UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
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| [X] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended June 30, 20182020
OR
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| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period From __________________ To __________________
Commission File Number 1-35593
HOMETRUST BANCSHARES, INC.
(Exact Name of Registrant as Specified in its Charter) |
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| Maryland | | 45-5055422 |
| (State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) |
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| 10 Woodfin Street, Asheville, North Carolina | | 28801 |
| (Address of Principal Executive Offices) | | (Zip Code) |
Registrant’s Telephone Number, Including Area Code: (828) 259-3939
Securities Registered Pursuant to Section 12(b) of the Act: |
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| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered |
| Common Stock, par value $0.01 per share | HTBI | The NASDAQ Stock Market LLC |
Securities Registered Pursuant to Section 12(g) of the Act:
Preferred Share Purchase Rights
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
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 [X]
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 [X] No [ ].
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
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,” "emerging growth company" in Rule 12b-2 of the Exchange Act.
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| Large Accelerated Filer [ ] | | Accelerated Filer [X] |
Non-Accelerated Filer [ ] (Do not check if a smaller reporting company) | | Smaller reporting company [ ] |
| Emerging growth company [ ] | | |
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| If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | [ ] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X].
As of September 10, 2018,8, 2020, there were issued and outstanding 19,015,56817,021,357 shares of the Registrant’s Common Stock. The aggregate market value of the voting stock held by non-affiliates of the Registrant computed by reference to the closing price of such stock as of December 31, 2017,2019, was $472.7$457.8 million. (The exclusion from such amount of the market value of the shares owned by any person shall not be deemed an admission by the Registrant that such person is an affiliate of the Registrant).
Documents Incorporated By Reference
Part III of Form 10-K - Portions of the Proxy Statement for the 2020 Annual Meeting of Stockholder.
HOMETRUST BANCSHARES, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 30, 20182020
TABLE OF CONTENTS
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| PART I |
| Item 1 | | |
| Item 1A. | | |
| Item 1B. | | |
| Item 2 | | |
| Item 3 | | |
| Item 4 | | |
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| PART II |
| Item 5 | | |
| Item 6 | | |
| Item 7 | | |
| Item 7A. | | |
| Item 8 | | |
| Item 9 | | |
| Item 9A. | | |
| Item 9B. | | |
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| PART III |
| Item 10 | | |
| Item 11 | | |
| Item 12 | | |
| Item 13 | | |
| Item 14 | | |
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| PART IV |
| Item 15 | | |
| Item 16 | | |
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Glossary of Defined Terms
The following items may be used throughout this Form 10-K, including the Notes to Consolidated Financial Statements in Item 8 and Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this Form 10-K.
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| Term | | Definition |
| AFS | | Available-For-Sale |
| AICPA | | American Institute of Certified Public Accountants |
| AMT | | Alternative Minimum Tax |
| ASC | | Accounting Standard Codification |
| ASU | | Accounting Standard Update |
| BHCA | | Bank Holding Company Act |
| BOLI | | Bank Owned Life Insurance |
| CARES Act | | Coronavirus Aid, Relief, and Economic Security Act of 2020 |
| CD | | Certificates of Deposit |
| CECL | | Current Expected Credit Loss |
| CET1 | | Common Equity Tier 1 |
| CFPB | | Consumer Financial Protection Bureau |
| CBLR | | Community Bank Leverage Ratio |
| CRA | | Community Reinvestment Act |
| COVID-19 | | Coronavirus Disease 2019 |
| CPI | | Consumer Price Index |
| DTA | | Deferred Tax Asset |
| Dodd-Frank Act | | Dodd-Frank Wall Street Reform and Consumer Protection Act |
| EPS | | Earnings Per Share |
| ESOP | | Employee Stock Ownership Plan |
| Exchange Act | | Securities Exchange Act of 1934, as amended |
| FASB | | Financial Accounting Standards Board |
| FDIC | | Federal Deposit Insurance Corporation |
| Federal Reserve | | Board of Governors of the Federal Reserve System |
| FHFA | | Federal Housing Finance Agency |
| FHLB or FHLB of Atlanta | | Federal Home Loan Bank |
| FRB | | Federal Reserve Bank of Richmond |
| GAAP | | Generally Accepted Accounting Principles in the United States |
| GSE | | Government-Sponsored Enterprises |
| HELOC | | Home Equity Line of Credit |
| IRC | | Internal Revenue Code |
| KSOP | | HomeTrust Bank KSOP Plan |
| LIBOR | | London Interbank Offered Rate |
| LPO | | Loan Production Office |
| MBS | | Mortgage-Backed Security |
| MSA | | Metropolitan Statistical Area |
| NOL | | Net Operating Loss |
| NCCOB | | North Carolina Office of the Commissioner of Banks |
| OTTI | | Other Than Temporary Impairment |
| PCI | | Purchase Credit Impaired |
| PPP | | Paycheck Protection Program |
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| PVE | | Present Value of Equity |
| REO | | Real Estate Owned |
| ROA | | Return on Assets |
| ROE | | Return on Equity |
| ROU | | Right of Use |
| SAS | | Statement of Auditing Standards |
| SBA | | U.S. Small Business Administration |
| SBIC | | Small Business Investment Companies |
| SEC | | Securities and Exchange Commission |
| SOX Act | | Sarbanes-Oxley Act of 2002 |
| Tax Act | | Tax Cuts and Jobs Act |
| TDR | | Troubled Debt Restructuring |
| USDA B&I | | United States Department of Agriculture Business & Industry |
| WNCSC | | Western North Carolina Service Corporation |
Forward-Looking Statements
Certain matters in this Form 10-K constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our financial condition, results of operations, plans, objectives, future performance or business. Forward-looking statements are not statements of historical fact, are based on certain assumptions and are generally identified by use of the words “believes,” “expects,” “anticipates,” “estimates,” “forecasts,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook” or similar expressions or future or conditional verbs such as “may,” “will,” “should,” “would,” and “could.” Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions, and statements about future economic performance and projections of financial items. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from the results anticipated or implied by our forward-looking statements, including, but not limited to: the effect of the COVID-19 pandemic, including on the Company’ credit quality and business operations, as well as its impact on general economic and financial market conditions and other uncertainties resulting from the COVID-19 pandemic, such as the extent and duration of the impact on public health, the U.S. and global economies, and consumer and corporate customers, including economic activity, employment levels and market liquidity; the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write offs and changes in our allowance for loan losses and provision for loan losses that may be impacted by deterioration in the housing and commercial real estate markets; changes in general economic conditions, either nationally or in our market areas; changes in the levels of general interest rates, and the relative differences between short and long term interest rates, deposit interest rates, our net interest margin and funding sources; uncertainty regarding the future of the LIBOR, and the potential transition away from LIBOR toward new interest rate benchmarks; fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values in our market areas; decreases in the secondary market for the sale of loans that we originate; results of examinations of us by the Board of Governors of the Federal Reserve, System (“Federal Reserve”), the North Carolina Office of the Commissioner of Banks (“NCCOB”),NCCOB, or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our allowance for loan losses, write-down assets, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits, which could adversely affect our liquidity and earnings; legislative or regulatory changes that adversely affect our business including the effect of Dodd-Frank Wall Street Reform and Consumer Protection Act, (the "Dodd-Frank Act"), changes in laws or regulations, changes in regulatory policies and principles or the application or interpretation of laws and regulations by regulatory agencies and tax authorities, including changes in deferred tax asset and liability activity, or the interpretation of regulatory capital or other rules, including as a result of Basel III; our ability to attract and retain deposits; management's assumptions in determining the adequacy of the allowance for loan losses; our ability to control operating costs and expenses, especially costs associated with our operation as a public company; the use of estimates in determining fair value of certain assets, which estimates may prove to be incorrect and result in significant declines in valuation; difficulties in reducing risks associated with the loans on our balance sheet; staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our workforce and potential associated charges; disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on the third-party vendors who perform several of our critical processing functions; our ability to retain key members of our senior management team; costs and effects of litigation, including settlements and judgments; our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we may in the future acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; increased competitive pressures among financial services companies; changes in consumer spending, borrowing and savings habits; the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions; adverse changes in the securities markets; inability of key third-party providers to perform their obligations to us; changes in accounting principles, policies or guidelines and practices, as may be adopted by the financial institution regulatory agencies, the Public Company Accounting Oversight Board or the Financial Accounting Standards Board; and other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services;services including the CARES Act; and the other risks detailed from time to time in our filings with the Securities and Exchange Commission ("SEC"),SEC, including this report on Form 10-K.
Any of the forward-looking statements are based upon management’s beliefs and assumptions at the time they are made. We undertake no obligation to publicly update or revise any forward-looking statements included in this report or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this report might not occur and you should not put undue reliance on any forward-looking statements.
As used throughout this report, the terms “we”, “our”, “us”, “HomeTrust Bancshares” or the “Company” refer to HomeTrust Bancshares, Inc. and its consolidated subsidiaries, including HomeTrust Bank (“HomeTrust” or "Bank") unless the context indicates otherwise.
PART I
Item 1. Business
General
HomeTrust Bancshares, Inc., a Maryland corporation, was formed for the purpose of becoming the holding company for HomeTrust Bank in connection with HomeTrust Bank’s conversion from mutual to stock form, which was completed on July 10, 2012 (the “Conversion”). As a bank holding company and financial holding company, HomeTrust Bancshares, Inc. is regulated by the Federal Reserve. At June 30, 2018,2020, the Company had consolidated total assets of $3.3$3.7 billion, total deposits of $2.2$2.8 billion and stockholders’ equity of $409.2$408.3 million. The Company has not engaged in any significant activity other than holding the stock of the Bank. Accordingly, the information set forth in this Annual Report on Form 10-K (“Form 10-K”), including the audited consolidated financial statements and related data, relates primarily to the Bank and its subsidiary. As a North Carolina state-chartered bank, and member of the Federal Reserve System, the Bank's primary regulators are the NCCOB and the Federal Reserve. The Bank's deposits are federally insured up to applicable limits by the Federal Deposit Insurance Corporation ("FDIC").FDIC. The Bank is a member of the Federal Home Loan BankFHLB of Atlanta, (“FHLB” or “FHLB of Atlanta”), which is one of the 12 regional banks in the Federal Home Loan Bank System (“FHLB System”).System. Our headquarters is located in Asheville, North Carolina.
The Bank was originally formed in 1926. Between fiscal years 1996 and 2011, HomeTrust Bank's board of directors and executive management expanded the Bank beyond its historical Asheville market and created a unique partnership through mergers between six established banks and one de novo bank located in Tryon, Shelby, Eden, Lexington, Cherryville and Forest City, North Carolina, through which hometown community banks could combine their financial resources to achieve a shared vision.
Starting in 2013, we entered seven attractive markets through various acquisitions and new office openings, as well as expanded our product lines. New locations and marketsThese included:
BankGreenville Financial Corporation (“BankGreenville”) - one office in Greenville, South Carolina (acquired in July 2013)
Jefferson Bancshares, Inc. (“Jefferson”) - nine offices across East Tennessee (acquired in May 2014)
Commercial loan production office ("LPO")LPO in Roanoke, Virginia (opened in July 2014)
Bank of Commerce - one office in Charlotte, North Carolina (acquired in July 2014)
Ten Bank of America Branch Offices - nine in southwest Virginia, one in Eden, North Carolina (acquired in November 2014)
Commercial LPO in Raleigh, North Carolina (opened in November 2014) and later converted into full service branch (converted in April 2017)
United Financial of North Carolina, Inc. ("United Financial") - municipal lease company headquartered in Fletcher, North Carolina (acquired in December 2016)
TriSummit Bancorp, Inc. ("TriSummit") - six offices in East Tennessee (acquired in January 2017)
Commercial LPO Greensboro, North Carolina (opened in AugustBegan origination and sales of SBA loans through our new SBA line of business (September 2017)
De novo branch in Cary, North Carolina (Opened(opened in March 2018)
Began equipment finance line of business (May 2018)
By expanding our geographic footprint and hiring local experienced talent, we have built a foundation that allows us to focus on organic growth, while maintaining "Our Commitment to the Customer Experience" that has differentiated our brand and characterized our success to date.
Our mission is to create stockholder value by building relationships with our employees, customers, and communities. By building a platform that supports growth and profitability, we are continuing our transition toward becoming a high-performing community bank and helping our customers every day to be "Ready For What's Next."
Our principal business consists of attracting deposits from the general public and investing those funds, along with borrowed funds, in loans secured by first and second mortgages on one-to-four family residences including home equity loans, construction and land/lot loans, commercial real estate loans, construction and development loans, commercial and industrial loans, U.S. Small Business Administration ("SBA")SBA loans, equipment finance leases, indirect automobile loans, and municipal leases. We also work with a third party to originate HELOCs which are pooled and sold. In addition, we purchase investment securities consisting primarily of securities issued by United States Government agencies and government-sponsored enterprises, as well as, commercial paper and certificates of deposit insured by the FDIC.
We offer a variety of deposit accounts for individuals, businesses, and nonprofit organizations. Deposits and borrowings are our primary source of funds for our lending and investing activities.
Market Areas
HomeTrust Bank operates in nine metropolitan statistical areas ("MSAs"):MSAs: Asheville, NC, with a population of 456,000463,000 as of June 2017;2019; Charlotte-Concord-Gastonia, NC-SC, with a population of 2.52.6 million as of June 2017; Greensboro, NC, with a population of 761,000 as of June 2017;2019; Greenville-Anderson-Mauldin, SC, with a population of 896,000921,000 as of June 2017;2019; Johnson City, TN, with a population of 202,000204,000 as of June 2017;2019; Kingsport-Bristol-Bristol, TN-VA, with a population of 307,000 as of June 2017;2019; Knoxville, TN, with a population of 877,000869,000 as of June 2017;2019; Morristown, TN, with a population of 118,000143,000 as of June 2017;2019; Roanoke, VA, with a population of 314,000313,000 as of June 2017;2019; and Raleigh, NC, with a population of 1.31.4 million as of June 20172019 according to the United State Census Bureau.
Asheville is known for its natural beauty, scenic surroundings, and its vibrant cultural and arts community that parallels that of many larger cities in the United States. It is home to a number of historical attractions, the most prominent of which is the Biltmore Estate, a historic mansion with gardens and a winery that draws approximately one million tourists each year. Due to its scenic location and diverse cultural and historical offerings, the Asheville metropolitan area is a popular destination for tourists, which continues to positively impact our local economy. In addition, affordable housing prices, compared to many bigger cities, combined with the region’s favorable climate have also made the Asheville metropolitan area an increasingly attractive destination for retirees seeking to relocate from other parts of the United States. The area has several major employers which include: Buncombe County Public Schools, City of Asheville, Mission Health System and Hospital, The Biltmore Company, Ingles Markets, Inc., and the VA Medical Center. Also supporting the economy is the Asheville Regional Airport that transports over one million passengers a year as well as numerous colleges and universities, medical centers, and arts and entertainment facilities. HomeTrust Bank is the only community bank headquartered in this vibrant and growing market.
The Charlotte-Concord-Gastonia, NC-SC metropolitan area is located in both North and South Carolina, within and surrounding the city of Charlotte. Located in the Piedmont region of the Southeastern United States, the Charlotte metropolitan area is well known for its lower cost of living, diversified economy, national sports teams, and thriving arts community that has led it to be one of the highest in-migration cities in the country according to the Charlotte Chamber. The region is headquarters to several Fortune 500 and Fortune 1000 companies, including Bank of America, Duke Energy, Sealed Air, Nucor Steel, Sonic Automotive, and Lowe's Home Improvement Stores. The Charlotte MSA is the largest in the Carolinas.
The Raleigh, NC metropolitan area is located in the northeast central region of North Carolina and routinely ranks among the nation's highest in places to do business and obtain an education. Raleigh is the capital of North Carolina, home to North Carolina State University and central to one of the fastest growing areas in the country - the Research Triangle Park. With its proximity to the Research Triangle Park and several major universities, including the University of North Carolina at Chapel Hill and Duke University, Raleigh has become known for its strengths in technology and innovation.
The Greensboro, NC metropolitan area is centrally located in North Carolina. Major employment sectors for the MSA include services, manufacturing, government, financial activities, and retail trade. Major employers for the MSA include Guilford County Schools, Guilford County, Cone Health, and the City of Greensboro.
The Greenville-Anderson-Mauldin, SC metropolitan area is located in upstate South Carolina, in the foothills of the Blue Ridge Mountains. Major employment sectors for the MSA include services, manufacturing, and retail trade including major facilities for BMW, Michelin, Walgreens, and Lockheed Martin. Additional employers include Greenville Health System, Greenville County School District, and Bon Secours St. Francis Health System.
The Johnson City, TN metropolitan area is an economic hub largely fueled by East Tennessee State University and the medical "Med-Tech" corridor, anchored by the Johnson City Medical Center, Franklin Woods Community Hospital and affiliated facilities. The city’s museums and historical sites include the Hands On! Museum and the Tipton-Haynes State Historic Site, which hosts the annual Bluegrass and Sorghum Making Festival, as well as other seasonal events.
The Kingsport-Bristol-Bristol, TN-VA MSA is home to the headquarters of Eastman Chemical Company as well as a diverse mix of manufacturing firms, technology companies, and small businesses. The major economic components in Kingsport are healthcare, manufacturing and educational services.
The Knoxville, TN metropolitan area is located where the French Broad and Holston Rivers converge to form the Tennessee River. It is the largest city in East Tennessee and ranks third largest in the state. It is located in a broad valley between the Cumberland Mountains to the northwest and the Great Smoky Mountains to the southeast. The Knoxville area is frequently cited in national surveys, including Livability.com's Top 10 Best Affordable Places to Live. The University of Tennessee calls Knoxville home, with over 28,000 students, making an array of educational and cultural opportunities available to area residents. Affordable housing, health care costs below the national average, a low crime rate, and a pleasant climate and location with nearby lakes and mountains are factors which make Knoxville an attractive place to settle. Major employment sectors in the Knoxville area include government, education, and healthcare.
The Morristown, TN metropolitan area includes facilities for numerous Fortune 500 companies including General Electric, International Paper, Alcoa (Howmet), Coca-Cola, Lear Corporation, Pepsi Bottling, NCR Corporation and Colgate-Palmolive. Morristown also includes the facilities of a number of international companies from countries such as Germany, Japan, Sweden, United Kingdom, Italy, Canada and France. Local industries include furniture manufacturing, poultry processing, aircraft parts, healthcare products, and automotive parts. Agriculture including soybeans, corn, livestock and dairy are also significant economic components. Morristown's major job providing segments are healthcare, manufacturing, educational services, furniture and related products, transportation equipment, educational services, and accommodation and food services.
The Roanoke, VA metropolitan area is located in the Roanoke Valley of western Virginia in the midst of the Blue Ridge and Alleghany Mountains. This 1,874-square mile region is bordered on the west by West Virginia and along the east by the Blue Ridge Mountains. The area is strategically accessible to both the East Coast and Mid-West markets with Interstate 81 passing through the region, Interstate 64 directly north, and Interstate 77 nearby to the south. The Roanoke MSA is the transportation hub of the area with an integrated interstate highway, rail, and air transportation network. Roanoke has the most diverse economy in Virginia according to Virginia Business and is the cultural and business hub for western Virginia. The Roanoke MSA is home to several large regional banking offices, headquarters of the Fortune 500 retailer Advance Auto, and to several large advanced manufacturing operations, such as those owned by ITT Exelis, Dynax America, and Optical Cable Corporation, among others. The Roanoke, VA MSA’s major employment sectors include government, health care and social assistance, retail trade, and manufacturing.
Unemployment data remains one of ourthe most informative indicators of our local economy.economies and has been dramatically affected by COVID-19. Based on information from the U.S. Bureau of Labor Statistics we have set forth below information regarding the unemployment rates nationally and in our market areas.
| | | | | As of June 30, | | As of June 30, |
| Location | | 2018 | | 2017 | | 2020 | | 2019 |
| U.S. National | | 4.2% | | 4.5% | | 11.2% | | 3.8% |
| North Carolina | | 4.2% | | 4.2% | | 7.6% | | 4.2% |
| Asheville MSA | | 3.4% | | 3.4% | | 8.9% | | 3.6% |
| Charlotte/Concord/Gastonia | | 3.9% | | 4.0% | | 8.4% | | 4.1% |
| Greensboro | | 4.5% | | 4.9% | |
| Raleigh | | 3.7% | | 3.7% | | 7.2% | | 4.0% |
| South Carolina | | 3.8% | | 4.0% | | 8.7% | | 3.4% |
| Greenville | | 3.3% | | 3.9% | | 9.7% | | 3.3% |
| Tennessee | | 3.5% | | 3.6% | | 9.7% | | 3.5% |
| Morristown | | 4.4% | | 4.4% | | 9.4% | | 4.5% |
| Johnson City | | 4.5% | | 4.7% | | 8.9% | | 4.4% |
| Kingsport-Bristol | | 4.2% | | 4.6% | | 9.2% | | 4.2% |
| Knoxville | | 3.9% | | 4.1% | | 8.2% | | 3.9% |
| Virginia | | 4.2% | | 3.7% | | 8.4% | | 2.9% |
| Roanoke | | 3.4% | | 4.0% | | 8.2% | | 3.0% |
See Item 1A, “Risk Factors" for additional details on the Company's risk factors related to COVID-19.
The Bank has built a strong foundation in the communities we serve and takes pride in the role we play. The directors and market presidents of each region work with their management team and employees to support local nonprofit and community organizations. Each location helps provide critical services to meet the financial needs of its customers and improve the quality of life for individuals and businesses in its community. Initiatives supporting our communities include affordable housing, education and financial education, and the arts. We support these initiatives through both financial and people resources in all of our communities. Collectively, bank employees volunteer thousands of hours annually in their local communities; from helping to build homes to teaching grade school youth how to start healthy savings habits, bank employees are making a positive difference in the lives of others every day.
