ANNUAL REPORT
2022
A
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Home Bank’s footprint is
connected by more than
just roadways.
The beautiful magnolia also connects
us as the state flower of both Louisiana
and Mississippi. Our newest market,
Board of Directors
John W. Bordelon
Daniel G. Guidry
Secretary
J. Scott Ballard
Paul J. Blanchet, III
John A. Hendry
Chris P. Rader
Ann Forte Trappey
Donald W. Washington
Houston, holds the nickname of
John W. Bordelon
‘Magnolia City’.
We are where you need us.
Darren E. Guidry
Senior Executive Vice President
Jason P. Freyou
Senior Executive Vice President
David T. Kirkley
Senior Executive Vice President
NATCHEZ
HOUSTON
ACADIANA
BATON
ROUGE
NORTHSHORE
NEW ORLEANS
BRANCHES BY STATE
35
Louisiana
3
Mississippi
5
Texas
TOTAL BRANCHES
43
March 31, 2023
To Our Valued Shareholders,
Entering 2022, we were optimistic about the direction of the Bank and the potential for a great year. After grinding
through the impacts of COVID in 2020 and 2021, our team was excited to return to a more normalized environment,
more determined than ever to meet our strategic objectives. The overall results of 2022 far exceeded expectations. I am
so proud of the Home Bank team and humbled by the loyalty of our customers. The year 2022 was one of the best in
the Bank’s 115-year history.
We entered the dynamic Houston, Texas market through the acquisition of Friendswood Capital Corporation
("Friendswood"), the former holding company of Texan Bank, N.A. ("Texan Bank"), on March 26, 2022. Integrating
two banks is most certainly a challenge. I would like to commend the efforts of all involved in making this merger the
smoothest of our six acquisitions. We appreciate the opportunity to serve our newest customers in the Houston market
as we look forward to expanding our presence in the region. Here are a few other highlights from 2022: record highs
in revenue ($132 million), tremendous organic loan growth ($309 million), and outstanding asset growth to $3.2 billion.
The year was greatly boosted by the addition of Friendswood, loan growth across all markets, and favorable shifts in
the yield curve.
At Home Bank, our motto is “One team creating exceptional customer experiences”. The employees at Home Bank
fully embrace our motto by striving to exceed customer expectations with every interaction. This commitment to the
customer is the primary force behind our past and future success. Our ability to grow and remain profitable depends
heavily on our talented employees and our ability to adapt to changes in the market place and enhancements in
technology. During the past year, we expanded the commercial team across our footprint and hired talented personnel
in our support positions. We remain committed to investing in people, technology and infrastructure that improves the
customer experience and ensures our risk management remains strong.
While 2022 was an extremely successful year, the environment is rapidly changing in 2023. In an attempt to rein in
inflation, the Federal Reserve has aggressively raised rates creating an inverted yield curve. Outflows of deposits have
affected most banks with these rising rates. This rapid pace of rate increases has contributed to a couple highly
publicized bank failures, which have created tremendous negative vibes in the banking world. It is important to realize
the strengths of Home Bank and how completely different we are from the failed banks. Home Bank is well positioned
to manage through this cycle and capitalize on whatever opportunities arise. Our capital levels are strong, we have a
well-diversified, stabilized deposit base with lower than peer reliance on uninsured funds, a strong commitment to
managing interest rate risk, a conservative loan culture, and numerous borrowing sources should the need arise.
We are honored to serve our communities for 115 years and grateful for our shareholders and customers. In October,
we will be celebrating our 15th anniversary as a public company. On behalf of our Board of Directors and employees,
we thank you for your investment in Home Bancorp and your confidence in our future.
Sincerely,
John W Bordelon
Chairman, President and CEO
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒
☐
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended: December 31, 2022
or
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number: 001-34190
HOME BANCORP, INC.
(Exact name of Registrant as specified in its charter)
Louisiana
(State or Other Jurisdiction of Incorporation or Organization)
71-1051785
(I.R.S. Employer Identification Number)
503 Kaliste Saloom Road, Lafayette, Louisiana
(Address of Principal Executive Offices)
70508
(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
Common Stock, $0.01 par value per share
Trading symbol
HBCP
Name of each exchange on which registered
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 (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☐
☐
Accelerated filer
Smaller reporting company
Emerging growth company
☒
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based
compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
The aggregate market value of the 7,540,304 shares of the Registrant’s common stock held by non-affiliates, based upon the closing price
of $34.13 for the common stock on June 30, 2022, as reported by the Nasdaq Stock Market, was approximately $257.4 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 7, 2023: 8,290,505.
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 2023 Annual Meeting of Shareholders are incorporated by reference into
Part III, Items 10-14 of this Form 10-K.
HOME BANCORP, INC.
2022 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
Business ....................................................................................................................................................
Risk Factors ..............................................................................................................................................
Page
1
7
Unresolved Staff Comments ..................................................................................................................... 14
Properties .................................................................................................................................................. 14
Legal Proceedings ..................................................................................................................................... 14
Mine Safety Disclosures ........................................................................................................................... 14
PART II
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities .......................................................................................................................................
14
Reserved .................................................................................................................................................... 16
Management’s Discussion and Analysis of Financial Condition and Results of Operations ................... 16
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk ................................................................... 39
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
Item 10.
Item 11.
Financial Statements and Supplementary Data ........................................................................................ 40
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ................... 97
Controls and Procedures ........................................................................................................................... 97
Other Information ..................................................................................................................................... 97
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections ..................................................... 97
PART III
Directors, Executive Officers and Corporate Governance ....................................................................... 98
Executive Compensation .......................................................................................................................... 98
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 98
Item 13.
Item 14.
Item 15.
Item 16.
Certain Relationships and Related Transactions, and Director Independence ......................................... 98
Principal Accounting Fees and Services ................................................................................................... 98
PART IV
Exhibits and Financial Statement Schedules ............................................................................................ 99
Form 10-K Summary ................................................................................................................................ 101
SIGNATURES ................................................................................................................................................................. 102
[This page intentionally left blank.]
GLOSSARY OF DEFINED TERMS
Below is a listing of certain acronyms, abbreviations and defined terms, among others, used throughout this Annual Report
on Form 10-K. 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.
Bank-owned life insurance
NMTC
– New Markets Tax Credit(s)
ACL
– Allowance for credit losses
ALL
– Allowance for loan losses
AOCI
ASC
– Accumulated other
comprehensive income
– Accounting Standards
Codification
ASU
– Accounting Standards Update
Bank
BOLI
bps
C&D
C&I
CAA
–
–
–
–
–
–
CARES Act –
–
–
–
–
–
–
CBLR
CECL
CFPB
Company
COVID-19
CRA
CRE
Dodd-Frank
Act
EPS
Home Bank, N.A., a wholly-
owned subsidiary of the
Company
basis points, 100 basis points
being equal to 1.0%
Construction and land
Commercial and industrial
Consolidated Appropriations Act
Coronavirus Aid, Relief, and
Economic Security Act
Community bank leverage ratio
Current expected credit losses
Consumer Financial Protection
Bureau
Home Bancorp, Inc., a Louisiana
corporation and the holding
company for Home Bank, N.A.
The novel coronavirus
Community Reinvestment Act
Commercial real estate
–
– Dodd-Frank Wall Street Reform
and Consumer Protection Act
Earnings per common share
–
ESOP
FDIC
FASB
FHLB
FRB or
Federal
Reserve
GAAP
–
–
–
–
–
–
Employee Stock Ownership Plan
Federal Deposit Insurance
Corporation
Financial Accounting Standards
Board
Federal Home Loan Bank
Board of Governors of
Federal Reserve System
the
Generally Accepted Accounting
Principles in the United States of
America
OCC
–
Office of the Comptroller of the
Currency
OCI
ORE
PCD
PCI
PPP
RRP
SBA
SBIC
SEC
SMB
TDR
TE
U.S.
– Other comprehensive income
– Other real estate
–
–
–
–
–
–
–
–
–
–
Purchased credit deteriorated
Purchased credit impaired
Paycheck Protection Program
Recognition and Retention Plan
Small Business Association
Small Business Investment
Company
U.S. Securities and Exchange
Commission
St. Martin Bancshares, an entity
the Company acquired on
December 6, 2017
Troubled debt restructuring
Taxable equivalent
– United States
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 thereunder). 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) changes in the 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) failure to fully realize all the benefits we anticipate in connection with any future acquisitions of
other institutions or our assumptions made in connection therewith being inaccurate; (8) the COVID-19 pandemic; (9) cyber
incidents or other failures, disruptions or security beaches; or (10) 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.
The Company undertakes no obligation to update these forward-looking statements to reflect events or circumstances that
occur after the date on which such statements were made.
Item 1.
Business.
PART I
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 43 banking offices in the Acadiana, Baton Rouge, Greater New Orleans and Northshore
(of Lake Pontchartrain) regions of south Louisiana, the Natchez region of west Mississippi and Houston region of Texas.
The Company is subject to regulation as a bank holding company by the Board of Governors of the Federal Reserve System
(the “FRB” or the “Federal Reserve”). The Bank established HB Investment Fund I, LLC and HB Investment Fund II, LLC,
wholly-owned subsidiaries of the Bank to invest in New Markets Tax Credits (“NMTC”) and Federal Tax Credits ("FTC") in
our market areas.
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 interest expense and 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 and other consumer loans in our market
areas, our efforts are focused on originating 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 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.
Filings of the Company made with the U.S. Securities and Exchange Commission ("SEC") are available, without charge, on
our website. They are also available to the public at the SEC’s website at https://www.sec.gov. Information on our website
should not be considered a part of this Annual Report on Form 10-K.
Human Capital Resources
At December 31, 2022, we had 475 full-time employees and nine part-time employees. None of our employees are
represented by a collective bargaining group, and we believe that the Company's relationship with its employees is good. We
believe our ability to attract and retain employees is a key to the Bank's success.
Our human capital objectives include attracting, developing and retaining the best available talent from a diverse pool of
candidates for the Bank. To do so, we strive to maintain competitive pay and benefits, regularly updating our compensation
structure and periodically reviewing our compensation and benefits programs. Additionally, the Bank identifies opportunities
and paths for the development of our staff, and we seek to, whenever possible, fill positions by promotion within. The
Company recognizes that the skills and knowledge of its employees are critical to the success of the organization, and
promotes training and continuing education as an ongoing function for employees.
We recognize the importance of our employee's financial health and well-being, and offer benefits such as a 401(k)
retirement savings plan and make both matching and profit-sharing contributions to that plan, which also includes the
Company's stock as an investment option. Benefit programs available to eligible employees include, in addition to the 401(k)
retirement savings plan, health and life insurance, employee paid holidays and other benefits.
We value and promote diversity and inclusion in every aspect of our business and at every level within the Company. We
recruit, hire, and promote employees based on their individual ability and experience and in accordance with Affirmative
Action and Equal Employment Opportunity laws and regulations. Our policy is that we do not discriminate on the basis of
race, color, religion, sex, gender, sexual orientation, ancestry, pregnancy, medical condition, age, marital status, national
origin, citizenship status, disability veteran status, gender identity, genetic information, or any other status protected by law.
1
Market Area and Competition
The Bank has four primary market areas across south Louisiana: Acadiana, Baton Rouge, Greater New Orleans, and the
Northshore (of Lake Pontchartrain), currently, one primary market area in each of Natchez, Mississippi and the Houston,
Texas area. Since completing its initial public offering of stock in October 2008, the Company has acquired six other
financial institutions. On March 26, 2022 the Company completed the acquisition of Friendswood Capital Corporation
("Friendswood"), the former holding company of Texan Bank, N.A. ("Texan Bank") of Houston, Texas, expanding the
Company's market area to Houston. The Bank currently operates 19 banking offices in Acadiana, four banking offices in
Baton Rouge, six banking offices in the Greater New Orleans area, six banking offices in the Northshore region, three
banking offices in Natchez, and five banking offices in the Houston area. In January 2022, we sold the Bank's former branch
office in Vicksburg, Mississippi, and transferred approximately $2.8 million in loans and $14.7 million in deposit liabilities
from that office. 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. 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. More recently, innovations in loan and deposit
products brought about by financial technology companies have added to the level of competition for originating loans and
attracting deposits.
Supervision and Regulation
Set forth below is a brief description of certain laws relating to the regulation of Home Bancorp, Inc. and Home Bank, N.A.
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. In the last several years, the
Company has experienced heightened regulatory requirements and scrutiny following the global financial crisis and the
enactment in 2010 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). Resulting
reforms have caused the Company’s compliance and risk management processes, and the costs thereof, to increase.
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.
In May 2018, the Economic Growth, Regulatory Relief and Consumer Protection Act (the “Act”) was enacted to modify or
remove certain financial reform rules and regulations, including some of those implemented under the Dodd-Frank Act.
While the Act maintains most of the regulatory structure established by the Dodd-Frank Act, it amends certain aspects of the
regulatory framework for small depository institutions with assets of less than $10 billion and for large banks with assets of
more than $50 billion. Many of these changes could result in meaningful regulatory relief for community banks, such as the
Bank.
The Act, among other matters, expands the definition of qualified mortgages which may be held by a financial institution and
simplifies the regulatory capital rules for financial institutions and their holding companies with total consolidated assets of
less than $10 billion by instructing the federal banking regulators to establish a single “Community Bank Leverage Ratio” of
between 8 and 10 percent to replace the leverage and risk-based regulatory capital ratios.
2
Regulation of Home Bancorp, Inc.
The Company is 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 financial and managerial 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 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. The regulatory capital requirements generally applicable to a bank holding company are the same as
the capital requirements for its subsidiary bank. For a description of the Bank's 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 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.
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. Recently promulgated federal regulations exclude from the Volker Rule restrictions on community banks with $10.0
billion or less in total consolidated assets and total trading assets and liabilities of 5.0% or less of total consolidated assets.
The Company qualifies for this exclusion from the Volker Rule restrictions.
3
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 separately insured deposit relationship category 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 FDIC assesses deposit insurance premiums on the assessment base of a depository institution, which is the average total
assets reduced by the amount of its average tangible equity. Under the current rules, when the reserve ratio for the Deposit
Insurance Fund for the prior assessment period reaches, or is greater than 2.0% and less than 2.5%, assessment rates will
range from two basis points to 28 basis points and when the reserve ratio for the prior assessment period is greater than 2.5%,
assessment rates will range from one basis-point to 25 basis points. No institution may pay a dividend if it is in default on its
federal deposit insurance assessment. As of December 31, 2022, assessment rates ranged from three basis points to 30 basis
points for all institutions, subject to adjustments for unsecured debt issued by the institution, unsecured debt issued by other
FDIC-insured institutions, and brokered deposits held by the institution.
Extraordinary growth in insured deposits during the first and second quarters of 2020 caused the Deposit Insurance Fund
reserve ratio to decline below the statutory minimum of 1.35 percent as of June 30, 2020. In September 2020, the FDIC
Board of Directors adopted a Restoration Plan to restore the reserve ratio to at least 1.35 percent within eight years, absent
extraordinary circumstances, as required by the Federal Deposit Insurance Act. The Restoration Plan maintained the
assessment rate schedules in place at the time and required the FDIC to update its analysis and projections for the deposit
insurance fund balance and reserve ratio at least semiannually.
In the semiannual update for the Restoration Plan in June 2022, the FDIC projected that the reserve ratio was at risk of not
reaching the statutory minimum of 1.35 percent by September 30, 2028, the statutory deadline to restore the reserve ratio.
Based on this update, the FDIC Board approved an Amended Restoration Plan, and concurrently proposed an increase in
initial base deposit insurance assessment rate schedules uniformly by 2 basis points, applicable to all insured depository
institutions.
In October 2022, the FDIC Board finalized the increase with an effective date of January 1, 2023, applicable to the first
quarterly assessment period of 2023. The revised assessment rate schedules are intended to increase the likelihood that the
reserve ratio of the Deposit Insurance Fund reaches the statutory minimum level of 1.35 percent by September 30, 2028.
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.
Regulatory Capital Requirements. 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 4.0% of adjusted total assets.. Core
capital generally consists of common stockholders’ equity (including retained earnings). Under the risk-based capital
requirement, “total” capital (a combination of core and “supplementary” capital) must equal at least 8.0% of “risk-weighted”
4
assets. In addition, in order to make capital distributions and pay discretionary bonuses to executive officers without
restriction, an institution must also maintain a capital conservation buffer consisting of additional Tier 1 Common Equity
Capital greater than 2.5% of risk weighted assets above the required minimum risk-based capital levels. 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 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, 2022, 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 10.43%, 12.43%, 12.43% and 13.63%,
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
Well capitalized
Adequately capitalized
Undercapitalized
Total
Risk-Based
Capital
Tier 1
Risk-Based
Capital
Tier 1
Common
Equity
Capital
Tier 1
Leverage
Capital
10% or more
8% or more
6.5% or more
5% or more
8% or more
6% or more
4.5% or more
4% or more
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, 2022, 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.
Community Reinvestment Act and Fair Lending Laws. All insured depository institutions have a responsibility under the
Community Reinvestment Act and related regulations to help meet the credit needs of their communities, including low- and
moderate-income borrowers. The Office of the Comptroller of the Currency is required to assess the Bank’s record of
compliance with the Community Reinvestment Act. A bank’s failure to comply with the provisions of the Community
5
Reinvestment Act could, at a minimum, result in denial of certain corporate applications such as branches or mergers, or in
restrictions on its activities. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from
discriminating in their lending practices. The failure to comply with the Equal Credit Opportunity Act and the Fair Housing
Act could result in enforcement actions by the Office of the Comptroller of the Currency, as well as other federal regulatory
agencies and the Department of Justice.
On December 14, 2021, the OCC issued a final rule to rescind its June 2020 CRA rule and replace it with a rule based on the
rules adopted jointly by the federal banking agencies in 1995, as amended. The final rule aligns the OCC's CRA rule with the
rules of the Federal Reserve and the FDIC and thereby, according to the OCC, facilitates the ongoing interagency work to
modernize the CRA framework and create consistency for all insured depository institutions.
The Community Reinvestment Act requires all institutions insured by the Federal Deposit Insurance Corporation to publicly
disclose their rating. The Bank received an “Outstanding” Community Reinvestment Act rating in its most recent federal
examination.
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, 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 contains 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, 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, 2022 was in compliance
with the above restrictions.
Consumer Financial Services. The historical structure of federal consumer protection regulation applicable to all providers
of consumer financial products and services changed significantly with the establishment of the Consumer Financial
Protection Bureau (“CFPB”) as part of the Dodd-Frank Act reforms. On July 21, 2011, the CFPB commenced operations to
supervise and enforce consumer protection laws. The CFPB has broad rulemaking authority for a wide range of consumer
protection laws that apply to all providers of consumer products and services, including the Bank, as well as the authority to
prohibit “unfair, deceptive or abusive” acts and practices. CFPB has examination and enforcement authority over providers
with more than $10 billion in assets. FDIC-insured institutions with $10 billion or less in assets, like the Bank, continue to be
examined by their applicable bank regulators.
6
Commercial Real Estate Lending Concentrations. The federal banking agencies have issued guidance on sound risk
management practices for concentrations in commercial real estate lending. The particular focus is on exposure to
commercial real estate loans that are dependent on the cash flow from the real estate held as collateral and that are likely to be
sensitive to conditions in the commercial real estate market (as opposed to real estate collateral held as a secondary source of
repayment or as an abundance of caution). The purpose of the guidance is not to limit a bank’s commercial real estate
lending but to guide banks in developing risk management practices and capital levels commensurate with the level and
nature of real estate concentrations. The guidance directs the FDIC and other bank regulatory agencies to focus their
supervisory resources on institutions that may have significant commercial real estate loan concentration risk. A bank that
has experienced rapid growth in commercial real estate lending, has notable exposure to a specific type of commercial real
estate loan, or is approaching or exceeding the following supervisory criteria may be identified for further supervisory
analysis with respect to real estate concentration risk:
•
•
Total reported loans for construction, land development and other land represent 100% or more of the bank’s total
regulatory capital; or
Total commercial real estate loans (as defined in the guidance) represent 300% or more of the bank’s total regulatory
capital and the outstanding balance of the bank’s commercial real estate loan portfolio has increased 50% or more
during the prior 36 months.
The guidance provides that the strength of an institution’s lending and risk management practices with respect to such
concentrations will be taken into account in supervisory guidance on evaluation of capital adequacy.
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. The FHLBs provides financial institutions
additional strength to serve their communities through financial services to support its mission of affordable housing and
economic development. 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, 2022, the Bank had $176.2 million of FHLB advances and $937.4 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 0.4%
of its total assets in Class B-1 stock and activity-based investment of Class B-2 stock equal to 4.1% of its advances
outstanding and 2.0% of acquired members advances currently on the Bank’s balance sheet. As of December 31, 2022, the
Bank had $8.5 million in FHLB stock, which was in compliance with this requirement.
Federal Reserve System. The FRB requires all depository institutions to maintain reserves against their transaction accounts
and non-personal time deposits. Effective March 26, 2020, the Federal Reserve Board reduced reserve requirement ratios to
zero percent.
Privacy and Cyber Security. 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.
7
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 the COVID-19 Pandemic
The long-term macroeconomic effects of the COVID-19 pandemic and any future pandemic or epidemic could have an
adverse impact on our financial performance and results of operations.
Outbreaks of contagious disease, including COVID-19, or other adverse public health developments in the U.S. or worldwide
could have a material adverse effect on our business, financial condition and results of operations. While many of the direct
impacts of the COVID-19 pandemic have eased, the longer-term macroeconomic effects on global supply chains, inflation,
labor shortages and wage increases continue to impact many industries, including the collateral underlying certain of our
loans. Moreover, with the potential for new strains of existing viruses to emerge, or other pandemics or epidemics,
governments and businesses may re-impose aggressive measures to help slow its spread in the future.
Long-term macroeconomic effects from a pandemic or epidemic, including from supply and labor shortages, workforce
reductions in response to challenging economic conditions, or shifts in demand for real estate may have an adverse impact on
our portfolio which includes loans collateralized by office, hotel, and other asset classes that are particularly negatively
impacted by such supply and labor issues. The impact of such long-term effects may disproportionally affect certain asset
classes and geographic areas. For example, many businesses increasingly permit employees to work from home and make use
of flexible work schedules, open workplaces, videoconferences and teleconferences, which could have a longer-term impact
on the demand for both office space and hotel rooms for business travel, which could adversely affect our investments in
assets secured by office or hotel properties. While we believe the principal amount of our loans are generally adequately
protected by underlying property value, there can be no assurance that we will realize the entire principal amount of certain
investments.
The full extent of the impact and effects of COVID-19, and any future pandemics or epidemics, will depend on future
developments, including, among other factors, how rapidly variants develop, availability, acceptance and effectiveness of
vaccines along with related travel advisories, quarantines and restrictions, the recovery time of the disrupted supply chains
and industries, the impact of labor market interruptions, the impact of government interventions, and uncertainty with respect
to the duration of the global economic slowdown. COVID-19, or any future pandemics or epidemics, and resulting impacts
on the financial, economic and capital markets environment, and future developments in these and other areas present
uncertainty and risk with respect to our performance, results of operations and ability to pay distributions.
Risks Related to Our Lending Activities
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 commercial
and industrial loans, multi-family residential loans, and commercial real estate loans increased by an aggregate of 118.5%,
84.7% and 79.9% respectively, from December 31, 2018 through December 31, 2022. Excluding PPP loans, our commercial
and industrial loans increased by an aggregate of 114.6% over the same time period. Generally, multi-family residential,
commercial and industrial and commercial real estate lending involve a higher degree of risk than single-family residential
lending due to a variety of factors. Due to 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, 2022, the largest
outstanding balances of our commercial and industrial, multi-family residential and commercial real estate loans were $18.6
million, $11.0 million and $21.8 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 multi-
family residential, commercial and industrial and commercial real estate 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 and industrial, multi-family residential loans, and commercial real estate, the Bank holds a
significant portfolio of construction and land loans. As of December 31, 2022, the Bank’s construction and land loans
amounted to $313.2 million, or 12.9% 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
8
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.
Changes in interest rates could have a material adverse effect on our operations.
Risks Related to Market Interest Rates
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.
Fluctuations in interest rates due to economic conditions and governmental or regulatory policies may adversely affect
our net interest income and profitability.
Interest rates are highly sensitive to many factors beyond the Company’s control, including general economic conditions and
the policies of the FRB and other governmental and regulatory agencies. Changes in monetary policy, including changes in
interest rates, will influence the origination of loans, the prepayment of loans, the fair value of existing assets and liabilities,
the purchase of investments, the retention and generation of deposits and the rates received on loans and investment securities
and paid on deposits or other sources of funding. If the interest rates paid on deposits and other borrowings increase at a
faster rate than the interest rates received on loans and other investments, our earnings could be adversely affected. Earnings
could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the
interest rates paid on deposits and other borrowings. We have adopted asset and liability management policies to mitigate the
potential adverse effects of changes in interest rates on net interest income or earnings. However, even with these policies in
place, a change in interest rates can impact our results of operations or financial condition.
On March 5, 2021, the administrator of LIBOR benchmarks confirmed it would cease the publication of the one week and
two-month LIBOR settings immediately following the LIBOR publication on December 31, 2021, and the remaining LIBOR
settings immediately following the LIBOR publication on June 30, 2023. We have ceased originating LIBOR-based products
effective December 2021 and transitioning all remaining LIBOR based products to an alternative benchmark over the next 18
months. The Company continues to monitor efforts and evaluate the impact of reference rate reform on its consolidated
financial statements; however, the impact is not expected to be significant.
Risks Related to Our Market Areas
Our business is geographically concentrated in south Louisiana, southeast Texas and west Mississippi, which are areas
where the oil and gas industry has a significant presence. Reductions in 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, west Mississippi and the Houston, Texas
region. 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 have rebounded since the Spring of 2020, global markets for oil and gas were disrupted by the COVID-19
pandemic. Continued fluctuations in crude oil prices could adversely affect our operations and economic conditions in some
of our markets during 2023 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 $75.2 million, or 3.1% of the Company’s
loan portfolio, at December 31, 2022 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 $37.8 million in unfunded loan commitments to companies in the energy
sector at such date. At December 31, 2022, $1.4 million of our loans in the energy sector were on nonaccrual status, and $1.0
9
million of our total allowance for loan losses was attributable to energy sector loans. Historically, the oil and gas industry has
been an important factor in the local economy in our Acadiana and Natchez markets as well as the Houston market. If oil
prices decline, 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.
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 and southeast Texas, most of our credit exposure
is in that area. Historically, south Louisiana has been vulnerable to natural disasters, including hurricanes and floods. 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.
Economic conditions could result in increases in our level of non-performing loans and/or reduce demand for our
products and services, which could have an adverse effect on our results of operations.
Prolonged deteriorating economic conditions could significantly affect the markets in which we do business, the value of our
loans and investment securities and our ongoing operations, costs and profitability. Further, declines in real estate values and
sales volumes and elevated unemployment levels may result in higher loan delinquencies, increases in our non-performing
and classified assets and a decline in demand for our products and services. These events may cause us to incur losses and
may adversely affect our financial condition and results of operations. Reduction in problem assets can be slow, and the
process can be exacerbated by the condition of the properties securing non-performing loans and the length of time involved
in the foreclosure process. To the extent that we must work through the resolution of assets, economic problems may cause us
to incur losses and adversely affect our capital, liquidity and financial condition.
Risks Related to Accounting Matters
Our allowance for credit losses may not be adequate to cover losses over the life of our financial assets.
On January 1, 2020, the Company adopted ASC 326, Financial Instruments - Credit Losses, which introduced a new model
known as CECL. The new standard significantly changed the impairment model for most financial assets that are measured at
amortized cost, including off-balance sheet credit exposures, from an incurred loss model to an expected loss model. We have
established an allowance for credit losses, which includes the allowance for loans losses and losses on unfunded lending
commitments, based upon various assumptions and judgments about the collectability of our loan portfolio which we believe
is adequate to offset expected losses on our existing financial assets. Determining the appropriateness of the allowance
requires judgment by management about the effect of matters that are inherently uncertain. Changes in factors and forecasts
used in evaluating the overall loan portfolio may result in significant changes in the allowance for credit losses and related
provision expense in future periods. The allowance level is influenced by loan volumes, loan asset quality ratings,
delinquency status, historical credit loss experience, loan performance characteristics, forecasted information and other
conditions influencing loss expectations. Changes to the assumptions in the model in future periods could have a material
impact on the Company's Consolidated Financial Statements.
