HBCP 10-Q Quarter ended June 30, 2018

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended: June 30, 2018

or

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

For the transition period from to

Commission File Number: 001-34190

HOME BANCORP, INC.

(Exact name of Registrant as specified in its charter)

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

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

Not Applicable

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

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    YES  ☒    NO  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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		☐  (Do not check if a smaller reporting company)		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 Act).    YES  ☐    NO  ☒

At July 31, 2018, the registrant had 9,460,512 shares of common stock, $0.01 par value, outstanding.

HOME BANCORP, INC. and SUBSIDIARY

TABLE OF CONTENTS

				Page
PART I
Item 1.		Financial Statements (unaudited)
		Consolidated Statements of Financial Condition			1
		Consolidated Statements of Income			2
		Consolidated Statements of Comprehensive Income			3
		Consolidated Statements of Changes in Shareholders’ Equity			4
		Consolidated Statements of Cash Flows			5
		Notes to Unaudited Consolidated Financial Statements			6
Item 2.		Managements’ Discussion and Analysis of Financial Condition and Results of Operations			27
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			39
Item 4.		Controls and Procedures			39
PART II
Item 1.		Legal Proceedings			40
Item 1A.		Risk Factors			40
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			40
Item 3.		Defaults Upon Senior Securities			40
Item 4.		Mine Safety Disclosures			40
Item 5.		Other Information			40
Item 6.		Exhibits			41
SIGNATURES					42

i

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

		(Unaudited) June 30, 2018				(Audited) December 31, 2017
Assets
Cash and cash equivalents		$	80,489,229			$	150,417,829
Interest-bearing deposits in banks			1,429,000				2,421,000
Investment securities available for sale, at fair value			264,258,591				234,993,436
Investment securities held to maturity (fair values of $12,849,714 and $13,055,073, respectively)			12,869,388				13,033,590
Mortgage loans held for sale			9,710,992				5,873,132
Loans, net of unearned income			1,625,679,017				1,657,794,751
Allowance for loan losses			(14,972,574	)			(14,807,278	)
Total loans, net of unearned income and allowance for loan losses			1,610,706,443				1,642,987,473
Office properties and equipment, net			45,191,944				45,604,752
Cash surrender value of bank-owned life insurance			29,228,142				28,903,913
Goodwill and core deposit intangibles			67,035,203				68,033,472
Accrued interest receivable and other assets			39,056,995				35,852,241
Total Assets		$	2,159,975,927			$	2,228,120,838
Liabilities
Deposits:
Noninterest-bearing		$	455,676,218			$	461,999,611
Interest-bearing			1,332,868,982				1,404,227,717
Total deposits			1,788,545,200				1,866,227,328
Short-term Federal Home Loan Bank advances			3,578,172				3,642,422
Long-term Federal Home Loan Bank advances			66,395,569				68,183,173
Accrued interest payable and other liabilities			12,096,106				12,197,189
Total Liabilities			1,870,615,047				1,950,250,112
Shareholders’ Equity
Preferred stock, $0.01 par value - 10,000,000 shares authorized; none issued			—				—
Common stock, $0.01 par value - 40,000,000 shares authorized; 9,437,654 and 9,395,488 shares issued and outstanding, respectively			94,377				93,955
Additional paid-in capital			166,897,088				165,341,415
Unallocated common stock held by:
Employee Stock Ownership Plan (ESOP)			(3,659,970	)			(3,838,510	)
Recognition and Retention Plan (RRP)			(77,450	)			(83,903	)
Retained earnings			129,645,221				117,312,630
Accumulated other comprehensive loss			(3,538,386	)			(954,861	)
Total Shareholders’ Equity			289,360,880				277,870,726
Total Liabilities and Shareholders’ Equity		$	2,159,975,927			$	2,228,120,838

