HOME BANCORP, INC. - Quarter Report: 2021 March (Form 10-Q)

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: March 31, 2021


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

For the transition period from to

Commission File Number: 001-34190

HOME BANCORP, INC.

(Exact name of Registrant as specified in its charter)


Louisiana			71-1051785
(State or Other Jurisdiction of Incorporation or Organization)			(I.R.S. Employer Identification Number)
503 Kaliste Saloom Road, Lafayette, Louisiana			70508
(Address of Principal Executive Offices)			(Zip Code)

Registrant’s telephone number, including area code: (337) 237-1960

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if changed since last report)

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

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock

HBCP

NASDAQ Stock Market

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

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

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

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

At May 5, 2021, the registrant had 8,711,449 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	5
	Notes to Unaudited Consolidated Financial Statements	6
Item 2.	Managements’ Discussion and Analysis of Financial Condition and Results of Operations	34
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50
Item 4.	Controls and Procedures	50
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	51
Item 1A.	Risk Factors	51
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 3.	Defaults Upon Senior Securities	52
Item 4.	Mine Safety Disclosures	52
Item 5.	Other Information	52
Item 6.	Exhibits	52
SIGNATURES		53

HOME BANCORP, INC. and SUBSIDIARY

GLOSSARY OF DEFINED TERMS

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


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

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


	(Unaudited)		(Audited)
(dollars in thousands)	March 31, 2021		December 31, 2020
Assets
Cash and cash equivalents	$	282,700	$	187,952
Interest-bearing deposits in banks	349		349
Investment securities available for sale, at fair value	274,965		254,752
Investment securities held to maturity (fair values of $2,176 and $2,996, respectively)	2,126		2,934
Mortgage loans held for sale	5,304		9,559
Loans, net of unearned income	1,979,868		1,979,954
Allowance for loan losses	(29,993)		(32,963)
Total loans, net of unearned income and allowance for loan losses	1,949,875		1,946,991
Office properties and equipment, net	45,138		45,497
Cash surrender value of bank-owned life insurance	40,559		40,334
Goodwill and core deposit intangibles	62,813		63,112
Accrued interest receivable and other assets	43,688		40,370
Total Assets	$	2,707,517	$	2,591,850
Liabilities
Deposits:
Noninterest-bearing	$	687,254	$	615,700
Interest-bearing	1,641,111		1,598,121
Total Deposits	2,328,365		2,213,821
Other borrowings	5,539		5,539
Long-term Federal Home Loan Bank advances	28,106		28,824
Accrued interest payable and other liabilities	16,897		21,824
Total Liabilities	2,378,907		2,270,008
Shareholders’ Equity
Preferred stock, $0.01 par value - 10,000,000 shares authorized; none issued	—		—
Common stock, $0.01 par value - 40,000,000 shares authorized; 8,709,631 and 8,740,104 shares issued and outstanding, respectively	87		87
Additional paid-in capital	165,155		164,988
Unallocated common stock held by:
Employee Stock Ownership Plan (ESOP)	(2,678)		(2,767)
Recognition and Retention Plan (RRP)	(17)		(22)
Retained earnings	163,507		154,282
Accumulated other comprehensive income	2,556		5,274
Total Shareholders’ Equity	328,610		321,842
Total Liabilities and Shareholders’ Equity	$	2,707,517	$	2,591,850

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

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three Months Ended March 31,
(dollars in thousands, except per share data)	2021		2020
Interest Income
Loans, including fees	$	25,817	$	23,699
Investment securities:
Taxable interest	918		1,308
Tax-exempt interest	94		104
Other investments and deposits	99		138
Total interest income	26,928		25,249
Interest Expense
Deposits	1,656		3,667
Other borrowings	53		53
Short-term Federal Home Loan Bank advances	—		3
Long-term Federal Home Loan Bank advances	124		203
Total interest expense	1,833		3,926
Net interest income	25,095		21,323
(Reversal) provision for loan losses	(1,703)		6,257
Net interest income after (reversal) provision for loan losses	26,798		15,066
Noninterest Income
Service fees and charges	1,072		1,464
Bank card fees	1,306		1,137
Gain on sale of loans, net	1,168		297
Income from bank-owned life insurance	225		259
Loss on sale of assets, net	—		2
Other income	289		199
Total noninterest income	4,060		3,358
Noninterest Expense
Compensation and benefits	9,664		9,416
Occupancy	1,696		1,736
Marketing and advertising	171		298
Data processing and communication	1,986		1,819
Professional services	234		213
Forms, printing and supplies	159		171
Franchise and shares tax	360		389
Regulatory fees	379		116
Foreclosed assets and ORE, net	123		17
Amortization of acquisition intangible	300		353
Other expenses	894		888
Total noninterest expense	15,966		15,416
Income before income tax expense	14,892		3,008
Income tax expense	2,964		526
Net Income	$	11,928	$	2,482
Earnings per share:
Basic	$	1.41	$	0.27
Diluted	$	1.41	$	0.27
Cash dividends declared per common share	$	0.22	$	0.22

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

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended March 31,
(dollars in thousands)	2021		2020
Net Income	$	11,928	$	2,482
Other Comprehensive (Loss) Income
Unrealized (losses) gains on available for sale investment securities	(4,757)		5,987
Unrealized gains on cash flow hedges	1,317		—
Tax effect	722		(1,257)
Other comprehensive (loss) income, net of taxes	(2,718)		4,730
Comprehensive Income	$	9,210	$	7,212

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

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)


(dollars in thousands, except per share data)	Common stock		Additional Paid-in capital		Unallocated Common Stock Held by ESOP		Unallocated Common Stock Held by RRP		Retained Earnings		Accumulated Other Comprehensive Income		Total
Balance, December 31, 2019	$	93	$	168,545	$	(3,124)	$	(35)	$	150,158	$	692	$	316,329
Cumulative effect of change in accounting principle due the adoption of ASC Topic 326, net of tax									(3,985)				(3,985)
Net income									2,482				2,482
Other comprehensive income											4,730		4,730
Purchase of Company’s common stock at cost, 188,341 shares	(2)		(1,881)						(3,506)				(5,389)
Cash dividends declared, $0.22 per share									(2,027)				(2,027)
Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 2,138 shares	—		37						(8)				29
Exercise of stock options	—		30										30
RRP shares released for allocation			(7)				7						—
ESOP shares released for allocation			281		89								370
Share-based compensation cost			244										244
Balance, March 31, 2020	$	91	$	167,249	$	(3,035)	$	(28)	$	143,114	$	5,422	$	312,813
Balance, December 31, 2020	$	87	$	164,988	$	(2,767)	$	(22)	$	154,282	$	5,274	$	321,842
Net income									11,928				11,928
Other comprehensive loss											(2,718)		(2,718)
Purchase of Company’s common stock at cost, 41,477 shares	—		(415)						(770)				(1,185)
Cash dividends declared, $0.22 per share									(1,915)				(1,915)
Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 8,004 shares	—		106						(18)				88
Exercise of stock options	—		44										44
RRP shares released for allocation			(5)				5						—
ESOP shares released for allocation			265		89								354
Share-based compensation cost			172										172
Balance, March 31, 2021	$	87	$	165,155	$	(2,678)	$	(17)	$	163,507	$	2,556	$	328,610

