HOME BANCORP, INC. - FORM 10-K

HOME BANCORP, INC. - FORM 10-K - March 14, 2017

Attached files

Attached files

HOME BANCORP, INC. Reports

file	filename
EX-32 - EX-32 - HOME BANCORP, INC.	d293179dex32.htm
EX-31.2 - EX-31.2 - HOME BANCORP, INC.	d293179dex312.htm
EX-31.1 - EX-31.1 - HOME BANCORP, INC.	d293179dex311.htm
EX-23.1 - EX-23.1 - HOME BANCORP, INC.	d293179dex231.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended: December 31, 2016

☐	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)
		(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

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


Title of each class		Name of each exchange on which registered
Common Stock, $0.01 par value per share		The Nasdaq Stock Market, LLC

Securities registered pursuant to Section 12(g) of the Act: none

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ NO ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ☐ NO ☒

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 Date 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

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

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

The aggregate market value of the 5,758,274 shares of the Registrant’s common stock held by non-affiliates, based upon the closing price of $27.47 for the common stock on June 30, 2016, as reported by the Nasdaq Stock Market, was approximately $158.2 million. Shares of common stock held by the registrant’s executive officers, directors and certain benefit plans have been excluded since such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

Number of shares of common stock outstanding as of March 6, 2017: 7,365,036

DOCUMENTS INCORPORATED BY REFERENCE

Set forth below are the documents incorporated by reference and the part of the Form 10-K into which the document is incorporated:

Portions of the definitive Proxy Statement for the 2017 Annual Meeting of Shareholders are incorporated by reference into Part III, Items 10-14 of this Form 10-K.

HOME BANCORP, INC.

2016 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS


		Page

PART I

Item 1.	Business		1

Item 1A.	Risk Factors		9

Item 1B.	Unresolved Staff Comments		13

Item 2.	Properties		13

Item 3.	Legal Proceedings		13

Item 4.	Mine Safety Disclosures		14

PART II

Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		14

Item 6.	Selected Financial Data		16

Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		19

Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		38

Item 8.	Financial Statements and Supplementary Data		39

Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		87

Item 9A.	Controls and Procedures		88

Item 9B.	Other Information		88

PART III

Item 10.	Directors, Executive Officers and Corporate Governance		88

Item 11.	Executive Compensation		89

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		89

Item 13.	Certain Relationships and Related Transactions, and Director Independence		89

Item 14.	Principal Accounting Fees and Services		89
PART IV

Item 15.	Exhibits and Financial Statement Schedules		90

SIGNATURES			92

Forward-Looking Statements

This Annual Report on Form 10-K contains certain forward looking statements (as defined in the Securities Exchange Act of 1934 and the regulations hereunder). Forward looking statements are not historical facts but instead represent only the beliefs, expectations or opinions of Home Bancorp, Inc. and its management regarding future events, many of which, by their nature, are inherently uncertain. Forward looking statements may be identified by the use of such words as: “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate”, or words of similar meaning or future or conditional terms such as “will”, “would”, “should”, “could”, “may”, “likely”, “probably”, or “possibly.” Forward looking statements include, but are not limited to, financial projections and estimates and their underlying assumptions; statements regarding plans, objectives and expectations with respect to future operations, products and services; and statements regarding future performance. Such statements are subject to certain risks, uncertainties and assumptions, many of which are difficult to predict and generally are beyond the control of Home Bancorp, Inc. and its management, that could cause actual results to differ materially from those expressed in, or implied or projected by, forward looking statements. The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward looking statements: (1) economic and competitive conditions which could affect the volume of loan originations, deposit flows or real estate values; (2) the levels of noninterest income and expense and the amount of loan losses; (3) competitive pressure among depository institutions increasing significantly; (4) the low interest rate environment causing reduced interest margins; (5) general economic conditions, either nationally or in the markets in which Home Bancorp, Inc. is or will be doing business, being less favorable than expected; (6) political and social unrest, including acts of war or terrorism; (7) we may not fully realize all the benefits we anticipated in connection with our acquisitions of other institutions or our assumptions made in connection therewith may prove to be inaccurate; or (8) legislation or changes in regulatory requirements adversely affecting the business of Home Bancorp, Inc. Home Bancorp, Inc. 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.

As used in this report, unless the context otherwise requires, the terms “we,” “our,” “us,” or the “Company” refer to Home Bancorp, Inc., a Louisiana corporation, and the term “Bank” refers to Home Bank, National Association, a national bank and wholly owned subsidiary of the Company (for periods prior to March 2, 2015, the term “Bank” refers to the predecessor federal savings bank, Home Bank). In addition, unless the context otherwise requires, references to the operations of the Company include the operations of the Bank.

PART I

Item 1.

Business.

General. Home Bancorp, Inc. (the “Company”) is a Louisiana corporation and the holding company for Home Bank, N.A. (the “Bank”). The Bank, which is headquartered in Lafayette, Louisiana, and is a wholly-owned subsidiary of the Company, currently conducts business through 29 banking offices in the Greater Lafayette, Baton Rouge, Greater New Orleans and Northshore (of Lake Pontchartrain) regions of south Louisiana and the Natchez and Vicksburg regions of west Mississippi.

As of March 2, 2015, the Bank converted from a federal savings bank to a national bank with the title “Home Bank, National Association.” As a result of the Bank’s conversion to a national bank, the Company is now subject to regulation as a bank holding company by the Board of Governors of the Federal Reserve System (the “FRB” or the “Federal Reserve”). Prior to the Bank’s charter conversion, the Company was regulated by the FRB as a savings and loan holding company.

The Bank is primarily engaged in attracting deposits from the general public and using those funds to invest in loans and securities. Our principal sources of funds are customer deposits, repayments of loans, repayments of investments and funds borrowed from outside sources such as the Federal Home Loan Bank (“FHLB”) of Dallas. These funds are primarily used for the origination of loans, including one-to four-family first mortgage loans, home equity loans and lines, commercial real estate loans, construction and land loans, multi-family residential loans, commercial and industrial loans and consumer loans. The Bank derives its income principally from interest earned on loans and investment securities and, to a lesser extent, from fees received in connection with the origination of loans, service charges on deposit accounts and for other services. The Bank’s primary expenses are general operating expenses, the most significant of which is compensation and benefits.

Although we continue to be an active originator of residential home mortgage loans in our market areas, over the course of the last decade plus, we have shifted our emphasis in the loan products we offer and increased our efforts to originate commercial real estate loans and commercial and industrial loans. Commercial real estate loans and commercial and industrial loans are deemed attractive due to their generally higher yields and shorter anticipated lives compared to single-family residential mortgage loans. In addition, the Bank views commercial real estate and commercial and industrial loans as attractive lending products because the Bank’s commercial borrowers typically maintain deposit accounts at the Bank, increasing the Bank’s core deposits.

The Company’s headquarters office is located at 503 Kaliste Saloom Road, Lafayette, Louisiana, and our telephone number is (337) 237-1960. We maintain a website at www.home24bank.com, and we provide our customers with online banking services. Information on our website should not be considered a part of this Annual Report on Form 10-K.

Market Area and Competition

The Bank has four primary market areas across south Louisiana: Greater Lafayette, Baton Rouge, Greater New Orleans and the Northshore (of Lake Pontchartrain) and two primary market areas in west Mississippi: Natchez and Vicksburg. Since completing its initial public offering of stock in October 2008, the Company has been an acquirer of other financial institutions. In 2010, the Company expanded into the Northshore (of Lake Pontchartrain) through a Federal Deposit Insurance Corporation (“FDIC”) assisted transaction of certain assets and liabilities of the former Statewide Bank (“Statewide”). The Bank currently operates six banking offices in the Northshore region. In 2011, the Company expanded into the Greater New Orleans area through its acquisition of GS Financial Corporation (“GSFC”) and its subsidiary, Guaranty Savings Bank (“Guaranty”). In September 2015, the Company increased its presence in Greater New Orleans through the acquisition of Louisiana Bancorp, Inc. (“LABC”) and its subsidiary, Bank of New Orleans. The Bank currently operates six banking offices in the Greater New Orleans area. In February 2014, the Company expanded into Natchez and Vicksburg, Mississippi through its acquisition of Britton & Koontz Capital Corporation (“Britton & Koontz”) and its subsidiary, Britton & Koontz Bank, N.A. (“Britton & Koontz Bank”). The Bank currently operates three banking offices in Natchez and two banking offices in Vicksburg. The Bank currently operates three banking offices in Baton Rouge. For additional information on our acquisition activity, see Part II, Item 7 in this Annual Report on Form 10-K, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Acquisition Activity.”

We face significant competition in originating loans and attracting deposits. This competition stems primarily from other banks, credit unions and mortgage-banking companies. Many of the financial service providers operating in our market areas are significantly larger and have greater financial resources than us. We face additional competition for deposits from short-term money market funds and other corporate and government securities funds, mutual funds and from other non-depository financial institutions such as brokerage firms and insurance companies.

Supervision and Regulation

Set forth below is a brief description of certain laws relating to the regulation of Home Bancorp, Inc. and Home Bank. This description does not purport to be complete and is qualified in its entirety by reference to applicable laws and regulations.

General. Home Bank, N.A. is subject to federal regulation and oversight by the Office of the Comptroller of the Currency (“OCC”). The Bank is also subject to regulation and examination by the FDIC, which insures the deposits of the Bank to the maximum extent permitted by law, and requirements established by the Federal Reserve.

Federal law provides the federal banking regulators with substantial enforcement powers. The OCC’s enforcement authority includes, among other things, the ability to assess civil money penalties, to issue cease and desist or removal orders and to initiate injunctive actions. In general, these enforcement actions may be initiated

for violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with the OCC. The FRB has comparable enforcement authority over the Company. In addition, the FDIC, as the insurer of the Bank’s deposits, can initiate enforcement proceedings, remove Bank officials and suspend or terminate deposit insurance. Any change in such regulations could have a material adverse impact on the Company and the Bank.

2010 Regulatory Reform

On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). This act imposes additional restrictions and an expanded framework of regulatory oversight for financial institutions, including depository institutions. Many of the regulations implementing these changes have not been promulgated, so we cannot determine the full impact on our business and operations at this time.

The following aspects of the Dodd-Frank Act are related to the operations of the Bank:

•

A new independent Consumer Financial Protection Bureau (“CFPB”) was established within the FRB, empowered to exercise broad regulatory, supervisory and enforcement authority with respect to both new and existing consumer financial protection laws. However, smaller financial institutions, like the Bank, continue to be subject to the supervision and enforcement of their primary federal banking regulator with respect to federal consumer financial protection laws.

•

Tier 1 capital treatment for “hybrid” capital items like trust preferred securities was eliminated subject to various grandfathering and transition rules.

•

The prohibition on payment of interest on demand deposits was repealed.

•

Deposit insurance was permanently increased to $250,000.

•

The deposit insurance assessment base calculation now equals the depository institution’s total assets minus the sum of its average tangible equity during the assessment period.

•

The minimum reserve ratio of the Deposit Insurance Fund increased to 1.35% of estimated annual insured deposits or assessment base; however, the FDIC is directed to “offset the effect” of the increased reserve ratio for insured depository institutions with total consolidated assets of less than $10 billion.

The following aspects of the Dodd-Frank Act are related to the operations of the Company:

•

The Federal Deposit Insurance Act was amended to direct federal regulators to require depository institution holding companies to serve as a source of strength for their depository institution subsidiaries.

•

Public companies are now required to provide their shareholders with a non-binding vote: (i) at least once every three years on the compensation paid to executive officers, and (ii) at least once every six years on whether they should have a “say on pay” vote every one, two or three years.

•

A separate, non-binding shareholder vote is now required regarding golden parachutes for named executive officers when a shareholder vote takes place on mergers, acquisitions, dispositions or other transactions that would trigger the parachute payments.

•

Securities exchanges are required to prohibit brokers from using their own discretion to vote shares not beneficially owned by them for certain “significant” matters, which include votes on the election of directors, executive compensation matters, and any other matter determined to be significant.

•

Stock exchanges, which include the Nasdaq, are prohibited from listing the securities of any issuer that does not have a policy providing for (i) disclosure of its policy on incentive compensation payable on the basis of financial information reportable under the securities laws, and (ii) the recovery from current or former executive officers, following an accounting restatement triggered by material noncompliance with securities law reporting requirements, of any incentive compensation paid erroneously during the three-year period preceding the date on which the restatement was required that exceeds the amount that would have been paid on the basis of the restated financial information.

•

Disclosure in annual proxy materials is required concerning the relationship between the executive compensation paid and the financial performance of the issuer.

•

Item 402 of Regulation S-K will be amended to require companies to disclose the ratio of the Chief Executive Officer’s annual total compensation to the median annual total compensation of all other employees (although this regulation is being reconsidered by the Securities and Exchange Commission “SEC”).

Volcker Rule Regulations. Regulations have been adopted by the federal banking agencies to implement the provisions of the Dodd Frank Act commonly referred to as the Volcker Rule. The regulations contain prohibitions and restrictions on the ability of financial institution holding companies and their affiliates to engage in proprietary trading and to hold certain interests in, or to have certain relationships with, various types of investment funds, including hedge funds and private equity funds. The regulations were phased in over a period ending on July 21, 2015. The Company’s investment portfolio is in compliance with the various provisions of the Volcker Rule regulations as of December 31, 2016.

Regulation of Home Bancorp, Inc.

The Company was a savings and loan holding company until March 2, 2015, and it is now a bank holding company, subject to regulation, supervision and examination by the Federal Reserve. The Federal Reserve has enforcement authority with respect to the Company similar to that of the OCC over the Bank. Applicable federal law and regulations limit the activities of the Company and require the approval of the Federal Reserve for any acquisition of a subsidiary, including another financial institution or holding company thereof, or a merger or acquisition of the Company. The Company must serve as a source of strength for the Bank, maintaining the ability to provide financial assistance if the Bank suffers financial distress. These and other Federal Reserve policies may restrict the Company’s ability to pay dividends. In addition, dividends from the Company may depend, in part, upon its receipt of dividends from the Bank. If the Company does not have the required capital conservation buffer or otherwise meet its new capital requirements, its ability to pay dividends to its stockholders will be limited.

A bank holding company is required to give the Federal Reserve prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemption during the preceding 12 months, is equal to 10% or more of the company’s consolidated net worth. The Federal Reserve may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe or unsound practice or would violate any law, regulation, Federal Reserve order, or any condition imposed by, or written agreement with the Federal Reserve. This notification requirement does not apply to any company that meets the well-capitalized standard for bank holding companies, is well-managed, and is not subject to any unresolved supervisory issues.

Permissible Activities. The business activities of the Company are generally limited to those activities permissible for bank holding companies under Section 4(c)(8) of the Bank Holding Company Act and certain additional activities authorized by the Federal Reserve regulations. The Bank Holding Company Act generally prohibits a bank holding company from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company which is not a bank or bank holding company. A bank holding company must obtain Federal Reserve Board approval before acquiring directly or indirectly, ownership or control of any voting shares of another bank or bank holding company if, after such acquisition, it would own or control more than 5% of such shares (unless it already owns or controls the majority of such shares).

Capital Requirements. Prior to January 1, 2015, there were no Federal Reserve regulations establishing minimum regulatory capital requirements for savings and loan holding companies. On January 1, 2015, new capital requirements generally applicable to both bank holding companies and savings and loan holding companies became effective. The new regulatory capital requirements applicable to the Company are the same as the new capital requirements for the Bank. For a description of these capital requirements, see “Regulation of Home Bank, N.A. - Recent Regulatory Capital Regulations.”

Federal Securities Laws. We have registered our common stock with the Securities and Exchange Commission (“SEC”) under Section 12(b) of the Securities Exchange Act of 1934. Accordingly, the Company is subject to the proxy and tender offer rules, insider trading reporting requirements and restrictions and certain other requirements under the Securities Exchange Act of 1934.

The Sarbanes-Oxley Act. As a public company, the Company is subject to the Sarbanes-Oxley Act of 2002 which addresses, among other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information. As directed by the Sarbanes-Oxley Act, our principal executive officer and principal financial officer are required to certify that our quarterly and annual reports do not contain any untrue statement of a material fact. The rules adopted by the SEC under the Sarbanes-Oxley Act have several requirements, including having these officers certify that: they are responsible for establishing, maintaining and regularly evaluating the effectiveness of our internal control over financial reporting; they have made certain disclosures to our independent auditors and the Audit Committee of the Board of Directors about our internal control over financial reporting; and they have included information in our quarterly and annual reports about their evaluation and whether there have been changes in our internal control over financial reporting or in other factors that could materially affect internal control over financial reporting.

Regulation of Home Bank, N.A.

General. The Bank is subject to regulation and oversight by the OCC extending to all aspects of its operations. As part of this authority, the Bank is required to file periodic reports with the OCC and is subject to periodic examinations by the OCC and the FDIC. The investment and lending authorities of national banks are prescribed by federal laws and regulations, and such institutions are prohibited from engaging in any activities not permitted by such laws and regulations. Such regulation and supervision is primarily intended for the protection of depositors and the Deposit Insurance Fund.

The OCC’s enforcement authority over national banks includes, among other things, the ability to assess civil money penalties, to issue cease and desist or removal orders and to initiate injunctive actions. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with the OCC.

Insurance of Accounts. The deposits of the Bank are insured to the maximum extent permitted by the Deposit Insurance Fund and are backed by the full faith and credit of the U.S. government. The Dodd-Frank Act permanently increased deposit insurance on most accounts to $250,000. As insurer, the FDIC is authorized to conduct examinations of, and to require reporting by, insured institutions. It also may prohibit any insured institution from engaging in any activity determined by regulation or order to pose a serious threat to the FDIC. The FDIC also has the authority to initiate enforcement actions against insured institutions.

The Dodd Frank Act raises the minimum reserve ratio of the Deposit Insurance Fund from 1.15% to 1.35% and requires the FDIC to offset the effect of this increase on insured institutions with assets of less than $10 billion (small institutions). In March 2016, the FDIC adopted a rule to accomplish this by imposing a surcharge on larger institutions commencing when the reserve ratio reaches 1.15% and ending when it reaches 1.35%. The reserve ratio reached 1.15% effective as of June 30, 2016. The surcharge period began effective July 1, 2016 and is expected to end by December 31, 2018. Small institutions will receive credits for the portion of their regular assessments that contributed to growth in the reserve ratio between 1.15% and 1.35%. The credits will apply to reduce regular assessments by 2.0 basis points for quarters when the reserve ratio is at least 1.38%.

Effective July 1, 2016, the FDIC adopted changes that eliminated its risk-based premium system. Under the new premium system, the FDIC assesses deposit insurance premiums on the assessment base of a depository institution, which is its average total assets reduced by the amount of its average tangible equity. For a small institution (one with assets of less than $10 billion) that has been federally insured for at least five years, effective July 1, 2016, the initial base assessment rate ranges from 3 to 30 basis points, based on the institution’s CAMELS composite and component ratings and certain financial ratios; its leverage ratio; its ratio of net income before taxes to total assets; its ratio of nonperforming loans and leases to gross assets; its ratio of other real estate owned to gross assets; its brokered deposits ratio (excluding reciprocal deposits if the institution is well capitalized and has a CAMELS composite rating of 1 or 2); its one year asset growth ratio (which penalizes growth adjusted for mergers in excess of 10%); and its loan mix index (which penalizes higher risk loans based on historical industry charge off rates). The initial base assessment rate is subject to downward adjustment (not below 1.5%) based on the ratio of unsecured debt the institution has issued to its assessment base, and to upward adjustment (which can cause the rate to exceed 30 basis points) based on its holdings of unsecured debt issued by other insured institutions. Institutions with assets of $10 billion or more are assessed using a scorecard method.

In addition, all institutions with deposits insured by the FDIC are required to pay assessments to fund interest payments on bonds issued by the Financing Corporation, a mixed-ownership government corporation established to recapitalize the predecessor to the Deposit Insurance Fund. The annual assessment rate set for the fourth quarter of 2016 was 0.00156% of insured deposits and is adjusted quarterly. These assessments will continue until the Financing Corporation bonds mature in 2019.

The FDIC may terminate the deposit insurance of any insured depository institution if it determines after a hearing that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, order or any condition imposed by an agreement with the FDIC. It also may suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance, if the institution has no tangible capital. If insurance of accounts is terminated, the accounts at the institution at the time of the termination, less subsequent withdrawals, shall continue to be insured for a period of six months to two years, as determined by the FDIC. Management is aware of no existing circumstances which would result in termination of the Bank’s deposit insurance.

Recent Regulatory Capital Regulations. In July of 2013 the respective U.S. federal banking agencies issued final rules implementing Basel III and the Dodd-Frank Act capital requirements to be fully-phased in on a global basis on January 1, 2019. The new regulations establish a new tangible common equity capital requirement, increase the minimum requirement for the current Tier 1 risk-weighted asset (“RWA”) ratio, phase out certain kinds of intangibles treated as capital and certain types of instruments and change the risk weightings of certain assets used to determine required capital ratios. The new common equity Tier 1 capital component requires capital of the highest quality – predominantly composed of retained earnings and common stock instruments. For community banks, such as Home Bank, a common equity Tier 1 capital ratio of 4.5% became effective on January 1, 2015. The new capital rules also increased the current minimum Tier 1 capital ratio from 4.0% to 6.0% beginning on January 1, 2015. In addition, in order to make capital distributions and pay discretionary bonuses to executive officers without restriction, an institution must also maintain greater than 2.5% in common equity attributable to a capital conservation buffer to be phased in from January 1, 2016 until January 1, 2019. The new rules also increase the risk weights for several categories of assets, including an increase from 100% to 150% for certain acquisition, development and construction loans and more than 90-day past due exposures. The new capital rules maintain the general structure of the prompt corrective action rules (described below), but incorporate the new common equity Tier 1 capital requirement and the increased Tier 1 RWA requirement into the prompt corrective action framework.

Regulatory Capital Requirements. National banks are required to maintain minimum levels of regulatory capital. Current OCC capital standards require these institutions to satisfy a common equity Tier 1 capital requirement, a leverage capital requirement and a risk-based capital requirement. The common equity Tier 1 capital component generally consists of retained earnings and common stock instruments and must equal at least 4.5% of risk-weighted assets. Leverage capital, also known as “core” capital, must equal at least 3.0% of adjusted total assets for the most highly rated national banks. Core capital generally consists of common stockholders’ equity (including retained earnings). An additional cushion of at least 100 basis points is required for all other institutions, which effectively increases their minimum Tier 1 leverage ratio to 4.0% or more. Under the OCC’s regulations, the most highly-rated national banks are those that the OCC determines are strong banking organization and are rated composite 1 under the Uniform Financial Institutions Rating System. Under the risk-based capital requested, “total” capital (a combination of core and “supplementary” capital) must equal at least 8.0% of “risk-weighted” assets. The OCC also is authorized to impose capital requirements in excess of these standards on individual institutions on a case-by-case basis.

In determining compliance with the risk-based capital requirement, a national bank is allowed to include both core capital and supplementary capital in its total capital, provided that the amount of supplementary capital included does not exceed the national bank’s core capital. Supplementary capital generally consists of general allowances for loan losses up to a maximum of 1.25% of risk-weighted assets, together with certain other items. In determining the required amount of risk-based capital, total assets, including certain off-balance sheet items, are multiplied by a risk weight ranging from 0% to 1250% based on the risks inherent in the type of assets. The Bank does not have any assets assigned to a risk category over 400%.

National banks must value securities available for sale at amortized cost for regulatory capital purposes. This means that in computing regulatory capital, national banks should add back any unrealized losses and deduct any unrealized gains, net of income taxes, on debt securities reported as a separate component of capital, as defined by generally accepted accounting principles.

At December 31, 2016, the Bank exceeded all of its regulatory capital requirements, with Tier 1, Tier 1 common equity, Tier 1 common equity (to risk-weighted assets) and total risk-based capital ratios of 9.94%, 12.91%, 12.91% and 13.96%, respectively.

Any national bank that fails any of the capital requirements is subject to possible enforcement action by the OCC or the FDIC. Such action could include a capital directive, a cease and desist order, civil money penalties, the establishment of restrictions on the institution’s operations, termination of federal deposit insurance and the appointment of a conservator or receiver. The OCC’s capital regulations provide that such actions, through enforcement proceedings or otherwise, could require one or more of a variety of corrective actions.

Prompt Corrective Action. The following table shows the amount of capital associated with the different capital categories set forth in the prompt corrective action regulations.


Capital Category	Total Risk-Based Capital	Tier 1 Risk-Based Capital	Tier 1 Common Equity Capital	Tier 1 Leverage Capital
Well capitalized	10% or more	8% or more	6.5% or more	5% or more
Adequately capitalized	8% or more	6% or more	4.5% or more	4% or more
Undercapitalized	Less than 8%	Less than 6%	Less than 4.5%	Less than 4%
Significantly undercapitalized	Less than 6%	Less than 4%	Less than 3%	Less than 3%

In addition, an institution is “critically undercapitalized” if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%. Under specified circumstances, a federal banking agency may reclassify a well-capitalized institution as adequately capitalized and may require an adequately capitalized institution or an undercapitalized institution to comply with supervisory actions as if it were in the next lower category (except that the OCC may not reclassify a significantly undercapitalized institution as critically undercapitalized).

An institution generally must file a written capital restoration plan which meets specified requirements within 45 days of the date that the institution receives notice or is deemed to have notice that it is undercapitalized, significantly undercapitalized or critically undercapitalized. A federal banking agency must provide the institution with written notice of approval or disapproval within 60 days after receiving a capital restoration plan, subject to extensions by the agency. An institution which is required to submit a capital restoration plan must concurrently submit a performance guaranty by each company that controls the institution. In addition, undercapitalized institutions are subject to various regulatory restrictions, and the appropriate federal banking agency also may take any number of discretionary supervisory actions.

As of December 31, 2016, the Bank was deemed a well-capitalized institution for purposes of the above regulations and as such is not subject to the above mentioned restrictions.

Limitations on Dividends. OCC regulations impose various restrictions on the ability of the Bank to pay dividends. The Bank generally may pay dividends during any calendar year in an amount up to 100% of net income for the year-to-date plus retained net income for the two preceding years, so long as it is well-capitalized after the distribution. If the Bank proposes to pay a dividend when it does not meet its capital requirements or that will exceed these limitations, it must obtain the OCC’s prior approval. The OCC may object to a proposed dividend based on safety and soundness concerns. No insured depository institution may pay a dividend if, after paying the dividend, the institution would be undercapitalized. In addition, as noted above, beginning in 2016, if Home Bank does not have the required capital conservation buffer, its ability to pay dividends to the Company will be limited.

Limitations on Transactions with Affiliates. Transactions between a national bank and any affiliate are governed by Sections 23A and 23B of the Federal Reserve Act. An affiliate of a national bank includes any company or entity which controls the national bank or that is controlled by a company that controls the national bank. In a holding company context, the holding company of a national bank (such as the Company) and any companies which are controlled by such holding company are affiliates of the national bank. Generally, Section 23A limits the extent to which the national bank or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10% of such bank’s capital stock and surplus, and contain an aggregate limit on all such transactions with all affiliates to an amount equal to 20% of such capital stock and surplus. Section 23B applies to “covered transactions” as well as certain other transactions and requires that all transactions be on terms substantially the same, or at least as favorable, to the national bank as those provided to a non-affiliate. The term “covered transaction” includes the making of loans to, purchase of assets from and issuance of a guarantee to an affiliate and similar transactions. Section 23B transactions also include the provision of services and the sale of assets by a national bank to an affiliate.