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

1

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

		For the Three Months Ended								For the Six Months Ended
		June 30,								June 30,
		2018				2017				2018				2017
Interest Income
Loans, including fees		$	23,527,220			$	16,167,363			$	46,330,848			$	32,410,631
Investment securities:
Taxable interest			1,530,688				958,583				2,839,639				1,824,496
Tax-exempt interest			179,113				156,297				365,221				319,017
Other investments and deposits			338,259				116,526				765,198				207,891
Total interest income			25,575,280				17,398,769				50,300,906				34,762,035
Interest Expense
Deposits			1,926,555				1,149,489				3,828,752				2,141,929
Short-term Federal Home Loan Bank advances			16,409				30,628				32,985				94,606
Long-term Federal Home Loan Bank advances			295,719				321,201				596,024				658,848
Total interest expense			2,238,683				1,501,318				4,457,761				2,895,383
Net interest income			23,336,597				15,897,451				45,843,145				31,866,652
Provision for loan losses			580,621				150,000				1,544,878				456,832
Net interest income after provision for loan losses			22,755,976				15,747,451				44,298,267				31,409,820
Noninterest Income
Service fees and charges			1,519,743				990,432				3,174,488				1,927,361
Bank card fees			1,196,082				766,607				2,294,632				1,450,121
Gain on sale of loans, net			200,864				327,549				407,901				615,612
Income from bank-owned life insurance			163,610				121,649				324,229				240,365
Gain (loss) on sale of assets, net			69				(460,029	)			145,275				(104,489	)
Other income			263,665				417,739				478,459				860,784
Total noninterest income			3,344,033				2,163,947				6,824,984				4,989,754
Noninterest Expense
Compensation and benefits			9,222,132				6,892,412				18,163,605				13,667,861
Occupancy			1,719,081				1,272,246				3,393,950				2,492,129
Marketing and advertising			306,434				287,807				565,989				514,403
Data processing and communication			2,344,224				1,073,303				4,023,270				2,148,510
Professional services			305,569				181,517				591,623				412,887
Forms, printing and supplies			273,995				155,144				630,599				290,443
Franchise and shares tax			363,248				191,816				728,548				393,782
Regulatory fees			342,947				312,437				722,284				635,275
Foreclosed assets, net			86,643				(101,096	)			189,641				(159,871	)
Other expenses			1,357,355				785,290				2,902,081				1,686,170
Total noninterest expense			16,321,628				11,050,876				31,911,590				22,081,589
Income before income tax expense			9,778,381				6,860,522				19,211,661				14,317,985
Income tax expense			2,002,631				2,374,725				3,972,364				4,826,487
Net Income		$	7,775,750			$	4,485,797			$	15,239,297			$	9,491,498
Earnings per share:
Basic		$	0.86			$	0.64			$	1.69			$	1.36
Diluted		$	0.84			$	0.62			$	1.64			$	1.31
Cash dividends declared per common share		$	0.17			$	0.14			$	0.32			$	0.27

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

2

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

		For the Three Months Ended								For the Six Months Ended
		June 30,								June 30,
		2018				2017				2018				2017
Net Income		$	7,775,750			$	4,485,797			$	15,239,297			$	9,491,498
Other Comprehensive (Loss) Income
Unrealized (losses) gains on investment securities			(1,012,656	)			57,467				(3,009,953	)			162,647
Tax effect			212,657				(20,113	)			632,090				(56,926	)
Other comprehensive (loss) income, net of taxes			(799,999	)			37,354				(2,377,863	)			105,721
Comprehensive Income		$	6,975,751			$	4,523,151			$	12,861,434			$	9,597,219