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

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


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


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


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

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

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

HOME BANCORP, INC. AND SUBSIDIARY

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

Critical Accounting Policies and Estimates

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

There have been no material changes from the critical accounting policies disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020. In preparing the financial statements, the Company is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

2. Recent Accounting Pronouncements

Accounting Standards Adopted in 2021

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

3. Investment Securities

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


(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
March 31, 2021
Available for sale:
U.S. agency mortgage-backed	$	162,982	$	2,997	$	1,895	$	164,084
Collateralized mortgage obligations	60,573		1,157		10		61,720
Municipal bonds	38,101		302		781		37,622
U.S. government agency	6,111		5		86		6,030
Corporate bonds	5,500		9		—		5,509
Total available for sale	$	273,267	$	4,470	$	2,772	$	274,965
Held to maturity:
Municipal bonds	$	2,126	$	50	$	—	$	2,176
Total held to maturity	$	2,126	$	50	$	—	$	2,176


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

The estimated fair value and amortized cost by contractual maturity of the Company’s investment securities as of March 31, 2021 are shown in the following tables. Securities are classified according to their contractual maturities without consideration of principal amortization, potential prepayments or call options. The expected maturity of a security may differ from its contractual maturity because of prepayments or the exercise of call options. Accordingly, actual maturities may differ from contractual maturities.


(dollars in thousands)	One Year or Less		After One Year through Five Years		After Five Years through Ten Years		After Ten Years		Total
Fair Value
Available for sale:
U.S. agency mortgage-backed	$	3,226	$	13,967	$	48,341	$	98,550	$	164,084
Collateralized mortgage obligations	—		21,055		15,521		25,144		61,720
Municipal bonds	1,280		1,569		8,825		25,948		37,622
U.S. government agency	—		—		5,617		413		6,030
Corporate bonds	—		—		5,509		—		5,509
Total available for sale	$	4,506	$	36,591	$	83,813	$	150,055	$	274,965
Held to maturity:
Municipal bonds	$	—	$	557	$	1,619	$	—	$	2,176
Total held to maturity	$	—	$	557	$	1,619	$	—	$	2,176

(dollars in thousands)	One Year or Less		After One Year through Five Years		After Five Years through Ten Years		After Ten Years		Total
Amortized Cost
Available for sale:
U.S. agency mortgage-backed	$	3,200	$	13,503	$	46,935	$	99,344	$	162,982
Collateralized mortgage obligations	—		20,349		15,352		24,872		60,573
Municipal bonds	1,276		1,556		8,685		26,584		38,101
U.S. government agency	—		—		5,693		418		6,111
Corporate bonds	—		—		5,500		—		5,500
Total available for sale	$	4,476	$	35,408	$	82,165	$	151,218	$	273,267
Held to maturity:
Municipal bonds	$	—	$	541	$	1,585	$	—	$	2,126
Total held to maturity	$	—	$	541	$	1,585	$	—	$	2,126

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

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

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


(dollars in thousands)	Less Than 1 Year				Over 1 Year				Total
March 31, 2021	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available for sale:
U.S. agency mortgage-backed	$	82,025	$	1,895	$	—	$	—	$	82,025	$	1,895
Collateralized mortgage obligations	4,634		9		2,075		1		6,709		10
Municipal bonds	25,575		781		—		—		25,575		781
U.S. government agency	3,172		77		1,165		9		4,337		86
Corporate bonds	—		—		—		—		—		—
Total available for sale	$	115,406	$	2,762	$	3,240	$	10	$	118,646	$	2,772
Held to maturity:
Municipal bonds	$	—	$	—	$	—	$	—	$	—	$	—
Total held to maturity	$	—	$	—	$	—	$	—	$	—	$	—


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

At March 31, 2021, 57 of the Company’s debt securities had unrealized losses totaling 2.3% of the individual securities’ amortized cost basis and 1.0% of the Company’s total amortized cost basis of the investment securities portfolio. At such date, 3 of the 57 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 March 31, 2021.

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


	Credit Ratings
(dollars in thousands)	AAA/AA/A		BBB/BB/B		Total
March 31, 2021
Held to maturity:
Municipal bonds	$	2,126	$	—	$	2,126


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

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

At March 31, 2021 and December 31, 2020, the Company had $144,527,000 and $125,889,000, respectively, of securities pledged to secure public deposits.

4. Earnings Per Share

Earnings per common share was computed based on the following:


	Three Months Ended March 31,
(in thousands, except per share data)	2021		2020
Numerator:
Net income available to common shareholders	$	11,928	$	2,482
Denominator:
Weighted average common shares outstanding	8,437		8,883
Effect of dilutive securities:
Restricted stock	11		13
Stock options	28		31
Weighted average common shares outstanding – assuming dilution	8,476		8,927
Basic earnings per common share	$	1.41	$	0.27
Diluted earnings per common share	$	1.41	$	0.27

Options for 96,422 and 96,750 shares of common stock were not included in the computation of diluted EPS for the three months ended March 31, 2021 and 2020, respectively, because the effect of these shares was anti-dilutive.

5. Credit Quality and Allowance for Credit Losses

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

Loans

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

Originated vs. Acquired Loans

"Originated loans" are loans that were originated for investment by the Company. Loans that were acquired as a result of business combinations are referred to as “acquired loans” and are recorded at the principal balance net of unearned income and fair value discounts. The Company's acquired loans were purchased prior to the adoption of ASC Topic 326 on January 1, 2020 and were recorded at estimated fair value at the acquisition date with no carryover of the related ALL. Since the adoption of ASC 326, loans that were acquired with evidence of credit deterioration are referred to as "purchased credit deteriorated ("PCD") loans." At acquisition, acquired loans were segregated into loan pools designed to facilitate the estimation of expected cash flows. The fair value estimate for each pool of acquired loans was based on the estimate of expected cash flows, both principal and interest, from that pool, discounted at prevailing market interest rates. The difference between the fair value of an acquired loan pool and the contractual amounts due at the acquisition date (the “fair value discount”) is accreted into income over the estimated life of the pool.

Allowance for Credit Losses

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

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

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

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

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


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

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

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

Accrued interest receivable on the Company's loans was $7,937,000 and $8,635,000 at March 31, 2021 and December 31, 2020, respectively, and is excluded from the estimate of the ACL. These amounts are recorded in accrued interest receivable and other assets on the Consolidated Statements of Financial Condition.