In addition, Sections 22(g) and (h) of the Federal Reserve Act, place restrictions on loans to executive officers, directors and principal shareholders of a national bank and its affiliates. Under Section 22(h), loans to a director, an executive officer and to a greater than 10% shareholder of a national bank, and certain affiliated interests of either, may not exceed, together with all other outstanding loans to such person and affiliated interests, a national bank’s loans to one borrower limit (generally equal to 15% of the bank’s unimpaired capital and surplus). Section 22(h) also requires that loans to directors, executive officers and principal shareholders be made on terms substantially the same as offered in comparable transactions to other persons unless the loans are made pursuant to a benefit or compensation program that (i) is widely available to employees of the bank and (ii) does not give preference to any director, executive officer or principal shareholder, or certain affiliated interests of either, over other employees of the national bank. Section 22(h) also requires prior board approval for certain loans. In addition, the aggregate amount of extensions of credit by a national bank to all insiders cannot exceed the bank’s unimpaired capital and surplus. Furthermore, Section 22(g) places additional restrictions on loans to executive officers. The Bank currently is subject to Sections 22(g) and (h) of the Federal Reserve Act, and as of December 31, 2016 was in compliance with the above restrictions.

Anti-money Laundering. All financial institutions, including national banks, are subject to federal laws that are designed to prevent the use of the U.S. financial system to fund terrorist activities. Financial institutions operating in the United States must develop anti-money laundering compliance programs, due diligence policies and controls to ensure the detection and reporting of money laundering. Such compliance programs are intended to supplement compliance requirements, also applicable to financial institutions, under the Bank Secrecy Act and the Office of Foreign Assets Control Regulations. The Bank has established policies and procedures to ensure compliance with these provisions.

Federal Home Loan Bank System. The Bank is a member of the FHLB of Dallas, which is one of 11 regional FHLBs that administer the home financing credit function of various financial institutions. Each FHLB serves as a reserve or central bank for its members within its assigned region. It is funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB System. It makes loans to members (i.e., advances) in accordance with policies and procedures established by the board of directors of the FHLB. As of December 31, 2016, the Bank had $118.5 million of FHLB advances and $494.9 million available on its line of credit with the FHLB.

As a member, the Bank is required to purchase and maintain stock in the FHLB of Dallas in an amount equal to at least 1.0% of its aggregate unpaid residential mortgage loans or similar obligations at the beginning of each year. As of December 31, 2016, the Bank had $8.3 million in FHLB stock, which was in compliance with this requirement.

The FHLBs are required to provide funds for the resolution of troubled savings institutions and to contribute to affordable housing programs through direct loans or interest subsidies on advances targeted for community investment and low- and moderate-income housing projects. These contributions have adversely affected the level of FHLB dividends paid in the past and could do so in the future. These contributions also could have an adverse effect on the value of FHLB stock in the future.

Federal Reserve System. The FRB requires all depository institutions to maintain reserves against their transaction accounts and non-personal time deposits. The required reserves must be maintained in the form of vault cash or an account at the FRB. As of December 31, 2016, the Bank had met its reserve requirement.

Privacy. Financial institutions are required to disclose their policies for collecting and protecting confidential information. Customers generally may prevent financial institutions from sharing personal financial information with nonaffiliated third parties except for third parties that market the institutions’ own products and services.

Additionally, financial institutions generally may not disclose consumer account numbers to any nonaffiliated third party for use in telemarketing, direct mail marketing or other marketing through electronic mail to consumers. The Bank has established policies and procedures designed to safeguard its customers’ personal financial information and to ensure compliance with applicable privacy laws.

Item 1A.

Risk Factors.

In analyzing whether to make or to continue an investment in our securities, investors should consider, among other factors, the following risk factors.

Risks Related to Our Business

Our business is geographically concentrated in south Louisiana and west Mississippi, which are areas where the oil and gas industry has a significant presence. Low prices in crude oil and gas, among other factors, could cause a downturn in the local economy, which could adversely affect the Company’s financial condition and results of operations.

Most of our loans are to individuals and businesses located in south Louisiana and west Mississippi. The oil and gas industry has a significant presence in the market areas in which we operate. Regional economic conditions affect the demand for our products and services as well as the ability of our customers to repay loans. While crude oil prices rebounded somewhat in 2016, oil prices have declined considerably since mid-2014. Continued fluctuations in crude oil prices could adversely affect our operations and economic conditions in some of our markets during 2017 and future periods, which could adversely affect our future results of operations. Although the Company attempts to mitigate risk by diversifying its borrower base, approximately $34.0 million, or 2.8%, of the Company’s loan portfolio at December 31, 2016 was comprised of loans to borrowers in the oil and gas industry (which is also referred to as the “energy sector”). We had an additional $6.7 million in unfunded loan commitments to companies in the energy sector at such date. At December 31, 2016, $2.3 million of our loans in the energy sector were on nonaccrual status. Approximately $1.1 million, or 9.1%, of our total allowance for loan losses at December 31, 2016 was attributable to energy sector loans. Historically, the oil and gas industry has been an important factor in the local economy in our Lafayette and Natchez markets. If oil prices continue to remain low, it could have an adverse effect on our customers resulting in increased levels of nonperforming loans, provisions for loan losses and expense associated with loan collection efforts.

There are increased risks involved with commercial real estate, including multi-family residential, commercial and industrial and construction and land lending activities.

Our lending activities include loans secured by commercial real estate and commercial and industrial loans. Our multi-family residential, commercial real estate and commercial and industrial loans increased by 135.9%, 69.1% and 93.5%, respectively, from December 31, 2012 through December 31, 2016. Multi-family residential lending, commercial real estate lending and commercial and industrial lending generally are considered to involve a higher degree of risk than single-family residential lending due to a variety of factors. As a result of the larger loan balances typically involved in these loans, an adverse development with respect to one loan or one borrower relationship can expose us to greater risk of loss compared to an adverse development with respect to a one- to four-family residential mortgage loan. As of December 31, 2016, the largest outstanding balances of our multi-family residential loans, commercial real estate loans and commercial and industrial loans were $3.0 million, $11.9 million and $7.4 million, respectively. If a large loan were to become non-performing, as we have

experienced in the past, it can have a significant impact on our results of operations. Because we intend to continue our growth in commercial real estate and commercial and industrial loans, our credit risk exposure may increase and we may need to make additional provisions to our allowance for loan losses, which could adversely affect our future results of operations.

In addition to commercial real estate and commercial and industrial loans, the Bank holds a significant portfolio of construction and land loans. As of December 31, 2016, the Bank’s construction and land loans amounted to $141.2 million, or 11.5% of our loan portfolio. Construction and land loans generally have a higher risk of loss than single-family residential mortgage loans due primarily to the critical nature of the initial estimates of a property’s value upon completion of construction compared to the estimated costs, including interest, of construction as well as other assumptions. If the estimates upon which construction loans are made prove to be inaccurate, we may be confronted with projects that, upon completion, have values which are below the loan amounts. If the Bank is forced to liquidate the collateral associated with such loans at values less than the remaining loan balance, it could have a significant impact on our results of operations.

Our allowance for loan losses may not be adequate to cover probable losses.

We have established an allowance for loan losses based upon various assumptions and judgments about the collectability of our loan portfolio which we believe is adequate to offset probable losses on our existing loans. While we are not aware of any specific factors indicating a deficiency in the amount of our allowance for loan losses, in light of the current economic environment, one of the most pressing issues faced by financial institutions is the adequacy of their allowance for loan losses. Federal bank regulators have routinely scrutinize the level of the allowance for losses maintained by regulated institutions. In the event that we have to increase our allowance for loan losses beyond current levels, it would have an adverse effect on our results in future periods. As of December 31, 2016, our allowance for loan losses amounted to $12.5 million, or 1.02% of total loans. Excluding acquired loans, our allowance for loan losses amounted to 1.38% of total loans as of December 31, 2016.

Our decisions regarding the fair value of assets acquired could be inaccurate, which could materially and adversely affect our business, financial condition, results of operations and future prospects.

Management makes various assumptions and judgments about the collectability of acquired loan portfolios, including the creditworthiness of borrowers and the value of the real estate and other assets serving as collateral for the repayment of secured loans. If our assumptions are incorrect, increased loss reserves may be needed to respond to different economic conditions or adverse developments in the acquired loan portfolio. Any increase in future loan losses would have a negative effect on our operating results.

Other than temporary declines in the value of our investment securities may require us to take additional charges to earnings.

We evaluate our securities portfolio for other-than-temporary impairment (“OTTI”) throughout the year. Each investment with a fair value less than book value is reviewed quarterly. An impairment charge is recorded against individual securities if management’s review concludes that the decline in value is other than temporary. Delinquencies and defaults in the mortgage loans underlying these securities may adversely affect the cash flows received by us and may result in a conclusion in future periods that the securities are other-than-temporarily impaired. Such a conclusion of OTTI would require us to take additional charges to earnings to write down the value of these securities.

Our financial performance and future growth may be negatively affected if we are unable to successfully execute our growth plans, which may include acquisitions.

Over the past several years, we have grown our branch system primarily through acquisitions of other financial institutions. Our ability to successfully acquire other institutions depends on our ability to identify, acquire and integrate such institutions into our franchise. Our experience in mergers and acquisitions consists of an acquisition in 2006 of a building and loan association located in Crowley, Louisiana, an FDIC-assisted acquisition in 2010 of certain assets and liabilities of a bank with branches located in the Northshore (of Lake Pontchartrain) region of Louisiana, an acquisition in 2011 of a savings bank with branches located in the Greater

New Orleans area, an acquisition in February 2014 of a national bank headquartered in Natchez, Mississippi with branches located in Natchez and Vicksburg, Mississippi and Baton Rouge, Louisiana, and an acquisition in 2015 of a savings bank with branches located in the Greater New Orleans area. Our results of operations could be adversely affected if our analysis of past or future acquisitions was not complete and correct or our integration efforts were not successful. Currently, we have no agreements or understandings with anyone regarding a future acquisition.

A natural disaster, especially one affecting our market areas, could adversely affect the Company’s financial condition and results of operations.

Since a considerable portion of our business is conducted in south Louisiana, most of our credit exposure is in that area. Historically, south Louisiana has been vulnerable to natural disasters, including hurricanes, floods and tornadoes. Natural disasters could harm our operations directly through interference with communications, which would prevent us from gathering deposits, originating loans and processing and controlling our flow of business, as well as through the destruction of facilities and our operational, financial and management information systems. A natural disaster or recurring power outages may also impair the value of our loan portfolio, as uninsured or underinsured losses, including losses from business disruption, may reduce our borrowers’ ability to repay their loans. Disasters may also reduce the value of the real estate securing our loans, impairing our ability to recover on defaulted loans through foreclosure and making it more likely that we would suffer losses on defaulted loans. Although we have implemented several back-up systems and protections (and maintain business interruption insurance), these measures may not protect us fully from the effects of a natural disaster. The occurrence of natural disasters in our market areas could have a material adverse effect on our business, prospects, financial condition and results of operations.

Changes in interest rates could have a material adverse effect on our operations.

The operations of financial institutions are dependent to a large extent on net interest income, which 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. Changes in the general level of interest rates can affect our net interest income by affecting the difference between the weighted average yield earned on our interest-earning assets and the weighted average rate paid on our interest-bearing liabilities, or interest rate spread, and the average life of our interest-earning assets and interest-bearing liabilities. If general market rates of interest increase, our interest expense on deposits and borrowings would likely increase which could adversely affect our interest rate spread and net interest income. Changes in interest rates also can affect our ability to originate loans, the value of our interest-earning assets and our ability to realize gains from the sale of such assets, our ability to obtain and retain deposits in competition with other available investment alternatives, and the ability of our borrowers to repay adjustable or variable rate loans. Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions and other factors beyond our control.

We face strong competition which adversely affects our profitability.

We are subject to vigorous competition in all aspects and areas of our business from banks and other financial institutions. We are significantly smaller than the larger depository institutions operating in our market areas. The financial resources of these larger competitors may permit them to pay higher interest rates on their deposits and to be more aggressive in new loan originations. We also compete with non-financial institutions, including retail stores that maintain their own credit programs and governmental agencies that make available low cost or guaranteed loans to certain borrowers. Some of our larger competitors have substantially greater resources, more advanced technological capabilities, lending limits, larger branch systems and a wider array of commercial banking services. Vigorous competition from both bank and non-bank organizations is expected to continue.

We operate in a highly regulated environment, and we may be adversely affected by changes in laws and regulations.

We are subject to extensive regulation, supervision and examination by the FRB, the OCC and the FDIC. Such regulation and supervision governs the activities in which an institution and its holding company may engage and are intended primarily for the protection of the insurance fund and the depositors and borrowers of the Bank rather than for holders of our common stock. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on our operations, the classification of our assets and determination of the level of our allowance for loan losses. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a material impact on our operations.

Historically low interest rates may adversely affect our net interest income and profitability.

During the past several years, it has been the policy of the FRB to maintain interest rates at historically low levels through its targeted federal funds rate and the purchase of mortgage-backed securities. As a result, market rates on the loans we have originated and the yields on securities we have purchased have been at historically lower levels. As a general matter, our interest-bearing liabilities reprice or mature more quickly than our interest-earning assets, which has been a contributing factor to increases in net interest income in the short term. Our ability to further lower our interest expense is limited as these interest rate levels already are at very low levels, while the average yield on our interest-earning assets may continue to decrease. Accordingly, our net interest income (the difference between interest income earned on assets and interest expense paid on liabilities) may decrease, which would have an adverse effect on our profitability.

Our goodwill may be determined to be impaired at a future date depending on the results of periodic impairment tests.

We test goodwill for impairment annually, or more frequently if necessary. According to applicable accounting requirements, acceptable valuation methods include present-value measurements based on multiples of earnings or revenues, or similar performance measures. If the quoted market price of our common stock were to decline significantly, or if it was determined that the carrying amount of our goodwill exceeded its implied fair value, we would be required to write down the amount recorded for goodwill. This, in turn, would result in a charge to earnings and, thus, a reduction in shareholders’ equity. See Notes 2 and 8 to the Consolidated Financial Statements for additional information concerning our goodwill and the required impairment test.

A failure in our operational systems or infrastructure, or those of third parties, could impair our liquidity, disrupt our businesses, result in the unauthorized disclosure of confidential information, damage our reputation and cause financial losses.

Our ability to adequately conduct and grow our business is dependent on our ability to create and maintain an appropriate operational and organizational control infrastructure. Operational risk can arise in numerous ways including employee fraud, customer fraud, and control lapses in bank operations and information technology. Our dependence on our employees and automated systems, including the automated systems used by acquired entities and third parties, to record and process transactions may further increase the risk that technical failures or tampering of those systems will result in losses that are difficult to detect. We are also subject to disruptions of our operating systems arising from events that are wholly or partially beyond our control. Failure to maintain an appropriate operational infrastructure can lead to loss of service to customers, legal actions, and noncompliance with various laws and regulations.

We continuously monitor our operational and technological capabilities and make modifications and improvements when we believe it will be cost effective to do so. In some instances, we may build and maintain these capabilities ourselves. We also outsource some of these functions to third parties. These third parties may experience errors or disruptions that could adversely impact us and over which we may have limited control. We also face risk from the integration of new infrastructure platforms and/or new third party providers of such platforms into its existing businesses.

Changes in accounting policies or in accounting standards could materially affect how we report our financial condition and results of operations.

Our accounting policies are fundamental to the understanding of our financial condition and results of operations. The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States (“GAAP”) requires management to make significant estimates and assumptions that affect the financial statements by affecting the value of our assets or liabilities and results of operations. Some of our accounting policies are critical because they require management to make difficult, subjective and complex judgments about matters that are inherently uncertain and because materially different amounts may be reported if different estimates or assumptions were used. If such estimates or assumptions underlying the financial statements are incorrect, we could experience material losses. From time to time, the Financial Accounting Standards Board (“FASB”) and the Securities and Exchange Commission (“SEC”) change the financial accounting and reporting standards or the interpretation of such standards that govern the preparation of our external financial statements. These changes are beyond our control, can be difficult to predict and could materially impact how we report our financial condition and results of operations. Additionally, it is possible, if unlikely, we could be required to apply a new or revised standard retrospectively, resulting in the restatement of prior period financial statements in material amounts.

System failure or cybersecurity breaches of our network security could subject us to increased operating costs as well as litigation and other potential losses.

We rely heavily on communications and information systems to conduct our business. The computer systems and network infrastructure we use could be vulnerable to unforeseen hardware and cybersecurity issues. Our operations are dependent upon our ability to protect our computer equipment against damage from fire, power loss, telecommunications failure or a similar catastrophic event. Any damage or failure that causes an interruption in our operations could have an adverse effect on our financial condition and results of operations. In addition, our operations are dependent upon our ability to protect the computer systems and network infrastructure we use, including our Internet banking activities, against damage from physical break-ins, cybersecurity breaches and other disruptive problems caused by the Internet or users. Such problems could jeopardize the security of our customers personal information and other information stored in and transmitted through our computer systems and network infrastructure, which may result in significant liability to us, subject us to additional regulatory scrutiny, damage our reputation, result in a loss of customers, or inhibit current and potential customers from our Internet banking services, any of all of which could have a material adverse effect on our results of operations and financial condition. Although we have security measures designed to mitigate the possibility of break-ins, breaches and other disruptive problems, including firewalls and penetration testing, there can be no assurance that such security measures will be effective in preventing such problems.

Item 1B.

Unresolved Staff Comments.

Not applicable.

Item 2.

Properties.

We currently conduct business from nine banking offices in Greater Lafayette, three banking offices in Baton Rouge, six banking offices in Greater New Orleans, six banking offices in the Northshore (of Lake Pontchartrain) region of Louisiana, three offices in Natchez, Mississippi and two offices in Vicksburg, Mississippi. The Bank owns 27 of its 29 banking offices. The Bank leases the land for one banking office in our Northshore market and leases one banking office in Greater New Orleans.

Item 3.

Legal Proceedings.

From time-to-time, the Bank is named as a defendant in various legal actions arising from the normal course of business in which damages of various amounts may be claimed. While the amount, if any, of ultimate liability with respect to any such matters cannot be currently determined, management believes, after consulting with legal counsel, that any such liability will not have a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows.

Item 4.

Mine Safety Disclosures.

Not applicable.

PART II

Item 5.

Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

(a) Home Bancorp, Inc.’s common stock is listed on the Nasdaq Global Select Market under the symbol “HBCP”. The common stock commenced trading on the Nasdaq Stock Market on October 3, 2008. As of the close of business on December 31, 2016, there were 7,350,102 shares of common stock outstanding, held by approximately 744 shareholders of record, not including the number of persons or entities whose stock is held in nominee or “street” name through various brokerage firms and banks.

The following table sets forth the high and low prices of the Company’s common stock as reported by the Nasdaq Stock Market and cash dividends declared per share for the periods indicated.


For The Quarter Ended	High		Low		Cash Dividends Declared
March 31, 2015	$	23.00	$	20.40	$	0.07
June 30, 2015	$	25.50	$	21.00	$	0.07
September 30, 2015	$	26.50	$	22.68	$	0.08
December 31, 2015	$	27.22	$	24.31	$	0.08

March 31, 2016	$	27.25	$	21.29	$	0.09
June 30, 2016	$	28.95	$	24.76	$	0.10
September 30, 2016	$	29.78	$	26.62	$	0.10
December 31, 2016	$	39.75	$	27.00	$	0.12

The following graph shows a comparison of the cumulative total returns for the common stock of Home Bancorp, Inc., the Nasdaq Composite Index and the SNL Securities Bank and Thrift Index for the period beginning December 31, 2011 and ending December 2016. The graph below represents $100 invested in our common stock at its closing price on December 31, 2011.

LOGO


	Period Ending
Index	12/31/11		12/31/12		12/31/13		12/31/14		12/31/15		12/31/16
Home Bancorp, Inc.		100.00		117.74		121.61		148.45		170.27		256.84
NASDAQ Composite		100.00		115.91		160.32		181.80		192.21		206.63
SNL Bank and Thrift		100.00		134.28		183.86		205.25		209.39		264.35

The stock price information shown above is not necessarily indicative of future price performance. Information used was obtained from S&P Global Market Intelligence, Charlottesville, Virginia. The Company assumes no responsibility for any errors or omissions in such information.

The Company did not sell any of its equity securities during 2016 that were not registered under the Securities Act of 1933.

For information regarding the Company’s equity compensation plans, see Item 12.

(b) Not applicable.

(c)

On June 7, 2013, the Company’s Board of Directors approved a share repurchase program (the “2013 Repurchase Program”) authorizing management to repurchase up to 370,000 shares, or approximately 5%, of its common stock outstanding through open market or privately negotiated transactions. As of December 31, 2016, 3,745 shares remain subject to repurchase under the 2013 Repurchase Program. On April 26, 2016, the Company announced an additional stock repurchase program (the “2016 Repurchase Program”). Under the 2016 Repurchase Program, the Company can repurchase up to 365,000 shares, or approximately 5% of its common stock outstanding, through open market or privately negotiated transactions. The Company’s purchases of its common stock made during the fourth quarter of 2016 (which were made pursuant to the 2013 Repurchase Program) 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 Plans or Programs
October 1- October 31, 2016		517	$	27.77		517		368,963
November 1 - November 30, 2016		218		32.50		218		368,745
December 1 - December 31, 2016		—		—		—		368,745

Total		735	$	29.17		735		368,745

Item 6.

Selected Financial Data.

Set forth below is selected summary historical financial and other data of the Company. When you read this summary historical financial data, it is important that you also read the historical financial statements and related notes contained in Item 8 of this Form 10-K, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”


	As of December 31,
*(dollars in thousands)*	2016		2015		2014		2013		2012
Selected Financial Condition Data:
Total assets	$	1,556,732	$	1,551,912	$	1,221,415	$	984,241	$	962,926
Cash and cash equivalents		29,315		24,798		29,078		32,639		39,539
Interest-bearing deposits in banks		1,884		5,144		5,526		2,940		3,529
Investment securities:
Available for sale		183,730		176,762		174,801		149,632		157,256
Held to maturity		13,365		13,927		11,705		9,405		1,665
Loans receivable, net		1,215,323		1,214,818		901,208		700,538		667,809
Deposits		1,248,072		1,244,217		993,573		741,312		771,429
Federal Home Loan Bank advances		118,533		125,153		47,500		97,000		46,257
Securities sold under repurchase agreements		—		—		20,371		—		—
Shareholders’ equity		179,843		165,046		154,144		141,910		141,574

	For the Years Ended December 31,
*(dollars in thousands, except per share data)*	2016		2015		2014		2013		2012
Selected Operating Data:
Interest income	$	67,684	$	58,410	$	54,323	$	43,721	$	46,122
Interest expense		5,268		3,866		3,284		3,503		4,914


Net interest income		62,416			54,544			51,039			40,218			41,208
Provision for loan losses		3,200			2,071			2,364			3,653			2,411

Net interest income after provision for loan losses		59,216			52,473			48,675			36,565			38,797
Noninterest income		11,157			8,770			8,175			7,670			7,761
Noninterest expense		46,797			42,022			41,772			33,205			32,763

Income before income taxes		23,576			19,221			15,078			11,030			13,795
Income taxes		7,568			6,671			5,206			3,736			4,605

Net income	$	16,008		$	12,550		$	9,872		$	7,294		$	9,190

Earnings per share - basic	$	2.34		$	1.87		$	1.51		$	1.11		$	1.33

Earnings per share - diluted	$	2.25		$	1.79		$	1.42		$	1.06		$	1.28

Cash dividends per share	$	0.41		$	0.30		$	0.07		$	—		$	—


	As of or For the Years Ended December 31,
	2016			2015			2014			2013			2012
Selected Operating Ratios: ⁽¹⁾
Average yield on interest-earnings assets (TE)		4.71	%		4.75	%		4.84	%		5.06	%		5.36	%
Average rate on interest-bearing liabilities		0.49			0.43			0.39			0.54			0.72
Average interest rate spread (TE) ⁽²⁾		4.22			4.32			4.45			4.52			4.64
Net interest margin (TE) ⁽³⁾		4.34			4.43			4.54			4.65			4.79
Average interest-earning assets to average interest-bearing liabilities		134.34			136.76			133.91			132.63			126.81
Noninterest expense to average assets		3.04			3.14			3.38			3.45			3.38
Efficiency ratio ⁽⁴⁾		63.61			66.37			70.54			69.34			66.91
Return on average assets		1.04			0.94			0.80			0.76			0.95
Return on average equity		9.19			7.83			6.65			5.14			6.60
Common stock dividend payout ratio		18.22			16.76			4.93			—			—
Average equity to average assets		11.30			11.99			12.02			14.74			14.38

Asset Quality Ratios: ⁽⁵⁾⁽⁶⁾
Non-performing loans as a percent of total loans receivable		1.39	%		0.71	%		0.55	%		1.17	%		0.43	%
Non-performing assets as a percent of total assets		1.07			0.51			0.56			0.81			0.63
Allowance for loan losses as a percent of non-performing loans as of end of period		99.4			162.35			191.03			96.18			234.68
Allowance for loan losses as a percent of net loans as of end of period		1.38			1.15			1.04			1.12			1.01

Capital Ratios: ^{(5) (7)}


Tier 1 risk-based capital ratio	12.91	%	11.61	%	16.94	%	20.84	%	20.97	%
Leverage capital ratio	9.94		8.74		11.96		14.17		13.67
Total risk-based capital ratio	13.96		12.43		17.85		21.88		21.83

⁽¹⁾	With the exception of end-of-period ratios, all ratios are based on average monthly balances during the respective periods.

⁽²⁾	Average interest rate spread represents the difference between the average yield on interest-earning assets and the average rate paid on interest-bearing liabilities.

⁽³⁾	Net interest margin represents net interest income as a percentage of average interest-earning assets. Taxable equivalent yields are calculated using a marginal tax rate of 35%.

⁽⁴⁾	The efficiency ratio represents noninterest expense as a percentage of total revenues. Total revenues is the sum of net interest income and noninterest income.

⁽⁵⁾	Asset quality and capital ratios are end of period ratios.

⁽⁶⁾

Asset quality ratios represents legacy non-performing assets. At December 31, 2016, 2015, 2014, 2013 and 2012, we also had $1.5 million, $2.6 million, $4.3 million, $7.3 million and $6.8 million, respectively, of acquired nonimpaired loans, which were on nonaccrual or 90 days or more past due which are not included in the table above. In addition, not included in the table above $2.2 million, $3.0 million, $3.4 million, $4.5 million and $3.7 million, respectively, in acquired assets which were repossessed assets at December 31, 2016, 2015, 2014, 2013 and 2012, respectively, and which are excluded from the asset quality ratios above. See page 25 for the asset quality ratios including acquired nonimpaired loans and acquired repossessed assets, respectively.

Nonperforming loans consist of nonaccruing loans and loans 90 days or more past due excluding Acquired Loans. Nonperforming assets consist of nonperforming loans and repossessed assets. It is our policy to cease accruing interest on all loans 90 days or more past due. Repossessed assets consist of assets acquired through foreclosure or acceptance of title in-lieu of foreclosure. For information on our asset quality ratios see page 25.

⁽⁷⁾	Capital ratios are for Home Bank only.

Item 7.

