Company: HBCP
Filing Date: 2025-03-12
Form Type: 10-K
Source: 0001436425-25-000012
Chunk: 2

Company: HOME BANCORP, INC.
Filing Date: 2025-03-12
Form: 10-K
Item: Item 8
Chunk 2
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 financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter 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 matter, providing separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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 $32.9 million of which $32.5 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 management’s selection of qualitative factor adjustments, including reasonable and supportable forecasts, used in the calculation of general reserves as a critical audit matter. Management’s selection of qualitative factor adjustments, including reasonable and supportable forecasts, which are used to adjust the quantitative historical losses (both upwards and downwards), are highly subjective and could have a significant impact on the allowance for loan losses. Auditing these complex judgments and assumptions involved especially challenging auditor judgment due to the nature and extent of audit evidence and effort required to address these matters, including the extent of specialized skill and knowledge needed.

The primary audit procedures we performed