While we are not aware of any specific factors indicating a deficiency in the amount of our allowance for credit 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 credit losses. Federal bank regulators routinely scrutinize the level of the allowance for credit losses
maintained by regulated institutions. In the event that we have to increase our allowance for credit losses beyond current
levels, it would have an adverse effect on our results in future periods. As of December 31, 2022, our allowance for loan
losses amounted to $29.3 million, or 1.21% of total loans and our total allowance for credit losses amounted to $31.4 million,
or 1.29% of total loans. See Note 2 to the Consolidated Financial Statements for a detailed discussion of the Company's
methodologies for estimating expected credit losses.
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.
10
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.
Declines in the value of our investment securities may require us to take additional charges to earnings.
CECL also requires expected credit related losses for available for sale debt securities to be recorded through an allowance
for credit losses, while non-credit related losses will continue to be recognized through other comprehensive income. The
Company’s held to maturity debt securities are also required to utilize the CECL approach to estimate expected credit losses.
We evaluate our securities portfolio for impairment at least quarterly, and more frequently when economic and market
conditions warrant such evaluations. If this evaluation indicates the existence of credit losses, the Company compares the
present value of cash flows expected to be collected from the security with the amortized cost basis. If the present value of
expected cash flows is less than the amortized cost basis, an allowance for credit losses is recorded, limited by the amount
that the fair value of the security is less than its amortized cost. 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 credit
losses are expected from our securities portfolio. Such a conclusion, would require us to take additional charges to earnings to
establish an allowance for credit losses for these securities.
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. If the quoted market price of our common stock
were to decline significantly and the total book value of the Company, including goodwill, exceeded its fair value, we could
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.
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 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.
Risks Related to Our Business Strategy
We are subject to certain risks in connection with our strategy of growing through mergers and acquisitions.
Mergers and acquisitions are currently a component of our business model and growth strategy. Accordingly, it is possible
that we could acquire other banking institutions, other financial services companies or branches of banks in the future.
Acquisitions typically involve the payment of a premium over book and trading values and, therefore, may result in the
dilution of our tangible book value per share. Our ability to engage in future mergers and acquisitions depends on various
factors, including: (1) our ability to identify suitable merger partners and acquisition opportunities; (2) our ability to finance
and complete transactions on acceptable terms and at acceptable prices; and (3) our ability to receive the necessary regulatory
and, when required, shareholder approvals. Our inability to engage in an acquisition or merger for any of these reasons could
have an adverse impact on the implementation of our business strategies. Furthermore, mergers and acquisitions involve a
number of risks and challenges, including: (1) our ability to achieve planned synergies and to integrate the branches and
operations we acquire and the internal controls and regulatory functions into our current operations and (2) the diversion of
management’s attention from existing operations, which may adversely affect our ability to successfully conduct our business
and negatively impact our financial results.
11
Our financial performance and future growth may be negatively affected if we are unable to successfully execute our
growth plans, which may include additional 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 results of operations could be adversely affected if our analysis of pending 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.
Risks Related to Our Operational and Information Technology Systems
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.
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 or all of these problems could have a material adverse effect on our results of operations and
financial condition. Although we have security measures, including firewalls and penetration tests, designed to mitigate the
possibility of break-ins, breaches and other disruptive problems, there can be no assurance that such security measures will be
effective in preventing such problems.
We are dependent on our information technology and telecommunications systems and third-party service providers;
systems failures, interruptions and cybersecurity breaches could have a material adverse effect on us.
Our business is dependent on the successful and uninterrupted functioning of our information technology and
telecommunications systems and third-party service providers. The failure of these systems, or the termination of a third-
party software license or service agreement on which any of these systems is based, could interrupt our operations. Because
our information technology and telecommunications systems interface with and depend on third-party systems, we could
experience service denials if demand for such services exceeds capacity or such third-party systems fail or experience
interruptions. If significant, sustained or repeated, a system failure or service denial could compromise our ability to operate
effectively, damage our reputation, result in a loss of customer business and/or subject us to additional regulatory scrutiny
and possible financial liability, any of which could have a material adverse effect on us.
12
Our third-party service providers may be vulnerable to unauthorized access, computer viruses, phishing schemes and other
security breaches. We likely will expend additional resources to protect against the threat of such security breaches and
computer viruses, or to alleviate problems caused by such security breaches or viruses. To the extent that the activities of our
third-party service providers or the activities of our customers involve the storage and transmission of confidential
information, security breaches and viruses could expose us to claims, regulatory scrutiny, litigation costs and other possible
liabilities.
The occurrence of fraudulent activity, breaches or failures of our information security controls or cybersecurity-
related incidents could have a material adverse effect on our business, financial condition, results of operations and
growth prospects.
As a bank, we are susceptible to fraudulent activity, information security breaches and cybersecurity-related incidents that
may be committed against us or our customers, which may result in financial losses or increased costs to us or our customers,
disclosure or misuse of our information or our customer information, misappropriation of assets, privacy breaches against our
customers, litigation or damage to our reputation. Such fraudulent activity may take many forms, including check fraud,
electronic fraud, wire fraud, phishing, social engineering and other dishonest acts. Information security breaches and
cybersecurity-related incidents may include fraudulent or unauthorized access to systems used by us or our customers, denial
or degradation of service attacks and malware or other cyber-attacks. In recent periods, there continues to be a rise in
electronic fraudulent activity, security breaches and cyber-attacks within the financial services industry, especially in the
commercial banking sector due to cyber criminals targeting commercial bank accounts. Moreover, in recent periods, several
large corporations, including financial institutions and retail companies, have suffered major data breaches, in some cases
exposing not only confidential and proprietary corporate information, but also sensitive financial and other personal
information of their customers and employees and subjecting them to potential fraudulent activity. Some of our customers
may have been affected by these breaches, which could increase their risks of identity theft and other fraudulent activity that
could involve their accounts with us.
Information pertaining to us and our customers is maintained, and transactions are executed, on networks and systems
maintained by us and certain third-party partners, such as our online banking, mobile banking or accounting systems. The
secure maintenance and transmission of confidential information, as well as execution of transactions over these systems, are
essential to protect us and our customers against fraud and security breaches and to maintain the confidence of our customers.
Breaches of information security also may occur through intentional or unintentional acts by those having access to our
systems or the confidential information of our customers, including employees. In addition, increases in criminal activity
levels and sophistication, advances in computer capabilities, new discoveries, vulnerabilities in third-party technologies
(including browsers and operating systems) or other developments could result in a compromise or breach of the technology,
processes and controls that we use to prevent fraudulent transactions and protect data about us, our customers and underlying
transactions, as well as the technology used by our customers to access our systems. Our third-party partners’ inability to
anticipate, or failure to adequately mitigate, breaches of security could result in a number of negative events, including losses
to us or our customers, loss of business or customers, damage to our reputation, the incurrence of additional expenses,
disruption to our business, additional regulatory scrutiny, penalties or exposure to civil litigation and possible financial
liability, any of which could have a material adverse effect on our business, financial condition, results of operations and
growth prospects.
We face strong competition which adversely affects our profitability.
Risks Related to Our Business and Industry Generally
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 several of 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, governmental agencies that make available low cost or guaranteed loans to certain borrowers and non-
traditional financial technology firms that are offering an increasing array of online loan, deposit and treasury management
products. Some of our larger competitors have substantially greater resources, technological capabilities, lending limits,
branch systems and a wider array of commercial banking services. Vigorous competition from both bank and non-bank
organizations is expected to continue.
13
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.
Item 1B.
Unresolved Staff Comments.
Not applicable.
Item 2.
Properties.
We currently conduct business from 19 banking offices in Acadiana, four 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
banking offices in Natchez, Mississippi, and five banking offices in the Houston area. The Bank owns 34 of its 43 banking
offices. The Bank leases the land for one banking office in our Northshore market, and leases one banking office in Acadiana,
Baton Rouge, Mississippi and Greater New Orleans, respectively and five banking centers in the Houston market.
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, 2022, there were 8,286,084 shares of common stock outstanding, held by approximately 634
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.
14
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 S&P US Small Cap Banks Index for the period beginning December 31, 2017
and ending December 31, 2022. The graph below represents $100 invested in our common stock at its closing price on
December 31, 2017.
Index
Home Bancorp, Inc.
NASDAQ Composite
S&P US Small Cap Banks
12/31/17
100.00
100.00
100.00
12/31/18
83.29
95.47
83.44
12/31/19
94.34
129.10
104.69
12/31/20
69.61
185.44
95.08
12/31/21
105.79
225.10
132.36
12/31/22
104.46
150.59
116.69
Period Ending
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 2022 that were not registered under the Securities Act of 1933.
For information regarding the Company’s equity compensation plans, see Item 12.
(b)
(c)
Not applicable.
On October 26, 2021, the Company announced the approval of a new repurchase program (the "2021 Repurchase
Plan"). Under the 2021 Repurchase Plan, the Company may purchase up to 430,000 shares, or approximately 5% of
its common stock outstanding, through open market or privately negotiated transactions. Shares repurchases under the
2021 Repurchase Plan commenced upon the completion of the Company's 2020 Repurchase Plan in the first quarter of
2022. The Company’s purchases of its common stock made during the fourth quarter of 2022 (which were made
pursuant to the 2021 Repurchase Plan) are set forth in the following table.
15
Index ValueTotal Return PerformanceHome Bancorp, Inc.NASDAQ CompositeS&P US Small Cap Banks12/31/1712/31/1812/31/1912/31/2012/31/2112/31/2250100150200250 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
— $
—
1,315
1,315 $
—
—
42.84
42.84
—
—
1,315
1,315
197,033
197,033
195,718
195,718
Period
October 1 - October 31, 2022
November 1 - November 30, 2022
December 1 - December 31, 2022
Total
Item 6. Reserved.
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
The Company reported net income for 2022 of $34.1 million, or $4.16 diluted EPS compared to $48.6 million, or $5.77
diluted EPS, reported for 2021. Key components of the Company's performance in 2022 are summarized below.
The Company’s financial condition and income as of and for the period ended December 31, 2022 were impacted by the
acquisition of Friendswood Capital Corporation (“Friendswood”), the former holding company of Texan Bank, N.A. (“Texan
Bank”) of Houston, Texas, on March 26, 2022. As a result of the acquisition, the Company acquired assets of $413.9 million,
which included loans of $317.5 million, and $368.0 million in deposits and goodwill of $23.0 million. Shareholders of
Friendswood received $15.34 per share in cash, yielding an aggregate purchase price of $64.9 million. The Company
incurred $2.0 million and $299,000 in pre-tax merger-related expenses during the years ended December 31, 2022 and
December 31, 2021, respectively See Note 3 to the Consolidated Financial Statements for additional information regarding
the acquisition of Friendswood.
•
•
•
•
•
•
Assets increased $290.0 million, or 9.9%, from December 31, 2021 to $3.2 billion at December 31, 2022. The increase
was primarily the result of the Friendswood acquisition.
Loans increased by $590.7 million, or 32.1%, from December 31, 2021 to $2.4 billion at December 31, 2022.
Excluding PPP loans, loans increased by $627.6 million, or 34.9%. The increase in loans was due to the Friendswood
acquisition and organic loan growth.
During the year ended December 31, 2022, the Company provisioned $7.5 million of the allowance for loan losses
compared to a $10.2 million reversal for the year ended December 31, 2021. The provision charged in 2022 was
primarily the result of the acquisition of Friendswood and organic loan growth. The provision charged in 2022 included
$3.8 million for loans acquired in the Friendswood acquisition.
The ALL totaled $29.3 million, or 1.21% of total loans, at December 31, 2022. The ACL, which is comprised of the
allowance for loan losses plus the allowance for unfunded lending commitments, totaled $31.4 million, or 1.29% of
total loans, at December 31, 2022.
Total deposits increased $97.3 million, or 3.8%, from December 31, 2021 to $2.6 billion at December 31, 2022
Excluding the deposits assumed from Friendswood, core deposits decreased $166.1 million, or 7.5%, while certificates
of deposit decreased $104.5 million, or 32.7%, primarily due to customers deploying excess cash, deposit attrition, as
well as one customer transferring approximately $54.0 million in public funds to another fiscal agent.
The Company issued $55.0 million in aggregate principal amount of its 5.75% Fixed-to-Floating Rate Subordinated
Notes (the "Notes") due 2032. The Notes were issued at a price equal to 100% of the aggregate principal amount. The
carrying value of subordinated debt was $54.0 million at December 31, 2022. The subordinated debt was recorded net
of issuance costs of $1.1 million at December 31, 2022, which is being amortized using the straight-line method over
five years.
16
•
•
•
•
•
•
The Company repurchased 288,350 shares of common stock at an average price of $39.30 per share.
The net interest margin was 3.92% for the year ended December 31, 2022, up 4 bps compared to 2021, primarily due to
an increase in the average yield earned on interest-earning assets, partially offset with an increase in the average cost of
interest-bearing liabilities during 2022.
Loan income from the recognition of deferred PPP lender fees decreased $10.2 million, or 89.4%, from the year ended
December 31, 2021 to $1.2 million for the year ended December 31, 2022.
The average rate paid on total interest-bearing deposits during 2022 was 0.28%, down 4 bps compared to 2021.
Noninterest income decreased $2.4 million, or 14.7%, in 2022 compared to 2021 primarily due to a decrease in gains
on the sale of loans and a decrease in income from bank-owned life insurance primarily due to the receipt of non-
taxable life insurance proceeds of $1.7 million from a BOLI policy following the death of an employee in 2021.
Noninterest expense increased $14.9 million, or 22.3%, in 2022 compared to 2021 primarily due to the acquisition of
Friendswood. The Company incurred $2.0 million and $299,000 in pre-tax merger-related expenses during 2022 and
2021, respectively. Increases across several noninterest expense categories (including, but not limited to, compensation,
occupancy, data processing, regulatory fees and other expenses) were partially offset by a decrease in the provision for
credit losses on unfunded commitments.
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. Taxable equivalent (“TE”) ratios have been calculated using a marginal tax rate of 21%.
(dollars in thousands)
Selected Financial Condition Data:
Total assets
Cash and cash equivalents
Interest-bearing deposits in banks
Investment securities:
Available for sale
Held to maturity
Loans receivable, net
Intangible assets
Deposits
Other borrowings
Subordinated debt, net of issuance cost
Federal Home Loan Bank advances
Shareholders’ equity
2022
2021
As of December 31,
2020
2019
2018
$ 3,228,280 $ 2,938,244 $ 2,591,850 $ 2,200,465 $ 2,153,658
59,618
939
601,443
349
187,952
349
39,847
449
87,401
349
486,518
1,075
2,401,451
87,973
2,633,181
5,539
54,013
176,213
329,954
327,632
2,102
1,819,004
61,949
2,535,849
5,539
—
26,046
351,903
254,752
2,934
1,946,991
63,112
2,213,821
5,539
—
28,824
321,842
257,321
7,149
1,696,493
64,472
1,820,975
5,539
—
40,620
316,329
260,131
10,872
1,633,406
66,055
1,773,217
5,539
—
58,698
304,040
17
(dollars in thousands, except per share data)
Selected Operating Data:
2022
For the Years Ended December 31,
2020
2021
2019
2018
Interest income
Interest expense
Net interest income
Provision (reversal) for loan losses
Net interest income after provision for loan losses
Noninterest income
Noninterest expense
Income before income taxes
Income taxes
Net income
Earnings per share - basic
Earnings per share - diluted
Cash dividends per share
$ 125,930 $ 106,902 $ 104,129 $ 102,208 $ 102,312
10,306
11,918
16,212
7,915
5,913
118,015
7,489
110,526
13,885
81,909
42,502
100,989
(10,161)
111,150
16,271
66,982
60,439
92,211
12,728
79,483
14,305
62,981
30,807
85,996
3,014
82,982
14,415
63,605
33,792
8,430
34,072 $
4.19 $
4.16 $
0.93 $
11,818
48,621 $
5.80 $
5.77 $
0.91 $
6,042
24,765 $
2.86 $
2.85 $
0.88 $
5,860
27,932 $
3.08 $
3.05 $
0.84 $
$
$
$
$
As of or For the Years Ended December 31,
2020
2021
2019
2022
92,006
3,943
88,063
13,447
63,225
38,285
6,695
31,590
3.48
3.40
0.71
2018
Selected Operating Ratios: (1)
Average yield on interest-earning assets(TE)
Average rate on interest-bearing liabilities
Average interest rate spread(TE)(2)
Net interest margin(TE)(3)
Average interest-earning assets to average
interest-bearing liabilities
Noninterest expense to average assets
Efficiency ratio(4)
Return on average assets
Return on average common equity
4.19 %
4.11 %
4.48 %
5.07 %
5.15 %
0.41
3.78
3.92
0.35
3.76
3.88
0.76
3.72
3.96
1.13
3.94
4.26
0.73
4.42
4.62
154.87
152.48
146.05
140.07
139.72
2.58
62.10
1.07
10.16
2.42
57.12
1.76
14.38
2.53
59.13
0.99
7.83
2.89
63.34
1.27
8.95
2.93
59.96
1.46
10.88
Return on average tangible common equity (Non-
GAAP)(8)
Common stock dividend payout ratio
Average equity to average assets
Book value per common share
Tangible book value per common share (Non-
GAAP)(9)
13.93
22.36
10.55
$ 39.82
17.98
15.77
12.22
$ 41.27
10.24
30.88
12.69
$ 36.82
11.83
27.54
14.19
$ 34.19
14.80
20.88
13.43
$ 32.14
29.20
34.00
29.60
27.22
25.16
18
As of or For the Years Ended December 31,
2020
2021
2019
2018
2022
Asset Quality Ratios: (5) (6)
Non-performing loans as a percent of total loans
receivable
Non-performing assets as a percent of total assets
Allowance for loan losses as a percent of non-
performing loans as of end of period
Allowance for loan losses as a percent of net
loans as of end of period
Capital Ratios: (5) (7)
Tier 1 risk-based capital ratio
Leverage capital ratio
Total risk-based capital ratio
0.43 %
0.34
0.72 %
0.49
0.61 %
0.95
1.17 %
0.95
1.40 %
0.97
278.6
158.86
110.0
110.0
1.21
1.15
1.29
1.29
96.6
1.36
12.43 %
10.43
13.63
14.66 %
9.77
15.85
13.92 %
9.68
15.18
14.22 %
11.17
15.28
14.55 %
11.15
15.59
(1) With the exception of end-of-period ratios, all ratios are based on average monthly balances during the respective periods.
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Average interest rate spread represents the difference between the average yield on interest-earning assets and the average rate paid
on interest-bearing liabilities.
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 21%.
The efficiency ratio represents noninterest expense as a percentage of total revenues. Total revenues is the sum of net interest
income and noninterest income.
Asset quality and capital ratios are end-of-period ratios.
Due to the adoption of ASC 326, asset quality ratios are based on total non-performing assets at December 31, 2022, 2021 and 2020
For the periods prior to January 1, 2020, asset quality ratios represent originated non-performing assets. Acquired nonimpaired
loans, which were on nonaccrual or 90 days or more past due, and acquired assets, which were foreclosed assets or ORE, are not
included for periods prior to January 1, 2020. Acquired nonimpaired loans, which were on nonaccrual or 90 days or more past due
totaled $9.8 million and $9.0 million at December 31, 2019 and 2018, respectively. Acquired assets, which were foreclosed assets
or ORE, totaled $2.4 million and $1.4 million at December 31, 2019 and 2018, respectively. Refer to Note 2 to the Consolidated
Financial Statements for more information on the adoption of ASC 326.
Capital ratios are for Home Bank only.
Tangible calculation eliminates goodwill, core deposit intangible and the corresponding amortization expense, net of tax.
Tangible calculation eliminates goodwill and core deposit intangible.
This Selected Financial Data contains financial information prepared other than in accordance with generally accepted
accounting principles (“GAAP”). The Company uses these non-GAAP financial measures in its analysis of the Company’s
performance. Management believes that the non-GAAP information provides useful data in understanding the Company’s
operations and in comparing the Company’s results to peers. This non-GAAP information should be considered in addition to
the Company’s financial information prepared in accordance with GAAP, and is not a substitute for, or superior to, GAAP
results. A reconciliation of GAAP to non-GAAP disclosures is included in the table below.
19
Non-GAAP Reconciliation
(dollars in thousands, except per share data)
Book value per common share
Less: Intangibles
Tangible book value per common share
Net Income
Add: CDI amortization, net of tax
Non-GAAP tangible income
Return on common equity
Add: Intangibles
Return on average tangible common equity
CRITICAL ACCOUNTING ESTIMATES
2022
$ 39.82
10.62
29.20
34,072
1,266
35,338
As of or For the Years Ended December 31,
2020
2019
2021
2018
$ 41.27
7.27
34.00
48,621
919
49,540
$ 36.82
7.22
29.60
24,765
1,074
25,839
$ 34.19
6.97
27.22
27,932
1,250
29,182
$ 32.14
6.98
25.16
31,590
1,458
33,048
10.16 %
3.77
13.93 %
14.38 %
3.60
17.98 %
7.83 %
2.41
8.95 %
2.88
10.24 %
11.83 %
10.88 %
3.92
14.80 %
SEC guidance requires disclosure of “critical accounting estimates.” The SEC defines “critical accounting estimates” as those
estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation
uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations
of the registrant.
We follow financial accounting and reporting policies that are in accordance with accounting principles generally accepted in
the United States. Our accounting policies are discussed in detail in Note 2 - Summary of Significant Accounting Policies in
the accompanying notes to the consolidated financial statements included elsewhere in this report. Not all significant
accounting policies require management to make difficult, subjective or complex judgments. However, management believes
the policies noted below meet the SEC’s definition of critical accounting policies.
Allowance for Credit Losses
Management considers the policies related to the allowance for credit losses as the most critical to the financial statement
presentation. The total allowance for credit losses includes activity related to allowances calculated in accordance with
Accounting Standards Codification 326, Financial Instruments — Credit Losses. The allowance for credit losses is
established through a provision for credit losses charged to current earnings. The amount maintained in the allowance reflects
management’s continuing evaluation of the credit losses expected to be recognized over the life of the loans in our portfolio.
The allowance for credit losses on loans is a valuation account that is deducted from the loans' amortized cost basis to present
the net amount expected to be collected on the loans. For purposes of determining the allowance for credit losses, the loan
portfolio is segregated by product types in order to recognize differing risk profiles among categories. Loans that do not share
risk characteristics are evaluated on an individual basis and are not included in the collective evaluation. Management
estimates the allowance balance using relevant available information from internal and external sources relating to past
events, current conditions and reasonable and supportable forecasts. Adjustments to historical loss information are made to
incorporate our reasonable and supportable forecast of future losses at the portfolio segment level, as well as any necessary
qualitative adjustments, including, but not limited to, changes in current and expected future economic conditions, changes in
industry experience and industry loan concentrations, changes in the volume and severity of nonperforming assets, changes in
lending policies and personnel and changes in the competitive and regulatory environment of the banking industry. Loans that
do not share similar risk characteristics are individually evaluated and are excluded from the pooled loan analysis.
Business Combinations
Assets and liabilities acquired in business combinations are recorded at their fair value. In accordance with ASC Topic 805,
Business Combinations, the Company generally records provisional amounts at the time of acquisition based on the
information available to the Company. The determination of fair value as of the acquisition date requires management to
consider various factors that involve judgment and estimation, including the application of discount rates, prepayment rates,
attrition rates, future estimates of interest rates, as well as many other assumptions. These assumptions can have a material
impact on the estimated fair value, and as a result, the goodwill recorded in a business combination. The provisional estimates
of fair values may be adjusted for a period of up to one year ("measurement period") from the date of acquisition if new
information is obtained. Subsequently, adjustments recorded during the measurement period are recognized in the current
reporting period.
20
ACQUISITION ACTIVITY
The Company has completed six acquisitions since 2010. The following table is a summary of the Company’s acquisition
activity as recorded.
SUMMARY OF ACQUISITION ACTIVITY
(dollars in thousands)
Acquisition
Statewide Bank
GS Financial Corporation
Britton & Koontz Capital
Corporation
Louisiana Bancorp, Inc.
St. Martin Bancshares, Inc.
Friendswood Capital Corporation
Total Acquisitions
Acquisition
Date
3/12/2010
Total
Assets
Total
Loans
Goodwill
Core
Deposit
Intangible
Total
Deposits
$ 188,026 $ 110,415 $
560 $
1,429 $ 206,925
7/15/2011
256,677
182,440
2/14/2014
9/15/2015
12/6/2017
3/26/2022
298,930
352,897
592,852
413,919
161,581
281,583
439,872
317,492
$ 2,103,301 $ 1,493,383 $
296
43
8,454
49,135
859
193,518
3,030
1,586
6,766
216,600
208,670
533,497
23,029
81,517 $
367,991
4,597
18,267 $ 1,727,201
FINANCIAL CONDITION
Loans, Allowance for Credit Losses and Asset Quality
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.
Total loans in portfolio (which does not include mortgage loans held for sale) increased $590.7 million, or 32.1%, from
December 31, 2021 to $2.4 billion at December 31, 2022. At December 31, 2022, the total recorded net investment in PPP
loans was $6.7 million, which is included in commercial and industrial loans. The recorded investment in PPP loans is net of
$94,000 in deferred lender fees, which will be amortized into interest income over the life of the loans. Excluding PPP loans,
total loans increased by $627.6 million, or 34.9%.
The following table summarizes the composition of the Company’s loan portfolio as of the dates indicated.
(dollars in thousands)
Real estate loans:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Total real estate loans
2022
2021
December 31,
2020
2019
2018
$ 389,616 $ 350,843 $ 395,638 $ 430,820 $ 450,363
83,976
640,575
193,597
54,455
1,422,966
67,700
750,623
221,823
87,332
1,523,116
60,312
801,624
259,652
90,518
1,562,949
61,863
1,152,537
313,175
100,588
2,017,779
79,812
722,807
195,748
54,869
1,484,056
21
(dollars in thousands)
Other loans:
Commercial and industrial
Consumer
Total other loans
Total loans
2022
2021
December 31,
2020
2019
2018
377,894
35,077
412,971
172,934
53,854
226,788
$ 2,430,750 $ 1,840,093 $ 1,979,954 $ 1,714,361 $ 1,649,754
244,123
33,021
277,144
184,701
45,604
230,305
417,926
38,912
456,838
The following table reflects contractual loan maturities as of December 31, 2022, unadjusted for scheduled principal
reductions, prepayments, or repricing opportunities. The table also reflects the portion of loans due after one year that have
fixed or variable interest rates.
(dollars in thousands)
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total
Loans with fixed interest rates:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total
Loans with variable interest rates:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total
Allowance for Credit Losses
Amounts as of December 31, 2022 which mature in:
One year or
less
After one,
but within
five years
After five
but within
fifteen years
After
fifteen
years
Total
$
25,921 $ 106,746 $
2,226
10,753
83,604 $ 173,345 $ 389,616
61,863
38,977
9,907
112,167
153,027
21,580
148,606
4,522
553,871
96,356
56,681
143,595
10,976
378,360
39,988
10,913
85,691
16,637
108,139
23,804
1,152,537
313,175
11,414
2
2,942
100,588
377,894
35,077
$ 468,049 $ 978,978 $ 625,100 $ 358,623 $ 2,430,750
$ 103,313 $
62,300 $
81,187 $ 246,800
632
5,618
61
6,311
486,276
306,117
14,207
806,600
72,858
54,857
66,480
16,661
8,307
78,628
2,896
6,759
92,415
69,923
2
145,110
8,661
27,823
$ 793,077 $ 494,129 $ 107,776 $ 1,394,982
16,498
2,664
$
3,433 $
21,304 $
10,121
67,595
23,498
1,824
77,115
2,315
4,289
72,243
23,327
2,606
7,063
139
92,158 $ 116,895
53,326
38,916
233,770
93,932
67,733
20,908
9,085
4,655
84,178
—
278
2,732
$ 185,901 $ 130,971 $ 250,847 $ 567,719
Effective January 1, 2020, the Company adopted the guidance under ASC 326, Financial Instruments — Credit Losses,
which introduced a new model known as CECL. For reporting periods beginning on and after January 1, 2020 and the
adoption of ASC 326, the ACL is maintained at level that reflects expected losses for the full life of the financial assets. Prior
22
to January 1, 2020 and the adoption of ASC 326, the ALL was maintained at an amount which management determined
covered reasonably estimable and probable losses. The day one impact of the change in accounting principle is reflected in
the table below as an increase to the beginning balance in 2020. Management recalculates the ACL at least quarterly to
reassess the estimate of credit losses for the total portfolio at the relevant reporting date. For more information on the
adoption of ASC 326 and the Company's relevant accounting policies, refer to Note 2 of the Consolidated Financial
Statements.