Competition
We face strong competition in originating real estate and other loans and in attracting deposits. Competition in originating real estate loans comes primarily from other commercial banks, savings institutions, credit unions, life insurance companies, and mortgage bankers. Other commercial banks, credit unions, and finance companies provide vigorous competition in consumer lending. In addition, in indirect auto financings, we also compete with specialty consumer finance companies, including automobile manufacturers’ captive finance companies. Commercial and industrial loan competition is primarily from local and regional commercial banks. We believe that we compete effectively because we consistently deliver high-quality, personal service to our customers that results in a high level of customer satisfaction. Adding to our competitive advantage isWe also maintain a significant commitment to technological resources, which has expanded our customer service capabilities and increased efficiencies in our lending process.
We attract our deposits through our branch office system. Competition for deposits is principally from other commercial banks, savings institutions, and credit unions located in the same communities, as well as mutual funds and other alternative investments. We believe that we compete for deposits by offering superior service and a variety of deposit accounts at competitive rates. We also have a highly competitive suite of cash management services, online/mobile banking, and internal support expertise specific to the needs of small to mid-sized commercial business customers. Based on the most recent branch deposit data, HomeTrust Bank's deposit market share was:
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| Location | | Rank(1) | | Deposit Market Share(1) |
| North Carolina | | 16th18th | | 0.34%0.40% |
| Asheville MSA | | 6th5th | | 7.34%10.15% |
| Charlotte/Gastonia | | 20th17th | | 0.05%0.03% |
| Raleigh | | 24th19th | | 0.06%0.20% |
| South Carolina | | 77th61st | | 0.04%0.07% |
| Greenville | | 23rd17th | | 0.28%0.72% |
| Tennessee | | 48th | | 0.32%0.30% |
| Morristown | | 2nd3rd | | 21.73%18.88% |
| Johnson City | | 4th | | 7.50%8.42% |
| Kingsport-Bristol | | 7th6th | | 3.57%4.31% |
| Knoxville | | 25th16th | | 0.22%0.47% |
| Virginia | | 64th61st | | 0.11%0.10% |
| Roanoke | | 5th9th | | 6.48%5.67% |
| Bristol | | 5th | | 4.86%3.39% |
(1) Source: FDIC data as of June 30, 20172019
Overall, we distinguish ourselves from larger, national banks operating in our market areas by providing local decision-making and competitive customer-driven products with excellent service, responsiveness, and execution. In addition, our larger capital base and product mix enable us to compete effectively against smaller banks. Our bankers believe that strong relationships lead to great things and strive everyday to ensure our customers are "ready for what's next""Ready For What's Next" in their financial future.
In addition, the way we create differentiation from our competition to fuel organic growth is by focusing on “HOW” we deliver our products and services. Many of our employees have been a part of HomeTrust Bank for decades, while a significant number of employees have more recently brought their industry knowledge and expertise to us through internal growth and acquisitions, reflecting their desire to be a part of a high performing team that works well together to make a difference for customers. We strive to create organizational clarity by adhering to our core values of caring and teamwork while continuing to reach for our aspirational values of customer satisfaction, accountability, continuous improvement, and humility. This “culture model” includes four key principles:
making a difference for customers every day is both fun and personally rewarding;
success is built on relationships;
we must continually add value to relationships with our customers and with each other; and
we need to grow ourselves and our ability to make a difference and add value to relationships.difference.
In implementing these principles, the directors, management team, and employees work together as a team to meet the financial needs of our customers while supporting local nonprofit and community organizations to improve the quality of life for individuals and businesses in our communities. We support affordable housing and education initiatives to help build healthy communities through both financial assistance and employees volunteering thousands of hours annually in their local markets. We believe the opportunity to stay close to our customers gives us a unique position in the banking industry as compared to our larger competitors and we are committed to continuing to build strong relationships with our employees, customers, and communities for generations to come.
Lending Activities
The following table presents information concerning the composition of our loan portfolio in dollar amounts and in percentages (before deductions for deferred feesfees/costs and allowances for losses) at the dates indicated.
| | | | At June 30, | At June 30, |
| | 2018 | | 2017 | | 2016 | | 2015 | | 2014 | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| | Amount | | Percent | | Amount | | Percent | | Amount | | Percent | | Amount | | Percent | | Amount | | Percent | Amount | | Percent | | Amount | | Percent | | Amount | | Percent | | Amount | | Percent | | Amount | | Percent |
| | (Dollars in thousands) | (Dollars in thousands) |
| Retail consumer loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| One-to-four family | $ | 664,289 |
| | 26.29 | % | | $ | 684,089 |
| | 29.08 | % | | $ | 623,701 |
| | 34.04 | % | | $ | 650,750 |
| | 38.61 | % | | $ | 660,630 |
| | 44.09 | % | $ | 473,693 |
| | 17.11 | % | | $ | 660,591 |
| | 24.42 | % | | $ | 664,289 |
| | 26.29 | % | | $ | 684,089 |
| | 29.08 | % | | $ | 623,701 |
| | 34.04 | % |
| Home equity - originated | 137,564 |
| | 5.44 |
| | 157,068 |
| | 6.68 |
| | 163,293 |
| | 8.91 |
| | 161,204 |
| | 9.56 |
| | 148,379 |
| | 9.90 |
| 137,447 |
| | 4.96 |
| | 139,435 |
| | 5.16 |
| | 137,564 |
| | 5.44 |
| | 157,068 |
| | 6.68 |
| | 163,293 |
| | 8.91 |
|
| Home equity - purchased | 166,276 |
| | 6.58 |
| | 162,407 |
| | 6.90 |
| | 144,377 |
| | 7.88 |
| | 72,010 |
| | 4.27 |
| | — |
| | — |
| 71,781 |
| | 2.59 |
| | 116,972 |
| | 4.32 |
| | 166,276 |
| | 6.58 |
| | 162,407 |
| | 6.90 |
| | 144,377 |
| | 7.88 |
|
| Construction and land/lots | 65,601 |
| | 2.60 |
| | 50,136 |
| | 2.13 |
| | 38,102 |
| | 2.08 |
| | 45,931 |
| | 2.73 |
| | 59,249 |
| | 3.95 |
| 81,859 |
| | 2.96 |
| | 80,602 |
| | 2.98 |
| | 65,601 |
| | 2.60 |
| | 50,136 |
| | 2.13 |
| | 38,102 |
| | 2.08 |
|
| Indirect auto finance | 173,095 |
| | 6.85 |
| | 140,879 |
| | 5.99 |
| | 108,478 |
| | 5.92 |
| | 52,494 |
| | 3.11 |
| | 8,833 |
| | 0.59 |
| 132,303 |
| | 4.78 |
| | 153,448 |
| | 5.67 |
| | 173,095 |
| | 6.85 |
| | 140,879 |
| | 5.99 |
| | 108,478 |
| | 5.92 |
|
| Consumer | 12,379 |
| | 0.49 |
| | 7,900 |
| | 0.34 |
| | 4,635 |
| | 0.25 |
| | 3,708 |
| | 0.22 |
| | 6,331 |
| | 0.42 |
| 10,259 |
| | 0.37 |
| | 11,416 |
| | 0.42 |
| | 12,379 |
| | 0.49 |
| | 7,900 |
| | 0.34 |
| | 4,635 |
| | 0.25 |
|
| Total retail consumer loans | 1,219,204 |
| | 48.25 | % | | 1,202,479 |
| | 51.12 | % | | 1,082,586 |
| | 59.08 | % | | 986,097 |
| | 58.50 | % | | 883,422 |
| | 58.95 | % | 907,342 |
| | 32.77 | % | | 1,162,464 |
| | 42.97 | % | | 1,219,204 |
| | 48.25 | % | | 1,202,479 |
| | 51.12 | % | | 1,082,586 |
| | 59.08 | % |
| Commercial loans: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Commercial real estate | 857,315 |
| | 33.94 | % | | 730,408 |
| | 31.04 | % | | 486,561 |
| | 26.55 | % | | 441,620 |
| | 26.20 | % | | 377,769 |
| | 25.21 | % | 1,052,906 |
| | 38.03 | % | | 927,261 |
| | 34.28 | % | | 857,315 |
| | 33.93 | % | | 730,408 |
| | 31.04 | % | | 486,561 |
| | 26.55 | % |
| Construction and development | 192,102 |
| | 7.60 |
| | 197,966 |
| | 8.42 |
| | 86,840 |
| | 4.74 |
| | 64,573 |
| | 3.83 |
| | 56,457 |
| | 3.78 |
| 215,934 |
| | 7.80 |
| | 210,916 |
| | 7.80 |
| | 192,102 |
| | 7.60 |
| | 197,966 |
| | 8.42 |
| | 86,840 |
| | 4.74 |
|
| Commercial and industrial | 148,823 |
| | 5.89 |
| | 120,387 |
| | 5.12 |
| | 73,289 |
| | 4.00 |
| | 84,820 |
| | 5.03 |
| | 74,435 |
| | 4.97 |
| 154,825 |
| | 5.59 |
| | 160,471 |
| | 5.93 |
| | 135,336 |
| | 5.36 |
| �� | 120,387 |
| | 5.12 |
| | 73,289 |
| | 4.00 |
|
Equipment finance (1) | | 229,239 |
| | 8.28 |
| | 132,058 |
| | 4.88 |
| | 13,487 |
| | 0.54 |
| | — |
| | — |
| | — |
| | — |
|
| Municipal leases | 109,172 |
| | 4.32 |
| | 101,175 |
| | 4.30 |
| | 103,183 |
| | 5.63 |
| | 108,574 |
| | 6.44 |
| | 106,215 |
| | 7.09 |
| 127,987 |
| | 4.62 |
| | 112,016 |
| | 4.14 |
| | 109,172 |
| | 4.32 |
| | 101,175 |
| | 4.30 |
| | 103,183 |
| | 5.63 |
|
| Paycheck Protection Program | | 80,697 |
| | 2.91 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Total commercial loans | 1,307,412 |
| | 51.75 | % | | 1,149,936 |
| | 48.88 | % | | 749,873 |
| | 40.92 | % | | 699,587 |
| | 41.50 | % | | 614,876 |
| | 41.05 | % | 1,861,588 |
| | 67.23 | % | | 1,542,722 |
| | 57.03 | % | | 1,307,412 |
| | 51.75 | % | | 1,149,936 |
| | 48.88 | % | | 749,873 |
| | 40.92 | % |
| Total loans | 2,526,616 |
| | 100.00 | % | | 2,352,415 |
| | 100.00 | % | | 1,832,459 |
| | 100.00 | % | | 1,685,684 |
| | 100.00 | % | | 1,498,298 |
| | 100.00 | % | 2,768,930 |
| | 100.00 | % | | 2,705,186 |
| | 100.00 | % | | 2,526,616 |
| | 100.00 | % | | 2,352,415 |
| | 100.00 | % | | 1,832,459 |
| | 100.00 | % |
Less: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Deferred costs (fees), net | (764 | ) | | |
| | (945 | ) | | |
| | 372 |
| | |
| | 23 |
| | |
| | (1,340 | ) | | |
| 189 |
| | |
| | 4 |
| | |
| | (764 | ) | | |
| | (945 | ) | | |
| | 372 |
| | |
|
| Allowance for losses | (21,060 | ) | | |
| | (21,151 | ) | | |
| | (21,292 | ) | | |
| | (22,374 | ) | | |
| | (23,429 | ) | | |
| (28,072 | ) | | |
| | (21,429 | ) | | |
| | (21,060 | ) | | |
| | (21,151 | ) | | |
| | (21,292 | ) | | |
|
| Total loans receivable, net | $ | 2,504,792 |
| | |
| | $ | 2,330,319 |
| | |
| | $ | 1,811,539 |
| | |
| | $ | 1,663,333 |
| | |
| | $ | 1,473,529 |
| | |
| $ | 2,741,047 |
| | |
| | $ | 2,683,761 |
| | |
| | $ | 2,504,792 |
| | |
| | $ | 2,330,319 |
| | |
| | $ | 1,811,539 |
| | |
|
(1) Equipment finance line of business began operations in May 2018.
The following table shows the fixed- and variable-rate composition of our loan portfolio in dollar amounts and in percentages (before deductions for deferred feesfees/costs and allowances for loan losses) at the dates indicated.
| | | | At June 30, | At June 30, |
| | 2018 | | 2017 | | 2016 | 2020 | | 2019 | | 2018 |
| | Amount | | Percent | | Amount | | Percent | | Amount | | Percent | Amount | | Percent | | Amount | | Percent | | Amount | | Percent |
| Fixed-rate loans: | (Dollars in thousands) | (Dollars in thousands) |
| Retail consumer loans: | | | | | | | | | | | | | | | | | | | | | | |
| One-to-four family | $ | 333,986 |
| | 13.2 | % | | $ | 365,566 |
| | 15.5 | % | | $ | 326,347 |
| | 17.8 | % | $ | 193,001 |
| | 7.0 | % | | $ | 293,537 |
| | 10.8 | % | | $ | 333,986 |
| | 13.2 | % |
| Home equity - originated | 163 |
| | — |
| | 1,664 |
| | 0.1 |
| | 416 |
| | — |
| 1,004 |
| | — |
| | 446 |
| | — |
| | 163 |
| | — |
|
| Construction and land/lots | 59,283 |
| | 2.3 |
| | 42,149 |
| | 1.8 |
| | 27,907 |
| | 1.5 |
| 77,973 |
| | 2.8 |
| | 74,989 |
| | 2.8 |
| | 59,283 |
| | 2.3 |
|
| Indirect auto finance | 173,095 |
| | 6.9 |
| | 140,879 |
| | 6.0 |
| | 108,478 |
| | 5.9 |
| 132,303 |
| | 4.8 |
| | 153,448 |
| | 5.7 |
| | 173,095 |
| | 6.9 |
|
| Consumer | 6,457 |
| | 0.3 |
| | 7,887 |
| | 0.3 |
| | 4,620 |
| | 0.3 |
| 4,323 |
| | 0.2 |
| | 12,583 |
| | 0.5 |
| | 6,457 |
| | 0.3 |
|
| Commercial loans: | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
|
| Commercial real estate | 441,796 |
| | 17.5 |
| | 444,055 |
| | 18.9 |
| | 303,854 |
| | 16.6 |
| 526,680 |
| | 19.0 |
| | 491,683 |
| | 18.2 |
| | 441,796 |
| | 17.5 |
|
| Construction and development | 55,682 |
| | 2.2 |
| | 50,231 |
| | 2.1 |
| | 29,204 |
| | 1.6 |
| 33,994 |
| | 1.2 |
| | 34,837 |
| | 1.3 |
| | 55,682 |
| | 2.2 |
|
| Commercial and industrial | 87,568 |
| | 3.5 |
| | 73,600 |
| | 3.1 |
| | 42,874 |
| | 2.3 |
| 73,610 |
| | 2.7 |
| | 81,238 |
| | 3.0 |
| | 74,081 |
| | 3.0 |
|
| Equipment finance | | 229,239 |
| | 8.3 |
| | 132,058 |
| | 4.9 |
| | 13,487 |
| | 0.5 |
|
| Municipal leases | 109,172 |
| | 4.3 |
| | 101,175 |
| | 4.4 |
| | 103,183 |
| | 5.7 |
| 127,406 |
| | 4.6 |
| | 112,016 |
| | 4.1 |
| | 109,172 |
| | 4.3 |
|
| Paycheck Protection Program | | 80,697 |
| | 2.9 |
| | — |
| | — |
| | — |
| | — |
|
| Total fixed-rate loans | 1,267,202 |
| | 50.2 | % | | 1,227,206 |
| | 52.2 | % | | 946,883 |
| | 51.7 | % | 1,480,230 |
| | 53.5 | % | | 1,386,835 |
| | 51.3 | % | | 1,267,202 |
| | 50.2 | % |
Adjustable-rate loans: | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
|
| Retail consumer loans: | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
|
| One-to-four family | 330,303 |
| | 13.1 | % | | 318,523 |
| | 13.5 | % | | 297,354 |
| | 16.2 | % | 280,692 |
| | 10.2 | % | | 367,054 |
| | 13.6 | % | | 330,303 |
| | 13.1 | % |
| Home equity - originated | 137,401 |
| | 5.4 |
| | 155,404 |
| | 6.6 |
| | 162,877 |
| | 8.9 |
| 136,443 |
| | 4.9 |
| | 130,649 |
| | 4.8 |
| | 137,401 |
| | 5.4 |
|
| Home equity - purchased | 166,276 |
| | 6.6 |
| | 162,407 |
| | 6.9 |
| | 144,377 |
| | 7.9 |
| 71,781 |
| | 2.6 |
| | 116,972 |
| | 4.3 |
| | 166,276 |
| | 6.6 |
|
| Construction and land/lots | 6,318 |
| | 0.3 |
| | 7,987 |
| | 0.3 |
| | 10,195 |
| | 0.6 |
| 3,886 |
| | 0.1 |
| | 5,613 |
| | 0.2 |
| | 6,318 |
| | 0.3 |
|
| Consumer | 5,922 |
| | 0.2 |
| | 13 |
| | — |
| | 15 |
| | — |
| 5,936 |
| | 0.2 |
| | 7,173 |
| | 0.3 |
| | 5,922 |
| | 0.2 |
|
| Commercial loans: | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
|
| Commercial real estate | 415,519 |
| | 16.4 |
| | 286,353 |
| | 12.2 |
| | 182,707 |
| | 10.0 |
| 526,226 |
| | 19.0 |
| | 435,578 |
| | 16.1 |
| | 415,519 |
| | 16.4 |
|
| Construction and development | 136,420 |
| | 5.4 |
| | 147,735 |
| | 6.3 |
| | 57,636 |
| | 3.1 |
| 181,940 |
| | 6.6 |
| | 176,079 |
| | 6.5 |
| | 136,420 |
| | 5.4 |
|
| Commercial and industrial | 61,255 |
| | 2.4 |
| | 46,787 |
| | 2.0 |
| | 30,415 |
| | 1.7 |
| 81,215 |
| | 2.9 |
| | 79,233 |
| | 2.9 |
| | 61,255 |
| | 2.4 |
|
| Municipal leases | | 581 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Total adjustable-rate loans | 1,259,414 |
| | 49.8 | % | | 1,125,209 |
| | 47.8 | % | | 885,576 |
| | 48.3 | % | 1,288,700 |
| | 46.5 | % | | 1,318,351 |
| | 48.7 | % | | 1,259,414 |
| | 49.8 | % |
| Total loans | 2,526,616 |
| | 100.0 | % | | 2,352,415 |
| | 100.0 | % | | 1,832,459 |
| | 100.0 | % | 2,768,930 |
| | 100.0 | % | | 2,705,186 |
| | 100.0 | % | | 2,526,616 |
| | 100.0 | % |
Less: | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
|
| Deferred costs (fees), net | (764 | ) | | |
| | (945 | ) | | |
| | 372 |
| | |
| 189 |
| | |
| | 4 |
| | |
| | (764 | ) | | |
|
| Allowance for losses | (21,060 | ) | | |
| | (21,151 | ) | | |
| | (21,292 | ) | | |
| (28,072 | ) | | |
| | (21,429 | ) | | |
| | (21,060 | ) | | |
|
| Total loans receivable, net | $ | 2,504,792 |
| | |
| | $ | 2,330,319 |
| | |
| | $ | 1,811,539 |
| | |
| $ | 2,741,047 |
| | |
| | $ | 2,683,761 |
| | |
| | $ | 2,504,792 |
| | |
|
The increase in loans since 2016 was primarily due to the $258.1 million in loans acquired from TriSummit and organic loan growth, especially the origination of indirect auto finance loans, commercial real estate, and construction and development loans. For further discussion, see "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of this report.
