activity in the Company’s investment securities portfolio during the nine months ended September 30, ~~2021.~~2022.

(dollars in thousands) Available for Sale Held to Maturity
Balance, December 31, 2020 $ 254,752 $ 2,934
Purchases 125,380 —
Sales (5,068) —
Principal maturities, prepayments and calls (64,278) (800)
Amortization of premiums and accretion of discounts (1,460) (24)
Decrease in market value (5,201) —
Balance, September 30, 2021 $ 304,125 $ 2,110


(dollars in thousands)	Available for Sale		Held to Maturity
Balance, December 31, 2021	$	327,632	$	2,102
Purchases	236,236		—
Acquired from Texan Bank, at fair value	33,411		—
Sales	—		—
Principal maturities, prepayments and calls	(44,692)		(1,000)
Amortization of premiums and accretion of discounts	(849)		(22)
Decrease in market value	(58,980)		—
Balance, September 30, 2022	$	492,758	$	1,080

Funding Sources

Deposits

Deposits totaled ~~$2.4~~$2.7 billion at September 30, ~~2021,~~2022, an increase of ~~$151.9~~$202.6 million, or ~~6.9%~~8.0%, compared to December 31, ~~2020.~~2021. The increase was primarily from the addition of Texan Bank's deposits, which amounted to $368.0 million on March 26, 2022 (the date of acquisition), which was partially offset by a $40.6 million decline in public funds and a $53.1 million decline in surge deposits related to three current customers. The following table summarizes the changes in the Company’s deposits from December 31, ~~2020~~2021 to September 30, ~~2021.~~2022.


(dollars in thousands)	(dollars in thousands)	September 30, 2021		December 31, 2020		Increase/(Decrease)				(dollars in thousands)	September 30, 2022		December 31, 2021		Increase/(Decrease)
Demand deposit	Demand deposit	$	728,352	$	615,700	$	112,652	18.3	%	Demand deposit	$	921,089	$	766,385	$	154,704	20.2	%
Savings	Savings	280,651		250,165		30,486		12.2		Savings	325,594		285,728		39,866		14.0
Money market	Money market	355,923		333,078		22,845		6.9		Money market	452,474		371,478		80,996		21.8
NOW	NOW	669,414		646,085		23,329		3.6		NOW	686,592		792,919		(106,327)		(13.4)
Certificates of deposit	Certificates of deposit	331,377		368,793		(37,416)		(10.1)		Certificates of deposit	352,675		319,339		33,336		10.4
Total deposits	Total deposits	$	2,365,717	$	2,213,821	$	151,896	6.9	%	Total deposits	$	2,738,424	$	2,535,849	$	202,575	8.0	%

The average rate paid on interest-bearing deposits was 0.27% for the third quarter of ~~2021, down 33 bps~~2022, which remained unchanged compared to the third quarter of ~~2020. For the nine months ended September 30, 2021, the average rate paid on interest-bearing deposits was 0.35%, down 45 bps from the comparable period in 2020.~~2021.

At September 30, ~~2021,~~2022, certificates of deposit maturing within the next 12 months totaled ~~$271.6~~$274.7 million.

Subordinated Debt

On June 30, 2022, The Company issued $55.0 million in aggregate principal amount of its 5.75% Fixed-to-Floating Rate Subordinated Notes due 2032. The Notes were issued at a price equal to 100% of the aggregate principal amount. The Notes have a stated maturity date of June 30, 2032 and bear interest at a fixed rate of 5.75% per year from and including the issue date to but excluding June 30, 2027. From June 30, 2027, the Notes will bear interest at a floating rate equal to the then current three-month term secured overnight financing rate (“SOFR”), plus 282 basis points. The Notes may be redeemed by the Company, in whole or in part, on or after June 30, 2027. The Notes are intended to qualify as Tier 2 capital for regulatory purposes.

The carrying value of subordinated debt was $54.0 million at September 30, 2022. The subordinated debt was recorded net of issuance costs of $1.1 million at September 30, 2022.

Federal Home Loan Bank Advances

The average balance of total FHLB advances was ~~$27.0~~$25.0 million for the third quarter of ~~2021,~~2022, down ~~$7.6~~$2.0 million compared to the third quarter of ~~2020.~~2021. For the nine months ended September 30, ~~2021,~~2022, the average balance of total FHLB advances was ~~$27.7~~$25.4 million, down ~~$22.5~~$2.3 million compared to the nine months ended September 30, ~~2020.~~2021. Average total FHLB advances decreased over the comparable periods primarily due to ~~the absence of short-term FHLB borrowings and~~ paydowns during the ~~nine months ended September 30, 2021.~~2022 periods.

At September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company had ~~$26.4~~$24.8 million and ~~$28.8~~$26.0 million in total outstanding FHLB advances, respectively, and ~~$776.7 million~~$1.1 billion and ~~$787.2~~$810.4 million in additional FHLB advances available, respectively.

Shareholders’ Equity

Total shareholders’ equity ~~increased $22.3~~decreased $35.2 million, or ~~6.9%~~10.0%, from ~~$321.8~~$351.9 million at December 31, ~~2020~~2021 to ~~$344.1~~$316.7 million at September 30, ~~2021.~~2022. Shareholders' equity ~~increased~~decreased primarily due to ~~net income of $38.4 million, partially offset by~~ an other comprehensive loss of ~~$3.3~~$43.6 million, share repurchases of ~~$8.8~~$11.3 million and cash dividends of ~~$5.9~~$5.8 million, which were partially offset by net income of $23.3 million during the nine months ended September 30, ~~2021.~~2022. Other comprehensive loss primarily reflects the market value of the Company's available for sale securities declining $59.0 million due primarily to the rising interest rate environment during the nine months ended September 30, 2022.