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

3

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

		Common Stock				Additional Paid-in Capital				Unallocated Common Stock Held by ESOP				Unallocated Common Stock Held by RRP				Retained Earnings				Accumulated Other Comprehensive Income (Loss)				Total
Balance, December 31, 2016		$	73,502			$	79,425,604			$	(4,195,590	)		$	(119,633	)		$	104,647,375			$	11,766			$	179,843,024
Net income																			9,491,498								9,491,498
Other comprehensive income																							105,721				105,721
Purchase of Company’s common stock at cost, 91 shares			(1	)			(539	)											(1,684	)							(2,224	)
Cash dividends declared, $0.27 per share																			(1,991,459	)							(1,991,459	)
Common stock issued under incentive plans, net of shares surrendered in payment, including tax benefit 7,805 shares			78				17,055												(35,036	)							(17,903	)
Exercise of stock options			436				508,205																				508,641
RRP shares released for allocation							(3,553	)							7,648												4,095
ESOP shares released for allocation							578,954				178,540																757,494
Share-based compensation cost							239,978																				239,978
Balance, June 30, 2017		$	74,015			$	80,765,704			$	(4,017,050	)		$	(111,985	)		$	112,110,694			$	117,487			$	188,938,865
Balance, December 31, 2017		$	93,955			$	165,341,415			$	(3,838,510	)		$	(83,903	)		$	117,312,630			$	(954,861	)		$	277,870,726
Net income																			15,239,297								15,239,297
Other comprehensive loss																							(2,377,863	)			(2,377,863	)
Reclassification of stranded tax effects in accumulated other comprehensive income (1)																			205,662				(205,662	)			—
Purchase of Company’s common stock at cost, 1,077 s hares			(11	)			(10,759	)											(37,536	)							(48,306	)
Cash dividends declared, $0.32 per share																			(3,010,689	)							(3,010,689	)
Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 16,528 shares			165				169,891												(64,143	)							105,913
Exercise of stock options			268				338,528																				338,796
RRP shares released for allocation							(4,190	)							6,453												2,263
ESOP shares released for allocation							719,115				178,540																897,655
Share-based compensation cost							343,088																				343,088
Balance, June 30, 2018		$	94,377			$	166,897,088			$	(3,659,970	)		$	(77,450	)		$	129,645,221			$	(3,538,386	)		$	289,360,880

(1)	See Note 2 - Recent Accounting Pronouncements

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

4

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

		For the Six Months Ended
		June 30,
		2018				2017
Cash flows from operating activities:
Net income		$	15,239,297			$	9,491,498
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses			1,544,878				456,832
Depreciation			1,199,431				957,910
Amortization and accretion of purchase accounting valuations and intangibles			4,211,869				2,348,298
Net amortization of mortgage servicing asset			75,256				100,009
Federal Home Loan Bank stock dividends			(55,500	)			(53,300	)
Net amortization of discount on investments			983,158				827,562
Gain on loans sold, net			(407,901	)			(615,612	)
Proceeds, including principal payments, from loans held for sale			43,424,958				64,813,882
Originations of loans held for sale			(46,854,917	)			(64,340,005	)
Non-cash compensation			1,240,743				997,472
Deferred income tax expense (benefit)			317,512				(183,150	)
(Increase) decrease in accrued interest receivable and other assets			(3,182,933	)			607,288
Increase in cash surrender value of bank-owned life insurance			(324,229	)			(240,365	)
Decrease in accrued interest payable and other liabilities			(157,423	)			(1,772,297	)
Net cash provided by operating activities			17,254,199				13,396,022
Cash flows from investing activities:
Purchases of securities available for sale			(58,268,456	)			(33,716,007	)
Proceeds from maturities, prepayments and calls on securities available for sale			25,173,733				19,569,009
Decrease (increase) in loans, net			27,288,000				7,216,038
Decrease in interest-bearing deposits in banks			992,000				493,000
Proceeds from sale of repossessed assets			540,040				2,632,000
Purchases of office properties and equipment			(1,500,090	)			(667,584	)
Proceeds from sale of office properties and equipment			839,402				639,290
Proceeds from redemption of Federal Home Loan Bank stock			—				4,180,100
Net cash (used in) provided by investing activities			(4,935,371	)			345,846
Cash flows from financing activities:
(Decrease) increase in deposits, net			(77,728,187	)			61,170,327
Borrowings on Federal Home Loan Bank advances			—				130,750,000
Repayments of Federal Home Loan Bank advances			(1,904,955	)			(181,771,583	)
Proceeds from exercise of stock options			338,796				508,641
Issuance of stock under incentive plans			105,913				(17,903	)
Dividends paid to shareholders			(3,010,689	)			(1,991,459	)
Purchase of Company’s common stock			(48,306	)			(2,224	)
Net cash (used in) provided by financing activities			(82,247,428	)			8,645,799
Net change in cash and cash equivalents			(69,928,600	)			22,387,667
Cash and cash equivalents at beginning of year			150,417,829				29,314,741
Cash and cash equivalents at end of year		$	80,489,229			$	51,702,408