Loan Maturity. The following table setstables set forth certain information at June 30, 20182020 regarding the dollar amount of loans maturing in our portfolio based on their contractual terms to maturity, but doesdo not include scheduled payments or potential prepayments. Loan balances do not include undisbursed loan proceeds, unearned discounts, unearned income and allowance for loan losses.
| | | | Retail Consumer | Retail Consumer |
| | Due During Years Ending June 30, | Due During Years Ending June 30, |
| | 2019 | | 2020 | | 2021 | | 2022 to 2023 | | 2024 to 2027 | | 2028 to 2032 | | 2033 and following | | Total | 2021 | | 2022 | | 2023 | | 2024 to 2025 | | 2026 to 2027 | | 2028 to 2032 | | 2033 and following | | Total |
| | (Dollars in thousands) | | | (Dollars in thousands) | | |
| One-to-four family | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amount | $ | 11,824 |
| | 10,993 |
| | 19,579 |
| | 44,326 |
| | 44,644 |
| | 165,816 |
| | 367,107 |
| | $ | 664,289 |
| $ | 14,037 |
| | 12,574 |
| | 11,828 |
| | 31,497 |
| | 15,401 |
| | 54,834 |
| | 333,522 |
| | $ | 473,693 |
|
| Weighted Average Rate | 5.21 | % | | 4.79 | % | | 4.42 | % | | 4.27 | % | | 4.41 | % | | 3.53 | % | | 4.12 | % | | 4.04 | % | 4.41 | % | | 4.35 | % | | 4.52 | % | | 4.78 | % | | 4.42 | % | | 4.07 | % | | 4.12 | % | | 4.19 | % |
| Home equity - originated | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amount | $ | 5,703 |
| | 5,389 |
| | 4,892 |
| | 21,828 |
| | 21,913 |
| | 11,650 |
| | 66,189 |
| | $ | 137,564 |
| $ | 3,604 |
| | 5,857 |
| | 7,803 |
| | 10,418 |
| | 5,354 |
| | 7,779 |
| | 96,632 |
| | $ | 137,447 |
|
| Weighted Average Rate | 5.14 | % | | 5.13 | % | | 5.44 | % | | 5.17 | % | | 4.96 | % | | 5.32 | % | | 5.51 | % | | 5.33 | % | 5.22 | % | | 4.79 | % | | 3.93 | % | | 3.87 | % | | 4.35 | % | | 4.00 | % | | 4.07 | % | | 4.11 | % |
| Home equity - purchased | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amount | $ | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 166,276 |
| | $ | 166,276 |
| $ | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 71,781 |
| | $ | 71,781 |
|
| Weighted Average Rate | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | 4.71 | % | | 4.71 | % | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | 2.96 | % | | 2.96 | % |
| Construction and land/lots | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | |
|
|
| Amount | $ | 514 |
| | 128 |
| | 267 |
| | 1,182 |
| | 4,748 |
| | 4,669 |
| | 54,093 |
| | $ | 65,601 |
| $ | 263 |
| | 91 |
| | 237 |
| | 866 |
| | 2,049 |
| | 2,831 |
| | 75,522 |
| | $ | 81,859 |
|
| Weighted Average Rate | 6.25 | % | | 6.13 | % | | 5.44 | % | | 5.43 | % | | 5.79 | % | | 5.35 | % | | 4.02 | % | | 4.29 | % | 7.09 | % | | 6.49 | % | | 8.23 | % | | 5.94 | % | | 5.51 | % | | 5.87 | % | | 3.76 | % | | 3.92 | % |
| Indirect auto finance | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amount | $ | 243 |
| | 2,266 |
| | 10,479 |
| | 77,399 |
| | 82,708 |
| | — |
| | — |
| | $ | 173,095 |
| $ | 1,178 |
| | 7,397 |
| | 17,059 |
| | 66,084 |
| | 40,409 |
| | 176 |
| | — |
| | $ | 132,303 |
|
| Weighted Average Rate | 3.75 | % | | 3.66 | % | | 3.22 | % | | 3.27 | % | | 3.94 | % | | — | % | | — | % | | 3.59 | % | 3.18 | % | | 3.23 | % | | 3.53 | % | | 4.53 | % | | 4.86 | % | | 5.56 | % | | — | % | | 4.42 | % |
| Consumer | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amount | $ | 301 |
| | 298 |
| | 977 |
| | 2,404 |
| | 835 |
| | 2,988 |
| | 4,576 |
| | $ | 12,379 |
| $ | 118 |
| | 382 |
| | 622 |
| | 7,882 |
| | 728 |
| | 26 |
| | 501 |
| | $ | 10,259 |
|
| Weighted Average Rate | 5.63 | % | | 4.33 | % | | 5.21 | % | | 4.85 | % | | 5.37 | % | | 5.01 | % | | 6.82 | % | | 5.69 | % | 5.84 | % | | 4.51 | % | | 5.60 | % | | 5.79 | % | | 6.17 | % | | 3.54 | % | | 16.38 | % | | 6.27 | % |
| | | | Commercial Loans | Commercial Loans |
| | Due During Years Ending June 30, | Due During Years Ending June 30, |
| | 2019 | | 2020 | | 2021 | | 2022 to 2023 | | 2024 to 2027 | | 2028 to 2032 | | 2033 and following | | Total | 2021 | | 2022 | | 2023 | | 2024 to 2025 | | 2026 to 2027 | | 2028 to 2032 | | 2033 and following | | Total |
| | (Dollars in thousands) | | | (Dollars in thousands) | | |
| Commercial real estate | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amount | 51,553 |
| | 64,940 |
| | 133,575 |
| | 294,958 |
| | 185,963 |
| | 96,380 |
| | 29,946 |
| | $ | 857,315 |
| $ | 125,537 |
| | 115,494 |
| | 148,999 |
| | 313,365 |
| | 109,660 |
| | 189,793 |
| | 50,058 |
| | $ | 1,052,906 |
|
| Weighted Average Rate | 4.54 | % | | 4.17 | % | | 4.12 | % | | 4.15 | % | | 4.17 | % | | 4.31 | % | | 5.29 | % | | 4.23 | % | 3.69 | % | | 3.65 | % | | 3.84 | % | | 3.84 | % | | 3.04 | % | | 2.90 | % | | 4.03 | % | | 3.56 | % |
| Construction and development | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amount | 67,156 |
| | 33,669 |
| | 25,010 |
| | 48,301 |
| | 10,564 |
| | 4,953 |
| | 2,449 |
| | $ | 192,102 |
| $ | 78,204 |
| | 32,569 |
| | 24,265 |
| | 49,190 |
| | 10,800 |
| | 18,721 |
| | 2,185 |
| | $ | 215,934 |
|
| Weighted Average Rate | 5.24 | % | | 5.01 | % | | 4.77 | % | | 3.98 | % | | 3.62 | % | | 4.03 | % | | 3.79 | % | | 4.86 | % | 4.10 | % | | 3.56 | % | | 3.44 | % | | 3.40 | % | | 3.53 | % | | 2.83 | % | | 3.86 | % | | 3.64 | % |
| Commercial and industrial | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amount | 24,396 |
| | 12,086 |
| | 26,655 |
| | 44,284 |
| | 36,142 |
| | 2,642 |
| | 2,618 |
| | $ | 148,823 |
| $ | 30,427 |
| | 28,042 |
| | 30,880 |
| | 23,423 |
| | 19,814 |
| | 19,498 |
| | 2,741 |
| | $ | 154,825 |
|
| Weighted Average Rate | 5.09 | % | | 5.12 | % | | 4.86 | % | | 4.36 | % | | 4.29 | % | | 6.03 | % | | 4.84 | % | | 4.59 | % | 4.68 | % | | 3.32 | % | | 4.77 | % | | 4.67 | % | | 4.51 | % | | 5.62 | % | | 5.12 | % | | 4.55 | % |
| Equipment finance | | | | | | | | | | | | | | | | |
| Amount | | $ | 3,026 |
| | 7,158 |
| | 24,970 |
| | 148,118 |
| | 45,811 |
| | 156 |
| | — |
| | $ | 229,239 |
|
| Weighted Average Rate | | 4.70 | % | | 5.60 | % | | 5.54 | % | | 5.25 | % | | 5.10 | % | | 5.98 | % | | — | % | | 5.26 | % |
Municipal leases(1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amount | 832 |
| | 956 |
| | 3,148 |
| | 12,077 |
| | 18,415 |
| | 44,150 |
| | 29,594 |
| | $ | 109,172 |
| $ | 1,244 |
| | 13,494 |
| | 6,425 |
| | 11,813 |
| | 9,904 |
| | 38,850 |
| | 46,257 |
| | $ | 127,987 |
|
| Weighted Average Rate | 4.09 | % | | 3.37 | % | | 3.55 | % | | 3.32 | % | | 4.95 | % | | 4.48 | % | | 4.78 | % | | 4.54 | % | 3.44 | % | | 2.37 | % | | 3.21 | % | | 4.07 | % | | 5.11 | % | | 4.83 | % | | 4.83 | % | | 4.42 | % |
| Paycheck Protection Program | | | | | | | | | | | | | | | | |
| Amount | | $ | — |
| | 80,697 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | $ | 80,697 |
|
| Weighted Average Rate | | — | % | | 1.00 | % | | — | % | | — | % | | — | % | | — | % | | — | % | | 1.00 | % |
| | | | Total | Total |
| | Amount | | Weighted Average Rate | Amount | | Weighted Average Rate |
| | (Dollars in thousands) | (Dollars in thousands) |
| Due During Years Ending June 30, | | | | | | |
| 2019 | $ | 162,522 |
| | 4.99 | % | |
| 2020 | 130,725 |
| | 4.58 |
| |
| 2021 | 224,582 |
| | 4.34 |
| $ | 257,638 |
| | 3.86 | % |
| 2022 to 2023 | 546,759 |
| | 4.25 |
| |
| 2024 to 2027 | 405,932 |
| | 4.47 |
| |
| 2022 | | 303,755 |
| | 2.94 |
|
| 2023 | | 273,088 |
| | 4.12 |
|
| 2024 to 2025 | | 662,656 |
| | 4.37 |
|
| 2026 to 2027 | | 259,930 |
| | 4.18 |
|
| 2028 to 2032 | 333,248 |
| | 4.01 |
| 332,664 |
| | 3.51 |
|
| 2033 and following | 722,848 |
| | 4.47 |
| 679,199 |
| | 3.98 |
|
| Total | $ | 2,526,616 |
| | 4.39 | % | $ | 2,768,930 |
| | 3.93 | % |
| |
| (1) | The weighted average rate of municipal loans is adjusted for a 30%24% combined federal and state tax rate since the interest income from these leases is tax exempt. exempt. |
The total amount of loans due after June 30, 2019,2021, which have predetermined interest rates is $1.21$1.2 billion, while the total amount of loans which have adjustable interest rates is $1.15$1.3 billion.
Lending Authority. Loan credit authority is granted to various officers of the Bank and approved at least annually by the Credit Risk Committee, which is made up of the Chief BankingOperating Officer, Chief Credit Officer, and Chief Risk Officer.Officer, and the Commercial Banking Group Executive. Generally, total credit exposure that exceeds the loan credit authority of each officer must be approved by the Senior Credit Officer or Chief Credit Officer. In the absence of the Chief Credit Officer, another Senior Credit Officer not directly involved with the borrower may approve the credit instead of the Chief Credit Officer.
Loan relationships in excess of $7.5 million in total credit exposure must be approved by our Senior Loan Committee, which is comprised of the Chief Banking Officer, Chief Credit Officer and/or(Senior Credit Officer may substitute) and the Commercial Banking Group Executive.Executive (Chief Operating Officer may substitute). Any loan submitted for Senior Loan Committee approval must have the prior approval of the Relationship Manager, the Market President (Commercial Banking Group Executive may substitute) and their assigned Senior Credit Officer. Loans in excess of $15.0 million in total credit exposure must be approved by the Executive Loan Committee comprised of the Chief Executive Officer, Chief BankingOperating Officer, Commercial Banking Group Executive, Chief Credit Officer and anothera Senior Credit Officer not involved with the credit at a meetingcredit. A quorum consists of at least three members, one of whom must be either the Chief Credit Officer or the Senior Credit Officer. A 70% vote is required for approval. Total credit exposure in a single loan or group of loans to related borrowers exceeding 60% of the Bank’s legal lending limit must be approvalapproved by the Bank's board of directors.
At June 30, 2018,2020, the maximum amount under federal regulation that we could lend to any one borrower and the borrower’s related entities was approximately $53.5$58.7 million. Our five largest lending relationships are with commercial borrowers and totaled $106.6$136.7 million in the aggregate, or 4.2%4.9% of our $2.5$2.7 billion loan portfolio at June 30, 2018.2020.
The largest lending relationship at June 30, 2020 consisted of fourteen loans totaling approximately $32.7 million to 12 borrowers based in Florida. The largest loan in this relationship had an outstanding balance of $5.9 million as of June 30, 2020 and was secured by a non-owner-occupied office property located in Greensboro, NC. The remaining relationship exposure consisted of thirteen loans secured by various non-owner-occupied industrial, retail, and medical office properties. The properties are located in the various eastern Tennessee cities, as well as in Rocky Mount and Greensboro, NC, Dublin, VA, Rome, GA, Sunrise, FL, and Greenbelt, MD. As of June 30, 2018,2020, all loans to these borrowers were performing in accordance with their original repayment terms.
The largest lending relationship at June 30, 2018 consisted of three loans totaling approximately $24.4 million to three borrowers in Charlotte, NC. The largest loan in this relationship had an outstanding balance of $11.6 million as of June 30, 2018 and was secured by a non-owner-occupied medical office property located in southeast Louisiana. The remaining relationship exposure consisted of two loans secured by non-owner-occupied medical office properties located in Gaston County, North Carolina and northwest Georgia.
The second largest lending relationship at June 30, 20182020 was approximately $21.9$27.3 million consisting of one loan secured by an assisted living property located in Savannah, GA. As of June 30, 2020, this loan was performing in accordance with its original repayment terms.
The third largest lending relationship at June 30, 2020 was $26.5 million consisting of six loans.loans to four borrowers in North Carolina. The largest loan in thisthe relationship at June 30, 20182020 had an outstanding balance of $7.0$6.5 million and was secured by a hotel property located in Greensboro, NC. The remaining relationship exposure consisted of loans secured by hotel properties located in Fayetteville, NC, Wake Forest, NC, and Clinton, SC, and Fayetteville, NC.
The third largest lending relationship atSC. As of June 30, 2018 was $20.6 million consisting of seven2020, payments on all these loans had been deferred in accordance with the largest of which had an outstanding balance of $5.8 millionCompany’s loan payment deferral program related to COVID-19 but were considered performing loans and was secured by a non-owner-occupied flex-space property located in Greensboro, NC. The remaining exposure consisted of loans secured by non-owner-occupied industrial properties and non-owner-occupied stand-alone retail properties. These properties were located in eastern Tennessee, central Tennessee, southwest Virginia, and northwest Georgia.not adversely classified.
The fourth largest lending relationship at June 30, 20182020 was $20.4$26.2 million consisting of nine22 loans to 13 borrowers in Tennessee. The largest loan in the largest of whichrelationship at June 30, 2020 had an outstanding balance of approximately $5$13.3 million and was secured by a non-owner-occupied industrialmultifamily property in Roanoke, VA.Sevierville, TN. The remaining relationship exposure was secured by non-owner-occupied industrial flex-space, retail, office, and flex-spacesingle-family properties, as well as self-storageall business assets. The properties allare located in Jonesborough, TN and Johnson City, TN. As of whichJune 30, 2020, payments on two of these loans totaling approximately $824,000 had been deferred in accordance with the Company’s loan payment deferral program related to COVID-19 but were located throughout southwest Virginia.considered performing loans and not adversely classified. All other loans to these borrowers were performing in accordance with their original repayment terms.
The fifth largest lending relationship at June 30, 20182020 was approximately $19.3$24.0 million consisting of three loans to three North Carolina borrowers. The largest loan in the largest of whichrelationship at June 30, 2020 had an outstanding balance of $12.1$11.8 million and was primarily secured by accounts receivable, inventory, and other business assets. Additionally, the loan wasa non-owner-occupied medical office located in Covington, LA. The remaining two loans were secured by owner-occupied industrial property, which also secured the second largest loan in the relationship with an outstanding balance of approximately $6.1 million. The borrower and collateral securing these loans arenon-owner-occupied office properties located in western North Carolina.Rome, GA and Gastonia, NC. As of June 30, 2020, all loans to these borrowers were performing in accordance with their original repayment terms.
Retail Consumer Loans
One-to-Four Family Real Estate Lending. We originate loans secured by first mortgages on one-to-four family residences typically for the purchase or refinance of owner-occupied primary or secondary residences located primarily in our market areas. We generally originate one-to-four family residential mortgage loans primarily through referrals from real estate agents, builders, and from existing customers. Walk-in customers are also important sources of loan originations. At June 30, 2018, $664.32020, $473.7 million, or 26.3%17.1%, of our loan portfolio consisted of loans secured by one-to-four family residences.
We originate both fixed-rate loans and adjustable-rate loans. We generally originate mortgage loans in amounts up to 80% of the lesser of the appraised value or purchase price of a mortgaged property, but will also permit loan-to-value ratios of up to 95%. For loans exceeding an 80% loan-to-value ratio we generally require the borrower to obtain private mortgage insurance covering us for any loss on the amount of the loan in excess of 80% in the event of foreclosure.
The majority of our one-to-four family residential loans are originated with fixed rates and have terms of ten to 30 years. At June 30, 20182020 our one-to-four family residential loan portfolio included $334.0$193.0 million in fixed rate loans, of which $24.9 million were ten year fixed rate loans. We generally originate fixed rate mortgage loans with terms greater than 15 years for sale to various secondary market investors on a servicing released basis. We also originate adjustable-rate mortgage, or ARM, loans which have interest rates that adjust annually to the yield on U.S. Treasury securities adjusted to a constant one-year maturity plus a margin. Most of our ARM loans are hybrid loans, which after an initial fixed rate period of one, five, seven, or ten years will convert to an annual adjustable interest rate for the remaining term of the loan. Our ARM loans have terms up to 30 years. Our pricing strategy for mortgage loans includes setting interest rates that are competitive with other local financial institutions and consistent with our asset/liability management objectives. Our ARM loans generally have a floor interest rate set at the initial interest rate, and a cap of two percentage points on rate adjustments during any one year and six percentage points over the life of the loan. As a consequence of using caps, the interest rates on these loans may not be as rate sensitive as is our cost of funds.
We generally retain ARM loans that we originate in our loan portfolio rather than selling them in the secondary market. The retention of ARM loans in our loan portfolio helps us reduce our exposure to changes in interest rates. There are, however, unquantifiable credit risks resulting from the potential of increased interest to be paid by the customer as a result of increases in interest rates. It is possible that during periods of rising interest rates the risk of default on ARM loans may increase as a result of repricing and the increased costs to the borrower. We attempt to reduce the potential for delinquencies and defaults on ARM loans by qualifying the borrower based on the borrower’s ability to repay the ARM loan assuming that the maximum interest rate that could be charged at the first adjustment period remains constant during the loan term. Another consideration is that although ARM loans allow us to increase the sensitivity of our asset base due to changes in the interest rates, the extent of this interest sensitivity is limited by the periodic and lifetime interest rate adjustment limits. Because of these considerations, we have no assurance that yield increases on ARM loans will be sufficient to offset increases in our cost of funds.
Most of our loans are written using generally accepted underwriting guidelines, and are readily saleable to Freddie Mac, Fannie Mae, or other private investors. Our real estate loans generally contain a “due on sale” clause allowing us to declare the unpaid principal balance due and payable upon the sale of the security property. The average size of our one-to-four family residential loans was $122,128$136,827 at June 30, 2018.2020.
A majority of our loans are “non-conforming” because they are adjustable rate mortgages which contain interest rate floors or do not satisfy credit or other requirements due to personal and financial reasons (i.e. divorce, bankruptcy, length of time employed, etc.), conforming loan limits (i.e. jumbo mortgages), and other requirements, imposed by secondary market purchasers. Some of these borrowers have higher debt-to-income ratios, or the loans are secured by unique properties in rural markets for which there are no sales of comparable properties to support the value according to secondary market requirements. We may require additional collateral or lower loan-to-value ratios to reduce the risk of these loans. We believe that these loans satisfy a need in our local market areas. As a result, subject to market conditions, we intend to continue to originate these types of loans. Total non-conforming loans were $373.2$350.7 million at June 30, 2018,2020, including $101.6$191.8 million of jumbo one- to four-family residential loans which may also expose us to increased risk because of their larger balances.
Property appraisals on real estate securing our one-to-four family loans in excess of $250,000 that are not originated for sale are made by a state-licensed or state-certified independent appraiser approved by the board of directors. Appraisals are performed in accordance with applicable regulations and policies. For loans that are less than $250,000, we may use the tax assessed value, broker price opinions, and/or a property inspection in lieu of an appraisal. We generally require title insurance policies on all first mortgage real estate loans originated. Homeowners, liability, fire and, if required, flood insurance policies are also required for one-to-four family loans. We do not originate permanent one-to-four family mortgage loans with a negatively amortizing payment schedule, and currently do not offer interest-only mortgage loans. We have not typically originated stated income or low or no documentation one-to-four family loans. At June 30, 2018, $6.12020, $4.4 million of our one-to-four family loans were interest-only all of which $5.8 million served as collateral for commercial purpose loans.In connection with the new rules issued by the Consumer Financial Protection Bureau ("CFPB"),CFPB, which includes a definition for “qualified mortgage” loans based on the borrower’s ability to repay the loan, we believe that substantially all of the mortgage loans approved by us meet this standard.
At June 30, 2018, $86.12020, $80.1 million of our one-to-four family loan portfolio consisted of loans secured by non-owner occupied residential properties. Loans secured by residential rental properties represent a unique credit risk to us and, as a result, we adhere to specific underwriting guidelines
for such loans. Additionally, we have established specific loan portfolio concentration limits for loans secured by residential rental property to prevent excessive credit risk that could result from an elevated concentration of these loans. A primary risk factor in non-owner occupied residential real estate lending is the consistency of rental income of the property. Payments on loans secured by rental properties often depend on the successful operation and management of the properties, as well as the ability of tenants to pay rent. As a result, repayment of such loans may be subject to adverse economic conditions and unemployment trends, and may be sensitive to changes in the supply and demand for such
properties. We consider and review a rental income cash flow analysis of the borrower and consider the net operating income of the property, the borrower’s expertise, credit history and profitability, and the value of the underlying property. We generally require collateral on these loans to be a first mortgage along with an assignment of rents and leases. We periodically monitor the performance and cash flow sufficiency of certain residential rental property borrowers based on a number of factors such as loan performance, loan size, total borrower credit exposure, and risk grade.
Home Equity Lines of Credit. Our originated home equity lines of credit ("HELOCs"), consistingHELOCs consist primarily of adjustable-rate lines of credit, have been one of the largest component of our retail loan portfolio over the past several years.credit. At June 30, 2018,2020, HELOCs-originated totaled $137.6$137.4 million or 5.4%5.0% of our loan portfolio of which $69.7 million was secured by a first lien on owner-occupied residential property.portfolio. The lines of credit may be originated in amounts, together with the amount of the existing first mortgage, typically up to 85% of the value of the property securing the loan (less any prior mortgage loans) with an adjustable-rate of interest based on The Wall Street Journal prime rate plus a margin. Currently, our home equity line of credit floor interest rate is dependent on the overall loan to value, and has a cap of 16% above the floor rate over the life of the loan. Originated HELOCs generally have up to a ten-year draw period and amounts may be reborrowed after payment at any time during the draw period. Once the draw period has lapsed, the payment is amortized over a 15-year period based on the loan balance at that time. At June 30, 2018,2020, unfunded commitments on these lines of credit totaled $187.4$245.0 million.
Our underwriting standards for originated HELOCs are similar to our one-to-four family loan underwriting standards and include a determination of the applicant’s credit history and an assessment of the applicant’s ability to meet existing obligations and payments on the proposed loan. The stability of the applicant’s monthly income may be determined by verification of gross monthly income from primary employment, and additionally from any verifiable secondary income.