At September 30, ~~2021,~~2022, 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, ~~2021~~2022 based on the required capital levels as of January 1, 2019 when the Basel III Capital Rules were fully phased-in. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules.


		Actual				Minimum Capital Required – Basel III Fully Phased-In				To Be Well Capitalized Under Prompt Corrective Action Provisions					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)	$	270,063	14.35	%	$	131,714	7.00	%	$	122,306	6.50	%	Common equity Tier 1 capital (to risk-weighted assets)	$	309,547	12.49	%	$	173,440	7.00	%	$	161,051	6.50	%
Tier 1 risk-based capital	Tier 1 risk-based capital	270,063		14.35		159,939		8.50		150,531		8.00		Tier 1 risk-based capital	309,547		12.49		210,606		8.50		198,217		8.00
Total risk-based capital	Total risk-based capital	293,613		15.60		197,572		10.50		188,164		10.00		Total risk-based capital	338,210		13.65		260,160		10.50		247,771		10.00
Tier 1 leverage capital	Tier 1 leverage capital	270,063		10.05		107,535		4.00		134,419		5.00		Tier 1 leverage capital	309,547		9.76		126,844		4.00		158,555		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, ~~2021,~~ 2022,

certificates of deposit maturing within the next 12 months totaled ~~$271.6~~$274.7 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 and~~ nine months ended September 30, ~~2021,~~2022, the average ~~balances~~balance of outstanding FHLB advances ~~were $27.0 million and $27.7 million, respectively.~~was $25.4 million. At September 30, ~~2021,~~2022, the Company had ~~$26.4~~$24.8 million in total outstanding FHLB advances and had ~~$776.7 million~~$1.1 billion in additional FHLB advances available.

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, ~~2021.~~2022.


Shift in Interest Rates (in bps)	Shift in Interest Rates (in bps)	% Change in Projected Net Interest Income	Shift in Interest Rates (in bps)	% Change in Projected Net Interest Income
+300	+300	18.4%	+300	2.5%
+200	+200	12.3%	+200	1.8%
+100	+100	6.3%	+100	0.9%
-100	-100	(6.7)%	-100	(3.3)%

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~~2022 and ~~2020,~~2021, such derivatives were used to hedge the variable cost associated with existing variable rate liabilities. Refer to Note 67 of the Consolidated Financial Statements for more information on the effects of the derivative financial instruments on the consolidated financial statements.

~~Off-Balance Sheet Activities~~

To meet the financing needs of its customers, the Company issues financial instruments which represent conditional obligations that are not recognized, wholly or in part, in the statements of financial condition. These financial instruments include commitments to extend credit and standby letters of credit. Such instruments expose the Company to varying degrees of credit and interest rate risk in much the same way as funded loans. The same credit policies are used in these commitments as for on-balance sheet instruments. At September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company's allowance for credit losses on unfunded commitments totaled $2.3 million and $1.8 million, ~~and $1.4 million,~~ respectively.

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


		Contract Amount					Contract Amount
(dollars in thousands)	(dollars in thousands)	September 30, 2021		December 31, 2020		(dollars in thousands)	September 30, 2022		December 31, 2021
Standby letters of credit	Standby letters of credit	$	5,581	$	5,781	Standby letters of credit	$	6,674	$	5,075
Available portion of lines of credit	Available portion of lines of credit	308,324		266,349		Available portion of lines of credit	356,464		320,611
Undisbursed portion of loans in process	Undisbursed portion of loans in process	126,710		99,527		Undisbursed portion of loans in process	179,917		142,048
Commitments to originate loans	Commitments to originate loans	134,983		139,471		Commitments to originate loans	218,874		153,487

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

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

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

RESULTS OF OPERATIONS

Net income for the third quarter of ~~2021~~2022 was ~~$15.1~~$10.4 million, ~~up $6.3~~down $4.6 million compared to the third quarter of ~~2020.~~2021. Diluted EPS for the third quarter of ~~2021~~2022 was ~~$1.79, up $0.78~~$1.28, down $0.51 compared to the third quarter of ~~2020.~~2021.

Net income for the nine months ended September 30, ~~2021~~2022 was ~~$38.4~~$23.3 million, ~~up $24.2~~down $15.1 million, compared to the nine months ended September 30, ~~2020.~~2021. Diluted EPS for the nine months ended September 30, ~~2021~~2022 was ~~$4.54, up $2.93~~$2.84, down $1.70 compared to the nine months ended September 30, ~~2020.~~2021.

The net income for the three and nine months ended September 30, ~~2021~~2022 and ~~2020~~2021 was significantly impacted by the acquisition of Friendswood's loan portfolio, the change in our estimate of the allowance for loan losses over the comparable periods and the recognition of PPP lender fees. During the three and nine months ended September 30, 2022, the Company provisioned $1.7 million and $5.5 million, respectively, to the allowance for loan losses primarily due to loan growth and the acquisition of Friendswood. During the three and nine months ended September 30, 2021, the Company reversed $2.4 million and $7.5 million, respectively, offrom the allowance for loan losses. During nine months ended September 30, 2020, the Company provisioned $12.7 million for expected credit losses on loans primarily due to the uncertainty and economic disruption brought on by the COVID-19 pandemic. The Company recognized ~~$4.4 million~~$108,000 and ~~$9.4~~$1.2 million of deferred PPP lender fees during the three and nine months ended September 30, ~~2021,~~2022, respectively, compared to ~~$1.1~~$4.4 million and ~~$1.9~~$9.4 million, respectively, during the comparable periods in ~~2020.~~2021.