The following table presents the activity in the allowance for credit losses for the years indicated.
(dollars in thousands)
Allowance for loan losses:
Beginning balance
ASC 326 adoption impact
Provision for acquired PCD loans
Provision for loan losses
Loans charged off:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Recoveries on charged off loans
2022
For the Years Ended December 31,
2020
2019
2021
2018
$
21,089 $
32,963 $
17,868 $
16,348 $
14,807
—
1,415
7,489
—
—
4,633
—
—
—
—
—
(10,161)
12,728
3,014
3,943
(80)
—
(176)
(6)
(270)
(1,337)
—
—
(792)
(256)
704
—
—
(599)
(187)
592
(99)
(575)
(5)
(688)
—
(984)
(250)
335
(4)
(42)
(360)
(6)
—
(893)
(272)
83
(1)
—
—
—
—
(2,506)
(74)
179
Ending balance - allowance for loan losses
$
29,299 $
21,089 $
32,963 $
17,868 $
16,348
Allowance for unfunded lending commitments:
Beginning balance
ASC 326 adoption impact
Provision for losses on unfunded commitments
Ending balance - allowance for unfunded
commitments
$
1,815 $
1,425 $
— $
— $
—
278
—
390
1,425
—
2,093
1,815
1,425
—
—
—
—
—
—
—
Total allowance for credit losses
$
31,392 $
22,904 $
34,388 $
17,868 $
16,348
At December 31, 2022, the ALL totaled $29.3 million, or 1.21% of total loans, and the ACL, which includes the reserve for
unfunded lending commitments, totaled $31.4 million, or 1.29% of total loans. For the year ended December 31, 2022, the
Company provisioned $7.5 million of the allowance for loan losses compared to a reversal of $10.2 million for the year ended
December 31, 2021. The provision for loan losses during 2022 primarily reflected our assessment of the risk characteristics of
loans acquired in the acquisition of Friendswood, which amounted to $3.8 million of the 2022 provision amount. The $10.2
million reversal in 2021 primarily was due to improvements in our assessment of the change in expected losses due primarily to
the economic impact of the COVID-19 pandemic.
23
The following table presents the allocation of the allowance for loan losses as of December 31 for the years indicated.
2022
2021
December 31,
2020
2019
2018
(dollars in thousands)
Amount
%
Loans
Amount
%
Loans
Amount
%
Loans
Amount
%
Loans
Amount
%
Loans
One-to four-family first
mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
$ 2,883
16.0% $ 1,944
19.1% $ 3,065
20.0% $ 2,715
25.1% $ 2,136
27.3%
624
13,814
4,680
572
2.6
47.4
12.9
4.1
508
10,454
3,572
3.2
43.6
14.1
676
3.4
1,084
4.6
1,079
18,851
4,155
37.9
11.2
4.4
6,541
2,670
572
42.2
11.4
3.2
6,125
2,285
550
457
4.9
1,077
Commercial and industrial
6,024
15.6
3,520
13.3
4,276
21.1
3,694
10.8
3,228
Consumer
Total
702
1.4
634
1.8
863
2.0
592
2.7
945
$ 29,299
100.0% $ 21,089
100.0% $ 32,963
100.0% $ 17,868
100.0% $ 16,348
100.0%
5.1
38.8
11.7
3.3
10.5
3.3
The following table shows credit ratios at and for the periods indicated and each component of the ratio's calculation:
For the Years Ended December 31,
2022
2021
2020
2019
2018
Allowance for loan losses as a percentage of total loans
outstanding
Allowance for loan losses
Total loans outstanding
1.21 %
1.15 %
1.66 %
1.04 %
0.99 %
$ 29,299 $ 21,089 $ 32,963 $ 17,868 $ 16,348
$ 2,430,750 $ 1,840,093 $ 1,979,954 $ 1,714,361 $ 1,649,754
Nonaccrual loans as a percentage of total loans outstanding
0.43 %
0.72 %
0.94 %
1.42 %
1.48 %
Total nonaccrual loans
Total loans outstanding
$ 10,513 $ 13,269 $ 18,677 $ 24,386 $ 24,412
$ 2,430,750 $ 1,840,093 $ 1,979,954 $ 1,714,361 $ 1,649,754
Allowance for loan losses as a percentage of nonaccrual
loans
Allowance for loan losses
Total nonaccrual loans
Net charge-offs during period to average loans outstanding:
278.69 % 158.93 % 176.49 %
73.27 %
66.97 %
$ 29,299 $ 21,089 $ 32,963 $ 17,868 $ 16,348
$ 10,513 $ 13,269 $ 18,677 $ 24,386 $ 24,412
One-to four family residential loans
Net charge-offs
Average loans outstanding
(0.01) %
(0.04) %
(0.02) %
— %
— %
$
(41) $
(131) $
(86) $
(4) $
(1)
$ 367,570 $ 372,207 $ 422,156 $ 441,183 $ 461,712
Net charge-offs during period to average loans outstanding:
Home equity loans and lines
Net charge-offs
Average loans outstanding
0.02 %
0.03 %
(0.76) %
(0.03) %
0.01 %
$
14 $
19 $
(559) $
(26) $
5
$ 60,023 $ 62,957 $ 73,396 $ 80,994 $ 89,085
Net charge-offs during period to average loans outstanding:
Commercial real estate
Net charge-offs
Average loans outstanding
(0.03) %
(0.17) %
0.01 %
(0.05) %
— %
$
(270)
$ (1,337)
$
50
$
(360)
$ —
$ 1,024,610 $ 769,950
$ 728,959
$ 686,442
$ 619,690
24
Net charge-offs during period to average loans outstanding:
Construction and land
Net charge-offs
Average loans outstanding
For the Years Ended December 31,
2022
2021
2020
2019
2018
— %
0.03 %
(0.33) %
— %
— %
$ —
$
63
$
(688)
$
(6)
$ —
$ 297,218
$ 241,725
$ 205,591
$ 194,976
$ 174,033
Net charge-offs during period to average loans outstanding:
Multi-family residential
Net charge-offs
Average loans outstanding
— %
— %
— %
— %
— %
$ —
$ —
$ —
$ —
$ —
$ 97,753
$ 87,101
$ 72,906
$ 50,474
$ 53,678
Net charge-offs during period to average loans outstanding:
Commercial and industrial
Net charge-offs
Average loans outstanding
(0.10) %
(0.08) %
(0.24) %
(0.49) %
(1.30) %
$
(283)
$
(286)
$
(878)
$
(868)
$ (2,348)
$ 294,459
$ 356,180
$ 360,930
$ 178,236
$ 180,456
Net charge-offs during period to average loans outstanding:
Consumer
Net charge-offs
Average loans outstanding
(0.34) %
(0.12) %
(0.25) %
(0.47) %
(0.10) %
$
(114)
$
(41)
$
(105)
$
(230)
$
(58)
$ 33,334
$ 35,647
$ 41,350
$ 49,297
$ 58,189
Additional Information on Loan Portfolio Composition and the Allowance for Credit Losses
As the fallout of the COVID-19 pandemic continues to impact the national, regional and local economies, management
continues to proactively monitor the loan portfolio to identify potential weaknesses that may develop. Specifically,
management has identified and is monitoring exposures to borrowers and industries that may be impacted more immediately
and acutely than others. In many instances, management has directly reached out to specific borrowers to provide guidance
and assistance as appropriate. On a portfolio level, management continues to monitor aggregate exposures to highly sensitive
segments for changes in asset quality, payment performance and liquidity levels. Additionally, management is monitoring
unfunded commitments, such as lines of credit and overdraft protection, to monitor liquidity and funding issues that may arise
with our customers.
The following table provides a summary of the loan portfolio and related reserves at December 31, 2022. We have separately
identified certain information regarding PPP loans which, due to the existence of full repayment guarantees from the SBA as
well as the likelihood that the vast majority of such loans will be forgiven, we believe entail minimal credit risk to the
Company.
(dollars in thousands)
December 31, 2022
Total Loans
PPP Loans
Total ACL
ACL to
Total Loans
ACL to
Total Non-
PPP Loans
$
Retail CRE
Hotels and short-term rentals
Restaurants and bars
Energy
Credit cards
Other loans
Total
325,806 $
153,304
63,636
75,180
4,540
1,808,284
$
2,430,750 $
—
2,151
344
257
—
3,940
6,692
$
$
3,196
3,306
908
1,049
355
20,485
29,299
0.98 %
2.16
1.43
1.40
7.82
1.13
1.21 %
0.98 %
2.19
1.43
1.40
7.82
1.14
1.21 %
25
(dollars in thousands)
Unfunded lending
commitments(1)
Total
Total Loans
PPP Loans
Total ACL
ACL to
Total Loans
ACL to
Total Non-
PPP Loans
—
$
2,430,750 $
—
6,692
$
2,093
31,392
—
1.29 %
—
1.30 %
(1) At December 31, 2022, the allowance of $2.1 million related to unfunded lending commitments of $520.7 million. The ACL on
unfunded lending commitments is recorded within accrued interest payable and other liabilities on the Consolidated Statements of
Financial Condition.
Asset Quality
One of management’s key objectives has been, and continues to be, maintaining a high level of asset quality. In addition to
maintaining credit standards for new loan originations, we proactively monitor loans and collection and workout processes of
delinquent or problem loans. When a borrower fails to make a scheduled payment, we attempt to cure the deficiency by
making personal contact with the borrower. Initial contacts are generally made within 10 days after the date payment is due.
In most cases, deficiencies are promptly resolved. If the delinquency continues, late charges are assessed and additional
efforts are made to collect the deficiency. All loans which are designated as “special mention,” classified or which are
delinquent 90 days or more are reported to the Board of Directors of the Bank monthly. For loans where the collection of
principal or interest payments is doubtful, the accrual of interest income ceases. It is our policy, with certain limited
exceptions, to discontinue accruing interest and reverse any interest accrued on any loan which is 90 days or more past due.
On occasion, this action may be taken earlier if the financial condition of the borrower raises significant concern with regard
to their ability to service the debt in accordance with the terms of the loan agreement. Interest income is not accrued on these
loans until the borrower’s financial condition and payment record demonstrate an ability to service the debt.
Loans that do not share similar risk characteristics are individually evaluated and are excluded from the pooled loan analysis.
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 (i.e., loans with balances
of $500,000 or greater) commercial real estate loans, multi-family residential loans, construction and land loans and
commercial and industrial loans 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 at the Bank. The Company typically orders an “as is” valuation for collateral property if a
loan is in a criticized loan classification. The Board of Directors is provided with monthly reports on individually evaluated
loans.
At December 31, 2022 and 2021, loans identified as impaired and individually evaluated for expected losses were $5.0
million and $4.6 million, respectively. Due to the adoption of ASC 326, total loans identified as impaired and individually
evaluated at December 31, 2022 included $1.5 million of acquired loans, of which none were acquired with deteriorated
credit quality. For more information on the adoption of ASC 326, refer to Note 2 of the Consolidated Financial Statements.
26
The following tables provide a summary of loans individually evaluated for expected losses as of the dates indicated.
(dollars in thousands)
Loans Individually Evaluated
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total
(dollars in thousands)
Loans Individually Evaluated
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total
Recorded
Investment
December 31, 2022
Allowance for
Loan Losses
Allowance to
Total Loans
$
— $
—
4,743
—
—
204
86
$
5,033 $
—
—
550
—
—
171
—
721
— %
—
11.60
—
—
83.82
—
14.33 %
Recorded
Investment
December 31, 2021
Allowance for
Loan Losses
Allowance to
Total Loans
$
— $
—
3,873
—
—
744
—
$
4,617 $
—
—
247
—
—
425
—
672
— %
—
6.38
—
—
57.12
—
14.55 %
Federal regulations and our policies require that we utilize an internal asset classification system as a means of reporting
problem and potential problem assets. We have incorporated an internal asset classification system, substantially consistent
with Federal banking regulations, as a part of our credit monitoring system. Federal banking regulations set forth a
classification scheme for problem and potential problem assets as “substandard,” “doubtful” or “loss” assets. An asset is
considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the
collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the insured
institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the
weaknesses inherent in those classified “substandard” with the added characteristic that the weaknesses present make
“collection or liquidation in full,” on the basis of currently existing facts, conditions and values, “highly questionable and
improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as
assets without the establishment of a specific loss reserve is not warranted. In addition to classified assets, assets which do not
currently expose the Bank to sufficient risk to be classified may be categorized as "special mention." Special mention assets
have an existing weakness that could cause future impairment.
At December 31, 2022 and 2021, we had a total of $21.5 million and $17.5 million, respectively, in loans classified as
substandard. We had no assets classified as doubtful or loss at either date. For additional information, see Note 5 to the
Consolidated Financial Statements.
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
27
processes that meet the objectives set forth in the policy statement. Due to the adoption of ASC 326 on January 1, 2020,
management maintains, based on current and forecasted information, an ACL that reflects a current estimate of expected
credit losses for the estimated life of the loan portfolio at reporting periods subsequent to the adoption date. For reporting
periods prior to January 1, 2020, management maintained an ALL at a level which reflected losses that were probable and
reasonably estimable at the relevant reporting date. For all reporting periods, actual losses are uncertain and dependent upon
future events and, as such, further additions to the level of ACL may become necessary.
The following table sets forth the composition of the Company’s total nonperforming assets and troubled debt restructurings
as of the dates indicated.
(dollars in thousands)
Nonaccrual loans (1):
Real estate loans:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Other loans:
Commercial and industrial
Consumer
Total nonaccrual loans
Accruing loans 90 days or more past due
2022
2021
December 31,
2020
2019
2018
$ 2,300
34
$ 3,575
38
6,945
315
—
378
541
8,431
258
—
763
204
$ 3,838
63
12,298
469
—
$ 3,948
1,244
13,325
2,469
—
$ 5,172
1,699
11,343
1,594
—
1,717
292
3,224
176
3,988
616
10,513
2
13,269
6
18,677
2
24,386
—
24,412
—
Total nonperforming loans
10,515
13,275
18,679
24,386
24,412
Foreclosed assets and ORE
461
1,189
1,302
4,156
1,558
Total nonperforming assets
10,976
14,464
19,981
28,542
25,970
Performing troubled debt restructurings
6,205
4,963
2,085
2,378
1,406
Total nonperforming assets and troubled
debt restructurings
Nonperforming loans to total loans
Nonperforming loans to total assets
Nonaccrual loans to total loans
Nonperforming assets to total assets
Total loans outstanding
Total assets outstanding
$ 17,181
$ 19,427
$ 22,066
$ 30,920
$ 27,376
0.43 %
0.33 %
0.43 %
0.72 %
0.45 %
0.72 %
0.94 %
0.72 %
0.94 %
1.42 %
1.11 %
1.42 %
1.48 %
1.13 %
1.48 %
0.34 %
$ 2,430,750
0.49 %
$ 1,840,093
0.77 %
$ 1,979,954
1.30 %
$ 1,714,361
1.21 %
$ 1,649,754
$ 3,228,280
$ 2,938,244
$ 2,591,850
$ 2,200,465
$ 2,153,658
(1)
Prior to January 1, 2020, PCD loans were classified as PCI under ASC 310-30 and excluded from nonperforming loans because
they continued to earn interest income from the accretable yield at the pool level regardless of their status as past due or otherwise
not in compliance with their contractual terms. At adoption, the pools were discontinued and performance is based on contractual
terms for individual loans. Refer to Note 2 to the Consolidated Financial Statements for more information on the adoption of ASC
326. PCI loans that were 90 days or more past due and were accounted for under ASC 310-30 totaled $2.2 million and $1.7 million
at December 31, 2019 and 2018, respectively.
Total nonperforming assets decreased by $3.5 million, or 24.1%, to $11.0 million at December 31, 2022, compared to $14.5
million at December 31, 2021. The ratio of nonperforming assets to total assets was 0.34% at December 31, 2022, compared
to 0.49% at December 31, 2021.
As of December 31, 2022, total nonperforming loans were down $2.8 million, or 20.8%, from December 31, 2021 primarily
due to improved performance of loans and paydowns on nonaccrual loans. Foreclosed assets and ORE were also down
$728,000, or 61.2%, from December 31, 2021.
28
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 Operations Officer, Chief
Risk Officer and Director of Financial Management, 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 $157.9 million, or 47.9%, during 2022. Securities available
for sale made up 99.8% of the investment securities portfolio as of December 31, 2022. The following table sets forth the
amortized cost and market value of our investment securities portfolio as of the dates indicated.
(dollars in thousands)
Available for sale:
2022
December 31,
2021
2020
Amortized
Cost
Market
Value
Amortized
Cost
Market
Value
Amortized
Cost
Market
Value
U.S. agency mortgage-backed
$ 355,014 $ 316,832 $ 234,720 $ 233,773 $ 138,669 $ 142,812
Collateralized mortgage
obligations
Municipal bonds
U.S. government agency
Corporate bonds
91,217
67,476
20,600
6,980
86,345
57,625
19,333
6,383
31,356
51,094
5,615
5,500
31,912
50,719
5,614
5,614
74,112
27,306
6,210
2,000
75,620
28,011
6,255
2,054
Total available for sale
541,287
486,518
328,285
327,632
248,297
254,752
Held to maturity:
Municipal bonds
Total held to maturity
1,075
1,075
1,072
1,072
2,102
2,102
2,132
2,132
2,934
2,934
2,996
2,996
Total investment securities
$ 542,362 $ 487,590 $ 330,387 $ 329,764 $ 251,231 $ 257,748
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,
2021
2022
2020
$ 511,960 $ 300,923 $ 230,056
2,934
232,990
2,102
303,025
1,075
513,035
29,327
29,327
18,241
18,241
$ 542,362 $ 330,387 $ 251,231
27,362
27,362
(dollars in thousands)
Fixed rate:
Available for sale
Held to maturity
Total fixed rate
Adjustable rate:
Available for sale
Total adjustable rate
Total investment securities
29
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, 2022. No tax-exempt yields have been adjusted to a
tax-equivalent basis. All amounts are shown at amortized cost.
(dollars in thousands)
Available for sale:
U.S. agency mortgage-backed
Collateralized mortgage obligations
Municipal bonds
U.S. government agency
Corporate bonds
Total available for sale
Weighted average yield
Held to maturity:
Municipal bonds
Total held to maturity
Weighted average yield
Total investment securities
Weighted average yield
Amounts as of December 31, 2022 which mature in:
After One
Year
Through
Five
Years
One Year
or Less
After Five
Through
Ten Years
Over Ten
Years
Total
$ 6,754
$ 56,502
$ 118,815
$ 172,943
$ 355,014
—
2,219
62,556
5,559
5,493
25,154
14,089
6,980
23,168
34,544
329
—
91,217
67,476
20,600
6,980
6,182
—
130,799
170,531
230,984
541,287
2.84 %
2.26 %
2.13 %
2.35 %
—
—
8,973
2.48 %
—
—
1,075
1,075
— %
2.11 %
—
—
— %
—
—
1,075
1,075
— %
2.11 %
$ 8,973
$ 131,874
$ 170,531
$ 230,984
$ 542,362
2.48 %
2.83 %
2.26 %
2.13 %
2.35 %
The following table summarizes activity in the Company’s investment securities portfolio during 2022.
(dollars in thousands)
Balance, December 31, 2021
Purchases
Acquired from Friendswood, at fair value
Sales
Principal maturities, prepayments and calls
Amortization of premiums and accretion of discounts
Decrease in market value
Balance, December 31, 2022
Available
for Sale
Held to
Maturity
$ 327,632 $
238,498
33,411
—
(57,922)
(985)
(54,116)
$ 486,518 $
2,102
—
—
—
(1,000)
(27)
1,075
As of December 31, 2022, the Company had a net unrealized loss on its available for sale investment securities portfolio of
$54.8 million, compared to a net unrealized loss of $653,000 as of December 31, 2021. Management has determined that the
declines in the fair value of these securities are due primarily to the rising interest rate environment and were not attributable
to credit losses. The Company has the intent and ability to hold the securities until maturity or until anticipated recovery.
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.
30
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.
Total deposits were $2.6 billion as of December 31, 2022, up $97.3 million, or 3.8%, compared to December 31, 2021.
Certificates of deposits totaled $335.4 million as of December 31, 2022, up $16.1 million, or 5.0%, compared to
December 31, 2021. The following table sets forth the composition of the Company’s deposits as of the dates indicated.
(dollars in thousands)
Demand deposit
Savings
Money market
NOW
Certificates of deposit
Total deposits
December 31,
Increase/(Decrease)
Percent
Amount
2022
2021
$ 904,301 $ 766,385 $ 137,916
305,871
423,990
663,574
335,445
285,728
371,478
792,919
319,339
20,143
52,512
(129,345)
16,106
18.0 %
7.0
14.1
(16.3)
5.0
$ 2,633,181 $ 2,535,849 $
97,332
3.8 %
The following table shows the daily average balances of deposits by type and weighted-average rate paid for the periods
indicated.
(dollars in thousands)
2022
2021
2020
For the Years Ended December 31,
Average
Balance
Interest
Expense
Average
Rate
Paid
Average
Balance
Interest
Expense
Average
Rate
Paid
Average
Balance
Interest
Expense
Average
Rate
Paid
$ 894,103
$ 717,536
$ 581,385
Noninterest-bearing demand
deposits
Interest-bearing deposits
Interest-bearing demand
deposits
Savings
Money market accounts
Certificates of deposit
313,151 $
413
0.13%
367
0.13%
745,463
441,367
358,729
0.26
0.27
0.47
1,941
1,187
1,674
5,215
274,359
689,991
353,643
338,487
0.28
0.16
0.69
1,940
575
2,348
5,230
228,500
606,623
305,029
385,363
610
0.27%
3,353
1,311
5,760
0.55
0.43
1.49
Total interest-bearing deposits
1,858,710
Total deposits
$ 2,752,813
0.28%
1,656,480
$ 2,374,016
0.32%
1,525,515
11,034
0.72%
$ 2,106,900
The total amount of our uninsured deposits (deposits in excess of $250,000, as calculated in accordance with FDIC
regulations) were $830.9 million at December 31, 2022 and $820.0 million at December 31, 2021. Certificates of deposit in
the amount of $250,000 and over increased $6.2 million, or 9.8%, from $63.2 million at December 31, 2021 to $69.4 million
at December 31, 2022. The following table details the remaining maturity of large-denomination certificates of deposit of
$250,000 and over as of the dates indicated.
(dollars in thousands)
3 months or less
3 - 6 months
6 - 12 months
12 - 36 months
More than 36 months
Total certificates of deposit greater than $250,000
Subordinated Debt
$
December 31,
2021
2022
19,826 $
13,646
26,620
8,040
1,310
19,481 $
13,586
21,631
7,355
1,168
2020
24,321
15,298
19,665
9,004
772
$
69,442 $
63,221 $
69,060
On June 30, 2022, the Company issued $55.0 million in aggregate principal amount of its 5.75% Fixed-to-Floating Rate
Subordinated Notes (the "Notes") due 2032. The Notes were issued at a price equal to 100% of the aggregate principal
amount. The Notes have a stated maturity date of June 30, 2032 and will bear interest at a fixed rate of 5.75% per year from
31
and including the issue date to but excluding June 30, 2027. From June 30, 2027, the Notes will bear interest at a floating rate
equal to the then current three-month term secured overnight financing rate (“SOFR”), plus 282 basis points. The Notes may
be redeemed by the Company, in whole or in part, on or after June 30, 2027. The Notes are intended to qualify as Tier 2
capital for regulatory purposes.
The carrying value of subordinated debt was $54.0 million at December 31, 2022. The subordinated debt was recorded net of
issuance costs of $1.1 million at December 31, 2022, which is being amortized using the straight-line method over five years.
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 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.
The Company had $155.0 million short-term FHLB advances as of December 31, 2022, compared to no short-term FHLB
advances as of December 31, 2021. Long-term FHLB advances totaled $21.2 million as of December 31, 2022, down $4.8
million, or 18.6%, compared to $26.0 million as of December 31, 2021.
Average FHLB advances were $32.8 million during 2022, up $5.4 million, or 19.9%, from 2021.
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. At December 31, 2022, shareholders’ equity totaled $330.0 million,
down $21.9 million, or 6.2%, compared to $351.9 million at December 31, 2021. The decrease was primarily due to other
comprehensive loss, repurchase of shares and dividends paid to shareholders, which were partially offset by the Company’s
earnings for the year ended December 31, 2022.
RESULTS OF OPERATIONS
Net income in 2022 was $34.1 million, down $14.5 million, or 29.9%, compared to 2021. Diluted EPS for 2022 was $4.16,
down $1.61, or 27.9%, from 2021. The net income in 2022 was significantly impacted by the acquisition of Friendswood,
less recognition of PPP lender fees and the provision for loan losses over the comparable period. For the year ended
December 31, 2022, the Company provisioned $7.5 million of the allowance for loan losses compared to a reversal of $10.2
million for the year ended December 31, 2021.
Net income in 2021 was $48.6 million, up $23.9 million, or 96.3%, compared to 2020. Diluted EPS for 2021 was $5.77, up
$2.92, or 102.5% from 2020. The net income in 2021 was significantly impacted by the reversal of provision for loan losses
primarily due to improvement in our assessment of the economic impact of the COVID-19 pandemic over the prior year and
the recognition of PPP lender fees.
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. The Company’s net interest spread was 3.78%, 3.76% and 3.72% for the years ended
December 31, 2022, 2021, and 2020, respectively.
Net interest income totaled $118.0 million in 2022, up $17.0 million, or 16.9%, compared to $101.0 million in 2021. The
increase was primarily due to the addition of Friendswood's interest-earning assets. Total interest expense increased $2.0
million, or 33.9%, in 2022 compared to 2021 primarily related to subordinated debt issued on June 30, 2022. The average
cost of total interest-bearing deposits decreased by 4 basis points to 0.28% in 2022.
The Company recognized $1.2 million and $11.4 million of PPP lender fees in loan interest income in 2022 and 2021,
respectively. The remaining balance of $94,000 in deferred lender fees at December 31, 2022 will be amortized into interest
income over the remaining life of the PPP loans. Outstanding PPP loans positively impacted the average loan yield by 2 basis
points and the net interest margin by 2 basis points during 2022.
32
In 2021, net interest income totaled $101.0 million, up $8.8 million, or 9.5%, compared to $92.2 million in 2020. The
increase in net interest income for 2021 compared to 2020 was primarily due to lower deposit costs and an increase in loan
income primarily due to PPP loans during 2021. Total interest expense on deposits decreased $5.8 million, or 52.6%, in 2021
compared to 2020. The average cost of total interest-bearing deposits in 2021 totaled 0.32%, down 40 basis points from 2020.
The Company’s net interest margin, which is net interest income as a percentage of average interest-earning assets, was
3.92%, 3.88%, and 3.96% during the years ended December 31, 2022, 2021, and 2020, 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 21%.
(dollars in thousands)
2022
2021
2020
For the Years Ended December 31,
Interest-earning assets:
Loans receivable(1)
Investment securities(TE)
Taxable
Tax-exempt
Total investment securities
Other interest-earning assets
Total interest-earning assets(TE)
Noninterest-earning assets
Total assets
Interest-bearing liabilities:
Deposits:
Average
Balance
Interest
Average
Yield/
Rate
Average
Balance
Interest
Average
Yield/
Rate
Average
Balance
Interest
Average
Yield/
Rate
$ 2,174,967 $ 112,660
5.12% $ 1,925,767 $ 101,577
5.22% $ 1,905,288 $ 99,106
5.14%
455,757
9,647
24,371
481
480,128
10,128
325,429
3,142
2,980,524
125,930
2.12
2.50
2.14
0.97
4.19
263,459
19,506
282,965
367,241
4,301
339
4,640
685
2,575,973
106,902
1.63
2.20
1.67
0.19
4.11
240,161
4,228
14,304
335
254,465
4,563
142,171
460
2,301,924
104,129
1.76
2.96
1.83
0.32
4.48
198,338
$ 3,178,862
189,905
$ 2,765,878
189,688
$ 2,491,612
Savings, checking and money market
$ 1,499,981 $ 3,541
0.24% $ 1,317,993 $ 2,882
0.22% $ 1,140,152 $ 5,274
0.46%
Certificates of deposit
Total interest-bearing deposits
Other borrowings
Subordinated debt
FHLB advances
358,729
1,674
1,858,710
5,215
5,603
213
27,396
1,710
32,762
777
Total interest-bearing liabilities
1,924,471
7,915
0.47
0.28
3.80
6.24
2.36
0.41
338,487
1,656,480
5,581
—
27,319
2,348
5,230
212
—
471
1,689,380
5,913
0.69
0.32
3.81
—
1.72
0.35
385,363
5,760
1,525,515
11,034
5,539
212
—
—
45,065
672
1,576,119
11,918
1.49
0.72
3.83
—
1.49
0.76
Noninterest-bearing liabilities
Total liabilities
Shareholders’ equity
Total liabilities and shareholders’
equity
Net interest-earning assets
Net interest income; net interest spread(TE)
Net interest margin(TE)
918,937
2,843,408
335,454
$ 3,178,862
$ 1,056,053
738,491
2,427,871
338,007
$ 2,765,878
$ 886,593
599,362
2,175,481
316,131
$ 2,491,612
$ 725,805
$ 118,015
3.78%
$ 100,989
3.76%
$ 92,211
3.72%
3.92%
3.88%
3.96%
(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.