In December 2014, the Company began purchasing HELOCs originated by other financial institutions. At June 30, 2018,2020, HELOCs-purchased totaled $166.3$71.8 million, or 6.6%2.6% of our loan portfolio. Unfunded commitments on these lines of credit were $35.4$25.8 million at June 30, 2018.2020. The credit risk characteristics are different for these loans since they were not originated by the Company and the collateral is located outside the Company’s market area, primarily in several western states. All of these loans were originated in 2012 or later and had an average FICO score of 740 and loan to values of less than 90% at origination. Loan charge-offs in this portfolio since December 2014 totaled $48,000. The Company will continue to monitor the performance of these loans and adjust the allowance for loan losses as necessary.
HELOCs generally entail greater risk than do one-to-four family residential mortgage loans where we are in the first lien position. For those home equity lines secured by a second mortgage, it is unlikely that we will be successful in recovering all or a portion of our loan proceeds in the event of default unless we are prepared to repay the first mortgage loan and such repayment and the costs associated with a foreclosure are justified by the value of the property.
Construction and Land/Lots. We have been an active originator of construction to permanentconstruction-to-permanent loans to homeowners building a residence. In addition, we originate land/lot loans predominately for the purchase or refinance of an improved lot for the construction of a residence to be occupied by the borrower. All of our construction and land/lot loans were made on properties located within our market area.
At June 30, 2018,2020, our construction and land/lot loan portfolio was $65.6$81.9 million compared to $50.1$80.6 million at June 30, 2017.2019. At June 30, 2018,2020, unfunded loan commitments totaled $58.9$32.0 million, compared to $42.4$65.4 million at June 30, 2017.2019. Construction-to-permanent loans are made for the construction of a one-to-four family property which is intended to be occupied by the borrower as either a primary or secondary residence. Construction-to-permanent loans are originated to the homeowner rather than the homebuilder and are structured to be converted to a first lien fixed- or adjustable-rate permanent loan at the completion of the construction phase. We do not originate construction phase only or junior lien construction-to-permanent loans. The permanent loan is generally underwritten to the same standards as our one-to-four family residential loans and may be held by us for portfolio investment or sold in the secondary market. At June 30, 20182020, our construction-to-permanent loans totaled $52.6$74.1 million, or 3.0% of our loan portfolio and the average loan size was $199,000.$244,871. During the construction phase, which typically lasts for six to 12 months, we make periodic inspections of the construction site and loan proceeds are disbursed directly to the contractors or borrowers as construction progresses. Typically, disbursements are made in monthly draws during the construction period. Loan proceeds are disbursed based on a percentage of completion. Construction-to-permanent loans require payment of interest only during the construction phase. Prior to making a commitment to fund a construction loan, we require an appraisal of the property by an independent appraiser. Construction loans may be originated up to 95% of the cost or of the appraised value upon completion, whichever is less; however, we generally do not originate construction loans which exceed the lower of 80% loan to cost or appraised value without securing adequate private mortgage insurance or other form of credit enhancement such as the Federal Housing Administration or other governmental guarantee. We also require general liability, builder’s risk hazard insurance, title insurance, and flood insurance (as applicable, for properties located or to be built in a designated flood hazard area) on all construction loans. At June 30, 2018,2020, the largest construction to permanentconstruction-to-permanent loan had an outstanding balance of $2.5$1.7 million and was performing according to the original repayment terms.
Included in our construction and land/lot loan portfolio are land/lot loans, which are typically loans secured by developed lots in residential subdivisions located in our market areas. We originate these loans to individuals intending to construct their primary or secondary residence on the lot within one year from the date of origination. This portfolio may also include loans for the purchase or refinance of unimproved land that is generally less than or equal to five acres, and for which the purpose is to commence the improvement of the land and construction of an owner-occupied primary or secondary residence within one year from the date of loan origination.
Land/lot loans are typically originated in an amount up to 70% of the lower of the purchase price or appraisal, are secured by a first lien on the property, for up to a 20-year term, require payments of interest only and are structured with an adjustable rate of interest on terms similar to our one-to-four family residential mortgage loans. At June 30, 2018,2020, our land/lot loans totaled $13.0$7.8 million and the average land/lot loan size was
$53,000. $43,000. At June 30, 2018,2020, the largest land/lot loan had an outstanding balance of $414,000$378,000 and was performing according to the original repayment terms.
Construction and land/lot lending affords us the opportunity to achieve higher interest rates and fees with shorter terms to maturity than the rates and fees generated by our one-to-four family permanent mortgage lending. Construction/permanentConstruction-to-permanent loans, however, generally involve a higher degree of risk than our one-to-four family permanent mortgage lending. If our appraisal of the value of the completed residence proves to be overstated, we may have inadequate security for the repayment of the loan upon completion of construction and may incur a loss. Land/lot loans also pose additional risk because of the lack of income being produced by the property and the potential illiquid nature of the collateral. These risks can also be significantly impacted by supply and demand conditions.
Indirect Auto Finance. As of June 30, 2018,2020, our indirect auto finance installment contracts totaled $173.1$132.3 million, or 6.9%4.8% of our total loan portfolio. Going forward, the Company expects to maintain the size of this portfolio at approximately the same current percentage of the total loan portfolio. As an indirect lender, we market to automobile dealerships, both manufacturer franchised dealerships and independent dealerships, who utilize our origination platform to provide automotive financing through installment contracts on new and used vehicles. As of June 30, 2018,2020, we worked with 6866 auto dealerships located in western North Carolina and upstate South Carolina. Working with strong dealerships within our market area provides us with the opportunity to actively deepen customer relationships through cross-selling opportunities, as 83.0%91.0% of our indirect auto finance loans are originated to noncustomers.
The dealers are compensated via an industry standard commission, known as dealer reserve, on marked-up interest rates or from flat rate commission amounts. Our auto finance sales team uses purchased industry data to provide quantitative analysis of dealer sales history to target strong dealerships as the starting point of building long lasting, successful relationships. Local, quick decisions, broad hour coverage, personalized customer service, and prompt contract funding are keys to our success in this competitive line of business. Additionally, our process has been designed to integrate with existing dealership practices, utilizeutilizing an industry leading decision engine, which provides our internal underwriters with the tools needed to respond quickly to loans meeting our credit policy criteria.
Our underwriting guidelines for indirect auto loans allow for financing the entire cost of the vehicle and therefore focuses on the ability of the borrower to repay the loan rather than the value of the underlying collateral. Our underwriting procedures for indirect auto loans include an evaluation of an applicant's credit profile along with certain applicant specific characteristics to arrive at an estimate of the associated credit risk. Additionally, internal underwriters may also verify an applicant's employment income and/or residency or where appropriate, verify an applicant's payment history directly with the applicant's creditors. We will also generally verify receipt of the automobile and other information directly with the borrower.
Indirect auto finance customers receive a fixed rate loan in an amount and at an interest rate that is commensurate to their FICO credit score, consumer payment credit history, loan term, and based on our underwriting procedures. The amount financed by us will generally be up to the full sales price of the vehicle plus sales tax, dealer preparation fees, license fees and title fees, plus the cost of service and warranty contracts and "GAP" insurance coverage obtained in connection with the vehicle or the financing (such amounts in addition to the sales price, collectively the "Additional Vehicle Costs"). Accordingly, the amount financed by us generally may exceed, depending on the credit score and applicant’s profile, in the case of new vehicles, the manufacturer's suggested retail price of the financed vehicle and the Additional Vehicle Costs. In the case of used vehicles, if the applicant meets our creditworthiness criteria, the amount financed may exceed the vehicle's value as assigned by the NADA Official Used Car Guide, our primary reference source of used cars and the Additional Vehicle Costs.
Our indirect auto portfolio at June 30, 2018,2020, consisted of 9,6649,437 installment loan contracts with a weighted-average contract rate of 4.60%, an average FICO credit score of 754,743, and an average loan to value ratio of 96.1%100.9% based on wholesale dealer invoice on new cars and the NADA Official Used Car Guide for used cars. Approximately 96%85% were originated through manufacturer franchised dealerships and approximately 4%15% were originated through independent dealerships; 46%35% were contracts on new vehicles and 54%65% were contracts on used vehicles. The average loan term is averaging 69at origination was 70 months which is comparable to national auto industry data.
Because our primary focus for indirect auto loans is on the credit quality of the customer rather than the value of the collateral, the collectability of an indirect auto loan is more likely than a single-family first mortgage loan to be affected by adverse personal circumstances. We rely on the borrower's continuing financial stability, rather than on the value of the vehicle, for the repayment of an indirect auto loan. Because automobiles usually rapidly depreciate in value, it is unlikely that a repossessed vehicle will cover repayment of the outstanding loan balance.
Consumer Lending. Our consumer loans consist of loans secured by depositsdeposit accounts or personal property such as automobiles, boats, and motorcycles, as well as unsecured consumer debt. At June 30, 2018,2020, our consumer loans totaled $12.4$10.3 million, or 0.5%0.4% of our loan portfolio. We originate our consumer loans primarily in our market areas.
Consumer loans generally have shorter terms to maturity, which reduces our exposure to changes in interest rates. In addition, management believes that offering consumer loan products helps to expand and create stronger ties to our existing customer base by increasing the number of customer relationships and providing cross-marketing opportunities.
Our underwriting standards for consumer loans include a determination of the applicant’s credit history and an assessment of the applicant’s ability to meet existing obligations and payments on the proposed loan. The stability of the applicant’s monthly income may be determined by verification of gross monthly income from primary employment, and additionally from any verifiable secondary income.
Consumer loans generally entail greater risk than do one-to-four family residential mortgage loans, particularly in the case of consumer loans that are unsecured or secured by rapidly depreciable assets, such as automobiles. In these cases, any repossessed collateral for a defaulted loan
may not provide an adequate source of repayment of the outstanding loan balance. As a result, consumer loan collections are dependent on the borrower’s continuing financial stability and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy.
Commercial Loans
Commercial Real Estate Lending. We originate commercial real estate loans, including loans secured by office buildings, retail/wholesale facilities, hotels, industrial facilities, medical and professional buildings, churches, and multifamily residential properties located primarily in our market areas. As of June 30, 2018, $857.3 million2020, $1.1 billion or 33.9%38.0% of our total loan portfolio was secured by commercial real estate property, including multifamily loans totaling $106.7$90.3 million, or 4.2%3.3% of our total loan portfolio. Of the remaining amount, $222.5$316.1 million was identified as owner occupied commercial real estate, and $528.1$646.5 million was secured by income producing, or non-owner-occupied commercial real estate. Commercial real estate loans generally are priced at a higher rate of interest than one-to-four family residential loans. Typically, these loans have higher loan balances, are more difficult to evaluate and monitor, and involve a greater degree of risk than one-to-four family residential loans. Often payments on loans secured by commercial or multi-family properties are dependent on the successful operation and management of the property; therefore, repayment of these loans may be affected by adverse conditions in the real estate market or the economy. We generally require and obtain loan guarantees from financially capable parties based upon the review of personal financial statements. If the borrower is a corporation, we generally require and obtain personal guarantees from the corporate principals based upon a review of their personal financial statements and individual credit reports.
The average outstanding loan size in our commercial real estate portfolio was $667,000$832,000 as of June 30, 2018.2020. The Bank’s commercial focus is on developing and fostering strong banking relationships with small to mid-size clients within our market area. At June 30, 2018,2020, the largest commercial real estate loan in our portfolio was to a local borrower in Asheville, NC for $12.9$27.3 million secured by a hotel.an assisted living property located in Savannah, GA. Our largest multi-family loan as of June 30, 20182020 was a 76.74% interest in a 9160 unit apartment propertycomplex in Charlotte,Sanford, NC with an outstanding balance of $9.9$5.1 million. Both of these loans were performing according to their original repayment terms as of June 30, 2018.2020.
We offer both fixed- and adjustable-rate commercial real estate loans. Our commercial real estate mortgage loans generally include a balloon maturity of five years or less. Amortization terms are generally limited to 20 years. Adjustable rate basedrate-based loans typically include a floor and ceiling interest rate and are indexed to The Wall Street Journal prime rate, or the one-month London Interbank Offered Rate ("LIBOR"),LIBOR, plus or minus an interest rate margin and rates generally adjust daily. The maximum loan to value ratio for commercial real estate loans is generally up to 80% on purchases and refinances. We require appraisals of all non-owner occupied commercial real estate securing loans in excess of $250,000, and all owner-occupied commercial real estate securing loans in excess of $500,000, performed by independent appraisers. For loans less than these amounts, we may use the tax assessed value, broker price opinions, and/or a property inspection in lieu of an appraisal.
If we foreclose on a commercial real estate loan, our holding period for the collateral typically is longer than for one-to-four family residential mortgage loans because there are fewer potential purchasers of the collateral. Further, our commercial real estate loans generally have relatively large balances to single borrowers or related groups of borrowers. Accordingly, if we make any errors in judgment in the collectability of our commercial real estate loans, any resulting charge-offs may be larger on a per loan basis than those incurred with our retail loan portfolios.
Construction and Development Lending. We originate residential construction and development loans for the construction of single-family residences, condominiums, townhouses, and residential developments. Our commercial construction development loans are for the development of business properties, including multi-family, retail, office/warehouse, and office buildings. Our land, lots, and development loans are predominately for the purchase or refinance of unimproved land held for future residential development, improved residential lots held for speculative investment purposes and for the future construction of speculative one-to-four family or commercial real estate.
Our expansion into larger metro markets combined with the hiring of experienced commercial real estate relationship managers, credit officers, and the development of a construction risk management group to better manage construction risk, has led to a significant increase in and consciencefocused effort to grow the construction and development portfolio. At June 30, 2018,2020, our construction and development loans totaled $192.1$215.9 million, or 7.6%7.8% of our total loan portfolio. At June 30, 2018, $54.02020, $145.7 million, or 28.1%67.8% of our construction and development loans, required interest-only payments. A minimal amount of these construction loans provide for interest payments to be paid out of an interest reserve, which is established in connection with the origination of the loan pursuant to which we will fund the borrower's monthly interest payments and add the payments to the outstanding principal balance of the loan. Unfunded commitments at June 30, 20182020 totaled $151.6$85.0 million compared to $116.0$123.1 million at June 30, 2017.2019. Land acquisition and development loans are included in the construction and development loan portfolio, and represent loans made to developers for the purpose of acquiring raw land and/or for the subsequent development and sale of residential lots. Such loans typically finance land purchase and infrastructure development of properties (i.e. roads, utilities, etc.) with the aim of making improved lots ready for subsequent sale to consumers or builders for ultimate construction of residential units. The primary source of repayment is generally the cash flow from developer sale of lots or improved parcels of land, secondary sources and personal guarantees, which may provide an additional measure of security for such loans.
Land acquisition and development loans are generally secured by property in our primary market areas. In addition, these loans are secured by a first lien on the property, are generally limited to up to 65% of the lower of the acquisition price or the appraised value of the land and generally have a maximum amortization term of ten years with a balloon maturity of up to three years. We require title insurance and, if applicable, a hazardous waste survey reporting that the land is free of hazardous or toxic waste. At June 30, 2018,2020, our land acquisition and development loans in our commercial construction and development portfolio totaled $64.5$58.0 million. The largest land acquisition and development loan had an outstanding balance at June 30, 20182020 of $5.2$3.5 million and was performing according to its repayment terms. The subject loan is secured by a 53
lot residential lot development.development in Raleigh, NC. At June 30, 2018, 122020, 7 land acquisition and development loans totaling $2.0 million$465,000 were classified as nonaccruing.
Part of our land acquisition and development portfolio consists of speculative construction loans for homes. These homes typically have an average price ranging from $200,000$250,000 to $500,000. Speculative construction loans are made to home builders and are termed “speculative” because the home builder does not have, at the time of loan origination, a signed contract with a home buyer who has a commitment for permanent financing with either us or another lender for the finished home. The home buyer may be identified either during or after the construction period, with the risk that the builder will have to fund the debt service on the speculative construction loan and finance real estate taxes and other carrying costs of the completed home for a significant period of time after the completion of construction, until a home buyer is identified. Loans to finance the construction of speculative single-family homes and subdivisions are generally offered to experienced builders with proven track records of performance, are qualified using the same standards as other commercial loan credits and require cash reserves to carry projects through construction completions and sale of the project. These loans require payment of interest-only during the construction phase. At June 30, 2018,2020, loans for the speculative construction of single family properties totaled $48.7$47.7 million compared to $44.9$46.0 million at June 30, 2017.2019. At June 30, 2018,2020, we had 17two borrowers each with an aggregate outstanding loan balance over $1.0 million which together comprise 55.5%5.1% of the total balance for the speculative construction of single family properties and secured by properties located in our market areas. At June 30, 2018, four2020, no speculative construction loans totaling $85,000 were classified as nonaccruing. Unfunded commitments remained unchanged at $30.1were $32.0 million at both June 30, 20182020 and 2017.$31.4 million at June 30, 2019.
Commercial construction and construction to permanentconstruction-to-permanent loans are offered on an adjustable interest rate or fixed interest rate basis. Adjustable interest rate loans typically include a floor and ceiling interest rate and are indexed to The Wall Street Journal prime rate, plus or minus an interest rate margin. The initial construction period is generally limited to 12 to 24 months from the date of origination, and amortization terms are generally limited to 20 years; however, amortization terms of up to 25 years may be available for certain property types based on elevated underwriting and qualification criteria. Construction to permanentConstruction-to-permanent loans generally include a balloon maturity of five years or less; however, balloon maturities of greater than five years are allowed on a limited basis depending on factors such as property type, amortization term, lease terms, pricing, or the availability of credit enhancements. Construction loan proceeds are disbursed commensurate with the percentage of completion of work in place, as documented by periodic internal or third-party inspections. The maximum loan-to-value limit applicable to these loans is generally 80% of the appraised post-construction value. Disbursement of funds is at our sole discretion and is based on the progress of construction. At June 30, 20182020, we had $79.3$110.2 million of non-residential construction loans included in our commercial construction and development loan portfolio.
We require all real estate securing construction and development loans to be appraised by an independent Bank-approved state-licensed or state-certified real estate appraiser. General liability, builder’s risk hazard insurance, title insurance, and flood insurance (as applicable, for properties located or to be built in a designated flood hazard area) are also required on all construction and development loans.
Construction and development lending affords us the opportunity to achieve higher interest rates and fees with shorter terms to maturity than the rates and fees generated by our single-family permanent mortgage lending.
For the reasons set forth below, construction and development lending involves additional risks when compared with permanent residential lending. Our construction and development loans are based upon estimates of costs in relation to values associated with the completed project. Funds are advanced upon the collateral for the project based on an estimate of costs that will produce a future value at completion. Because of the uncertainties inherent in estimating construction costs, as well as the market value of the completed project and the effects of governmental regulation on real property, it is relatively difficult to evaluate accurately the total funds required to complete a project and the completed project loan-to-value ratio. Changes in the demand, such as for new housing, and higher than anticipated building costs may cause actual results to vary significantly from those estimated. This type of lending also typically involves higher loan principal amounts and is often concentrated with a small number of builders. These loans often involve the disbursement of funds with repayment substantially dependent on the success of the ultimate project and the ability of the borrower to sell or lease the property or obtain permanent take-out financing, rather than the ability of the borrower or guarantor to repay principal and interest. If our appraisal of the value of a completed project proves to be overstated, we may have inadequate security for the repayment of the loan upon completion of construction of the project and may incur a loss. Because construction loans require active monitoring of the building process, including cost comparisons and on-site inspections, these loans are more difficult and costly to monitor. Increases in market rates of interest may have a more pronounced effect on construction loans by rapidly increasing the end-purchasers' borrowing costs, thereby reducing the overall demand for the project. Properties under construction are often difficult to sell and typically must be completed in order to be successfully sold which also complicates the process of working out problem construction loans. This may require us to advance additional funds and/or contract with another builder to complete construction and assume the market risk of selling the project at a future market price, which may or may not enable us to fully recover unpaid loan funds and associated construction and liquidation costs. Furthermore, in the case of speculative construction loans, there is the added risk associated with identifying an end-purchaser for the finished project. Land acquisition and development loans also pose additional risk because of the lack of income being produced by the property and the potential illiquid nature of the collateral. These risks can also be significantly influenced by supply and demand conditions.
Commercial and Industrial Loans. We typically offer commercial and industrial loans to small businesses located in our primary market areas. These loans are primarily originated as conventional loans to business borrowers, which include lines of credit, term loans, and letters of credit. These loans are typically secured by collateral and are used for general business purposes, including working capital financing, equipment financing, capital investment, and general investments. Loan terms typically vary from typically one to five years. The interest rates on such loans are either fixed rate or adjustable rate indexed to The Wall Street Journal prime rate plus a margin. Inherent with our extension of business credit is the business deposit relationship which frequently includes multiple accounts and related services from which we realize low cost deposits plus service and ancillary fee income.
Commercial and industrial loans typically have shorter maturity terms and higher interest rates than real estate loans, but generally involve more credit risk because of the type and nature of the collateral. We are focusing our efforts on small- to medium-sized, privately-held companies with
local or regional businesses that operate in our market areas. At June 30, 2018,2020, commercial and industrial loans totaled $148.8$154.8 million, which represented 5.9%5.6% of our total loan portfolio. Our commercial and industrial lending policy includes credit file documentation and analysis of the borrower’s background, capacity to repay the loan, the adequacy of the borrower’s capital and collateral, as well as an evaluation of other conditions affecting the borrower. Analysis of the borrower’s past, present and future cash flows is also an important aspect of our credit analysis. We generally obtain personal guarantees on our commercial business loans.