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

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is an analysis and discussion of the financial condition and results of operations of Home Bancorp, Inc. (the “Company”), and its wholly owned subsidiary, Home Bank, N.A. (the “Bank”). This discussion and analysis should be read in conjunction with our Consolidated Financial Statements and related notes included herein in Part II, Item 8, “Financial Statements and Supplementary Data” and the description of our business included herein in Part 1, Item 1 “Business”.

EXECUTIVE OVERVIEW

Net income for 2016 totaled $16.0 million, an increase of 27.6% from the $12.5 million earned in 2015. Diluted earnings per share for 2016 were $2.25, an increase of 25.7% from the $1.79 in diluted earnings per share earned in 2015. The increase in net income and diluted earnings per share was driven primarily by the full year impact of our acquisition of Louisiana Bancorp, Inc. (“Louisiana Bancorp”), the holding company for Bank of New Orleans (“BNO”) of Metairie, Louisiana. The Company acquired Louisiana Bancorp on September 15, 2015. Key components of the Company’s performance in 2016 are summarized below.

•

Assets totaled $1.6 billion as of December 31, 2016, up $4.8 million, or 0.3%, from December 31, 2015.

•

Loans as of December 31, 2016 were $1.2 billion, an increase of $3.5 million, or 0.3%, from December 31, 2015. Growth in our originated loan portfolio during the year was primarily related to construction and land loans, commercial real estate, commercial and industrial loans and multi-family loans, which were largely offset by decreases in our Acquired Loan portfolios.

•

Total customer deposits as of December 31, 2016 were $1.2 billion, an increase of $3.9 million, or 0.3%, from December 31, 2015. Core deposits increased $8.5 million, or 0.9%, while certificate of deposits decreased $4.6 million, or 1.7%.

•

Interest income increased $9.3 million, or 15.9%, in 2016 compared to 2015. The increase was primarily due to a higher average volume of interest-earning assets as a result of the Louisiana Bancorp acquisition.

•

Interest expense increased $1.4 million, or 36.3%, in 2016 compared to 2015. The increase was primarily due to a higher average volume of interest-bearing liabilities as a result of the Louisiana Bancorp acquisition.

•

The provision for loan losses totaled $3.2 million in 2016, 54.5% higher than the $2.1 million recorded in 2015. The increase was primarily the result of loan deterioration in four loan relationships as well as organic growth in our loan portfolio. At December 31, 2016, the Company’s ratio of allowance for loan losses to total loans was 1.02%, compared to 0.78% at December 31, 2015. The ratio of the allowance for loan losses to total originated loans was 1.38% at December 31, 2016, compared to 1.15% at December 31, 2015. Over the past two years, the Company has increased its overall allowance for loan losses to loans ratio on originated loans from 1.04% due primarily to the potential direct and indirect impact of continuing low energy prices on our borrowers in the energy sector.

•

Noninterest income increased $2.4 million, or 27.2%, in 2016 compared to 2015. The increase was primarily the result of a gain on the sale of assets (up $1.1 million) and higher other noninterest income (up $774,000 due to recoveries on previously charged off Acquired Loans).

•

Noninterest expense increased $4.8 million, or 11.4%, in 2016 compared to 2015. The Company incurred $856,000 and $1.4 million in merger-related expenses during 2016 and 2015, respectively. Excluding merger-related expenses, noninterest expense increased $5.3 million, or 13.1%. The increase was primarily the result of higher compensation and benefits, data processing and communications, marketing and advertising and other expenses due primarily to the Company’s growth.

ACQUISITION ACTIVITY

On September 15, 2015, the Company acquired Louisiana Bancorp, Inc., the former holding company of Bank of New Orleans of Metairie, Louisiana. Shareholders of Louisiana Bancorp received $24.25 per share in cash, resulting in aggregate purchase price of $70.0 million. As a result of the acquisition, three former Bank of New Orleans branches in the Greater New Orleans area were added to the Bank’s branch office network, net of one former Bank of New Orleans banking office in the Northshore that was closed or consolidated in January 2016. Assets acquired from Louisiana Bancorp totaled $352.9 million, which included loans of $281.6 million, investment securities of $36.4 million and cash of $14.1 million. The Bank also recorded a core deposit intangible asset of $1.6 million and goodwill of $8.5 million relating to the acquisition, and assumed liabilities of $291.3 million, which included $208.7 million in deposits and $76.0 million in Federal Home Loan Bank (“FHLB”) advances.

On February 14, 2014, the Company acquired Britton & Koontz Capital Corporation (“Britton & Koontz”) the former holding company of Britton & Koontz Bank, N.A. (“Britton & Koontz Bank”) of Natchez, Mississippi. Shareholders of Britton & Koontz received $16.14 per share in cash, yielding an aggregate purchase price of $34.5 million. As a result of the acquisition, five former Britton & Koontz branches in west Mississippi were added to the Bank’s branch office network, net of two former Britton & Koontz banking offices that were closed or consolidated in March 2014. Assets acquired from Britton & Koontz totaled $298.9 million, which included loans of $161.2 million, investment securities of $98.0 million and cash of $15.3 million. The Bank also recorded a core deposit intangible asset of $3.0 million and goodwill of $43,000 relating to the acquisition, and assumed liabilities of $264.5 million, which included $216.6 million in deposits, $9.3 million in FHLB advances and $27.3 million in securities sold under repurchase agreements.

On July 15, 2011, the Company acquired GS Financial Corporation (“GSFC”), the former holding company of Guaranty Savings Bank of Metairie, Louisiana. Shareholders of GSFC received $21.00 per share in cash, yielding an aggregate purchase price of $26.4 million. As a result of the acquisition, the four former Guaranty branches in the Greater New Orleans area were added to the Bank’s branch office network. Assets acquired from GSFC totaled $256.7 million, which included loans of $182.4 million, investment securities of $46.5 million and cash of $9.3 million. The Bank also recorded a core deposit intangible asset of $859,000 and goodwill of $296,000 relating to the acquisition of GSFC, and assumed liabilities of $230.6 million, which included $193.5 million in deposits and $34.7 million in FHLB advances.

On March 12, 2010, the Bank acquired certain assets and liabilities of the former Statewide Bank, a full-service community bank formerly headquartered in Covington, Louisiana, from the FDIC. As a result of the Statewide acquisition, the Bank’s branch office network was expanded to include six branches in the Northshore (of Lake Pontchartrain) region of Louisiana. Assets acquired in the Statewide transaction totaled $188.0 million, which included loans of $110.4 million, investment securities of $24.8 million and cash of $11.6 million. In addition, the Bank recorded a FDIC Asset, representing the portion of estimated losses covered by loss sharing agreements between the Bank and the FDIC, of $34.4 million. The loss sharing agreements between the Bank and the FDIC afforded us significant protection against losses in the loan portfolio and repossessed assets acquired in the Statewide transaction. The Bank also recorded a core deposit intangible asset of $1.4 million and goodwill of $560,000 relating to the Statewide acquisition, and assumed liabilities of $223.9 million, which included $206.9 million in deposits and $16.8 million in FHLB advances.

CRITICAL ACCOUNTING POLICIES

The accounting and financial reporting policies of the Company conform to generally accepted accounting principles in the United States (“GAAP”) and to general practices within the banking industry. Accordingly, the financial statements require certain estimates, judgments and assumptions, which are believed to be reasonable, based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of income and expenses during the periods presented. The following accounting policies comprise those that management believes are the most

critical to aid in fully understanding and evaluating our reported financial results. These policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition for the period or in future periods.

Allowance for Loan Losses. The allowance for loan losses on loans in our portfolio is maintained at an amount which management determines covers the reasonably estimable and probable losses on such portfolio. The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when management believes that the collectability of the principal is unlikely. Subsequent recoveries are added to the allowance. The allowance is an amount that represents the amount of probable and reasonably estimable known and inherent losses in the loan portfolio, based on evaluations of the collectability of loans. The evaluations take into consideration such factors as changes in the types and amount of loans in the loan portfolio, historical loss experience, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, estimated losses relating to specifically identified loans and current economic conditions. This evaluation is inherently subjective as it requires material estimates including, among others, exposure to default, the amount and timing of expected future cash flows on loans, value of collateral, estimated losses on our commercial and residential loan portfolios as well as consideration of general loss experience. All of these estimates may be susceptible to significant change.

While management uses the best information available to make loan loss allowance evaluations, adjustments to the allowance may be necessary based on changes in economic and other conditions or changes in accounting guidance. The OCC, as an integral part of its examination processes, periodically reviews our allowance for loan losses. The OCC may require the recognition of adjustments to the allowance for loan losses based on their judgment of information available to them at the time of their examinations. To the extent that actual outcomes differ from management’s estimates, additional provisions to the allowance for loan losses may be required that would adversely impact earnings in future periods. As part of the risk management program, an independent review is performed on the loan portfolio, which supplements management’s assessment of the loan portfolio and the allowance for loan losses. The result of the independent review is reported directly to the Audit Committee of the Board of Directors.

Acquired Loans were recorded at fair value at the date of acquisition with no carryover of the allowance for loan losses. As of December 31, 2016, our allowance for loan losses included $291,000 allocated to Acquired Loans with credit quality which had deteriorated since the date of acquisition. Our accounting policy for Acquired Loans is described below.

Accounting for Loans. 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 as 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

Acquired Loans are those collectively associated with our acquisitions of Statewide, GSFC, Britton & Koontz and BNO. These 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.

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 fair value discount for the loan pool. Once the 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.

Certain loans purchased in the Statewide acquisition are covered by loss sharing agreements between the FDIC and the Company. Historically, the Company has referred to loans subject to loss share agreements with the FDIC as “covered loans.” However, as of March 31, 2015, a significant portion of the loss share agreements had expired and any future losses on certain formerly covered loans are no longer eligible for reimbursement from the FDIC. As of March 2015, only residential mortgage loans acquired from Statewide remained subject to loss sharing agreements with the FDIC. As of December 31, 2016, the Company’s remaining covered loans amounted to approximately $2.8 million, or 0.2% of the Company’s total loan portfolio, at such date. Given the limited amount of covered loans remaining, the Company is no longer reporting such loans as “covered loans,” and the remaining covered loans are included in “Acquired Loans.”

Income Taxes. We make estimates and judgments to calculate some of our tax liabilities and determine the recoverability of some of our deferred tax assets, which arise from temporary differences between the tax and financial statement recognition of revenues and expenses. We also estimate a valuation allowance for deferred tax assets if, based on the available evidence, it is more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods. These estimates and judgments are inherently subjective. Historically, our estimates and judgments to calculate our deferred tax accounts have not required significant revision to our initial estimates.

In evaluating our ability to recover deferred tax assets, we consider all available positive and negative evidence, including our past operating results, recent cumulative losses and our forecast of future taxable income. In determining future taxable income, we make assumptions for the amount of taxable income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require us to make judgments about our future taxable income and are consistent with the plans and estimates we use to manage our business. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets. An increase in the valuation allowance would result in additional income tax expense in the period and could have a significant impact on our future earnings.

Other-than-temporary Impairment of Investment Securities. Securities are evaluated periodically to determine whether a decline in their fair value is other-than-temporary. The term “other-than-temporary” is not intended to indicate a permanent decline in value. Rather, it means that the prospects for near term recovery of value are not necessarily favorable, or that there is a lack of evidence to support fair values equal to, or greater than, the carrying value of the investment. Management reviews criteria such as the magnitude and duration of the decline, the reasons for the decline and the performance and valuation of the underlying collateral, when applicable, to

predict whether the loss in value is other-than-temporary and the intent and ability of the Company to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value. Once a decline in value is determined to be other-than-temporary, the carrying value of the security is reduced to its fair value and a corresponding charge to earnings is recognized for the decline in value determined to be credit related. The decline in value attributable to noncredit factors is recognized in other comprehensive income.

Stock-based Compensation. The Company accounts for its stock options in accordance with ASC Topic 718, Compensation – Stock Compensation. ASC 718 requires companies to expense the fair value of employee stock options and other forms of stock-based compensation. Management utilizes the Black-Scholes option valuation model to estimate the fair value of stock options. The option valuation model requires the input of highly subjective assumptions, including expected stock price volatility and option life. These subjective input assumptions materially affect the fair value estimate.

FINANCIAL CONDITION

Loans, Loan Quality and Allowance for Loan Losses

Loans – The types of loans originated by the Company are subject to federal and state laws and regulations. Interest rates charged on loans are affected principally by the demand for such loans and the supply of money available for lending purposes and the rates offered by our competitors. These factors are, in turn, affected by general and economic conditions, the monetary policy of the federal government, including the FRB, legislative tax policies and governmental budgetary matters.

The Company’s lending activities are subject to underwriting standards and loan origination procedures established by our Board of Directors and management. Loan originations are obtained through a variety of sources, primarily existing customers as well as new customers obtained from referrals and local advertising and promotional efforts. Single-family residential mortgage loan applications and consumer loan applications are taken at any of the Bank’s branch offices. Applications for other loans typically are taken personally by one of our loan officers, although they may be received by a branch office initially and then referred to a loan officer. All loan applications are processed and underwritten centrally at the Bank’s main office.

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


	December 31,
*(dollars in thousands)*	2016		2015		2014		2013		2012
Real estate loans:
One- to four-family first mortgage	$	341,883	$	371,238	$	222,157	$	164,673	$	166,718
Home equity loans and lines		88,821		94,060		56,000		40,561		40,425
Commercial real estate		427,515		405,379		352,863		269,849		252,805
Construction and land		141,167		136,803		100,246		98,104		86,627
Multi-family residential		46,369		43,863		27,375		16,578		19,659

Total real estate loans		1,045,755		1,051,343		758,641		589,765		566,234

Other loans:
Commercial and industrial		139,810		125,108		104,446		77,533		72,253
Consumer		42,268		47,915		45,881		40,158		34,641

Total other loans		182,078		173,023		150,327		117,691		106,894

Total loans	$	1,227,833	$	1,224,366	$	908,968	$	707,456	$	673,128

The loan portfolio increased $3.5 million, or 0.3%, during 2016. Growth in originated loans during the year was related primarily to commercial real estate loans, construction and land loans, commercial and industrial loans and multi-family residential loans, which were partially offset by repayment activity in our portfolio of Acquired Loans, primarily one-to four-family residential mortgage loans. The balance of loans to companies in the energy sector totaled $34.0 million, or 2.8%, of our outstanding loan portfolio at December 31, 2016. In addition to outstanding loans at December 31, 2016, we also had unfunded loan commitments to companies in the energy sector amounting to $6.7 million at such date.

The following table reflects contractual loan maturities as of December 31, 2016, unadjusted for scheduled principal reductions, prepayments or repricing opportunities. Of the $966.6 million in loans which have contractual maturity dates subsequent to December 31, 2017, $736.1 million have fixed interest rates and $230.5 million have floating or adjustable interest rates.


	Due In
*(dollars in thousands)*	One year or less		One through five years		More than five years		Total
One- to four-family first mortgage	$	14,383	$	66,347	$	261,153	$	341,883
Home equity loans and lines		949		10,465		77,407		88,821
Commercial real estate		49,595		239,147		138,773		427,515
Construction and land		110,841		26,207		4,119		141,167
Multi-family residential		8,829		22,196		15,344		46,369
Commercial and industrial		72,498		55,170		12,142		139,810
Consumer		4,081		8,190		29,997		42,268

Total	$	261,176	$	427,722	$	538,935	$	1,227,833

Loan 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 the 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 his/her ability to service the debt in accordance with the terms of the loan agreement. Interest income is not accrued on these loans until the borrower’s financial condition and payment record demonstrate an ability to service the debt.

An impaired loan generally is one for which it is probable, based on current information, that the lender will not collect all the amounts due under the contractual terms of the loan. Large groups of smaller balance, homogeneous loans are collectively evaluated for impairment. Loans collectively evaluated for impairment include smaller balance commercial loans, residential real estate loans and consumer loans. These loans are evaluated as a group because they have similar characteristics and performance experience. Larger commercial real estate, multi-family residential, construction and land loans and commercial and industrial loans are individually evaluated for impairment. Third party property valuations are obtained at the time of origination for real estate secured loans. When a determination is made that a loan has deteriorated to the point of becoming a problem loan, updated valuations may be ordered to help determine if there is impairment, 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. The Company typically orders an “as is” valuation for collateral property if the loan is in a criticized loan classification. The Board of Directors is provided with monthly reports on impaired loans. As of December 31, 2016 and 2015, loans individually evaluated for impairment, excluding Acquired Loans, amounted to $5.6 million and $966,000, respectively. As of December 31, 2016 and 2015, acquired impaired loans, which are loans considered to have had deteriorated credit quality at the time of acquisition, amounted to $13.1 million and $20.0 million, respectively. As of December 31, 2016 and 2015, substandard loans, excluding Acquired Loans, amounted to $23.8 million and $7.7 million, respectively. As of December 31, 2016 and 2015, Acquired Loans considered substandard amounted to $8.6 million and $9.7 million, respectively. The amount of the allowance for loan losses allocated to originated impaired or substandard loans

totaled $795,000 and $153,000 as of December 31, 2016 and 2015, respectively. The amount of allowance for loan losses allocated to Acquired Loans totaled $291,000 and $373,000, respectively, at such dates. There were no assets classified as doubtful or loss as of December 31, 2016 or 2015.

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.

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. Our management believes that, based on information currently available, our allowance for loan losses is maintained at a level which covers all known and inherent losses that are both probable and reasonably estimable as of each reporting date. However, actual losses are dependent upon future events and, as such, further additions to the level of allowances for loan losses may become necessary.

The following table sets forth the composition of the Company’s total nonperforming assets and troubled debt restructurings, excluding acquired impaired loans, as of the dates indicated.


	December 31,
*(dollars in thousands)*	2016		2015		2014		2013		2012
Nonaccrual loans ⁽¹⁾:
Real estate loans:
One- to four-family first mortgage	$	1,724	$	1,458	$	2,894	$	4,196	$	2,985
Home equity loans and lines		1,088		260		136		325		149
Commercial real estate		1,963		2,684		1,291		2,678		4,241
Construction and land		75		156		742		1,265		934
Multi-family residential		—		763		1,560		1,572		528
Other loans:
Commercial and industrial		8,542		2,458		1,210		3,881		170
Consumer		361		476		359		277		1

Total nonaccrual loans		13,753		8,255		8,192		14,194		9,008
Accruing loans 90 days or more past due		—		—		—		—		—

Total nonperforming loans		13,753		8,255		8,192		14,194		9,008
Foreclosed property		2,893		3,128		5,215		4,566		6,454

Total nonperforming assets		16,646		11,383		13,407		18,760		15,462
Performing troubled debt restructurings		4,650		2,549		1,860		3,468		2,010

Total nonperforming assets and troubled debt restructurings	$	21,296	$	13,932	$	15,267	$	22,228	$	17,472


Nonperforming loans to total loans	1.12	%	0.67	%	0.90	%	2.01	%	1.34	%
Nonperforming loans to total assets	0.88	%	0.53	%	0.67	%	1.44	%	0.94	%
Nonperforming assets to total assets	1.07	%	0.73	%	1.10	%	1.91	%	1.61	%

⁽¹⁾

Table excludes Acquired Loans which were being accounted for under ASC 310-30 because they continue to earn interest from accretable yield regardless of their status as past due or otherwise not in compliance with their contractual terms. Acquired Loans with deteriorated credit quality, which were being accounting for under ASC 310-30 and which were 90 days or more past due totaled, $ 2.7 million, $4.0 million, $5.4 million, $7.8 million and $9.5 million as of December 31, 2016, 2015, 2014, 2013 and 2012, respectively.

Net loan charge-offs for 2016 were $237,000, or 0.02%, of total loans, compared to $283,000, or 0.02%, in 2015.

Repossessed assets which are acquired as a result of foreclosure are classified as repossessed assets until sold. Third party property valuations are obtained at the time the asset is repossessed and periodically until the property is liquidated. Repossessed assets are recorded at fair value less estimated selling costs, at the date acquired or upon receiving new property valuations. Costs associated with acquiring and improving a foreclosed property are usually capitalized to the extent that the carrying value does not exceed fair value less estimated selling costs. Holding costs are charged to expense. Gains and losses on the sale of repossessed assets are charged to operations, as incurred.

Allowance for Loan Losses – The allowance for loan losses is established through provisions for loan losses. The Company maintains the allowance at a level believed, to the best of management’s knowledge, to cover all known and inherent losses in the portfolio that are both probable and reasonable to estimate at each reporting date. Management reviews the allowance for loan losses at least quarterly in order to identify those inherent losses and to assess the overall collection probability for the loan portfolio. Our evaluation process includes, among other things, an analysis of delinquency trends, nonperforming loan trends, the level of charge-offs and recoveries, prior loss experience, total loans outstanding, the volume of loan originations, the type, size and geographic concentration of loans, the value of collateral securing loans, the borrower’s ability to repay and repayment performance, the number of loans requiring heightened management oversight, economic conditions and industry experience. Based on this evaluation, management assigns risk rankings to segments of the loan portfolio. Such risk ratings are periodically reviewed by management and revised as deemed appropriate. These efforts are supplemented by independent reviews and validations performed by an independent loan reviewer. The results of the reviews are reported directly to the Audit Committee of the Board of Directors. The establishment of the allowance for loan losses is significantly affected by management judgment and uncertainties and there is a 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 allowance for loan losses. Such agencies may require management to make additional provisions for estimated loan losses based upon judgments different from those of management.

With respect to Acquired Loans, the Company follows the reserve standard set forth in ASC 310, Receivables. At acquisition, the Company reviews each loan to determine whether there is evidence of deterioration in credit quality since origination and if it is probable that the Company will be unable to collect all amounts due according to the loan’s contractual terms. The Company considers expected prepayments and estimates the amount and timing of undiscounted expected principal, interest and other cash flows for each loan pool meeting the criteria above, and determines the excess of the loan pool’s scheduled contractual principal and interest payments in excess of cash flows expected at acquisition as an amount that should not be accreted (nonaccretable difference). The remaining amount, representing the excess of the pool’s cash flows expected to be collected over the fair value, is accreted into interest income over the remaining life of the pool (accretable yield). The Company records a discount on these loans at acquisition to record them at their estimated fair values. As a result, Acquired Loans subject to ASC 310 are excluded from the calculation of the allowance for loan losses as of the acquisition date.

Acquired Loans were recorded as of their acquisition date fair value, which was based on expected cash flows and included an estimation of expected future loan losses. Under current accounting principles, if the Company determines that losses arose after the acquisition date, the additional losses will be reflected as a provision for loan losses. As of December 31, 2016, $75,000 of our allowance for loan losses was allocated to Acquired Loans with deteriorated credit quality.

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

The following table presents the activity in the allowance for loan losses for the years indicated.


	For the Years Ended December 31,
*(dollars in thousands)*	2016			2015			2014			2013			2012
Balance, beginning of year	$	9,547		$	7,760		$	6,918		$	5,319		$	5,104
Provision charged to operations		3,200			2,071			2,364			3,653			2,411
Loans charged off:
One- to four-family first mortgage		(33	)		(104	)		(213	)		(112	)		—
Home equity loans and lines		(9	)		(27	)		(2	)		—			(32	)
Commercial real estate		—			—			(41	)		—			(1,980	)
Construction and land		—			(111	)		(19	)		(44	)		(215	)
Multi-family residential		—			—			—			—			—
Commercial and industrial		(242	)		(190	)		(1,407	)		(1,990	)		(60	)
Consumer		(162	)		(130	)		(32	)		(9	)		(38	)
Recoveries on charged off loans		210			278			192			101			129

Balance, end of year	$	12,511		$	9,547		$	7,760		$	6,918		$	5,319

At December 31, 2016, the Company’s ratio of allowance for loan losses to total loans was 1.02%, compared to 0.78% at December 31, 2015. Excluding Acquired Loans, the ratio of allowance for loan losses to total originated loans was 1.38% at December 31, 2016, compared to 1.15% at December 31, 2015. The balance of loans to companies in the energy sector totaled $34.0 million, or 2.8%, of our outstanding loan portfolio at December 31, 2016. In addition to outstanding loans at December 31, 2016, we also had unfunded loan commitments to companies in the energy sector amounting to $6.7 million at such date. The Company remains in close contact with our energy company borrowers, and continues to monitor economic data to assess the potential indirect impact of low energy prices on our loan portfolio.

The following table presents the allocation of the allowance for loan losses as of December 31 of the years indicated.


	December 31,
	2016					2015					2014					2013					2012
*(dollars in* *thousands)*	Amount		% Loans			Amount		% Loans			Amount		% Loans			Amount		% Loans			Amount		% Loans
One- to four-family first mortgage	$	1,511		27.9	%	$	1,464		30.3	%	$	1,310		24.4	%	$	1,088		23.3	%	$	982		24.8	%
Home equity loans and lines		728		7.2			760		7.8			553		6.2			424		5.7			343		6.0
Commercial real estate		4,177		34.8			3,152		33.2			2,922		38.8			2,528		38.1			2,040		37.6
Construction and land		1,782		11.5			1,417		11.2			1,101		11.0			977		13.9			785		12.9
Multi-family		361		3.8			173		3.6			192		3.0			90		2.3			86		2.9
Commercial and industrial		3,439		11.4			2,010		10.2			1,161		11.5			1,338		11.0			683		10.7
Consumer		513		3.4			571		3.9			521		5.0			473		5.7			400		5.2

Total	$	12,511		100.0	%	$	9,547		100.0	%	$	7,760		100.0	%	$	6,918		100.0	%	$	5,319		100.0	%

Investment Securities

The Company invests in securities pursuant to our Investment Policy, which has been approved by our Board of Directors. The Investment Policy is designed primarily to manage the interest rate sensitivity of our assets and liabilities, to generate a favorable return without incurring undue interest rate or credit risk and to provide and maintain liquidity. The Asset-Liability Committee (“ALCO”), comprised of the Chief Executive Officer, Chief Financial Officer, Chief Banking Officer, Chief Credit Officer, Director of Financial Management and Treasurer, monitors investment activity and ensures that investments are consistent with the Investment Policy. The Board of Directors of the Company reviews investment activity monthly.

The investment securities portfolio increased by an aggregate of $6.4 million, or 3.4%, during 2016. Securities available for sale made up 93.2% of the investment securities portfolio as of December 31, 2016. The following table sets forth the amortized cost and market value of our investment securities portfolio as of the dates indicated.


	December 31,
	2016				2015				2014
*(dollars in thousands)*	Amortized Cost		Market Value		Amortized Cost		Market Value		Amortized Cost		Market Value
Available for sale:
U.S. agency mortgage-backed	$	148,511	$	148,225	$	134,748	$	135,478	$	120,009	$	121,498
Non-U.S. agency mortgage-backed		5,043		5,036		6,055		6,065		7,757		7,764
Municipal bonds		21,212		21,428		22,453		22,933		24,388		24,896
U.S. government agency		8,946		9,041		12,166		12,286		20,639		20,643

Total available for sale		183,712		183,730		175,422		176,762		172,793		174,801

Held to maturity:
Municipal bonds		13,365		13,362		13,927		14,121		11,705		11,889

Total held to maturity		13,365		13,362		13,927		14,121		11,705		11,889

Total investment securities	$	197,077	$	197,092	$	189,349	$	190,883	$	184,498	$	186,690

The following table sets forth the fixed versus adjustable rate profile of the investment securities portfolio as of the dates indicated. All amounts are shown at amortized cost.