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

5

HOME BANCORP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The accompanying unaudited consolidated financial statements of Home Bancorp, Inc. (the “Company”) were prepared in accordance with instructions for Form 10-Q and Regulation S-X and do not include information or footnotes necessary for a complete presentation of financial condition, results of operations, comprehensive income, changes in shareholders’ equity and cash flows in conformity with accounting principles generally accepted in the United States of America. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial statements have been included. The results of operations for the six-month period ended June 30, 2018 are not necessarily indicative of the results which may be expected for the entire fiscal year. These statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) for the year ended December 31, 2017.

Critical Accounting Policies and Estimates

There were no material changes or developments during the reporting period with respect to methodologies the Company uses when applying critical accounting policies and developing critical accounting estimates as disclosed in its Annual Report on Form 10-K for the year ended December 31, 2017.

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. The financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the Company’s financial condition, results of operations, comprehensive income, changes in shareholders’ equity and cash flows for the interim periods presented. These adjustments are of a normal recurring nature and include appropriate estimated provisions.

2. Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, “Conforming Amendments Related to Leases”. This ASU amends the codification regarding leases in order to increase transparency and comparability. The ASU requires companies to recognize lease assets and liabilities on the statement of condition and disclose key information about leasing arrangements. Upon implementation, lessee will recognize a liability to make lease payments and a right-of-use asset representing its right to use the leased asset for the lease term. The ASU is effective for annual and interim periods beginning after December 15, 2018. The Company is currently assessing the amendment but does not anticipate it will have a material impact on our Consolidated Financial Statements. Based on the Company’s preliminary assessment of its current leases, the impact to the Company’s consolidated balance sheet is estimated to be less than a 1% increase in assets and liabilities.

In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments”. The ASU requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net carrying value at the amount expected to be collected on the financial assets. The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount of financial assets. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. The allowance for credit losses for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination that are measured at amortized cost basis is determined in a similar manner to other financial assets

6

measured at amortized cost basis; however, the initial allowance for credit losses is added to the purchase price rather than being reported as a credit loss expense. Only subsequent changes in the allowance for credit losses are recorded as a credit loss expense for these assets. Off-balance-sheet arrangements such as commitments to extend credit, guarantees, and standby letters of credit that and are not unconditionally cancellable are also within the scope of this amendment. Credit losses relating to debt securities should be recorded through an allowance for credit losses. This ASU is effective for fiscal years beginning after December 31, 2019. An entity will apply the amendments in this update on a modified retrospective basis, through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company is currently assessing this accounting standard and the implementation of a new software application during 2018 to assist in determining the impact to our Consolidated Financial Statements. The adoption of this ASU could result in material changes in our accounting for credit losses. The extent of the impact upon adoption will depend on the characteristics of the Company’s loan portfolio and economic conditions on that date as well as forecasted conditions thereafter.

In January 2017, FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other, Simplifying the Test for Goodwill Impairment”. The amendment in this ASU eliminates the requirement to calculate the implied fair value of goodwill in order to measure a goodwill impairment charge. An entity will record an impairment charge based on the excess of the carrying amount over its fair value. This ASU is effective for fiscal and interim testing periods beginning after December 15, 2019. The Company is currently assessing the amendment and does not anticipate it will have a material impact on our Consolidated Financial Statements.

In April 2017, FASB issued ASU No. 2017-8, “Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities”. This ASU shortens the amortization period for the premium on certain purchased callable debt securities to the earliest call date. The accounting for purchased callable debt securities held at a discount does not change under the new guidance. This ASU is effective for fiscal and interim periods beginning after December 15, 2018. The Company is currently assessing the amendment and does not anticipate it will have an impact on our Consolidated Financial Statements.