During fiscal 2018, we began to originate commercial business loan originationsloans made under the U.S. Small Business Administration ("SBA")SBA 7(a) and United States Department of Agriculture Business & Industry (“USDA B&I”)&I programs to small businesses located throughout the Southeast. We originate these loans and utilize a third party service provider that assists with processing and closing services based on the Bank’s underwriting and credit approval criteria. Loans made by the Bank under the SBA 7(a) and USDA B&I programs generally are made to small businesses to provide working capital needs, to refinance existing debt or to provide funding for the purchase of businesses, real estate, machinery, and equipment. These loans generally are secured by a combination of assets that may include receivables, inventory, furniture, fixtures, equipment, business real property, commercial real estate and sometimes additional collateral such as an assignment of life insurance and a lien on personal real estate owned by the guarantor(s). The terms of these loans vary by use of funds. The loans are primarily underwritten on the basis of the borrower’s ability to service the loan from qualifying business income. Under the SBA 7(a) and USDA B&I loan program the loans carry a government guaranty up to 90% of the loan in some cases. Typical maturities for this type of loan vary up to twenty-five years and can be thirty years in some circumstances. SBA 7(a) and USDA B&I loans will normally be adjustable rate loans based upon the TheWall Street Journal prime lending rate. Under the loan programs, we will typically sell in the secondary market the guaranteed portion of these loans to generate noninterest income and retain the related unguaranteed portion of these loans; loan servicing is handled by a third party loan sub-service provider for a fee paid for by the purchaser of the guaranteed loan portion. We generally offer SBA 7(a) loans up to $5.0 million and USDA B&I loans up to $10.0 million. During the year ended June 30, 2018,2020, we originated $17.7$48.3 million and sold participating interests of $13.2$38.1 million in SBA 7(a) and USDA B&I loans.
Repayment of our commercial and industrial loans is often dependent on the cash flows of the borrower, which may be unpredictable, and the collateral securing these loans may fluctuate in value. Our commercial and industrial loans are originated primarily based on the identified cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. Most often, this collateral consists of equipment, inventory or accounts receivable. Credit support provided by the borrower for most of these loans and the probability of repayment is based on the liquidation of the pledged collateral and enforcement of a personal guarantee, if any. As a result, in the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers. The collateral securing other loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business.
Equipment Finance. Our Equipment Finance line of business first began operations in May 2018 and offers companies that are purchasing equipment for their business various products to help manage tax and accounting issues, while offering flexible and customizable repayment terms. These products are primarily made up of commercial finance agreements and commercial loans for transportation, construction, and manufacturing equipment. The loans have terms ranging from 24 to 84 months, with an average of five years and are secured by the financed equipment. Typical transaction sizes range from $25,000 to $1.0 million, with an average size of approximately $150,000. At June 30, 2020, equipment finance loans totaled $229.2 million, which represented 8.3% of our total loan portfolio.
Municipal Leases. We offer ground and equipment lease financing to fire departments located primarily throughout North Carolina and, to a lesser extent, South Carolina. Municipal leases are secured primarily by a ground lease in our name with a sublease to the borrower for a fire station or an equipment lease for fire trucks and firefighting equipment. Prior to December 31, 2016, we originated these loans primarily through a third party that assigned the lease to us after we funded the loan. On December 31, 2016, we acquired the third party originator, United Financial of North Carolina, Inc., and now all originations and underwriting is performed directly by us prior to funding. These leases are at a fixed rate of interest and may have a term to maturity of up to 20 years.
At June 30, 2018,2020, municipal leases totaled $109.2$128.0 million, which represented 4.3%4.6% of our total loan portfolio. At that date, $38.7$40.7 million, or 35.4%31.8% of our municipal leases were secured by fire trucks, $28.7$36.4 million, or 26.3%28.4%, were secured by firehouses, $39.0fire stations, $34.7 million or 35.7%27.1%, were secured by both, with the remaining $2.8$16.2 million or 2.6%12.7% secured by miscellaneous firefighting equipment.equipment and land. At June 30, 2018,2020, the average outstanding municipal lease size was $384,000.$390,000.
Repayment of our municipal leases is often dependent on the tax revenues collected by the county/municipality on behalf of the fire department. Although a municipal lease does not constitute a general obligation of the county/municipality for which the county/municipality's taxing power is pledged, a municipal lease is ordinarily backed by the county/municipality's covenant to budget for, appropriate and pay the tax revenues to the fire department. However, certain municipal leases contain "non-appropriation" clauses which provide that the municipality has no obligation to make lease or installment purchase payments in future years unless money is appropriated for such purpose on a yearly basis. In the case of a "non-appropriation" lease, our ability to recover under the lease in the event of non-appropriation or default will be limited solely to the repossession of the leased property, without recourse to the general credit of the lessee, and disposition or releasing of the property might prove difficult. At June 30, 2018, $11.62020, $25.8 million of our municipal leases contained a non-appropriation clause.
Loan Originations, Purchases, Sales, Repayments and Servicing
We originate both fixed-rate and adjustable-rate loans. Our ability to originate loans, however, is dependent upon customer demand for loans in our market area. Demand is affected by competition and the interest rate environment. During the past few years, we, like many other financial
institutions, have experienced significant prepayments on loans due to the low interest rate environment prevailing in the United States. In periods of economic uncertainty, the ability of financial institutions, including us, to originate large dollar volumes of real estate loans may be substantially reduced or restricted, with a resultant decrease in interest income. We do not generally purchase loans or loan participations except for certain HELOCs. We actively sell the majority of our long-term fixed-rate residential first mortgage loans to the secondary market at the time of origination and retain our adjustable-rate residential mortgages and certain fixed-rate mortgages with terms to maturity less than or equal to 15 years and other consumer and commercial loans. In addition, we began selling the guaranteed portion of SBA 7(a) and USDA B&I loans during fiscal 2018. During the years ended June 30, 20182020 and 20172019, we sold $139.2$458.9 million and $138.1$168.0 million, respectively, of predominantly one-to-four
family loans and SBA 7(a) loans to the secondary market. We generally release the servicing on theof one-to-four family loans we sell into the secondary market.market, and retain the servicing on SBA 7(a) loans sold. Loans are generally sold on a non-recourse basis.
Beginning in fiscal year 2019, we started originating HELOCs through a third party which are then pooled and sold to other investors. During the years ended June 30, 2020 and 2019, we originated $105.5 million and $6.2 million, respectively, of these HELOCs and sold $62.0 million during the year ended June 30, 2020. There were no sales of these HELOCS during the year ended June 30, 2019.
In addition to interest earned on loans and loan origination fees, we receive fees for loan commitments, late payments and other miscellaneous services. The fees vary from time to time, generally depending on the supply of funds and other competitive conditions in the market.
The following table shows our loan origination, purchase, sale and repayment activities for the periods indicated.
| | | | Years Ended June 30, | Years Ended June 30, |
| | 2018 | | 2017 | | 2016 | 2020 | | 2019 | | 2018 |
Originations:(1) | | | | | | | | | | |
| Retail consumer: | (In thousands) | (In thousands) |
| One-to-four family | $ | 189,562 |
| | $ | 233,478 |
| | $ | 173,540 |
| $ | 279,469 |
| | $ | 182,483 |
| | $ | 189,562 |
|
| Home equity - originated | 57,018 |
| | 47,072 |
| | 50,406 |
| 193,520 |
| | 70,532 |
| | 57,018 |
|
| Construction and land/lots | 100,421 |
| | 71,674 |
| | 42,493 |
| 99,767 |
| | 106,933 |
| | 100,421 |
|
| Indirect auto finance | 99,558 |
| | 84,707 |
| | 87,844 |
| 50,380 |
| | 55,610 |
| | 99,558 |
|
| Consumer | 3,100 |
| | 2,722 |
| | 4,192 |
| 1,432 |
| | 9,096 |
| | 3,100 |
|
| Commercial loans: | | | | | |
| | | | | |
| Commercial real estate | 257,494 |
| | 238,870 |
| | 137,660 |
| 230,456 |
| | 186,907 |
| | 257,494 |
|
| Construction and development | 234,102 |
| | 192,803 |
| | 164,945 |
| 172,618 |
| | 173,904 |
| | 234,102 |
|
| Commercial and industrial | 77,871 |
| | 92,591 |
| | 22,933 |
| 80,928 |
| | 78,089 |
| | 57,643 |
|
| Paycheck Protection Program | | 80,732 |
| | — |
| | — |
|
| Equipment finance | | 164,018 |
| | 147,225 |
| | 20,228 |
|
| Municipal leases | 21,038 |
| | 8,278 |
| | — |
| 27,458 |
| | 22,748 |
| | 21,038 |
|
| Total loans originated | $ | 1,040,164 |
| | $ | 972,195 |
| | $ | 684,013 |
| $ | 1,380,778 |
| | $ | 1,033,527 |
| | $ | 1,040,164 |
|
| Purchases: | |
| | |
| | |
| |
| | |
| | |
|
| Retail consumer: | | | | | | | | | | |
| Home equity - purchased | $ | 60,371 |
| | $ | 77,000 |
| | $ | 109,045 |
| $ | — |
| | $ | — |
| | $ | 60,371 |
|
| Commercial loans: | | | | | |
| | | | | |
| Commercial real estate | 790 |
| | 930 |
| | 489 |
| 702 |
| | 1,005 |
| | 790 |
|
| Municipal leases | — |
| | 8,973 |
| | 11,118 |
| |
| Loans acquired through business combination | — |
| | 258,059 |
| | — |
| |
| Total loans purchased or acquired | $ | 61,161 |
| | $ | 344,962 |
| | $ | 120,652 |
| $ | 702 |
| | $ | 1,005 |
| | $ | 61,161 |
|
| Sales and repayments: | |
| | |
| | |
| |
| | |
| | |
|
| Retail consumer: | | | | | | | | | | |
| One-to-four family | $ | 125,830 |
| | $ | 135,365 |
| | $ | 92,054 |
| $ | 358,852 |
| | $ | 121,158 |
| | $ | 125,830 |
|
| Home equity - originated | — |
| | — |
| | 15 |
| 61,959 |
| | — |
| | — |
|
| Consumer | — |
| | — |
| | 1 |
| |
| Commercial loans: | | | | | | | | | | |
| Commercial real estate | — |
| | 2,781 |
| | 89 |
| 15,824 |
| | 28,759 |
| | — |
|
| Construction and development | 116 |
| | — |
| | 44 |
| — |
| | — |
| | 116 |
|
| Commercial and industrial | 13,244 |
| | — |
| | 287 |
| 22,256 |
| | 18,124 |
| | 13,244 |
|
| Total sales | 139,190 |
| | 138,146 |
| | 92,490 |
| 458,891 |
| | 168,041 |
| | 139,190 |
|
| Principal repayments | 787,487 |
| | 660,548 |
| | 565,142 |
| 799,658 |
| | 674,851 |
| | 787,487 |
|
| Total reductions | $ | 926,677 |
| | $ | 798,694 |
| | $ | 657,632 |
| $ | 1,258,549 |
| | $ | 842,892 |
| | $ | 926,677 |
|
| Net increase | $ | 174,648 |
| | $ | 518,463 |
| | $ | 147,033 |
| $ | 122,931 |
| | $ | 191,640 |
| | $ | 174,648 |
|
| |
| (1) | Originations include one-to-four family loans, HELOCs, SBA 7(a) loans, and USDA B&I loans originated for sale of $143.8 $399.1million, $134.3$190.9 million, and $92.0$143.8 million for years ended June 30, 2020, 2019, and 2018, 2017, and 2016, respectively. |
Asset Quality
Loan Delinquencies and Collection Procedure. When a borrower fails to make a required payment on a residential real estate loan, we attempt to cure the delinquency by contacting the borrower. A late notice is sent 15 days after the due date, and the borrower may also be contacted by phone at this time. If the delinquency continues, subsequent efforts are made to contact the delinquent borrower and additional collection notices and letters are sent. When a loan is 90 days delinquent, we may commence repossession or a foreclosure action. Reasonable attempts are made to collect from borrowers prior to referral to an attorney for collection. In certain instances, we may modify the loan or grant a limited moratorium on loan payments to enable the borrower to reorganize their financial affairs, and we attempt to work with the borrower to establish a repayment schedule to cure the delinquency.
Delinquent consumer loans are handled in a similar manner, except that late notices are sent within 30 days after the due date. Our procedures for repossession and sale of consumer collateral are subject to various requirements under the applicable consumer protection laws, as well as other applicable laws, and the determination by us that it would be beneficial from a cost basis.
Delinquent commercial loans are initially handled by the relationship manager of the loan, who is responsible for contacting the borrower. Larger problem commercial loans are transferred to the Bank's Special Assets Department for resolution or collection activities. The Special Assets Department may work with the commercial relationship managers to see that the necessary steps are taken to collect delinquent loans, while ensuring that standard default notices and letters are mailed to the borrower. If a commercial loan becomes more problematic, or goes 90 days past the due date, a Special Assets officer will take over the loan for further collection activities including any legal action that may be necessary. If an acceptable workout or disposition plan of a delinquent commercial loan cannot be reached, we generally initiate foreclosure or repossession proceedings on any collateral securing the loan.
The following table sets forth our loan delinquencies by type, by amount and by percentage of type at June 30, 2018.2020.
| | | | Loans Delinquent For: | Loans Delinquent For: |
| | | | | | | | | | | | | | Total Loans Delinquent | | | | | | | | | | | | | Total Loans Delinquent |
| | 30-89 Days | | 90 Days and Over | | 30 Days or More | 30-89 Days | | 90 Days and Over | | 30 Days or More |
| | Number | | Amount | | Percent of Loan Category | | Number | | Amount | | Percent of Loan Category | | Number | | Amount | | Percent of Loan Category | Number | | Amount | | Percent of Loan Category | | Number | | Amount | | Percent of Loan Category | | Number | | Amount | | Percent of Loan Category |
| | (Dollars in thousands) | (Dollars in thousands) |
| Retail consumer loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| One-to-four family | 52 |
| | $ | 3,001 |
| | 0.45 | % | | 31 |
| | $ | 1,756 |
| | 0.26 | % | | 83 |
| | $ | 4,757 |
| | 0.72 | % | 28 |
| | $ | 1,679 |
| | 0.35 | % | | 42 |
| | $ | 3,147 |
| | 0.66 | % | | 70 |
| | $ | 4,826 |
| | 1.02 | % |
| Home equity - originated | 1 |
| | 98 |
| | 0.07 |
| | 8 |
| | 268 |
| | 0.19 |
| | 9 |
| | 366 |
| | 0.27 |
| 8 |
| | 442 |
| | 0.32 |
| | 7 |
| | 310 |
| | 0.23 |
| | 15 |
| | 752 |
| | 0.55 |
|
| Home equity - purchased | | 2 |
| | 214 |
| | — |
| | 1 |
| | 47 |
| | — |
| | 3 |
| | 261 |
| | — |
|
| Construction and land/lots | 2 |
| | 44 |
| | 0.07 |
| | 3 |
| | 54 |
| | 0.08 |
| | 5 |
| | 98 |
| | 0.15 |
| — |
| | — |
| | — |
| | 3 |
| | 252 |
| | 0.31 |
| | 3 |
| | 252 |
| | 0.31 |
|
| Indirect auto finance | 26 |
| | 335 |
| | 0.19 |
| | 13 |
| | 127 |
| | 0.07 |
| | 39 |
| | 462 |
| | 0.27 |
| 47 |
| | 756 |
| | 0.57 |
| | 53 |
| | 285 |
| | 0.22 |
| | 100 |
| | 1,041 |
| | 0.79 |
|
| Consumer | 8 |
| | 238 |
| | 1.92 |
| | 6 |
| | 39 |
| | 0.32 |
| | 14 |
| | 277 |
| | 2.24 |
| 12 |
| | 30 |
| | 0.29 |
| | 10 |
| | 25 |
| | 0.24 |
| | 22 |
| | 55 |
| | 0.54 |
|
| Commercial loans: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Commercial real estate | 2 |
| | 169 |
| | 0.02 |
| | 17 |
| | 1,412 |
| | 0.16 |
| | 19 |
| | 1,581 |
| | 0.18 |
| 4 |
| | 4,528 |
| | 0.43 |
| | 10 |
| | 2,892 |
| | 0.26 |
| | 14 |
| | 7,420 |
| | 0.70 |
|
| Construction and development | 3 |
| | 260 |
| | 0.14 |
| | 12 |
| | 1,928 |
| | 1.00 |
| | 15 |
| | 2,188 |
| | 1.14 |
| 3 |
| | 293 |
| | 0.14 |
| | 9 |
| | 341 |
| | 0.16 |
| | 12 |
| | 634 |
| | 0.29 |
|
| Commercial and industrial | 1 |
| | 15 |
| | 0.01 |
| | 34 |
| | 69 |
| | 0.05 |
| | 35 |
| | 84 |
| | 0.06 |
| — |
| | — |
| | — |
| | 32 |
| | 91 |
| | 0.06 |
| | 32 |
| | 91 |
| | 0.06 |
|
| Equipment finance | | 2 |
| | 303 |
| | 0.13 |
| | 10 |
| | 498 |
| | 0.22 |
| | 12 |
| | 801 |
| | 0.35 |
|
| Total | 95 |
| | $ | 4,160 |
| | 0.16 | % | | 124 |
| | $ | 5,653 |
| | 0.22 | % | | 219 |
| | $ | 9,813 |
| | 0.39 | % | 106 |
| | $ | 8,245 |
| | 0.31 | % | | 177 |
| | $ | 7,888 |
| | 0.29 | % | | 283 |
| | $ | 16,133 |
| | 0.60 | % |
Nonperforming Assets. Nonperforming assets were $14.6$16.3 million, or 0.44% of total assets at June 30, 2018,2020, compared to $20.0$13.3 million, or 0.62%0.38%, at June 30, 2017.2019.
Over the past several years we have significantly improved our risk profile by aggressively managing and reducing our problem assets. We continue to believe our level of nonperforming assets is manageable, and we believe that we have sufficient capital and human resources to manage the collection of our nonperforming assets in an orderly fashion. However, our operating results could be adversely impacted if we are unable to effectively manage our nonperforming assets.
Loans are placed on nonaccrual status when the collection of principal and/or interest becomes doubtful or other factors involving the loan warrant placing the loan on nonaccrual status. Troubled debt restructuringsTDRs are loans which have renegotiated loan terms to assist borrowers who are unable to meet the original terms of their loans. Such modifications to loan terms may include a lower interest rate, a reduction in principal, or a longer term to maturity. During the fiscal year ended June 30, 2018, 312020, 15 loans for $4.2$1.8 million were modified from their original terms and were classified as a troubled debt restructuring.TDR. This compares to 4129 loans for $4.9$7.3 million that were modified in the fiscal year ended June 30, 2017.2019. As of June 30, 2018,2020, the outstanding balance of troubled debt restructuredTDR loans was $26.2$20.6 million, comprised of 329250 loans as compared to $32.7$27.9 million comprised of 361303 loans at June 30, 2017.2019.
Once a nonaccruing troubled debt restructuringTDR has performed according to its modified terms for six months and the collection of principal and interest under the revised terms is deemed probable, the troubled debt restructuringTDR is removed from nonaccrual status. At June 30, 2018, $4.22020, $6.3 million of troubled debt restructuringsTDRs were classified as nonaccrual, including $1.5 million$536,000 of construction and development loans, the largest of which was $1.0 million as discussed below.loans. As of June 30, 2018, $21.22020, $13.1 million, or 81.3%63.6% of the restructured loans have a current payment status as compared to $27.0$23.1 million, or 82.6%82.8% at June 30, 2017.2019. Performing troubled debt restructuringsTDRs decreased $5.8$10.0 million, or 21.4%43.1%, from June 30, 20172019 to June 30, 2018. 2020. See "Recent Developments: COVID-19, the CARES Act, and Our Response" under Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 5 of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K for additional details on the Company's loan modifications related to COVID-19.