Net Interest Income

Net interest income is the difference between the interest income earned on interest-earning assets, such as loans and investment securities, and the interest expense paid on interest-bearing liabilities, such as deposits and borrowings. The Company’s net interest income is largely determined by our net interest spread, which is the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities, and the relative amounts of interest-earning assets and interest-bearing liabilities. The Company’s tax-equivalent net interest spread was ~~4.05%~~3.95% and ~~3.62%~~4.05% for the quarters ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~3.89%~~3.65% and ~~3.64%~~3.89% for the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

Net interest income totaled ~~$27.1~~$32.0 million for the third quarter of ~~2021,~~2022, up ~~$3.9~~$4.8 million, or ~~16.6%~~17.8%, compared to the third quarter of ~~2020.~~2021. For the nine months ended September 30, ~~2021,~~2022, net interest income totaled ~~$76.3~~$84.7 million, up ~~$9.3~~$8.4 million, or ~~13.9%~~11.0%, compared to the nine months ended September 30, ~~2020.~~2021.

Loan income from deferred PPP lender fees totaled ~~$4.4 million~~$108,000 for the third quarter of ~~2021, up $3.3~~2022, down $4.3 million, or ~~310.5%~~97.5%, compared to the third quarter of ~~2020.~~2021. For the nine months ended September 30, ~~2021,~~2022, loan income from PPP lender fees

totaled ~~$9.4~~$1.2 million, ~~up $7.5~~down $8.2 million from the comparable period in ~~2020.~~2021. Unrecognized PPP lender fees totaled ~~$3.3 million~~$103,000 at September 30, ~~2021.~~2022.

The Company’s tax-equivalent net interest margin, which is net interest income as a percentage of average interest-earning assets, was ~~4.16%~~4.11% and ~~3.82%~~4.16% for the quarters ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. For the same periods, the average loan yield was ~~5.60%~~5.17% and ~~4.94%~~5.60%, respectively. PPP loans did not significantly impact the net interest margin and the average loan yield during the third quarter of 2022. During the third quarter of 2021, PPP loans increased the net interest margin by 52 bps and increased the average loan yield by 60 ~~bps during the third quarter of 2021. During the third quarter of 2020, PPP loans decreased the net interest margin by 14 bps and the average loan yield by 34~~ bps. Excluding the impact of PPP loans, the net interest margin and the average loan yield ~~decreased~~increased by 3247 and 2817 bps, respectively, over the comparable quarters.

The net interest margin for the nine months ended September 30, 2022 and 2021 was 3.77% and ~~2020 was~~ 4.01% ~~and 3.91%~~, respectively. For the same periods, the average loan yield was ~~5.25%~~5.01% and ~~5.12%~~5.25%, respectively. PPP loans increased the the net interest margin by four bps and the average loan yield by four bps during the nine months ended September 30, 2022. During the nine months ended September 30, 2021, PPP loans increased the net interest margin by 27 bps and the average loan yield by 22 ~~bps during the nine months ended September 30, 2021. During the nine months ended September 30, 2020, PPP loans decreased the net interest margin by 7 bps and the average loan yield by 19~~ bps. Excluding the impact of PPP loans, the net interest margin and the average loan yield decreased by 24one and 28six bps, respectively, over the comparable year-to-date periods.

Average PPP loans were ~~$144.6~~$9.4 million and ~~$252.5~~$144.6 million for the third quarters of ~~2021~~2022 and ~~2020,~~2021, respectively. For the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, average PPP loans were $18.7 million and $203.5 million, ~~and $144.8 million,~~ respectively.

The net interest margin was also impacted by the increase in average cash and cash equivalents when comparing the three and nine months ended September 30, 2021 and 2020. During the third quarter of 2021, the increase in average cash and cash equivalents decreased the net interest margin and the average yield on total interest-earning assets by 38 and 40 bps, respectively. During the nine months ended September 30, 2021, the increase in average cash and cash equivalents decreased the net interest margin and the average yield on total interest-earning assets by 28 and 30 bps, respectively.

Average cash and cash equivalents are reflected in the increases in the average balances of other interest-earning assets. Average other interest-earning assets for the three and nine months ended September 30, 2021 were up $217.8 million, or 127.4%, and $167.7 million, or 130.5%, respectively, from the comparable periods in 2020.

Acquired loan discount accretion included in interest income totaled ~~$556,000~~$847,000 and ~~$847,000~~$556,000 for the quarters ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. For the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, acquired loan discount accretion included in interest income totaled ~~$1.9~~$2.2 million and ~~$2.4~~$1.9 million, respectively.