33
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).
(dollars in thousands)
Interest income:
Loans receivable
Investment securities
Other interest-earning assets
Total interest income
Interest expense:
Savings, checking and money
market accounts
Certificates of deposit
Other borrowings
Subordinated debt
FHLB advances
Total interest expense
Increase (decrease) in net interest
income
2022 Compared to 2021
Change Attributable To
2021 Compared to 2020
Change Attributable To
Rate
Volume
Total
Increase
(Decrease)
Rate
Volume
Total
Increase
(Decrease)
$
4,086 $
6,997 $
11,083 $
1,320 $
1,151 $
2,471
2,505
1,599
8,190
2,983
858
10,838
5,488
2,457
19,028
(84)
(4)
1,232
161
229
1,541
77
225
2,773
314
345
659
(451)
(223)
(674)
(1,645)
(2,006)
(747)
(1,406)
(2,392)
(3,412)
—
—
157
20
1
1,710
149
1,982
1
1,710
306
2,002
—
—
—
—
—
—
(81)
(120)
(201)
(3,732)
(2,273)
(6,005)
$
8,170 $
8,856 $
17,026 $
4,964 $
3,814 $
8,778
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
For the year ended December 31, 2022, the Company provisioned $7.5 million of the allowance for loan losses compared to a
reversal of $10.2 million and a provision of $12.7 million for 2021 and 2020, respectively. The provision for loan losses
during 2022 reflected our assessment of the change in expected losses due primarily to the acquisition of Friendswood's loan
portfolio and organic loan growth.
Net charge-offs were $694,000 for 2022, compared to net charge-offs of $1.7 million and $2.3 million for 2021 and 2020,
respectively. Net loan charge-offs for 2022 were primarily attributable to an originated commercial and industrial loan and
one acquired Friendswood commercial relationship. Charge-offs during 2021 were primarily attributable to an acquired hotel
loan and one originated commercial relationship, both of which were nonperforming prior to the COVID-19 crisis.
Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition -
Allowance for Credit Losses" provides more information on the changes in the ALL and ACL.
34
Noninterest Income
The following table illustrates the primary components of noninterest income for the years indicated.
(dollars in thousands)
Noninterest income:
Service fees and charges
Bank card fees
Gain on sale of loans, net
Income from bank-owned life insurance
Gain (loss) on sale of assets, net
Other income
Total noninterest income
2022 compared to 2021
2022
2021
2022 vs 2021
Percent
Increase
(Decrease)
2021 vs 2020
Percent
Increase
(Decrease)
2020
$
4,920 $
6,279
663
915
4,702
5,935
2,518
2,603
26
1,082
13,885 $
(504)
1,017
16,271
$
4.6 % $
5.8
(73.7)
(64.8)
(105.2)
6.4
(14.7) % $
4,646
4,868
2,925
994
1.2 %
21.9
(13.9)
161.9
(11)
883
14,305
4,481.8
15.2
13.7 %
Noninterest income for 2022 totaled $13.9 million, down $2.4 million, or 14.7%, compared to 2021. Income from BOLI for
2022 was down $1.7 million, or 64.8%, from 2021 primarily due to the recognition of a life insurance benefit of $1.7 million
following the death of an employee during the third quarter of 2021.
Income from bank card fees for 2022 was up $344,000, or 5.8%, from 2021 primarily due to to increased transaction activity
by our cardholders.
Gain on sale of loans for 2022 decreased $1.9 million, or 73.7%, compared to 2021. The origination of mortgage loans held
for sale slowed in 2022 due to the current rate environment.
Gains on the sale of assets for 2022 totaled $26,000 compared to losses on the sale of assets of $504,000 during 2021. During
the second quarter of 2021, the Company sold and leased back one of its Mississippi branch locations. The sale transferred
control to the buyer-lessor and all losses totaling $457,000 were recognized at the time of the sale. The sale/leaseback has
reduced the operating expenses related to this branch office.
2021 compared to 2020
Noninterest income for 2021 totaled $16.3 million, up $2.0 million, or 13.7%, compared to 2020. Income from BOLI for
2021 was up $1.6 million, or 161.9%, from 2020 primarily due to the recognition of a life insurance benefit of $1.7 million
following the death of an employee during the third quarter of 2021.
Income from bank card fees for 2021 was up $1.1 million, or 21.9%, from 2020 primarily due to to increased transaction
activity by our cardholders.
Losses on the sale of assets for 2021 totaled $504,000. This was an increase in losses of $493,000 from 2020. The losses on
the sale of assets in 2021 primarily reflect a $547,000 loss recognized during the second quarter of 2021 upon the sale/
leaseback transaction on one of its Mississippi branch locations referenced above.
35
Noninterest Expense
The following table illustrates the primary components of noninterest expense for the years indicated.
(dollars in thousands)
Noninterest expense:
Compensation and benefits
Occupancy
Marketing and advertising
Data processing and communication
Professional services
Forms, printing and supplies
Franchise and shares tax
Regulatory fees
Foreclosed assets, net
Amortization of acquisition intangible
Provision for credit losses on unfunded
commitments
Other expenses
2022
2021
2022 vs 2021
Percent
Increase
(Decrease)
2021 vs 2020
Percent
Increase
(Decrease)
2020
$
47,750 $
8,715
2,263
9,307
1,740
766
2,108
2,122
523
1,602
278
4,735
39,151
6,970
1,871
8,500
1,178
644
1,475
1,317
453
1,163
390
3,870
66,982
22.0 % $
25.0
21.0
9.5
47.7
18.9
42.9
61.1
15.5
37.7
(28.7)
22.4
22.3 % $
37,935
6,794
1,132
7,343
852
625
1,487
1,377
505
1,360
—
3,571
62,981
3.2 %
2.6
65.3
15.8
38.3
3.0
(0.8)
(4.4)
(10.3)
(14.5)
—
8.4
6.4 %
Total noninterest expense
$
81,909 $
2022 compared to 2021
Noninterest expense for 2022 totaled $81.9 million, up $14.9 million, or 22.3%, from 2021. Noninterest expense for 2022 and
2021 included merger-related expenses from the Friendswood acquisition totaling $2.0 million and $299,000 (pre-tax),
respectively. The increase in noninterest expense in 2022 primarily reflects the overall growth of the Company's employee
base and higher occupancy, data processing and regulatory costs due to the Friendswood acquisition. In addition, occupancy
costs increased by $1.7 million in 2022 compared to 2021, primarily reflecting costs related to the additional offices in the
Houston market area acquired in the Friendswood acquisition.
2021 compared to 2020
Noninterest expense for 2021 totaled $67.0 million, up $4.0 million, or 6.4%, from 2020.
Compensation and benefits expense for 2021 was up $1.2 million, or 3.2% compared to 2020 primarily due to increased
health insurance costs, salaries and compensation expense related to the Company's ESOP driven primarily by the increase in
market value of shares of the Company's common stock held by the ESOP.
Data processing and communication expense for 2021 was up $1.2 million, or 15.8%, compared to 2020 primarily due to a
general increase in the cost of software and data processing, increased costs related to higher PPP loan origination volume as
well as costs related to the implementation of enhancements to our lending software.
Marketing and advertising expense for 2021 was up $739,000, or 65.3%, compared to 2020 primarily due to an increase in
donations and general advertising activities.
Professional fees for 2021 were up $326,000, or 38.3%, compared to 2020 primarily due to merger-related expenses.
Income Taxes
For the years ended December 31, 2022, 2021 and 2020, the Company incurred income tax expense of $8.4 million, $11.8
million and $6.0 million, respectively. The Company’s effective tax rate was 19.8%, 19.6% and 19.6% for 2022, 2021 and
2020, respectively.
The Company's effective tax rate in 2022 increased compared to 2021 due to the absence of certain non-recurring
transactions. During 2021, the Company recognized a life insurance benefit of $1.7 million following the death of an
employee during the third quarter of 2021. The Company's effective tax rate in 2021 remained consistent with 2020.
36
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.
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. At December 31, 2022,
certificates of deposit maturing within the next 12 months totaled $259.1 million. Based upon historical experience, we
anticipate that a significant portion of the maturing certificates of deposit will be redeposited with us.
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, 2022, the average balance of our outstanding FHLB advances was $32.8 million. At December 31, 2022, we
had $176.2 million in outstanding FHLB advances and $937.4 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, 2022.
Shift in Interest Rates
(in bps)
+300
+200
+100
-100
% Change in Projected
Net Interest Income
5.3%
3.7
1.9
(2.4)
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
37
improve our net interest spread. We monitor interest rate risk as such risk relates to our operating strategies. ALCO is
responsible for reviewing our asset/liability and investment policies and interest rate risk position. ALCO meets at least
quarterly. The extent of the movement of interest rates is an uncertainty that could have a negative impact on future earnings.
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.
In addition to the strategies above, on occasion the Company has entered into certain interest rate swap agreements as part of
its interest rate risk management strategy. The Company’s objectives in using interest rate derivatives are to manage its
exposure to interest rate movements. During 2022 and 2021, such derivatives were used to hedge the variable cost associated
with existing variable rate liabilities. Refer to Note 14. Derivatives and Hedging Activities of the Consolidated Financial
Statements for more information on the effects of the derivative financial instruments on the consolidated financial
statements.
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.
(dollars in thousands)
Standby letters of credit
Available portion of lines of credit
Undisbursed portion of loans in process
Commitments to originate loans
Contract Amount
2021
2022
$
6,969 $
367,167
194,182
164,682
5,075
320,611
142,048
153,487
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require
payment of a fee. Since many of the commitments are expected to be drawn upon, the total commitment amounts generally
represent future cash requirements.
Unfunded commitments under commercial lines of credit 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.
38
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, 2022.
(dollars in thousands)
Unused commercial lines of credit
Unused personal lines of credit
Undisbursed portion of loans in process
Standby letters of credit
Commitments to originate loans
Total
Less
Than One
Year
One to
Three
Years
Three to
Five
Years
Over Five
Years
Total
$ 133,253 $
37,914
65,099
6,874
157,238
13,009 $ 247,988
119,179
61,140
194,182
40,722
6,969
—
164,682
—
$ 400,378 $ 115,807 $ 101,944 $ 114,871 $ 733,000
67,935 $
12,139
28,194
95
7,444
33,791 $
7,986
60,167
—
—
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, 2022 are shown in the following table.
(dollars in thousands)
Operating leases
Certificates of deposit
Subordinated debt
2023
2024
2025
2026
2027
Thereafter
Total
$ 1,320 $ 1,206 $
877 $
890 $
904
$
9,967 $ 15,164
259,051
56,710
8,328
5,689
3,506
2,161
335,445
Long-term FHLB advances
3,012
4,176
10,609
3,416
—
—
—
—
—
—
55,000
55,000
—
21,213
Total
$ 263,383 $ 62,092 $ 19,814 $ 9,995 $ 4,410
$ 67,128 $ 426,822
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.
39
Item 8.
Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Home Bancorp, Inc.
Lafayette, Louisiana
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated statements of financial condition of Home Bancorp, Inc. and subsidiary (the
“Company”) as of December 31, 2022 and 2021, and the related consolidated statements of income, comprehensive (loss)
income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2022,
including the related notes (collectively, the consolidated financial statements). We also have audited, in accordance with the
standards of the Public Accounting Oversight Board (United States) ("PCAOB"), the Company’s internal control over
financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.
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, 2022 and 2021, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 2022 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, 2022, based on criteria established in Internal Control – Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.
As described in Management’s Report on Internal Control over Financial Reporting, the scope of management’s assessment
of internal control over financial reporting as of December 31, 2022, has excluded Friendswood Capital Corporation and its
subsidiary bank, Texan Bank, N.A. (collectively “Friendswood”), acquired in a purchase business combination on March 26,
2022. We have also excluded the operations associated with Friendswood from the scope of our audit of internal control over
financial reporting. The total assets and total revenues excluded from management’s assessment and our audit of internal
control over financial reporting relating to the operations associated with Friendswood represent approximately 12% and 7%,
respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2022.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Report of Management. Our responsibility is to express an opinion on the Company’s
consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our
audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with U.S. federal securities laws and applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in
all material respects.
40
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. 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.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of consolidated 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 (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the consolidated
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.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the audit of the consolidated financial statements that
were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that
are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex
judgments. The communication of the critical audit matters below does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matters, providing separate
opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Estimate of the fair value of assets acquired and liabilities assumed in business combination
As described in Notes 2 and 3 to the consolidated financial statements, the Company completed an acquisition with a bank
holding company during the year ended December 31, 2022, resulting in the expansion of the Company’s operating footprint
and additional goodwill of approximately $23 million being recognized on the Company’s consolidated statement of financial
condition. Management determined that the acquisition qualified as a business combination. Accordingly, all identifiable
assets acquired and liabilities assumed were recorded at fair value as part of the purchase price allocation as of the acquisition
date.
We identified the estimate of the fair value of assets acquired and liabilities assumed in the business combination as a critical
audit matter because the identification and valuation of such acquired assets and assumed liabilities required management to
exercise significant judgment and consider the use of an external valuation specialist to estimate the fair value of certain
assets acquired and liabilities assumed. Auditing fair value estimates of the net assets acquired and other acquisition-related
considerations involved a high degree of subjectivity and industry knowledge in evaluating management’s operational
assumptions of the acquisition, fair value estimates, purchase price allocation, and assessing the appropriateness of
management’s valuation specialist’s valuation model used for certain assets acquired and liabilities assumed.
The primary audit procedures we performed to address this critical audit matter included:
• We evaluated the design and tested the operating effectiveness of key controls relating to the identification and
valuation of assets acquired and liabilities assumed in the business combination, including controls over the
41
completeness and accuracy of data used in valuation estimates, the assumptions used in the estimates, and the
precision of management’s review and approval of the calculations and resulting estimates.
• We obtained and inspected the executed Plan of Merger agreement to gain an understanding of the underlying terms
of the business combination.
• We obtained and inspected management’s business combination purchase accounting memo to gain an
understanding of the procedures performed to identify and calculate the fair value of the assets acquired and
liabilities assumed.
• We tested management’s business combination accounting analysis, focusing on the completeness and accuracy of
the assets acquired and liabilities assumed and the related fair value purchase price allocation.
• We obtained the valuation estimates prepared by the Company’s external valuation specialists or prepared internally
and scrutinized management’s analysis of the appropriateness of the valuations allocated to assets acquired and
liabilities assumed, including but not limited to, testing of critical inputs, assumptions applied, and valuation models
utilized.
• We tested the completeness and accuracy of data used in the valuation estimates prepared by the Company’s
external valuation specialists or prepared internally.
• We utilized our internal valuation specialist team to assist with testing and scrutinizing valuation estimates prepared
by the Company’s external valuation specialists or prepared internally, including the valuation models, assumptions,
and inputs used in the estimates.
• We tested the completeness and accuracy of the goodwill calculation resulting from the business combination, which
is the difference between the total net consideration paid and the fair value of the net assets acquired.
• We evaluated the completeness and accuracy of the disclosures made in the consolidated financial statements with
regards to the business combination.
Estimate of the allowance for loan losses – reserves related to collectively evaluated loans
As described in Notes 2 and 5 to the consolidated financial statements, the Company’s allowance for loan losses (“ALL”)
totaled $29.3 million of which $28.6 million relates to collectively evaluated loans (“general reserves”). The Company has
identified loan pools with similar risk characteristics. The Company estimated the general reserves for all loan pools using
the discounted cash flow method, except for general reserves for the credit card portfolio which were estimated using the
remaining life method.
The discounted cash flow method utilizes loan-level term information (including maturity date, payment amount, and interest
rate) and certain assumptions by management (including default rates, prepayment speeds, and curtailment rates) to estimate
the expected future cash flows for the full life of each loon pool. The results of the discounted cash flow calculations are
aggregated by pool to produce the net present value of each loan pool. The net present value of each loan pool is used to
calculate the ALL reserve based on the book balance of the pool. The reserves are then adjusted for certain qualitative factors
related to current conditions in addition to adjustments for reasonable and supportable forecasts for future periods to arrive at
general reserves.
The remaining life method utilized by the Company to estimate general reserves for the credit card portfolio applies historical
loss rates to the portfolio over the estimated remaining life of the portfolio then adjusts for certain qualitative factors related
to current conditions in addition to adjustments for reasonable and supportable forecasts for future periods to arrive at general
reserves for credit cards.
We identified the estimate of the reserves related to collectively evaluated loans as a critical audit matter because auditing this
portion of the ALL required significant auditor judgment and evaluation of significant estimates requiring industry
knowledge and experience. The estimate of the reserves related to individually evaluated loans did not require the same
degree of auditor judgment; therefore, we did not identify this portion of ALL as a critical audit matter.
The primary audit procedures we performed to address this critical audit matter included:
• We evaluated the design and tested the operating effectiveness of key controls relating to the Company’s ALL
calculation, including controls over the segmentation of the loan portfolio, the completeness and accuracy of data
used in the calculation, the periods and assumptions used in the calculation, the determination of qualitative factors
including reasonable and supportable forecasts, and the precision of management’s review and approval of the
calculation and resulting estimate.
42
• We tested the completeness and accuracy of the data used by management to calculate general reserves.
• We tested the completeness and accuracy of the data used by management in determining qualitative factor
adjustments, including the reasonable and supportable factors, by agreeing them to internal and external information.
• We analyzed the qualitative factors in comparison to information utilized by management and to historical periods to
evaluate the directional consistency in relation to the Company’s loan portfolio and local economy.
• We evaluated the completeness and accuracy of disclosures made within the consolidated financial statements with
regards to the ALL.
We have served as the Company’s auditor since 2009.
Atlanta, Georgia
March 9, 2023
43
HOME BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands)
Assets
Cash and cash equivalents
Interest-bearing deposits in banks
Investment securities available for sale, at fair value
Investment securities held to maturity (fair values of $1,072 and $2,132, respectively)
Mortgage loans held for sale
Loans, net of unearned income
Allowance for loan losses
Total loans, net of unearned income and allowance for loan losses
Office properties and equipment, net
Cash surrender value of bank-owned life insurance
Goodwill and core deposit intangibles
Accrued interest receivable and other assets
Total Assets
Liabilities
Deposits:
Noninterest-bearing
Interest-bearing
Total deposits
Other borrowings
Subordinated debt, net of unamortized issuance cost
Short-term Federal Home Loan Bank advances
Long-term Federal Home Loan Bank advances
Accrued interest payable and other liabilities
Total Liabilities
Shareholders’ Equity
Preferred stock, $0.01 par value - 10,000,000 shares authorized; none issued
Common stock, $0.01 par value - 40,000,000 shares authorized; 8,286,084 and 8,526,907 shares issued
and outstanding, respectively
Additional paid-in capital
Unallocated common stock held by:
Employee Stock Ownership Plan (ESOP)
Recognition and Retention Plan (RRP)
Retained earnings
Accumulated other comprehensive (loss) income
Total Shareholders’ Equity
Total Liabilities and Shareholders’ Equity
December 31,
2022
2021
$
87,401 $
601,443
349
349
486,518
327,632
1,075
98
2,102
1,104
2,430,750
1,840,093
(29,299)
(21,089)
2,401,451
1,819,004
43,560
46,276
87,973
73,579
43,542
40,361
61,949
40,758
$ 3,228,280 $ 2,938,244
$
904,301 $
766,385
1,728,880
1,769,464
2,633,181
2,535,849
5,539
54,013
155,000
21,213
29,380
5,539
—
—
26,046
18,907
2,898,326
2,586,341
—
83
—
85
164,942
164,982
(2,053)
(2,410)
(7)
(13)
206,296
188,515
(39,307)
744
329,954
351,903
$ 3,228,280 $ 2,938,244
The accompanying Notes are an integral part of these Consolidated Financial Statements.
44
HOME BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands except per share data)
Interest Income
Loans, including fees
Investment securities:
Taxable interest
Tax-exempt interest
Other investments and deposits
Total interest income
Interest Expense
Deposits
Other borrowings expense
Subordinated debt expense
Short-term Federal Home Loan Bank advances
Long-term Federal Home Loan Bank advances
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Noninterest Income
Service fees and charges
Bank card fees
Gain on sale of loans, net
Income from bank-owned life insurance
Gain (loss) on sale of assets, net
Other income
Total noninterest income
Noninterest Expense
Compensation and benefits
Occupancy
Marketing and advertising
Data processing and communication
Professional services
Forms, printing and supplies
Franchise and shares tax
Regulatory fees
Foreclosed assets, net
Amortization of acquisition intangible
Provision for credit losses on unfunded commitments
Other expenses
Total noninterest expense
Income before income tax expense
Income tax expense
Net Income
Earnings per share:
Basic
Diluted
Cash dividends declared per common share
For the Years Ended December 31,
2022
2021
2020
$
112,660 $
101,577 $
99,106
9,647
481
3,142
4,301
339
685
4,228
335
460
125,930
106,902
104,129
5,215
213
1,710
361
416
7,915
118,015
7,489
110,526
4,920
6,279
663
915
26
1,082
13,885
5,230
11,034
212
—
—
471
5,913
100,989
(10,161)
111,150
4,702
5,935
2,518
2,603
(504)
1,017
16,271
212
—
23
649
11,918
92,211
12,728
79,483
4,646
4,868
2,925
994
(11)
883
14,305
47,750
39,151
37,935
8,715
2,263
9,307
1,740
766
2,108
2,122
523
1,602
278
4,735
81,909
42,502
8,430
6,970
1,871
8,500
1,178
644
1,475
1,317
453
1,163
390
3,870
66,982
60,439
11,818
6,794
1,132
7,343
852
625
1,487
1,377
505
1,360
—
3,571
62,981
30,807
6,042
$
$
$
$
34,072 $
48,621 $
24,765
4.19 $
4.16 $
0.93 $
5.80 $
5.77 $
0.91 $
2.86
2.85
0.88
The accompanying Notes are an integral part of these Consolidated Financial Statements.
45
HOME BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(dollars in thousands)
Net Income
Other Comprehensive (Loss) income
Unrealized (losses) gains on available for sale investment securities
Unrealized gains on cash flow hedges
Tax effect
Other comprehensive (loss) income, net of taxes
Comprehensive (Loss) Income
For the Years Ended December 31,
2022
2021
2020
$
34,072 $
48,621 $
24,765
(54,116)
(7,108)
3,419
10,646
1,374
1,204
(40,051)
(4,530)
5,580
220
(1,218)
4,582
$
(5,979) $
44,091 $
29,347
The accompanying Notes are an integral part of these Consolidated Financial Statements.
46
HOME BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(dollars in thousands except share and per share
data)
Common
Stock
Unallocated
Common
Stock
Held by
ESOP
Unallocated
Common
Stock
Held by
RRP
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Total
Balance, December 31, 2019
$
93 $ 168,545 $
(3,124) $
(35) $ 150,158 $
692 $ 316,329
Cumulative effect of change in accounting
principle due to the adoption of ASC 326, net of tax
Net income
Other comprehensive income
Purchase of Company’s common stock at cost,
530,504 shares
Cash dividends declared, $0.88 per share
Common Stock issued under incentive plans, net of
shares surrendered in payment, including tax
benefit, 16,485 shares
Exercise of stock options
RRP shares released for allocation
ESOP shares released for allocation
Share-based compensation cost
Balance, December 31, 2020
Net income
Other comprehensive loss
Purchase of Company’s common stock at cost,
246,012 shares
Cash dividends declared, $0.91 per share
Common stock issued under incentive plans, net of
shares surrendered in payment, including tax
benefit, 28,222 shares
Exercise of stock options
RRP shares released for allocation
ESOP shares released for allocation
Share-based compensation cost
Balance, December 31, 2021
Net income
Other comprehensive loss
Purchase of Company’s common stock at cost,
288,350 shares
Cash dividends declared, $0.93 per share
Common stock issued under incentive plans, net of
shares surrendered in payment, including tax
benefit, 25,902 shares
Exercise of stock options
RRP shares released for allocation
ESOP shares released for allocation
Share-based compensation cost
Balance, December 31, 2022
(6)
(5,299)
—
—
32
30
(13)
904
789
13
357
(3,985)
24,765
(8,708)
(7,903)
(45)
4,582
$
(3,985)
24,765
4,582
(14,013)
(7,903)
(13)
30
—
1,261
789
$
87 $ 164,988 $
(2,767) $
(22) $ 154,282 $
5,274 $ 321,842
48,621
48,621
(4,530)
(4,530)
(2)
(2,457)
—
—
383
80
(9)
1,228
769
(6,441)
(7,867)
(80)
9
357
(8,900)
(7,867)
303
80
—
1,585
769
$
85 $ 164,982 $
(2,410) $
(13) $ 188,515 $
744 $ 351,903
34,072
34,072
(40,051)
(40,051)
(2)
(2,881)
—
—
388
375
(6)
1,272
812
(8,450)
(7,777)
(64)
6
357
(11,333)
(7,777)
324
375
—
1,629
812
$
83 $ 164,942 $
(2,053) $
(7) $ 206,296 $
(39,307) $ 329,954
The accompanying Notes are an integral part of these Consolidated Financial Statements.
47
HOME BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
2021
2020
2022
$
34,072 $
48,621 $
24,765
(dollars in thousands)
Cash flows from operating activities, net of effects of acquisitions:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses
Depreciation
Amortization and accretion of purchase accounting valuations and intangibles
Net amortization of mortgage servicing asset
Federal Home Loan Bank stock dividends
Net amortization of premium on investments
Amortization of subordinated debt issuance cost
Gain on sale of loans, net
(Gain) loss on sale of assets, net
Proceeds, including principal payments, from loans held for sale
Originations of loans held for sale
Non-cash compensation
Deferred income tax (benefit) expense
Increase in accrued interest receivable and other assets
Increase in cash surrender value of bank-owned life insurance
Increase (decrease) in accrued interest payable and other liabilities
Net cash provided by operating activities
Cash flows from investing activities, net of effects of acquisitions:
Purchases of securities available for sale
Proceeds from maturities, prepayments and calls on securities available for sale
Proceeds from maturities, prepayments and calls on securities held to maturity
Proceeds from sales on securities available for sale
(Increase) decrease in loans, net
Decrease in interest-bearing deposits in banks
Proceeds from sale of foreclosed assets
Purchases of office properties and equipment
Net cash disbursed in sale of banking center
Net cash disbursed in business combination
Proceeds from sale of office properties and equipment
Purchase of bank-owned life insurance
Proceeds from bank-owned life insurance
Purchase of Federal Home Loan Bank stock
Proceeds from redemption of Federal Home Loan Bank stock
Net cash (used in) provided by investing activities
Cash flows from financing activities, net of effects of acquisitions:
(Decrease) increase in deposits, net
Borrowings on Federal Home Loan Bank advances
Repayments of Federal Home Loan Bank advances
Proceeds from issuance of subordinated debt, net of issuance cost
Proceeds from exercise of stock options
Issuance of stock under incentive plans
Dividends paid to shareholders
Purchase of Company’s common stock
Net cash (used in) provided by financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplementary cash flow information:
Interest paid on deposits and borrowed funds
Income taxes paid
Noncash investing and financing activities:
Loans transferred to ORE, net of charge offs
Recognition of new operating leases
7,489
3,464
4,078
—
(53)
1,012
120
(663)
(26)
66,748
(65,079)
2,441
(882)
(10,427)
(915)
9,820
51,199
(10,161)
3,084
3,527
—
(15)
1,874
—
(2,518)
504
199,639
(188,666)
2,354
2,544
(2,661)
(886)
(1,525)
55,715
(238,498)
(167,584)
57,922
1,000
—
(279,450)
—
2,650
(2,706)
(11,182)
(16,123)
82
(5,000)
—
(4,047)
—
(495,352)
(255,520)
155,000
(4,850)
53,892
375
324
(7,777)
(11,333)
(69,889)
(514,042)
80,686
800
5,068
133,808
—
2,493
(2,472)
—
—
414
—
1,717
—
—
54,930
—
80
303
(7,867)
(8,900)
302,846
413,491
12,728
3,063
5,479
161
(61)
2,900
—
(2,925)
11
288,642
(288,286)
2,050
(1,588)
(612)
(948)
3,651
49,030
(91,978)
97,311
4,130
—
(271,830)
100
3,585
(2,147)
—
—
5
—
126
(1,592)
2,254
(260,036)
—
30
(13)
(7,903)
(14,013)
359,111
148,105
39,847
187,952
322,028
—
392,836
119,700
(2,798)
(131,526)
601,443
87,401 $
187,952
601,443 $
$
$
7,744 $
6,220 $
6,535
12,002
11,933
5,430
1,297
4,690
1,979
933
869
—
The accompanying Notes are an integral part of these Consolidated Financial Statements.