The table below sets forth the amounts and categories of nonperforming assets.
| | | | | At June 30, | | At June 30, |
| | | 2018 | | 2017 | | 2016 | | 2015 | | 2014 | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
Nonaccruing loans:(1) Retail consumer loans: | | (In thousands) | | (Dollars in thousands) |
| One-to-four family | | $ | 4,308 |
| | $ | 6,453 |
| | $ | 9,192 |
| | $ | 10,523 |
| | $ | 14,917 |
| | $ | 3,582 |
| | $ | 3,223 |
| | $ | 4,308 |
| | $ | 6,453 |
| | $ | 9,192 |
|
| Home equity - originated | | 656 |
| | 1,291 |
| | 1,026 |
| | 1,856 |
| | 2,749 |
| | 531 |
| | 348 |
| | 656 |
| | 1,291 |
| | 1,026 |
|
| Home equity - purchased | | 187 |
| | 192 |
| | — |
| | — |
| | — |
| | 662 |
| | 666 |
| | 187 |
| | 192 |
| | — |
|
| Construction and land/lots | | 165 |
| | 245 |
| | 188 |
| | 465 |
| | 443 |
| | 37 |
| | 6 |
| | 165 |
| | 245 |
| | 188 |
|
| Indirect auto finance | | 255 |
| | 1 |
| | 20 |
| | — |
| | — |
| | 668 |
| | 463 |
| | 255 |
| | 1 |
| | 20 |
|
| Consumer | | 321 |
| | 29 |
| | 15 |
| | 49 |
| | 27 |
| | 49 |
| | 45 |
| | 321 |
| | 29 |
| | 15 |
|
| Commercial loans: | | |
| | | | |
| | |
| | |
| | |
| | | | |
| | |
| | |
|
| Commercial real estate | | 2,863 |
| | 2,756 |
| | 3,222 |
| | 5,103 |
| | 12,953 |
| | 8,869 |
| | 3,559 |
| | 2,863 |
| | 2,756 |
| | 3,222 |
|
| Construction and development | | 2,045 |
| | 1,766 |
| | 1,417 |
| | 3,461 |
| | 5,697 |
| | 465 |
| | 1,357 |
| | 2,045 |
| | 1,766 |
| | 1,417 |
|
| Commercial and industrial | | 114 |
| | 827 |
| | 3,019 |
| | 3,081 |
| | 1,134 |
| | 259 |
| | 307 |
| | 114 |
| | 827 |
| | 3,019 |
|
| Equipment finance | | | 801 |
| | 384 |
| | — |
| | — |
| | — |
|
| Municipal leases | | — |
| | 106 |
| | 419 |
| | 316 |
| | — |
| | — |
| | — |
| | — |
| | 106 |
| �� | 419 |
|
| Total nonaccruing loans | | 10,914 |
| | 13,666 |
| | 18,518 |
| | 24,854 |
| | 37,920 |
| | 15,923 |
| | 10,358 |
| | 10,914 |
| | 13,666 |
| | 18,518 |
|
| Real Estate Owned assets: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Retail consumer loans: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| One-to-four family | | 801 |
| | 990 |
| | 794 |
| | 1,613 |
| | 3,876 |
| | 97 |
| | 756 |
| | 801 |
| | 990 |
| | 794 |
|
| Home equity - originated | | 197 |
| | 45 |
| | 30 |
| | 20 |
| | 627 |
| | — |
| | 281 |
| | 197 |
| | 45 |
| | 30 |
|
| Construction and land/lots | | 498 |
| | 690 |
| | 846 |
| | 1,096 |
| | 1,613 |
| | 106 |
| | 358 |
| | 498 |
| | 690 |
| | 846 |
|
| Commercial loans: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Commercial real estate | | 1,730 |
| | 2,736 |
| | 1,211 |
| | 978 |
| | 3,820 |
| | 57 |
| | 1,237 |
| | 1,730 |
| | 2,736 |
| | 1,211 |
|
| Construction and development | | 458 |
| | 1,857 |
| | 3,075 |
| | 3,317 |
| | 4,725 |
| | 77 |
| | 297 |
| | 458 |
| | 1,857 |
| | 3,075 |
|
Total foreclosed assets | | 3,684 |
| | 6,318 |
| | 5,956 |
| | 7,024 |
| | 14,661 |
| | 337 |
| | 2,929 |
| | 3,684 |
| | 6,318 |
| | 5,956 |
|
| Total nonperforming assets | | $ | 14,598 |
| | $ | 19,984 |
| | $ | 24,474 |
| | $ | 31,878 |
| | $ | 52,581 |
| | $ | 16,260 |
| | $ | 13,287 |
| | $ | 14,598 |
| | $ | 19,984 |
| | $ | 24,474 |
|
| Total nonperforming assets as a percentage of total assets | | 0.44 | % | | 0.62 | % | | 0.90 | % | | 1.15 | % | | 2.53 | % | | 0.44 | % | | 0.38 | % | | 0.44 | % | | 0.62 | % | | 0.90 | % |
| Performing Troubled Debt Restructurings | | $ | 21,251 |
| | $ | 27,043 |
| | $ | 28,263 |
| | $ | 21,891 |
| | $ | 22,179 |
| |
| Performing TDRs | | | $ | 13,679 |
| | $ | 23,116 |
| | $ | 21,251 |
| | $ | 27,043 |
| | $ | 28,263 |
|
| |
| (1) | Purchased-credit impaired ("PCI")PCI loans totaling $965 at June 30, 2020, $1,344 at June 30, 2019, $3,353 at June 30, 2018, $6,664 at June 30, 2017, and $6,607 at June 30, 2016 $8,158 at June 30, 2015, and $9,091 at June 30, 2014 are excluded from nonaccruing loans due to the accretion of discounts established in accordance with the acquisition method of accounting for business combinations. |
For the years ended June 30, 20182020 and 2017,2019, gross interest income which would have been recorded had the nonaccruing loans been current in accordance with their original terms amounted to $668,000$643,000 and $897,000,$578,000, respectively. The amount that was included in interest income on such loans was $702,000$602,000 and $1.0 million,$679,000, respectively. At June 30, 2018, $13.92020, $14.5 million in impaired loans were individually evaluated for impairment; $197,000$1.3 million of the allowance for loan losses was allocated to these individually impaired loans at period-end. A loan is impaired when it is probable, based on current information and events, that we will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreements. Troubled debt restructuringsTDRs are also considered impaired. Impaired loans are measured on an individual basis for individually significant loans based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. The amount of impairment, if any, and any subsequent changes are included in the allowance for loan losses.
Within our nonaccruing loans, as of June 30, 2020, we had three nonaccrual lending relationships with aggregate loan exposure in excess of $1.0 million, or 44.8% of our total nonaccruing loans. The single largest relationship was $4.0 million at that date. Our nonaccruing loan exposures in excess of $1.0 million are as follows (dollars in thousands):
|
| | | | | | | | | |
| Amount | | Percent of Total Nonaccruing Loans | | Collateral Securing the Indebtedness | | Geographic Location |
| $ | 4,407 |
| | 27.7 | % | | 1st lien on mixed use multifamily and retail commercial building | | Campbell County, VA |
| 1,572 |
| | 9.9 |
| | 1st lien on medical office building | | Knox County, TN |
| 1,156 |
| | 7.2 |
| | 1st lien on 30 acres with single family home and other improvements | | Jefferson County, TN |
| $ | 7,135 |
| | 44.8 | % | | | | |
We record real estate owned ("REO")REO (property acquired through a lending relationship) at fair value less cost to sell on a non-recurring basis. All REO properties are recorded at amounts which are equal to the fair value of the properties based on independent appraisals (reduced by estimated selling costs) upon transfer of the loans to REO. From time to time, non-recurring fair value adjustments to REO are recorded to reflect partial write-downs based on an observable market price or current appraised value of property. The individual carrying values of these assets are reviewed for impairment at least annually and any additional impairment charges are expensed to operations. For the years ended June 30, 20182020 and 2017,2019, we recognized $539,000$206,000 and $292,000,$295,000, respectively, of REO impairment charges.
Within our nonaccruing loans, as of June 30, 2018 we had one nonaccrual lending relationship with aggregate loan exposure in excess of $1.0 million, or 9.4% of our total nonaccruing loans. This loan is a $1.0 million troubled debt restructuring for construction and development loan secured by improved land zoned for commercial purposes located in Buncombe County, NC. At June 30, 2018,2020, we had $3.7 million$337,000 of REO, the two largest of which had a book value of $563,000$75,000 and is$68,000 and are related to commercial real estateland located in Boiling Springs,Arden, NC. The second and third largest REO propertiesproperty at June 30, 2018 consist2020 consists of multifamily propertiesa one-to-four family property, located in Bristol, VALexington, NC with a book valuesvalue of $549,000 and $312,000, respectively.$63,000. At June 30, 20182020 all other REO properties have individual book values of less than $212,000.$55,000.
REO decreased $2.6 million, to $3.7 million$337,000 at June 30, 20182020 primarily due to the $3.9$2.1 million in sales of REO and $536,000 in writedowns and losses on the sale of REO, which were partially offset by $1.3 million$46,000 in transfers from loans. The total balance of REO included $956,000$183,000 in land, construction and development projects (both residential and commercial), $1.7 million$57,000 in commercial real estate, and $998,000$97,000 in single-family homes at June 30, 2018.2020.
In fiscal 2018,2020, we liquidated $8.4$4.9 million in REO based on contractual loan values at the time of foreclosure, realizing $3.9$2.1 million in net proceeds, or 46.5%43.3%, of the foreclosed contractual loan balances. As of June 30, 2018,2020, the book value of our REO, expressed as a percentage of the related contractual loan balances at the time the properties were transferred to REO was 39.8%11.8%.
Other Loans of Concern. In addition to the nonperforming assets set forth in the table above, as of June 30, 2018,2020, there were 351339 accruing classified loans totaling $32.8$50.8 million with respect to which known information about the possible credit problems of the borrowers have caused management to have concerns as to the ability of the borrowers to comply with present loan repayment terms and which may result in the future inclusion of such items in the nonperforming asset categories. These loans have been considered in management’s determination of our allowance for loan losses.
Classified Assets. Loans and other assets, such as debt and equity securities considered to be of lesser quality, are classified as “substandard,” “doubtful” or “loss.” 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 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.
When we classify a problem asset as either substandard or doubtful, we may establish a specific allowance for loan losses in an amount deemed prudent by management. When we classify problem assets as “loss,” we either establish a specific allowance for losses equal to 100% of that portion of the asset so classified or charge off such amount. Our determination as to the classification of our assets and the amount of our valuation allowances is subject to review by our bank regulators, which may order the establishment of additional general or specific loss allowances. Assets which do not currently expose us to sufficient risk to warrant classification in one of the aforementioned categories but possess weakness are designated by us as “special mention.”
We regularly review the problem assets in our portfolio to determine whether any assets require classification in accordance with applicable regulations. On the basis of management's review of our assets, at June 30, 2018,2020, our classified assets (consisting of $29.4$30.8 million of loans and $3.7 million$337,000 of REO) totaled $33.1$31.1 million, or 1.00%0.84%, of our assets, of which $10.9$15.9 million was included in nonaccruing loans. The aggregate amounts of our classified assets and special mention loans at the dates indicated (as determined by management), were as follows:
| | | | | At June 30, | | At June 30, |
| | | 2018 | | 2017 | | 2020 | | 2019 |
| Classified Assets: | Classified Assets: | (In thousands) | Classified Assets: | (In thousands) |
| Loss | Loss | $ | 31 |
| | $ | 28 |
| Loss | $ | 19 |
| | $ | 35 |
|
| Doubtful | Doubtful | 952 |
| | 1,560 |
| Doubtful | 207 |
| | 388 |
|
| Substandard | – performing | 18,042 |
| | 29,436 |
| – performing | 15,311 |
| | 17,443 |
|
| | – nonaccruing | 10,349 |
| | 12,869 |
| – nonaccruing | 15,256 |
| | 10,129 |
|
| Total classified loans | Total classified loans | 29,374 |
| | 43,893 |
| Total classified loans | 30,793 |
| | 27,995 |
|
| REO | REO | 3,684 |
| | 6,318 |
| REO | 337 |
| | 2,929 |
|
| Total classified assets | Total classified assets | 33,058 |
| | 50,211 |
| Total classified assets | 31,130 |
| | 30,924 |
|
| Special mention loans | Special mention loans | 14,359 |
| | 18,481 |
| Special mention loans | 36,010 |
| | 15,119 |
|
| Total classified assets and special mention loans | Total classified assets and special mention loans | $ | 47,417 |
| | $ | 68,692 |
| Total classified assets and special mention loans | $ | 67,140 |
| | $ | 46,043 |
|
Allowance for Loan Losses. The allowance for loan losses is a valuation account that reflects our estimation of the losses in our loan portfolio to the extent they are reasonable to estimate. The allowance is maintained through provisions for loan losses that are charged to earnings in the period they are established. We charge losses on loans against the allowance for loan losses when we believe the collection of loan principal is unlikely. Recoveries on loans previously charged off are added back to the allowance.
In recent years, home and lot sales activity and real estate values have improved along with general economic conditions in our market areas resulting in materially lower loan charge-offs and nonaccruing loans than in prior fiscal years. Proactively managing our loan portfolio and
aggressively resolving troubled assets has been and will continue to be a primary focus for us. As a result, our nonperforming assets declined substantially over the last several years. At June 30, 2018,2020, our nonaccruing loans decreasedincreased to $10.9$15.9 million as compared to $13.7$10.4 million at June 30, 2017, and $18.5 million at June 30, 2016.2019. At June 30, 2018, $5.62020, $2.8 million, or 51.6%17.6%, of our total nonaccruing loans were current on their loan payments as compared to $6.6$4.1 million, or 48.0%39.6%, of total nonaccruing loans at June 30, 2017.2019. During fiscal 20182020, classified assets decreased $17.2 million,increased $206,000, or 34.2%0.7%, to $33.1$31.1 million and delinquent loans (loans delinquent 30 days or more) decreased $5.4increased $6.1 million, or 35.5%60.3%, to $9.8$16.1 million at June 30, 2018.2020. There were $91,000$1.9 million and $141,000$5.3 million in net loan charge-offs during the fiscal years ended June 30, 20182020 and 2017,2019, respectively. There was noa $8.5 million provision for loan losses during fiscal 2018 or 2017. We did not record2020 compared to a loan loss$5.7 million provision in either fiscal2019. The increase in the current year provision included significant adjustments relating to COVID-19 as our improveda result of changes in qualitative factors based on increased risk profile, as indicated byin loan sub-categories, which include: lodging, restaurants, shopping centers, other retail businesses, and equipment finance. The provision in the improvement in our key credit quality metrics, offset any additional allowance that might have been requiredprior year primarily related to coverone commercial loan growth. Although we continue to actively engage our borrowers in resolving remaining problem assets, future additions to our allowancerelationship. For more information on this loan relationship, see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Allowance for loan losses will be meaningfully influenced by the course of economic conditions in our primary market areas as well as the national economy.losses."
At June 30, 2018,2020, our allowance for loan losses was $21.1$28.1 million, or 0.83%1.01%, of our total loan portfolio, and 193.0%176.3% of total nonaccruing loans. Excluding loans acquired, which have been recorded at fair value with an appropriate credit discount, and PPP loans, the allowance for loan losses was 0.91%1.11% of total loans at June 30, 2018.2020. Management’s estimation of an appropriate allowance for loan losses is inherently subjective as it requires estimates and assumptions that are susceptible to significant revisions as more information becomes available or as future events change. The level of allowance is based on estimates and the ultimate losses may vary from these estimates. Large groups of smaller balance homogeneous loans, such as residential real estate, small commercial real estate, home equity and consumer loans, are evaluated in the aggregate using historical loss factors adjusted for current economic conditions. Assessing the allowance for loan losses is inherently subjective as it requires making material estimates, including the amount and timing of future cash flows expected to be received. In the opinion of management, the allowance, when taken as a whole, reflects estimated loan losses in our loan portfolio.
A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principal or interest when due. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed.
Future additions to the allowance for loan losses may be necessary if economic and other conditions in the future differ substantially from the current operating environment. In addition, the Federal Reserve and the NCCOB as an integral part of their examination process periodically review our loan and REO portfolios and the related allowance for loan losses and valuation allowance for foreclosed real estate. The regulators may require the allowance for loan losses or the valuation allowance for foreclosed real estate to be increased based on their review of information available at the time of the examination, which would negatively affect our earnings.
See "Recent Accounting Developments" in Note 1 of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K for further discussion of the adoption of CECL.
The following table summarizes the distribution of the allowance for loan losses by loan category at the dates indicated.
| | | | At June 30, | At June 30, |
| | 2018 | | 2017 | | 2016 | | 2015 | | 2014 | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| | Amount | | Percent of loans in each category to total loans | | Amount | | Percent of loans in each category to total loans | | Amount | | Percent of loans in each category to total loans | | Amount | | Percent of loans in each category to total loans | | Amount | | Percent of loans in each category to total loans | Amount | | Percent of loans in each category to total loans | | Amount | | Percent of loans in each category to total loans | | Amount | | Percent of loans in each category to total loans | | Amount | | Percent of loans in each category to total loans | | Amount | | Percent of loans in each category to total loans |
| | (Dollars in thousands) | (Dollars in thousands) |
| Allocated at end of period to: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Retail consumer loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| One-to-four family | $ | 3,360 |
| | 26.29 | % | | $ | 4,476 |
| | 29.08 | % | | $ | 6,595 |
| | 34.04 | % | | $ | 7,990 |
| | 38.61 | % | | $ | 10,527 |
| | 44.09 | % | $ | 2,469 |
| | 17.11 | % | | $ | 2,511 |
| | 24.42 | % | | $ | 3,360 |
| | 26.29 | % | | $ | 4,476 |
| | 29.08 | % | | $ | 6,595 |
| | 34.04 | % |
| Home equity - originated | 1,123 |
| | 5.44 |
| | 1,384 |
| | 6.68 |
| | 1,997 |
| | 8.91 |
| | 1,777 |
| | 9.56 |
| | 2,487 |
| | 9.90 |
| 1,344 |
| | 4.96 |
| | 1,030 |
| | 5.16 |
| | 1,123 |
| | 5.44 |
| | 1,384 |
| | 6.68 |
| | 1,997 |
| | 0.01 |
|
| Home equity - purchased | 795 |
| | 6.58 |
| | 838 |
| | 6.90 |
| | 558 |
| | 7.88 |
| | 432 |
| | 4.27 |
| | — |
| | — |
| 430 |
| | 2.59 |
| | 518 |
| | 4.32 |
| | 795 |
| | 6.58 |
| | 838 |
| | 6.90 |
| | 558 |
| | 0.01 |
|
| Construction and land/lots | 1,153 |
| | 2.60 |
| | 977 |
| | 2.13 |
| | 1,344 |
| | 2.08 |
| | 1,822 |
| | 2.73 |
| | 2,420 |
| | 3.95 |
| 1,442 |
| | 2.96 |
| | 1,265 |
| | 2.98 |
| | 1,153 |
| | 2.60 |
| | 977 |
| | 2.13 |
| | 1,344 |
| | — |
|
| Indirect auto finance | 1,126 |
| | 6.85 |
| | 881 |
| | 5.99 |
| | 1,016 |
| | 5.92 |
| | 464 |
| | 3.11 |
| | 113 |
| | 0.59 |
| 1,136 |
| | 4.78 |
| | 927 |
| | 5.67 |
| | 1,126 |
| | 6.85 |
| | 881 |
| | 5.99 |
| | 1,016 |
| | 0.01 |
|
| Consumer | 68 |
| | 0.49 |
| | 57 |
| | 0.34 |
| | 61 |
| | 0.25 |
| | 128 |
| | 0.22 |
| | 184 |
| | 0.42 |
| 135 |
| | 0.37 |
| | 230 |
| | 0.42 |
| | 68 |
| | 0.49 |
| | 57 |
| | 0.34 |
| | 61 |
| | — |
|
| Commercial loans: | |
| | | | | | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | | | | | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Commercial real estate | 8,195 |
| | 33.94 |
| | 7,351 |
| | 31.04 |
| | 6,430 |
| | 26.55 |
| | 6,339 |
| | 26.20 |
| | 5,439 |
| | 25.21 |
| 11,805 |
| | 38.03 |
| | 8,036 |
| | 34.28 |
| | 8,195 |
| | 33.92 |
| | 7,351 |
| | 31.04 |
| | 6,430 |
| | 0.03 |
|
| Construction and development | 3,346 |
| | 7.60 |
| | 3,166 |
| | 8.42 |
| | 1,908 |
| | 4.74 |
| | 1,581 |
| | 3.83 |
| | 1,241 |
| | 3.78 |
| 3,608 |
| | 7.80 |
| | 3,196 |
| | 7.80 |
| | 3,346 |
| | 7.60 |
| | 3,166 |
| | 8.42 |
| | 1,908 |
| | — |
|
| Commercial and industrial | 1,476 |
| | 5.89 |
| | 1,524 |
| | 5.12 |
| | 721 |
| | 4.00 |
| | 1,104 |
| | 5.03 |
| | 249 |
| | 4.97 |
| 2,199 |
| | 5.59 |
| | 1,976 |
| | 5.93 |
| | 1,476 |
| | 5.36 |
| | 1,524 |
| | 5.12 |
| | 721 |
| | — |
|
| Equipment finance | | 2,807 |
| | 8.28 |
| | 1,305 |
| | 4.88 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Municipal leases | 418 |
| | 4.32 |
| | 497 |
| | 4.30 |
| | 662 |
| | 5.63 |
| | 737 |
| | 6.44 |
| | 769 |
| | 7.09 |
| 697 |
| | 4.62 |
| | 435 |
| | 4.14 |
| | 418 |
| | 4.32 |
| | 497 |
| | 4.30 |
| | 662 |
| | 0.01 |
|
| Paycheck Protection Program | | — |
| | 2.91 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Total loans | $ | 21,060 |
| | 100.00 | % | | $ | 21,151 |
| | 100.00 | % | | $ | 21,292 |
| | 100.00 | % | | $ | 22,374 |
| | 100.00 | % | | $ | 23,429 |
| | 100.00 | % | $ | 28,072 |
| | 100.00 | % | | $ | 21,429 |
| | 100.00 | % | | $ | 21,060 |
| | 100.00 | % | | $ | 21,151 |
| | 100.00 | % | | $ | 21,292 |
| | 100.00 | % |
The following table sets forth an analysis of our allowance for loan losses at the dates and for the periods indicated.