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


		Three Months Ended September 30,													Three Months Ended September 30,
		2021						2020							2022						2021
(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)	$	1,896,808	$	27,045	5.60	%	$	1,971,174	$	24,769	4.94	%	Loans receivable(1)	$	2,265,846	$	29,859	5.17	%	$	1,896,808	$	27,045	5.60	%
Investment securities	Investment securities													Investment securities
Taxable	Taxable	259,282		1,108		1.71		240,830		897		1.49		Taxable	504,241		2,812		2.23		259,282		1,108		1.71
Tax-exempt (TE)	Tax-exempt (TE)	19,168		81		2.13		11,484		70		3.10		Tax-exempt (TE)	28,059		146		2.64		19,168		81		2.13
Total investment securities	Total investment securities	278,450		1,189		1.74		252,314		967		1.56		Total investment securities	532,300		2,958		2.25		278,450		1,189		1.74
Other interest-earning assets	Other interest-earning assets	388,723		189		0.19		170,957		106		0.25		Other interest-earning assets	262,127		1,447		2.19		388,723		189		0.19
Total interest-earning assets (TE)	Total interest-earning assets (TE)	2,563,981		$	28,423	4.36		2,394,445		$	25,842	4.25		Total interest-earning assets (TE)	3,060,273		$	34,264	4.41		2,563,981		$	28,423	4.36
Noninterest-earning assets	Noninterest-earning assets	192,372						187,329						Noninterest-earning assets	205,634						192,372
Total assets	Total assets	$	2,756,353					$	2,581,774					Total assets	$	3,265,907					$	2,756,353
Interest-bearing liabilities:	Interest-bearing liabilities:													Interest-bearing liabilities:
Deposits:	Deposits:													Deposits:
Savings, checking and money market	Savings, checking and money market	$	1,312,131	$	605	0.18	%	$	1,195,455	$	1,136	0.38	%	Savings, checking and money market	$	1,522,350	$	876	0.23	%	$	1,312,131	$	605	0.18	%
Certificates of deposit	Certificates of deposit	332,916		515		0.61		381,949		1,232		1.28		Certificates of deposit	371,925		394		0.42		332,916		515		0.61
Total interest-bearing deposits	Total interest-bearing deposits	1,645,047		1,120		0.27		1,577,404		2,368		0.60		Total interest-bearing deposits	1,894,275		1,270		0.27		1,645,047		1,120		0.27
Other borrowings	Other borrowings	5,539		53		3.80		5,539		53		3.81		Other borrowings	5,539		53		3.80		5,539		53		3.80
Subordinated debt														Subordinated debt	53,943		859		6.37		—		—		—
Short-term FHLB advances	Short-term FHLB advances	—		—		—		—		—		—		Short-term FHLB advances	—		—		—		—		—		—
Long term FHLB advances		27,011		116		1.72		34,612		149		1.73
Total interest-bearing liabilities		1,677,597		$	1,289	0.31		1,617,555		$	2,570	0.63
Noninterest-bearing liabilities		736,567						649,634
Total liabilities		2,414,164						2,267,189
Shareholders’ equity		342,189						314,585
Total liabilities and shareholders' equity		$	2,756,353					$	2,581,774
Net interest-earning assets		$	886,384					$	776,890
Net interest spread (TE)				$	27,134	4.05	%			$	23,272	3.62	%
Net interest margin (TE)						4.16	%					3.82	%


	Three Months Ended September 30,
	2022						2021
(dollars in thousands)	Average Balance		Interest		Average Yield/Rate		Average Balance		Interest		Average Yield/Rate
Long term FHLB advances	24,977		105		1.68		27,011		116		1.72
Total interest-bearing liabilities	1,978,734		$	2,287	0.46		1,677,597		$	1,289	0.31
Noninterest-bearing liabilities	952,120						736,567
Total liabilities	2,930,854						2,414,164
Shareholders’ equity	335,053						342,189
Total liabilities and shareholders' equity	$	3,265,907					$	2,756,353
Net interest-earning assets	$	1,081,539					$	886,384
Net interest spread (TE)			$	31,977	3.95	%			$	27,134	4.05	%
Net interest margin (TE)					4.11	%					4.16	%

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


	Nine Months Ended September 30,
	2022						2021
(dollars in thousands)	Average Balance		Interest		Average Yield/Rate		Average Balance		Interest		Average Yield/Rate
Interest-earning assets:
Loans receivable(1)	$	2,107,871	$	79,834	5.01	%	$	1,949,004	$	77,362	5.25	%
Investment securities
Taxable	433,270		6,576		2.02		252,309		3,069		1.62
Tax-exempt (TE)	23,325		338		2.45		19,967		262		2.22
Total investment securities	456,595		6,914		2.05		272,276		3,331		1.67
Other interest-earning assets	414,122		2,587		0.84		296,233		421		0.19
Total interest-earning assets (TE)	2,978,588		$	89,335	3.97		2,517,513		$	81,114	4.27
Noninterest-earning assets	202,022						189,256
Total assets	$	3,180,610					$	2,706,769
Interest-bearing liabilities:
Deposits:
Savings, checking and money market	$	1,523,033	$	2,079	0.18	%	$	1,289,759	$	2,328	0.24	%
Certificates of deposit	365,584		1,187		0.43		342,167		1,928		0.75
Total interest-bearing deposits	1,888,617		3,266		0.23		1,631,926		4,256		0.35
Other borrowings	5,624		160		3.80		5,594		159		3.81
Subordinated debt	18,436		859		6.22		—		—		—
Short-term FHLB advances	—		—		—		—		—		—
Long term FHLB advances	25,396		321		1.69		27,706		360		1.73
Total interest-bearing liabilities	1,938,073		$	4,606	0.32		1,665,226		$	4,775	0.38
Noninterest-bearing liabilities	902,920						707,117
Total liabilities	2,840,993						2,372,343
Shareholders’ equity	339,617						334,426
Total liabilities and shareholders' equity	$	3,180,610					$	2,706,769
Net interest-earning assets	$	1,040,515					$	852,287
Net interest spread (TE)			$	84,729	3.65	%			$	76,339	3.89	%
Net interest margin (TE)					3.77	%					4.01	%