Allowance for Credit Losses

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


	March 31, 2021
(dollars in thousands)	Collectively Evaluated		Individually Evaluated		Total
Allowance for credit losses:
One- to four-family first mortgage	$	2,779	$	100	$	2,879
Home equity loans and lines	649		—		649
Commercial real estate	16,191		333		16,524
Construction and land	4,448		—		4,448
Multi-family residential	967		—		967
Commercial and industrial	3,521		234		3,755
Consumer	771		—		771
Total allowance for loan losses	$	29,326	$	667	$	29,993

Unfunded lending commitments(1)	$	1,425	$	—	$	1,425
Total allowance for credit losses	$	30,751	$	667	$	31,418


	March 31, 2021
(dollars in thousands)	Collectively Evaluated		Individually Evaluated(2)		Total
Loans:
One- to four-family first mortgage	$	379,210	$	997	$	380,207
Home equity loans and lines	65,556		—		65,556
Commercial real estate	740,691		4,280		744,971
Construction and land	242,156		—		242,156
Multi-family residential	82,726		—		82,726
Commercial and industrial	427,116		903		428,019
Consumer	36,233		—		36,233
Total loans	$	1,973,688	$	6,180	$	1,979,868


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

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

	December 31, 2020
(dollars in thousands)	Collectively Evaluated		Individually Evaluated(2)		Total
Loans:
One- to four-family first mortgage	$	394,632	$	1,006	$	395,638
Home equity loans and lines	67,700		—		67,700
Commercial real estate	743,223		7,400		750,623
Construction and land	221,823		—		221,823
Multi-family residential	87,332		—		87,332
Commercial and industrial	417,320		606		417,926
Consumer	38,912		—		38,912
Total loans	$	1,970,942	$	9,012	$	1,979,954

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

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

A summary of activity in the ACL for the three months ended March 31, 2021 and March 31, 2020 follows.


	Three Months Ended March 31, 2021
(dollars in thousands)	Beginning Balance		Charge-offs		Recoveries		Provision		Ending Balance
Allowance for credit losses:
One- to four-family first mortgage	$	3,065	$	(56)	$	2	$	(132)	$	2,879
Home equity loans and lines	676		—		2		(29)		649
Commercial real estate	18,851		(1,003)		—		(1,324)		16,524
Construction and land	4,155		—		—		293		4,448
Multi-family residential	1,077		—		—		(110)		967
Commercial and industrial	4,276		(220)		29		(330)		3,755
Consumer	863		(51)		30		(71)		771
Total allowance for loan losses	$	32,963	$	(1,330)	$	63	$	(1,703)	$	29,993

Unfunded lending commitments	$	1,425	$	—	$	—	$	—	$	1,425
Total allowance for credit losses	$	34,388	$	(1,330)	$	63	$	(1,703)	$	31,418


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

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

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

Credit Quality

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


	March 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	$	17,271	$	55,342	$	57,111	$	43,083	$	44,315	$	141,311	$	16,422	$	92	$	374,947
Special Mention	—		—		—		—		16		523		—		—		539
Substandard	—		123		118		334		351		3,795		—		—		4,721
Doubtful	—		—		—		—		—		—		—		—		—
Total one- to four-family first mortgages	$	17,271	$	55,465	$	57,229	$	43,417	$	44,682	$	145,629	$	16,422	$	92	$	380,207
Home equity loans and lines:
Pass	$	591	$	1,041	$	1,515	$	2,035	$	1,457	$	6,396	$	52,465	$	—	$	65,500
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		43		13		—		—		56
Doubtful	—		—		—		—		—		—		—		—		—
Total home equity loans and lines	$	591	$	1,041	$	1,515	$	2,035	$	1,500	$	6,409	$	52,465	$	—	$	65,556
Commercial real estate:
Pass	$	47,188	$	223,627	$	142,692	$	91,905	$	99,575	$	105,470	$	20,488	$	452	$	731,397
Special Mention	—		—		—		—		—		895		—		—		895
Substandard	—		379		3,725		1,724		318		6,533		—		—		12,679
Doubtful	—		—		—		—		—		—		—		—		—
Total commercial real estate loans	$	47,188	$	224,006	$	146,417	$	93,629	$	99,893	$	112,898	$	20,488	$	452	$	744,971
Construction and land:
Pass	$	34,220	$	87,816	$	78,608	$	14,053	$	5,335	$	3,274	$	2,340	$	—	$	225,646
Special Mention	—		1,421		—		—		—		610		—		—		2,031
Substandard	—		14,151		—		—		—		328		—		—		14,479
Doubtful	—		—		—		—		—		—		—		—		—
Total construction and land loans	$	34,220	$	103,388	$	78,608	$	14,053	$	5,335	$	4,212	$	2,340	$	—	$	242,156


	March 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	$	2,293	$	40,328	$	22,297	$	9,234	$	3,399	$	4,118	$	952	$	—	$	82,621
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		105		—		—		105
Doubtful	—		—		—		—		—		—		—		—		—
Total multi-family residential loans	$	2,293	$	40,328	$	22,297	$	9,234	$	3,399	$	4,223	$	952	$	—	$	82,726
Commercial and industrial:
Pass	$	117,931	$	167,056	$	26,461	$	19,547	$	5,258	$	4,760	$	77,929	$	491	$	419,433
Special Mention	—		1,208		749		69		—		—		1,749		—		3,775
Substandard	—		2,697		33		422		22		129		1,508		—		4,811
Doubtful	—		—		—		—		—		—		—		—		—
Total commercial and industrial loans	$	117,931	$	170,961	$	27,243	$	20,038	$	5,280	$	4,889	$	81,186	$	491	$	428,019
Consumer:
Pass	$	1,403	$	5,717	$	2,234	$	922	$	1,723	$	18,152	$	5,852	$	—	$	36,003
Special Mention	—		—		—		—		5		37		—		—		42
Substandard	—		—		—		—		4		184		—		—		188
Doubtful	—		—		—		—		—		—		—		—		—
Total consumer loans	$	1,403	$	5,717	$	2,234	$	922	$	1,732	$	18,373	$	5,852	$	—	$	36,233
Total loans:
Pass	$	220,897	$	580,927	$	330,918	$	180,779	$	161,062	$	283,481	$	176,448	$	1,035	$	1,935,547
Special Mention	—		2,629		749		69		21		2,065		1,749		—		7,282
Substandard	—		17,350		3,876		2,480		738		11,087		1,508		—		37,039
Doubtful	—		—		—		—		—		—		—		—		—
Total loans	$	220,897	$	600,906	$	335,543	$	183,328	$	161,821	$	296,633	$	179,705	$	1,035	$	1,979,868


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


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

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

•Pass loans are of satisfactory quality.