| | | | Years Ended June 30, | Years Ended June 30, |
| | 2018 | | 2017 | | 2016 | | 2015 | | 2014 | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| | (Dollars in thousands) | (Dollars in thousands) |
| Balance at beginning of period: | $ | 21,151 |
| | $ | 21,292 |
| | $ | 22,374 |
| | $ | 23,429 |
| | $ | 32,073 |
| $ | 21,429 |
| | $ | 21,060 |
| | $ | 21,151 |
| | $ | 21,292 |
| | $ | 22,374 |
|
| Provision for (recovery of) loan losses | — |
| | — |
| | — |
| | 150 |
| | (6,300 | ) | |
| Provision for loan losses | | 8,500 |
| | 5,700 |
| | — |
| | — |
| | — |
|
| Charge-offs: | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
|
| Retail consumer loans: | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
|
| One-to-four family | 538 |
| | 439 |
| | 799 |
| | 1,878 |
| | 3,269 |
| 164 |
| | 99 |
| | 538 |
| | 439 |
| | 799 |
|
| Home equity - originated | 9 |
| | 18 |
| | 94 |
| | 551 |
| | 330 |
| 30 |
| | 499 |
| | 9 |
| | 18 |
| | 94 |
|
| Home equity - purchased | — |
| | 48 |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | 48 |
| | — |
|
| Construction and land/lots | 2 |
| | 165 |
| | 321 |
| | 483 |
| | 804 |
| 2 |
| | 1 |
| | 2 |
| | 165 |
| | 321 |
|
| Indirect auto finance | 578 |
| | 531 |
| | 281 |
| | 107 |
| | — |
| 639 |
| | 509 |
| | 578 |
| | 531 |
| | 281 |
|
| Consumer | 15 |
| | 18 |
| | 168 |
| | 274 |
| | 33 |
| 20 |
| | 28 |
| | 15 |
| | 18 |
| | 168 |
|
| Total retail consumer loans | 1,142 |
| | 1,219 |
| | 1,663 |
| | 3,293 |
| | 4,436 |
| 855 |
| | 1,136 |
| | 1,142 |
| | 1,219 |
| | 1,663 |
|
| Commercial loans: | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
|
| Commercial real estate | 282 |
| | 139 |
| | 200 |
| | 704 |
| | 413 |
| 1,005 |
| | — |
| | 282 |
| | 139 |
| | 200 |
|
| Construction and development | 381 |
| | 21 |
| | 259 |
| | 368 |
| | 377 |
| 102 |
| | 50 |
| | 381 |
| | 21 |
| | 259 |
|
| Commercial and industrial | 842 |
| | 1,171 |
| | 1,582 |
| | 495 |
| | 110 |
| 101 |
| | 6,037 |
| | 842 |
| | 1,171 |
| | 1,582 |
|
| Equipment finance | | 1,753 |
| | 186 |
| | — |
| | — |
| | — |
|
| Municipal leases | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
|
| Total commercial loans | 1,505 |
| | 1,331 |
| | 2,041 |
| | 1,567 |
| | 900 |
| 2,961 |
| | 6,273 |
| | 1,505 |
| | 1,331 |
| | 2,041 |
|
| Total charge-offs | 2,647 |
| | 2,550 |
| | 3,704 |
| | 4,860 |
| | 5,336 |
| 3,816 |
| | 7,409 |
| | 2,647 |
| | 2,550 |
| | 3,704 |
|
| Recoveries: | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
|
| Retail consumer loans: | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
|
| One-to-four family | 411 |
| | 181 |
| | 683 |
| | 758 |
| | 875 |
| 1,160 |
| | 555 |
| | 411 |
| | 181 |
| | 683 |
|
| Home equity - originated | 307 |
| | 231 |
| | 157 |
| | 231 |
| | 153 |
| 63 |
| | 556 |
| | 307 |
| | 231 |
| | 157 |
|
| Construction and land/lots | 173 |
| | 487 |
| | 44 |
| | 95 |
| | 624 |
| 141 |
| | 57 |
| | 173 |
| | 487 |
| | 44 |
|
| Indirect auto finance | 39 |
| | 122 |
| | 58 |
| | 34 |
| | — |
| 80 |
| | 54 |
| | 39 |
| | 122 |
| | 58 |
|
| Consumer | 60 |
| | 63 |
| | 292 |
| | 91 |
| | 10 |
| 35 |
| | 50 |
| | 60 |
| | 63 |
| | 292 |
|
| Total retail consumer loans | 990 |
| | 1,084 |
| | 1,234 |
| | 1,209 |
| | 1,662 |
| 1,479 |
| | 1,272 |
| | 990 |
| | 1,084 |
| | 1,234 |
|
| Commercial loans: | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
|
| Commercial real estate | 107 |
| | 58 |
| | 883 |
| | 479 |
| | 120 |
| 170 |
| | 74 |
| | 107 |
| | 58 |
| | 883 |
|
| Construction and development | 81 |
| | 539 |
| | 265 |
| | 1,311 |
| | 1,052 |
| 57 |
| | 226 |
| | 81 |
| | 539 |
| | 265 |
|
| Commercial and industrial | 1,378 |
| | 728 |
| | 240 |
| | 656 |
| | 159 |
| 252 |
| | 506 |
| | 1,378 |
| | 728 |
| | 240 |
|
| Equipment finance | | 1 |
| | — |
| | — |
| | — |
| | — |
|
| Municipal leases | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
|
| Total commercial loans | 1,566 |
| | 1,325 |
| | 1,388 |
| | 2,446 |
| | 1,331 |
| 480 |
| | 806 |
| | 1,566 |
| | 1,325 |
| | 1,388 |
|
| Total recoveries | 2,556 |
| | 2,409 |
| | 2,622 |
| | 3,655 |
| | 2,993 |
| 1,959 |
| | 2,078 |
| | 2,556 |
| | 2,409 |
| | 2,622 |
|
| Net charge-offs | 91 |
| | 141 |
| | 1,082 |
| | 1,205 |
| | 2,343 |
| 1,857 |
| | 5,331 |
| | 91 |
| | 141 |
| | 1,082 |
|
| Balance at end of period | $ | 21,060 |
| | $ | 21,151 |
| | $ | 21,292 |
| | $ | 22,374 |
| | $ | 23,429 |
| $ | 28,072 |
| | $ | 21,429 |
| | $ | 21,060 |
| | $ | 21,151 |
| | $ | 21,292 |
|
| Net charge-offs during the period to average loans outstanding during the period | — | % | | 0.01 | % | | 0.06 | % | | 0.07 | % | | 0.19 | % | 0.07 | % | | 0.20 | % | | — | % | | 0.01 | % | | 0.06 | % |
| Net charge-offs during the period to average non-performing assets | 0.53 | % | | 0.67 | % | | 3.77 | % | | 2.89 | % | | 3.40 | % | 12.30 | % | | 50.00 | % | | 0.53 | % | | 0.67 | % | | 3.77 | % |
| Allowance as a percentage of nonperforming assets | 144.27 | % | | 105.84 | % | | 87.00 | % | | 70.19 | % | | 44.56 | % | 172.64 | % | | 161.28 | % | | 144.27 | % | | 105.84 | % | | 87.00 | % |
Allowance as a percentage of total loans(1) | 0.83 | % | | 0.90 | % | | 1.16 | % | | 1.33 | % | | 1.56 | % | 1.01 | % | | 0.79 | % | | 0.83 | % | | 0.90 | % | | 1.16 | % |
______________
| |
| (1) | Excluding loans acquired, which have been recorded at fair value with an appropriate credit discount, and PPP loans, the allowance for loan losses was 1.11%, 0.85%, 0.91%, 1.03%, 1.32%, 1.58%, and 2.05%1.32% of total loans at June 30, 2020, 2019, 2018, 2017, 2016, 2015, and 2014,2016, respectively. |
Investment Activities
The Bank invests in various securities based on investment policies that have been approved by our board of directors and adhere to bank regulations. These securities include: United States Treasury obligations, securities of various federal agencies, including mortgage-backed securities, callable agency securities, certain certificates of deposit of insured banks and savings institutions, repurchase agreements, municipal bonds, investment grade corporate bonds and commercial paper, and federal funds. See “How We Are Regulated - HomeTrust Bank” for a discussion of additional restrictions on our investment activities.
Our chief executive officer and chief financial officer have the basic responsibility for the management of our investment portfolio, subject to the direction and guidance of the board of directors. These officers consider various factors when making decisions, including the marketability, maturity, and tax consequences of the proposed investment. The maturity structure of investments will be affected by various market conditions, including the current and anticipated slope of the yield curve, the level of interest rates, the trend of new deposit inflows, and the anticipated demand for funds via deposit withdrawals and loan originations and purchases.
The general objectives of our investment portfolio are to provide liquidity when loan demand is high, to assist in maintaining earnings when loan demand is low and to optimize earnings while satisfactorily managing risk, including credit risk, reinvestment risk, liquidity risk, and interest rate risk. At June 30, 2018,2020, our $154.9$127.5 million securities portfolio consisted primarily of U.S. government agency securitiesMBSs, municipal bonds, and mortgage-backed securities,corporate bonds, all held as available for sale. We currently do not have any investments held to maturity or for trading.
These securities are of high quality, possess minimal credit risk, and have an aggregate market value which is $2.1$2.6 million lessmore than total amortized cost as of June 30, 2018.2020. For more information, please see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Asset/Liability Management” and Note 32 of the Notes to Consolidated Financial Statements contained in Item 8 in this report.
The Company began purchasingalso purchases commercial paper during fiscal 2015 in conjunction with its short-term leverage strategy, to take advantage of higher short-term returns with relatively low credit risk, yet remainremaining highly liquid. The commercial paper balance at June 30, 20182020 was $229.1$305.0 million. For more information, please see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Comparison of Financial Condition at June 30, 20182020 and June 30, 2017.2019.”
We do not currently participate in hedging programs, stand-alone contracts for interest rate caps, floors or swaps, or other activities involving the use of off-balance sheet derivative financial instruments and have no present intention to do so. Further, we do not invest in securities which are not rated investment grade.
As a member of the FHLB of Atlanta, we had $29.9$23.3 million in stock of the FHLB of Atlanta at June 30, 2018.2020. For the years ended June 30, 20182020 and 2017,2019, we received $1.6 million and $1.3$2.0 million, respectively, in dividends from the FHLB of Atlanta. As a member bank of the Federal Reserve, the Bank is required to maintain stock in the Federal Reserve Bank of Richmond ("FRB").FRB. At June 30, 20182020 we had $7.3$7.4 million in FRB stock. For the years ended June 30, 20182020 and 2017,2019, we received $438,000$441,000 and $383,000,$439,000, respectively, in dividends from the FRB.
The Company also maintains equity investments in SBIC, which are considered equity securities without a readily determinable fair value. At June 30, 2020, we had $8.3 million in SBIC investments. For the years ended June 30, 2020 and 2019, we received $642,000 and $1.1 million, respectively, in earnings from the SBIC investments.
The following table sets forth the composition of our securities portfolio and other investments at the dates indicated. All securities at the dates indicated have been classified as available for sale. At June 30, 2018,2020, our securities portfolio did not contain securities of any issuer with an aggregate book value in excess of 10% of our equity capital, excluding those issued by the United States government or its agencies or United States government sponsored entities.
| | | | At June 30, | At June 30, |
| | 2018 | | 2017 | | 2016 | 2020 | | 2019 | | 2018 |
| | Book Value | | Fair Value | | Book Value | | Fair Value | | Book Value | | Fair Value | Book Value | | Fair Value | | Book Value | | Fair Value | | Book Value | | Fair Value |
| | (In thousands) | (In thousands) |
| Securities available for sale: | | | | | | | | | | | | | | | | | | | | | | |
| U.S. government agencies | $ | 48,025 |
| | $ | 47,542 |
| | $ | 65,947 |
| | $ | 65,830 |
| | $ | 77,356 |
| | $ | 77,980 |
| $ | 3,957 |
| | $ | 4,173 |
| | $ | 15,099 |
| | $ | 15,210 |
| | $ | 48,025 |
| | $ | 47,542 |
|
| Mortgage-backed securities | 71,949 |
| | 70,599 |
| | 92,841 |
| | 92,971 |
| | 95,668 |
| | 97,408 |
| |
| Residential MBS of U.S. government agencies and GSEs | | 46,629 |
| | 48,355 |
| | 74,778 |
| | 75,180 |
| | 71,949 |
| | 70,599 |
|
| Municipal bonds | 30,865 |
| | 30,766 |
| | 34,135 |
| | 34,510 |
| | 16,242 |
| | 17,234 |
| 16,090 |
| | 16,631 |
| | 24,896 |
| | 25,312 |
| | 30,865 |
| | 30,766 |
|
| Corporate bonds | 6,166 |
| | 6,023 |
| | 6,267 |
| | 6,293 |
| | 7,773 |
| | 7,967 |
| 58,242 |
| | 58,378 |
| | 6,061 |
| | 6,084 |
| | 6,166 |
| | $ | 6,023 |
|
| Equity securities | 63 |
| | 63 |
| | 63 |
| | 63 |
| | 63 |
| | 63 |
| — |
| | — |
| | — |
| | — |
| | 63 |
| | 63 |
|
| Total securities available for sale | 157,068 |
| | 154,993 |
| | 199,253 |
| | 199,667 |
| | 197,102 |
| | 200,652 |
| |
| Total debt securities available for sale | | 124,918 |
| | 127,537 |
| | 120,834 |
| | 121,786 |
| | 157,068 |
| | 154,993 |
|
| FHLB stock | 29,907 |
| | 29,907 |
| | 32,071 |
| | 32,071 |
| | 23,304 |
| | 23,304 |
| 23,309 |
| | 23,309 |
| | 31,969 |
| | 31,969 |
| | 29,907 |
| | 29,907 |
|
| FRB stock | 7,307 |
| | 7,307 |
| | 7,284 |
| | 7,284 |
| | 6,182 |
| | 6,182 |
| 7,368 |
| | 7,368 |
| | 7,335 |
| | 7,335 |
| | 7,307 |
| | 7,307 |
|
| SBIC investments | | 8,269 |
| | 8,269 |
| | 6,074 |
| | 6,074 |
| | 4,717 |
| | 4,717 |
|
| Total securities | $ | 194,282 |
| | $ | 192,207 |
| | $ | 238,608 |
| | $ | 239,022 |
| | $ | 226,588 |
| | $ | 230,138 |
| $ | 163,864 |
| | $ | 166,483 |
| | $ | 166,212 |
| | $ | 167,164 |
| | $ | 198,999 |
| | $ | 196,924 |
|
The composition and contractual maturities of our investment securities portfolio as of June 30, 2018,2020, excluding equity securities,SBIC investments, FHLB stock, and FRB stock, are indicated in the following table. Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur.
| | | | June 30, 2018 | June 30, 2020 |
| | 1 year or less | | Over 1 year to 5 years | | Over 5 to 10 years | | Over 10 years | | Total | 1 year or less | | Over 1 year to 5 years | | Over 5 to 10 years | | Over 10 years | | Total |
| Securities available for sale: | (Dollars in thousands) | (Dollars in thousands) |
| U.S. government agencies: | | | | | | | | | | | | | | | | | | |
| Amortized cost | $ | 25,984 |
| | $ | 22,041 |
| | $ | — |
| | $ | — |
| | $ | 48,025 |
| $ | — |
| | $ | 3,957 |
| | $ | — |
| | $ | — |
| | $ | 3,957 |
|
| Fair value | 25,827 |
| | 21,715 |
| | — |
| | — |
| | 47,542 |
| — |
| | 4,173 |
| | — |
| | — |
| | 4,173 |
|
| Weighted average yield | 1.23 | % | | 1.74 | % | | — | % | | — | % | | 1.47 | % | — | % | | 2.51 | % | | — | % | | — | % | | 2.51 | % |
| Mortgage-backed securities | | | | | | | | | | |
| Residential MBS of U.S. government agencies and GSEs | | Residential MBS of U.S. government agencies and GSEs | | | | | | | | |
| Amortized cost | 1,000 |
| | 8,183 |
| | 26,610 |
| | 36,156 |
| | 71,949 |
| 39 |
| | 4,196 |
| | 20,372 |
| | 22,022 |
| | 46,629 |
|
| Fair value | 996 |
| | 8,008 |
| | 25,836 |
| | 35,759 |
| | 70,599 |
| 40 |
| | 4,273 |
| | 21,378 |
| | 22,664 |
| | 48,355 |
|
| Weighted average yield | 2.63 | % | | 1.61 | % | | 2.07 | % | | 2.81 | % | | 2.40 | % | 1.58 | % | | 1.80 | % | | 2.26 | % | | 2.21 | % | | 2.19 | % |
| Municipal bonds | | | | | | | | | | | | | | | | | | |
| Amortized cost | 2,744 |
| | 13,066 |
| | 5,749 |
| | 9,306 |
| | 30,865 |
| 4,546 |
| | 7,326 |
| | 2,434 |
| | 1,784 |
| | 16,090 |
|
| Fair value | 2,746 |
| | 12,925 |
| | 5,829 |
| | 9,266 |
| | 30,766 |
| 4,568 |
| | 7,644 |
| | 2,630 |
| | 1,789 |
| | 16,631 |
|
| Weighted average yield | 1.94 | % | | 2.61 | % | | 3.76 | % | | 2.89 | % | | 2.85 | % | 2.88 | % | | 3.21 | % | | 3.56 | % | | 2.87 | % | | 3.13 | % |
| Corporate bonds | | | | | | | | | | | | | | | | | | |
| Amortized cost | — |
| | 6,166 |
| | — |
| | — |
| | 6,166 |
| 24,644 |
| | 33,598 |
| | — |
| | — |
| | 58,242 |
|
| Fair value | — |
| | 6,023 |
| | — |
| | — |
| | 6,023 |
| 24,680 |
| | 33,698 |
| | — |
| | — |
| | 58,378 |
|
| Weighted average yield | — | % | | 3.15 | % | | — | % | | — | % | | 3.15 | % | 1.13 | % | | 2.10 | % | | — | % | | — | % | | 1.69 | % |
| Total securities | | | | | | | | | | | | | | | | | | |
| Amortized cost | $ | 29,728 |
|
| $ | 49,456 |
|
| $ | 32,359 |
|
| $ | 45,462 |
|
| $ | 157,005 |
| $ | 29,229 |
|
| $ | 49,077 |
|
| $ | 22,806 |
|
| $ | 23,806 |
|
| $ | 124,918 |
|
| Fair value | $ | 29,569 |
|
| $ | 48,671 |
|
| $ | 31,665 |
|
| $ | 45,025 |
|
| $ | 154,930 |
| $ | 29,288 |
|
| $ | 49,788 |
|
| $ | 24,008 |
|
| $ | 24,453 |
|
| $ | 127,537 |
|
| Weighted average yield | 1.34 | % | | 2.13 | % | | 2.37 | % | | 2.83 | % | | 2.23 | % | 1.40 | % | | 2.28 | % | | 2.40 | % | | 2.26 | % | | 2.09 | % |
Sources of Funds
General. Our sources of funds are primarily deposits, borrowings, payments of principal and interest on loans, and funds provided from operations. Deposits increased $147.8$458.4 million, or 7.2%19.7%, to $2.2$2.8 billion at June 30, 20182020 as compared to $2.0$2.3 billion at June 30, 2017.2019.
Deposits. We offer a variety of deposit accounts with a wide range of interest rates and terms to both consumers and businesses. Our deposits consist of savings, money market and demand accounts, and certificates of deposit ("CDs").CDs. We solicit deposits primarily in our market areas. At June 30, 2018, 20172020, 2019 and 2016,2018, we had $108.9$143.2 million, $16.8$176.8 million, and $13.6$108.9 million in brokered deposits, respectively, which included certificates of deposit made under our participation in the Certificate of Deposit Account Registry Service® (“CDARS”). Through CDARS, we can provide a depositor the ability to place up to $50.0 million on deposit with us while receiving FDIC insurance on the entire deposit by placing customer funds in excess of the FDIC deposit limits with other financial institutions in the CDARS network. In return, these financial institutions place customer funds with us on a reciprocal basis.respectively. As of June 30, 2018,2020, core deposits, which we define as our non-certificate or non-time deposit accounts, represented approximately 76.5%73.5% of total deposits.
We primarily rely on competitive pricing policies, marketing, and customer service to attract and retain deposits. The flow of deposits is influenced significantly by general economic conditions, changes in money market and prevailing interest rates and competition. The variety of deposit accounts we offer has allowed us to be competitive in obtaining funds and to respond with flexibility to changes in consumer demand. We have become more susceptible to short-term fluctuations in deposit flows as customers have become more interest rate conscious. We try to manage the pricing of our deposits in keeping with our asset/liability management, liquidity and profitability objectives, subject to competitive factors. Based on our experience, we believe that our deposits are relatively stable sources of funds. Despite this stability, our ability to attract and maintain these deposits and the rates paid on them has been and will continue to be significantly affected by market conditions.
Approximately 23.5%26.5% of our total deposits are comprised of CDs. Our liquidity could be reduced if a significant amount of CDs, maturing within a short period of time, wereare not renewed. Historically, a significant portion of our CDs remain with us after they mature and we believe that this will continue. However, the need to retain these time deposits could result in an increase in our cost of funds.