48
HOME BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business
Home Bancorp, Inc., a Louisiana corporation (the “Company”), is the parent holding company for Home Bank, N.A. (the
"Bank"). The Bank is a national bank and wholly owned subsidiary of the Company. The Company and Bank are
headquartered in Lafayette, Louisiana. As of December 31, 2022, the Company was a bank holding company. The Bank
established HB Investment Fund I, LLC and HB Investment Fund II, LLC, as wholly-owned subsidiaries of the Bank to
invest in New Markets Tax Credits (“NMTC”) and Federal Tax Credits ("FTC") in our market areas.
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. In July 2011, the
Bank expanded into the Greater New Orleans region through its acquisition of GS Financial Corporation, the former holding
company of Guaranty Savings Bank. In February 2014, the Bank expanded into west Mississippi through its acquisition of
Britton & Koontz Capital Corporation, the holding company for Britton & Koontz Bank, N.A. of Natchez, Mississippi. In
September 2015, the Bank expanded its presence in the Greater New Orleans region through the acquisition of Louisiana
Bancorp, Inc., the former holding company of Bank of New Orleans of Metairie, Louisiana. In December 2017, the Bank
expanded its presence in the Acadiana market through the acquisition of St. Martin Bancshares (“SMB”), the former holding
company of St. Martin Bank & Trust Company of St. Martinville, Louisiana. In March 2022, the Bank expanded into the
Houston, Texas region through the acquisition of Friendswood Capital Corporation ("Friendswood"), the former holding
company of Texan Bank, N.A. ("Texan Bank") of Houston, Texas. As of December 31, 2022, the Bank conducted business
from 43 banking offices in the Acadiana, Northshore, Baton Rouge, Greater New Orleans, Natchez and Houston regions of
south Louisiana, west Mississippi, and east Texas.
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 general operating expenses and interest expense on deposits and borrowings.
The Company’s primary banking regulator is the Board of Governors of the Federal Reserve System (the”Federal Reserve”).
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.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, the Bank, HB Investment Fund I, LLC and HB
Investment Fund II, LLC. All significant intercompany balances and transactions have been eliminated in consolidation.
Subsequent Events
The Company has evaluated subsequent events for potential recognition and disclosure through the date of filing for this
Annual Report on Form 10-K with the U.S. Securities and Exchange Commission..
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 credit losses, income taxes, the valuation of foreclosed assets and other real estate ("ORE"), goodwill and other
intangible assets, acquisition accounting valuations and valuation of share-based compensation.
49
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 may be 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, 2022 or 2021.
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, 2022 or 2021.
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 (Loss) 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. Amortization of premiums and accretion
of discounts are recognized in interest income using the effective interest method. Premiums that exceed the amount
repayable by the issuer at the next call date are amortized to the next call date. Other premiums and discounts are amortized
(accreted) over the estimated lives of the securities. 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.
On January 1, 2020, the Company adopted ASC 326, Financial Instruments - Credit Losses, which introduced a new model
known as CECL. ASC 326 requires expected credit related losses for available for sale debt securities to be recorded through
an allowance for credit losses, while non-credit related losses or declines in fair value continue to be recognized through other
comprehensive income ("OCI"). Under the new guidance, the Company is also required to evaluate held to maturity debt
securities for expected credit losses.
We evaluate our investment securities portfolio for credit-related impairment at least quarterly, and more frequently when
economic and market conditions warrant such evaluations. Consideration is given to numerous factors including, but not
limited to, the extent to which the fair value is less than the amortized cost basis; adverse conditions causing changes in the
financial condition of the issuer of the security or underlying loan guarantors; changes to the rating of the security by a rating
agency; and the Company’s intent to sell a security or whether it is more likely than not the Company will be required to sell
the security before the recovery of its amortized cost, which may extend to maturity.
The Company performs a process to determine whether declines in the fair value of securities has resulted from credit losses
or other factors. This process involves evaluating each security for impairment by monitoring credit performance, collateral
type, collateral geography, bond credit support, loan-to-value ratios, credit scores, loss severity levels, pricing levels,
downgrades by rating agencies, cash flow projections and other factors as indicators of potential credit issues. If this
evaluation indicates the existence of credit losses, the Company compares the present value of cash flows expected to be
collected from the security with the amortized cost basis. If the present value of expected cash flows is less than the
amortized cost basis, an allowance for credit losses is recorded, limited by the amount that the fair value of the security is less
than its amortized cost. Subsequent changes in the allowance for credit losses on securities are recorded with a corresponding
provision for credit losses on the Consolidated Statement of Income. If the Company intends to sell the debt security or it is
more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis, the
security is written down to fair value against the allowance for credit losses, with any additional impairment reported on the
Consolidated Statement of Income. The Company applies the practical expedient that permits the exclusion of the accrued
interest receivable balance from amortized cost basis of financing receivables.
50
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, 2022 and 2021, the
Company had $98,000 and $1,104,000, respectively, in loans classified as “Mortgage loans held for sale.”
Loans
The following describes the distinction between originated and acquired loans and certain significant accounting policies
relevant to each category.
Originated Loans
Originated loans are carried net of discounts on loan originations and 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, with
certain limited exceptions, 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, 2022 and 2021 are those associated with our acquisitions of Statewide Bank, GS Financial
Corporation, Britton & Koontz Capital Corporation, Louisiana Bancorp, Inc., SMB, and Friendswood. 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 and those with evidence of credit deterioration
(purchased credit impaired or “PCI” for loans acquired prior to January 1, 2020), 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 PCI loans was based on the estimate of expected cash flows, both principal and interest, from that pool, discounted at
51
prevailing market interest rates. The difference between the fair value of an acquired loan pool and the contractual amounts
due at the acquisition date (the “fair value discount”) is accreted into income over the estimated life of the pool.
On January 1, 2020, the Company adopted ASC 326, Financial Instruments - Credit Losses, which introduced a new model
known as CECL and amended the accounting guidance for purchased financial assets.
For reporting periods beginning on and after January 1, 2020 and the adoption of ASC 326:
Management estimates the allowance for credit losses for acquired loans under the same methodology as originated loans.
Changes in the allowance for credit losses for acquired loans are recognized through the provision for loan losses and the
provision for credit losses on unfunded lending commitments.
ASC 326 replaced the guidance for PCI loans with the concept of purchased credit deteriorated ("PCD"). For reporting
periods beginning on and after January 1, 2020, PCI loans have been re-classified as PCD loans. For PCD loans, the
Company applied the guidance under ASC 326 using the prospective transition approach. As a result, the Company adjusted
the amortized cost basis of the PCD loans to reclassify $996,000 of purchase discount to the allowance for loan losses on
January 1, 2020. The Company applied the guidance under ASC 326 using the modified retrospective approach for all non-
PCD assets, which resulted in an increase in the ACL and a corresponding decrease to retained earnings at the adoption date.
PCD loans, under prior accounting policies, were excluded from nonperforming loans because they continued to earn interest
income from the accretable yield at the pool level regardless of their status as past due or otherwise not in compliance with
their contractual terms. With the adoption of ASC 326, the pools were discontinued and performance is based on contractual
terms for individual loans.
Allowance for Credit Losses
On January 1, 2020, the Company adopted ASC 326, Financial Instruments - Credit Losses. The new standard significantly
changed the impairment model for most financial assets that are measured at amortized cost, including off-balance sheet
credit exposures, from an incurred loss model to an expected loss model.
Changes in the allowance for credit losses, which includes the allowance for loan losses and the reserve for unfunded lending
commitments, 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 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 credit losses. The OCC may require the recognition
of adjustments to the allowance for credit 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 credit losses may be required as of the time of its examination. As part of the Bank’s 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 credit losses. The result of the independent review is reported directly to the Audit Committee of the
Board of Directors.
Under ASC 326, the allowance for credit losses ("ACL") is measured on a pool basis when similar risk characteristics exist
and is maintained at an amount which management believes is a current estimate of the expected credit losses for the full life
of the relevant pool of loans and related unfunded lending commitments. The Company applies the practical expedient that
permits the exclusion of the accrued interest receivable balance from amortized cost basis of financing receivables when
measuring credit losses under CECL. The Company's CECL calculation estimates loan losses using the discounted cash flow
method for all loan pools, except for the Company's credit card portfolio. Loan losses for the credit card portfolio are
estimated using the remaining life method due to the limited complexity and size of this portfolio. The discounted cash flow
analysis uses loan-level term information (e.g., maturity date, payment amount, interest rate, etc.) and pool-level assumptions
(e.g., default rates, prepayment speeds, etc.) to produce expected future cash flows for the full life of every loan in the pool.
The expected future cash flows are discounted and results are then aggregated to produce a net present value of the pool and
ultimately the ACL requirement for the pool. The remaining life method applies a loss rate to a given pool of loans over the
estimated remaining life of the given pool. The remaining life of the pool is based on historical data. The loss rates computed
for each pool and expected pool-level funding rates are applied to the related unfunded lending commitments to calculate an
ACL on unfunded amounts. For each pool of loans, management also evaluates and applies qualitative adjustments to the
calculated ACL based on several factors, including, but not limited to, changes in current and expected future economic
conditions, changes in industry experience and loan concentrations, changes in the volume and severity of nonperforming
assets, changes in lending policies and personnel and changes in the competitive and regulatory environment of the banking
52
industry. During 2022, 2021 and 2020, the ongoing effects of COVID-19 on the U.S. economy have been an additional
consideration when measuring the ACL.
Loans that do not share similar risk characteristics are individually evaluated and are excluded from the pooled loan analysis.
Individually analyzed loans generally include larger (i.e., loans with balances of $500,000 or greater) commercial real estate
loans, multi-family residential loans, construction and land loans, commercial and industrial loans and other loans as deemed
appropriate by management for which it is probable that all amounts due under the contractual terms of the loan will not be
collected. The ACL for loans that are individually evaluated is based on a comparison of the recorded investment in the loan
with either the expected cash flows discounted using the loan’s original effective interest rate, observable market price for the
loan or the estimated fair value of the collateral underlying certain collateral-dependent loans.
The Company has identified the following portfolio segments based on the risk characteristics described in the table for its
pooled loan analysis under ASC 326:
Loan Pool
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate ("CRE")
Construction and land ("C&D")
Multi-family residential
Commercial and industrial ("C&I")
Consumer
Credit cards
Risk Characteristics
This category consists of loans secured by first liens on residential real estate. The
performance of
loans may be adversely affected by, among other factors,
unemployment rates, local residential real estate market conditions and the interest rate
environment. Generally, these loans are for longer terms than home equity loans and lines.
these
This category consists of loans secured by first and junior liens on residential real estate. The
performance of
loans may be adversely affected by, among other factors,
unemployment rates, local residential real estate market conditions and the interest rate
environment.
these
This category consists of loans primarily secured by office and industrial buildings,
warehouses, retail shopping facilities and various special purpose properties, including hotels
and restaurants. The performance of CRE loans may be adversely affected by, among other
factors, conditions specific to the relevant industry, the real estate market for the property
type and geographic region where the property or borrower is located.
This category consists of loans to finance the ground-up construction and/or improvement of
residential and commercial properties and loans secured by land. The performance of C&D
loans is generally dependent upon the successful completion of improvements and/or land
development for the end user, the sale of the property to a third party, or a secondary source of
cash flow from the owners. The successful completion of planned improvements and
development may be adversely affected by changes in the estimated property value upon
completion of construction, projected costs and other conditions leading to project delays.
This category consists of loans secured by apartment or residential buildings with five or more
units used to accommodate households on a temporary or permanent basis. The performance
of multi-family loans is generally dependent on the receipt of rental income from the tenants
who occupy the subject property. The occupancy rate of the subject property and the ability of
the tenants to pay rent may be adversely affected by the location of the subject property and
local economic conditions.
This category consists of secured and unsecured loans to purchase capital equipment,
agriculture operating loans and other business loans for working capital and operating
purposes. Secured loans are primarily secured by accounts receivable, inventory and other
business assets. The performance of C&I loans may be adversely affected by, among other
factors, conditions specific to the relevant industry, fluctuations in the value of the collateral
and individual performance factors related to the borrower.
This category consists of loans to individuals for household, family and other personal use.
The performance of these loans may be adversely affected by national and local economic
conditions, unemployment rates and other factors affecting the borrower's income available to
service the debt.
This category consists of unsecured revolving lines of credit for personal and commercial use.
Credit card loans are generally smaller in size and are less complex relative to larger loan
categories. Due to their unsecured nature, historical loss rates for credit card loans are
generally higher than the loss rates on loans secured by real estate.
53
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 three 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.
Operating Leases
On January 1, 2019, the Company adopted the amended provisions under ASC 842, Leases. Under the amended guidance,
the Company recognizes lease assets and liabilities for both operating and capital leases. For lessees, lease assets represent
the right-of-use ("ROU") leased assets for the relevant lease term and lease liabilities that represent the obligation to make
lease payments. The Company has made an accounting policy election not to recognize short-term lease assets and liabilities
(less than a 12 month term) or immaterial equipment leases in its balance sheets; instead, the Company recognizes the lease
expense on a straight-line basis over the life of the lease. At December 31, 2022 and 2021, the Company's right-of-use assets,
net of amortization, were $9,021,000 and $5,256,000, respectively. The Company's lease liabilities were $9,322,000 and
$5,457,000 at December 31, 2022 and 2021, respectively. The Company reports its right-of-use assets and liabilities within
accrued interest receivable and other assets and accrued interest payable and other liabilities, respectively, on the
Consolidated Statements of Financial Condition. The ROU asset and lease liability are recognized at lease commencement
based on the present value of the remaining lease payments, considering a discount rate that represents the Company's
incremental borrowing rate. Operating lease expense is recognized on a straight-line basis over the lease term and is
recognized in occupancy expense Consolidated Statements of Income. See Note 7 for additional information and disclosures
on operating leases.
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. Goodwill and core deposit
intangibles are presented together on the Consolidated Statements of Financial Condition. Mortgage servicing rights were
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. Core deposit intangibles are evaluated for impairment at least annually. Mortgage servicing
rights represent servicing assets related to mortgage loans sold and serviced at fair value. Mortgage servicing rights were
amortized over a maximum of 10 years using an accelerated method.
Foreclosed Assets and ORE
Foreclosed assets and ORE includes real property and other assets that have been acquired as a result of foreclosure, and real
property no longer used in the Bank's business. Foreclosed assets are recorded at fair value less estimated selling costs at the
date acquired or upon receiving new property valuations. Write-downs from cost to fair value at the date of foreclosure are
charged against the allowance for credit losses. ORE is recorded at the lower of its net book value or fair value at the date of
transfer to ORE. Costs relating to the development and improvement of foreclosed assets and ORE are capitalized, and costs
relating to holding and maintaining foreclosed assets and ORE are expensed. 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 foreclosed assets and ORE at the time of foreclosure or transfer to ORE and at least every 12 months
following the foreclosure or transfer to ORE. When the foreclosed property is sold, a gain or loss is recognized on the sale for
the difference between the sales proceeds and the carrying amount of the property. Financed sales of foreclosed property are
accounted for in accordance with ASC 610, Subtopic 20, Gains and losses from the derecognition of nonfinancial assets. The
Company had $461,000 and $1,189,000 of foreclosed assets and ORE as of December 31, 2022 and 2021, respectively.
Foreclosed assets and ORE are recorded in accrued interest receivable and other assets on the Consolidated Statements of
Financial Condition.
54
Derivatives and Hedging Activities
As required by ASC 815, the Company records all derivatives on the balance sheet at fair value. The accounting for changes
in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a
derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria
necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair
value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair
value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or
other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the
matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair
value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the
hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to
economically hedge certain of its risk, even though hedge accounting does not apply or the Company elects not to apply
hedge accounting.
In accordance with the FASB’s fair value measurement guidance (in ASU 2011-04), the Company made an accounting policy
election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net
basis by counterparty portfolio.
Other Investments
Other investments are carried at cost and consist of Federal Reserve Bank ("FRB") stock, FHLB stock, First National
Bankers Bank ("FNBB") stock, qualified investments under the Community Reinvestment Act ("CRA"), an investment in a
Small Business Investment Company ("SBIC"), and a New Market Tax Credit ("NMTC") investment. The Company's other
investments are not held for sale and do not have readily determinable fair values. As a member of the FRB and the FHLB,
the Company is required to hold stock in the FRB and the FHLB. The FRB stock may not be sold or pledged as collateral.
The FHLB stock is pledged as collateral for outstanding FHLB advances and its transfer is substantially restricted. The
Company's CRA investments include investments in funds and membership shares that fund community development in low-
and moderate-income areas. The Company's SBIC investment is guaranteed by the Small Business Association. Other
investments totaled $22,026,000 and $15,004,000 as of December 31, 2022 and 2021, respectively. Other investments are
reported in accrued interest receivable and other assets on the Consolidated Statements of Financial Condition.
Shareholders’ Equity
Pursuant to applicable provisions of the Louisiana Business Corporation Act, shares reacquired by the Company are to be
treated as authorized but unissued shares. For the years ended December 31, 2022, 2021 and 2020, the cost of shares
repurchased by the Company has 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.
Revenue Recognition
In addition to lending and related activities, the Company offers various services to customers that generate revenue, certain
of which are governed by ASC 606, Revenue from Contracts with Customers. The Company's services that fall within the
scope of ASC 606 are presented within noninterest income and include service charges and fees, brokerage fees, and other
transaction-based fees. Revenue is recognized when the transactions occur or as services are performed over primarily
monthly or quarterly periods. Payment is typically received in the period the transactions occur. Fees may be fixed or, where
applicable, based on a percentage of transaction size.
55
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 result 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, 2022, 2021 and 2020, the Company did not recognize any interest or penalties
in its financial statements and did not record an accrued liability for interest or penalty payments.
Investments that generate investment tax credits are accounted for under the deferral method. Under the deferral method, the
allowable investment credit is recognized as a reduction in income tax expense over the life of the acquired investment.
Stock-based Compensation Plans
The Company has issued stock options under the 2009 Stock Option Plan and the 2014 Equity Incentive Plan to directors,
officers and other key employees. The Company had not issued stock options under the 2021 Equity Incentive Plan as of
December 31, 2022. 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 has issued restricted stock under the 2009 Recognition and Retention Plan and restricted stock units under the
2014 Equity Incentive Plan and 2021 Equity Incentive Plan to 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 (Loss) 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 and cash flow hedges, are
reported as a separate component of the equity section of the balance sheets, such items, along with net earnings, are
components of comprehensive (loss) income. The tax effect for unrealized losses and gains on investment securities and cash
flow hedges was a $10,646,000 benefit, a $1,204,000 benefit and a $1,218,000 expense for the periods ending December 31,
56
2022, 2021 and 2020, respectively. Comprehensive (loss) income is reflected in the Consolidated Statements of
Comprehensive (Loss) Income.
Loss Contingency Disclosure
Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities
when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not
believe there are such matters that will have a material effect on the financial statements.
Reclassifications
Certain reclassifications have been made to prior period balances to conform to the current period presentation.
Recent Accounting Pronouncements
Accounting Standards Adopted in 2022
There were no applicable accounting pronouncements adopted by the Company in 2022.
Issued but Not Yet Adopted Accounting Standards
ASU 2022-01, “Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method.” Under prior
guidance, entities can apply the last-of-layer hedging method to hedge the exposure of a closed portfolio of prepayable
financial assets to fair value changes due to changes in interest rates for a portion of the portfolio that is not expected to be
affected by prepayments, defaults, and other events affecting the timing and amount of cash flows. ASU 2022-01 expands the
last-of-layer method, which permits only one hedge layer, to allow multiple hedged layers of a single closed portfolio. To
reflect that expansion, the last-of-layer method is renamed the portfolio layer method. ASU 2022-01 also (i) expands the
scope of the portfolio layer method to include non-prepayable financial assets, (ii) specifies eligible hedging instruments in a
single-layer hedge, (iii) provides additional guidance on the accounting for and disclosure of hedge basis adjustments under
the portfolio layer method and (iv) specifies how hedge basis adjustments should be considered when determining credit
losses for the assets included in the closed portfolio. ASU 2022-01 is effective for fiscal years and interim periods after
December, 15, 2022. The adoption of ASU 2022-01 is not expected to have a significant impact on our financial statements.
ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.”
ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings in Accounting Standards Codification
(“ASC”) Subtopic 310-40, Receivables - Troubled Debt Restructurings by Creditors, while enhancing disclosure
requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial
difficulty. Additionally, ASU 2022-02 requires entities to disclose current-period gross write-offs by year of origination for
financing receivables and net investments in leases within the scope of ASC Subtopic 3126-20, Financial Instruments - Credit
Losses - Measured at Amortized Cost. ASU 2022-02 is effective for fiscal years and interim periods after December, 15,
2022. The adoption of ASU 2022-02 is not expected to have a significant impact on our financial statements.
ASU 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual
Sale Restrictions.” ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part
of the unit of account of the equity security and, therefore, is not considered in measuring fair value. ASU 2022-03 also
clarifies that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction and requires
certain new disclosures for equity securities subject to contractual sale restrictions. ASU 2022-03 is effective for fiscal years
and interim periods after December, 15, 2023, though early adoption is permitted. The adoption of ASU 2022-03 is not
expected to have a significant impact on our financial statements.
ASU No. 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848.” ASU 2022-06 extends
the period of time preparers can utilize the reference rate reform relief guidance provided by ASU 2020-04 and ASU
2021-01, which are discussed above. ASU 2022-06, which was effective upon issuance, defers the sunset date of this prior
guidance from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief
guidance in Topic 848. The adoption of ASU 2022-06 did not significantly impact our financial statements.
57
3. Acquisition Activity
The Company has completed six acquisitions since 2010. The following table is a summary of the Company's acquisition
activity as recorded:
SUMMARY OF ACQUISITION ACTIVITY
(dollars in thousands)
Acquisition
Date
Total Assets Total Loans
Goodwill
Core
Deposit
Intangible
Total
Deposits
3/12/2010 $ 188,026 $ 110,415 $
560 $
1,429 $ 206,925
Acquisition
Statewide Bank
GS Financial Corporation
Britton & Koontz Capital Corporation
Louisiana Bancorp, Inc.
St. Martin Bancshares, Inc.
7/15/2011
2/14/2014
9/15/2015
12/6/2017
256,677
298,930
352,897
592,852
Friendswood Capital Corporation
3/26/2022
413,919
Total Acquisitions
$ 2,103,301 $ 1,493,383 $
182,440
161,581
281,583
439,872
317,492
296
43
8,454
49,135
859
3,030
1,586
6,766
193,518
216,600
208,670
533,497
23,029
81,517 $
4,597
367,991
18,267 $ 1,727,201
Loans acquired with deteriorated credit quality were accounted for under ASC 310-30, Loans and Debt Securities Acquired
with Deteriorated Credit Quality, prior to the adoption of ASC 326. On January 1, 2020, the Company adopted ASC 326,
Financial Instruments - Credit Losses, which amended the accounting model for purchased financial assets and replaced the
guidance for PCI financial assets with the concept of PCD financial assets.
On March 26, 2022, the Company completed the acquisition of Friendswood Capital Corporation (“Friendswood”), the
former holding company of Texan Bank, N. A. (“Texan Bank”) of Houston, Texas. Shareholders of Friendswood received
$15.34 per share in cash, yielding an aggregate purchase price of $64,864,000.
The Friendswood acquisition was accounted for under the purchase method of accounting in accordance with ASC 805,
Business Combinations. In accordance with ASC 805, the Company recorded goodwill totaling $23,029,000 from the
acquisition as a result of consideration transferred over net assets acquired. Both the assets acquired and liabilities assumed
were recorded at their respective acquisition date fair values. Identifiable intangible assets, including core deposit intangible
assets, were recorded at fair value.
The fair value estimates of the Friendswood assets and liabilities require management to make estimates about discount rates,
expected cash flows, market conditions, and other future events that are highly subjective in nature and are subject to
refinement for a one year period after the date of the acquisition. Under current accounting principles, the Company’s
estimates of fair values may be adjusted for a period of up to one year from the acquisition date.
The assets acquired and liabilities assumed in the Friendswood acquisition, as well as the adjustments to record the assets and
liabilities at fair value, are presented in the following table as of March 26, 2022:
58
(dollars in thousands)
Assets
Cash and cash equivalents
Investment securities
Loans
Repossessed assets
Office properties and equipment, net
Core deposit intangible
Other assets
Total assets acquired
Liabilities
Noninterest-bearing deposits
Interest-bearing deposits
Other liabilities
Total liabilities assumed
Excess of assets acquired over liabilities assumed
Cash consideration paid
Total goodwill recorded
As Acquired
Fair Value
Adjustments
As recorded by
Home Bancorp
$
48,741 $
—
$
33,679
320,050
950
1,663
—
9,687
(268) (a)
(2,558) (b)
(246) (c)
(116) (d)
4,597 (e)
(2,260) (f)
$
$
414,770 $
(851)
97,668 $
—
269,301
3,873
1,022 (g)
220 (h)
$
$
48,741
33,411
317,492
704
1,547
4,597
7,427
413,919
97,668
270,323
4,093
$
370,842 $
1,242
$
372,084
41,835
(64,864)
23,029
$
(a) The adjustment represents the market value adjustments on Friendswood's investment securities based on their interest
rate risk and credit risk.
(b) The adjustment to reflect the fair value of loans includes:
•
•
Adjustment of $3.0 million to reflect the removal of Friendswood's allowance for loan losses, net of the allowance
for credit losses on PCD loans at the acquisition date, in accordance with ASC 805.
Net discount of $5.5 million for all non-PCD loans which totaled $309.8 million. In determining the fair value of
non-PCD loans, the acquired loan portfolio was evaluated based on risk characteristics and other credit and market
criteria to determine credit quality and interest adjustments to the fair value of the loans acquired. The acquired loan
balance was reduced by the net amount of the credit quality and interest adjustments in determining the fair value of
the loans.
(c) The adjustment represents the write-down of the book value of Friendswood's repossessed assets to their estimated fair
value, as adjusted for estimated costs to sell.
(d) The adjustment represents the write-down of the book value of Friendswood’s office properties and equipment to their
estimated fair value at the acquisition date.
(e) The adjustment represents the value of the core deposit base assumed in the acquisition. The core deposit asset was
recorded as an identifiable intangible asset and is being be amortized on an accelerated basis over the estimated life of the
deposit base of 10 years.
(f) The adjustment is to record the deferred tax asset on the transaction and the estimated fair value on other assets.
(g) Adjustment to reflect the fair value of certificates of deposit acquired based on the interest rates as of the acquisition date
for similar instruments. The adjustment is being recognized using a level yield amortization method based on maturities of
the deposit liabilities.
(h) Adjustment to reflect the fair value of liabilities at the acquisition date.
The Company acquired loans at the acquisition date of Friendswood with more than significant deterioration of credit quality
since origination PCD loans. The carrying amount of these loans at acquisition was as follows:
59
(in thousands)
Acquisition Date of March 26, 2022
Purchase price of PCD loans at acquisition
$
Allowance for credit losses on PCD loans at acquisition
Par value of PCD acquired loans at acquisition
8,813
1,415
10,228
The following pro forma information for the years ended December 31, 2022 and 2021 reflects the Company’s estimated
consolidated results of operations as if the acquisition of Friendswood occurred at January 1, 2021, unadjusted for potential
cost savings. Merger-related costs for the years December 31, 2022 and 2021 were approximately $1,971,000 and $299,000,
respectively, and have been excluded from the pro-forma information presented below.