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

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

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

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

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


	March 31, 2021
(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current Loans		Total Loans
Originated loans:
Real estate loans:
One- to four-family first mortgage	$	1,849	$	183	$	401	$	2,433	$	253,166	$	255,599
Home equity loans and lines	—		244		—		244		52,290		52,534
Commercial real estate	1,036		—		6,044		7,080		591,051		598,131
Construction and land	—		—		—		—		229,255		229,255
Multi-family residential	—		—		—		—		77,826		77,826
Total real estate loans	2,885		427		6,445		9,757		1,203,588		1,213,345
Other loans:
Commercial and industrial	28		—		440		468		411,700		412,168
Consumer	76		—		114		190		31,022		31,212
Total other loans	104		—		554		658		442,722		443,380
Total originated loans	$	2,989	$	427	$	6,999	$	10,415	$	1,646,310	$	1,656,725
Acquired loans:
Real estate loans:
One- to four-family first mortgage	$	1,530	$	192	$	1,192	$	2,914	$	121,694	$	124,608
Home equity loans and lines	25		39		43		107		12,915		13,022
Commercial real estate	457		—		651		1,108		145,732		146,840
Construction and land	—		—		86		86		12,815		12,901
Multi-family residential	92		—		—		92		4,808		4,900
Total real estate loans	2,104		231		1,972		4,307		297,964		302,271
Other loans:
Commercial and industrial	42		3		900		945		14,906		15,851
Consumer	94		14		14		122		4,899		5,021
Total other loans	136		17		914		1,067		19,805		20,872
Total acquired loans	$	2,240	$	248	$	2,886	$	5,374	$	317,769	$	323,143
Total loans:
Real estate loans:
One- to four-family first mortgage	$	3,379	$	375	$	1,593	$	5,347	$	374,860	$	380,207
Home equity loans and lines	25		283		43		351		65,205		65,556
Commercial real estate	1,493		—		6,695		8,188		736,783		744,971
Construction and land	—		—		86		86		242,070		242,156
Multi-family residential	92		—		—		92		82,634		82,726
Total real estate loans	4,989		658		8,417		14,064		1,501,552		1,515,616
Other loans:
Commercial and industrial	70		3		1,340		1,413		426,606		428,019
Consumer	170		14		128		312		35,921		36,233
Total other loans	240		17		1,468		1,725		462,527		464,252
Total loans	$	5,229	$	675	$	9,885	$	15,789	$	1,964,079	$	1,979,868


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

At March 31, 2021 the Company did not have any loans greater than 90 days past due and accruing. At December 31, 2020, loans greater than 90 days past due and accruing totaled $2,000.

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


	March 31, 2021
(dollars in thousands)	With Related Allowance		Without Related Allowance		Total(1)
Nonaccrual loans:
One- to four-family first mortgage	$	4,092	$	—	$	4,092
Home equity loans and lines	58		—		58
Commercial real estate	9,409		22		9,431
Construction and land	345		—		345
Multi-family residential	—		—		—
Commercial and industrial	1,065		512		1,577
Consumer	190		—		190
Total	$	15,159	$	534	$	15,693

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

(1)PCD loans of $409,000 and $390,000 are included in nonaccrual loans at March 31, 2021 and December 31, 2020, respectively.

All payments received while on nonaccrual status are applied against the principal balance of nonaccrual loans. The Company does not recognize interest income while loans are on nonaccrual status.

Collateral Dependent Loans

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

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

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

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

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

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

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


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

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

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

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 $1,581,000 and 1,302,000 at March 31, 2021 and December 31, 2020, respectively. These amounts are recorded in accrued interest receivable and other assets on the Consolidated Statements of Financial Condition.

The carrying amount of foreclosed residential real estate properties held at March 31, 2021 and December 31, 2020 totaled $409,000 and $877,000, respectively. Loans secured by single family residential real estate that were in the process of foreclosure at March 31, 2021 and December 31, 2020 totaled $172,000 and $446,000, respectively.

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

Troubled Debt Restructurings

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

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

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

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

•a reduction of accrued interest receivable on the debt.

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

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

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

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

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

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

If the Company concludes that both a concession has been granted and the concession was granted to a customer experiencing financial difficulties, the Company identifies the loan as a TDR. For purposes of the determination of an ACL, larger (i.e., TDRs with balances of $250,000 or greater) commercial TDRs are individually evaluated. The ACL for loans that are individually evaluated is based on a comparison of the recorded investment in the loan with either the expected cash flows discounted using the loan’s original effective interest rate, observable market price for the loan or the fair value of the collateral underlying certain collateral-dependent loans. Residential, consumer and smaller balance commercial TDRs are included in the Company's pooled-loan analysis to calculate the ACL and, generally, do not have a material impact on the overall ACL.

As of March 31, 2021, the Company had modified loans with an aggregate outstanding loan balance of $27.7 million, or 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.


	Three Months Ended March 31,
	2021					2020
(dollars in thousands)	Number of Contracts	Pre-modification Outstanding Recorded Investment		Post-modification Outstanding Recorded Investment		Number of Contracts	Pre-modification Outstanding Recorded Investment		Post-modification Outstanding Recorded Investment
Troubled debt restructurings:
One- to four-family first mortgage	—	$	—	$	—	5	$	837	$	834
Home equity loans and lines	—	—		—		—	—		—
Commercial real estate	2	479		479		4	1,029		1,029
Construction and land	—	—		—		—	—		—
Multi-family residential	—	—		—		—	—		—
Commercial and industrial	—	—		—		—	—		—
Other consumer	1	5		4		1	10		4
Total	3	$	484	$	483	10	$	1,876	$	1,867

None of the the loans modified during the three months ended March 31, 2021 defaulted during the same period.

Three residential mortgage loans totaling $546,000, two commercial real estate loans totaling $282,000 and one consumer loan totaling $4,000 were modified during three months ended March 31, 2020 and defaulted within twelve months of modification. The defaults did not have a significant impact on our allowance for credit losses at March 31, 2020.

6. Derivatives and Hedging Activities

Risk Management Objective of Using Derivatives

The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, 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 $1,602,000 will be reclassified as additional interest expense.

Non-designated Hedges

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

Fair Values of Derivative Instruments

The 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 March 31, 2021 and December 31, 2020.


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

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

Netting adjustments			—				—


Net derivative amounts			$	1,531			$	20

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

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

Netting adjustments			—				—


Net derivative amounts			$	214			$	58

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

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 March 31, 2021.


	Three Months Ended March 31, 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	$	1,301	$	1,301	Interest expense	$	(16)	$	(16)

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

Effect of 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 March 31, 2021.

(dollars in thousands)

Location of Income Recognized on Non-designated Hedges

Three Months Ended March 31, 2021

Effects of non-designated hedges

Risk participation agreements

Other noninterest income

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

Credit-risk-related Contingent Features

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

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

As of March 31, 2021, there were no derivatives with credit-risk-related contingent features in a net liability position. Such derivatives are measured at fair value, which includes accrued interest but excludes any adjustment for nonperformance risk. If the Company had breached any provisions at March 31, 2021, it would not have been required to settle any obligations under the agreements since the termination value was $0.

7. Fair Value Measurements and Disclosures

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

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

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

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

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

Recurring Basis

Investment Securities Available for Sale

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

Management primarily identifies investment securities which may have traded in illiquid or inactive markets, by identifying instances of a significant decrease in the volume and frequency of trades, relative to historical levels, as well as instances of a significant widening of the bid-ask spread in the brokered markets. Investment securities that are deemed to have been trading in illiquid or inactive markets may require the use of significant unobservable inputs. For example, management may use quoted prices for similar investment securities in the absence of a liquid and active market for the investment securities being valued. As of March 31, 2021, management did not make adjustments to prices provided by the third-party pricing service as a result of illiquid or inactive markets.

