HBCP 10-Q Quarter ended March 31, 2019

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, 2019

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 (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 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, 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 Act).    YES  ☐    NO  ☒

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

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

At May 3, 2019, the registrant had 9,473,491 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			26
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			37
Item 4.		Controls and Procedures			37
PART II
Item 1.		Legal Proceedings			38
Item 1A.		Risk Factors			38
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			38
Item 3.		Defaults Upon Senior Securities			38
Item 4.		Mine Safety Disclosures			38
Item 5.		Other Information			38
Item 6.		Exhibits			39
SIGNATURES					40

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HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Dollars in thousands, except share data)		(Unaudited) March 31, 2019				(Audited) December 31, 2018
Assets
Cash and cash equivalents		$	103,786			$	59,618
Interest-bearing deposits in banks			694				939
Investment securities available for sale, at fair value			267,310				260,131
Investment securities held to maturity (fair values of $9,128 and $10,841, respectively)			9,110				10,872
Mortgage loans held for sale			1,986				2,086
Loans, net of unearned income			1,648,968				1,649,754
Allowance for loan losses			(16,570	)			(16,348	)
Total loans, net of unearned income and allowance for loan losses			1,632,398				1,633,406
Office properties and equipment, net			47,030				47,124
Cash surrender value of bank-owned life insurance			29,725				29,560
Goodwill and core deposit intangibles			65,645				66,055
Accrued interest receivable and other assets			44,991				43,867
Total Assets		$	2,202,675			$	2,153,658
Liabilities
Deposits:
Noninterest-bearing		$	442,940			$	438,146
Interest-bearing			1,374,608				1,335,071
Total deposits			1,817,548				1,773,217
Other Borrowings			5,539				5,539
Long-term Federal Home Loan Bank advances			57,889				58,698
Accrued interest payable and other liabilities			12,764				12,164
Total Liabilities			1,893,740				1,849,618
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; 9,471,857 and 9,459,050 shares issued and outstanding, respectively			95				95
Additional paid-in capital			169,091				168,243
Unallocated common stock held by:
Employee Stock Ownership Plan (ESOP)			(3,392	)			(3,481	)
Recognition and Retention Plan (RRP)			(51	)			(58	)
Retained earnings			143,998				141,447
Accumulated other comprehensive loss			(806	)			(2,206	)
Total Shareholders’ Equity			308,935				304,040
Total Liabilities and Shareholders’ Equity		$	2,202,675			$	2,153,658

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 March 31,
(Dollars in thousands, except per share data)		2019				2018
Interest Income
Loans, including fees		$	23,198			$	22,804
Investment securities:
Taxable interest			1,653				1,309
Tax-exempt interest			155				186
Other investments and deposits			363				426
Total interest income			25,369				24,725
Interest Expense
Deposits			3,331				1,902
Other borrowings			53				—
Short-term Federal Home Loan Bank advances			—				17
Long-term Federal Home Loan Bank advances			263				301
Total interest expense			3,647				2,220
Net interest income			21,722				22,505
Provision for loan losses			390				964
Net interest income after provision for loan losses			21,332				21,541
Noninterest Income
Service fees and charges			1,467				1,655
Bank card fees			1,061				1,099
Gain on sale of loans, net			155				207
Income from bank-owned life insurance			165				161
(Loss) gain on sale of assets, net			(1	)			145
Other income			318				215
Total noninterest income			3,165				3,482
Noninterest Expense
Compensation and benefits			9,098				8,941
Occupancy			1,606				1,675
Marketing and advertising			271				281
Data processing and communication			1,422				1,679
Professional services			239				286
Forms, printing and supplies			161				357
Franchise and shares tax			399				365
Regulatory fees			307				379
Foreclosed assets, net			241				103
Amortization of acquisition intangible			410				502
Other expenses			1,137				1,022
Total noninterest expense			15,291				15,590
Income before income tax expense			9,206				9,433
Income tax expense			1,316				1,970
Net Income		$	7,890			$	7,463
Earnings per share:
Basic		$	0.86			$	0.83
Diluted		$	0.85			$	0.81
Cash dividends declared per common share		$	0.20			$	0.15

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
(Dollars in thousands)		2019				2018
Net Income		$	7,890			$	7,463
Other Comprehensive Income (Loss)
Unrealized gains (losses) on investment securities			1,772				(1,997	)
Tax effect			(372	)			420
Other comprehensive income (loss) , net of taxes			1,400				(1,577	)
Comprehensive Income		$	9,290			$	5,886