4950

Nine Months Ended September 30,
2021 2020
(dollars in thousands) Average Balance Interest Average Yield/Rate Average Balance Interest Average Yield/Rate
Interest-earning assets:
Loans receivable(1)
$ 1,949,004 $ 77,362 5.25 % $ 1,878,533 $ 72,839 5.12 %
Investment securities
Taxable 252,309 3,069 1.62 242,913 3,308 1.82
Tax-exempt (TE)
19,967 262 2.22 14,210 253 3.01
Total investment securities 272,276 3,331 1.67 257,123 3,561 1.88
Other interest-earning assets 296,233 421 0.19 128,518 361 0.37
Total interest-earning assets (TE)
2,517,513 $ 81,114 4.27 2,264,174 $ 76,761 4.48
Noninterest-earning assets 189,256 191,255
Total assets $ 2,706,769 $ 2,455,429
Interest-bearing liabilities:
Deposits:
Savings, checking and money market $ 1,289,759 $ 2,328 0.24 % $ 1,114,205 $ 4,305 0.52 %
Certificates of deposit 342,167 1,928 0.75 388,642 4,742 1.63
Total interest-bearing deposits 1,631,926 4,256 0.35 1,502,847 9,047 0.80
Other borrowings 5,594 159 3.81 5,539 159 3.84
Short-term FHLB advances — — — 10,795 23 0.28
Long term FHLB advances 27,706 360 1.73 39,415 520 1.76
Total interest-bearing liabilities 1,665,226 $ 4,775 0.38 1,558,596 $ 9,749 0.84
Noninterest-bearing liabilities 707,117 581,465
Total liabilities 2,372,343 2,140,061
Shareholders’ equity 334,426 315,368
Total liabilities and shareholders’ equity $ 2,706,769 $ 2,455,429
Net interest-earning assets $ 852,287 $ 705,578
Net interest spread (TE)
$ 76,339 3.89 % $ 67,012 3.64 %
Net interest margin (TE)
4.01 % 3.91 %

(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,
2021 Compared to 2020 2021 Compared to 2020
Change Attributable To Change Attributable To
(dollars in thousands) Rate Volume Increase/ (Decrease) Rate Volume Increase/ (Decrease)
Interest income:
Loans receivable $ 3,595 $ (1,319) $ 2,276 $ 2,098 $ 2,425 $ 4,523
Investment securities 99 123 222 (231) 1 (230)
Other interest-earning assets (38) 121 83 (79) 139 60
Total interest income 3,656 (1,075) 2,581 1,788 2,565 4,353
Interest expense:
Savings, checking and money market accounts (608) 77 (531) (1,479) (498) (1,977)
Certificates of deposit (602) (115) (717) (1,741) (1,073) (2,814)
Other borrowings — — — — — —
FHLB advances (1) (32) (33) (67) (116) (183)
Total interest expense (1,211) (70) (1,281) (3,287) (1,687) (4,974)
Increase (decrease) in net interest income $ 4,867 $ (1,005) $ 3,862 $ 5,075 $ 4,252 $ 9,327


	Three Months Ended September 30,						Nine Months Ended September 30,
	2022 Compared to 2021						2022 Compared to 2021
	Change Attributable To						Change Attributable To
(dollars in thousands)	Rate		Volume		Increase/ (Decrease)		Rate		Volume		Increase/ (Decrease)
Interest income:
Loans receivable	$	(1,698)	$	4,512	$	2,814	$	56	$	2,416	$	2,472
Investment securities	518		1,251		1,769		1,548		2,035		3,583
Other interest-earning assets	1,638		(380)		1,258		1,296		870		2,166
Total interest income	458		5,383		5,841		2,900		5,321		8,221
Interest expense:
Savings, checking and money market accounts	169		102		271		(287)		38		(249)
Certificates of deposit	(171)		50		(121)		(530)		(211)		(741)
Other borrowings	—		—		—		—		1		1
Subordinated debt	—		859		859		—		859		859
FHLB advances	(2)		(9)		(11)		(16)		(23)		(39)
Total interest expense	(4)		1,002		998		(833)		664		(169)
Increase (decrease) in net interest income	$	462	$	4,381	$	4,843	$	3,733	$	4,657	$	8,390

Noninterest Income

Noninterest income for the third quarter of ~~2021~~2022 totaled ~~$5.4~~$3.5 million, ~~up $1.6~~down $1.9 million, or ~~41.9%~~35.5%, from ~~$3.8~~$5.4 million earned for the same period in ~~2020.~~2021. Noninterest income for the nine months ended September 30, ~~2021~~2022 totaled ~~$12.7~~$10.5 million, ~~up $2.5~~down $2.2 million, or ~~24.2%~~17.2%, from ~~$10.3~~$12.7 million earned for the same period in ~~2020.~~

Income from bank card fees for the three and nine months ended September 30, 2021 was up $188,000, or 14.1%, and $821,000, or 22.8%, respectively, from the comparable periods in 2020 primarily due to increased transaction activity by our cardholders.

2021.

Gains on the sale of loans for the third quarter of ~~2021~~2022 were down ~~$489,000,~~$337,000, or ~~54.1%~~81.2%, from the comparable period in ~~2020. For the nine months ended September 30, 2021, gains on the sale of loans were up $299,000, or 16.2%, from the comparable period in 2020.~~2021. The origination of mortgage loans held for sale ~~slowed~~continued declining in the ~~second and~~ third ~~quarters of 2021, however earnings from the sale of loans during the first~~ quarter of ~~2021 were strong and resulted~~2022 reflecting, in ~~a net increase in~~part, the rising interest rate environment. For the nine months ended September 30, 2022, gains on the sale of loans ~~for~~were down $1.5 million or 70.1% from the ~~nine months ended September 30, 2021 compared to the same nine-month~~comparable period in ~~2020.~~2021.