(dollars in thousands except per share information)
2022
2021
Net interest income
Noninterest income
Noninterest expense
Net income
Earnings per share - basic
Earnings per share - diluted
$
$
$
122,893 $
14,789
85,423
35,368
4.35 $
4.32 $
120,421
19,705
82,853
53,273
6.36
6.32
The selected pro forma financial information presented above is for illustrative purposes only and is not necessarily indicative
of the financial results of the combined companies had the acquisition actually been completed at the beginning of the periods
presented, nor does it indicate future results for any other interim or full-year period.
4. Investment Securities
The following table summarizes the Company’s available for sale and held to maturity investment securities at December 31,
2022 and 2021.
(dollars in thousands)
December 31, 2022
Available for sale:
Amortized
Cost
Gross
Unrealized
Gains
Gross Unrealized Losses
Less Than
1 Year
Over 1
Year
Fair Value
U.S. agency mortgage-backed
$ 355,014 $
63 $
14,828 $
23,417 $ 316,832
Collateralized mortgage obligations
Municipal bonds
U.S. government agency
Corporate bonds
91,217
67,476
20,600
6,980
Total available for sale
$ 541,287 $
1
50
4,860
3,245
13
6,656
86,345
57,625
—
—
114 $
1,259
247
24,439 $
8
350
19,333
6,383
30,444 $ 486,518
Held to maturity:
Municipal bonds
Total held to maturity
$
$
1,075 $
1,075 $
— $
— $
3 $
3 $
— $
— $
1,072
1,072
60
(dollars in thousands)
December 31, 2021
Available for sale:
U.S. agency mortgage-backed
Collateralized mortgage obligations
Municipal bonds
U.S. government agency
Corporate bonds
Total available for sale
Held to maturity:
Municipal bonds
Total held to maturity
Amortized
Cost
Gross
Unrealized
Gains
Gross Unrealized Losses
Less Than
1 Year
Over 1
Year
Fair Value
$ 234,720 $
31,356
51,094
5,615
5,500
$ 328,285 $
1,793 $
557
402
8
114
2,874 $
2,382 $
1
719
—
—
3,102 $
358 $ 233,773
31,912
—
50,719
58
5,614
9
5,614
— $
425 $ 327,632
$
$
2,102 $
2,102 $
30 $
30 $
— $
— $
— $
— $
2,132
2,132
Management evaluates securities for impairment from credit losses at least quarterly, and more frequently when economic
and market conditions warrant such evaluations. Consideration is given to numerous factors including, but not limited to, the
extent to which the fair value is less than the amortized cost basis; adverse conditions causing changes in the financial
condition of the issuer of the security or underlying loan guarantors; changes to the rating of the security by a rating agency;
and the Company’s intent to sell a security or whether it is more likely than not the Company will be required to sell the
security before the recovery of its amortized cost, which may extend to maturity.
The Company performs a process to determine whether the decline in the fair value of securities has resulted from credit
losses or other factors. This process involves evaluating each security for impairment by monitoring credit performance,
collateral type, collateral geography, bond credit support, loan-to-value ratios, credit scores, loss severity levels, pricing
levels, downgrades by rating agencies, cash flow projections and other factors as indicators of potential credit issues. If this
evaluation indicates the existence of credit losses, the Company compares the present value of cash flows expected to be
collected from the security with the amortized cost basis. If the present value of expected cash flows is less than the
amortized cost basis, an ACL is recorded, limited by the amount that the fair value of the security is less than its amortized
cost.
The Company's investment securities with unrealized losses, aggregated by type and length of time that individual securities
have been in a continuous loss position, are summarized in the following tables.
(dollars in thousands)
Less Than 1 Year
Over 1 Year
Total
December 31, 2022
Available for sale:
U.S. agency mortgage-backed
Collateralized mortgage
obligations
Municipal bonds
U.S. government agency
Corporate bonds
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
$ 184,896 $
14,828 $ 129,248 $
23,417 $ 314,144 $
38,245
85,715
28,710
18,718
3,233
4,860
3,245
1,259
247
620
24,100
615
3,150
13
6,656
8
350
86,335
52,810
19,333
6,383
4,873
9,901
1,267
597
54,883
Total available for sale
$ 321,272 $
24,439 $ 157,733 $
30,444 $ 479,005 $
Held to maturity:
Municipal bonds
Total held to maturity
$
$
1,072 $
1,072 $
3 $
3 $
— $
— $
— $
— $
1,072 $
1,072 $
3
3
61
(dollars in thousands)
Less Than 1 Year
Over 1 Year
Total
December 31, 2021
Available for sale:
U.S. agency mortgage-backed
Collateralized mortgage
obligations
Municipal bonds
U.S. government agency
Corporate bonds
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
$ 158,908 $
2,382 $
11,575 $
358 $ 170,483 $
2,740
254
29,047
—
3,499
1
719
—
—
988
1,228
1,001
—
—
58
9
—
1,242
30,275
1,001
3,499
1
777
9
—
Total available for sale
$ 191,708 $
3,102 $
14,792 $
425 $ 206,500 $
3,527
Held to maturity:
Municipal bonds
Total held to maturity
$
$
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
—
—
At December 31, 2022, 324 of the Company’s debt securities had unrealized losses totaling 10.3% of the individual
securities’ amortized cost basis and 10.1% of the Company’s total amortized cost basis of the investment securities portfolio.
At such date, 63 of the 324 securities had been in a continuous loss position for over 12 months. Management has determined
that the declines in the fair value of these securities were not attributable to credit losses. As a result, no ACL was recorded
for available for sale investment securities at December 31, 2022.
At December 31, 2022 and December 31, 2021, it was determined that no ACL was required for the Company's held to
maturity investment securities. The Company monitors credit quality of debt securities held to maturity through the use of
credit ratings. The following tables present the amortized cost of the Company's held to maturity securities by credit quality
rating at December 31, 2022 and December 31, 2021.
(dollars in thousands)
AAA/AA/A
BBB/BB/B
Total
Credit Ratings
December 31, 2022
Held to maturity:
Municipal bonds
$
1,075 $
— $
1,075
(dollars in thousands)
AAA/AA/A
BBB/BB/B
Total
Credit Ratings
December 31, 2021
Held to maturity:
Municipal bonds
$
2,102 $
— $
2,102
The amortized cost and estimated fair value by maturity of the Company’s investment securities as of December 31, 2022 are
shown in the following tables. Securities are classified according to their contractual maturities without consideration of
principal amortization, potential prepayments or call options. The expected maturity of a security may differ from its
contractual maturity because of the exercise of call options and potential paydowns. Accordingly, actual maturities may differ
from contractual maturities.
62
(dollars in thousands)
Fair Value
Available for sale:
U.S. agency mortgage-backed
Collateralized mortgage obligations
Municipal bonds
U.S. government agency
Corporate bonds
Total securities available for sale
Held to maturity:
Municipal bonds
Total securities held to maturity
(dollars in thousands)
Amortized Cost
Available for sale:
U.S. agency mortgage-backed
Collateralized mortgage obligations
Municipal bonds
U.S. government agency
Corporate bonds
Total securities available for sale
Held to maturity:
Municipal bonds
Total securities held to maturity
One Year
or Less
After One
Year through
Five Years
After Five
Years
through Ten
Years
After Ten
Years
Total
$
$
$
$
6,648 $
—
2,191
—
—
8,839 $
52,243 $ 107,194 $ 150,747 $ 316,832
86,345
59,640
21,923
4,782
5,331
6,063
22,383
12,945
27,720
325
57,625
19,333
—
6,383
123,277 $ 153,687 $ 200,715 $ 486,518
6,383
—
— $
— $
1,072 $
1,072 $
— $
— $
— $
— $
1,072
1,072
One Year
or Less
After One
Year through
Five Years
After Five
Years
through Ten
Years
After Ten
Years
Total
$
$
$
$
6,754 $
—
2,219
—
—
56,502 $ 118,815 $ 172,943 $ 355,014
91,217
62,556
67,476
5,559
20,600
6,182
6,980
—
5,493
25,154
14,089
6,980
23,168
34,544
329
—
8,973 $
130,799 $ 170,531 $ 230,984 $ 541,287
— $
— $
1,075 $
1,075 $
— $
— $
— $
— $
1,075
1,075
For the year ended December 31, 2022, the Company recorded no gross gains and losses related to the sale of investment
securities. For the year ended December 31, 2021, gross gains and losses recorded related to the sale of investment securities
were $5,300 and $5,200, respectively. For the year ended December 31, 2020, the Company recorded no gross gains or losses
related to the sale of investment securities.
As of December 31, 2022 and 2021, the Company had accrued interest receivable for investment securities of $1,798,000 and
$942,000, respectively. These amounts are recorded in accrued interest receivable and other assets on the Consolidated
Statements of Financial Condition.
As of December 31, 2022 and 2021, the Company had $170,036,000 and $161,388,000, respectively, of securities pledged to
secure public deposits.
63
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)
Real estate loans:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Total real estate loans
Other loans:
Commercial and industrial
Consumer
Total other loans
Total loans
2022
2021
$ 389,616 $ 350,843
61,863
1,152,537
313,175
100,588
60,312
801,624
259,652
90,518
2,017,779
1,562,949
377,894
35,077
244,123
33,021
412,971
277,144
$ 2,430,750 $ 1,840,093
In January 2022, the Bank sold its former branch office in Vicksburg, Mississippi, and transferred approximately $2.8 million
in loans from that office. The net discount on the Company’s acquired loans was $6,866,000 and $4,289,000 at December 31,
2022 and 2021, respectively. In addition, loan balances as of December 31, 2022 and 2021 are reported net of unearned
income of $4,580,000 and $4,924,000, respectively. Unearned income at December 31, 2022 and December 31, 2021
included $94,000 and $1,301,000 of deferred lender fees related to PPP loans, respectively. The total recorded investment in
PPP loans was $6,692,000 and $43,637,000 at December 31, 2022 and 2021, respectively, which is included in commercial
and industrial loans.
Accrued interest receivable on the Company's loans was $9,520,000 and $6,496,000 at December 31, 2022 and 2021,
respectively, and is excluded from the estimate of the ACL. These amounts are recorded in accrued interest receivable and
other assets on the Consolidated Statements of Financial Condition.
A summary of activity in the ACL for the years ended December 31, 2022, 2021 and 2020 follows.
(dollars in thousands)
Allowance for credit losses:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total allowance for loan losses
$
For the Year Ended December 31, 2022
Allowance
for
Acquired
PCD
Loans(1)
Beginning
Balance
Charge-offs
Recoveries
Provision
Ending
Balance
$
1,944 $
508
10,454
3,572
457
3,520
634
21,089 $
— $
—
1,220
—
—
195
—
1,415 $
(80) $
—
(270)
—
—
(792)
(256)
(1,398) $
39 $
14
—
—
—
509
142
704 $
980 $
102
2,410
1,108
115
2,592
182
7,489 $
2,883
624
13,814
4,680
572
6,024
702
29,299
Unfunded lending commitments
1,815
—
—
—
278
2,093
Total allowance for credit losses
$
22,904 $
1,415 $
(1,398) $
704 $
7,767 $
31,392
64
(dollars in thousands)
Allowance for credit losses:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total allowance for loan losses
For the Year Ended December 31, 2021
Beginning
Balance
Charge-offs
Recoveries
Provision
(Reversal)
Ending
Balance
$
3,065 $
(176) $
45 $
(990) $
1,944
676
18,851
4,155
1,077
(6)
(1,337)
—
—
25
—
63
—
(187)
(7,060)
(646)
(620)
4,276
863
32,963 $
(599)
(187)
(2,305) $
$
313
146
592 $
(470)
(188)
(10,161) $
508
10,454
3,572
457
3,520
634
21,089
Unfunded lending commitments
Total allowance for credit losses
1,425
—
—
390
1,815
$
34,388 $
(2,305) $
592 $
(9,771) $
22,904
(dollars in thousands)
Allowance for credit losses:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
For the Year Ended December 31, 2020
Beginning
Balance
ASC 326
Adoption
Impact(1)
Charge-offs
Recoveries
Provision
(Reversal)
Ending
Balance
$
2,715 $
986 $
(99) $
13 $
(550) $
3,065
1,084
6,541
2,670
572
3,694
592
(1)
1,974
519
(245)
1,243
157
(575)
(5)
(688)
—
(984)
(250)
16
55
—
—
106
145
152
10,286
1,654
750
217
219
676
18,851
4,155
1,077
4,276
863
Total allowance for loan losses
$
17,868 $
4,633 $
(2,601) $
335 $
12,728 $
32,963
Unfunded lending commitments
—
1,425
—
—
—
1,425
Total allowance for credit losses $
17,868 $
6,058 $
(2,601) $
335 $
12,728 $
34,388
(1) On January 1, 2020, the Company adopted ASC 326, Financial Instruments - Credit Losses, which introduced a new model
known as CECL. Refer to Note 2 for more information on the adoption of ASC 326.
65
The ACL, which includes the ALL and the ACL on unfunded lending commitments, and recorded investment in loans as of
the dates indicated are as follows.
(dollars in thousands)
Allowance for credit losses:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total allowance for loan losses
Unfunded lending commitments(1)
Total allowance for credit losses
(dollars in thousands)
Loans:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total loans
(dollars in thousands)
Allowance for credit losses:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total allowance for loan losses
Unfunded lending commitments(3)
Total allowance for credit losses
As of December 31, 2022
Individually
Evaluated
Collectively
Evaluated
Total
$
2,883 $
— $
624
13,264
4,680
572
5,853
702
—
550
—
—
171
—
2,883
624
13,814
4,680
572
6,024
702
$
$
$
28,578 $
721 $
29,299
2,093 $
30,671 $
— $
2,093
721 $
31,392
As of December 31, 2022
Individually
Evaluated(2)
Collectively
Evaluated
Total
$
389,616 $
61,863
— $
—
389,616
61,863
1,147,794
4,743
1,152,537
313,175
100,588
377,690
34,991
—
—
204
86
313,175
100,588
377,894
35,077
$ 2,425,717 $
5,033 $ 2,430,750
As of December 31, 2021
Individually
Evaluated
Collectively
Evaluated
Total
$
$
$
$
1,944 $
508
10,207
3,572
457
3,095
634
20,417 $
— $
—
247
—
—
425
—
672 $
1,944
508
10,454
3,572
457
3,520
634
21,089
1,815 $
22,232 $
— $
1,815
672 $
22,904
66
(dollars in thousands)
Loans:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total loans
As of December 31, 2021
Individually
Evaluated(2)
Collectively
Evaluated
Total
$
350,843 $
60,312
— $
—
797,751
259,652
90,518
243,379
33,021
3,873
—
—
744
—
350,843
60,312
801,624
259,652
90,518
244,123
33,021
$ 1,835,476 $
4,617 $ 1,840,093
(1) At December 31, 2022, $2.1 million of the ACL related to noncancellable unfunded lending commitments of $520.7 million. The
ACL on unfunded lending commitments is recorded within accrued interest payable and other liabilities on the Consolidated
Statements of Financial Condition.
(2) PCD loans individually evaluated totaled $1.5 million and none at December 31, 2022 and December 31, 2021, respectively.
(3) At December 31, 2021, $1.8 million of the ACL related to noncancellable unfunded lending commitments of $434.6 million. The
ACL on unfunded lending commitments is recorded within accrued interest payable and other liabilities on the Consolidated
Statements of Financial Condition.
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.
67
The following table presents the Company’s loan portfolio by credit quality classification and origination year as of
December 31, 2022.
Term Loans by Origination Year
(dollars in thousands)
2022
2021
2020
2019
2018
Prior
One- to four-family first mortgage:
Revolving
Loans
Converted
to Term
Loans
Revolving
Loans
Total
Pass
Special Mention
Substandard
Doubtful
$ 107,546 $ 78,744 $ 37,876 $ 34,114 $ 26,455 $ 94,729 $
5,387 $
348 $ 385,199
150
272
—
189
56
—
—
368
—
—
145
—
—
372
—
355
2,010
—
—
—
—
500
—
—
1,194
3,223
—
Total one- to four-family first
mortgages
Home equity loans and lines:
$ 107,968 $ 78,989 $ 38,244 $ 34,259 $ 26,827 $ 97,094 $
5,387 $
848 $ 389,616
Pass
Special Mention
Substandard
Doubtful
$ 1,898 $ 1,453 $
783 $ 1,142 $
604 $ 3,453 $ 51,502 $
995 $
61,830
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
33
—
—
—
—
—
—
—
—
33
—
Total home equity loans and lines
$ 1,898 $ 1,453 $
783 $ 1,142 $
604 $ 3,486 $ 51,502 $
995 $
61,863
Commercial real estate:
Pass
Special Mention
Substandard
Doubtful
Total commercial real estate
loans
Construction and land:
Pass
Special Mention
Substandard
Doubtful
$ 292,894 $ 279,397 $ 210,983 $ 159,169 $ 64,554 $ 95,083 $ 35,918 $
586 $ 1,138,584
—
97
—
179
—
—
345
167
—
—
5,579
—
—
294
—
—
7,292
—
—
—
—
—
—
—
524
13,429
—
$ 292,991 $ 279,576 $ 211,495 $ 164,748 $ 64,848 $ 102,375 $ 35,918 $
586 $ 1,152,537
$ 170,744 $ 101,321 $ 19,620 $ 8,912 $ 2,534 $ 2,716 $
4,434 $
1,727 $ 312,008
—
417
—
520
—
—
—
152
—
—
—
—
—
—
—
—
78
—
—
—
—
—
—
—
520
647
—
Total construction and land loans
$ 171,161 $ 101,841 $ 19,772 $ 8,912 $ 2,534 $ 2,794 $
4,434 $
1,727 $ 313,175
Multi-family residential:
Pass
Special Mention
Substandard
Doubtful
Total multi-family residential
loans
Commercial and industrial:
$ 33,822 $ 15,775 $ 25,661 $ 13,070 $ 2,241 $ 2,491 $
1,302 $
2,840 $
97,202
—
—
—
—
—
—
—
—
—
—
—
—
3,312
74
—
—
—
—
—
—
—
—
—
—
3,312
74
—
$ 33,822 $ 15,775 $ 25,661 $ 13,070 $ 5,627 $ 2,491 $
1,302 $
2,840 $ 100,588
Pass
Special Mention
Substandard
Doubtful
$ 108,464 $ 50,850 $ 16,043 $ 8,599 $ 11,203 $ 2,759 $ 174,145 $
712 $ 372,775
338
590
—
—
—
—
—
2,317
—
—
8
—
7
—
—
—
293
—
1,188
328
—
—
50
—
1,533
3,586
—
Total commercial and industrial
loans
$ 109,392 $ 50,850 $ 18,360 $ 8,607 $ 11,210 $ 3,052 $ 175,661 $
762 $ 377,894
Consumer:
Pass
Special Mention
Substandard
Doubtful
$ 10,012 $ 2,048 $ 1,577 $
536 $
136 $ 12,785 $
7,420 $
29 $
34,543
—
9
—
—
298
—
—
—
—
—
—
—
—
—
—
—
227
—
—
—
—
—
—
534
—
7,420 $
—
29 $
—
35,077
Total consumer loans
$ 10,021 $ 2,346 $ 1,577 $
536 $
136 $ 13,012 $
Total loans:
Pass
Special Mention
Substandard
Doubtful
Total loans
$ 725,380 $ 529,588 $ 312,543 $ 225,542 $ 107,727 $ 214,016 $ 280,108 $
7,237 $ 2,402,141
488
1,385
888
354
345
3,004
—
5,732
3,319
740
355
9,933
1,188
328
—
—
$ 727,253 $ 530,830 $ 315,892 $ 231,274 $ 111,786 $ 224,304 $ 281,624 $
—
—
—
—
—
500
50
7,083
21,526
—
—
7,787 $ 2,430,750
68
The following table presents the Company’s loan portfolio by credit quality classification and origination year as of
December 31, 2021.
Term Loans by Origination Year
(dollars in thousands)
2021
2020
2019
2018
2017
Prior
One- to four-family first mortgage:
Revolving
Loans
Converted
to Term
Loans
Revolving
Loans
Total
Pass
Special Mention
Substandard
Doubtful
$ 77,865 $ 44,152 $ 45,542 $ 34,301 $ 35,048 $ 96,975 $ 12,412 $
351 $ 346,646
—
—
—
—
347
—
—
716
—
—
266
—
—
463
—
369
2,036
—
—
—
—
—
—
—
369
3,828
—
Total one- to four-family first
mortgages
Home equity loans and lines:
$ 77,865 $ 44,499 $ 46,258 $ 34,567 $ 35,511 $ 99,380 $ 12,412 $
351 $ 350,843
Pass
Special Mention
Substandard
Doubtful
$ 1,688 $
873 $ 1,114 $
919 $
816 $ 3,567 $ 50,323 $
975 $
60,275
—
—
—
—
—
—
—
—
—
—
—
—
—
37
—
—
—
—
—
—
—
—
—
—
—
37
—
Total home equity loans and lines
$ 1,688 $
873 $ 1,114 $
919 $
853 $ 3,567 $ 50,323 $
975 $
60,312
Commercial real estate:
Pass
Special Mention
Substandard
Doubtful
Total commercial real estate
loans
Construction and land:
Pass
Special Mention
Substandard
Doubtful
$ 226,989 $ 193,637 $ 142,045 $ 68,949 $ 73,555 $ 59,396 $ 23,310 $
1,699 $ 789,580
—
437
—
—
821
—
—
381
—
—
1,841
1,741
—
306
—
366
5,991
—
—
—
—
—
160
—
2,207
9,837
—
$ 227,426 $ 194,458 $ 142,426 $ 70,690 $ 75,702 $ 65,753 $ 23,310 $
1,859 $ 801,624
$ 148,054 $ 50,062 $ 48,432 $ 4,832 $ 2,867 $ 1,738 $
2,845 $
— $ 258,830
575
—
—
—
—
—
—
—
—
—
—
—
—
5
—
—
242
—
—
—
—
—
—
—
575
247
—
Total construction and land loans
$ 148,629 $ 50,062 $ 48,432 $ 4,832 $ 2,872 $ 1,980 $
2,845 $
— $ 259,652
Multi-family residential:
Pass
Special Mention
Substandard
Doubtful
Total multi-family residential
loans
Commercial and industrial:
$ 31,236 $ 31,805 $ 14,467 $ 6,363 $ 2,588 $ 2,762 $
1,297 $
— $
90,518
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$ 31,236 $ 31,805 $ 14,467 $ 6,363 $ 2,588 $ 2,762 $
1,297 $
— $
90,518
Pass
Special Mention
Substandard
Doubtful
$ 82,765 $ 32,465 $ 14,794 $ 8,737 $ 3,066 $ 1,690 $ 96,648 $
296 $ 240,461
—
—
—
—
2,013
—
—
—
—
—
417
—
—
5
—
—
18
—
267
942
—
—
—
—
267
3,395
—
Total commercial and industrial
loans
$ 82,765 $ 34,478 $ 14,794 $ 9,154 $ 3,071 $ 1,708 $ 97,857 $
296 $ 244,123
Consumer:
Pass
Special Mention
Substandard
Doubtful
$ 5,472 $ 2,627 $ 1,211 $
411 $ 1,041 $ 15,530 $
6,488 $
37 $
32,817
—
16
—
—
—
—
—
—
—
—
—
—
—
7
—
2
179
—
—
—
—
—
2
202
—
6,488 $
—
37 $
—
33,021
Total consumer loans
$ 5,488 $ 2,627 $ 1,211 $
411 $ 1,048 $ 15,711 $
Total loans:
Pass
Special Mention
Substandard
Doubtful
Total loans
$ 574,069 $ 355,621 $ 267,605 $ 124,512 $ 118,981 $ 181,658 $ 193,323 $
3,358 $ 1,819,127
575
453
—
3,181
—
1,097
—
2,424
1,841
823
737
8,466
267
942
—
—
$ 575,097 $ 358,802 $ 268,702 $ 126,936 $ 121,645 $ 190,861 $ 194,532 $
—
—
—
—
—
—
160
3,420
17,546
—
—
3,518 $ 1,840,093
69
Age analysis of past due loans, as of the dates indicated, is as follows.
(dollars in thousands)
Originated loans:
Real estate loans:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Total real estate loans
Other loans:
Commercial and industrial
Consumer
Total other loans
December 31, 2022
30-59 Days
Past Due
60-89 Days
Past Due
Greater
Than
90 Days Past
Due
Total Past
Due
Current
Loans
Total Loans
$
490 $
147 $
646 $
1,283 $
298,547 $
299,830
40
3,210
345
—
4,085
152
264
416
—
179
160
—
486
—
7
7
—
27
147
—
820
210
191
401
40
3,416
652
—
52,950
853,096
284,740
96,400
52,990
856,512
285,392
96,400
5,391
1,585,733
1,591,124
362
462
824
338,418
31,059
369,477
338,780
31,521
370,301
Total originated loans
$
4,501 $
493 $
1,221 $
6,215 $ 1,955,210 $ 1,961,425
Acquired loans:
Real estate loans:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Total real estate loans
Other loans:
Commercial and industrial
Consumer
Total other loans
$
1,591 $
136 $
519 $
2,246 $
87,540 $
89,786
116
294
—
—
2,001
—
41
41
—
—
—
—
136
225
3
228
1
566
132
—
117
860
132
—
8,756
8,873
295,165
296,025
27,651
4,188
27,783
4,188
1,218
3,355
423,300
426,655
38
21
59
263
65
328
38,851
3,491
42,342
39,114
3,556
42,670
Total acquired loans
$
2,042 $
364 $
1,277 $
3,683 $
465,642 $
469,325
Total loans:
Real estate loans:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Total real estate loans
Other loans:
Commercial and industrial
Consumer
Total other loans
Total loans
$
2,081 $
283 $
1,165 $
3,529 $
386,087 $
389,616
156
3,504
345
—
6,086
152
305
457
—
179
160
—
622
225
10
235
1
593
279
—
157
4,276
784
—
61,706
61,863
1,148,261
1,152,537
312,391
100,588
313,175
100,588
2,038
8,746
2,009,033
2,017,779
248
212
460
625
527
1,152
377,269
34,550
411,819
377,894
35,077
412,971
$
6,543 $
857 $
2,498 $
9,898 $ 2,420,852 $ 2,430,750
70
(dollars in thousands)
Originated loans:
Real estate loans:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Total real estate loans
Other loans:
Commercial and industrial
Consumer
Total other loans
December 31, 2021
30-59 Days
Past Due
60-89 Days
Past Due
Greater
Than
90 Days Past
Due
Total Past
Due
Current
Loans
Total Loans
$
1,267 $
266 $
1,151 $
2,684 $
254,880 $
257,564
—
438
428
—
2,133
51
289
340
—
—
—
—
266
31
—
31
—
4,854
—
—
—
5,292
428
—
48,561
682,323
249,802
87,316
48,561
687,615
250,230
87,316
6,005
8,404
1,322,882
1,331,286
271
25
296
353
314
667
232,569
29,247
261,816
232,922
29,561
262,483
Total originated loans
$
2,473 $
297 $
6,301 $
9,071 $ 1,584,698 $ 1,593,769
Acquired loans:
Real estate loans:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Total real estate loans
Other loans:
Commercial and industrial
Consumer
Total other loans
$
1,233 $
428 $
1,322 $
2,983 $
90,296 $
141
54
—
—
1,428
81
53
134
—
—
—
—
428
—
3
3
—
2,139
241
—
3,702
430
21
451
141
2,193
241
—
11,610
111,816
9,181
3,202
93,279
11,751
114,009
9,422
3,202
5,558
226,105
231,663
511
77
588
10,690
3,383
14,073
11,201
3,460
14,661
Total acquired loans
$
1,562 $
431 $
4,153 $
6,146 $
240,178 $
246,324
Total loans:
Real estate loans:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Total real estate loans
Other loans:
Commercial and industrial
Consumer
Total other loans
Total loans
$
2,500 $
694 $
2,473 $
5,667 $
345,176 $
350,843
141
492
428
—
3,561
132
342
474
—
—
—
—
694
31
3
34
—
6,993
241
—
9,707
701
46
747
141
7,485
669
—
60,171
794,139
258,983
90,518
60,312
801,624
259,652
90,518
13,962
1,548,987
1,562,949
864
391
1,255
243,259
32,630
275,889
244,123
33,021
277,144
$
4,035 $
728 $
10,454 $
15,217 $ 1,824,876 $ 1,840,093
Loans greater than 90 days past due and accruing interest were $2,000 and $6,000 at December 31, 2022 and December 31,
2021, respectively.