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

3

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

(Dollars in thousands, except share and per share data)		Common Stock				Additional Paid-in Capital				Unallocated Common Stock Held by ESOP				Unallocated Common Stock Held by RRP				Retained Earnings				Accumulated Other Comprehensive Income (Loss)				Total
Balance, December 31, 2017		$	94			$	165,341			$	(3,838	)		$	(84	)		$	117,313			$	(955	)		$	277,871
Net income																			7,463								7,463
Other comprehensive loss																							(1,577	)			(1,577	)
Reclassification of stranded tax effects in accumulated other comprehensive income (1)																			206				(206	)			—
Purchase of Company’s common stock at cost, 41 shares			—				—												(2	)							(2	)
Cash dividends declared, $0.15 per share			—																(1,409	)							(1,409	)
Common stock issued under incentive plans, net of shares surrendered in payment, including tax benefit 714 shares			—				18																				18
Exercise of stock options			—				153																				153
RRP shares released for allocation							(3	)							4												1
ESOP shares released for allocation							344				89																433
Share-based compensation cost							138																				138
Balance, March 31, 2018		$	94			$	165,991			$	(3,749	)		$	(80	)		$	123,571			$	(2,738	)		$	283,089
Balance, December 31, 2018		$	95			$	168,243			$	(3,481	)		$	(58	)		$	141,447			$	(2,206	)		$	304,040
Net income																			7,890								7,890
Other comprehensive income																							1,400				1,400
Purchase of Company’s common stock at cost, 134,005 shares			(1	)			(1,339	)											(3,445	)							(4,785	)
Cash dividends declared, $0.20 per share																			(1,894	)							(1,894	)
Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 1,440 shares			—				35																				35
Exercise of stock options			1				1,676																				1,677
RRP shares released for allocation							(7	)							7												—
ESOP shares released for allocation							297				89																386
Share-based compensation cost							186																				186
Balance, March 31, 2019		$	95			$	169,091			$	(3,392	)		$	(51	)		$	143,998			$	(806	)		$	308,935

(1)	ASU No. 2018-02 - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.

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 Three Months Ended
		March 31,
(Dollars in thousands)		2019				2018
Cash flows from operating activities:
Net income		$	7,890			$	7,463
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses			390				964
Depreciation			678				576
Amortization and accretion of purchase accounting valuations and intangibles			1,659				1,970
Net amortization of mortgage servicing asset			28				38
Federal Home Loan Bank stock dividends			(39	)			(26	)
Net amortization of discount on investments			446				476
Gain on loans sold, net			(155	)			(207	)
Proceeds, including principal payments, from mortgage loans held for sale			18,081				29,783
Originations of mortgage loans held for sale			(17,825	)			(25,013	)
Non-cash compensation			572				571
Deferred income tax expense			186				150
(Increase) decrease in accrued interest receivable and other assets			(882	)			1,733
Increase in cash surrender value of bank-owned life insurance			(165	)			(161	)
Decrease in accrued interest payable and other liabilities			600				1,454
Net cash provided by operating activities			11,464				19,771
Cash flows from investing activities:
Purchases of securities available for sale			(21,035	)			(42,046	)
Proceeds from maturities, prepayments and calls on securities available for sale			15,244				11,480
Proceeds from maturities, prepayments and calls on securities held to maturity			1,700				—
(Increase) decrease in loans, net			(1,560	)			13,568
Reimbursement from FDIC for covered assets			142				—
Decrease in interest-bearing deposits in banks			245				—
Proceeds from sale of repossessed assets			31				215
Purchases of office properties and equipment			(584	)			(790	)
Proceeds from sale of office properties and equipment			—				769
Net cash used in investing activities			(5,817	)			(16,804	)
Cash flows from financing activities:
Increase (decrease) in deposits, net			44,316				(27,039	)
Borrowings on Federal Home Loan Bank advances			4,010				—
Repayments of Federal Home Loan Bank advances			(4,838	)			(964	)
Proceeds from exercise of stock options			1,677				153
Issuance of stock under incentive plans			35				18
Dividends paid to shareholders			(1,894	)			(1,409	)
Purchase of Company’s common stock			(4,785	)			(2	)
Net cash provided by (used in) financing activities			38,521				(29,243	)
Net change in cash and cash equivalents			44,168				(26,276	)
Cash and cash equivalents at beginning of year			59,618				150,418
Cash and cash equivalents at end of year		$	103,786			$	124,142

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. Certain reclassifications have been made to prior period balances to conform to the current period presentation. The results of operations for the three-month periods ended March 31, 2019 and 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, 2018.