Derivative Assets and Liabilities

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

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


(dollars in thousands)	March 31, 2021		Level 1		Level 2		Level 3
Assets
Available for sale securities:
U.S. agency mortgage-backed	$	164,084	$	—	$	164,084	$	—
Collateralized mortgage obligations	61,720		—		61,720		—
Municipal bonds	37,622		—		37,622		—
U.S. government agency	6,030		—		6,030		—
Corporate bonds	5,509		—		5,509		—
Total	$	274,965	$	—	$	274,965	$	—

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

Liabilities
Derivative liabilities	$	20	$	—	$	20	$	—


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

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

Liabilities
Derivative liabilities	$	58	$	—	$	58	$	—

Nonrecurring Basis

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

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

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


			Fair Value Measurements Using
(dollars in thousands)	March 31, 2021		Level 1		Level 2		Level 3
Assets
Loans individually evaluated	$	5,513	$	—	$	—	$	5,513
Foreclosed assets and ORE	1,581		—		—		1,581
Total	$	7,094	$	—	$	—	$	7,094

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

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

(dollars in thousands)

Fair Value

Valuation Technique

Unobservable Inputs

Range of Discounts

Weighted Average Discount

March 31, 2021

Loans individually evaluated

5,513

Third party appraisals and discounted cash flows

Collateral values, market discounts and estimated costs to sell

0% - 92%

11%

Foreclosed assets and ORE

1,581

Third party appraisals, sales contracts, broker price opinions

Collateral values, market discounts and estimated costs to sell

6% - 25%

(dollars in thousands)

Fair Value

Valuation Technique

Unobservable Inputs

Range of
Discounts

Weighted Average Discount

December 31, 2020

Loans individually evaluated

7,473

Third party appraisals and discounted cash flows

Collateral values, market discounts and estimated costs to sell

3% - 87%

17%

Foreclosed assets and ORE

1,302

Third party appraisals, sales contracts, broker price opinions

Collateral values, market discounts and estimated costs to sell

6% - 42%

11%

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

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

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

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

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


			Fair Value Measurements at March 31, 2021
(dollars in thousands)	Carrying Amount		Total		Level 1		Level 2		Level 3
Financial Assets
Cash and cash equivalents	$	282,700	$	282,700	$	282,700	$	—	$	—
Interest-bearing deposits in banks	349		349		349		—		—
Investment securities available for sale	274,965		274,965		—		274,965		—
Investment securities held to maturity	2,126		2,176		—		2,176		—
Mortgage loans held for sale	5,304		5,304		—		5,304		—
Loans, net	1,949,875		1,950,917		—		1,945,404		5,513
Cash surrender value of BOLI	40,559		40,559		40,559		—		—
Derivative assets(1)	1,531		1,531		—		1,531		—
Financial Liabilities
Deposits	$	2,328,365	$	2,329,790	$	—	$	2,329,790	$	—
Other borrowings	5,539		6,060		—		6,060		—
Long-term FHLB advances	28,106		28,692		—		28,692		—
Derivative liabilities(1)	20		20		—		20		—

			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		—


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

The purpose of this discussion and analysis is to focus on significant changes in the financial condition of the Company and the Bank from December 31, 2020 through March 31, 2021 and on its results of operations for the three months ended March 31, 2021 and 2020. This discussion and analysis is intended to highlight and supplement information presented elsewhere in this quarterly report on Form 10-Q, particularly the consolidated financial statements and related notes appearing in Item 1.

Forward-Looking Statements

To the extent that statements in this Form 10-Q relate to future plans, objectives, financial results or performance of the Company or Bank, these statements are deemed to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements, which are based on management’s current information, estimates and assumptions and the current economic environment, are generally identified by the use of words such as “plan”, “believe”, “expect”, “intend”, “anticipate”, “estimate”, “project” or similar expressions, or by future or conditional terms such as “will”, “would”, “should”, “could”, “may”, “likely”, “probably”, or “possibly”. The Company’s or the Bank’s actual strategies and results in future periods may differ materially from those currently expected due to various risks and uncertainties. Factors that may cause actual results to differ materially from these forward-looking statements include, but are not limited to, the risk factors described under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2020.

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

•Demand for our products and services may decline;

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

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

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

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

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

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

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

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

EXECUTIVE OVERVIEW

The Company reported net income for the first quarter of 2021 of $11.9 million, or $1.41 diluted EPS, up $9.4 million compared to the the first quarter of 2020. Net income for the first quarter of 2020 totaled $2.5 million, or $0.27 diluted EPS.

Key components of the Company’s performance during the three months ended March 31, 2021 include:

•Assets increased $115.7 million, or 4.5%, from December 31, 2020 to $2.7 billion at March 31, 2021.

•Total loans were $2.0 billion, down $86,000, or less than 1%, from December 31, 2020.

•PPP loans totaled $235.7 million, up $14.5 million, or 6.5%, from December 31, 2020.

•The Company recorded a $1.7 million reversal to the allowance for loan losses primarily due to improvements in our assessment of the economic impact of the COVID-19 pandemic.

•The ALL totaled $30.0 million, or 1.51% of total loans, at March 31, 2021 compared to $33.0 million, or 1.66% of total loans, at December 31, 2020. Excluding PPP loans, the ratios of the ALL to total loans were 1.72% and 1.87% at March 31, 2021 and December 31, 2020, respectively.

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

•Total deposits increased $114.5 million, or 5.2%, from $2.2 billion at December 31, 2020 to $2.3 billion at March 31, 2021.

•The net interest margin was 4.14% for the first quarter of 2021, down 4 bps compared to the first quarter of 2020, primarily due to the decrease in the average yield on interest-earning assets during 2021.

•The average rate paid on total interest-bearing deposits was 0.42%, down 65 bps from the first quarter of 2020.

•Noninterest income for the first quarter of 2021 increased $702,000, or 20.9%, compared to the first quarter of 2020 primarily due to an increase in gains on the sale of loans.

•Noninterest expense for the first quarter of 2021 increased $550,000, or 3.6%, compared to the first quarter of 2020 primarily due to increases in regulatory fees (up $263,000), compensation and benefits (up $248,000), data processing and communication expense (up $167,000), and foreclosed assets expense (up $106,000), partially offset by a decrease in marketing and advertising expense (down $127,000).

COVID-19 RESPONSE

Banking operations remain unencumbered by state and local government COVID-19 restrictions. We have continued to protect our employees and customers by working remotely, enhancing cleaning procedures, and enacting several other measures to reduce the risk of transmission of the virus. State government imposed COVID-19 restrictions were relaxed in March 2021 within our Louisiana and Mississippi markets. Nearly all restrictions were removed in Mississippi, while Louisiana moved to Phase 3 of its reopening plan. Restrictions in Louisiana primarily include mask mandates and place capacity limits for certain businesses.