ASU 2018-02, “Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” ASU 2018-02 was issued to address the income tax accounting treatment of the stranded tax effects within accumulated other comprehensive income as a result of tax reform. This issue came about from the enactment of the Tax Cuts and Jobs Act of 2017 on December 22, 2017 that changed the Company’s statutory income tax rate from 35% to 21%. The ASU changed current accounting whereby an entity may elect to reclassify the stranded tax effect from accumulated other comprehensive income to retained earnings. The ASU is effective for periods beginning after December 15, 2018 although early adoption is permitted. The Company adopted ASU 2018-02 in the first quarter of 2018 and reclassified its stranded tax credit of $206,000 from accumulated other comprehensive income to retained earnings.

3. Investment Securities

Summary information regarding the Company’s investment securities classified as available for sale and held to maturity as of June 30, 2018 and December 31, 2017 is as follows.

(dollars in thousands)		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses								Fair Value
										Less Than 1 Year				Over 1 Year
June 30, 2018
Available for sale:
U.S. agency mortgage-backed		$	85,883			$	483			$	1,122			$	467			$	84,777
Collateralized mortgage obligations			149,983				58				1,706				1,771				146,564
Municipal bonds			22,372				111				42				—				22,441
U.S. government agency			10,500				33				56				—				10,477
Total available for sale		$	268,738			$	685			$	2,926			$	2,238			$	264,259
Held to maturity:
Municipal bonds		$	12,869			$	30			$	18			$	31			$	12,850
Total held to maturity		$	12,869			$	30			$	18			$	31			$	12,850

7

(dollars in thousands)		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses								Fair Value
										Less Than 1 Year				Over 1 Year
December 31, 2017
Available for sale:
U.S. agency mortgage-backed		$	84,639			$	619			$	270			$	298			$	84,690
Collateralized mortgage obligations			115,435				46				671				1,075				113,735
Municipal bonds			25,362				177				17				1				25,521
U.S. government agency			11,026				42				21				—				11,047
Total available for sale		$	236,462			$	884			$	979			$	1,374			$	234,993
Held to maturity:
Municipal bonds		$	13,034			$	54			$	18			$	15			$	13,055
Total held to maturity		$	13,034			$	54			$	18			$	15			$	13,055

The estimated fair value and amortized cost by contractual maturity of the Company’s investment securities as of June 30, 2018 are shown in the following tables. Securities are classified according to their contractual maturities without consideration of principal amortization, potential prepayments or call options. The expected maturity of a security may differ from its contractual maturity because of prepayments or the exercise of call options. Accordingly, actual maturities may differ from contractual maturities.

(dollars in thousands)		One Year or Less				After One Year through Five Years				After Five Years through Ten Years				After Ten Years				Total
Fair Value
Securities available for sale:
U.S. agency mortgage-backed		$	1,749			$	11,805			$	40,672			$	30,551			$	84,777
Collateralized mortgage obligations			—				5,806				15,863				124,895				146,564
Municipal bonds			3,609				9,021				6,968				2,843				22,441
U.S. government agency			1,002				3,962				4,051				1,462				10,477
Total securities available for sale		$	6,360			$	30,594			$	67,554			$	159,751			$	264,259
Securities held to maturity:
Municipal bonds		$	—			$	6,568			$	5,222			$	1,060			$	12,850
Total securities held to maturity		$	—			$	6,568			$	5,222			$	1,060			$	12,850

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(dollars in thousands)		One Year or Less				After One Year through Five Years				After Five Years through Ten Years				After Ten Years				Total
Amortized Cost
Securities available for sale:
U.S. agency mortgage-backed		$	1,749			$	12,117			$	41,564			$	30,453			$	85,883
Collateralized mortgage obligations			—				5,848				16,208				127,927				149,983
Municipal bonds			3,593				8,981				6,942				2,856				22,372
U.S. government agency			999				3,998				4,022				1,481				10,500
Total securities available for sale		$	6,341			$	30,944			$	68,736			$	162,717			$	268,738
Securities held to maturity:
Municipal bonds		$	—			$	6,550			$	5,253			$	1,066			$	12,869
Total securities held to maturity		$	—			$	6,550			$	5,253			$	1,066			$	12,869