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, 2018.

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

In February 2016, the FASB issued ASU No. 2016-02, “Conforming Amendments Related to Leases”. This ASU amends the codification regarding leases in order to increase transparency and comparability. Under former GAAP, the recognition of lease assets and lease liabilities by lessees was not required if the terms of the lease qualify it as an operating lease. ASU No. 2016-02 requires companies to recognize lease assets and liabilities on the statement of condition and disclose key information about leasing arrangements, for both operating and capital or finance leases. A lessee must 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 implemented an accounting policy election to keep leases with an initial term of 12 months or less off the Company’s consolidated balance sheet. As of March 31, 2019, the Company’s right-of-use assets and liabilities, net of amortization was $2.3 million. The ASU did not have material impact to the consolidated income statement.

In June 2016, the FASB issued ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments”. The standard introduces a new impairment model known as CECL (Current Expected Credit Losses). The ASU requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at an amount net of an allowance for credit losses, which reflect expected losses for the full life of the financial asset. Under current GAAP, credit losses are not recognized until the occurrence of the loss is probable and entities, in general, only consider past events and current conditions when measuring incurred losses. ASU No. 2016-13 will require entities to recognize a current estimate of all expected credit losses, thus eliminating the “probable” recognition threshold. To produce a current estimate of expected credit losses, the standard will require entities to incorporate forecasted information along with relevant information about past events, including historical experience, and current conditions that affect the collectability of the reported amount of financial assets. The ASU also amends the accounting model for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination. The initial estimate of expected credit losses for the related purchased financial asset will be recognized

6

through the allowance for credit losses with an offset to the cost basis of the purchased asset. Off-balance-sheet arrangements such as commitments to extend credit, guarantees and standby letters of credit that are not unconditionally cancellable are also within the scope of this amendment. In addition, ASU 2016-13 will require expected credit related losses for debt securities to be recorded through an allowance for credit losses, while non-credit related losses will continue to be recognized through OCI. 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 in the process of implementing a new software application 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. Currently, the Company expects the adoption of the ASU to increase the allowance for loan losses and the provision for loan losses. The extent of the impact upon adoption is not known and 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 does not anticipate it will have a material impact on our Consolidated Financial Statements.

In April 2017, FASB issued ASU No. 2017-08, “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 adoption of the ASU did not have an impact on our Consolidated Financial Statements.

In July 2018, the FASB issued ASU No. 2018-11, “Leases – Targeted Improvements” to provide alternative transition methods to reduce the costs and complexities of implementing the new leases standard, ASU No. 2016-02. The amendments in the update allow entities to recognize a cumulative-effect adjustment in the opening balance of retained earnings in the period of adoption of ASU No. 2016-02, which eliminates the need to re-state amounts presented for prior-periods. In addition, under certain conditions, lessors are allowed to account for lease and non-lease components as a single component. The amendments have the same effective date as ASU No. 2016-02 (periods beginning after December 15, 2018). The Company adopted the standard upon adoption of ASU No. 2016-02. ASU No. 2018-11 did not have an impact on our Consolidated Financial Statements.

In August 2018, the FASB issued ASU No. 2018-13, “Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” The ASU removes, modifies and adds certain disclosure requirements for fair value measurements. For example, public entities will no longer be required to disclose the valuation processes for Level 3 fair value measurements, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU No. 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019. In addition, entities may early adopt the modified or eliminated disclosure requirements and delay adoption of the additional disclosure requirements until their effective date. The Company does not believe ASU No. 2018-13 will have a material impact on our Consolidated Financial Statements, as the update only revises disclosure requirements.

7

3. Investment Securities

Summary information regarding the Company’s investment securities classified as available for sale and held to maturity as of March 31, 2019 and December 31, 2018 is as follows.