	December 31,
*(dollars in thousands)*	2016		2015		2014
Fixed rate:
Available for sale	$	151,074	$	133,700	$	122,883
Held to maturity		13,365		13,927		11,705

Total fixed rate		164,439		147,627		134,588

Adjustable rate:
Available for sale		32,638		41,722		49,910
Held to maturity		—		—		—

Total adjustable rate		32,638		41,722		49,910

Total investment securities	$	197,077	$	189,349	$	184,498

The following table sets forth the amount of investment securities which mature during each of the periods indicated and the weighted average yields for each range of maturities as of December 31, 2016. No tax-exempt yields have been adjusted to a tax-equivalent basis. All amounts are shown at amortized cost.


	Amounts as of December 31, 2016 which mature in:
*(dollars in thousands)*	One Year or Less			One Year to Five Years			Five to Ten Years			Over Ten Years			Total
Available for sale:
U.S. agency mortgage-backed	$	63		$	4,426		$	41,396		$	102,626		$	148,511
Non-U.S. agency mortgage-backed		—			—			—			5,043			5,043
Municipal bonds		1,876			9,925			8,651			760			21,212
U.S. government agency		999			4,993			—			2,954			8,946

Total available for sale		2,938			19,344			50,047			111,383			183,712

Weighted average yield		2.11	%		2.05	%		1.90	%		1.97	%		1.96	%

Held to maturity:
U.S. agency mortgage-backed		—			—			—			—			—
Municipal bonds		—			2,723			7,900			2,742			13,365

Total held to maturity		—			2,723			7,900			2,742			13,365

Weighted average yield		—	%		1.36	%		1.85	%		1.46	%		1.67	%

Total investment securities	$	2,938		$	22,067		$	57,947		$	114,125		$	197,077

The following table summarizes activity in the Company’s investment securities portfolio during 2016.


*(dollars in thousands)*	Available for Sale			Held to Maturity
Balance, December 31, 2015	$	176,762		$	13,927
Purchases		47,076			—
Sales		—			—
Principal maturities, prepayments and calls		(37,458	)		(235	)
Amortization of premiums and accretion of discounts		(1,327	)		(327	)
Decrease in market value		(1,323	)		—

Balance, December 31, 2016	$	183,730		$	13,365

As of December 31, 2016, the Company had a net unrealized gain on its available for sale investment securities portfolio of $18,000, compared to $1.3 million as of December 31, 2015.

Funding Sources

General – Deposits, loan repayments and prepayments, proceeds from investment securities sales, calls, maturities and paydowns, cash flows generated from operations and FHLB advances are our primary, ongoing sources of funds for use in lending, investing and for other general purposes.

Deposits – The Company offers a variety of deposit accounts with a range of interest rates and terms. Our deposits consist of checking, both interest-bearing and noninterest-bearing, money market, savings and certificate of deposit accounts.

The flow of deposits is influenced significantly by general economic conditions, changes in market interest rates and competition. Our deposits are obtained predominantly from the areas where our branch offices are located. We have historically relied primarily on a high level of customer service and long-standing relationships with customers to attract and retain deposits; however, market interest rates and rates offered by competitors significantly affect our ability to attract and retain deposits. The Company uses traditional means of advertising its deposit products, including broadcast and print media. The Company generally does not solicit deposits from outside our market area.

Total deposits were $1.2 billion as of December 31, 2016, an increase of $3.9 million, or 0.3%, compared to $1.2 billion as of December 31, 2015. The following table sets forth the composition of the Company’s deposits as of the dates indicated.


	December 31,				Increase/(Decrease)
*(dollars in thousands)*	2016		2015		Amount			Percent
Demand deposit	$	296,519	$	296,617	$	(98	)		—	%
Savings		109,414		109,393		21			—
Money market		264,784		293,637		(28,853	)		(9.8	)
NOW		305,092		267,707		37,385			14.0
Certificates of deposit		272,263		276,863		(4,600	)		(1.7	)

Total deposits	$	1,248,072	$	1,244,217	$	3,855			0.3	%

The following table shows the average balance and average rate paid for each type of deposit for the periods indicated.


	For the Years Ended December 31,
*(dollars in thousands)*	2016							2015							2014
*(dollars in thousands)*	Average Balance		Interest Expense		Average Rate Paid			Average Balance		Interest Expense		Average Rate Paid			Average Balance		Interest Expense		Average Rate Paid
Savings, checking and money market	$	672,444	$	1,577		0.23	%	$	588,684	$	1,331		0.23	%	$	491,832	$	1,102		0.22	%
Certificates of deposit		267,878		2,124		0.79			236,803		1,742		0.74			231,164		1,640		0.71

Total interest -bearing deposits	$	940,322	$	3,701		0.39	%	$	825,487	$	3,073		0.37	%	$	722,996	$	2,742		0.38	%

Certificates of deposit in the amount of $100,000 and over increased $6.7 million, or 5.5%, from $121.3 million as of December 31, 2015 to $128.0 million as of December 31, 2016. The following table details the remaining maturity of large-denomination certificates of deposit of $100,000 and over as of the dates indicated.


	December 31,
*(dollars in thousands)*	2016		2015		2014
3 months or less	$	19,795	$	22,913	$	16,179
3 - 6 months		20,175		18,042		15,853
6 - 12 months		25,405		27,253		35,039
12 - 36 months		51,376		37,907		20,386
More than 36 months		11,212		15,198		8,568

Total certificates of deposit greater than $100,000	$	127,963	$	121,313	$	96,025

Federal Home Loan Bank Advances – Advances from the FHLB may be obtained by the Company upon the security of the common stock it owns in the FHLB and certain of its real estate loans and investment securities, provided certain standards related to creditworthiness have been met. Such advances are made pursuant to several credit programs, each of which has its own interest rate and range of maturities. Advances from the FHLB may be either short-term, maturities of one year or less, or long-term, maturities in excess of one year.

Short-term FHLB advances totaled $40.0 million as of December 31, 2016, an increase of $61,000, or 0.2%, compared to $39.9 million as of December 31, 2015.

Long-term FHLB advances totaled $78.5 million as of December 31, 2016, a decrease of $6.7 million, or 7.8%, compared to $85.2 million as of December 31, 2015.

Shareholders’ Equity – Shareholders’ equity provides a source of permanent funding, allows for future growth and provides the Company with a cushion to withstand unforeseen adverse developments. As of December 31, 2016, shareholders’ equity totaled $179.8 million, an increase of $14.8 million, or 9.0%, compared to $165.0 million as of December 31, 2015.

RESULTS OF OPERATIONS

The Company earned net income of $16.0 million in 2016, an increase of $3.5 million, or 27.6%, compared to 2015. The Company’s net income of $12.6 million in 2015 was an increase of $2.7 million, or 27.1%, compared to 2014. Diluted earnings per share for 2016 were $2.25, an increase of 25.7% from 2015. Diluted earnings per share for 2015 were $1.79, an increase of 26.1% from 2014.

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. Our 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.

Net interest income totaled $62.4 million in 2016, an increase of $7.9 million, or 14.4%, compared to the $54.5 million in net interest income in 2015. The increase was due to a $9.3 million, or 15.9%, increase in interest income, which was partially offset by a $1.4 million, or 36.3%, increase in interest expense. The increases in 2016 compared to 2015 were primarily due to increases in average loans and deposits due to the full year impact of the Louisiana Bancorp acquisition.

In 2015, net interest income totaled $54.5 million, an increase of $3.5 million, or 6.9%, compared to the $51.0 million in net interest income in 2014. The increase was due to a $4.1 million, or 7.5%, increase in interest income, which was partially offset by a $582,000, or 17.7%, increase in interest expense. The increases in 2015 compared to 2014 were primarily due to increases in average loans and deposits driven by organic growth and acquired balances from Louisiana Bancorp in the third quarter of 2015.

The Company’s net interest spread was 4.22%, 4.32% and 4.45% for the years ended December 31, 2016, 2015 and 2014, respectively. The Company’s net interest margin, which is net interest income as a percentage of average interest-earning assets, was 4.34%, 4.43% and 4.54% during the years ended December 31, 2016, 2015 and 2014, respectively.

The following table sets forth, for the periods indicated, information regarding (i) the total dollar amount of interest income to 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 (“TE”) yields have been calculated using a marginal tax rate of 35%.


	For the Years Ended December 31,
*(dollars in thousands)*	2016							2015							2014
					Average							Average							Average
	Average				Yield/			Average				Yield/			Average				Yield/
	Balance		Interest		Rate			Balance		Interest		Rate			Balance		Interest		Rate
Interest-earning assets:
Loans receivable⁽¹⁾	$	1,225,690	$	63,731		5.15	%	$	1,013,482	$	54,466		5.33	%	$	891,401	$	50,273		5.59	%
Investment securities (TE)
Taxable		152,426		3,002		1.97			154,102		3,032		1.97			155,480		3,149		2.03
Tax-exempt		34,168		675		3.04			36,249		712		3.02			36,621		737		3.10

Total investment securities		186,594		3,677		2.17			190,351		3,744		2.17			192,101		3,886		2.23

Other interest-earning assets		19,695		276		1.40			24,935		199		0.80			38,965		163		0.42

Total interest-earning assets (TE)		1,431,979		67,684		4.71			1,228,768		58,409		4.75			1,122,467		54,322		4.84

Noninterest-earning assets		109,761							109,258							111,643

Total assets	$	1,541,740						$	1,338,026						$	1,234,110

Interest-bearing liabilities:
Deposits:
Savings, checking and money market	$	672,444	$	1,577		0.23	%	$	588,683	$	1,331		0.23	%	$	491,832	$	1,102		0.22	%
Certificates of deposit		267,878		2,124		0.79			236,804		1,742		0.74			231,164		1,640		0.71

Total interest-bearing deposits		940,322		3,701		0.39			825,487		3,073		0.37			722,996		2,742		0.38
Securities sold under repurchase agreements		—		—		—			10,291		39		0.38			20,716		73		0.35
FHLB advances		125,653		1,567		1.24			62,677		753		1.20			94,531		468		0.49

Total interest-bearing liabilities		1,065,975		5,268		0.49			898,455		3,865		0.43			838,243		3,283		0.39

Noninterest-bearing liabilities		301,515							279,200							247,490

Total liabilities		1,367,490							1,177,655							1,085,733
Shareholders’ equity		174,250							160,371							148,377

Total liabilities and shareholders’ equity	$	1,541,740						$	1,338,026						$	1,234,110

Net interest-earning assets	$	366,004						$	330,313						$	284,224

Net interest income; net interest spread (TE)			$	62,416		4.22	%			$	54,544		4.32	%			$	51,039		4.45	%

Net interest margin (TE)						4.34	%						4.43	%						4.54	%

⁽¹⁾	Nonperforming loans are included in the respective average loan balances, net of deferred fees, discounts and loans in process. Acquired Loans were recorded at fair value upon acquisition and accrete interest income over the remaining life of the respective loans.

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).


	2016 Compared to 2015									2015 Compared to 2014
	Change Attributable To									Change Attributable To
							Total									Total
							Increase									Increase
*(dollars in thousands)*	Rate			Volume			(Decrease)			Rate			Volume			(Decrease)
Interest income:
Loans receivable	$	(1,855	)	$	11,120		$	9,265		$	(1,511	)	$	5,704		$	4,193
Investment securities		19			(86	)		(67	)		(107	)		(35	)		(142	)
Other interest-earning assets		134			(57	)		77			122			(86	)		36

Total interest income		(1,702	)		10,977			9,275			(1,496	)		5,583			4,087

Interest expense:
Savings, checking and money market accounts		44			203			247			9			220			229
Certificates of deposit		144			238			382			61			41			102
Securities sold under repurchase agreements		—			(39	)		(39	)		4			(38	)		(34	)
FHLB advances		39			774			813			(185	)		470			285

Total interest expense		227			1,176			1,403			(111	)		693			582

Increase (decrease) in net interest income	$	(1,929	)	$	9,801		$	7,872		$	(1,385	)	$	4,890		$	3,505

Interest income includes interest income earned on earning assets as well as applicable loan fees earned. Interest income that would have been earned on nonaccrual loans had they been on accrual status is not included in the data reported above.

Provision for Loan Losses - We have identified the evaluation of the allowance for loan losses as a critical accounting policy where amounts are sensitive to material variation. This policy is significantly affected by our judgment and uncertainties. There is likelihood that materially different amounts would be reported under different, but reasonably plausible, conditions or assumptions. Our activity in the provision for loan losses, which are charges or recoveries to operating results, is undertaken in order to maintain a level of total allowance for loan losses that management believes covers all known and inherent losses that are both probable and reasonably estimable as of each reporting date. Our evaluation process typically includes, among other things, an analysis of delinquency trends, non-performing loan trends, the level of charge-offs and recoveries, prior loss experience, total loans outstanding, the volume of loan originations, the type, size and geographic concentration of loans, the value of collateral securing the loan, the borrower’s ability to repay and repayment performance, the number of loans requiring heightened management oversight, general economic conditions and industry experience. The OCC, as an integral part of its examination process, periodically reviews our allowance for loan losses. The OCC may require the Bank to make additional provisions for estimated loan losses based upon judgments different from those of management. As part of the risk management program, independent reviews are performed on the loan portfolio, which supplement management’s assessment of the loan portfolio and the allowance for loan losses. The results of independent reviews are reported to the Audit Committee of the Board of Directors.

For the year ended December 31, 2016, the Company recorded a provision for loan losses of $3.2 million, compared to provisions of $2.1 million and $2.4 million for 2015 and 2014, respectively. The provision for 2016 primarily related to downgrades of credit quality recorded as a result of our internal loan review and classification policy, as well as organic loan growth. The provision for 2015 related primarily to organic loan growth and an 11 basis point increase, or $873,000, on originated loans based on our analysis of the risk elements in our loan portfolio, including market conditions and the effects on state and local economies of continued low energy

prices. The provision for loan losses recorded during 2014 resulted primarily from a $1.3 million partial charge-off on a $1.7 million medical equipment loan relationship and organic loan growth. Net charge-offs were $237,000 for 2016, compared to $283,000 and $1.5 million for 2015 and 2014, respectively. Charge-offs during 2014 resulted primarily from a $1.3 million partial charge-off mentioned previously.

At December 31, 2016, the Company’s ratio of allowance for loan losses to total loans was 1.02%, compared to 0.78% at December 31, 2015. Excluding Acquired Loans, the ratio of allowance for loan losses to total originated loans was 1.38% at December 31, 2016, compared to 1.15% at December 31, 2015. Over the past two years, the Company has increased the ratio of its overall allowance for loan losses to loans on originated loans from 1.04% at December 31, 2014 due primarily to the potential direct and indirect impact of continuing low energy prices on our borrowers.

Noninterest Income – The following table illustrates the primary components of noninterest income for the years indicated.


						2016 vs 2015					2015 vs 2014
						Percent Increase					Percent Increase
*(dollars in thousands)*	2016		2015			(Decrease)			2014		(Decrease)
Noninterest income:
Service fees and charges	$	4,061	$	3,938			3.1	%	$	3,747		5.1	%
Bank card fees		2,603		2,413			7.9			2,178		10.8
Gain on sale of loans, net		1,770		1,528			15.8			1,212		26.1
Income from bank-owned life insurance		483		504			(4.2	)		458		10.0
Gain on sale of securities, net		—		7			(100.0	)		2		250.0
Gain (loss) on sale of assets, net		595		(491	)		221.3			—		—
Other income		1,645		871			88.9			578		50.7

Total noninterest income	$	11,157	$	8,770			27.2	%	$	8,175		7.3	%

2016 compared to 2015

Noninterest income for 2016 totaled $11.2 million, an increase of $2.4 million, or 27.2%, compared to 2015. The increase was primarily the result of increases in gains on sale of assets (up $1.1 million due to a $641,000 gain on the sale of a banking center in 2016 compared to a $491,000 loss on the sale of property during 2015), other income (up $774,000 primarily due to recoveries on previously charged off Acquired Loans), gains on the sale of mortgage loans (up $243,000), bank card fees (up $190,000) and service fees and charges (up $123,000).

2015 compared to 2014

Noninterest income for 2015 totaled $8.8 million, an increase of $595,000, or 7.3%, compared to 2014. The increase was primarily the result of increases in gains on the sale of mortgage loans (up $316,000), bank card fees (up $235,000) and service fees and charges (up $191,000). The increases were due to increased activity and the acquisition of Louisiana Bancorp.

Noninterest Expense –The following table illustrates the primary components of noninterest expense for the years indicated.


					2016 vs 2015					2015 vs 2014
					Percent Increase					Percent Increase
*(dollars in thousands)*	2016		2015		(Decrease)			2014		(Decrease)
Noninterest expense:
Compensation and benefits	$	27,634	$	25,036		10.4	%	$	24,387		2.7	%
Occupancy		5,255		4,876		7.8			4,670		4.4
Marketing and advertising		1,063		486		118.7			919		(47.1	)
Data processing and communication		4,967		4,045		22.8			4,431		(8.7	)
Professional services		983		1,755		(44.0	)		1,160		51.3
Forms, printing and supplies		623		597		4.4			662		(9.8	)
Franchise and shares tax		821		650		26.3			574		13.2
Regulatory fees		1,317		1,122		17.4			1,067		5.2
Foreclosed assets, net		140		443		(68.4	)		997		(55.6	)
Other expenses		3,994		3,012		32.6			2,905		3.7

Total noninterest expense	$	46,797	$	42,022		11.4	%	$	41,772		0.6	%

2016 compared to 2015

Noninterest expense for 2016 totaled $46.8 million, an increase of $4.8 million, or 11.4%, from 2015. Noninterest expense includes merger-related expenses related to the acquisition of Louisiana Bancorp of $856,000 and $1.4 million for the years ended December 31, 2016 and 2015, respectively. Excluding merger-related expenses, noninterest expense increased $5.3 million, or 13.1%, for the year ended December 31, 2016. The increase was primarily the result of higher compensation and benefits, data processing and communications, marketing and advertising and other expenses due primarily to the Company’s growth.

2015 compared to 2014

Noninterest expense for 2015 totaled $42.0 million, an increase of $250,000, or 0.6%, from 2014. Noninterest expense includes merger-related expenses related to the acquisition of Louisiana Bancorp of $1.4 million for the year ended December 31, 2015 and $2.3 million for the year ended December 31, 2014 due to the Britton & Koontz acquisition. Excluding merger-related expenses, noninterest expense increased $1.1 million, or 2.9%, for the year ended December 31, 2015. The increase in noninterest expense was primarily the result of the addition of Louisiana Bancorp employees, its operation and facilities.

Income Taxes – For the years ended December 31, 2016, 2015 and 2014, the Company incurred income tax expense of $7.6 million, $6.7 million and $5.2 million, respectively. The Company’s effective tax rate amounted to 32.1%, 34.7% and 34.5% during 2016, 2015 and 2014, respectively. The difference between the effective tax rate and the statutory tax rate primarily related to variances in items that are non-taxable or non-deductible, primarily the effect of tax-exempt income and various tax credits taken. The lower effective tax rate for 2016 resulted from our adoption of ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This ASU simplified several aspects of share-based payment transactions, including the income tax consequences. Excess tax benefits and tax deficiencies are now recognized as income tax expense or benefit in the income statement in the period exercise or vesting occurs, whereas they were previously recognized as adjustments to additional paid-in capital. See Note 12 to the Consolidated Financial Statements for additional information concerning our income taxes.

LIQUIDITY AND CAPITAL RESOURCES

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. We also maintain excess funds in short-term, interest-bearing assets that provide additional liquidity. As of December 31, 2016, our cash and cash equivalents totaled $29.3 million. In addition, as of such date, our available for sale investment securities totaled $183.7 million.

We use our 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. As of December 31, 2016, we had certificates of deposit maturing within the next 12 months totaling $151.5 million. Based upon historical experience, we anticipate that the majority of the maturing certificates of deposit will be redeposited with us in certificates of deposit or other deposit accounts.

In addition to cash flows from loan and securities payments and prepayments as well as from sales of available for sale securities, we have significant borrowing capacity available to fund liquidity needs. In recent years, we have utilized borrowings as a cost efficient addition to deposits as a source of funds. Our borrowings consist of advances from the FHLB, of which we are a member. Under terms of the collateral agreement with the FHLB, we may pledge residential mortgage loans and mortgage-backed securities as well as our stock in the FHLB as collateral for such advances. For the year ended December 31, 2016, the average balance of our outstanding FHLB advances was $125.7 million. As of December 31, 2016, we had $118.5 million in outstanding FHLB advances and $494.9 million in additional FHLB advances available to us.

Liquidity management is both a daily and long-term function of business management. Excess liquidity is generally invested in short-term investments such as overnight deposits. On a longer-term basis, the Company maintains a strategy of investing in various lending and investment security products. The Company uses its sources of funds primarily to meet its ongoing commitments and fund loan commitments. The Company has been able to generate sufficient cash through its deposits, as well as borrowings, and anticipates it will continue to have sufficient funds to meet its liquidity requirements.

ASSET/ LIABILITY MANAGEMENT AND MARKET RISK

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 is also monitored by management through the use of models which generate 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 December 31, 2016.


Shift in Interest Rates (in bps)		% Change in Projected Net Interest Income
+300		0.1%
+200		0.3
+100		0.3

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 interest-earning assets and maintain a desired mix of interest-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.

Market risk is the risk of loss from adverse changes in market prices and rates. Our market risk arises primarily from the interest rate risk which is inherent in our lending and deposit taking activities. To that end, management actively monitors and manages interest rate risk exposure. In addition to market risk, our primary risk is credit risk on our loan portfolio. We attempt to manage credit risk through our loan underwriting and oversight policies.

The principal objective of our interest rate risk management function is to evaluate the interest rate risk embedded in certain balance sheet accounts, determine the level of risk appropriate given our business strategy, operating environment, capital and liquidity requirements, performance objectives and interest rate environment and manage the risk consistent with approved guidelines. We seek to manage our exposure to risks from changes in interest rates while at the same time trying to improve our net interest spread. We monitor interest rate risk as such risk relates to our operating strategies. We have established an Asset/Liability Committee (“ALCO”), which is comprised of our Chief Executive Officer, Chief Financial Officer, Chief Banking Officer, Chief Credit Officer, Chief Operating Officer, Director of Financial Management and Treasurer. ALCO is responsible for reviewing our asset/liability and investment policies and interest rate risk position. ALCO meets at least monthly. The extent of the movement of interest rates is an uncertainty that could have a negative impact on future earnings.

In recent years, we primarily have utilized the following strategies in our efforts to manage interest rate risk:

•

we have increased our originations of shorter term loans, particularly commercial real estate and commercial and industrial loans;

•

we generally sell our conforming long-term (30-year) fixed-rate single-family residential mortgage loans into the secondary market; and

•

we have invested in securities, consisting primarily of mortgage-backed securities and collateral mortgage obligations, with relatively short average lives, generally three to five years, and we maintain adequate amounts of liquid assets.

OFF-BALANCE SHEET ACTIVITIES

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

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 the undisbursed portion of construction loans as of December 31 of the years indicated.


	Contract Amount
*(dollars in thousands)*	2016		2015
Standby letters of credit	$	5,233	$	3,764
Available portion of lines of credit		141,968		127,393
Undisbursed portion of loans in process		62,791		73,699
Commitments to originate loans		98,714		89,653

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 and revolving credit lines 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 position or results of operations of the Company.


*(dollars in thousands)*	Less Than One Year		One to Three Years		Three to Five Years		Over Five Years		Total
Unused commercial lines of credit	$	59,853	$	13,512	$	530	$	—	$	73,895
Unused personal lines of credit		3,641		6,866		4,776		52,790		68,073
Undisbursed portion of loans in process		51,838		7,287		3,543		123		62,791
Commitments to originate loans		98,714		—		—		—		98,714
Standby letters of credit		4,513		600		120		—		5,233

Total	$	218,559	$	28,265	$	8,969	$	52,913	$	308,706

The Company has utilized leasing arrangements to support the ongoing activities of the Company. The required payments under such commitments and other contractual cash commitments as of December 31, 2016 are shown in the following table.


*(dollars in thousands)*	2017		2018		2019		2020		2021		Thereafter		Total
Operating leases	$	179	$	179	$	134	$	101	$	100	$	638	$	1,331
Certificates of deposit		151,474		78,337		17,779		8,777		12,435		3,461		272,263
Long-term FHLB advances		22,788		6,000		12,563		31,830		848		4,504		78,533

Total	$	174,441	$	84,516	$	30,476	$	40,708	$	13,383	$	8,603	$	352,127

IMPACT OF INFLATION AND CHANGING PRICES

The financial statements, accompanying notes and related financial data of the Company presented herein have been prepared in accordance with GAAP, which require the measurement of financial position and operating results in terms of historical dollars without considering the changes in purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of operations. Most of our assets and liabilities are monetary in nature; therefore, the impact of interest rates has a greater impact on its performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk.

The information contained in the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Asset/Liability Management and Market Risk” in Item 7 hereof is incorporated herein by reference.

Item 8.

Financial Statements and Supplementary Data.

LOGO

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

Home Bancorp, Inc.