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

To give immediate financial support to our customers, the Company began providing principal and/or interest payment deferral options in March 2020. At March 31, 2021, $27.7 million, or 1% of total loans were under deferral agreements. The level of COVID-19 related deferrals formerly totaled $558.8 million, or 28% of total loans, at June 30, 2020. Of the loans that have exited deferral agreements, $443.0 million, or 99%, were current and performing as of March 31, 2021.

FINANCIAL CONDITION

Loans, Allowance for Credit Losses and Asset Quality

Loans

Loans outstanding at March 31, 2021 were $2.0 billion, down $86,000, or less than 1%, from December 31, 2020. PPP loans, included in commercial and industrial loans, increased $14.5 million, or 7%, from December 31, 2020. At March 31, 2021, PPP loans totaled $235.7 million. Excluding PPP loans, loans decreased $14.5 million, or 0.8%, from December 31, 2020.

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


(dollars in thousands)	March 31, 2021		December 31, 2020		Increase/(Decrease)
Real estate loans:
One-to four-family first mortgage	$	380,207	$	395,638	$	(15,431)	(3.9)	%
Home equity loans and lines	65,556		67,700		(2,144)		(3.2)
Commercial real estate	744,971		750,623		(5,652)		(0.8)
Construction and land	242,156		221,823		20,333		9.2
Multi-family residential	82,726		87,332		(4,606)		(5.3)
Total real estate loans	1,515,616		1,523,116		(7,500)		(0.5)	%
Other loans:
Commercial and industrial	428,019		417,926		10,093		2.4
Consumer	36,233		38,912		(2,679)		(6.9)
Total other loans	464,252		456,838		7,414		1.6
Total loans	$	1,979,868	$	1,979,954	$	(86)	—	%

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

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.

Additional Information on Loan Portfolio Composition and Allowance for Credit Losses

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

The following table provides a summary of the loan portfolio and related reserves at March 31, 2021. We have separately identified certain information regarding PPP loans which, due to the existence of full repayment guarantees from the SBA as well as the likelihood that the vast majority of such loans will be forgiven, we believe entail minimal credit risk to the Company.


	Loans				Allowance for Credit Losses
(dollars in thousands)	Total Loans		PPP Loans		Total ACL		ACL to Total Loans		ACL to Total Non-PPP Loans
March 31, 2021
Retail CRE	$	184,807	$	—	$	6,027	3.26	%	3.26	%
Hotels and short-term rentals	102,282		7,168		5,052		4.94		5.31
Restaurants and bars	104,063		38,439		2,631		2.53		4.01
Energy	44,651		14,805		1,412		3.16		4.73
Credit cards	3,570		—		358		10.03		10.03
Other loans	1,540,495		175,269		14,513		0.94		1.06
Total	$	1,979,868	$	235,681	$	29,993	1.51	%	1.72	%

Unfunded lending commitments(1)	$	—	$	—	$	1,425	—		—
Total	$	1,979,868	$	235,681	$	31,418	1.59	%	1.80	%

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

Asset Quality

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

Under our allowance policy, credit losses are measured on a pool basis when similar risk characteristics exist. Loans that do not share similar risk characteristics are individually evaluated for credit losses and are excluded from the pooled loan analysis. At least quarterly, management evaluates the loan portfolio to determine which loans should be individually evaluated for credit losses. Management's evaluation involves an analysis of larger (i.e., loans with balances of $250,000 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 March 31, 2021 and December 31, 2020, loans individually evaluated for credit losses were $6.2 million and $9.0 million, respectively. Total loans individually evaluated for credit losses at March 31, 2021 included $1.1 million of acquired loans, of which $277,000 was acquired with deteriorated credit quality. At December 31, 2020, loan individually evaluated for credit losses included $2.4 million of acquired loans, of which $277,000 was acquired with deteriorated credit quality.

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


	March 31, 2021
(dollars in thousands)	Recorded investment		Allowance for Loan Losses		Allowance to Total Loans
Loans Individually Evaluated
One- to four-family first mortgage	$	997	$	100	10.03	%
Home equity loans and lines	—		—		—
Commercial real estate	4,280		333		7.78
Construction and land	—		—		—
Multi-family residential	—		—		—
Commercial and industrial	903		234		25.91
Consumer	—		—		—
Total	$	6,180	$	667	10.79	%

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

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

At March 31, 2021 and December 31, 2020, loans classified as substandard totaled $37.0 million and $35.3 million, respectively. There were no assets classified as doubtful at either date. For additional information, refer to Note 5 to the Consolidated Financial Statements.

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


(dollars in thousands)	March 31, 2021		December 31, 2020		Increase/(Decrease)
Special Mention Loans
One- to four-family first mortgage	$	539	$	1,240	$	(701)	(56.5)	%
Home equity loans and lines	—		43		(43)		(100.0)
Commercial real estate	895		966		(71)		(7.3)
Construction and land	2,031		2,122		(91)		(4.3)
Multi-family residential	—		—		—		—
Commercial and industrial	3,775		4,814		(1,039)		(21.6)
Consumer	42		146		(104)		(71.2)
Total special mention loans	$	7,282	$	9,331	$	(2,049)	(22.0)	%

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

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.


	March 31, 2021							December 31, 2020
(dollars in thousands)	Originated		Acquired(1)		Total			Originated		Acquired(1)		Total
Nonaccrual loans(2):
Real estate loans:
One- to four-family first mortgage	$	1,803	$	2,289	$	4,092		$	1,464	$	2,374	$	3,838
Home equity loans and lines	—		58		58			24		39		63
Commercial real estate	6,319		3,112		9,431			7,650		4,648		12,298
Construction and land	—		345		345			—		469		469
Multi-family residential	—		—		—			—		—		—
Other loans:
Commercial and industrial	467		1,110		1,577			603		1,114		1,717
Consumer	146		44		190			188		104		292
Total nonaccrual loans	8,735		6,958		15,693			9,929		8,748		18,677
Accruing loans 90 days or more past due	—		—		—			2		—		2
Total nonperforming loans	8,735		6,958		15,693			9,931		8,748		18,679
Foreclosed assets and ORE	1,082		499		1,581			422		880		1,302
Total nonperforming assets	9,817		7,457		17,274			10,353		9,628		19,981
Performing troubled debt restructurings	2,042		971		3,013			1,512		573		2,085
Total nonperforming assets and troubled debt restructurings	$	11,859	$	8,428	$	20,287		$	11,865	$	10,201	$	22,066

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

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

(2)Nonaccrual loans include originated restructured loans placed on nonaccrual totaling $5.0 million and $6.5 million at March 31, 2021 and December 31, 2020, respectively. Acquired restructured loans placed on nonaccrual totaled $3.7 million and $3.5 million at March 31, 2021 and December 31, 2020, respectively.

As previously indicated, as a result of Section 4013 of the CARES Act and recent interagency guidance issued by Federal banking regulators, modifications, such as deferrals of principal and/or interest payments, to borrowers affected by the COVID-19 pandemic are not deemed to be TDRs if such modifications are made on loans that were current as of December 31, 2019. Such deferrals and loan modifications totaled $27.7 million, or 1% of total loans, at March 31, 2021 compared to $36.0 million, or 2% of total loans, at December 31, 2020. We will continue to follow the guidance of Federal banking regulators in making any TDR determinations.