(dollars in thousands)		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses								Fair Value
March 31, 2019										Less Than 1 Year				Over 1 Year
Available for sale:
U.S. agency mortgage-backed		$	86,092			$	636			$	22			$	493			$	86,213
Collateralized mortgage obligations			156,605				350				120				1,475				155,360
Municipal bonds			16,622				109				—				2				16,729
U.S. government agency			9,011				25				—				28				9,008
Total available for sale		$	268,330			$	1,120			$	142			$	1,998			$	267,310
Held to maturity:
Municipal bonds		$	9,110			$	32			$	—			$	14			$	9,128
Total held to maturity		$	9,110			$	32			$	—			$	14			$	9,128
(dollars in thousands)		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses								Fair Value
December 31, 2018										Less Than 1 Year				Over 1 Year
Available for sale:
U.S. agency mortgage-backed		$	86,487			$	485			$	171			$	892			$	85,909
Collateralized mortgage obligations			145,814				129				161				2,191				143,591
Municipal bonds			21,453				52				16				12				21,477
U.S. government agency			9,169				29				19				25				9,154
Total available for sale		$	262,923			$	695			$	367			$	3,120			$	260,131
Held to maturity:
Municipal bonds		$	10,872			$	11			$	5			$	37			$	10,841
Total held to maturity		$	10,872			$	11			$	5			$	37			$	10,841

The estimated fair value and amortized cost by contractual maturity of the Company’s investment securities as of March 31, 2019 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		$	1,694			$	16,238			$	34,889			$	33,392			$	86,213
Collateralized mortgage obligations			—				5,035				26,444				123,881				155,360
Municipal bonds			2,069				7,877				5,393				1,390				16,729
U.S. government agency			3,988				—				3,685				1,335				9,008
Total securities available for sale		$	7,751			$	29,150			$	70,411			$	159,998			$	267,310
Securities held to maturity:
Municipal bonds		$	—			$	4,216			$	3,875			$	1,037			$	9,128
Total securities held to maturity		$	—			$	4,216			$	3,875			$	1,037			$	9,128

8

(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		$	1,697			$	16,358			$	35,011			$	33,026			$	86,092
Collateralized mortgage obligations			—				5,037				26,612				124,956				156,605
Municipal bonds			2,064				7,839				5,354				1,365				16,622
U.S. government agency			3,999				—				3,659				1,353				9,011
Total securities available for sale		$	7,760			$	29,234			$	70,636			$	160,700			$	268,330
Securities held to maturity:
Municipal bonds		$	—			$	4,204			$	3,867			$	1,039			$	9,110
Total securities held to maturity		$	—			$	4,204			$	3,867			$	1,039			$	9,110

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 March 31, 2019, 123 of the Company’s investment securities had unrealized losses totaling 1.4% of the individual securities’ amortized cost basis and 0.8% of the Company’s total amortized cost basis of the investment securities portfolio. At such date, 108 of the 123 securities had been in a continuous loss position for over 12 months. The 108 securities had an aggregate amortized cost basis of $134,829,000 and an unrealized loss of $2,012,000 at March 31, 2019. 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 March 31, 2019.

As of March 31, 2019 and December 31, 2018, the Company had $185,903,000 and $157,198,000, respectively, of securities pledged to secure public deposits.

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4. Earnings Per Share

Earnings per common share were computed based on the following:

		Three Months Ended
		March 31,
(in thousands, except per share data)		2019				2018
Numerator:
Net income available to common shareholders		$	7,890			$	7,463
Denominator:
Weighted average common shares outstanding			9,130				9,012
Effect of dilutive securities:
Restricted stock			16				23
Stock options			108				234
Weighted average common shares outstanding – assuming dilution			9,254				9,269
Basic earnings per common share		$	0.86			$	0.83
Diluted earnings per common share		$	0.85			$	0.81

Options on 75,135 and 444 shares of common stock were not included in the computation of diluted earnings per share for the three months ended March 31, 2019 and 2018, 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

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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 .

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

(dollars in thousands)		March 31, 2019				December 31, 2018
Real estate loans:
One- to four-family first mortgage		$	441,921			$	450,363
Home equity loans and lines			80,598				83,976
Commercial real estate			661,446				640,575
Construction and land			193,541				193,597
Multi-family residential			46,055				54,455
Total real estate loans			1,423,561				1,422,966
Other loans:
Commercial and industrial			174,405				172,934
Consumer			51,002				53,854
Total other loans			225,407				226,788
Total loans		$	1,648,968			$	1,649,754

The net discount on the Company’s loans was $16,663,000 and $18,811,000 at March 31, 2019 and December 31, 2018, respectively, of which $7,148,000 and $7,865,000 for the same time periods, respectively, was related to impaired loans. In addition, loan balances as of March 31, 2019 and December 31, 2018 are reported net of unearned income of $2,599,000 and $2,716,000, respectively.