Lafayette, Louisiana

We have audited the accompanying consolidated statements of financial condition of Home Bancorp, Inc. and subsidiary (the “Company”) as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2016. We also have examined the internal control over financial reporting of the Company as of December 31, 2016, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assertion of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and those charged with governance; and (c) provide reasonable assurance regarding prevention, or timely detection and correction, of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

/s/ Porter Keadle Moore, LLC

Atlanta, Georgia

March 14, 2017

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


	December 31,
	2016			2015
Assets
Cash and cash equivalents	$	29,314,741		$	24,797,599
Interest-bearing deposits in banks		1,884,000			5,143,585
Investment securities available for sale, at fair value		183,729,857			176,762,200
Investment securities held to maturity (fair values of $13,362,062 and
$14,120,842, respectively)		13,365,479			13,926,861
Mortgage loans held for sale		4,156,186			5,651,250
Loans, net of unearned income		1,227,833,309			1,224,365,916
Allowance for loan losses		(12,510,708	)		(9,547,487	)

Total loans, net of unearned income and allowance for loan losses		1,215,322,601			1,214,818,429

Office properties and equipment, net		39,566,639			40,815,744
Cash surrender value of bank-owned life insurance		20,149,553			19,666,900
Accrued interest receivable and other assets		49,242,977			50,329,032

Total Assets	$	1,556,732,033		$	1,551,911,600

Liabilities
Deposits:
Noninterest-bearing	$	296,519,496		$	296,616,693
Interest-bearing		951,552,957			947,599,823

Total deposits		1,248,072,453			1,244,216,516
Short-term Federal Home Loan Bank advances		40,000,000			39,939,375
Long-term Federal Home Loan Bank advances		78,533,173			85,213,222
Accrued interest payable and other liabilities		10,283,383			17,496,133

Total Liabilities		1,376,889,009			1,386,865,246

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; 7,350,102 and 7,239,821 shares issued and outstanding		73,502			72,399
Additional paid-in capital		79,425,604			76,948,914
Unallocated common stock held by:
Employee Stock Ownership Plan (ESOP)		(4,195,590	)		(4,552,670	)
Recognition and Retention Plan (RRP)		(119,633	)		(158,590	)
Retained earnings		104,647,375			91,864,543
Accumulated other comprehensive income		11,766			871,758

Total Shareholders’ Equity		179,843,024			165,046,354

Total Liabilities and Shareholders’ Equity	$	1,556,732,033		$	1,551,911,600

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

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME


	Years Ended December 31,
	2016		2015			2014
Interest Income
Loans, including fees	$	63,731,508	$	54,466,025		$	50,273,076
Investment securities:
Taxable interest		3,001,887		3,031,381			3,146,187
Tax-exempt interest		674,695		712,602			740,333
Other investments and deposits		276,224		199,646			162,965

Total interest income		67,684,314		58,409,654			54,322,561

Interest Expense
Deposits		3,701,244		3,072,725			2,742,106
Securities sold under repurchase agreements		—		39,126			72,986
Short-term Federal Home Loan Bank advances		188,425		51,406			125,021
Long-term Federal Home Loan Bank advances		1,378,702		702,136			343,306

Total interest expense		5,268,371		3,865,393			3,283,419

Net interest income		62,415,943		54,544,261			51,039,142
Provision for loan losses		3,200,000		2,070,894			2,364,358

Net interest income after provision for loan losses		59,215,943		52,473,367			48,674,784

Noninterest Income
Service fees and charges		4,060,906		3,937,797			3,746,580
Bank card fees		2,603,075		2,413,459			2,178,194
Gain on sale of loans, net		1,770,249		1,527,721			1,212,157
Income from bank-owned life insurance		482,653		503,790			458,163
Gain on sale of securities, net		—		7,279			1,826
Gain (loss) on sale of assets, net		595,523		(491,109	)		—
Other income		1,644,758		870,581			577,858

Total noninterest income		11,157,164		8,769,518			8,174,778

Noninterest Expense
Compensation and benefits		27,633,636		25,035,862			24,386,501
Occupancy		5,254,889		4,875,945			4,670,318
Marketing and advertising		1,062,935		486,341			919,483
Data processing and communication		4,967,028		4,044,553			4,430,519
Professional services		983,445		1,755,286			1,159,814
Forms, printing and supplies		623,495		596,748			662,074
Franchise and shares tax		820,774		650,461			574,060
Regulatory fees		1,317,015		1,122,254			1,066,999
Foreclosed assets, net		139,578		443,228			996,633
Other expenses		3,994,022		3,011,747			2,905,191

Total noninterest expense		46,796,817		42,022,425			41,771,592

Income before income tax expense		23,576,290		19,220,460			15,077,970
Income tax expense		7,567,954		6,670,559			5,206,383

Net Income	$	16,008,336	$	12,549,901		$	9,871,587

Earnings per share:
Basic	$	2.34	$	1.87		$	1.51

Diluted	$	2.25	$	1.79		$	1.42

Cash dividends declared per common share	$	0.41	$	0.30		$	0.07

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

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	For the Years Ended
	December 31,
	2016			2015			2014
Net Income	$	16,008,336		$	12,549,901		$	9,871,587

Other Comprehensive (Loss) Income

Unrealized (losses) gains on investment securities		(1,323,064	)		(659,057	)		1,709,151
Reclassification adjustment for gains included in net income		—			(7,279	)		(1,826	)
Tax effect		463,072			233,218			(597,564	)

Other comprehensive (loss) income, net of taxes		(859,992	)		(433,118	)		1,109,761

Comprehensive Income	$	15,148,344		$	12,116,783		$	10,981,348

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

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY


	Common Stock			Additional Paid-in Capital			Treasury Stock			Unallocated Common Stock Held by ESOP			Unallocated Common Stock Held by RRP			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balance, December 31, 2013	$	89,585		$	92,192,410		$	(28,011,398	)	$	(5,266,830	)	$	(1,018,497	)	$	83,729,144		$	195,115		$	141,909,529

Net income																	9,871,587						9,871,587
Other comprehensive income																				1,109,761			1,109,761
Purchase of Company’s common stock at cost, 26,222 shares								(561,493	)														(561,493	)
Cash dividends declared,
$0.07 per share																	(498,816	)					(498,816	)
Exercise of stock options		503			580,585																		581,088

RRP shares released for allocation					(584,015	)								815,907									231,892
ESOP shares released for allocation					447,496						357,080												804,576
Share-based compensation cost					695,632																		695,632

Balance, December 31, 2014	$	90,088		$	93,332,108		$	(28,572,891	)	$	(4,909,750	)	$	(202,590	)	$	93,101,915		$	1,304,876		$	154,143,756

Net income																	12,549,901						12,549,901
Other comprehensive income																				(433,118	)		(433,118	)
Purchase of Company’s common stock at cost, 155,218 shares								(3,465,959	)														(3,465,959	)
Reclassification of treasury stock per Louisiana law⁽¹⁾		(20,405	)		(20,393,258	)		32,038,850									(11,625,187	)					—
Cash dividends declared, $0.30 per share																	(2,162,086	)					(2,162,086	)
Exercise of stock options		2,716			3,279,481																		3,282,197

RRP shares released for allocation					(32,106	)								44,000									11,894
ESOP shares released for allocation					641,576						357,080												998,656
Share-based compensation cost					121,113																		121,113

Balance, December 31, 2015	$	72,399		$	76,948,914		$	—		$	(4,552,670	)	$	(158,590	)	$	91,864,543		$	871,758		$	165,046,354

Net income																	16,008,336						16,008,336
Other comprehensive income																				(859,992	)		(859,992	)
Purchase of Company’s common stock at cost, 12,826 shares		(128	)		(128,501	)		—									(228,686	)					(357,315	)
Cash dividends declared, $0.41 per share																	(2,987,597	)					(2,987,597	)
Common Stock issued under incentive plans, net of shares surrendered in payment, including tax benefit, 3,877 shares		39			3,442												(9,221	)					(5,740	)
Exercise of stock options		1,192			1,414,744																		1,415,936

RRP shares released for allocation					(25,992	)								38,957									12,965
ESOP shares released for allocation					842,631						357,080												1,199,711
Share-based compensation cost					370,366																		370,366

Balance, December 31, 2016	$	73,502		$	79,425,604		$	—		$	(4,195,590	)	$	(119,633	)	$	104,647,375		$	11,766		$	179,843,024

⁽¹⁾	See Note 2 for details on the Louisiana Business Corporation Act.

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

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Years Ended December 31,
	2016			2015			2014
Cash flows from operating activities, net of effects of acquisitions:
Net income	$	16,008,336		$	12,549,901		$	9,871,587
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		3,200,000			2,070,894			2,364,358
Depreciation		1,794,714			1,807,480			1,737,579
Amortization and accretion of purchase accounting valuations and intangibles		3,256,194			4,045,736			8,650,398
Net amortization of mortgage servicing asset		254,077			180,364			160,071
Federal Home Loan Bank stock dividends		(86,600	)		(12,800	)		(18,800	)
Net amortization of discount on investments		1,652,856			1,530,144			1,327,352
Gain on sale of investment securities, net		—			(7,279	)		(1,826	)
Gain on loans sold, net		(1,770,249	)		(1,527,721	)		(1,212,157	)
Proceeds, including principal payments, from loans held for sale		179,638,804			153,954,728			113,074,911
Originations of loans held for sale		(176,373,491	)		(153,561,422	)		(112,793,674	)
Non-cash compensation		1,570,077			1,119,769			1,451,883
Deferred income tax (benefit) expense		(321,490	)		630,864			516,456
(Increase) decrease in accrued interest receivable and other assets		(588,526	)		8,905,751			7,688,608
Increase in cash surrender value of bank-owned life insurance		(482,653	)		(503,790	)		(458,163	)
(Increase) decrease in accrued interest payable and other liabilities		(7,264,364	)		4,982,769			(4,458,388	)

Net cash provided by operating activities		20,487,685			36,165,388			27,900,195

Cash flows from investing activities, net of effects of acquisitions:
Purchases of securities available for sale		(47,075,669	)		(18,713,312	)		(22,810,016	)
Purchases of securities held to maturity		—			(2,927,988	)		(3,000,747	)
Proceeds from maturities, prepayments and calls on securities available for sale		37,458,473			30,094,652			29,337,106
Proceeds from maturities, prepayments and calls on securities held to maturity		235,000			400,000			466,470
Proceeds from sales on securities available for sale		—			21,194,622			66,905,382
Increase in loans, net		(7,061,612	)		(41,104,084	)		(57,637,109	)
Reimbursement from FDIC for covered assets		51,128			403,865			837,396
Decrease in interest-bearing deposits in banks		3,259,585			863,700			1,237,000
Proceeds from sale of repossessed assets		1,410,569			5,378,286			6,771,868
Purchases of office properties and equipment		(4,112,610	)		(828,723	)		(3,304,837	)
Proceeds from sale of office properties and equipment		4,335,095			2,016,239			60,480
Net cash disbursed in business combinations		—			(56,404,340	)		(22,995,649	)
Purchases of Federal Home Loan Bank stock		—			(4,751,000	)		(3,024,600	)
Proceeds from redemption of Federal Home Loan Bank stock		—			2,444,900			5,360,300

Net cash used in investing activities		(11,500,041	)		(61,933,183	)		(1,796,956	)

Cash flows from financing activities, net of effects of acquisitions:
Increase in deposits		3,943,483			42,055,227			35,778,663
Borrowings on Federal Home Loan Bank advances		2,642,250,000			4,931,772,337			13,972,850,000
Repayments of Federal Home Loan Bank advances		(2,648,729,269	)		(4,929,994,229	)		(14,031,499,000	)
Decrease in securitites sold under repurchase agreements		—			(20,000,000	)		(6,314,674	)
Proceeds from exercise of stock options		1,415,936			3,282,197			581,088
Issuance of stock under incentive plans		(5,740	)		—			—
Dividends paid to shareholders		(2,987,597	)		(2,162,086	)		(498,816	)
Purchase of Company’s common stock		(357,315	)		(3,465,959	)		(561,493	)

Net cash provided (used in) by financing activities		(4,470,502	)		21,487,487			(29,664,232	)

Net change in cash and cash equivalents		4,517,142			(4,280,308	)		(3,560,993	)
Cash and cash equivalents at beginning of year		24,797,599			29,077,907			32,638,900

Cash and cash equivalents at end of year	$	29,314,741		$	24,797,599		$	29,077,907

Supplementary cash flow information:
Interest paid on deposits and borrowed funds	$	5,207,346		$	3,844,807		$	3,524,374
Income taxes paid		7,913,000			3,702,500			5,140,000

Noncash investing and financing activities:
Transfer of loans to repossessed assets	$	1,885,180		$	3,073,326		$	8,062,009
Assets acquired and liabilities assumed in acquisitions:
Assets acquired in acquisitions		—			351,138,388			298,929,990
Liablities assumed in acquisitions		—			291,313,436			264,457,929

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

HOME BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Description of Business

Home Bancorp, Inc., a Louisiana Corporation (“Company”), was organized by Home Bank (a federally chartered savings bank and the predecessor of Home Bank, N.A.) (“Bank”) in May 2008 to facilitate the conversion of the Bank from the mutual to the stock form (“Conversion”) of ownership. The Conversion was completed on October 2, 2008, at which time the Company became the holding company for the Bank, with the Company owning all of the issued and outstanding shares of the Bank’s common stock. The Company and Bank are headquartered in Lafayette, Louisiana. As of December 31, 2016, the Company was a bank holding company.

As of December 31, 2016, Home Bank, N.A. was a nationally chartered bank. The Bank was originally chartered in 1908 as a Louisiana state chartered savings association. The Bank converted to a federal mutual savings bank charter in 1993.

In 2010, the Bank expanded into the Northshore (of Lake Pontchartrain) region through a Federal Deposit Insurance Corporation (“FDIC”) assisted acquisition of certain assets and liabilities of the former Statewide Bank (“Statewide”). In July 2011, the Bank expanded into the Greater New Orleans region through its acquisition of GS Financial Corporation (“GSFC”), the former holding company of Guaranty Savings Bank (“Guaranty”). In February 2014, the Bank expanded into west Mississippi through its acquisition of Britton & Koontz Capital Corporation (“Britton & Koontz”), the holding company for Britton & Koontz Bank, N.A. (“Britton & Koontz Bank”) of Natchez, Mississippi. In September 2015, the Bank expanded its existing presence in the Greater New Orleans region through the acquisition of Louisiana Bancorp, Inc. (“Louisiana Bancorp”), the former holding company of Bank of New Orleans (“BNO”) of Metairie, Louisiana. As of December 31, 2016, the Bank conducted business from 29 banking offices in the Greater Lafayette, Northshore, Baton Rouge and Greater New Orleans regions of south Louisiana and west Mississippi.

The Bank is primarily engaged in attracting deposits from the general public and using those funds to invest in loans and investment securities. The Bank’s principal sources of funds are customer deposits, repayments of loans, repayments of investments and funds borrowed from outside sources such as the Federal Home Loan Bank (“FHLB”) of Dallas. The Bank derives its income principally from interest earned on loans and investment securities and, to a lesser extent, from fees received in connection with the origination of loans, service charges on deposit accounts and for other services. The Bank’s primary expenses are interest expense on deposits and borrowings and general operating expenses.

The Bank’s primary regulator is the Office of the Comptroller of the Currency (“OCC”). Its deposits are insured to the maximum amount permissible under federal law by the FDIC. In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) was passed by Congress. The Dodd-Frank Act, among other things, imposed new restrictions and an expanded framework of regulatory oversight for financial institutions and their holding companies, including the Bank and the Company. The Dodd-Frank Act also created the Consumer Financial Protection Bureau (“CFPB”) that has the authority to promulgate rules intended to protect consumers in the financial products and services market. Because many of the regulations under the new law have not been promulgated, we cannot determine the full impact on our business and operations at this time.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and the Bank. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term include, but are not limited to, the determination of the allowance for loan losses, income taxes, valuation of investments with other-than-temporary impairment, acquisition accounting valuations and valuation of share-based compensation.

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, due from banks and interest-bearing deposits with the FHLB. The Company considers all highly liquid debt instruments with original maturities of three months or less (excluding interest-bearing deposits in banks) to be cash equivalents.

The Bank is required to maintain cash reserves with the Federal Reserve Bank. The requirement is dependent upon the Bank’s cash on hand or noninterest-bearing balances. There was no reserve requirement as of December 31, 2016 and 2015. The Bank was in compliance with reserve requirements at such dates.

Investment Securities

The Company follows the guidance under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 320, Investments – Debt and Equity Securities. This standard addresses the accounting and reporting for investments in equity securities that have readily determinable fair values and for all investments in debt securities. Under the topic, investment securities, which the Company both positively intends and has the ability to hold to maturity, are classified as held to maturity and carried at amortized cost.

Investment securities that are acquired with the intention of being resold in the near term are classified as trading securities under ASC 320 and are carried at fair value, with unrealized holding gains and losses recognized in current earnings. The Company did not hold any securities for trading purposes at, or during the years ended, December 31, 2016 or 2015.

Securities not meeting the criteria of either trading securities or held to maturity are classified as available for sale and are carried at fair value. Unrealized holding gains and losses for these securities are recognized, net of related income tax effects in the Consolidated Statements of Comprehensive Income.

Interest income earned on securities either held to maturity or available for sale is included in current earnings, including the amortization of premiums and the accretion of discounts using the interest method. Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to the yield. The gain or loss realized on the sale of securities classified as available for sale or held to maturity, as determined using the specific identification method for determining the cost of the securities sold, is computed with reference to its amortized cost and is also included in current earnings.

The Company reviews investment securities for other-than-temporary impairment quarterly. Impairment is considered to be other-than-temporary if it is likely that all amounts contractually due will not be received for debt securities and when there is no positive evidence indicating that an investment’s carrying amount is recoverable in the near term for equity securities. When a decline in the fair value of available for sale and held to maturity securities below cost is deemed to be credit related, a charge for other-than-temporary impairment is included in earnings as “Other-than-temporary impairment of securities”. The decline in fair value attributed to non-credit related factors is recognized in other comprehensive income and a new cost basis for the security is established. The new cost basis is not changed for subsequent recoveries in fair value. Increases and decreases between fair value and cost on available for sale securities are reflected in the Consolidated Statements of Comprehensive Income. In evaluating whether impairment is temporary or other-than-temporary, the Company considers, among other things, the time period the security has been in an unrealized loss position; the financial condition of the issuer and its industry; recommendations of investment advisors; economic forecasts; market or industry trends; changes in tax laws, regulations, or other governmental policies significantly affecting the issuer;

any downgrades from rating agencies; and any reduction or elimination of dividends. The Company’s intent and ability to hold a security for a period of time sufficient to allow for any anticipated recovery in fair value is also considered.

Loans Held for Sale

The Company sells mortgage loans and loan participations for an amount equal to the principal amount of loans or participations with yields to investors based upon current market rates. Realized gains and losses related to loan sales are included in noninterest income.

The Company allocates the cost to acquire or originate a mortgage loan between the loan and the right to service the loan if it intends to sell or securitize the loan and retain servicing rights. In addition, the Company periodically assesses capitalized mortgage servicing rights for impairment based on the fair value of such rights. To the extent that temporary impairment exists, write-downs are recognized in current earnings as an adjustment to the corresponding valuation allowance. Permanent impairment is recognized through a write-down of the asset with a corresponding reduction in the valuation allowance. For purposes of performing its impairment evaluation, the portfolio is stratified on the basis of certain risk characteristics, including loan type and interest rates. Capitalized servicing rights are amortized over the period of, and in proportion to, estimated net servicing income, which considers appropriate prepayment assumptions.

For financial reporting purposes, the Company classifies a portion of its loans as “Mortgage loans held for sale”. Included in this category are loans which the Company has the current intent to sell and loans which are available to be sold in the event that the Company determines that loans should be sold to support the Company’s investment and liquidity objectives, as well as to support its overall asset and liability management strategies. Loans included in this category for which the Company has the current intention to sell are recorded at the lower of aggregate cost or fair value. As of December 31, 2016 and 2015, the Company had $4,156,000 and $5,651,000, respectively, in loans classified as “Mortgage loans held for sale.”

As of December 31, 2016 and 2015 the Company had $188,103,000 and $226,379,000, respectively, outstanding in loans sold to government agencies that it was servicing through a third party.

Loans

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

Originated Loans

Loans are carried net of discounts on loan originations are amortized using the level yield interest method over the remaining contractual life of the loan. Nonrefundable loan origination fees, net of direct loan origination costs, are deferred and recognized over the life of the loan as an adjustment of yield using the interest method.

Interest on loans receivable is accrued as earned using the interest method over the life of the loan. Interest on loans deemed uncollectible is excluded from income. The accrual of interest is discontinued and reversed against current income once loans become more than 90 days past due or earlier if conditions warrant. The past due status of loans is determined based on the contractual terms. When a loan is placed on nonaccrual status, previously accrued and uncollected interest is charged against interest income on loans. Interest payments are applied to reduce the principal balance on nonaccrual loans. Loans are returned to accrual status when all past due payments are received in full and future payments are probable.

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 being deemed a criticized or classified loan, updated valuations may be ordered to help determine if there is impairment, which may lead to a recommendation for partial charge off or appropriate allowance allocation. Property valuations are ordered through, and reviewed by, the Company’s Appraisal and Review Department. The Company typically orders an “as is” valuation for collateral property if the loan is in a criticized loan classification.

Loans, or portions of loans, are charged off in the period that such loans, or portions thereof, are deemed uncollectible. The collectability of individual loans is determined through an estimate of the fair value of the underlying collateral and/or assessment of the financial condition and repayment capacity of the borrower.

Acquired Loans

Acquired Loans at December 31, 2016 and 2015 are those associated with our acquisitions of Statewide, GSFC, Britton & Koontz and Louisiana Bancorp. These 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 development 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 fair value discount for the loan pool. Once the 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.

Certain loans purchased in the Statewide acquisition are covered by loss sharing agreements between the FDIC and the Company. Historically, the Company has referred to loans subject to loss share agreements with the FDIC as “covered loans.” However, in March 2015, a significant portion of the loss sharing agreements had expired and any future losses on these formerly covered loans are no longer eligible for reimbursement from the FDIC. As of December 31, 2016, only residential mortgage loans acquired from Statewide remained subject to loss sharing agreements with the FDIC. The Company’s remaining loans subject to loss sharing agreements with the FDIC amounted to approximately $2.8 million, or less than 0.2% of the Company’s total loan portfolio at such date. Given the limited amount of covered loans remaining, the Company is no longer reporting such loans as “covered loans,” and they are included in “Acquired Loans.”

Allowance for Loan Losses

The allowance for loan losses on loans in our portfolio is maintained at an amount which management believes covers the reasonably estimable and probable losses on such portfolio. The allowance for loan losses is comprised of specific and general reserves. The Company determines specific reserves based on the provisions of ASC 310, Receivables. The Company’s allowance for loan losses includes a measure of impairment related to those loans specifically identified for evaluation under the topic. This measurement 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. General reserves are based on management’s evaluation of many factors, including current economic trends, industry experience, historical loss experience (generally three years), industry loan concentrations, the borrowers’ abilities to repay and repayment performance, probability of foreclosure and estimated collateral values. As these factors change, adjustments to the allowance for loan losses are charged to current operations. Loans that are determined to be uncollectible are charged-off against the allowance for loan losses once that determination is made.

While management uses available information to make loan loss allowance evaluations, adjustments to the allowance may be necessary based on changes in economic and other conditions or changes in accounting guidance. The OCC, as an integral part of its examination processes, periodically reviews the allowance for loan losses. The OCC may require the recognition of adjustments to the allowance for loan losses based on its judgment of information available to it as of the time of its examinations. To the extent the OCC’s estimates differ from management’s estimates, additional provisions to the allowance for loan losses may be required as of the time of its examination. As part of the risk management program, an independent review is performed on the loan portfolio, which supplements management’s assessment of the loan portfolio and the allowance for loan losses. The result of the independent review is reported directly to the Audit Committee of the Board of Directors.

Repossessed Assets

Repossessed assets are recorded at fair value less estimated selling costs at the date acquired or upon receiving new property valuations. Costs relating to the development and improvement of foreclosed property are capitalized, and costs relating to holding and maintaining the property are expensed. Write-downs from cost to fair value at the dates of foreclosure are charged against the allowance for loan losses. Valuations are performed periodically and a charge to operations is recorded if the carrying value of a property exceeds its fair value less selling costs. Generally, the Company appraises the property at the time of foreclosure and at least every 12 months following the foreclosure. The Company had $2,893,000 and $3,128,000 of repossessed assets as of December 31, 2016 and 2015, respectively. Repossessed Assets are recorded in accrued interest receivable and other assets on the Consolidated Statements of Financial Condition.

Federal Home Loan Bank Stock

As a member of the FHLB, the Bank is required to maintain a minimum investment in its stock that varies with the level of FHLB advances outstanding. The stock is bought from and sold to the FHLB based upon its $100 par value. The stock does not have a readily determinable fair value and as such is classified as restricted stock, carried at cost and evaluated for impairment in accordance with GAAP. The stock’s value is determined by the ultimate recoverability of the par value rather than by recognizing temporary declines. The determination of whether the par value will ultimately be recovered is influenced by criteria such as: (a) the significance of the decline in net assets of the FHLB as compared to the capital stock amount and the length of time this situation has persisted, (b) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance, (c) the impact of legislative and regulatory changes on the customer base of the FHLB and (d) the liquidity position of the FHLB.

Office Properties and Equipment

Office properties and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method with rates based on the estimated useful lives of the individual assets, which range from 3 to 40 years. Expenditures which substantially increase the useful lives of existing property and equipment are capitalized while routine expenditures for repairs and maintenance are expensed as incurred.

Cash Surrender Value of Bank-owned Life Insurance

Life insurance contracts represent single premium life insurance contracts on the lives of certain officers of the Bank. The Bank is the beneficiary of these policies. These contracts are reported at their cash surrender value and changes in the cash surrender value are included in noninterest income.

Intangible Assets

Intangible assets consist of goodwill, core deposit intangibles and mortgage servicing rights. These assets are recorded in accrued interest receivable and other assets on the Consolidated Statements of Financial Condition. Goodwill represents the excess purchase price over the fair value of net assets acquired in business acquisitions.

Goodwill is not amortized but rather is evaluated for impairment at least annually. Core deposit intangibles represent the estimated value related to customer deposit relationships assumed in the Company’s acquisitions. Core deposit intangibles are being amortized over nine to 15 years. The mortgage servicing rights represent servicing assets related to mortgage loans sold and serviced at fair value. Mortgage servicing rights are being amortized over a maximum of 10 years using an accelerated method.

Shareholders’ Equity

Effective January 1, 2015, companies incorporated under Louisiana law became subject to the Louisiana Business Corporation Act. Provisions of the Louisiana Business Corporation Act eliminate the concept of treasury stock and provide that shares reacquired by a company are to be treated as authorized but unissued shares. Accounting principles generally accepted in the United States of America state that accounting for treasury stock shall conform to state law. The Company’s Consolidated Financial Statements at and for the years ended December 31, 2015 and 2016 reflect this change. For the years ended December 31, 2016 and 2015, the cost of shares repurchased by the Company have been allocated to common stock, additional paid-in capital and retained earnings.

Transfer of Financial Assets

Transfers of financial assets are accounted for as sales when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right, free of conditions that constrain it from taking advantage of that right, to pledge or exchange the transferred assets and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before maturity.

Salary Continuation Agreements

The Company records the expense associated with its salary continuation agreements over the service periods of the persons covered under these agreements.

Income Taxes

The Company accounts for income taxes under the liability method. Deferred tax assets and liabilities are recorded for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax benefits are recognized to the extent that realization of such benefits is more likely than not. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the assets and liabilities are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income taxes during the period that includes the enactment date.

In the event the future tax consequences of differences between the financial reporting bases and the tax bases of the Company’s assets and liabilities results in deferred tax assets, an evaluation of the probability of being able to realize the future benefits indicated by such asset is required. A valuation allowance is provided for the portion of the deferred tax asset when it is more likely than not that some or all of the deferred tax asset will not be realized. In assessing the realizability of the deferred tax assets, management considers the scheduled reversals of deferred tax liabilities, projected future taxable earnings and tax planning strategies.

The income tax benefit or expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities.

A tax position is recognized as a benefit only if it is more likely than not that the tax position would be sustained in a tax examination, with a tax examination presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50 percent likely of being realized on examination. For tax positions not meeting the more likely than not test, no tax benefit is recorded.

The Company recognizes interest and penalties accrued related to unrecognized tax benefits, if applicable, in noninterest expense. During the years ended December 31, 2016, 2015, and 2014, the Company did not recognize any interest or penalties in its financial statements, nor has it recorded an accrued liability for interest or penalty payments.

Stock-based Compensation Plans

The Company issues stock options under the 2009 Stock Option Plan and the 2014 Equity Incentive Plan to directors, officers and other key employees. In accordance with the requirements of ASC 718, Compensation – Stock Compensation, the Company has adopted a fair value based method of accounting for employee stock compensation plans, whereby compensation cost is measured as of the grant date based on the fair value of the award and is recognized over the service period, which is usually the vesting period.

The Company may issue restricted stock under the 2009 Recognition and Retention Plan and restricted stock or restricted stock units under the 2014 Equity Incentive Plan for directors, officers and other key employees. Awards under the plans may not be sold or otherwise transferred until certain restrictions have lapsed. The unearned compensation related to these awards is amortized to compensation expense over the service period, which is usually the vesting period. The total share-based compensation expense for these awards is determined based on the market price of the Company’s common stock as of the date of grant applied to the total number of shares granted and is amortized over the vesting period.