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

Investment Securities

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

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


(dollars in thousands)	Available for Sale		Held to Maturity
Balance, December 31, 2020	$	254,752	$	2,934
Purchases	48,958		—
Sales	—		—
Principal maturities, prepayments and calls	(23,390)		(800)
Amortization of premiums and accretion of discounts	(598)		(8)
Decrease in market value	(4,757)		—
Balance, March 31, 2021	$	274,965	$	2,126

Funding Sources

Deposits

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


	March 31,		December 31,		Increase/(Decrease)
(dollars in thousands)	2021		2020		Amount		Percent
Demand deposit	$	687,254	$	615,700	$	71,554	11.6	%
Savings	272,021		250,165		21,856		8.7
Money market	346,662		333,078		13,584		4.1
NOW	679,130		646,085		33,045		5.1
Certificates of deposit	343,298		368,793		(25,495)		(6.9)
Total deposits	$	2,328,365	$	2,213,821	$	114,544	5.2	%

The average rate paid on interest-bearing deposits was 0.42% for the first quarter of 2021, down 65 bps compared to the first quarter of 2020.

At March 31, 2021, certificates of deposit maturing within the next 12 months totaled $289.7 million.

Federal Home Loan Bank Advances

The average balance of total FHLB advances was $28.4 million for the first quarter of 2021, down $17.3 million compared to the first quarter of 2020. The average yield on total FHLB advances for the first quarter of 2021 was 1.74%, down 6 bps compared to the first quarter of 2020.

At March 31, 2021, the Company had $28.1 million in total outstanding FHLB advances and had $808.8 million in additional FHLB advances available.

Shareholders’ Equity

Shareholders’ equity increased $6.8 million, or 2.1%, from $321.8 million at December 31, 2020 to $328.6 million at March 31, 2021. Shareholders’ equity increased primarily due to net income of $11.9 million for the first quarter of 2021, partially offset by an other comprehensive loss of $2.7 million, cash dividends of $1.9 million and share repurchases of $1.2 million during the quarter ended March 31, 2021.

At March 31, 2021, the Bank had regulatory capital amounts that were well in excess of regulatory requirements. The following table presents actual and required capital ratios for the Bank under the Basel III Capital Rules. The minimum required capital amounts presented include the minimum required capital levels as of March 31, 2021 based on the required capital levels as of January 1, 2019 when the Basel III Capital Rules were fully phased-in. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules.


	Actual				Minimum Capital Required – Basel III Fully Phased-In				To Be Well Capitalized Under Prompt Corrective Action Provisions
(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
Bank:
Common equity Tier 1 capital (to risk-weighted assets)	$	252,525	14.11	%	$	125,269	7.00	%	$	116,321	6.50	%
Tier 1 risk-based capital	252,525		14.11		152,113		8.50		143,165		8.00
Total risk-based capital	275,006		15.37		187,904		10.50		178,956		10.00
Tier 1 leverage capital	252,525		9.89		102,097		4.00		127,621		5.00

LIQUIDITY AND ASSET/LIABILITY MANAGEMENT

Liquidity Management

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

The Company uses its liquidity to fund existing and future loan commitments, to fund maturing certificates of deposit and demand deposit withdrawals, to invest in other interest-earning assets and to meet operating expenses. At March 31, 2021, certificates of deposit maturing within the next 12 months totaled $289.7 million. Based upon historical experience, the Company anticipates that a significant portion of the maturing certificates of deposit will be redeposited with us.

In addition to cash flow from loan and securities payments and prepayments as well as from sales of securities available for sale, the Company has significant borrowing capacity available to fund liquidity needs. In recent years, the Company has utilized borrowings as a cost efficient addition to deposits as a source of funds. Borrowings consist of advances from the FHLB of Dallas, of which the Company is a member. Under terms of the collateral agreement with the FHLB, the Company pledges residential mortgage loans and investment securities as well as the Company’s stock in the FHLB as collateral for such advances. For the three months ended March 31, 2021, the average balance of outstanding FHLB advances was $28.4 million. At March 31, 2021, the Company had $28.1 million in total outstanding FHLB advances and had $808.8 million 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 March 31, 2021.


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

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

During the second quarter of 2020, the Company entered into certain interest rate swap agreements as part of its interest rate risk management strategy. The Company’s objectives in using interest rate derivatives are to manage its exposure to interest rate movements. During 2021 and 2020, such derivatives were used to hedge the variable cost associated with existing variable rate liabilities. Refer to Note 6 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 Bank issues financial instruments which represent conditional obligations that are not recognized, wholly or in part, in the statements of financial condition. These financial instruments include commitments to extend credit and standby letters of credit. Such instruments expose the Company to varying degrees of credit and interest rate risk in much the same way as funded loans. The same credit policies are used in these commitments as for on-balance sheet instruments. At March 31, 2021 and December 31, 2020, the Company's allowance for credit losses on unfunded commitments totaled $1.4 million.

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


	Contract Amount
(dollars in thousands)	March 31, 2021		December 31, 2020
Standby letters of credit	$	4,782	$	5,781
Available portion of lines of credit	288,625		266,349
Undisbursed portion of loans in process	114,571		99,527
Commitments to originate loans	130,666		139,471

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

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

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

RESULTS OF OPERATIONS

Net income for the first quarter of 2021 was $11.9 million, up $9.4 million, or 380.6%, compared to the first quarter of 2020. Diluted EPS for the first quarter of 2021 was $1.41, up $1.14 compared to the first quarter of 2020. The increase in net income for the first quarter of 2021 compared to the same period in 2020 was primarily due to the change in the provision for loans losses and an increase in net interest income. During the the first quarter of 2021, the Company released $1.7 million in provision for loan losses and recognized $3.3 million of deferred PPP lender fees in loan income. During the first quarter of 2020, the Company recorded $6.3 million in provision for loan losses and did not hold any PPP loans.

Net Interest Income

Net interest income is the difference between the interest income earned on interest-earning assets, such as loans and investment securities, and the interest expense paid on interest-bearing liabilities, such as deposits and borrowings. The Company’s net interest income is largely determined by our net interest spread, which is the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities, and the relative amounts of interest-earning assets and interest-bearing liabilities. The Company’s tax-equivalent net interest spread was 3.98% and 3.86% for the quarters ended March 31, 2021 and 2020, respectively.

Net interest income totaled $25.1 million for the first quarter of 2021, up $3.8 million, or 17.7%, compared to the first quarter of 2020 primarily due to the recognition of PPP lender fees. Loan income from deferred PPP lender fees totaled $3.3 million during the first quarter of 2021. The Company began originating PPP loans during the second quarter of 2020. Unrecognized PPP lender fees totaled $8.3 million at March 31, 2021 and will be amortized into interest income over the life of the loans.