~~Income from BOLI~~The net gain on the sale of assets totaled $18,000 and $17,000 for the three and nine months ended September 30, ~~2021~~2022. This was up ~~$1.7 million, or 739.0%,~~$21,000 and ~~$1.7 million, or 232.0%,~~$477,000, respectively, from the ~~comparable periods in 2020. The Company recognized a life insurance benefit of $1.7 million following the death of an employee during the third quarter of 2021.~~

~~Losses on the sale of assets~~net losses recorded for ~~the~~ three and nine months ended September 30, ~~2021 totaled $3,000 and $460,000. This was an increase in losses of $3,000 and $449,000, from the three and nine months ended September 30, 2020, respectively.~~2021. During the second quarter of 2021, the Company sold and leased back one of its Mississippi branch locations. The sale transferred control to the buyer-lessor and all losses were recognized at the time of the sale.

Income from service fees and charges for the third quarter of 2022 was up $40,000, or 3.2%, from the third quarter of 2021. For the nine months ended September 30, 2022, income from service fees and charges was up $244,000, or 7.0%. The ~~Company believes that~~change in income from service fees and charges over the ~~sale/leaseback will reduce~~three and nine month periods was primarily due to the ~~operating expenses related~~change in income from overdraft fees on deposit accounts.

Income from bank-owned life insurance for the third quarter of 2022 was down $1.7 million. or 88.1%, from the third quarter of 2021 and down $1.7 million. or 72.4%, from the nine months ended September 2021 due to ~~this branch office~~a non-taxable BOLI benefit totaling $1.7 million we recognized following the death of a former employee in ~~future periods.~~the third quarter of 2021.

51Income from bank card fees for the three and nine months ended September 30, 2022 was up $104,000, or 6.8% and $297,000, or 6.7%, respectively, from the comparable period in 2021 primarily due to increased transaction activity by our cardholders.

Noninterest Expense

Noninterest expense for the third quarter of ~~2021~~2022 totaled ~~$16.4~~$20.7 million, up ~~$315,000,~~$4.3 million, or ~~2.0%~~26.1%, from the third quarter of ~~2020.~~ 2021. Noninterest expense for the third quarter of 2022 includes merger-related expenses totaling $60,000 (pre-tax). The increase in noninterest expense related primarily to the Friendswood acquisition and the attendant growth of the Company’s employee base as well as the resultant higher occupancy expense and data processing costs.

Noninterest expense for the nine months ended September 30, ~~2021~~2022 totaled ~~$49.0~~$60.7 million, up ~~$2.0~~$11.8 million, or ~~4.2%~~24.0%, from the same period in ~~2020.~~

~~Compensation and benefits~~2021. Noninterest expense includes merger-related expenses for the ~~three and~~Friendswood acquisition totaling $2.0 million (pre-tax) for the nine months ended September 30, 2021 was up $69,000, or 0.7%, and $642,000, or 2.3%, respectively, from the comparable periods in 2020 primarily due to increased health insurance costs and compensation expense related to the Company's ESOP driven primarily by the increase in market value of shares of the Company's common stock held by the ESOP which were partially offset by a decrease in incentive pay.

~~Marketing and advertising~~2022. Other noninterest expense for the ~~three and~~ nine months ended September 30, ~~2021~~2022 was up ~~$111,000,~~$850,000, or ~~38.5%, and $92,000, or 12.3%, respectively, from the comparable period in 2020 primarily due to an increase in charitable donations and general advertising activities.~~

Data processing and communication expense for the three and nine months ended September 30, 2021 was up $267,000, or 14.4%, and $833,000, or 15.3%, respectively, from the comparable periods in 2020 primarily due to a general increase in the cost of software and data processing, increased costs related to higher PPP loan origination volume as well as costs related to the implementation of enhancements to our lending software.

~~Regulatory fees for the the third quarter of 2021 were down $225,000, or 42.8%~~30.7%, from the comparable period in ~~2020. For the nine months ended September 30,~~ 2021 ~~regulatory fees were down $18,000, or 1.8%,~~ primarily due to ~~the decline in nonperforming loans and an~~charge offs related to fraud on deposit accounts. The increase in ~~the leverage ratio.~~

The Company recorded no provision for credit losses on unfunded lending commitments for the third quarter of 2021 and 2020. Provisions totaling $375,000 for credit losses on unfunded commitments during the nine months ended September 30, 2021 were due to the growth in unfunded construction loan commitments and no provisionnoninterest expense for the comparable period ~~in 2020.~~

~~Other noninterest~~related primarily to the Friendswood acquisition and the attendant growth of the Company’s employee base as well as the resultant higher occupancy expense ~~for the three~~ and ~~nine months ended September 30, 2021 was up $160,000, or 19.8%, and $208,000, or 8.1%, respectively, from the comparable periods in 2020 primarily due to an increase in other loan fee expenses.~~

data processing costs.

Income Taxes

Income tax expense for the three and nine months ended September 30, ~~2021~~2022 totaled $2.6 million and $5.7 million, respectively, compared to $3.4 million and $9.2 ~~million, respectively, compared to $2.2 million and $3.4~~ million for the three and nine months ended September 30, ~~2020,~~2021, respectively. The ~~increases~~decrease in income tax expense over the comparable periods were primarily due to ~~increases~~decreases in taxable earnings.