Earnings Per Share

Earnings per share represents income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance.

Comprehensive Income

GAAP generally requires that recognized revenues, expenses, gains and losses be included in net earnings. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities, are reported as a separate component of the equity section of the balance sheets, such items, along with net earnings, are components of comprehensive income. The tax effect for unrealized gains and losses on investment securities was ($463,072), ($230,670) and $598,203 for the periods ending December 31, 2016, 2015 and 2014, respectively. The reclassification adjustment for gains included in net income had a tax effect of $0, ($2,548) and ($639) for the periods ending December 31, 2016, 2015 and 2014. Comprehensive income is reflected in the Consolidated Statements of Comprehensive Income.

Reclassifications

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

Recent Accounting Pronouncements

In January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities”. The ASU amendments include changes related to how certain equity investments are measured, recognize changes in the fair value of certain financial liabilities measured under the fair value option, and disclose and present financial assets and liabilities on the Company’s consolidated financial statements. Additionally, the ASU will also require entities to present financial assets and financial liabilities separately, grouped by measurement category and form of financial asset in the statement of financial position or in the accompanying notes to the financial statements. Entities will also no longer have to disclose the methods and significant assumptions for financial instruments measured at amortized cost, but will be required to measure such instruments under the “exit price” notion for disclosure purposes. The ASU is effective for annual and interim periods beginning after December 15, 2017. The Company is currently assessing the Amendment but does not anticipate it will have a material impact on Consolidated Financial Statements.

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. A lessee would 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 March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting”. The ASU amends the codification to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification in the statement of cash flows. This ASU is effective for annual and interim periods beginning after December 15, 2016, with early adoption permitted. The Company elected to early adopt this ASU effective January 1, 2016. The Company elected to account for forfeitures as they occur. The adoption of ASU 2016-09 reduced income tax expense by $524,000 in 2016.

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 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 available-for-sale 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 the implementation of this accounting standard. It is too early to assess the impact that this guidance will have on our Consolidated Financial Statements.

In August 2016, FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The amendments in this ASU clarify the proper classification for certain cash receipts and cash payments, including clarification on debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, and proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, among others. The amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently assessing the amendment but does not anticipate it will have a material impact on our Consolidated Financial Statements.

3. Acquisition Activity

Louisiana Bancorp, Inc. On September 15, 2015, the Company acquired Louisiana Bancorp, Inc., the former holding company of Bank of New Orleans of Metairie, Louisiana. Assets acquired from Louisiana Bancorp totaled $352,897,000, which included loans of $281,583,000, investment securities of $36,420,000 and cash of $14,098,000. The Bank also recorded a core deposit intangible asset of $1,586,000 and goodwill of $8,454,000 relating to the acquisition of Louisiana Bancorp, and assumed liabilities of $291,313,000, which included $208,670,000 in deposits and $75,957,000 in FHLB advances. None of the loans acquired were considered impaired as of the date of acquisition.

Britton & Koontz Capital Corporation. On February 14, 2014, the Company acquired Britton & Koontz, the former holding company of Britton & Koontz Bank of Natchez, Mississippi. Assets acquired from Britton & Koontz totaled $298,930,000, which included loans of $162,581,000, investment securities of $97,985,000 and cash of $15,342,000. The Bank also recorded a core deposit intangible asset of $3,030,000 and goodwill of $43,000 relating to the acquisition of Britton & Koontz, and assumed liabilities of $264,458,000, which included $216,600,000 in deposits, $9,252,000 in FHLB advances and $27,291,000 in other borrowings.

Acquired loans which are impaired as of the date of acquisition are accounted for under ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. The nonaccretable difference on loans acquired from Britton & Koontz totaled $17,946,000 as of February 14, 2014 and represented an estimate of the undiscounted loss exposure in the acquired loans with deteriorated credit quality as of the acquisition date.

The following table summarizes the accretable yield on the loans acquired from Britton & Koontz with deteriorated credit quality as of February 14, 2014 and the changes therein through December 31, 2016.


*(dollars in thousands)*	2016			2015			2014
Balance, beginning of period	$	(1,682	)	$	(1,824	)	$	—
Acquisition accretable yield		—			—			(2,260	)
Accretion		1,072			590			436
Net transfers from nonaccretable difference to accretable yield		(1,172	)		(448	)		—

Balance, end of period	$	(1,782	)	$	(1,682	)	$	(1,824	)

As of December 31, 2016, the weighted average remaining contractual life of the loan portfolio acquired with deteriorated credit quality from Britton & Koontz was 0.8 year.

GS Financial Corp. On July 15, 2011, the Company acquired GSFC, the former holding company of Guaranty Savings Bank of Metairie, Louisiana. Assets acquired from GSFC totaled $256,677,000, which included loans of $182,440,000, investment securities of $46,481,000 and cash of $9,262,000. The Bank also recorded a core deposit intangible asset of $859,000 and goodwill of $296,000 relating to the acquisition of GSFC, and assumed liabilities of $230,614,000, which included $193,518,000 in deposits and $34,707,000 in FHLB advances.

The nonaccretable difference on loans acquired from GSFC totaled $5,490,000 as of July 15, 2011 and represented an estimate of the undiscounted loss exposure in the acquired loans with deteriorated credit quality as of the acquisition date.

The following table summarizes the accretable yield on the loans acquired from GSFC with deteriorated credit quality as of July 15, 2011 and the changes therein through December 31, 2016.


*(dollars in thousands)*	2016			2015			2014
Balance, beginning of period	$	(1,240	)	$	(1,270	)	$	(1,281	)
Acquisition accretable yield		—			—			—
Accretion		942			30			11
Net transfers from nonaccretable difference to accretable yield		—			—			—

Balance, end of period	$	(298	)	$	(1,240	)	$	(1,270	)

As of December 31, 2016, the weighted average remaining contractual life of the loan portfolio acquired with deteriorated credit quality from GSFC was 5.9 years.

Statewide Bank. On March 12, 2010, the Bank acquired certain assets and liabilities of the former Statewide Bank, a full-service community bank formerly headquartered in Covington, Louisiana, from the FDIC. As a result of the Statewide acquisition, the Bank’s branch office network was expanded to include six branches in the Northshore (of Lake Pontchartrain) region of Louisiana. Assets acquired in the Statewide transaction totaled $188,026,000, which included loans of $110,415,000, investment securities of $24,841,000 and cash of $11,569,000. In addition, the Bank recorded an FDIC Asset, representing the portion of estimated losses covered by loss sharing agreements between the Bank and the FDIC, of $34,422,000. The loss sharing agreements between the Bank and the FDIC afforded us significant protection against losses in the loan portfolio and repossessed assets acquired in the Statewide transaction. The Bank also recorded a core deposit intangible asset of $1,429,000 and goodwill of $560,000 relating to the Statewide acquisition, and assumed liabilities of $223,910,000, which included $206,925,000 in deposits and $16,824,000 in FHLB advances.

The following table summarizes the accretable yield on the loans acquired from Statewide as of March 12, 2010 and the changes therein through December 31, 2016.


*(dollars in thousands)*	2016			2015			2014
Balance, beginning of period	$	(13,870	)	$	(7,706	)	$	(2,134	)
Acquisition accretable yield		—			—			—
Accretion		4,859			3,238			8,121
Net transfers from nonaccretable difference to accretable yield		—			(9,402	)		(13,693	)

Balance, end of period	$	(9,011	)	$	(13,870	)	$	(7,706	)

As of December 31, 2016, the weighted average remaining contractual life of loan portfolio acquired with deteriorated credit quality from Statewide was 4.9 years.

4. Investment Securities

Summary information regarding the Company’s investment securities classified as available for sale and held to maturity as of December 31, 2016 and 2015 follows.


*(dollars in thousands)*	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses				Fair Value
December 31, 2016					Less Than 1 Year		Over 1 Year
Available for sale:
U.S. agency mortgage-backed	$	148,511	$	984	$	980	$	290	$	148,225
Non-U.S. agency mortgage-backed		5,043		38		1		44		5,036
Municipal bonds		21,212		260		44		—		21,428
U.S. government agency		8,946		95		—		—		9,041

Total available for sale	$	183,712	$	1,377	$	1,025	$	334	$	183,730

Held to maturity:
Municipal bonds	$	13,365	$	69	$	72	$	—	$	13,362

Total held to maturity	$	13,365	$	69	$	72	$	—	$	13,362


*(dollars in thousands)*	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses				Fair Value
December 31, 2015					Less Than 1 Year		Over 1 Year
Available for sale:
U.S. agency mortgage-backed	$	134,748	$	1,464	$	287	$	447	$	135,478
Non-U.S. agency mortgage-backed		6,055		51		—		41		6,065
Municipal bonds		22,453		490		10		—		22,933
U.S. government agency		12,166		145		25		—		12,286

Total available for sale	$	175,422	$	2,150	$	322	$	488	$	176,762

Held to maturity:
Municipal bonds	$	13,927	$	239	$	45	$	—	$	14,121

Total held to maturity	$	13,927	$	239	$	45	$	—	$	14,121

Management evaluates securities for other-than-temporary impairment at least semi-annually, 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; (3) the Company’s intent to sell a security or whether it is more likely than not we will be required to sell the security before the recovery of its amortized cost, which may extend to maturity and our ability and intent to hold the security for a period of time that allows for the recovery in value in the case of equity securities.

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 to be other than temporarily impaired, an impairment loss is recognized.

As of December 31, 2016, 83 of the Company’s debt securities had unrealized losses totaling 1.5% of the individual securities’ amortized cost basis and 0.7% of the Company’s total amortized cost basis of the investment securities portfolio. 10 of the 83 securities had been in a continuous loss position for over 12 months at such date. The 10 securities had an aggregate amortized cost basis and unrealized loss of $11,060,000 and $334,000, respectively, at December 31, 2016. Management has the intent and ability to hold these debt securities until maturity or until anticipated recovery. No declines in these 83 securities were deemed to be other-than-temporary.

The amortized cost and estimated fair value by maturity of the Company’s investment securities as of December 31, 2016 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 the exercise of call options and potential paydowns. 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	$	65	$	4,463	$	41,400	$	102,297	$	148,225
Non-U.S. agency mortgage-backed		—		—		—		5,036		5,036
Municipal bonds		1,877		10,024		8,722		805		21,428
U.S. government agency		1,011		5,023		—		3,007		9,041

Total securities available for sale	$	2,953	$	19,510	$	50,122	$	111,145	$	183,730

Securities held to maturity:
Municipal bonds	$	—	$	2,730	$	7,948	$	2,684	$	13,362

Total securities held to maturity	$	2,953	$	22,240	$	58,070	$	113,829	$	197,092


*(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	$	63	$	4,426	$	41,396	$	102,626	$	148,511
Non-U.S. agency mortgage-backed		—		—		—		5,043		5,043
Municipal bonds		1,876		9,925		8,651		760		21,212
U.S. government agency		999		4,993		—		2,954		8,946

Total securities available for sale	$	2,938	$	19,344	$	50,047	$	111,383	$	183,712

Securities held to maturity:
Municipal bonds	$	—	$	2,723	$	7,900	$	2,742	$	13,365

Total securities held to maturity	$	2,938	$	22,067	$	57,947	$	114,125	$	197,077

For the year ended December 31, 2016, the Company recorded no gross gains or losses related to the sale of investment securities. For the year ended December 31, 2015, the Company recorded gross gains of $8,000 and gross losses of $1,000 related to the sale of investment securities.

As of December 31, 2016 and 2015, the Company had accrued interest receivable for investment securities of $802,000 and $784,000, respectively.

As of December 31, 2016 and 2015, the Company had $91,773,000 and $94,661,000, respectively, of securities pledged to secure public deposits.

5. Loans

The Company’s loans, net of unearned income, consisted of the following as of December 31 of the years indicated.


*(dollars in thousands)*	2016		2015
Real estate loans:
One- to four-family first mortgage	$	341,883	$	371,238
Home equity loans and lines		88,821		94,060
Commercial real estate		427,515		405,379
Construction and land		141,167		136,803
Multi-family residential		46,369		43,863

Total real estate loans		1,045,755		1,051,343

Other loans:
Commercial and industrial		139,810		125,108
Consumer		42,268		47,915

Total other loans		182,078		173,023

Total loans	$	1,227,833	$	1,224,366

A summary of activity in the Company’s allowance for loan losses for the years ended December 31, 2016, 2015 and 2014 is as follows.


	For the Year Ended December 31, 2016
(dollars in thousands)	Beginning Balance		Charge-offs			Recoveries		Provision			Ending Balance
Originated loans:
Allowance for loan losses:
One- to four-family first mortgage	$	1,372	$	—		$	—	$	64		$	1,436
Home equity loans and lines		536		(9	)		2		125			654
Commercial real estate		3,152		—			1		1,024			4,177
Construction and land		1,360		—			52		351			1,763
Multi-family residential		173		—			—		188			361
Commercial and industrial		2,010		(242	)		56		1,492			3,316
Consumer		571		(162	)		5		99			513

Total allowance for loan losses	$	9,174	$	(413	)	$	116	$	3,343		$	12,220

Acquired loans:
Allowance for loan losses:
One- to four-family first mortgage	$	92	$	(33	)	$	—	$	16		$	75
Home equity loans and lines		224		—			—		(150	)		74
Commercial real estate		—		—			—		—			—
Construction and land		57		—			—		(38	)		19
Multi-family residential		—		—			—		—			—
Commercial and industrial		—		—			94		29			123
Consumer		—		—			—		—			—

Total allowance for loan losses	$	373	$	(33	)	$	94	$	(143	)	$	291

Total loans:
Allowance for loan losses:
One- to four-family first mortgage	$	1,464	$	(33	)	$	—	$	80		$	1,511
Home equity loans and lines		760		(9	)		2		(25	)		728
Commercial real estate		3,152		—			1		1,024			4,177
Construction and land		1,417		—			52		313			1,782
Multi-family residential		173		—			—		188			361
Commercial and industrial		2,010		(242	)		150		1,521			3,439
Consumer		571		(162	)		5		99			513

Total allowance for loan losses	$	9,547	$	(446	)	$	210	$	3,200		$	12,511


	For the Year Ended December 31, 2015
(dollars in thousands)	Beginning Balance		Charge-offs			Recoveries		Provision			Ending Balance
Originated loans:
Allowance for loan losses:
One- to four-family first mortgage	$	1,136	$	(62	)	$	30	$	268		$	1,372
Home equity loans and lines		442		(15	)		20		89			536
Commercial real estate		2,922		—			1		229			3,152
Construction and land		968		—			—		392			1,360
Multi-family residential		192		—			—		(19	)		173
Commercial and industrial		1,161		(190	)		226		813			2,010
Consumer		521		(130	)		1		179			571

Total allowance for loan losses	$	7,342	$	(397	)	$	278	$	1,951		$	9,174


	For the Year Ended December 31, 2015
(dollars in thousands)	Beginning Balance		Charge-offs			Recoveries		Provision			Ending Balance
Acquired loans:
Allowance for loan losses:
One- to four-family first mortgage	$	174	$	(42	)	$	—	$	(40	)	$	92
Home equity loans and lines		111		(12	)		—		125			224
Commercial real estate		—		—			—		—			—
Construction and land		133		(111	)		—		35			57
Multi-family residential		—		—			—		—			—
Commercial and industrial		—		—			—		—			—
Consumer		—		—			—		—			—

Total allowance for loan losses	$	418	$	(165	)	$	—	$	120		$	373

Total loans:
Allowance for loan losses:
One- to four-family first mortgage	$	1,310	$	(104	)	$	30	$	228		$	1,464
Home equity loans and lines		553		(27	)		20		214			760
Commercial real estate		2,922		—			1		229			3,152
Construction and land		1,101		(111	)		—		427			1,417
Multi-family residential		192		—			—		(19	)		173
Commercial and industrial		1,161		(190	)		226		813			2,010
Consumer		521		(130	)		1		179			571

Total allowance for loan losses	$	7,760	$	(562	)	$	278	$	2,071		$	9,547


	For the Year Ended December 31, 2014
*(dollars in thousands)*	Beginning Balance		Charge-offs			Recoveries		Provision			Ending Balance
Originated loans:
Allowance for loan losses:
One- to four-family first mortgage	$	904	$	(99	)	$	—	$	331		$	1,136
Home equity loans and lines		366		(2	)		5		73			442
Commercial real estate		2,528		—			—		394			2,922
Construction and land		977		(19	)		—		10			968
Multi-family residential		90		—			—		102			192
Commercial and industrial		1,332		(1,407	)		184		1,052			1,161
Consumer		473		(32	)		3		77			521

Total allowance for loan losses	$	6,670	$	(1,559	)	$	192	$	2,039		$	7,342

Acquired loans:
Allowance for loan losses:
One- to four-family first mortgage	$	184	$	(114	)	$	—	$	104		$	174
Home equity loans and lines		58		—			—		53			111
Commercial real estate		—		(41	)		—		41			—
Construction and land		—		—			—		133			133
Multi-family residential		—		—			—		—			—
Commercial and industrial		6		—			—		(6	)		—
Consumer		—		—			—		—			—

Total allowance for loan losses	$	248	$	(155	)	$	—	$	325		$	418


	For the Year Ended December 31, 2014
*(dollars in thousands)*	Beginning Balance		Charge-offs			Recoveries		Provision		Ending Balance
Total loans:
Allowance for loan losses:
One- to four-family first mortgage	$	1,088	$	(213	)	$	—	$	435	$	1,310
Home equity loans and lines		424		(2	)		5		126		553
Commercial real estate		2,528		(41	)		—		435		2,922
Construction and land		977		(19	)		—		143		1,101
Multi-family residential		90		—			—		102		192
Commercial and industrial		1,338		(1,407	)		184		1,046		1,161
Consumer		473		(32	)		3		77		521

Total allowance for loan losses	$	6,918	$	(1,714	)	$	192	$	2,364	$	7,760

The Company’s allowance for loan losses and recorded investment in loans as of the dates indicated is as follows.


	As of December 31, 2016
	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	$	1,397	$	39	$	75	$	1,511
Home equity loans and lines		654		—		74		728
Commercial real estate		4,158		19		—		4,177
Construction and land		1,763		—		19		1,782
Multi-family residential		361		—		—		361
Commercial and industrial		2,579		737		123		3,439
Consumer		513		—		—		513

Total allowance for loan losses	$	11,425	$	795	$	291	$	12,511


	As of December 31, 2016
	Originated Loans
*(dollars in thousands)*	Collectively Evaluated for Impairment		Individually Evaluated for Impairment		Acquired Loans⁽¹⁾		Total
Loans:
One- to four-family first mortgage	$	176,392	$	252	$	165,239	$	341,883
Home equity loans and lines		47,865		—		40,956		88,821
Commercial real estate		321,361		462		105,692		427,515
Construction and land		138,955		—		2,212		141,167
Multi-family residential		26,941		—		19,428		46,369
Commercial and industrial		126,791		4,844		8,175		139,810
Consumer		40,827		—		1,441		42,268

Total loans	$	879,132	$	5,558	$	343,143	$	1,227,833


	As of December 31, 2015
	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	$	1,338	$	34	$	92	$	1,464
Home equity loans and lines		536		—		224		760
Commercial real estate		3,066		86		—		3,152
Construction and land		1,360		—		57		1,417
Multi-family residential		173		—		—		173
Commercial and industrial		1,977		33		—		2,010
Consumer		571		—		—		571

Total allowance for loan losses	$	9,021	$	153	$	373	$	9,547


	As of December 31, 2015
	Originated Loans
*(dollars in thousands)*	Collectively Evaluated for Impairment		Individually Evaluated for Impairment		Acquired Loans⁽¹⁾		Total
Loans:
One- to four-family first mortgage	$	165,774	$	78	$	205,386	$	371,238
Home equity loans and lines		40,251		—		53,809		94,060
Commercial real estate		285,856		181		119,342		405,379
Construction and land		129,035		—		7,768		136,803
Multi-family residential		14,962		—		28,901		43,863
Commercial and industrial		115,360		707		9,041		125,108
Consumer		45,641		—		2,274		47,915

Total loans	$	796,879	$	966	$	426,521	$	1,224,366

⁽¹⁾	$13.1 million and $20.0 million in acquired loans were accounted for under ASC 310-30 at December 31, 2016 and 2015, respectively.

Although the Company has a diversified loan portfolio, a substantial portion of the loan portfolio is collateralized by improved and unimproved real estate and is dependent, in part, on values in the real estate market.

Credit quality indicators on the Company’s loan portfolio as of the dates indicated are as follows.


	December 31, 2016
*(dollars in thousands)*	Pass		Special Mention		Substandard		Doubtful		Total
Originated loans:
One- to four-family first mortgage	$	175,045	$	276	$	1,323	$	—	$	176,644
Home equity loans and lines		46,536		331		998		—		47,865
Commercial real estate		311,517		822		9,484		—		321,823
Construction and land		138,000		22		933		—		138,955
Multi-family residential		26,941		—		—		—		26,941
Commercial and industrial		114,962		5,979		10,694		—		131,635
Consumer		40,369		98		360		—		40,827

Total originated loans	$	853,370	$	7,528	$	23,792	$	—	$	884,690


	December 31, 2016
*(dollars in thousands)*	Pass		Special Mention		Substandard		Doubtful		Total
Acquired loans:
One- to four-family first mortgage	$	162,037	$	245	$	2,957	$	—	$	165,239
Home equity loans and lines		40,812		47		97		—		40,956
Commercial real estate		101,546		2,758		1,388		—		105,692
Construction and land		1,537		71		604		—		2,212
Multi-family residential		19,250		—		178		—		19,428
Commercial and industrial		4,843		—		3,332		—		8,175
Consumer		1,401		38		2		—		1,441

Total acquired loans	$	331,426	$	3,159	$	8,558	$	—	$	343,143

Total loans:
One- to four-family first mortgage	$	337,082	$	521	$	4,280	$	—	$	341,883
Home equity loans and lines		87,348		378		1,095		—		88,821
Commercial real estate		413,063		3,580		10,872		—		427,515
Construction and land		139,537		93		1,537		—		141,167
Multi-family residential		46,191		—		178		—		46,369
Commercial and industrial		119,805		5,979		14,026		—		139,810
Consumer		41,770		136		362		—		42,268

Total loans	$	1,184,796	$	10,687	$	32,350	$	—	$	1,227,833


	December 31, 2015
*(dollars in thousands)*	Pass		Special Mention		Substandard		Doubtful		Total
Originated loans:
One- to four-family first mortgage	$	163,835	$	439	$	1,578	$	—	$	165,852
Home equity loans and lines		39,736		394		121		—		40,251
Commercial real estate		282,963		988		2,086		—		286,037
Construction and land		127,929		—		1,106		—		129,035
Multi-family residential		14,962		—		—		—		14,962
Commercial and industrial		113,108		585		2,374		—		116,067
Consumer		45,133		38		470		—		45,641

Total originated loans	$	787,666	$	2,444	$	7,735	$	—	$	797,845

Acquired loans:
One- to four-family first mortgage	$	200,966	$	791	$	3,629	$	—	$	205,386
Home equity loans and lines		53,352		20		437		—		53,809
Commercial real estate		112,802		4,085		2,455		—		119,342
Construction and land		4,573		1,819		1,376		—		7,768
Multi-family residential		27,931		12		958		—		28,901
Commercial and industrial		7,071		1,191		779		—		9,041
Consumer		2,160		51		63		—		2,274

Total acquired loans	$	408,855	$	7,969	$	9,697	$	—	$	426,521


	December 31, 2015
*(dollars in thousands)*	Pass		Special Mention		Substandard		Doubtful		Total
Total:
One- to four-family first mortgage	$	364,801	$	1,230	$	5,207	$	—	$	371,238
Home equity loans and lines		93,088		414		558		—		94,060
Commercial real estate		395,765		5,073		4,541		—		405,379
Construction and land		132,502		1,819		2,482		—		136,803
Multi-family residential		42,893		12		958		—		43,863
Commercial and industrial		120,179		1,776		3,153		—		125,108
Consumer		47,293		89		533		—		47,915

Total loans	$	1,196,521	$	10,413	$	17,432	$	—	$	1,224,366

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 ratios. The loan 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-regulatory agency methodology that incorporates, among other factors, the extent of delinquencies and loan-to-value ratios. These classifications were the most current available as of December 31, 2016 and 2015, respectively, and were generally updated within the prior three months.

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


	December 31, 2016
*(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	$	651	$	—	$	563	$	1,214	$	175,430	$	176,644
Home equity loans and lines		37		29		—		66		47,799		47,865
Commercial real estate		475		—		587		1,062		320,761		321,823
Construction and land		467		—		12		479		138,476		138,955
Multi-family residential		—		—		—		—		26,941		26,941

Total real estate loans		1,630		29		1,162		2,821		709,407		712,228

Other loans:
Commercial and industrial		656		706		650		2,012		129,623		131,635
Consumer		531		97		192		820		40,007		40,827

Total other loans		1,187		803		842		2,832		169,630		172,462

Total originated loans	$	2,817	$	832	$	2,004	$	5,653	$	879,037	$	884,690


	December 31, 2016
*(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
Acquired loans:
Real estate loans:
One- to four-family first mortgage	$	1,471	$	969	$	2,025	$	4,465	$	160,774	$	165,239
Home equity loans and lines		136		27		38		201		40,755		40,956
Commercial real estate		—		—		1,164		1,164		104,528		105,692
Construction and land		21		—		30		51		2,161		2,212
Multi-family residential		19		—		—		19		19,409		19,428

Total real estate loans		1,647		996		3,257		5,900		327,627		333,527

Other loans:
Commercial and industrial		—		—		—		—		8,175		8,175
Consumer		2		8		2		12		1,429		1,441

Total other loans		2		8		2		12		9,604		9,616

Total acquired loans	$	1,649	$	1,004	$	3,259	$	5,912	$	337,231	$	343,143

Total loans:
Real estate loans:
One- to four-family first mortgage	$	2,122	$	969	$	2,588	$	5,679	$	336,204	$	341,883
Home equity loans and lines		173		56		38		267		88,554		88,821
Commercial real estate		475		—		1,751		2,226		425,289		427,515
Construction and land		488		—		42		530		140,637		141,167
Multi-family residential		19		—		—		19		46,350		46,369

Total real estate loans		3,277		1,025		4,419		8,721		1,037,034		1,045,755

Other loans:
Commercial and industrial		656		706		650		2,012		137,798		139,810
Consumer		533		105		194		832		41,436		42,268

Total other loans		1,189		811		844		2,844		179,234		182,078

Total loans	$	4,466	$	1,836	$	5,263	$	11,565	$	1,216,268	$	1,227,833


	December 31, 2015
*(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	$	1,059	$	435	$	890	$	2,384	$	163,468	$	165,852
Home equity loans and lines		87		—		121		208		40,043		40,251
Commercial real estate		438		—		602		1,040		284,997		286,037
Construction and land		1,232		—		87		1,319		127,716		129,035
Multi-family residential		—		—		—		—		14,962		14,962

Total real estate loans		2,816		435		1,700		4,951		631,186		636,137

Other loans:
Commercial and industrial		411		15		707		1,133		114,934		116,067
Consumer		533		277		358		1,168		44,473		45,641

Total other loans		944		292		1,065		2,301		159,407		161,708

Total originated loans	$	3,760	$	727	$	2,765	$	7,252	$	790,593	$	797,845


	December 31, 2015
*(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
Acquired loans:
Real estate loans:
One- to four-family first mortgage	$	1,976	$	885	$	2,582	$	5,443	$	199,943	$	205,386
Home equity loans and lines		327		40		317		684		53,125		53,809
Commercial real estate		140		6		1,441		1,587		117,755		119,342
Construction and land		592		7		48		647		7,121		7,768
Multi-family residential		—		14		12		26		28,875		28,901

Total real estate loans		3,035		952		4,400		8,387		406,819		415,206

Other loans:
Commercial and industrial		14		7		429		450		8,591		9,041
Consumer		64		4		48		116		2,158		2,274

Total other loans		78		11		477		566		10,749		11,315

Total acquired loans	$	3,113	$	963	$	4,877	$	8,953	$	417,568	$	426,521

Total loans:
Real estate loans:
One- to four-family first mortgage	$	3,035	$	1,320	$	3,472	$	7,827	$	363,411	$	371,238
Home equity loans and lines		414		40		438		892		93,168		94,060
Commercial real estate		578		6		2,043		2,627		402,752		405,379
Construction and land		1,824		7		135		1,966		134,837		136,803
Multi-family residential		—		14		12		26		43,837		43,863

Total real estate loans		5,851		1,387		6,100		13,338		1,038,005		1,051,343

Other loans:
Commercial and industrial		425		22		1,136		1,583		123,525		125,108
Consumer		597		281		406		1,284		46,631		47,915

Total other loans		1,022		303		1,542		2,867		170,156		173,023

Total loans	$	6,873	$	1,690	$	7,642	$	16,205	$	1,208,161	$	1,224,366

As of December 31, 2016 and 2015, the Company did not have any loans greater than 90 days past due which were accruing interest.