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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 March 31, 2019
		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		$	1,933			$	—			$	449			$	2,382
Home equity loans and lines			660				348				53				1,061
Commercial real estate			5,391				361				659				6,411
Construction and land			2,299				—				5				2,304
Multi-family residential			471				—				—				471
Commercial and industrial			2,605				301				298				3,204
Consumer			460				—				277				737
Total allowance for loan losses		$	13,819			$	1,010			$	1,741			$	16,570
		As of March 31, 2019
		Originated Loans
(dollars in thousands)		Collectively Evaluated for Impairment				Individually Evaluated for Impairment				Acquired Loans (1)				Total
Loans:
One- to four-family first mortgage		$	229,759			$	—			$	212,162			$	441,921
Home equity loans and lines			52,417				843				27,338				80,598
Commercial real estate			445,494				6,856				209,096				661,446
Construction and land			163,328				—				30,213				193,541
Multi-family residential			34,974				—				11,081				46,055
Commercial and industrial			136,341				1,912				36,152				174,405
Consumer			36,731				—				14,271				51,002
Total loans		$	1,099,044			$	9,611			$	540,313			$	1,648,968
		As of December 31, 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		$	1,937			$	—			$	199			$	2,136
Home equity loans and lines			682				349				48				1,079
Commercial real estate			5,272				484				369				6,125
Construction and land			2,280				—				5				2,285
Multi-family residential			522				—				28				550
Commercial and industrial			2,541				321				366				3,228
Consumer			472				—				473				945
Total allowance for loan losses		$	13,706			$	1,154			$	1,488			$	16,348

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		As of December 31, 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		$	227,602			$	—			$	222,761			$	450,363
Home equity loans and lines			53,049				866				30,061				83,976
Commercial real estate			432,217				7,059				201,299				640,575
Construction and land			161,232				—				32,365				193,597
Multi-family residential			42,222				—				12,233				54,455
Commercial and industrial			131,250				1,952				39,732				172,934
Consumer			37,711				—				16,143				53,854
Total loans		$	1,085,283			$	9,877			$	554,594			$	1,649,754

(1)	$9.4 million and $10.0 million in Acquired Loans were deemed to be acquired impaired loans and were accounted for under ASC 310-30 at March 31, 2019 and December 31, 2018, respectively.

A summary of activity in the allowance for loan losses for the three months ended March 31, 2019 and March 31, 2018 follows.

		For the Three Months Ended March 31, 2019
(dollars in thousands)		Beginning Balance				Charge-offs				Recoveries				Provision				Ending Balance
Originated loans:
Allowance for loan losses:
One- to four-family first mortgage		$	1,937			$	—			$	—			$	(4	)		$	1,933
Home equity loans and lines			1,031				—				2				(25	)			1,008
Commercial real estate			5,756				(128	)			—				124				5,752
Construction and land			2,280				—				—				19				2,299
Multi-family residential			522				—				—				(51	)			471
Commercial and industrial			2,862				(32	)			3				73				2,906
Consumer			472				(20	)			7				1				460
Total allowance for loan losses		$	14,860			$	(180	)			12			$	137			$	14,829
Acquired loans:
Allowance for loan losses:
One- to four-family first mortgage		$	199			$	—			$	—			$	250			$	449
Home equity loans and lines			48				—				—				5				53
Commercial real estate			369				—				—				290				659
Construction and land			5				—				—				—				5
Multi-family residential			28				—				—				(28	)			—
Commercial and industrial			366				—				—				(68	)			298
Consumer			473				—				—				(196	)			277
Total allowance for loan losses		$	1,488			$	—			$	—			$	253			$	1,741
Total loans:
Allowance for loan losses:
One- to four-family first mortgage		$	2,136			$	—			$	—			$	246			$	2,382
Home equity loans and lines			1,079				—				2				(20	)			1,061
Commercial real estate			6,125				(128	)			—				414				6,411
Construction and land			2,285				—				—				19				2,304
Multi-family residential			550				—				—				(79	)			471
Commercial and industrial			3,228				(32	)			3				5				3,204
Consumer			945				(20	)			7				(195	)			737
Total allowance for loan losses		$	16,348			$	(180	)			12			$	390			$	16,570

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