71
The Company reviews its significant nonaccrual loans (i.e., loans with balances of $500,000 or greater) for specific
impairment in accordance with its allowance for credit loss methodology. If it is determined that it is probable that all
amounts due will not be collected when other credit quality indicators are considered, the loan is considered impaired and the
Company individually evaluates those loans to determine the expected credit losses. The following table summarizes
information pertaining to nonaccrual loans as of dates indicated.
(dollars in thousands)
Nonaccrual loans(1):
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total
December 31, 2022
December 31, 2021
Without
Related
Allowance
Total
Without
Related
Allowance
Total
$
2,300 $
— $
3,575 $
34
6,945
315
—
378
541
—
2,914
—
—
13
86
38
8,431
258
—
763
204
—
—
116
—
—
20
—
$
10,513 $
3,013 $
13,269 $
136
(1) Nonaccrual acquired loans include PCD loans of $1,530,000 at December 31, 2022. There were no nonaccrual
acquired PCD loans at December 31, 2021.
All interest accrued but not received for loans placed on nonaccrual status is reversed against interest income. All payments
received while on nonaccrual status are applied against the principal balance of nonaccrual loans. The Company does not
recognize interest income while loans are on nonaccrual status.
As of December 31, 2022, the Company was not committed to lend additional funds to any customer whose loan was
individually evaluated for impairment.
72
Collateral Dependent Loans
The Company held loans that were individually evaluated for impairment at December 31, 2022 and 2021 for which the
repayments, on the basis of our assessment at the reporting date, were expected to be provided substantially through the
operation or sale of the collateral and the borrower was experiencing financial difficulty. The ACL for these collateral-
dependent loans is primarily based on the fair value of the underlying collateral at the reporting date. The following describes
the types of collateral that secure collateral dependent loans:
•
•
•
•
•
One- to four-family first mortgages are primarily secured by first liens on residential real estate.
Home equity loans and lines are primarily secured by first and junior liens on residential real estate.
Commercial real estate loans are primarily secured by office and industrial buildings, warehouses, retail shopping
facilities and various special purpose properties, including hotels and restaurants.
Construction and land loans are primarily secured by residential and commercial properties, which are under
construction and/or redevelopment, and by raw land.
Commercial and industrial loans considered collateral dependent are primarily secured by accounts receivable,
inventory and equipment.
The table below summarizes collateral dependent loans and the related ACL as of the periods indicated for which the
borrower was experiencing financial difficulty.
(dollars in thousands)
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total
December 31, 2022
ACL
Loans
December 31, 2021
ACL
Loans
$
— $
— $
— $
—
4,743
—
—
204
86
—
550
—
—
171
—
—
3,873
—
—
744
—
$
5,033 $
721 $
4,617 $
—
—
247
—
—
425
—
672
Foreclosed Assets and ORE
Foreclosed assets and ORE include real property and other assets that have been acquired as a result of foreclosure, and real
property no longer used in the Bank's business. Foreclosed assets and ORE totaled $461,000 and $1,189,000 at December 31,
2022 and December 31, 2021, respectively. These amounts are recorded in accrued interest receivable and other assets on the
Consolidated Statements of Financial Condition.
The carrying amount of foreclosed residential real estate properties held at December 31, 2022 and December 31, 2021
totaled $231,000 and $136,000, respectively. Loans secured by single family residential real estate that were in the process of
foreclosure at December 31, 2022 and December 31, 2021 totaled $179,000 and $505,000, respectively.
Foreclosed assets and ORE included certain bank buildings that meet the criteria to be classified as assets held for sale. The
carrying value of these assets totaled $423,000 at December 31, 2021. During the year ended December 31, 2022, the
Company sold the asset held for sale at the recorded carrying value of $423,000.
Troubled Debt Restructurings
During the course of its lending operations, the Company periodically grants concessions to its customers in an attempt to
protect as much of its investment as possible and to minimize risk of loss. These concessions may include restructuring the
terms of a customer loan to alleviate the burden of the customer’s near-term cash requirements. Loans are TDRs when the
Company agrees to restructure a loan to a borrower who is experiencing financial difficulties in a manner that is deemed to be
a “concession”. The Company defines a concession as a modification of existing terms granted to a borrower for economic or
legal reasons related to the borrower’s financial difficulties that the Company would otherwise not consider. The concession
73
either is granted through an agreement with the customer or is imposed by a court or by law. Concessions include modifying
original loan terms to reduce or defer cash payments required as part of the loan agreement, including but not limited to:
•
•
•
•
a reduction of the stated interest rate for the remaining original life of the debt,
an extension of the maturity date or dates at an interest rate lower than the current market rate for new debt with similar
risk characteristics,
a reduction of the face amount or maturity amount of the debt or
a reduction of accrued interest receivable on the debt.
In its determination of whether the customer is experiencing financial difficulties, the Company considers numerous
indicators, including, but not limited to:
•
•
•
•
•
whether the customer is currently in default on its existing loan, or is in an economic position where it is probable the
customer will be in default on its loan in the foreseeable future without a modification,
whether the customer has declared or is in the process of declaring bankruptcy,
whether there is substantial doubt about the customer’s ability to continue as a going concern,
whether, based on its projections of the customer’s current capabilities, the Company believes the customer’s future
cash flows will be insufficient to service the debt, including interest, in accordance with the contractual terms of the
existing agreement for the foreseeable future and
whether, without modification, the customer cannot obtain sufficient funds from other sources at an effective interest
rate equal to the current market rate for similar debt for a non-troubled debtor.
If the Company concludes that both a concession has been granted and the concession was granted to a customer
experiencing financial difficulties, the Company identifies the loan as a TDR. The ACL for loans that are individually
evaluated is based on a comparison of the recorded investment in the loan with either the expected cash flows discounted
using the loan’s original effective interest rate, observable market price for the loan or the fair value of the collateral
underlying certain collateral-dependent loans. Residential, consumer and smaller balance commercial TDRs are included in
the Company's pooled-loan analysis to calculate the ACL and, generally, do not have a material impact on the overall ACL.
A summary of information pertaining to loans modified as of the periods indicated is as follows.
(dollars in thousands)
Troubled debt restructurings:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total
For the Year Ended December 31
2022
Pre-
modification
Outstanding
Recorded
Investment
Number
of
Contracts
Post-
modification
Outstanding
Recorded
Investment
Number
of
Contracts
2021
Pre-
modification
Outstanding
Recorded
Investment
Post-
modification
Outstanding
Recorded
Investment
6 $
1,196 $
—
3
—
—
1
1
11 $
—
428
—
—
7
19
1,650 $
1,188
—
415
—
—
7
15
1,625
2 $
77 $
—
3
—
—
2
1
8 $
—
520
—
—
2,397
6
3,000 $
73
—
478
—
—
2,245
1
2,797
As of December 31, 2022 and 2021, the Company had no unfunded commitments to borrowers whose loan terms had been
modified through troubled debt restructurings.
None of the the loans modified during the year ended December 31, 2022 defaulted during the same period.
One commercial real estate loan totaling $342,000 and, two one- to four-family first mortgage loans totaling $73,000 were
modified during the year ended December 31, 2021 and defaulted within twelve months of modification. The defaults did not
have a significant impact on our allowance for loan losses at December 31, 2021.
74
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)
Mortgage loans sold to Federal Home Loan Mortgage Corporation without recourse
Mortgage loans sold to Federal National Mortgage Association without recourse
Mortgage loans sold to Federal Home Loan Bank without recourse
Total, end of period
2022
2021
$
$
1,465 $
43,059
151
44,675 $
1,798
54,429
169
56,396
The Company recorded servicing assets related to mortgage loans sold and serviced at fair value and amortized the associated
servicing assets over the period of estimated net servicing income associated with each loan. Changes in the carrying value of
servicing assets are recorded in service fees and charges on the Consolidated Statements of Income. The Company no longer
retains servicing rights for mortgage loans sold. Activity related to servicing assets for the years ended December 31, 2022,
2021 and 2020 is summarized as follows.
(dollars in thousands)
Balance, beginning of period
Amortization
Balance, end of period
Fair value, end of period
2022
2021
2020
$
$
— $
—
—
— $
— $
—
—
— $
161
(161)
—
—
Custodial and escrow account balances maintained in connection with the foregoing loan servicing arrangements were
$1,036,000 and $1,078,000 as of December 31, 2022 and 2021, respectively.
7. Office Properties and Equipment
Office properties and equipment consisted of the following at December 31 of the years indicated.
(dollars in thousands)
Land
Buildings and improvements
Furniture and equipment
Total office properties and equipment
Less accumulated depreciation
Total office properties and equipment, net
2022
2021
$
$
13,709 $
37,732
18,189
69,630
26,070
43,560 $
13,919
36,323
16,486
66,728
23,186
43,542
Depreciation expense for the years ended December 31, 2022, 2021 and 2020 was $3,464,000, $3,084,000 and $3,063,000,
respectively.
The Company determined that certain buildings met the criteria to be classified as assets held for sale. The carrying values of
such assets were $0 and $423,000 at December 31, 2022 and 2021, respectively, and are reported as foreclosed assets and
ORE. Foreclosed assets and ORE are recorded within accrued interest receivable and other assets in the Statements of
Financial Condition as of December 31, 2022 and 2021. For more information on the Company's policy on foreclosed assets
and ORE, refer to Note 2, Summary of Significant Accounting Policies.
The Company leases space under non-cancelable operating leases agreements for certain bank branch facilities with
remaining lease terms of 1 to 13 years. Certain lease arrangements contain extension options which typically range from 5 to
10 years at the fair market rental rates. The lease and asset liability considers renewal options when they are reasonably
certain of being exercised. Refer to Note 2, Summary of Significant Accounting Policies.
75
The following table summarizes net lease cost and selected other information related to operating leases at December 31 of
the years indicated.
(dollars in thousands)
Net lease cost:
Operating lease cost
Variable lease cost
Net lease cost
2022
2021
2020
$
$
1,197 $
—
1,197 $
513 $
—
513 $
483
—
483
Selected other operating lease information
Weighted average remaining lease term (years)
Weighted average discount rate
6.7
5.7%
9.3
5.9%
9.6
6.9%
The following table summarizes the maturity of remaining lease liabilities.
Years Ending December 31,
(dollars in thousands)
2023
2024
2025
2026
2027
Thereafter
Total future minimum lease payments
Less: amount representing interest
Present value of net future minimum lease payments
8. Goodwill and Intangibles
$
$
1,320
1,206
877
890
904
9,967
15,164
(5,842)
9,322
Goodwill and other intangible assets are presented in the table below. Changes in carrying amount of the Company’s
goodwill and core deposit intangible (“CDI”) for the years ended December 31, 2022, 2021 and 2020 were as follows.
(dollars in thousands)
Balance, December 31, 2019
Amortization of intangibles
Balance, December 31, 2020
Amortization of intangibles
Balance, December 31, 2021
Friendswood acquisition
Amortization of intangibles
Balance, December 31, 2022
Goodwill
CDI
$
$
58,488 $
—
58,488
—
58,488
23,029
—
81,517 $
5,984
(1,360)
4,624
(1,163)
3,461
4,597
(1,602)
6,456
The weighted-average amortization period for CDI acquired is 11 years. The Company completed its annual impairment test
of goodwill and other intangible assets as of December 31, 2022. The evaluation did not indicate impairment on its goodwill
or other intangible assets.
Estimated future amortization expense for CDI remaining at December 31, 2022, was as follows.
76
(dollars in thousands)
Amount
2023
2024
2025
2026
2027
Thereafter
Total CDI
9. Deposits
$
$
1,571
1,328
1,087
851
618
1,001
6,456
The Company’s deposits consisted of the following major classifications as of December 31 of the years indicated.
(dollars in thousands)
Demand deposit accounts
Savings
Money market accounts
NOW accounts
Certificates of deposit
Total deposits
2022
2021
$ 904,301 $ 766,385
285,728
371,478
792,919
319,339
$ 2,633,181 $ 2,535,849
305,871
423,990
663,574
335,445
As of December 31, 2022, the scheduled maturities of the Company’s certificates of deposit were as follows.
(dollars in thousands)
2023
2024
2025
2026
2027
Thereafter
Total certificates of deposit
Amount
$ 259,051
56,710
8,328
5,689
3,506
2,161
$ 335,445
In January 2022, the Bank sold its former branch office in Vicksburg, Mississippi, and transferred approximately $14.7
million in deposit liabilities from that office. The amount of our total uninsured deposits (that is, deposits in excess of the
FDIC insurance limit) was $830,932,000 and $820,000,000 at December 31, 2022 and December 31, 2021, respectively. As
of December 31, 2022 and 2021, the aggregate amount of certificates of deposit with balances of $250,000 or more was
$69,442,000 and $63,221,000, respectively.
10. Other Borrowings
Other borrowings at December 31, 2022 and 2021 included a $5,539,000 note payable with a rate of 3.83% on the
Company’s investment in a new market tax credit entity. The note payable is a 20-year leverage loan with interest-only
payments for the first seven years. The note was originated in October 2018.
11. Subordinated Debt
On June 30, 2022, the Company issued $55,000,000 in aggregate principal amount of its 5.75% Fixed-to-Floating Rate
Subordinated Notes (the "Notes") due 2032. The Notes were issued at a price equal to 100% of the aggregate principal
amount. The Notes have a stated maturity date of June 30, 2032 and bear interest at a fixed rate of 5.75% per year from and
including the issue date to but excluding June 30, 2027. From June 30, 2027, the Notes bear interest at a floating rate equal to
the then current three-month term secured overnight financing rate (“SOFR”), plus 282 basis points. The Notes may be
redeemed by the Company, in whole or in part, on or after June 30, 2027. The Notes are intended to qualify as Tier 2 capital
for regulatory purposes.
77
The carrying value of subordinated debt was $54,013,000 at December 31, 2022. The subordinated debt was recorded net of
issuance costs of $1,107,000 at December 31, 2022, which is being amortized using the straight-line method over five years.
12. Short-term FHLB Advances
As of December 31, 2022 and 2021, the Company had short-term FHLB advances of $155,000,000 and $0, respectively. For
the years ended December 31, 2022 and 2021, the average volume of short-term FHLB advances carried by the Company
was $7,976,000 and $0, respectively.
Collateral for short and long-term FHLB advances is secured through a blanket lien evidenced by the Company’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, 2022 and 2021.
As of December 31, 2022 and 2021, the Company had $937,439,000 and $810,448,000, respectively, of additional FHLB
advances available based on collateral pledged. As of December 31, 2022 and 2021, the Company had $1,032,745,000 and
$818,764,000, respectively, of loans pledged through the Company’s blanket lien.
13. Long-term FHLB Advances
As of December 31, 2022 and 2021, the Company’s long-term FHLB advances totaled $21,213,000 and $26,046,000,
respectively. The following table summarizes long-term advances as of December 31, 2022.
(dollars in thousands)
Fixed rate advances maturing in:
2023
2024
2025
2026
Total long-term FHLB advances
14. Derivatives and Hedging Activities
Risk Management Objective of Using Derivatives
Amount
$
3,012
4,176
10,609
3,416
Weighted
Average
Rate
1.36 %
1.73
1.60
1.61
$
21,213
1.59 %
The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company
principally manages its exposures to a wide variety of business and operational risks through management of its core business
activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the
amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the
Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the
receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates.
The Company’s existing credit derivatives result from loan participation arrangements, therefore, are not used to manage
interest rate risk in the Company’s assets or liabilities. The Company occasionally enters into credit risk participation
agreements with counterparty banks to accept a portion of the credit risk related to interest rate swaps. The agreements, which
are typically executed in conjunction with a participation in a loan with the same customer, allow customers to execute an
interest rate swap with one bank while allowing for the distribution of the credit risk among participating members. Collateral
used to support the credit risk for the underlying lending relationship is also available to offset the risk of credit risk
participations and customer derivative positions.
78
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure
to interest rate movements. As part of its efforts to accomplish this objective, during the second quarter of 2020, the
Company entered into certain interest rate swap agreements as part of its interest rate risk management strategy. Interest rate
swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the
Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
During 2022 and 2021, such derivatives were used to hedge the variable cash flows associated with existing variable rate
liabilities.
For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is
recorded in Accumulated Other Comprehensive Income and subsequently reclassified into interest expense in the same
period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive
income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable
rate liabilities. During the next twelve months, the Company estimates that an additional $1,771,000 will be reclassified as
additional interest income.
Non-designated Hedges
The Company’s existing credit derivatives result from participations in interest rate swaps provided by external lenders as
part of loan participation arrangements, therefore, are not used to manage interest rate risk in the Company’s assets or
liabilities. Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain
lenders which participate in loans. For derivative instruments that are not designated as hedging instruments, changes in the
fair value of the derivatives are recognized in earnings immediately.
Fair Values of Derivative Instruments
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the
Consolidated Statement of Financial Condition.
December 31, 2022
December 31, 2021
Derivative Assets(1)
Fair
Notional
Value
Amount
Derivative Liabilities(1)
Notional
Amount
Fair
Value
Derivative Assets(1)
Fair
Notional
Value
Amount
Derivative Liabilities(1)
Notional
Amount
Fair
Value
$ 40,000 $
5,144 $
— $
— $ 40,000 $
1,589 $
— $
—
—
—
12,036
9
—
—
10,000
—
—
—
43
—
$
5,144
$
9
$
1,589
$
43
(dollars in thousands)
Derivatives
designated as
hedging
instruments:
Interest rate
swaps - variable
rate liabilities
Derivatives not
designated as
hedging
instruments:
Risk
participation
agreements
Netting
adjustments
Net derivative
amounts
(1) Derivative assets and liabilities are reported at fair value in accrued interest receivable and other assets and accrued interest payable
and other liabilities, respectively, in the Consolidated Statements of Financial Condition.
79
At December 31, 2022 and 2021, accumulated unrealized gains, net of taxes, on derivative instruments totaled $3,961,000
and $1,259,000, respectively.
Effect of Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income
The following tables below presents the effect of cash flow hedge accounting on Accumulated Other Comprehensive (Loss)
Income as of December 31, 2022 and 2021.
(dollars in thousands)
Derivatives in cash flows hedging
relationships:
Interest rate swaps - variable rate
liabilities
(dollars in thousands)
Derivatives in cash flows hedging
relationships:
Interest rate swaps - variable rate
liabilities
Amount of Gain Recognized
in OCI
Year Ended December 31, 2022
Location of
Gain
Reclassified
from AOCI
into Income
Included
Component
Amount of Gain Reclassified
from AOCI into Income
Included
Component
Total
Total
$
3,991 $
3,991
Interest
income
$
572 $
572
Amount of Gain Recognized
in OCI
For the Year Ended December 31, 2021
Location of
Gain
Reclassified
from AOCI
into Income
Included
Component
Amount of Loss Reclassified
from AOCI into Income
Included
Component
Total
Total
$
1,310 $
1,310
Interest
expense
$
(64) $
(64)
Effect of Cash Flow Hedge Accounting on the Consolidated Statements of Income
The following tables below presents the effect of the Company’s derivative financial instruments on the Consolidated
Statements of Income as of December 31, 2022 and 2021.
(dollars in thousands)
Effects of cash flow hedging
Location of Gain
Reclassified from AOCI
into Income
For the Year Ended
December 31, 2022
Interest rate swaps - variable rate liabilities
Interest income
$
572
(dollars in thousands)
Effects of cash flow hedging
Location of Loss
Reclassified from AOCI
into Income
For the Year Ended
December 31, 2021
Interest rate swaps - variable rate liabilities
Interest expense
$
(64)
Effect of Derivatives Not Designated as Hedging Instruments on the Consolidated Statements of Income
The table below presents the effect of the Company’s derivative financial instruments that are not designated as hedging
instruments on the Consolidated Statements of Income as of December 31, 2022 and 2021.
(dollars in thousands)
Effects of non-designated hedges
Risk participation agreements
Location of Income
Recognized on Non-
designated Hedges
For the Year Ended
December 31, 2022
Other noninterest income
$
74
80
(dollars in thousands)
Effects of non-designated hedges
Risk participation agreements
Credit-risk-related Contingent Features
Location of Income
Recognized on Non-
designated Hedges
For the Year Ended
December 31, 2021
Other noninterest income
$
16
The Company has agreements with each of its derivative counterparties that contain a provision where if the Company
(either) defaults (or is capable of being declared in default) on any of its indebtedness, then the Company could also be
declared in default on its derivative obligations.
The Company has agreements with certain of its derivative counterparties that contain a provision where if the Company fails
to maintain its status as a well or adequately capitalized institution, then the Company could be required to post additional
collateral.
As of December 31, 2022, there were no derivatives with credit-risk-related contingent features in a net liability position.
Such derivatives are measured at fair value, which includes accrued interest but excludes any adjustment for nonperformance
risk. If the Company had breached any provisions at December 31, 2022, it would not have been required to settle any
obligations under the agreements since the termination value was $0.
15. Income Taxes
The Company files federal income tax returns on a calendar year basis. Income tax expense for the years indicated is
summarized as follows:
(dollars in thousands)
Current
Deferred
NMTC
Total income tax expense
2022
2021
2020
$
9,792 $
9,754 $
8,030
(882)
(480)
2,544
(480)
(1,588)
(400)
$
8,430 $
11,818 $
6,042
The components of the Company’s net deferred tax asset, which is included in accrued interest receivable and other assets in
the accompanying Statement of Financial Condition at December 31 of the years indicated are as follows:
(dollars in thousands)
Deferred tax assets:
Provision for loan losses
Discount on purchased loans
Salary continuation plan
Mortgage servicing rights
Deferred compensation
Stock-based compensation
Unrealized loss on securities available for sale
Net operating loss acquired
2022
2021
$
6,581 $
1,277
676
47
5
262
11,501
499
4,810
584
678
64
5
220
137
—
81
(dollars in thousands)
Other
Deferred tax assets
Deferred tax liabilities:
FHLB stock dividends
Accumulated depreciation
Intangible assets
Derivatives
NMTC
Other
Deferred tax liabilities
Net deferred tax asset
$
$
2022
2021
382
21,230 $
83
6,581
(78) $
(3,362)
(1,123)
(1,053)
(130)
(46)
(67)
(3,369)
(439)
(335)
(101)
(23)
(5,792)
15,438 $
(4,334)
2,247
$
For the years ended December 31, 2022, 2021 and 2020, the Company’s provision for federal income taxes differed from the
amount computed by applying the federal income tax statutory rate of 21% on income from operations as indicated in the
following analysis:
(dollars in thousands)
Federal tax based on statutory rate
State tax based on statutory rate
(Decrease) increase resulting from:
NMTC
Effect of tax-exempt income
Changes in the cash surrender value of bank owned life insurance
Nondeductible merger-related expenses
Nondeductible share based compensation expense
Exercise of stock options
Other
Income tax expense
Effective tax rate
2022
2021
2020
$ 8,994
$ 12,773
$ 6,544
151
97
42
(480)
(276)
(192)
41
188
(37)
41
(480)
(196)
(547)
30
180
(23)
(16)
(400)
(136)
(209)
—
162
(8)
47
$ 8,430
$ 11,818
$ 6,042
19.8 %
19.6 %
19.6 %
Retained earnings as of December 31, 2022 and 2021, 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, 2022 and 2021. 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, 2022 and
2021.
16. Commitments
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.
82
(dollars in thousands)
Standby letters of credit
Available portion of lines of credit
Undisbursed portion of loans in process
Commitments to originate loans
Contract Amount
2021
2022
$
6,969 $
367,167
194,182
164,682
5,075
320,611
142,048
153,487
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.
17. 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
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 rule established a common equity Tier 1 minimum capital requirement, increased the minimum capital ratios and
assigned a higher risk weight to certain assets based on the risk associated with these assets. The final rule also included a
capital conservation buffer which was phased in over a five-year period until it reached 2.5% on January 1, 2019.
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 requires the Bank to maintain minimum amounts
and ratios (set forth in the table below) of total and Tier 1 risk-based capital (as defined) to average assets and risk-weighted
assets (as defined). Management believes, as of December 31, 2022 and 2021, that the Bank met all capital adequacy
requirements to which it was subject.
As of December 31, 2022 and 2021, 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 common equity Tier 1 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 tables present actual and required capital ratios for the the Bank under the Basel III Capital Rules. The
minimum required capital amounts presented include the minimum required capital levels as of December 31, 2022 and 2021
based on the phase-in provisions of the Basel III Capital Rules as of January 1, 2019 when the Basel III Capital Rules were
fully phased-in. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations,
as amended to reflect the changes under the Basel III Capital Rules.
83
Actual
Amount
Ratio
Minimum Capital
Required – Basel III
Fully Phased-In
Ratio
Amount
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
Ratio
Amount
$ 281,288
10.85 % $ 220,269
8.50 %
366,243
281,288
14.13
9.12
272,096
123,428
10.50
4.00
N/A
N/A
N/A
N/A
N/A
N/A
$ 321,245
321,245
352,187
12.43 % $ 180,892
219,654
12.43
271,337
13.63
7.00 % $ 167,971
206,733
8.50
258,417
10.50
6.50 %
8.00
10.00
321,245
10.43
123,150
4.00
153,937
5.00
Actual
Amount
Ratio
Minimum Capital
Required – Basel III
Fully Phased-In
Ratio
Amount
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
Ratio
Amount
(dollars in thousands)
December 31, 2022
Company:
Tier 1 risk-based capital
Total risk-based capital
Tier 1 leverage capital
Bank:
Common equity Tier 1 capital
Tier 1 risk-based capital
Total risk-based capital
Tier 1 leverage capital
(dollars in thousands)
December 31, 2021
Bank:
Common equity Tier 1 capital
$ 280,788
14.66 % $ 134,089
7.00 % $ 124,511
6.50 %
Tier 1 risk-based capital
Total risk-based capital
Tier 1 leverage capital
280,788
303,692
280,788
14.66
15.85
162,822
8.50
153,245
201,134
10.50
191,556
9.77
114,932
4.00
143,666
8.00
10.00
5.00
18. Benefit Plans
401(k) 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. The Company’s matching contributions are equal to 100% of the employee’s
contributions up to 2%, plus 50% of the employees’ contributions over 2% but not over 6% of the employee’s pay. For the
years ended December 31, 2022, 2021 and 2020, the Company made contributions of $1,255,000, $974,000 and $964,000,
respectively, in connection with the plan, which is included in compensation and benefits expense in the accompanying
Consolidated 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 ESOP 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 differs 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
84
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 $1,096,000, $1,052,000 and $726,000 for the years ended December 31, 2022,
2021 and 2020, respectively. The fair value of the unearned ESOP shares, using the closing quoted market price per share as
of year-end, was approximately $8,219,000 and $10,005,000 as of December 31, 2022 and 2021, respectively. A summary of
the ESOP share allocation as of December 31, 2022 and 2021 follows.
Shares allocated, beginning of year
Shares allocated during the year
Shares distributed during the year
Allocated shares held by ESOP trust as of year end
Unallocated shares
Total ESOP shares
Salary Continuation Agreements
2022
336,226
35,708
(10,739)
361,195
205,318
566,513
2021
318,021
35,708
(17,503)
336,226
241,026
577,252
As a supplement to its 401(k) retirement plan, the Bank has entered into nonqualified salary continuation agreements with
four executive officers of the Bank. The Bank's 2007 salary continuation agreement with its Chief Executive Officer (“CEO”)
provides that the executive will receive a stated annual benefit for a period of ten years upon retirement from the Bank.
Benefits under the 2007 agreement vested over ten years, with 100% of this benefit having vested in 2017. Also, effective
May 20, 2019, the Bank entered into a new salary continuation agreement with its CEO, which will provide the CEO with an
additional stated annual benefit for a period of ten years upon his retirement after attaining age 65. The CEO is 100% vested
in his normal retirement benefit under the 2019 agreement. In the event of early retirement, the Bank will pay the CEO his
vested benefits, in a lump sum on the first day of the month following the separation from service.
On May 23, 2022, the Bank amended the salary continuation agreement with its Chief Risk Officer ("CRO"). The agreement
provides that the executive will be entitled to a stated annual benefit, distributed monthly, for a period of ten years upon
retirement from the Bank after attaining age 65. Benefits under the agreement became fully vested in August 2019. In the
event of early retirement, the Bank shall pay the executive his vested benefits in 120 equal monthly installments upon
attaining age 65. In the event of a separation from service within 24 months following a change in control of the Bank prior to
reaching age 65, the Bank shall pay the executive officer an amount equal to the greater of (i) his accrued benefits as of the
end of the year immediately preceding the separation from service or (ii) a stated amount. This amount will be paid in a lump
sum on the first day of the month following the separation from service.