An impaired loan generally is one for which it is probable, based on current information, that the lender will not collect all the amounts due under the contractual terms of the loan. The Company evaluates loans for impairment on an individual basis when it believes that there is a potential for loss. When a determination is made that a loan has deteriorated to the point of becoming a problem loan, updated valuations may be ordered to help determine if there is impairment, which may lead to a recommendation for partial charge off or appropriate allowance allocation. The following is a summary of information pertaining to the Company’s impaired loans, excluding acquired loans, as of the dates indicated.


	For the Year Ended December 31, 2016
*(dollars in thousands)*	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
One- to four-family first mortgage	$	—	$	—	$	—	$	—	$	—
Home equity loans and lines		—		—		—		—		—
Commercial real estate		—		—		—		—		—
Construction and land		—		—		—		—		—
Multi-family residential		—		—		—		—		—
Commercial and industrial		3,144		3,178		—		262		166
Consumer		—		—		—		—		—

Total	$	3,144	$	3,178	$	—	$	262	$	166

With an allowance recorded:
One- to four-family first mortgage	$	252	$	260	$	39	$	93	$	13
Home equity loans and lines		—		—		—		—		—
Commercial real estate		462		483		19		423		14
Construction and land		—		—		—		—		—
Multi-family residential		—		—		—		—		—
Commercial and industrial		1,700		1,737		737		1,635		87
Consumer		—		—		—		—		—

Total	$	2,414	$	2,480	$	795	$	2,151	$	114

Total impaired loans:
One- to four-family first mortgage	$	252	$	260	$	39	$	93	$	13
Home equity loans and lines		—		—		—		—		—
Commercial real estate		462		483		19		423		14
Construction and land		—		—		—		—		—
Multi-family residential		—		—		—		—		—
Commercial and industrial		4,844		4,914		737		1,897		253
Consumer		—		—		—		—		—

Total	$	5,558	$	5,658	$	795	$	2,413	$	280


	For the Year Ended December 31, 2015
*(dollars in thousands)*	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
One- to four-family first mortgage	$	—	$	—	$	—	$	72	$	—
Home equity loans and lines		—		—		—		—		—
Commercial real estate		—		—		—		—		—
Construction and land		—		—		—		—		—
Multi-family residential		—		—		—		—		—
Commercial and industrial		—		—		—		213		—
Consumer		—		—		—		—		—

Total	$	—	$	—	$	—	$	285	$	—

With an allowance recorded:
One- to four-family first mortgage	$	78	$	78	$	34	$	6	$	5
Home equity loans and lines		—		—		—		—		—
Commercial real estate		181		181		86		461		11
Construction and land		—		—		—		—		—
Multi-family residential		—		—		—		—		—
Commercial and industrial		707		707		33		729		39
Consumer		—		—		—		—		—

Total	$	966	$	966	$	153	$	1,196	$	55


	For the Year Ended December 31, 2015
*(dollars in thousands)*	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
Total impaired loans:
One- to four-family first mortgage	$	78	$	78	$	34	$	78	$	5
Home equity loans and lines		—		—		—		—		—
Commercial real estate		181		181		86		461		11
Construction and land		—		—		—		—		—
Multi-family residential		—		—		—		—		—
Commercial and industrial		707		707		33		942		39
Consumer		—		—		—		—		—

Total	$	966	$	966	$	153	$	1,481	$	55

The Company reviews its significant nonaccrual loans for specific impairment in accordance with its allowance for loan loss methodology. If it is determined that losses are probable when other credit quality indicators are considered, the loan is considered impaired and the Company specifically allocates a portion of the allowance for loan losses to these loans. A summary of information pertaining to the Company’s nonaccrual loans as of December 31, 2016 and 2015 is as follows.


	December 31, 2016						December 31, 2015
*(dollars in thousands)*	Originated		Acquired⁽¹⁾		Total		Originated		Acquired⁽¹⁾		Total
Nonaccrual loans:
One- to four-family first mortgage	$	891	$	833	$	1,724	$	928	$	530	$	1,458
Home equity loans and lines		998		90		1,088		121		139		260
Commercial real estate		1,799		164		1,963		1,671		1,014		2,685
Construction and land		12		63		75		87		68		155
Multi-family residential		—		—		—		—		763		763
Commercial and industrial		8,230		312		8,542		2,374		84		2,458
Consumer		360		1		361		470		6		476

Total	$	12,290	$	1,463	$	13,753	$	5,651	$	2,604	$	8,255

⁽¹⁾

Table excludes acquired loans which were being accounted for under ASC 310-30 because they continue to earn interest from accretable yield regardless of their status as past due or otherwise not in compliance with their contractual terms. Acquired loans with deteriorated credit quality, which were being accounting for under ASC 310-30 and which were 90 days or more past due totaled $2.7 million and $4.0 million as of December 31, 2015 and 2014, respectively.

As of December 31, 2015, the Company was not committed to lend additional funds to any customer whose loan was classified as impaired.

As of December 31, 2016 and 2015, the Company had accrued interest receivable for loans of $3,897,000 and $3,940,000, respectively.

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. The Company must conclude that the restructuring of a loan to a

borrower who is experiencing financial difficulties constitutes 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 is either granted through an agreement with the customer or is imposed by a court or by a 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 allowance for loan losses on TDRs, such loans are reviewed for specific impairment in accordance with the Company’s allowance for loan loss methodology. If it is determined that losses are probable on such TDRs, either because of delinquency or other credit quality indicators, the Company specifically allocates a portion of the allowance for loan losses to these loans.

Information about the Company’s TDRs is presented in the following tables.


	As of December 31, 2016
*(dollars in thousands)*	Current		Past Due Greater Than 30 Days		Nonaccrual TDRs		Total TDRs
Originated loans:
Real estate loans:
One- to four-family first mortgage	$	276	$	—	$	327	$	603
Home equity loans and lines		331		—		988		1,319
Commercial real estate		102		—		1,717		1,819
Construction and land		562		—		—		562
Multi-family residential		—		—		—		—

Total real estate loans		1,271		—		3,032		4,303

Other loans:
Commercial and industrial		—		—		6,775		6,775
Consumer		—		—		168		168

Total other loans		—		—		6,943		6,943

Total loans	$	1,271	$	—	$	9,975	$	11,246


	As of December 31, 2016
*(dollars in thousands)*	Current		Past Due Greater Than 30 Days		Nonaccrual TDRs		Total TDRs
Acquired loans:
Real estate loans:
One- to four-family first mortgage	$	292	$	86	$	60	$	438
Home equity loans and lines		—		—		62		62
Commercial real estate		288		860		—		1,148
Construction and land		—		—		—		—
Multi-family residential		—		—		—		—

Total real estate loans		580		946		122		1,648

Other loans:
Commercial and industrial		1,853		—		313		2,166
Consumer		—		—		—		—

Total other loans		1,853		—		313		2,166

Total loans	$	2,433	$	946	$	435	$	3,814

Total loans:
Real estate loans:
One- to four-family first mortgage	$	568	$	86	$	387	$	1,041
Home equity loans and lines		331		—		1,050		1,381
Commercial real estate		390		860		1,717		2,967
Construction and land		562		—		—		562
Multi-family residential		—		—		—		—

Total real estate loans		1,851		946		3,154		5,951

Other loans:
Commercial and industrial		1,853		—		7,088		8,941
Consumer		—		—		168		168

Total other loans		1,853		—		7,256		9,109

Total loans	$	3,704	$	946	$	10,410	$	15,060


	As of December 31, 2015
*(dollars in thousands)*	Current		Past Due Greater Than 30 Days		Nonaccrual TDRs		Total TDRs
Originated loans:
Real estate loans:
One- to four-family first mortgage	$	281	$	—	$	38	$	319
Home equity loans and lines		383		—		3		386
Commercial real estate		107		—		1,069		1,176
Construction and land		—		—		87		87
Multi-family residential		—		—		—		—

Total real estate loans		771		—		1,197		1,968

Other loans:
Commercial and industrial		—		—		2,374		2,374
Consumer		27		—		142		169

Total other loans		27		—		2,516		2,543

Total loans	$	798	$	—	$	3,713	$	4,511


	As of December 31, 2015
*(dollars in thousands)*	Current		Past Due Greater Than 30 Days		Nonaccrual TDRs		Total TDRs
Acquired loans:
Real estate loans:
One- to four-family first mortgage	$	419	$	73	$	15	$	507
Home equity loans and lines		—		—		—		—
Commercial real estate		—		—		1,192		1,192
Construction and land		—		—		52		52
Multi-family residential		—		—		—		—

Total real estate loans		419		73		1,259		1,751

Other loans:
Commercial and industrial		—		—		—		—
Consumer		—		—		—		—

Total other loans		—		—		—		—

Total loans	$	419	$	73	$	1,259	$	1,751

Total loans:
Real estate loans:
One- to four-family first mortgage	$	700	$	73	$	53	$	826
Home equity loans and lines		383		—		3		386
Commercial real estate		107		—		2,261		2,368
Construction and land		—		—		139		139
Multi-family residential		—		—		—		—

Total real estate loans		1,190		73		2,456		3,719
Other loans:
Commercial and industrial		—		—		2,374		2,374
Consumer		27		—		142		169

Total other loans		27		—		2,516		2,543

Total loans	$	1,217	$	73	$	4,972	$	6,262

A summary of information pertaining to loans modified as of the periods indicated is as follows.


	For the Years Ended
	2016						2015
*(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		8	$	1,113	$	656		1	$	39	$	38
Home equity loans and lines		7		1,062		1,049		2		386		385
Commercial real estate		4		924		856		4		1,464		1,385
Construction and land		2		702		562		—		—		—
Multi-family residential		—		—		—		—		—		—
Commercial and industrial		20		8,512		8,154		14		1,684		1,668
Other consumer		1		50		36		4		185		169

Total		42	$	12,363	$	11,313		25	$	3,758	$	3,645

None of the performing troubled debt restructurings as of December 31, 2016 had defaulted subsequent to the restructuring through the date the financial statements were available to be issued.

6. Loan Servicing

Mortgage loans sold to and serviced for others are not included in the accompanying statements of financial condition. The unpaid principal balances of these loans as of December 31 of the years indicated are summarized as follows:


*(dollars in thousands)*	2016		2015
Mortgage loans sold to Federal Home Loan Mortgage Corporation without recourse	$	6,772	$	7,710
Mortgage loans sold to Federal National Mortgage Association without recourse		180,596		217,869
Mortgage loans sold to Federal Home Loan Bank without recourse		735		800

Balance, end of period	$	188,103	$	226,379

The Company records servicing assets related to mortgage loans sold and serviced at fair value and will amortize these servicing assets over the period of estimated net servicing income associated with each loan. Management assesses servicing assets for potential impairment annually. Activity related to servicing assets for the years ended December 31, 2016, 2015 and 2014 is summarized as follows.


*(dollars in thousands)*	2016			2015			2014
Balance at the beginning of the year	$	876		$	356		$	516
Recognition of servicing assets from the transfer of financial assets		—			18			—
Acquired from LABC, at fair value		—			682			—
Amortization		(254	)		(180	)		(160	)

Balance, end of period	$	622		$	876		$	356

Fair value, end of period	$	1,050		$	1,561		$	629

Custodial and escrow account balances maintained in connection with the foregoing loan servicing arrangements were $1,620,000 and $1,336,000 as of December 31, 2016 and 2015, respectively.

7. Office Properties and Equipment

Office properties and equipment consisted of the following as of December 31 of the years indicated.


*(dollars in thousands)*	2016		2015
Land	$	12,662	$	14,049
Buildings and improvements		31,491		31,084
Furniture and equipment		9,864		10,917

Total office properties and equipment		54,017		56,050
Less accumulated depreciation		14,450		15,234

Total office properties and equipment, net	$	39,567	$	40,816

Depreciation expense for the years ended December 31, 2016, 2015 and 2014 was $1,795,000, $1,807,000 and $1,738,000, respectively.

8. Goodwill and Intangibles

The carrying amount of the Company’s goodwill was $9,353,000 and $11,095,000 as of December 31, 2016 and 2015, respectively.

A summary of the Company’s core deposit intangible assets as of December 31 of the years indicated follows.


*(dollars in thousands)*	2016			2015			2014
Gross carrying amount	$	4,209		$	3,367		$	1,053
Core deposit intangibles acquired during the year		—			1,586			3,030
Less amortization		(800	)		(744	)		(716	)

Total core deposit intangible asset	$	3,409		$	4,209		$	3,367

Amortization expense on the Company’s core deposit intangible assets for the years ended December 31, 2016, 2015 and 2014 was $800,000, $744,000 and $716,000, respectively.

The carrying amount of the Company’s mortgage servicing asset as of December 31, 2016, 2015 and 2014 was $622,000, $876,000 and $356,000, respectively.

9. Deposits

The Company’s deposits consisted of the following major classifications as of December 31 of the years indicated.


*(dollars in thousands)*	2016		2015
Demand deposit accounts	$	296,519	$	296,617
Savings		109,414		109,393
Money market accounts		264,784		293,637
NOW accounts		305,092		267,707
Certificates of deposit		272,263		276,863

Total deposits	$	1,248,072	$	1,244,217

As of December 31, 2016, the scheduled maturities of the Company’s certificates of deposit are as follows.


*(dollars in thousands)*	Amount
2017	$	151,474
2018		78,337
2019		17,779
2020		8,777
2021		12,435
Thereafter		3,461

Total certificates of deposit	$	272,263

As of December 31, 2016 and 2015, the aggregate amount of certificates of deposit with balances of $250,000 or more was $33,740,000 and $27,272,000, respectively.

10. Short-term FHLB Advances

As of December 31, 2016, the Company’s short-term FHLB advances totaled $40,000,000, compared to $39,939,000 as of December 31, 2015. For the years ended December 31, 2016 and 2015, the average volume of short-term FHLB advances carried by the Company was $44,184,000 and $22,177,000, respectively.

Collateral for short and long-term FHLB advances is secured through a blanket lien evidenced by the Bank’s pledge of first mortgage collateral, demand deposit accounts, capital stock and certain other assets pursuant to the “Advances, Collateral Pledge and Security Agreement.” Under this collateral pledge agreement, the Bank must meet all statutory and regulatory capital standards and must meet all FHLB credit underwriting standards. Management believes that the Bank was in compliance with all such requirements as of December 31, 2016 and 2015.

As of December 31, 2016 and 2015, the Bank had $494,894,000 and $480,654,000, respectively, of additional FHLB advances available. As of December 31, 2016, the Company had $544,470,000 of loans pledged through the Bank’s blanket lien.

11. Long-term FHLB Advances

As of December 31, 2016 and 2015, the Company’s long-term FHLB advances totaled $78,533,000 and $85,213,000, respectively. The following table summarizes long-term advances as of December 31, 2016.


*(dollars in thousands)*	Amount		Weighted Average Rate
Fixed rate advances maturing in:
2017	$	22,788		1.88	%
2018		6,000		1.32
2019		12,563		1.64
2020		31,830		1.70
2021		848		1.54
Thereafter		4,504		1.93

Total long-term FHLB advances	$	78,533		1.72	%

12. Income Taxes

The Company files federal income tax returns on a calendar year basis. Income tax (benefit) expense for the years indicated is summarized as follows:


*(dollars in thousands)*	2016			2015		2014
Current	$	7,889		$	6,040	$	4,690
Deferred		(321	)		631		516

Total income tax expense	$	7,568		$	6,671	$	5,206

The components of the Company’s net deferred tax asset as of December 31 of the years indicated are as follows:


*(dollars in thousands)*	2016		2015
Deferred tax assets:
Provision for loan losses	$	4,378	$	3,341
Discount on purchased loans		514		1,278
Acquired tax credits		—		1,069
Salary continuation plan		978		929
Mortgage servicing rights		—		150
Deferred compensation		141		120
Stock-based compensation		697		730
Real estate owned		359		143
Other		1,251		1,808

Deferred tax assets	$	8,318	$	9,568


*(dollars in thousands)*	2016			2015
Deferred tax liabilities:
FHLB stock dividends	$	(88	)	$	(60	)
Accumulated depreciation		(2,418	)		(2,963	)
Intangible assets		(677	)		(898	)
Unrealized gain on securities available for sale		(6	)		(469	)
Mortgage servicing rights		(49	)		—
Premium on investment securities acquired		(950	)		(760	)
Other		(125	)		(1,721	)

Deferred tax liabilities		(4,313	)		(6,871	)

Net deferred tax asset	$	4,005		$	2,697

For the years ended December 31, 2016, 2015 and 2014, the Company’s provision for federal income taxes differed from the amount computed by applying the federal income tax statutory rate of 35% on income from operations as indicated in the following analysis:


*(dollars in thousands)*	2016			2015			2014
Federal tax based on statutory rate	$	8,232		$	6,706		$	5,263
State tax based on statutory rate		55			60			41
(Decrease) increase resulting from:
Effect of tax-exempt income		(228	)		(242	)		(225	)
Changes the cash surrender value of bank owned life insurance		(169	)		(176	)		(160	)
Nondeductible merger-related expenses		4			261			52
Nondeductible share based compensation expense		246			178			203
Exercise of stock options		(606	)		(105	)		—
Other		34			(11	)		32

Income tax expense	$	7,568		$	6,671		$	5,206

Effective tax rate		32.1	%		34.7	%		34.5	%

Retained earnings as of December 31, 2016 and 2015, included $5,837,000 for which no deferred federal income tax liability has been recognized. This amount represents an allocation of income to bad debt deductions for tax purposes only. Reductions of amounts so allocated for purposes other than bad debt losses would create income for tax purposes only, which would be subject to the then-current federal statutory income tax rate. The unrecorded deferred income tax liability on the above amount was $1,985,000 as of December 31, 2016 and 2015. Current accounting standards do not require the accrual of this deferred tax amount to be recorded unless it is probable that the reserve (for tax purposes) will be significantly depleted by loan losses deductible for tax purposes in the future. Based on current estimates of losses within the Company’s loan portfolio, accrual of the deferred tax liability associated with this reserve was not required as of December 31, 2016 and 2015.

13. Commitments and Contingencies

Standby letters of credit represent commitments by the Bank to meet the obligations of certain customers if called upon. The Bank normally secures its outstanding standby letters of credit with deposits from the customer. Additionally, in the normal course of business, there were various other commitments and contingent liabilities which are not reflected in the financial statements. Loan commitments are single-purpose commitments to lend

which will be funded and reduced according to specified repayment schedules. Most of these commitments have maturities of less than one year. 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 the undisbursed portion of construction loans as of December 31 of the years indicated.


	Contract Amount
*(dollars in thousands)*	2016		2015
Standby letters of credit	$	5,233	$	3,764
Available portion of lines of credit		141,968		127,393
Undisbursed portion of loans in process		62,791		73,699
Commitments to originate loans		98,714		89,653

The Bank uses the same credit policies in making commitments as it does for on-balance-sheet instruments. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the customer. Collateral held varies but may include certificates of deposit, property, plant and equipment and income-producing properties. There are no commitments which present an unusual risk to the Bank, and no material losses are anticipated as a result of these transactions.

14. Regulatory Matters

The Bank is subject to regulatory capital requirements administered by the OCC. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Company and the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

In July 2013, the Federal bank regulatory agencies issued a final rule that revised their risk-based capital requirements and the method for calculating components of capital and of computing risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. The final rule applies to all depository institutions and top-tier bank holding companies with total consolidated assets of $1.0 billion or more. The rule establishes a new common equity Tier 1 minimum capital requirement, increases the minimum capital ratios and assigns a higher risk weight to certain assets based on the risk associated with these assets. The final rule includes transition periods that generally implement the new regulations over a five year period. Beginning January 1, 2016, minimum Common equity tier 1, Tier 1 risk-based capital and Total risk-based are subject to a capital conservation buffer of 0.625%. This capital buffer will increase in subsequent years by 0.625% annually until it is fully phased in on January 1, 2019 at 2.5%.

Dividends paid by the Bank are the primary source of funds available to the Company. Banking regulations limit the amount of dividends that may be paid without prior approval of the regulatory authorities.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined) to average assets and risk-weighted assets (as defined). Management believes, as of December 31, 2016 and 2015, that the Company and the Bank met all capital adequacy requirements to which it was subject.

As of December 31, 2016 and 2015, the most recent notification from the OCC categorized the Bank as “well capitalized” under the OCC regulatory classification framework. To be categorized as “well capitalized,” the Bank must maintain minimum Total risk-based, Tier 1 risk-based, Tier 1 leverage and tangible capital ratios as set forth in the following table. There are no conditions or events since that notification that management believes have changed the Bank’s category.

The following table presents actual and required capital ratios for the Company and the Bank under the Basel III Capital Rules. The minimum required capital amounts presented include the minimum required capital levels as of December 31, 2016 based on the phase-in provisions of the Basel III Capital Rules and the minimum required capital levels as of January 1, 2019 when the Basel III Capital Rules have been 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. The Company’s and the Bank’s actual capital amounts and ratios are presented for December 31, 2015 without the phase-in provisions.


	Actual					Minimum Capital Required – Basel III Phase-In Schedule					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			Amount		Ratio
December 31, 2016
Company:
Tier 1 risk-based capital	$	168,433		14.24	%	$	78,363		6.625	%	$	100,541		8.50	%		N/A		N/A
Total risk-based capital		180,943		15.30			102,020		8.625			124,198		10.50			N/A		N/A
Tier 1 leverage capital		168,433		10.98			61,377		4.00			61,377		4.00			N/A		N/A

Bank:
Common equity Tier 1 capital (to risk-weighted assets)	$	152,512		12.91	%	$	60,564		5.125	%	$	82,721		7.00	%	$	76,813		6.50	%
Tier 1 risk-based capital		152,512		12.91			78,290		6.625			100,447		8.50			94,539		8.00
Total risk-based capital		165,022		13.96			101,924		8.625			124,082		10.50			118,173		10.00
Tier 1 leverage capital		152,512		9.94			61,376		4.00			61,376		4.00			76,720		5.00


*(dollars in thousands)*	Actual				Minimum For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
December 31, 2015
Company
Tier 1 risk-based capital:	$	151,221	13.05	%	$	69,534	6.0	%		N/A	N/A
Total risk-based capital:		160,769	13.87			92,712	8.0			N/A	N/A
Tier 1 leverage capital:		151,221	9.82			61,569	4.0			N/A	N/A
Bank
Common Equity Tier 1 (to risk-weighted assets):	$	134,348	11.61	%	$	52,087	4.5	%	$	75,237	6.5	%
Tier 1 risk-based capital:		134,348	11.61			69,449	6.0			92,599	8.0
Total risk-based capital:		143,895	12.43			92,599	8.0			115,749	10.0
Tier 1 leverage capital:		134,348	8.74			61,512	4.0			76,890	5.0

15. Benefit Plans

401(k) Match and Profit Sharing Plan

The Company’s 401(k) defined contribution plan allows its participants to contribute up to 75% of their pretax earnings on a tax-deferred basis up to the statutory limit, and the Company contributes a matching contribution on behalf of plan participants limited to 4% of the employees’ salaries. For the years ended December 31, 2016, 2015 and 2014, the Company made contributions of $657,000, $596,000 and $524,000, respectively, in connection with the plans, which is included in compensation and benefits expense in the accompanying statements of income.

Employee Stock Ownership Plan

In 2008, the Company established an employee stock ownership plan (“ESOP”) for the benefit of all eligible employees of the Company. The leveraged ESOP is accounted for in accordance with the requirements of ASC 718, Compensation – Stock Compensation.

Employees of the Bank who have been employed for a six-month period and who have attained age 21 are eligible to participate in the ESOP. It is anticipated that contributions will be made to the plan in amounts necessary to amortize the debt to the Company over a period of 20 years.

Under ASC 718, unearned ESOP shares are not considered outstanding and are shown as a reduction of shareholders’ equity as unearned compensation. Dividends on unallocated ESOP shares are considered to be compensation expense. The Company recognizes compensation cost equal to the fair value of the ESOP shares during the periods in which they are committed to be released. To the extent that the fair value of the Company’s ESOP shares differ from the cost of such shares, the differential is credited to shareholders’ equity. The Company receives a tax deduction equal to the cost of the shares released. As the loan is internally leveraged, the loan receivable from the ESOP to the Company is not reported as an asset nor is the debt of the ESOP shown as a Company liability.

Compensation cost related to the ESOP was $928,000, $795,000 and $756,000 for the years ended December 31, 2016, 2015 and 2014, respectively. The fair value of the unearned ESOP shares, using the closing quoted market price per share as of year-end, was approximately $16,199,000 and $11,828,000 as of December 31, 2016 and 2015, respectively. A summary of the ESOP share allocation as of December 31, 2016 and 2015 follows.


	2016			2015
Shares allocated, beginning of year		219,415			198,836
Shares allocated during the year		35,708			35,708
Shares distributed during the year		(20,063	)		(15,129	)

Allocated shares held by ESOP trust as of year end		235,060			219,415
Unallocated shares		419,563			455,271

Total ESOP shares		654,623			674,686

Salary Continuation Agreements

As a supplement to its 401(k) retirement plan, the Bank has entered into nonqualified salary continuation agreements with two executive officers of the Bank. Under his salary continuation agreement, the Chief Executive Officer (“CEO”) will be entitled to a stated annual benefit for a period of ten years upon retirement from the Bank after attaining age 62. Benefits under the agreement vest over ten years, with 50% of this benefit having vested in 2007. In the event of early retirement, the Bank shall pay the CEO his vested benefits in 120 equal monthly installments upon his attaining age 62. Upon death during active service, the Bank shall distribute to the executive’s beneficiary an amount equal to two times his fully vested normal retirement benefit, payable in monthly installments over five years.