Management evaluates securities for other-than-temporary impairment at least quarterly, and more frequently when economic and market conditions warrant such evaluations. Consideration is given to (1) the extent and length of time the fair value has been below cost; (2) the reasons for the decline in value; and (3) the Company’s intent to sell a security or whether it is more likely than not the Company will be required to sell the security before the recovery of its amortized cost, which may extend to maturity.

The Company performs a process to identify securities that could potentially have a credit impairment that is other-than-temporary. This process involves evaluating each security for impairment by monitoring credit performance, collateral type, collateral geography, bond credit support, loan-to-value ratios, credit scores, loss severity levels, pricing levels, downgrades by rating agencies, cash flow projections and other factors as indicators of potential credit issues. When the Company determines that a security is deemed other-than-temporarily impaired, an impairment loss is recognized.

As of June 30, 2018, 155 of the Company’s investment securities had unrealized losses totaling 2.4% of the individual securities’ amortized cost basis and 1.9% of the Company’s total amortized cost basis of the investment securities portfolio. At such date, 41 of the 155 securities had been in a continuous loss position for over 12 months. The 41 securities had an aggregate amortized cost basis of $58.0 million and an unrealized loss of $2.3 million at June 30, 2018. Management has the intent and ability to hold these securities until maturity, or until anticipated recovery; hence, no declines in these securities were deemed other-than-temporary at June 30, 2018.

As of June 30, 2018 and December 31, 2017, the Company had $157,479,000 and $121,984,000, respectively, of securities pledged to secure public deposits.

4. Earnings Per Share

Earnings per common share were computed based on the following:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
(in thousands, except per share data)		2018				2017				2018				2017
Numerator:
Net income available to common shareholders		$	7,776			$	4,486			$	15,239			$	9,491
Denominator:
Weighted average common shares outstanding			9,048				6,972				9,030				6,954
Effect of dilutive securities:
Restricted stock			20				3				22				3
Stock options			231				259				232				264
Weighted average common shares outstanding – assuming dilution			9,299				7,234				9,284				7,221
Basic earnings per common share		$	0.86			$	0.64			$	1.69			$	1.36
Diluted earnings per common share		$	0.84			$	0.62			$	1.64			$	1.31

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Options on 19,172 and 62,196 shares of common stock were not included in the computation of diluted earnings per share for the three months ended June 30, 2018 and June 30, 2017, respectively, because the effect of these shares was anti-dilutive. Options on 9,808 and 52,761 shares of common stock were not included in the computation of diluted earnings per share for the six months ended June 30, 2018 and June 30, 2017, respectively, because the effect of these shares was anti-dilutive.

5. Credit Quality and Allowance for Loan Losses

The following briefly describes the distinction between originated and Acquired Loans and certain significant accounting policies relevant to each category.

Originated Loans

Loans originated for investment are reported at the principal balance outstanding net of unearned income. Interest on loans and accretion of unearned income are computed in a manner that approximates a level yield on recorded principal. Interest on loans is recorded as income is earned. The accrual of interest on an originated loan is discontinued when it is probable the borrower will not be able to meet payment obligations as they become due. The Company maintains an allowance for loan losses on originated loans that represents management’s estimate of probable losses incurred in this portfolio category.

Acquired Loans

Loans that were acquired as a result of business combinations are referred to as “Acquired Loans.” Acquired Loans were recorded at estimated fair value at the acquisition date with no carryover of the related allowance for loan losses. The Acquired Loans were segregated between those considered to be performing (“acquired performing”) and those with evidence of credit deterioration (“acquired impaired”), and then further segregated into loan pools designed to facilitate the estimation of expected cash flows. The fair value estimate for each pool of acquired performing and acquired impaired loans was based on the estimate of expected cash flows, both principal and interest, from that pool, discounted at prevailing market interest rates.