On May 23, 2022 the Bank also amended the salary continuation agreement with its Chief Operations Officer ("COO"). The
agreement provides that the COO will be entitled to a stated annual benefit, distributed monthly, for a period of ten years
upon retirement from the Bank after attaining age 65. The retirement benefits vest over a period of ten years or until the
executive officer reaches age 65. In the event of early retirement, the Bank will pay the executive officer his vested benefits
in a lump sum on the first day of the month following the separation from service. In the event of a separation from service
within 24 months following a change in control of the Bank prior to reaching age 65, the Bank shall pay the executive officer
an amount equal to the greater of (i) his accrued benefits as of the end of the year immediately preceding the separation from
service or (ii) a stated amount. This amount will be paid in a lump sum on the first day of the month following the separation
from service.
On May 23, 2022, the Bank entered into a salary continuation agreement with its Chief Financial Officer ("CFO"). The
agreement provides that the CFO will be entitled to a stated annual benefit, distributed monthly, for a period of ten years
upon retirement from the Bank after attaining age 65. The retirement benefits vest over a period of ten years or until the
executive officer reaches age 65. In the event of early retirement, the Bank will pay the executive officer his vested benefits
in a lump sum on the first day of the month following the separation from service. If the executive has a separation from
service within 24 months following a change in control of the Bank prior to reaching age 65, the Bank shall pay the executive
officer an amount equal to the greater of (i) his accrued benefits as of the end of the year immediately preceding the
separation from service or (ii) a stated amount. This amount will be paid in a lump sum on the first day of the month
following the separation from service.
Britton & Koontz Capital Corporation had two salary continuation agreements funded in the amount of $465,000 at the time
of acquisition in February 2014. Former executives of Britton & Koontz Capital Corporation or their beneficiaries are being
paid over 15 years from the time of acquisition in February 2014. Louisiana Bancorp, Inc. also had two salary continuation
85
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, Inc. or their beneficiary within 10 years subsequent to the time of the acquisition in
September 2015. SMB had a salary continuation agreement for an executive officer related to its acquisition of American
Bank in 2007. The former executive of American Bank or his beneficiaries are being paid $358,000 over 14 years from the
time of the SMB acquisition in December 2017.
The Company had an outstanding liability totaling $3,220,000 and $3,229,000 as of December 31, 2022 and 2021,
respectively, in connection with the agreements, which is included in accrued interest payable and other liabilities in the
accompanying statements of financial condition.
19. 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. The
SOP and RRP expired February 2019. Expiration of the SOP and RRP did not affect any unvested options or awards granted.
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. On May 5, 2021, the Company’s shareholders approved the 2021 Equity Incentive
Plan (the “2021 Plan”). The 2021 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 2021 Plan is 435,000. 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 has issued 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, 2022, options to acquire an
aggregate of 181,383 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 weighted-average assumptions were used for option
awards issued during the years ended December 31:
Expected dividends
Expected volatility
Risk-free interest rate
Expected term (in years)
2022
2.24%
34.34%
1.8%
6.5
2021
2.50%
33.77%
1.2%
6.5
2020
3.95%
24.65%
7.0%
6.5
As of December 31, 2022, there was $358,000 of unrecognized compensation cost related to stock options which is expected
to be recognized over a period of 2.9 years.
For the years ended December 31, 2022, 2021 and 2020, the Company recognized $187,000, $220,000 and $216,000,
respectively, in compensation cost related to stock options, which is included in compensation and benefits expense in the
accompanying consolidated statements of income.
86
The following table represents stock option activity for the years indicated.
Options
Outstanding as of December 31, 2019
Granted
Exercised
Forfeited
Outstanding as of December 31, 2020
Granted
Exercised
Forfeited
Outstanding as of December 31, 2021
Granted
Exercised
Forfeited
Outstanding as of December 31, 2022
Exercisable as of December 31, 2020
Exercisable as of December 31, 2021
Exercisable as of December 31, 2022
Restricted Stock Plans
Weighted-
Average
Exercise
Price
Number of
Options
Weighted-
Average
Grant Date
Fair Value
6.57
3.03
5.30
5.58
6.02
9.58
5.20
6.98
6.69
11.72
5.85
10.43
6.95
6.16
6.28
6.64
30.33 $
22.34
21.33
29.47
29.17 $
36.84
24.72
34.35
30.73 $
41.15
22.00
45.12
32.64 $
27.07 $
28.66 $
32.03 $
Weighted-
Average
Remaining
Contractual
Term
(Years)
6.2
6.0
5.7
4.8
4.5
4.7
180,585 $
35,850
(4,625)
(7,270)
204,540 $
37,970
(19,941)
(8,712)
213,857 $
3,800
(35,794)
(480)
181,383 $
113,988 $
125,601 $
116,239 $
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, 2022, the cost of such shares held by the RRP totaled $7,000, 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, 2014 and the 2021 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 5-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, 2022, unearned share-based compensation associated with these awards totaled
$2,088,000.
For the years ended December 31, 2022, 2021 and 2020, the Company recognized $625,000, $549,000 and $573,000,
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.
87
The following table represents unvested restricted stock activity for the years indicated.
Restricted Stock
Balance, December 31, 2019
Granted
Forfeited
Released
Balance, December 31, 2020
Granted
Forfeited
Released
Balance, December 31, 2021
Granted
Forfeited
Released
Balance, December 31, 2022
20. Earnings Per Share
Earnings per common share was computed based on the following:
(dollars in thousands, except per share data)
Numerator:
Income applicable to common shares
Denominator:
Weighted average common shares outstanding
Effect of dilutive securities:
Restricted stock
Stock options
Weighted average common shares outstanding - assuming dilution
Earnings per common share
Earnings per common share - assuming dilution
Number of
Shares
Weighted-
Average
Grant Date
Fair Value
35.73
22.19
33.06
32.77
32.04
36.90
32.76
32.95
33.93
35.32
—
34.67
34.58
51,478 $
17,305
(5,183)
(19,247)
44,353 $
21,365
(3,937)
(15,574)
46,207 $
42,495
—
(14,640)
74,062 $
Years Ended December 31,
2021
2022
2020
$
34,072 $
48,621 $
24,765
8,139
8,379
8,674
13
42
8,194
12
37
8,428
$
$
4.19 $
4.16 $
5.80 $
5.77 $
9
21
8,704
2.86
2.85
Options on 77,655, 97,836 and 134,714 shares of common stock were not included in computing diluted earnings per share
for the years ended December 31, 2022, 2021 and 2020, respectively, because the effect of these shares was anti-dilutive.
88
21. 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 2022 and 2021 follows.
(dollars in thousands)
Balance, beginning of year
New loans
Change in related parties, net
Repayments, net
Balance, end of year
$
2022
2021
9,727 $
2,760
—
(1,770)
8,355
1,954
2,202
(2,784)
$
10,717 $
9,727
None of the related party loans were identified as impaired or exceeded 5% of shareholders’ equity for the years ended 2022
or 2021.
Related party deposits totaled $7,778,000 and $11,794,000 as of December 31, 2022 and 2021, respectively.
22. Fair Value Measurements and 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 quarterly.
Recurring Basis
Investment Securities Available for Sale
Fair values of investment securities available for sale are primarily measured using information from a third-party pricing
service. This pricing service provides pricing information by utilizing 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.
89
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, 2022, management did not make adjustments to prices provided by the third-party pricing
service as a result of illiquid or inactive markets.
Derivative Assets and Liabilities
The fair value of these derivative financial instruments is obtained from a third-party pricing service that uses widely
accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. The
analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based
inputs, including interest rate curves and implied volatilities. The fair values of interest rate swaps are determined using the
market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected
variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest
rates (forward curves) derived from observable market interest rate curves. The Company has determined that its derivative
valuations are classified in Level 2 of the fair value hierarchy.
The following tables present the balances of assets and liabilities measured on a recurring basis as of December 31, 2022 and
2021 aggregated by the level in the fair value hierarchy in which these measurements fall.
(dollars in thousands)
Assets
Available for sale securities:
U.S. agency mortgage-backed
Collateralized mortgage obligations
Municipal bonds
U.S. government agency
Corporate bonds
Total available for sale securities
Derivative assets(1)
Total
Liabilities
Derivative liabilities(1)
December 31,
2022
Level 1
Level 2
Level 3
$
316,832 $
— $ 316,832 $
86,345
57,625
19,333
—
—
—
86,345
57,625
19,333
6,383
486,518 $
—
— $ 486,518 $
6,383
5,144 $
— $
5,144 $
491,662 $
— $ 491,662 $
—
—
—
—
—
—
—
—
9 $
— $
9 $
—
$
$
$
$
90
(dollars in thousands)
Assets
Available for sale securities:
U.S. agency mortgage-backed
Collateralized mortgage obligations
Municipal bonds
U.S. government agency
Corporate bonds
Total available for sale securities
Derivative assets(1)
Total
Liabilities
Derivative liabilities(1)
(1)
For more information, refer to Note 14.
Nonrecurring Basis
December 31,
2021
Level 1
Level 2
Level 3
$
$
$
$
$
233,773 $
31,912
— $ 233,773 $
—
31,912
50,719
5,614
—
—
50,719
5,614
5,614
327,632 $
—
— $ 327,632 $
5,614
1,589 $
329,221 $
1,589 $
— $
— $ 329,221 $
—
—
—
—
—
—
—
—
43 $
— $
43 $
—
The Company records loans individually evaluated for impairment at fair value on a nonrecurring basis. 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 third parties of the collateral less any prior liens and when there is no
observable market price.
Foreclosed assets and ORE are also recorded at fair value on a nonrecurring basis. Foreclosed assets are initially recorded at
fair value less estimated costs to sell. ORE is recorded at the lower of its net book value or fair value at the date of transfer to
ORE. The fair value of foreclosed assets and ORE is based on property appraisals and an analysis of similar properties
available. As such, the Company classifies foreclosed and ORE assets as Level 3 assets.
The Company has segregated all financial assets 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 tables below.
(dollars in thousands)
Assets
Fair Value Measurements Using
December 31,
2022
Level 1
Level 2
Level 3
Loans individually evaluated for impairment
Foreclosed assets and ORE
Total
$
$
4,312 $
461
4,773 $
— $
—
— $
— $
—
— $
4,312
461
4,773
(dollars in thousands)
Assets
Fair Value Measurements Using
December 31,
2021
Level 1
Level 2
Level 3
Loans individually evaluated for impairment
Foreclosed assets and ORE
Total
$
$
3,945 $
1,189
5,134 $
— $
—
— $
— $
—
— $
3,945
1,189
5,134
91
The following tables show significant unobservable inputs used in the fair value measurement of Level 3 assets.
(dollars in thousands)
As of December 31, 2022
Loans individually evaluated
for impairment
Foreclosed assets and ORE
Fair Value
Valuation Technique
Unobservable Inputs
$
$
4,312 Third party appraisals and
discounted cash flows
461
Third party appraisals,
sales contracts, broker
price opinions
Collateral values, market
discounts and estimated
costs to sell
Collateral values, market
discounts and estimated
costs to sell
(dollars in thousands)
As of December 31, 2021
Fair Value
Valuation Technique
Unobservable Inputs
Loans individually evaluated
for impairment
$
3,945 Third party appraisals and
discounted cash flows
Collateral values, market
discounts and estimated
costs to sell
Range of
Discounts
Weighted
Average
Discount
0% - 89%
14 %
6% - 31%
16 %
Range of
Discounts
Weighted
Average
Discount
0% - 100%
15 %
Foreclosed assets and ORE
$
1,189
Third party appraisals,
sales contracts, broker
price opinions
Collateral values, market
discounts and estimated
costs to sell
6% - 16%
12 %
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 approximates their fair value.
The fair value of loans is 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 BOLI approximates its fair value.
The fair value of customer deposits, excluding certificates of deposit, 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 fair value of subordinated debt is estimated based on current market rates on similar debt in the market.
92
•
•
The fair value of other borrowings and FHLB advances is estimated by discounting the future cash flows using the
rates currently offered for borrowings of similar maturities.
The fair value of derivative assets and liabilities are obtained from a third-party pricing service that uses the market
standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected
variable cash payments (or receipts).
The fair value of off-balance sheet financial instruments as of December 31, 2022 and 2021 was immaterial.
(dollars in thousands)
Financial Assets
Cash and cash equivalents
Interest-bearing deposits in banks
Investment securities available for sale
Investment securities held to maturity
Mortgage loans held for sale
Loans, net
Cash surrender value of BOLI
Derivative assets(1)
Financial Liabilities
Deposits
Other borrowings
Subordinated debt, net of issuance cost
Short-term FHLB advances
Long-term FHLB advances
Derivative liabilities(1)
(dollars in thousands)
Financial Assets
Cash and cash equivalents
Interest-bearing deposits in banks
Investment securities available for sale
Investment securities held to maturity
Mortgage loans held for sale
Loans, net
Cash surrender value of BOLI
Derivative assets(1)
Financial Liabilities
Deposits
Other borrowings
Long-term FHLB advances
Derivative liabilities(1)
Fair Value Measurements at December 31, 2022
Carrying
Amount
Total
Level 1
Level 2
Level 3
$
87,401 $
349
486,518
1,075
98
2,401,451
46,276
87,401 $
349
486,518
1,072
98
2,326,104
46,276
— $
—
486,518
1,072
98
2,321,792
87,401 $
349
—
—
—
—
46,276
—
5,144
5,144
—
5,144
$ 2,633,181 $ 2,620,577 $ 2,297,736 $ 322,841 $
5,539
54,013
155,000
21,213
9
5,388
51,287
155,000
20,019
9
—
—
155,000
—
—
5,388
51,287
—
20,019
9
—
—
—
—
—
4,312
—
—
—
—
—
—
—
—
Fair value Measurements at December 31, 2021
Carrying
Amount
Total
Level 1
Level 2
Level 3
$ 601,443 $ 601,443 $ 601,443 $
349
349
327,632
327,632
2,102
1,104
2,132
1,104
349
—
—
—
— $
—
327,632
2,132
1,104
1,819,004
40,361
1,589
1,834,023
40,361
1,589
—
40,361
—
1,830,078
—
1,589
$ 2,535,849 $ 2,533,951 $ 2,216,510 $ 317,441 $
5,539
26,046
43
5,860
26,263
43
—
—
—
5,860
26,263
43
—
—
—
—
—
3,945
—
—
—
—
—
—
(1) Derivative assets and liabilities are reported at fair value in accrued interest receivable and other assets and accrued interest
payable and other liabilities, respectively, in the Consolidated Statements of Financial Condition.
93
23. 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.
2022
2021
$
6,443 $
2,043
343,481
6,424
$ 384,003 $ 351,948
369,911
7,649
$
54,013 $
36
54,049 $
329,954
—
45
45
351,903
$ 384,003 $ 351,948
$
2022
2021
2020
$
— $
— $
—
74,576
74,576
15,000
15,000
18,200
18,200
289
289
1,710
1,710
183
183
—
—
234
234
—
—
72,577
420
72,997
(38,925)
34,072 $
14,817
38
14,855
33,766
48,621 $
17,966
49
18,015
6,750
24,765
$
Condensed Balance Sheets
December 31, 2022 and 2021
(dollars in thousands)
Assets
Cash in bank
Investment in subsidiary
Other assets
Total assets
Liabilities
Subordinated debt, net of issuance cost
Other liabilities
Total liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
Condensed Statements of Income
For the Years Ended December 31, 2022, 2021 and 2020
(dollars in thousands)
Operating income
Interest income
Dividend from subsidiary
Total operating income
Operating expenses
Other expenses
Total operating expenses
Interest expense
Subordinated debt expense
Total interest expense
Income before income tax benefit and equity in undistributed earnings of
subsidiary
Income tax benefit
Income before equity in undistributed earnings of subsidiary
Undistributed earnings of subsidiary
Net income
94
Condensed Statements of Cash Flows
For the Years Ended December 31, 2022, 2021 and 2020
(dollars in thousands)
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Non-cash compensation
Amortization of subordinated debt issuance cost
Increase in accrued interest receivable and other assets
Undistributed earnings in subsidiary
(Decrease) increase in accrued expenses and other liabilities
Net cash provided by operating activities
Cash flows from investing activities
Net cash paid in acquisitions
Investment in subsidiaries
Net cash used in investing activities
Cash flows from financing activities
Proceeds from exercise of stock options
Proceeds from issuance of subordinated debt, net of issuance cost
Payment of dividends on common stock
Issuance of stock under incentive plan
Purchase of Company’s common stock
Net cash provided by (used in) financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
2022
2021
2020
$
34,072 $
48,621 $
24,765
1,629
120
1,585
—
(1,225)
38,925
(1,058)
(33,766)
(9)
(3)
73,512
15,379
1,261
—
(753)
(6,750)
24
18,547
(64,593)
(40,000)
(104,593)
375
53,892
—
—
—
80
—
—
—
—
30
—
(7,777)
(7,867)
(7,903)
324
303
(13)
(11,333)
(8,900)
(14,013)
35,481
(16,384)
(21,899)
4,400
2,043
(1,005)
(3,352)
3,048
6,400
3,048
$
6,443 $
2,043 $
24. Consolidated Quarterly Results of Operations (unaudited)
During the fourth quarter of 2020, we revised our estimate of losses on unfunded lending commitments. As a result, certain
reclassifications have been made to prior period results to allow for comparability across quarterly periods during 2020. Refer
to Note 2 for more information.
95
(dollars in thousands, except per share data)
Year Ended December 31, 2022
Total interest income
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Noninterest income
Noninterest expense
Income before income taxes
Income tax expense
Net income
Earnings per share – basic
Earnings per share – diluted
(dollars in thousands, except per share data)
Year Ended December 31, 2021
Total interest income
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Noninterest income
Noninterest expense
Income before income taxes
Income tax expense
Net income
Earnings per share – basic
Earnings per share – diluted
(dollars in thousands, except per share data)
Year Ended December 31, 2020
Total interest income
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Noninterest income
Noninterest expense
Income before income taxes
Income tax expense
Net income
Earnings per share – basic
Earnings per share – diluted
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
24,566 $
30,505 $
34,264 $
36,595
1,055
23,511
3,215
20,296
3,386
18,240
5,442
1,264
29,241
591
28,650
3,686
21,765
10,571
2,287
31,977
1,696
30,281
3,474
20,723
13,032
1,041
4,401 $
0.53 $
0.53 $
2,110
8,461 $
2,598
10,434 $
1.04 $
1.03 $
1.29 $
1.28 $
$
$
$
3,309
33,286
1,987
31,299
3,339
21,181
13,457
2,681
10,776
1.33
1.32
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
26,928 $
25,763 $
28,423 $
25,788
1,833
25,095
1,653
24,110
1,289
27,134
1,138
24,650
(1,703)
(3,425)
(2,385)
(2,648)
26,798
4,060
15,966
14,892
2,964
27,535
3,294
16,568
14,261
2,865
29,519
5,383
16,431
18,471
3,412
27,298
3,534
18,017
12,815
2,577
$
$
$
11,928 $
11,396 $
15,059 $
10,238
1.41 $
1.41 $
1.35 $
1.34 $
1.80 $
1.79 $
1.24
1.23
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
25,249 $
25,670 $
25,842 $
3,926
21,323
6,257
15,066
3,358
15,416
3,008
526
3,253
22,417
6,471
15,946
3,103
15,453
3,596
675
2,570
23,272
—
23,272
3,794
16,116
10,950
2,168
27,368
2,169
25,199
—
25,199
4,050
15,996
13,253
2,673
$
$
$
2,482 $
2,921 $
8,782 $
10,580
0.27 $
0.27 $
0.33 $
0.33 $
1.01 $
1.01 $
1.25
1.24
96
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, 2022. 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.
On March 26, 2022, the merger of Friendswood Capital Corporation (“Friendswood”) with the Company was completed with
Home Bancorp, Inc. being the surviving entity. As permitted by guidance issued by the SEC, companies are allowed to
exclude certain acquisitions from their assessment of internal control over financial reporting during the first year following
an acquisition. Accordingly, Management’s Report on Internal Control over Financial Reporting excludes Friendswood from
management’s assessment of the Company’s internal control over financial reporting as of December 31, 2022. The
Friendswood acquisition represented approximately 12% of total consolidated assets at December 31, 2022 and
approximately 7% of our total consolidated revenue for the year ended December 31, 2022.
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, 2022
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, 2022. Our
independent registered public accountants have issued an audit report on the Company’s internal control over financial
reporting. This report appears at the beginning of Item 8. Financial Statements and Supplementary Data.
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 2022 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
Item 9B.
Other Information.
Not applicable.
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
97
Item 10.
Directors, Executive Officers and Corporate Governance.
PART III
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 2023 Annual Meeting
of Shareholders expected to be held in May 2023 (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, 2022 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, the 2014 Equity Incentive Plan and the 2021 Equity Incentive Plan, each
of which was approved by our shareholders.
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)
255,445 (1) $
32.64 (1)
—
255,445
$
—
32.64
402,502
—
402,502
Plan Category
Equity compensation plans approved by security
holders
Equity compensation plans not approved by
security holders
Total
(1)
Includes 610 shares subject to restricted stock grants and 73,962 restricted share units which were not vested as of December 31,
2022. 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.
98
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 (Wipfli LLP, Atlanta, Georgia, PCAOB Firm ID
344)
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.
3.1
3.2
4.1
4.2
4.3
4.4
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.1
Articles of Incorporation of Home Bancorp, Inc.
Amended and Restated Bylaws of Home Bancorp, Inc.
Description
Form of Stock Certificate of Home Bancorp, Inc.
Description of the Registrant's Securities Registered Pursuant to Section 12 of the Securities
Exchange Act of 1934
Indenture, dated June 30, 2022, by and between Home Bancorp, Inc. and UMB Bank, National
Association, as trustee.
Forms of 5.75% Fixed-to-Floating Rate Definitive Subordinated Note due 2032
2005 Directors’ Deferral Plan*
Amended and Restated Employment Agreement by and between Home Bank and John W.
Bordelon*
Amended and Restated Employment Agreement by and between Home Bancorp, Inc. and John W.
Bordelon*
Amended and Restated Employment Agreement by and between Home Bank and Darren E. Guidry*
Amended and Restated Employment Agreement between Home Bank, N.A. and Jason P. Freyou*
Home Bancorp, Inc. 2009 Stock Option Plan*
Home Bancorp, Inc. 2009 Recognition and Retention Plan and Trust Agreement*
Home Bancorp, Inc. 2014 Equity Incentive Plan*
Home Bancorp, Inc. 2021 Equity Incentive Plan*
Amended and Restated Salary Continuation Agreement by and between Home Bank and John W.
Bordelon*
10.11
Amended and Restated Salary Continuation Agreement by and between Home Bank and Darren E.
Guidry*
10.12
Salary Continuation Agreement by and between Home Bank and John W. Bordelon*
Location
(1)
Filed
herewith
(1)
(2)
(3)
(4)
(5)
(6)
(6)
(6)
(6)
(7)
(8)
(9)
(11)
(6)
(6)
(6)
99
No.
10.13
10.14
10.15
10.16
10.17
10.18
10.19
Description
Salary Continuation Agreement by and between Home Bank and Jason P. Freyou*
Amendment to the Amended and Restated Employment Agreement between Home Bancorp, Inc.
and John W. Bordelon*
Amendment to the Amended and Restated Employment Agreement between Home Bank, N.A. and
John W. Bordelon*
Amendment to the Amended and Restated Employment Agreement between Home Bank, N.A. and
Jason P. Freyou*
Amendment to the Amended and Restated Employment Agreement between Home Bank, N.A. and
Darren E. Guidry*
Employment Agreement between Home Bank, N.A. and David T. Kirkley*
Amendment to the Employment Agreement between Home Bank, N.A. and David T. Kirkley*
10.20
Amended Continuation Agreement by and between Home Bank and Jason P. Freyou*
10.21
Amendment to the Amended and Restated Salary Continuation Agreement between Home Bank,
N.A. and Darren E. Guidry*
10.22
Salary Continuation Agreement by and between Home Bank and David T. Kirkley*
23.1
Consent of Wipfli LLP
31.1
Rule 13(a)-14(a) Certification of the Chief Executive Officer
31.2
Rule 13(a)-14(a) Certification of the Chief Financial Officer
32.0
Section 1350 Certification
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.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.
Location
(6)
(10)
(10)
(10)
(10)
(10)
(10)
(13)
(13)
(13)
Filed
herewith
Filed
herewith
Filed
herewith
Filed
herewith
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Incorporated by reference from the exhibit included in Home Bancorp’s registration statement on Form S-1, filed June 6, 2008
(SEC File No. 333-151492).
Incorporated by reference from the exhibit 4.2 included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2019 and filed March 12, 2020 (SEC File No. 001-34190).
Incorporated by reference from Exhibit 4.1 included in Home Bancorp’s Current Report on Form 8-K, dated as of June 30, 2022
and filed July 1, 2022 (SEC File No. 001-34190).
Incorporated by reference from Exhibits 4.2 and 4.3 included in Home Bancorp’s registration statement on Form S-4 dated as of
August 12, 2022 and filed August 12, 2022 (SEC File No. 333-266819).
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).
Incorporated by reference from the exhibit included in the Company’s Current Report on Form 8-K, dated as of May 20, 2019 and
filed May 24, 2019 (SEC File No. 001-34190).
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).
100
(8)
(9)
(10)
(11)
(12)
(13)
Incorporated by reference from Appendix B to Home Bancorp’s definitive proxy statement filed April 1, 2009 (SEC File
No. 001-34190).
Incorporated by reference from Appendix A to Home Bancorp’s definitive proxy statement filed April 3, 2014 (SEC File No.
001-34190)
Incorporated by reference from the exhibit included in the Company's Current Report on Form 8-K, dated as of May 20, 2022, and
filed May 20, 2022 (SEC File No. 001-34190).
Incorporated by reference from Appendix A to Home Bancorp’s definitive proxy statement filed March 26, 2021 (SEC File No.
001-34190)
Incorporated by reference from the exhibit included in the Company’s Current Report on Form 8-K, dated as of May 20, 2021 and
filed May 20, 2021 (SEC File No. 001-34190)
Incorporated by reference from the exhibit included in the Company’s Current Report on Form 8-K, dated as of May 25, 2025 and
filed May 25, 2025 (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.
Item 16.
Form 10-K Summary
Not applicable.
101
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.
SIGNATURES
March 9, 2023
HOME BANCORP, INC.
By:
/s/ John W. Bordelon
John W. Bordelon
Chairman of the Board, 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
John W. Bordelon
Chairman of the Board, President and Chief Executive Officer
Director
Director, Chairman of Audit Committee
March 9, 2023
/s/ John W. Bordelon
John W. Bordelon
/s/ J. Scott Ballard
J. Scott Ballard
/s/ Paul J. Blanchet, III
Paul J. Blanchet, III
/s/ Daniel G. Guidry
Daniel G. Guidry
/s/ John A. Hendry
John A. Hendry
/s/ Chris P. Rader
Chris P. Rader
/s/ Ann F. Trappey
Ann F. Trappey
Director
Director
Director
Director
Date
March 9, 2023
March 9, 2023
March 9, 2023
March 9, 2023
March 9, 2023
March 9, 2023
March 9, 2023
/s/ Donald W. Washington
Director
Donald W. Washington
/s/ David T. Kirkley
David T. Kirkley
/s/ Mary H. Hopkins
Mary H. Hopkins
Senior Executive Vice President and Chief Financial Officer
March 9, 2023
Home Bank Senior Vice President and Director of Financial Management
March 9, 2023
102
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Together, we serve
Our Houston team showed up to support Kidz Harbor.
Shareholder Information
Annual Meeting
Shareholders, investors, and analysts
interested in corporate information may
contact David T. Kirkley, Chief Financial
The annual shareholders meeting will be
held on Friday, May 12 at 9:00 a.m.
at Petroleum Club of Lafayette.
David T. Kirkley, CFO
Home Bancorp, Inc.
P.O. Box 81459
Lafayette, LA 70598-1459
337.237.1960
investor@home24bank.com
Registrar Agent
Computershare Shareholder Services
462 South 4th Street, Suite 1600
Louisville, KY 40202
800.368.5948
computershare.com
Good for business. Good for life.
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503 Kaliste Saloom Road | Lafayette, LA 70508
337.237.1960
Mailing Address
P.O. Box 81459 | Lafayette, LA 70508
home24bank.com
Information about Home Bancorp, Inc. and Home Bank may be obtained on our website at home24bank.com.
Investors interested in stock quotes, news releases, SEC filings and other corporate information may click on the
Investor Relations link on our website.
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