The Company's effective tax rates for the third quarters of 2022 and 2021 were 19.9% and ~~2020 were~~ 18.5% ~~and 19.8%~~, respectively. The effective tax rate decreased over the comparable three-month periods primarily due to an increase in non-taxable earnings from bank-owned life insurance during 2021. For the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, the Company's effective tax rates were ~~19.4%~~19.8% and ~~19.2%~~19.4%, respectively.

CRITICAL ACCOUNTING ESTIMATES

SEC guidance requires disclosure of “critical accounting estimates.” The SEC defines “critical accounting estimates” as those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations of the registrant.

We follow financial accounting and reporting policies that are in accordance with accounting principles generally accepted in the United States. Our accounting policies are discussed in detail in Note 1 - Basis of Presentation in the accompanying notes to the consolidated financial statements included elsewhere in this report and in our 2021 Annual Report on Form 10-K. Not all significant accounting policies require management to make difficult, subjective or complex judgments. However, management believes the policy noted below meets the SEC’s definition of a critical accounting policy.

Allowance for Credit Losses

Management considers the policies related to the allowance for credit losses as the most critical to the financial statement presentation. The total allowance for credit losses includes activity related to allowances calculated in accordance with Accounting Standards Codification 326, Credit Losses. The allowance for credit losses is established through a provision for credit losses charged to current earnings. The amount maintained in the allowance reflects management’s continuing evaluation of the credit losses expected to be recognized over the life of the loans in our portfolio. The allowance for credit losses on loans is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. For purposes of determining the allowance for credit losses, the loan portfolio is segregated by product types in order to recognize differing risk profiles among categories. Loans that do not share risk characteristics are evaluated on an individual basis and are not included in the collective evaluation. Management estimates the allowance balance using relevant available information from internal and external sources relating to past events, current conditions and reasonable and supportable forecasts. Adjustments to historical loss information are made to incorporate our reasonable and supportable forecast of future losses at the portfolio segment level, as well as any necessary qualitative adjustments, 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.

Reconciliation of Non-GAAP Measures

The following table provides a reconciliation of Non-GAAP financial measures used herein to GAAP reporting. For further information, see ~~"-Non-GAAP~~"Non-GAAP Financial Measures" aton page ~~36.~~

38.

Financial Condition


(dollars in thousands)	(dollars in thousands)	September 30, 2021			December 31, 2020			(dollars in thousands)	September 30, 2022			December 31, 2021
Total loans	Total loans	$	1,875,176		$	1,979,954		Total loans	$	2,303,279		$	1,840,093
Less: PPP loans	Less: PPP loans	95,560			221,220			Less: PPP loans	7,094			43,637
Less: Friendswood loan portfolio								Less: Friendswood loan portfolio	318,907
Total loans excluding PPP loans	Total loans excluding PPP loans	$	1,779,616		$	1,758,734		Total loans excluding PPP loans	$	1,977,278		$	1,796,456

Allowance for loan losses to total loans	Allowance for loan losses to total loans	1.29		%	1.66		%	Allowance for loan losses to total loans	1.19		%	1.15		%
Less: PPP loans	Less: PPP loans	0.07			0.21			Less: PPP loans	—			0.02
Non-GAAP allowance for loan losses to total loans	Non-GAAP allowance for loan losses to total loans	1.36		%	1.87		%	Non-GAAP allowance for loan losses to total loans	1.19		%	1.17		%

Results of Operations


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2021			2020			2021			2020			(dollars in thousands)	2022			2021			2022			2021
Reported loan income	Reported loan income	$	27,045		$	24,769		$	77,362		$	72,839		Reported loan income	$	29,859		$	27,045		$	79,834		$	77,362
Less: PPP loan income	Less: PPP loan income	4,742			1,729			11,007			3,102			Less: PPP loan income	132			4,742			1,333			11,007
Loan income excluding PPP loan income	Loan income excluding PPP loan income	$	22,303		$	23,040		$	66,355		$	69,737		Loan income excluding PPP loan income	$	29,727		$	22,303		$	78,501		$	66,355

Provision (reversal) for loan losses														Provision (reversal) for loan losses	$	1,696		$	(2,385)		$	5,502		$	(7,513)
Less: CECL impact for acquisition														Less: CECL impact for acquisition	—			—			3,802			—
Provision reversal for organic loans														Provision reversal for organic loans	$	1,696		$	(2,385)		$	1,700		$	(7,513)

Average total loans	Average total loans	$	1,896,808		$	1,971,174		$	1,949,004		$	1,878,533		Average total loans	$	2,265,846		$	1,896,808		$	2,107,871		$	1,949,004
Less: average PPP loans	Less: average PPP loans	144,626			252,504			203,506			144,800			Less: average PPP loans	9,431			144,626			18,660			203,506
Average total loans excluding PPP loans	Average total loans excluding PPP loans	$	1,752,182		$	1,718,670		$	1,745,498		$	1,733,733		Average total loans excluding PPP loans	$	2,256,415		$	1,752,182		$	2,089,211		$	1,745,498

Loan yield	Loan yield	5.60		%	4.94		%	5.25		%	5.12		%	Loan yield	5.17		%	5.60		%	5.01		%	5.25		%
(Positive) negative impact of PPP loans		(0.60)			0.34			(0.22)			0.19
Impact of PPP loans														Impact of PPP loans	—			(0.60)			(0.04)			(0.22)
Loan yield excluding PPP loans	Loan yield excluding PPP loans	5.00		%	5.28		%	5.03		%	5.31		%	Loan yield excluding PPP loans	5.17		%	5.00		%	4.97		%	5.03		%

Net interest margin	Net interest margin	4.16		%	3.82		%	4.01		%	3.91		%	Net interest margin	4.11		%	4.16		%	3.77		%	4.01		%
(Positive) negative impact of PPP loans		(0.52)			0.14			(0.27)			0.07
Impact of PPP loans														Impact of PPP loans	—			(0.52)			(0.04)			(0.27)
Net interest margin excluding PPP loans	Net interest margin excluding PPP loans	3.64		%	3.96		%	3.74		%	3.98		%	Net interest margin excluding PPP loans	4.11		%	3.64		%	3.73		%	3.74		%


Item 3.			Quantitative and Qualitative Disclosures About Market Risk.