In the event of a separation from service within 24 months following a change in control but prior to normal retirement age, the Bank shall distribute to the CEO his fully vested annual benefit in 12 equal monthly installments for ten years beginning the earlier of 24 months after separation from service or age 62. If separation from service occurs more than 24 months following a change in control, the annual benefit shall be distributed beginning at age 62.

The Bank’s nonqualified salary continuation agreement with its Chief Credit Officer provides that the executive will be entitled to a stated annual benefit for a period of ten years upon retirement from the Bank after attaining age 65, distributed monthly. In the event of early retirement, the Bank shall pay the executive his vested benefits in 120 equal monthly installments upon attaining age 65. Upon death during active service, the Bank shall distribute the fully vested normal retirement benefit to the executive’s beneficiary in 120 monthly installments. In

the event of a separation from service within 24 months following a change in control but prior to normal retirement age, the Bank shall distribute to the executive the vested portion of the annual benefit in a lump sum on the first day of the month following the separation from service. Benefits are subject to a six-month delay to the extent required by applicable law.

Britton & Koontz had two salary continuation agreements funded in the amount of $465,000 at the time of acquisition in February 2014. The Bank will pay former executives of Britton & Koontz or their beneficiary over the next 15 years. Louisiana Bancorp also had two salary continuation agreements funded in the amount of $1,200,000 at the time of acquisition in September 2015. The Bank will pay former executives of Louisiana Bancorp or their beneficiary within the next 10 years. The Company had an outstanding liability totaling $2,795,000 and $2,868,000 as of December 31, 2016 and 2015, respectively, in connection with the agreements.

16. Stock-based Payment Arrangements

The Company’s shareholders approved the 2009 Stock Option Plan (the “SOP”) and the 2009 Recognition and Retention Plan (the “RRP”) on May 12, 2009 to provide incentives and awards for directors, officers and other key employees of the Company and its subsidiary. A maximum of 892,687 shares of Company common stock were reserved for issuance upon the exercise of options granted under the SOP. A total of 357,075 shares of the Company’s outstanding common stock, or 4% of total shares outstanding at the time the RRP was implemented, were approved for restricted stock awards under the RRP. On May 6, 2014, the Company’s shareholders approved the 2014 Equity Incentive Plan (the “2014 Plan”). The 2014 Plan authorizes the granting of stock options, restricted stock units, and other awards to directors, officers and other key employees. The aggregate number of shares of our common stock reserved and available for issuance pursuant to awards granted under the 2014 Plan is 350,000. These plans are administered by a committee appointed by the Board of Directors, which selects persons eligible to receive awards and determines the number of shares and/or options subject to each award, the terms, conditions and other provisions of the awards. In accordance with ASC 718, the Company adopted a fair value based method of accounting for employee stock compensation plans, whereby compensation cost is measured as of the grant date based on the fair value of the award and is recognized over the service period, which is usually the vesting period.

Stock Option Plans

The Company issues stock options under the SOP and the 2014 Plan to directors, officers and other key employees. The option exercise price cannot be less than the fair value of the underlying common stock as of the date of the option grant and the maximum option term cannot exceed ten years. All stock options granted have been issued with vesting periods of five years with accelerated vesting provided under certain circumstances. As of December 31, 2016, options to acquire an aggregate of 484,688 shares were outstanding under the SOP and the 2014 Plan.

The fair value of each option granted is estimated on the grant date using the Black-Scholes option pricing model. This model requires management to make certain assumptions, including the expected life of the option, the risk-free rate of interest, the expected volatility and the expected dividend yield. The following assumptions were made in estimating 2016 fair values:


Expected dividends	1.4	%
Expected volatility	20.34	%
Risk-free interest rate	1.6	%
Expected term (in years)	6.5

As of December 31, 2016, there was $387,000 of unrecognized compensation cost related to stock options which is expected to be recognized over a period of 3.6 years.

For the years ended December 31, 2016, 2015 and 2014, the Company recognized $132,000, $70,000 and $295,000, respectively, in compensation cost related to stock options, which is included in compensation and benefits expense in the accompanying consolidated statements of income.

The following table represents stock option activity for the year ended December 31, 2016.


Options	Number of Options			Weighted- Average Exercise Price		Weighted- Average Grant Date Fair Value		Weighted- Average Remaining Contractual Term (Years)
Outstanding as of January 1, 2016		559,733		$	12.85	$	4.02
Granted		47,725			27.96		5.33
Exercised		(119,230	)		11.88		3.91
Forfeited		(3,540	)		16.64		4.22

Outstanding as of December 31, 2016		484,688		$	14.55	$	4.17		3.9

Exercisable as of December 31, 2016		391,215		$	12.18	$	3.93		2.8

Restricted Stock Plans

The Company has issued restricted stock under the RRP to directors, officers and other key employees. During 2009, the Company purchased in the open market all shares required to fund the RRP at an average cost of $11.81 per share. As of December 31, 2016, the cost of such shares held by the RRP totaled $119,633, which is included in the Company’s unallocated common stock held by the RRP in the consolidated statements of financial condition. Under the 2014 Plan, the Company may issue restricted stock units, restricted stock awards, options and other awards.

Awards under the RRP and the 2014 Plan may not be sold or otherwise transferred until certain restrictions have lapsed. The unearned compensation related to these awards is amortized to compensation expense over the five-year vesting period. The total share-based compensation expense for these awards is determined based on the market price of the Company’s common stock as of the date of grant applied to the total number of shares granted and is amortized over the vesting period. As of December 31, 2016, unearned share-based compensation associated with these awards totaled $1,042,000.

For the years ended December 31, 2016, 2015 and 2014, the Company recognized $239,000, $51,000 and $401,000, respectively, in compensation cost related to restricted stock and restricted stock units, which is included in compensation and benefits expense in the accompanying consolidated statements of income.

The following table represents unvested restricted stock activity in for the year ended December 31, 2016.


	Number of Shares			Weighted-Average Grant Date Fair Value
Balance, beginning of year		30,815		$	16.25
Granted		25,645			27.96
Forfeited		(200	)		22.25
Released		(7,703	)		13.00

Balance, end of period		48,557			22.93

17. Earnings Per Share

Earnings per common share was computed based on the following:


	Years Ended December 31,
*(in thousands, except per share data)*	2016		2015		2014
Numerator:
Income applicable to common shares	$	16,008	$	12,550	$	9,872

Denominator:
Weighted average common shares outstanding		6,842		6,708		6,553
Effect of dilutive securities:
Restricted stock		4		4		25
Stock options		261		289		355

Weighted average common shares outstanding - assuming dilution		7,107		7,001		6,933

Earnings per common share	$	2.34	$	1.87	$	1.51

Earnings per common share - assuming dilution	$	2.25	$	1.79	$	1.42

Options on 70,522, 45,877 and 26,500 shares of common stock were not included in computing diluted earnings per share for the years ended December 31, 2016, 2015 and 2014, respectively, because the effect of these shares were anti-dilutive.

18. Related Party Transactions

Certain directors and officers of the Company are customers of the Company. Loan transactions with directors, officers and employees are made on the same terms as those prevailing at the time for comparable loans to other persons. A summary of related party loan activity during 2016 follows.


*(dollars in thousands)*
Balance, beginning of year	$	7,590
New loans		1,198
Repayments, net		(7,297	)

Balance, end of year	$	1,491

None of the related party loans were identified as impaired or exceeded 5% of shareholders’ equity for the years ended 2016 or 2015.

Related party deposits totaled $14,252,000 and $28,904,000 as of December 31, 2016 and 2015, respectively.

19. Fair Value Disclosures

The Company values its financial assets and liabilities measured 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 of inputs 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 of input that is significant to the fair value measurement. Management reviews and updates the fair value hierarchy classifications of the Company’s assets and liabilities on a quarterly basis.

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 evaluated pricing models supported with market data information. Standard inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers and 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 were estimated primarily by the use of pricing models. Level 2 investment securities were 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 December 31, 2016, management did not make adjustments to prices provided by the third-party pricing service as a result of illiquid or inactive markets.

The following tables present the balances of assets and liabilities measured on a recurring basis as of December 31, 2016 and 2015 aggregated by the level in the fair value hierarchy in which these measurements fall.


*(dollars in thousands)*	December 31, 2016		Level 1		Level 2		Level 3
Available for sale securities:
U.S. agency mortgage-backed	$	148,225	$	—	$	148,225	$	—
Non-U.S. agency mortgage-backed		5,036		—		5,036		—
Municipal bonds		21,428		—		21,428		—
U.S. government agency		9,041		—		9,041		—

Total	$	183,730	$	—	$	183,730	$	—


*(dollars in thousands)*	December 31, 2015		Level 1		Level 2		Level 3
Available for sale securities:
U.S. agency mortgage-backed	$	135,478	$	—	$	135,478	$	—
Non-U.S. agency mortgage-backed		6,065		—		6,065		—
Municipal bonds		22,933		—		22,933		—
U.S. government agency		12,286		—		12,286		—

Total	$	176,762	$	—	$	176,762	$	—

The Company did not record any liabilities at fair value for which measurement of the fair value was made on a recurring basis.

Nonrecurring Basis

In accordance with the provisions of ASC 310, Receivables, the Company records loans considered impaired at their fair value. A loan is considered impaired if it is probable the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Fair value is measured at the fair value of the collateral for collateral-dependent loans. For non-collateral-dependent loans, fair value is measured by present valuing expected future cash flows. Impaired loans are classified as Level 3 assets when measured using appraisals from external parties of the collateral less any prior liens. Repossessed assets are initially recorded at fair value less estimated costs to sell. The fair value of repossessed assets is based on property appraisals and an analysis of similar properties available. As such, the Company classifies repossessed assets as Level 3 assets.

The Company has segregated all financial assets and liabilities 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 in the table below.


			Fair Value Measurements Using
*(dollars in thousands)*	December 31, 2016		Level 1		Level 2		Level 3
Assets
Impaired loans	$	4,763	$	—	$	—	$	4,763
Repossessed assets		2,893		—		—		2,893

Total	$	7,656	$	—	$	—	$	7,656


			Fair Value Measurements Using
*(dollars in thousands)*	December 31, 2015		Level 1		Level 2		Level 3
Assets
Impaired loans	$	813	$	—	$	—	$	813
Repossessed assets		3,128		—		—		3,128

Total	$	3,941	$	—	$	—	$	3,941

The following table show 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
As of December 31, 2016:
Impaired loans	$	4,763		Third party appraisals and discounted cash flows		Collateral discounts and discount rates	0% - 100%		15%

Repossessed assets	$	2,893		Third party appraisals, sales contracts, Broker price opinions		Collateral discounts and estimated costs to sell	6% - 96%		19%

As of December 31, 2015:
Impaired loans	$	813		Third party appraisals and discounted cash flows		Collateral discounts and discount rates	0% - 100%		15%

Repossessed assets	$	3,128		Third party appraisals, sales contracts, Broker price opinions		Collateral discounts and estimated costs to sell	6% - 96%		19%

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 statement element. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

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

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

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

The fair value for investment securities is determined from quoted market prices when available. If a quoted market price is not available, fair value is estimated using third party pricing services or quoted market prices of securities with similar characteristics.

The carrying value of mortgage loans held for sale are recorded at the lower of aggregate cost or market value, which is a reasonable estimate of fair value.

The fair value of loans are estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturity.

The cash surrender value of bank-owned life insurance (“BOLI”) approximates its fair value.

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

The carrying amount of the FHLB advances is estimated using the rates currently offered for advances of similar maturities.

The carrying value of the securities sold under repurchase agreement is its fair value.

The fair value of off-balance sheet financial instruments as of December 31, 2016 and 2015 was immaterial.


	Carrying Amount		Fair Value Measurements at December 31, 2016
*(dollars in thousands)*	Carrying Amount		Total		Level 1		Level 2		Level 3
Financial Assets
Cash and cash equivalents	$	29,315	$	29,315	$	29,315	$	—	$	—
Interest-bearing deposits in banks		1,884		1,884		1,884		—		—
Investment securities available for sale		183,730		183,730		—		183,730		—
Investment securities held to maturity		13,365		13,362		—		13,362		—
Mortgage loans held for sale		4,156		4,156		—		4,156		—
Loans, net		1,215,323		1,205,538		—		1,200,775		4,763
Cash surrender value of BOLI		20,150		20,150		20,150		—		—

Financial Liabilities
Deposits	$	1,248,072	$	1,247,526	$	—	$	1,247,526	$	—
Short-term FHLB advances		40,000		40,000		40,000		—		—
Long-term FHLB advances		78,533		78,039		—		78,039		—


	Carrying Amount		Fair Value Measurements at December 31, 2015
*(dollars in thousands)*	Carrying Amount		Total		Level 1		Level 2		Level 3
Financial Assets
Cash and cash equivalents	$	24,798	$	24,798	$	24,798	$	—	$	—
Interest-bearing deposits in banks		5,144		5,144		5,144		—		—
Investment securities available for sale		176,762		176,762		—		176,762		—
Investment securities held to maturity		13,927		14,121		—		14,121		—
Mortgage loans held for sale		5,651		5,651		—		5,651		—
Loans, net		1,214,818		1,216,370		—		1,215,557		813
Cash surrender value of BOLI		19,667		19,667		19,667		—		—

Financial Liabilities
Deposits	$	1,244,217	$	1,243,698	$	—	$	1,243,698	$	—
Short-term FHLB advances		39,939		39,939		39,939		—		—
Long-term FHLB advances		85,213		84,711		—		84,711		—

20. Condensed Parent Company Only Financial Statements

Condensed financial statements of Home Bancorp, Inc. (parent company only) are shown below. The parent company has no significant operating activities.

Condensed Balance Sheets

December 31, 2016 and 2015


*(dollars in thousands)*	2016		2015
Assets
Cash in bank	$	14,924	$	19,512
Investment in subsidiary		163,922		148,172
Other assets		1,102		1,333

Total assets	$	179,948	$	169,017

Liabilities	$	105	$	3,971
Shareholders’ equity		179,843		165,046

Total liabilities and shareholders’ equity	$	179,948	$	169,017

Condensed Statements of Operations

For the Years Ended December 31, 2016, 2015 and 2014


*(dollars in thousands)*	2016			2015			2014
Operating income
Interest income	$	—		$	—		$	1
Gain on sale of investment		—			—			—
Dividend from subsidiary		—			72,500			40,000

Total operating income		—			72,500			40,001

Operating expenses
Interest expenses		—			—			5
Other expenses		192			142			147

Total operating expenses		192			142			152

(Loss) income before income tax benefit and equity in undistributed earnings of subsidiary		(192	)		72,358			39,849

Income tax benefit		(77	)		(57	)		(61	)

Income before equity in undistributed earnings of subsidiary		(115	)		72,415			39,910
Undistributed earnings of subsidiary (Dividends received in excess of earnings of subsidiary)		16,123			(59,865	)		(30,038	)

Net income	$	16,008		$	12,550		$	9,872

Condensed Statements of Cash Flows

For the Years Ended December 31, 2016, 2015 and 2014


*(dollars in thousands)*	2016			2015			2014
Cash Flows from Operating Activities
Net income	$	16,008		$	12,550		$	9,872
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Non-cash compensation		1,200			999			805
Decrease (increase) in accrued interest and other assets		135			(624	)		(58	)
Dividends received in excess of earnings from subsidiary (undistributed earnings in subsidiary)		(16,123	)		59,865			30,038
(Decrease) Increase in accrued expenses and other liabilities		(3,865	)		3,855			(226	)

Net Cash Provided by Operating Activities		(2,645	)		76,645			40,431

Cash Flows from Investing Activities
Net cash paid in acquisitions		—			(57,455	)		(37,597	)

Net Cash Used in Investing Activities		—			(57,455	)		(37,597	)

Cash Flows from Financing Activities
Proceeds from exercise of stock options		1,416			3,282			581
Payment of dividends on common stock		(2,988	)		(2,162	)		(499	)
Issuance of stock under incentive plan		(14	)		—			—
Purchase of Company’s common stock		(357	)		(3,466	)		(561	)

Net Cash Used in Financing Activities		(1,943	)		(2,346	)		(479	)

Net Increase (Decrease) in Cash and Cash Equivalents		(4,588	)		16,844			2,355

Cash and Cash Equivalents as of Beginning of Period		19,512			2,668			313

Cash and Cash Equivalents as of End of Period	$	14,924		$	19,512		$	2,668

21. Consolidated Quarterly Results of Operations (unaudited)


*(dollars in thousands, except per share data)*	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Year Ended December 31, 2016
Total interest income	$	17,049	$	16,866	$	16,847	$	16,923
Total interest expense		1,326		1,313		1,308		1,321

Net interest income		15,723		15,553		15,539		15,602
Provision for loan losses		850		1,050		800		500

Net interest income after provision for loan losses		14,873		14,503		14,739		15,102
Noninterest income		2567		3,448		2,515		2,628
Noninterest expense		12,341		11,856		10,643		11,957

Income before income taxes		5,099		6,095		6,611		5,773
Income tax expense		1,749		2,079		2,251		1,491

Net income	$	3,350	$	4,016	$	4,360	$	4,282

Earnings per share – basic	$	0.49	$	0.59	$	0.63	$	0.62

Earnings per share – diluted	$	0.47	$	0.57	$	0.61	$	0.60


*(dollars in thousands, except per share data)*	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Year Ended December 31, 2015
Total interest income	$	13,305	$	13,588	$	14,425	$	17,092
Total interest expense		814		823		894		1,335

Net interest income		12,491		12,765		13,531		15,757
Provision for loan losses		538		294		569		670

Net interest income after provision for loan losses		11,953		12,471		12,962		15,087
Noninterest income		2,079		2,039		2,197		2,455
Noninterest expense		9,719		10,228		10,522		11,553

Income before income taxes		4,313		4,282		4,637		5,989
Income tax expense		1,465		1,441		1,739		2,026

Net income	$	2,848	$	2,841	$	2,898	$	3,963

Earnings per share – basic	$	0.43	$	0.42	$	0.43	$	0.59

Earnings per share – diluted	$	0.41	$	0.41	$	0.41	$	0.56

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Not applicable.

Item 9A.

Controls and Procedures.

Evaluation of Disclosure 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 December 31, 2016. 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.

Management’s Report on Internal Control over Financial Reporting

The management of Home Bancorp, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and the Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with the accounting principles generally accepted in the United States of America. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended.

The Company’s internal control systems are designed to ensure that transactions are properly authorized and recorded in the financial records and to safeguard assets from material loss or misuse. Such assurance cannot be absolute because of inherent limitations in any internal control system.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2016 based on the criteria for effective internal control established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on the assessment, management determined that the Company maintained effective internal control over financial reporting as of December 31, 2016. Our independent registered public accountants have issued an audit report on the Company’s internal control over financial reporting. This report appears on pages 39 and 40.

Changes in Internal Control over Financial Reporting

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 fourth fiscal quarter of 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.

Other Information.

Not applicable.

PART III

Item 10.

Directors, Executive Officers and Corporate Governance.

The information required herein is incorporated by reference from the information contained in the sections captioned “Information with Respect to Nominees for Director, Continuing Directors and Executive Officers” and “Beneficial Ownership of Common Stock by Certain Beneficial Owners and Management – Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s definitive proxy statement to be filed with the SEC for the 2017 Annual Meeting of Shareholders to be held in May 2017 (the “Proxy Statement”).

The Company has adopted a Code of Conduct and Ethics that applies to its principal executive officer and principal financial officer, as well as other officers and employees of the Company and the Bank. A copy of the Code of Ethics is available on the Company’s website at www.home24bank.com.

Item 11.

Executive Compensation.

The information required herein with respect to the security ownership of certain beneficial owners and management is incorporated by reference from the information contained in the sections captioned “Management Compensation” in the Proxy Statement.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Equity Compensation Plan Information. The following table provides information as of December 31, 2016 with respect to shares of common stock that may be issued under our existing equity compensation plans, which consist of the 2009 Stock Option Plan, 2009 Recognition and Retention Plan and the 2014 Equity Incentive Plan, each of which was approved by our shareholders.


Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)			Weighted-average exercise price of outstanding options, warrants and rights (b)			Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders		491,676	⁽¹⁾	$	14.55	⁽¹⁾		242,317
Equity compensation plans not approved by security holders		—			—			—

Total		491,676		$	14.55			242,317

⁽¹⁾	Includes 6,988 shares subject to restricted stock grants and 41,567 restricted share units which were not vested as of December 31, 2016. The weighted-average exercise price excludes such restricted stock grants.

The information required herein is incorporated by reference from the information contained in the section captioned “Beneficial Ownership of Common Stock by Certain Beneficial Owners and Management” in the Proxy Statement.

Item 13.

Certain Relationships and Related Transactions and Director Independence.

The information required herein is incorporated by reference from the information contained in the sections captioned “Management Compensation – Related Party Transactions” and “Information with Respect to Nominees for Director, Continuing Directors and Executive Officers” in the Proxy Statement.

Item 14.

Principal Accounting Fees and Services.

The information required herein is incorporated by reference from the information contained in the sections captioned “Ratification of Appointment of Independent Registered Public Accounting Firm” in the Proxy Statement.

PART IV

Item 15. Exhibits and Financial Statement Schedules.

(a)	(1) The following financial statements are incorporated by reference from Item 8 hereof:


Report of Independent Registered Public Accounting Firm
Consolidated Statements of Financial Condition
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements

(2) All schedules are omitted because they are not required or applicable, or the required information is shown in the consolidated financial statements or the notes thereto.

(3) Exhibits

The following exhibits are filed as part of this Form 10-K and this list includes the Exhibit Index.


No.	Description	Location

3.1	Articles of Incorporation of Home Bancorp, Inc.	(1)

3.2	Amended and Restated Bylaws of Home Bancorp, Inc.	(2)

4.0	Form of Stock Certificate of Home Bancorp, Inc.	(1)

10.1	Salary Continuation Agreement by and between Home Bank and John W. Bordelon*	(1)

10.2	Salary Continuation Agreement by and between Home Bank and Darren E. Guidry*	(1)

10.3	Amendment No. 1 to the Salary Continuation Agreement by and between Home Bank and John W. Bordelon*	(3)

10.4	Amendment No. 1 to the Salary Continuation Agreement by and between Home Bank and Darren E. Guidry*	(3)

10.5	2005 Directors’ Deferral Plan*	(3)

10.6	Amended and Restated Employment Agreement by and between Home Bank and John W. Bordelon*	(4)

10.7	Amended and Restated Employment Agreement by and between Home Bancorp, Inc. and John W. Bordelon*	(4)

10.8	Amended and Restated Employment Agreement by and between Home Bank and Darren E. Guidry*	(4)

10.9	Amended and Restated Employment Agreement by and between Home Bank and Joseph B. Zanco*	(4)

10.10	Home Bancorp, Inc. 2009 Stock Option Plan*	(5)

10.11	Home Bancorp, Inc. 2009 Recognition and Retention Plan and Trust Agreement*	(6)

10.12	Employment Agreement by and between Home Bank and Scott A. Ridley*	(7)

10.13	Home Bancorp, Inc. 2014 Equity Incentive Plan*	(8)

10.14	Amendment to the Amended and Restated Employment Agreement between Home Bancorp, Inc. and John W. Bordelon*	(9)

10.15	Amendment to the Amended and Restated Employment Agreement between Home Bank and John W. Bordelon*	(9)

10.16	Amendment to the Amended and Restated Employment Agreement between Home Bank and Darren E. Guidry*	(9)

10.17	Amendment to the Employment Agreement between Home Bank and Scott A. Ridley*	(9)

10.18	Amendment to the Amended and Restated Employment Agreement between Home Bank and Joseph B. Zanco*	(9)


No.	Description	Location

10.19	Employment Agreement between Home Bank, N.A. and Jason P. Freyou*		(10)

10.20	Amendment to the Employment Agreement between Home Bank, N.A. and Jason P. Freyou*		(9)

23.1	Consent of Porter Keadle Moore, LLC		Filed herewith

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

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

32.0	Section 1350 Certification		Filed herewith

101.INS	XBRL Instance Document

101.SCH	XBRL Taxonomy Extension Schema Document

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB	XBRL Taxonomy Extension Label Linkbase Document

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF	XBRL Taxonomy Extension Definitions Linkbase Document

*	Denotes a management contract or compensatory plan or arrangement.

(1)	Incorporated by reference from the like-numbered exhibit included in Home Bancorp’s registration statement on Form S-1, filed June 6, 2008 (SEC File No. 333-151492).

(2)	Incorporated by reference from the exhibit included in the Company’s Current Report on Form 8-K, dated as of March 23, 2009 and filed March 27, 2009 (SEC File No. 001-34190).

(3)	Incorporated by reference from the exhibit included in the Company’s Current Report on Form 8-K, dated as of December 22, 2008 and filed December 29, 2008 (SEC File No. 001-34190).

(4)	Incorporated by reference from the exhibit included in the Company’s Current Report on Form 8-K, dated as of March 28, 2011 and filed March 30, 2011 (SEC File No. 001-34190).

(5)	Incorporated by reference from Appendix A to Home Bancorp’s definitive proxy statement filed April 1, 2009 (SEC File No. 001-34190) and included in Form S-8, filed June 23, 2009 (SEC File No. 333-160155).

(6)	Incorporated by reference from Appendix B to Home Bancorp’s definitive proxy statement filed April 1, 2009 (SEC File No. 001-34190).

(7)	Incorporated by reference from the exhibit included in the Company’s Current Report on Form 8-K, dated as of January 27, 2014 and filed January 31, 2014 (SEC File No. 001-34190).

(8)	Incorporated by reference from Appendix A to Home Bancorp’s definitive proxy statement filed April 3, 2014 (SEC File No. 001-34190).

(9)	Incorporated by reference from the exhibit included Home Bancorp’s Current Report on Form 8-K, dated as of May 23, 2016 and filed on May 26, 2016 (SEC File No. 001-34190).

(10)	Incorporated by reference from the exhibit included in the Company’s Current Report on Form 8-K, dated as of April 27, 2015 and filed April 30, 2015 (SEC File No. 001-34190).

(b)

Exhibits

The exhibits listed under (a)(3) of this Item 15 are filed herewith.

(c)	Reference is made to (a)(2) of this Item 15.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

March 14, 2017	By:	/s/ John W. Bordelon
		John W. Bordelon
		President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.


Name	Title	Date

/s/ John W. Bordelon John W. Bordelon	President, Chief Executive Officer and Director	March 14, 2017

/s/ Michael P. Maraist Michael P. Maraist	Chairman of the Board	March 14, 2017

/s/ Paul J. Blanchet, III Paul J. Blanchet, III	Director, Chairman of Audit Committee	March 14, 2017

/s/ Kathy J. Bobbs Kathy J. Bobbs	Director	March 14, 2017

/s/ Richard J. Bourgeois Richard J. Bourgeois	Director	March 14, 2017

/s/ John A. Hendry John A. Hendry	Director	March 14, 2017

/s/ Marc W. Judice Marc W. Judice	Director	March 14, 2017

/s/ Chris P. Rader Chris P. Rader	Director	March 14, 2017

/s/ Donald W. Washington Donald W. Washington	Director	March 14, 2017

/s/ Joseph B. Zanco Joseph B. Zanco	Executive Vice President and Chief Financial Officer	March 14, 2017

/s/ Mary H. Hopkins Mary H. Hopkins	Home Bank First Vice President and Director of Financial Management	March 14, 2017

Large accelerated filer

Accelerated filer

Non-accelerated filer

☐ (Do not check if a smaller reporting company)

Smaller reporting company