The Company’s tax-equivalent net interest margin, which is net interest income as a percentage of average interest-earning assets, was 4.14% and 4.18% for the quarters ended March 31, 2021 and 2020, respectively. For the same periods, the average loan yield was 5.21% and 5.43%, respectively. Outstanding PPP loans positively impacted the the net interest margin by 26 bps and the average loan yield by 18 bps during the first quarter of 2021.

The net interest margin was also impacted by the increase in average cash and cash equivalents when comparing the first quarters of 2021 and 2020. The increase in average cash and cash equivalents negatively impacted the net interest margin and the average yield on total interest-earning assets by 27 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 first quarter of 2021 were up $155.8 million compared to the average of $28.0 million during the first quarter of 2020.

Acquired loan discount accretion included in interest income totaled $736,000 and $810,000 for the quarters ended March 31, 2021 and 2020, 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 March 31,
	2021						2020
(dollars in thousands)	Average Balance		Interest		Average Yield/Rate		Average Balance		Interest		Average Yield/Rate
Interest-earning assets:
Loans receivable(1)	$	1,987,264	$	25,817	5.21	%	$	1,735,224	$	23,699	5.43	%
Investment securities
Taxable	240,740		918		1.52		244,920		1,308		2.14
Tax-exempt (TE)	20,552		94		2.32		18,120		104		2.90
Total investment securities	261,292		1,012		1.59		263,040		1,412		2.19
Other interest-earning assets	183,771		99		0.22		28,002		138		1.99
Total interest-earning assets (TE)	2,432,327		$	26,928	4.44		2,026,266		$	25,249	4.96
Noninterest-earning assets	188,337						192,649
Total assets	$	2,620,664					$	2,218,915
Interest-bearing liabilities:
Deposits:
Savings, checking and money market	$	1,240,933	$	881	0.29	%	$	989,028	$	1,822	0.74	%
Certificates of deposit	352,501		775		0.89		392,670		1,845		1.89
Total interest-bearing deposits	1,593,434		1,656		0.42		1,381,698		3,667		1.07
Other borrowings	5,706		53		3.78		5,539		53		3.86
Short-term FHLB advances	—		—		—		634		3		1.82
Long term FHLB advances	28,424		124		1.74		45,095		203		1.80
Total interest-bearing liabilities	1,627,564		$	1,833	0.46		1,432,966		$	3,926	1.10
Noninterest-bearing liabilities	666,271						469,596
Total liabilities	2,293,835						1,902,562
Shareholders’ equity	326,829						316,353
Total liabilities and shareholders' equity	$	2,620,664					$	2,218,915
Net interest-earning assets	$	804,763					$	593,300
Net interest spread (TE)			$	25,095	3.98	%			$	21,323	3.86	%
Net interest margin (TE)					4.14	%					4.18	%

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

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 March 31,
	2021 Compared to 2020
	Change Attributable To
(dollars in thousands)	Rate		Volume		Increase/ (Decrease)
Interest income:
Loans receivable	$	(1,507)	$	3,625	$	2,118
Investment securities	(398)		(2)		(400)
Other interest-earning assets	(462)		423		(39)
Total interest income	(2,367)		4,046		1,679
Interest expense:
Savings, checking and money market accounts	(1,252)		311		(941)
Certificates of deposit	(925)		(145)		(1,070)
Other borrowings	—		—		—
FHLB advances	(7)		(75)		(82)
Total interest expense	(2,184)		91		(2,093)
Increase (decrease) in net interest income	$	(183)	$	3,955	$	3,772

Noninterest Income

Noninterest income for the first quarter of 2021 totaled $4.1 million, up $702,000, or 20.9%, from $3.4 million earned for the same period in 2020.

Gains on the sale of loans for the first quarter of 2021 were up $871,000, or 293.3%, from the comparable period in 2020. As interest rates remain relatively low, the Company has continued to benefit from the increase in demand for mortgage loan originations and refinances.

Income from bank card fees for the first quarter of 2021 was up $169,000, or 14.9%, from the comparable period in 2020 primarily due to a general increase in the level of customer spending.

Income from service fees and charges for the first quarter of 2021 was down $392,000, or 26.8%, from the comparable period in 2020. Service fees and charges decreased primarily due to a decline in income from overdraft fees on deposit accounts.

Noninterest Expense

Noninterest expense for the first quarter of 2021 totaled $16.0 million, up $550,000, or 3.6%, from the first quarter of 2020.

Regulatory fees for the the first quarter of 2021 were up $263,000, or 226.7%, from the comparable period in 2020 primarily due to an increase in FDIC assessments. FDIC assessment credits were exhausted during the first quarter of 2020.

Compensation and benefits expense for the first quarter of 2021 was up $248,000, or 2.6%, from the comparable period in 2020 primarily due to an increase in incentive pay and an increase in health insurance cost in the first quarter of 2021.

Data processing and communication expense for the first quarter of 2021 was up $167,000, or 9.2%, from the comparable period in 2020 primarily due to increased costs of software and service contracts.

Foreclosed assets expense for the first quarter of 2021 was up $106,000, or 623.5%, from the comparable period in 2020 primarily due an increase in holding costs and a decrease in net gains on the sale of foreclosed assets in the first quarter of 2021.

Marketing and advertising expense for the first quarter of 2021 was down $127,000, or 42.6%, from the comparable period in 2020 primarily due to a general decline across all marketing activities.

Income Taxes

Income tax expense for the first quarter of 2021 increased $2.4 million, or 463.5%, compared to the first quarter of 2020 primarily due to an increase in taxable earnings. The Company's effective tax rate for the first quarters of 2021 and 2020 was 19.9% and 17.5%, respectively.


Item 3.			Quantitative and Qualitative Disclosures About Market Risk.

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


Item 4.			Controls and Procedures.

Our management evaluated, with the participation of our Chief Executive Officer and 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 first quarter of 2021 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 on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission.


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

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


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet be Purchased Under the Plan or Programs(1)
January 1 – January 31, 2021	39,282	$	28.54	39,282	260,798
February 1 – February 28, 2021	2,195	29.38		2,195	258,603
March 1 – March 31, 2021	—	—		—	258,603
Total	41,477	$	28.58	41,477	258,603

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


Item 3.			Defaults Upon Senior Securities.

None.


Item 4.			Mine Safety Disclosures.

None.


Item 5.			Other Information.

None.


Item 6.			Exhibits and Financial Statement Schedules.


No.						Description

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

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

32 .0						Section 1350 Certification

101.INS						XBRL Instance Document

101.SCH						XBRL Taxonomy Extension Schema Document

101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF						XBRL Taxonomy Extension Definitions Linkbase Document

101.LAB						XBRL Taxonomy Extension Label Linkbase Document

101.PRE						XBRL Taxonomy Extension Presentation Linkbase 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.

May 7, 2021

By:

/s/ John W. Bordelon

John W. Bordelon

Chairman of the Board, President and Chief Executive Officer

May 7, 2021

By:

/s/ David T. Kirkley

David T. Kirkley

Executive Vice President and Chief Financial Officer

May 7, 2021

By:

/s/ Mary H. Hopkins

Mary H. Hopkins

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