Quantitative and qualitative disclosures about market risk are presented in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, ~~2020,~~2021, 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, ~~2021~~2022 is included herein under Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Asset/Liability Management”.


Item 4.			Controls and Procedures.

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

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934) occurred during the third quarter of ~~2021~~2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION


Item 1.			Legal Proceedings.

Not applicable.


Item 1A.			Risk Factors.

There have been no material changes from the risk factors previously disclosed in the Company's Annual ~~report~~Report on Form 10-K for the year ended December 31, ~~2020~~2021 filed with the Securities and Exchange Commission.


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

The Company’s purchases of its common stock made during the quarter ended September 30, ~~2021~~2022 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, 2021 32,771 $ 37.98 32,771 183,574
August 1 – August 31, 2021 55,392 37.43 55,392 128,182
September 1 – September 30, 2021 71,599 37.24 71,599 56,583
Total 159,762 $ 37.45 159,762 56,583


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, 2022	35,451	$	35.68	35,451	238,603
August 1 – August 31, 2022	5,160	38.60		5,160	233,443
September 1 – September 30, 2022	36,410	38.18		36,410	197,033
Total	77,021	$	37.06	77,021	197,033

(1)On August 31, 2020, the Company announced the approval of a repurchase program (the "2020 Repurchase Plan"). Under the 2020 Repurchase Plan, the Company had authority to purchase up to 444,000 shares of its common stock. As of September 30, 2021, 56,583 shares remained to be purchased under the 2020 Repurchase Plan. On October 26, 2021, the Company announced the approval of a new repurchase program (the “2021 Repurchase Plan”). Under the 2021 Repurchase Plan, the Company may purchase up to an additional 430,000 shares, or approximately 5% of the Company’s outstanding common stock. Share repurchases under the 2021 Repurchase Plan ~~may commence~~commenced upon ~~the~~ completion of the Company’s 2020 Repurchase Plan.


Item 3.			Defaults Upon Senior Securities.

None.


Item 4.			Mine Safety Disclosures.

None.


Item 5.			Other Information.

None.


Item 6.			Exhibits and Financial Statement Schedules.

No.

Description

Location

4.1

Indenture, dated June 30, 2022, by and between Home Bancorp, Inc. and UMB Bank, National Association, as trustee.

(incorporated by reference from the like-numbered exhibit included in Home Bancorp’s Current Report on Form 8-K, dated as of June 30, 2022 and filed July 1, 2022 (SEC File No. 001-34190))

31.1

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

Filed herewith

31.2

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

Filed herewith

32.0

Section 1350 Certification

Filed herewith

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definitions Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover page Interactive Data File (embedded within the Inline XBRL document)

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 ~~5, 2021~~4, 2022

By:

/s/ John W. Bordelon

John W. Bordelon

Chairman of the Board, President and Chief Executive Officer

November ~~5, 2021~~4, 2022

By:

/s/ David T. Kirkley

David T. Kirkley

Senior Executive Vice President and Chief Financial Officer

November ~~5, 2021~~4, 2022

By:

/s/ Mary H. Hopkins

Mary H. Hopkins

Home Bank, ~~N.A.~~N. A. Senior Vice President and Director of Financial Management


	Three Months Ended September 30, 2020
	Amount of Gain Recognized in OCI				Location of Loss Reclassified from AOCI into Income	Amount of Loss Reclassified from AOCI into Income
(dollars in thousands)	Total		Included Component			Total		Included Component
Derivatives in cash flows hedging relationships:
Interest rate swaps - variable rate liabilities	$	60	$	60	Interest expense	$	(16)	$	(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)	$	(110)	Interest expense	$	(28)	$	(28)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021 Compared to 2020						2021 Compared to 2020
	Change Attributable To						Change Attributable To
(dollars in thousands)	Rate		Volume		Increase/ (Decrease)		Rate		Volume		Increase/ (Decrease)
Interest income:
Loans receivable	$	3,595	$	(1,319)	$	2,276	$	2,098	$	2,425	$	4,523
Investment securities	99		123		222		(231)		1		(230)
Other interest-earning assets	(38)		121		83		(79)		139		60
Total interest income	3,656		(1,075)		2,581		1,788		2,565		4,353
Interest expense:
Savings, checking and money market accounts	(608)		77		(531)		(1,479)		(498)		(1,977)
Certificates of deposit	(602)		(115)		(717)		(1,741)		(1,073)		(2,814)
Other borrowings	—		—		—		—		—		—
FHLB advances	(1)		(32)		(33)		(67)		(116)		(183)
Total interest expense	(1,211)		(70)		(1,281)		(3,287)		(1,687)		(4,974)
Increase (decrease) in net interest income	$	4,867	$	(1,005)	$	3,862	$	5,075	$	4,252	$	9,327