The difference between the fair value of an acquired performing loan pool and the contractual amounts due at the acquisition date (the “fair value discount”) is accreted into income over the estimated life of the pool. Management estimates an allowance for loan losses for acquired performing loans using a methodology similar to that used for originated loans. The allowance determined for each loan pool is compared to the remaining fair value discount for that pool. If the allowance amount calculated under the Company’s methodology is greater than the Company’s remaining discount, the additional amount called for is added to the reported allowance through a provision for loan losses. If the allowance amount calculated under the Company’s methodology is less than the Company’s recorded discount, no additional allowance or provision is recognized. Actual losses first reduce any remaining nonaccretable discount for the loan pool. Once the nonaccretable discount is fully depleted, losses are applied against the allowance established for that pool. Acquired performing loans are placed on nonaccrual status and considered and reported as nonperforming or past due using the same criteria applied to the originated portfolio.

The excess of cash flows expected to be collected from an acquired impaired loan pool over the pool’s estimated fair value at acquisition is referred to as the accretable yield and is recognized in interest income using an effective yield method over the remaining life of the pool. Each pool of acquired impaired loans is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows.

Management recasts the estimate of cash flows expected to be collected on each acquired impaired loan pool periodically. If the present value of expected cash flows for a pool is less than its carrying value, an impairment is recognized by an increase in the allowance for loan losses and a charge to the provision for loan losses. If the present value of expected cash flows for a pool is greater than its carrying value, any previously established allowance for loan losses is reversed and any remaining difference increases the accretable yield, which will be taken into interest income over the remaining life of the loan pool. Acquired impaired loans are generally not subject to individual evaluation for impairment and are not reported with impaired loans, even if they would otherwise qualify for such treatment .

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Allowance for Loan Losses

The allowance for loan losses and recorded investment in loans as of the dates indicated are as follows.

		As of June 30, 2018
		Originated Loans
(dollars in thousands)		Collectively Evaluated for Impairment				Individually Evaluated for Impairment				Acquired Loans				Total
Allowance for loan losses:
One- to four-family first mortgage		$	1,763			$	—			$	25			$	1,788
Home equity loans and lines			701				348				71				1,120
Commercial real estate			5,173				—				209				5,382
Construction and land			1,970				—				8				1,978
Multi-family residential			423				—				111				534
Commercial and industrial			2,614				346				575				3,535
Consumer			490				—				146				636
Total allowance for loan losses		$	13,134			$	694			$	1,145			$	14,973

		As of June 30, 2018
		Originated Loans
(dollars in thousands)		Collectively Evaluated for Impairment				Individually Evaluated for Impairment				Acquired Loans (1)				Total
Loans:
One- to four-family first mortgage		$	211,485			$	—			$	246,945			$	458,430
Home equity loans and lines			53,392				896				35,942				90,230
Commercial real estate			387,348				22				217,369				604,739
Construction and land			135,072				—				45,563				180,635
Multi-family residential			33,763				—				14,158				47,921
Commercial and industrial			126,380				946				57,690				185,016
Consumer			38,338				—				20,370				58,708
Total loans		$	985,778			$	1,864			$	638,037			$	1,625,679

		As of December 31, 2017
		Originated Loans
(dollars in thousands)		Collectively Evaluated for Impairment				Individually Evaluated for Impairment				Acquired Loans				Total
Allowance for loan losses:
One- to four-family first mortgage		$	1,574			$	—			$	89			$	1,663
Home equity loans and lines			676				348				78				1,102
Commercial real estate			4,766				—				140				4,906
Construction and land			1,742				—				7				1,749
Multi-family residential			355				—				—				355
Commercial and industrial			2,721				1,625				184				4,530
Consumer			496				—				6				502
Total allowance for loan losses		$	12,330			$	1,973			$	504			$	14,807

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