The following table sets forth our deposit flows during the periods indicated.
| | | | Years Ended June 30, | Years Ended June 30, |
| (Dollars in thousands) | 2018 | | 2017 | | 2016 | 2020 | | 2019 | | 2018 |
| Beginning balance | $ | 2,048,451 |
| | $ | 1,802,696 |
| | $ | 1,872,126 |
| $ | 2,327,257 |
| | $ | 2,196,253 |
| | $ | 2,048,451 |
|
| Deposits acquired from business combination | — |
| | 280,234 |
| | — |
| |
| Net deposit increase (decrease) | 141,048 |
| | (39,067 | ) | | (73,961 | ) | |
| Net deposit increase | | 435,592 |
| | 115,322 |
| | 141,048 |
|
| Interest credited | 6,754 |
| | 4,588 |
| | 4,531 |
| 22,907 |
| | 15,682 |
| | 6,754 |
|
| Ending balance | $ | 2,196,253 |
| | $ | 2,048,451 |
| | $ | 1,802,696 |
| $ | 2,785,756 |
| | $ | 2,327,257 |
| | $ | 2,196,253 |
|
| Net increase (decrease) | $ | 147,802 |
| | $ | 245,755 |
| | $ | (69,430 | ) | |
| Percent increase (decrease) | 7.22 | % | | 13.63 | % | | (3.71 | )% | |
| Net increase | | $ | 458,499 |
| | $ | 131,004 |
| | $ | 147,802 |
|
| Percent increase | | 19.70 | % | | 5.96 | % | | 7.22 | % |
The following table sets forth the dollar amount of deposits in the various types of deposit programs offered by us at the dates indicated.
| | | | 2018 | | 2017 | | 2016 | 2020 | | 2019 | | 2018 |
| | Amount | | Percent of Total | | Amount | | Percent of Total | | Amount | | Percent of Total | Amount | | Percent of Total | | Amount | | Percent of Total | | Amount | | Percent of Total |
| (Dollars in thousands) | | |
| Transaction and Savings Deposits: | | | | | | | | | | | | | | | | | | | | | | |
| Interest-bearing checking | $ | 471,364 |
| | 21.46 | % | | $ | 469,377 |
| | 22.91 | % | | $ | 403,574 |
| | 22.39 | % | |
| Noninterest-bearing checking | 317,822 |
| | 14.47 |
| | 310,172 |
| | 15.14 |
| | 225,336 |
| | 12.50 |
| |
| Savings | 213,250 |
| | 9.71 |
| | 237,149 |
| | 11.58 |
| | 210,817 |
| | 11.69 |
| |
| Money market | 677,665 |
| | 30.86 |
| | 569,607 |
| | 27.81 |
| | 520,320 |
| | 28.86 |
| |
| Interest-bearing accounts | | $ | 582,299 |
| | 20.90 | % | | $ | 452,295 |
| | 19.43 | % | | $ | 471,364 |
| | 21.46 | % |
| Noninterest-bearing accounts | | 429,901 |
| | 15.43 |
| | 294,322 |
| | 12.65 |
| | 317,822 |
| | 14.47 |
|
| Savings accounts | | 197,676 |
| | 7.10 |
| | 177,278 |
| | 7.62 |
| | 213,250 |
| | 9.71 |
|
| Money market accounts | | 836,738 |
| | 30.04 |
| | 691,172 |
| | 29.70 |
| | 677,665 |
| | 30.86 |
|
| Total non-certificates | $ | 1,680,101 |
| | 76.50 | % | | $ | 1,586,305 |
| | 77.44 | % | | $ | 1,360,047 |
| | 75.45 | % | $ | 2,046,614 |
| | 73.47 | % | | $ | 1,615,067 |
| | 69.40 | % | | $ | 1,680,101 |
| | 76.50 | % |
| Certificates: | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
|
| 0.00-0.99% | $ | 273,087 |
| | 12.43 | % | | $ | 360,449 |
| | 17.60 | % | | $ | 385,342 |
| | 21.38 | % | $ | 285,916 |
| | 10.26 | % | | $ | 134,813 |
| | 5.79 | % | | $ | 273,087 |
| | 12.43 | % |
| 1.00-1.99% | 197,875 |
| | 9.01 |
| | 89,279 |
| | 4.36 |
| | 40,841 |
| | 2.27 |
| 229,972 |
| | 8.26 |
| | 122,803 |
| | 5.28 |
| | 197,875 |
| | 9.01 |
|
| 2.00-2.99% | 35,707 |
| | 1.63 |
| | 2,755 |
| | 0.13 |
| | 2,760 |
| | 0.15 |
| 215,518 |
| | 7.74 |
| | 441,911 |
| | 18.99 |
| | 35,707 |
| | 1.63 |
|
| 3.00-3.99% | 5,066 |
| | 0.23 |
| | 5,234 |
| | 0.26 |
| | 9,275 |
| | 0.51 |
| 3,388 |
| | 0.12 |
| | 8,246 |
| | 0.35 |
| | 5,066 |
| | 0.23 |
|
| 4.00-4.99% | 4,415 |
| | 0.20 |
| | 4,427 |
| | 0.22 |
| | 4,427 |
| | 0.25 |
| 4,346 |
| | 0.16 |
| | 4,415 |
| | 0.19 |
| | 4,415 |
| | 0.20 |
|
| 5.00% and over | 2 |
| | — |
| | 2 |
| | — |
| | 4 |
| | — |
| 2 |
| | — |
| | 2 |
| | — |
| | 2 |
| | — |
|
| Total certificates | $ | 516,152 |
| | 23.50 | % | | $ | 462,146 |
| | 22.56 | % | | $ | 442,649 |
| | 24.55 | % | $ | 739,142 |
| | 26.53 | % | | $ | 712,190 |
| | 30.60 | % | | $ | 516,152 |
| | 23.50 | % |
| Total deposits | $ | 2,196,253 |
| | 100.00 | % | | $ | 2,048,451 |
| | 100.00 | % | | $ | 1,802,696 |
| | 100.00 | % | $ | 2,785,756 |
| | 100.00 | % | | $ | 2,327,257 |
| | 100.00 | % | | $ | 2,196,253 |
| | 100.00 | % |
The following table shows rate and maturity information for our CDs at June 30, 2018.2020.
| | | | 0.00- 0.99% | | 1.00- 1.99% | | 2.00- 2.99% | | 3.00- 3.99% | | 4.00- 4.99% | | 5.00% or greater | | Total | | Percent of Total | 0.00- 0.99% | | 1.00- 1.99% | | 2.00- 2.99% | | 3.00- 3.99% | | 4.00- 4.99% | | 5.00% or greater | | Total | | Percent of Total |
| | (In thousands) | (In thousands) |
| Quarter ending: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2018 | $ | 103,720 |
| | $ | 81,898 |
| | $ | — |
| | $ | 85 |
| | $ | — |
| | $ | — |
| | $ | 185,703 |
| | 36.0 | % | |
| December 31, 2018 | 40,571 |
| | 43,361 |
| | 4 |
| | — |
| | — |
| | — |
| | 83,936 |
| | 16.3 |
| |
| March 31, 2019 | 28,569 |
| | 23,124 |
| | 16,408 |
| | — |
| | — |
| | — |
| | 68,101 |
| | 13.2 |
| |
| June 30, 2019 | 22,178 |
| | 21,827 |
| | 3,991 |
| | — |
| | — |
| | — |
| | 47,996 |
| | 9.3 |
| |
| September 30, 2019 | 13,497 |
| | 10,583 |
| | 442 |
| | 2,768 |
| | 69 |
| | — |
| | 27,359 |
| | 5.3 |
| |
| December 31, 2019 | 10,655 |
| | 7,420 |
| | 3,244 |
| | 1,392 |
| | — |
| | — |
| | 22,711 |
| | 4.4 |
| |
| March 31, 2020 | 8,560 |
| | 1,518 |
| | 81 |
| | 772 |
| | — |
| | — |
| | 10,931 |
| | 2.1 |
| |
| June 30, 2020 | 9,246 |
| | 482 |
| | 1,305 |
| | 21 |
| | — |
| | — |
| | 11,054 |
| | 2.1 |
| |
| September 30, 2020 | 6,286 |
| | 541 |
| | 434 |
| | — |
| | — |
| | 2 |
| | 7,263 |
| | 1.4 |
| $ | 38,032 |
| | $ | 144,650 |
| | $ | 49,495 |
| | $ | — |
| | $ | — |
| | $ | 2 |
| | $ | 232,179 |
| | 31.4 | % |
| December 31, 2020 | 6,666 |
| | 1,361 |
| | 318 |
| | — |
| | — |
| | — |
| | 8,345 |
| | 1.6 |
| 163,248 |
| | 38,607 |
| | 45,220 |
| — |
| 19 |
| | — |
| | — |
| | 247,094 |
| | 33.4 |
|
| March 31, 2021 | 3,674 |
| | 1,173 |
| | 101 |
| | — |
| | — |
| | — |
| | 4,948 |
| | 1.0 |
| 28,379 |
| | 25,942 |
| | 17,639 |
| | — |
| | — |
| | — |
| | 71,960 |
| | 9.7 |
|
| June 30, 2021 | 3,723 |
| | 948 |
| | 652 |
| | — |
| | — |
| | — |
| | 5,323 |
| | 1.0 |
| 14,850 |
| | 8,182 |
| | 24,512 |
| | — |
| | — |
| | — |
| | 47,544 |
| | 6.4 |
|
| September 30, 2021 | | 18,188 |
| | 1,852 |
| | 22,192 |
| | — |
| | 2,018 |
| | — |
| | 44,250 |
| | 6.0 |
|
| December 31, 2021 | | 6,021 |
| | 690 |
| | 24,702 |
| | 356 |
| | — |
| | — |
| | 31,769 |
| | 4.3 |
|
| March 31, 2022 | | 2,554 |
| | 416 |
| | 8,585 |
| | 30 |
| | — |
| | — |
| | 11,585 |
| | 1.6 |
|
| June 30, 2022 | | 3,960 |
| | 312 |
| | 5,631 |
| | — |
| | — |
| | — |
| | 9,903 |
| | 1.3 |
|
| September 30, 2022 | | 2,308 |
| | 910 |
| | 6,614 |
| | — |
| | 2,328 |
| | — |
| | 12,160 |
| | 1.6 |
|
| December 31, 2022 | | 2,244 |
| | 2,067 |
| | 1,459 |
| | — |
| | — |
| | — |
| | 5,770 |
| | 0.8 |
|
| March 31, 2023 | | 2,280 |
| | 1,076 |
| | 451 |
| | — |
| | — |
| | — |
| | 3,807 |
| | 0.5 |
|
| June 30, 2023 | | 2,468 |
| | 820 |
| | 1,777 |
| | 31 |
| | — |
| | — |
| | 5,096 |
| | 0.7 |
|
| Thereafter | 15,742 |
| | 3,639 |
| | 8,727 |
| | 28 |
| | 4,346 |
| | — |
| | 32,482 |
| | 6.3 |
| 1,384 |
| | 4,448 |
| | 7,241 |
| | 2,952 |
| | — |
| | — |
| | 16,025 |
| | 2.2 |
|
| Total | $ | 273,087 |
| | $ | 197,875 |
| | $ | 35,707 |
| | $ | 5,066 |
| | $ | 4,415 |
| | $ | 2 |
| | $ | 516,152 |
| | 100.0 | % | $ | 285,916 |
| | $ | 229,972 |
| | $ | 215,518 |
| | $ | 3,388 |
| | $ | 4,346 |
| | $ | 2 |
| | $ | 739,142 |
| | 100.0 | % |
| Percent of total | 52.9 | % | | 38.3 | % | | 6.9 | % | | 1.0 | % | | 0.9 | % | | — | % | | 100.0 | % | | | 38.7 | % | | 31.1 | % | | 29.1 | % | | 0.5 | % | | 0.6 | % | | — | % | | 100.0 | % | | |
The following table indicates the amount of our CDs by time remaining until maturity as of June 30, 2018.2020.
| | | | Maturity | | | Maturity | | |
| | 3 Months or Less | | Over 3 to 6 Months | | Over 6 to 12 Months | | Over 12 Months | | Total | 3 Months or Less | | Over 3 to 6 Months | | Over 6 to 12 Months | | Over 12 Months | | Total |
| | (In thousands) | (In thousands) |
| CDs less than $100,000 | $ | 17,166 |
| | $ | 27,795 |
| | $ | 21,828 |
| | $ | 66,390 |
| | $ | 133,179 |
| $ | 73,508 |
| | $ | 77,532 |
| | $ | 56,934 |
| | $ | 66,064 |
| | $ | 274,038 |
|
| CDs of $100,000 or more | 116,575 |
| | 52,122 |
| | 69,839 |
| | 62,166 |
| | 300,702 |
| 139,142 |
| | 160,591 |
| | 50,885 |
| | 72,249 |
| | 422,867 |
|
Public funds(1) | 51,961 |
| | 4,018 |
| | 24,432 |
| | 1,860 |
| | 82,271 |
| 19,529 |
| | 8,971 |
| | 11,685 |
| | 2,052 |
| | 42,237 |
|
| Total certificates of deposit | $ | 185,702 |
| | $ | 83,935 |
| | $ | 116,099 |
| | $ | 130,416 |
| | $ | 516,152 |
| $ | 232,179 |
| | $ | 247,094 |
| | $ | 119,504 |
| | $ | 140,365 |
| | $ | 739,142 |
|
| |
| (1) | Deposits from government and other public entities. |
Borrowings. Although deposits are our primary source of funds, we may utilize borrowings to manage interest rate risk or as a cost-effective source of funds when they can be invested at a positive interest rate spread for additional capacity to fund loan demand according to our asset/liability management goals. Our borrowings consist of advances from the FHLB of Atlanta. In November 2014, management made a strategic decision to increase our borrowings of low-cost FHLB funds to generate additional net interest income with the proceeds, as well as dividend income from the required purchase of additional FHLB stock.
We may obtain advances from the FHLB of Atlanta upon the security of certain of our mortgagereal estate loans and mortgage-backed and other securities. These advances may be made pursuant to several different credit programs, each of which has its own interest rate, range of maturities and call features, and all long-term advances are required to provide funds for residential home financing. As of June 30, 2018,2020, we had $635.0$475.0 million in FHLB advances outstanding and the ability to borrow an additional $79.2$186.2 million. In addition to FHLB advances, at June 30, 20182020 we had a $132.3$109.2 million line of credit with the FRB, subject to qualifying collateral, and $60.0$70.0 million available through lines of credit with three unaffiliated banks, none of which was outstanding at June 30, 2018.2020. See Note 1011 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for more information about our borrowings.
The following tables set forth information regarding our borrowings at the end of and during the periods indicated.
| | | | Year ended June 30, | Year ended June 30, |
| | 2018 | | 2017 | | 2016 | 2020 | | 2019 | | 2018 |
| | (Dollars in thousands) | (Dollars in thousands) |
| Maximum balance: | | |
| Federal Home Loan Bank advances | $ | 699,000 |
| | $ | 696,500 |
| | $ | 507,000 |
| |
| FHLB advances | | $ | 708,000 |
| | $ | 720,000 |
| | $ | 699,000 |
|
| Average balances: | | | | | | | | | | |
| Federal Home Loan Bank advances | $ | 658,240 |
| | $ | 577,848 |
| | $ | 482,576 |
| |
| FHLB advances | | $ | 568,377 |
| | $ | 672,186 |
| | $ | 658,240 |
|
| Weighted average interest rate: | | | | | | | | | | |
| Federal Home Loan Bank advances | 1.41 | % | | 0.63 | % | | 0.31 | % | |
| FHLB advances | | 1.64 | % | | 2.18 | % | | 1.41 | % |
| | | | At June 30, | At June 30, |
| | 2018 | | 2017 | | 2016 | 2020 | | 2019 | | 2018 |
| | (Dollars in thousands) | (Dollars in thousands) |
| Balance outstanding at end of period: | | | | | | | | | | |
| Federal Home Loan Bank advances | $ | 635,000 |
| | $ | 696,500 |
| | $ | 491,000 |
| |
| FHLB advances | | $ | 475,000 |
| | $ | 680,000 |
| | $ | 635,000 |
|
| Weighted average interest rate: | |
| | |
| | |
| |
| | |
| | |
|
| Federal Home Loan Bank advances | 1.95 | % | | 1.13 | % | | 0.42 | % | |
| FHLB advances | | 1.39 | % | | 2.10 | % | | 1.95 | % |
Subsidiary and Other Activities
HomeTrust Bank has one operating subsidiary, Western North Carolina Service Corporation (“WNCSC”),WNCSC, whose primary purpose is to own several office buildings in Asheville, North Carolina which are leased to HomeTrust Bank. Our capital investment in WNCSC as of June 30, 20182020 was $938,000.$815,000.
Employees
At June 30, 2018,2020, we had a total of 466539 full-time employees and 5451 part-time employees. Our employees are not represented by any collective bargaining group. Management considers its employee relations to be good. Management also considers our employees to be a great team of highly engaged, competent and caring people who ensure every day that our customers are "Ready For What's Next" in their financial life. Their performance creates word-of-mouth referrals that result in the growth of new customers and expanded customer relationships.
Internet Website
We maintain a website with the address www.hometrustbancshares.com.www.htb.com. The information contained on our website is not included as a part of, or incorporated by reference into, this Annual Report on Form 10-K. Other than an investor’s own Internet access charges, we make available free of charge through our website our Annual Report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after we have electronically filed such material with, or furnished such material to, the SEC.
HOW WE ARE REGULATED
General. HomeTrust Bancshares, Inc. is subject to examination and supervision by, and is required to file certain reports with, the Federal Reserve. HomeTrust Bancshares, Inc. is also subject to the rules and regulations of the SEC under the federal securities laws.
The Bank is subject to examination and regulation primarily by the NCCOB and the Federal Reserve. This system of regulation and supervision establishes a comprehensive framework of activities in which the Bank may engage and is intended primarily for the protection of depositors and the FDIC deposit insurance fund. The Bank is periodically examined by the NCCOB and the Federal Reserve to ensure that it satisfies applicable standards with respect to its capital adequacy, assets, management, earnings, liquidity and sensitivity to market interest rates. The NCCOB and the Federal Reserve also regulatesregulate the branching authority of the Bank. The Bank’s relationship with its depositors and borrowers is regulated by federal consumer protection laws. The CFPB issues regulations under those laws that the Bank must comply with. The Bank’s relationship with its depositors and borrowers is also regulated by state laws with respect to certain matters, including the enforceability of loan documents.
On August 25, 2014, the Bank converted from a federal savings bank to a national bank. In connection with thethis conversion of the Bank, HomeTrust Bancshares, Inc. changed from a savings and loan holding company to a bank holding company, regulated under the Bank Holding Company Act ("BHCA").BHCA. On December 31, 2015, the Bank converted from a national bank to a North Carolina state-chartered bank and remained a member of the Federal Reserve System. Prior to December 31, 2015, the Bank was regulated by the Office of the Comptroller of the Currency. In connection with the charter change, the Company elected to be treated as a financial holding company by the Federal Reserve.
The following is a brief description of certain laws and regulations applicable to HomeTrust Bancshares, Inc. and the Bank. Descriptions of laws and regulations here and elsewhere in this report do not purport to be complete and are qualified in their entirety by reference to the actual laws
and regulations. Legislation is introduced from time to time in the United States Congress and the North Carolina legislature that may affect the operations of HomeTrust Bancshares and the Bank. In addition, the regulations that govern us may be amended from time to time. Any such legislation or regulatory changes in the future could adversely affect our operations and financial condition.
Financial Regulatory Reform. The Dodd-Frank Act, which was enacted in July 2010, imposed various restrictions and an expanded framework of regulatory oversight for financial entities, including depository institutions and their holding companies.
In May 2018, the Economic Growth, Regulatory Relief and Consumer Protection Act (the “Regulatory Relief 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 changes for community banks such as HomeTrust Bank, and their holding companies.
The Regulatory Relief 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”CBLR. In September 2019, the regulatory agencies, including the NCCOB and FRB, adopted a final rule, effective January 1, 2020, creating the CBLR for institutions with total consolidated assets of between 8less than $10 billion and 10 percent. Anythat meet other qualifying depository institution or its holding companycriteria. The CBLR provides for a simple measure of capital adequacy for qualifying institutions. According to the final rule, qualifying institutions that exceedselect to use the “community bankCBLR framework and that maintain a leverage ratio”ratio of greater than 9% will be considered to have metsatisfied the generally applicable leveragerisk-based and risk-based regulatoryleverage capital requirements in the regulatory agencies' capital rules, and any qualifying depository institution that exceedsto have met the new ratio will be considered to be “well capitalized”capital requirements for the well capitalized category under the agencies' prompt corrective action rules.framework. In addition,April 2020, the Regulatory Relief Act includes certainfederal bank regulatory agencies announced the issuance of two interim final rules, effective immediately, to provide temporary relief regarding such matters as call reports,to community banking organizations. Under the Volcker Rule (proprietary trading prohibitions), mortgage disclosuresinterim final rules, the CBLR requirement is minimum of 8% for the remainder of calendar year 2020, 8.5% for calendar year 2021, and risk weights for certain high-risk commercial real estate loans.
It is difficult9% thereafter. The Bank has not elected to adopt the CBLR framework at this time to predict when or how any new standards underJune 30, 2020, but may consider that election in the Regulatory Relief Act will ultimately be applied to us or what specific impact the Act and the yet-to-be-written implementing rules and regulations will have on community banks.future.
Regulation of HomeTrust Bank
The Bank is subject to regulation and oversight by the NCCOB and the Federal Reserve extending to all aspects of its operations, including but not limited to requirements concerning an allowance for loan losses, lending and mortgage operations, interest rates received on loans and paid on deposits, the payment of dividends to the Company, loans to officers and directors, mergers and acquisitions, capital, and the opening and closing of branches. See "- Current Capital Requirements for HomeTrust Bank," "-Limitations on Dividends and Other Capital Distributions" and “-New Capital Rules” for additional details.
As a state-chartered institution, the Bank is subject to periodic examinations by the NCCOB and the Federal Reserve. During these examinations, the examiners assess compliance with state and federal banking regulations and the safety and soundness standards on such matters as loan underwriting and documentation, asset quality, earnings standards, internal controls and audit systems, interest rate risk exposure, and employee compensation and benefits. Any institution that fails to comply with these standards must submit a compliance plan.
The Bank is subject to a statutory lending limit on aggregate loans to one person or a group of persons combined because of certain relationships and common interests. That limit is generally equal to 15% of unimpaired capital and surplus, which was $53.5$58.7 million as of June 30, 2018.2020. The limit is increased to 25% for loans fully secured by readily marketable collateral. The Bank has no lending relationships in excess of its lending limit.
The NCCOB and the Federal Reserve have enforcement responsibility over the Bank and the authority to bring actions against the Bank and certain institution-affiliated parties, including officers, directors, and employees, for violations of laws or regulations and for engaging in unsafe and unsound practices. Formal enforcement actions include the issuance of a capital directive or cease and desist order, civil money penalties, removal of officers and/or directors, and receivership or conservatorship of the institution.
Pursuant to the Dodd-Frank Act, federal banking and securities regulators issued final rules to implement Section 619 of the Dodd-Frank Act (the “Volcker Rule”). These rules became effective April 15, 2014, but the Federal Reserve extended the conformance period for certain features to July 21, 2017. Generally, subject to a transition period and certain exceptions, the Volcker Rule restricts insured depository institutions and their affiliates from engaging in short-term proprietary trading of certain securities, investing in funds not registered with the SEC with collateral not entirely comprised of loans, and from engaging in hedging activities that do not hedge a specific identified risk. Banks with total consolidated assets of $10 billion or less and total consolidated trading assets and liabilities equal to 5% or less of total consolidated assets, such as the Bank's are not subject to the Volcker Rule.
Insurance of Accounts and Regulation by the FDIC. The deposit insurance fund of the FDIC insures deposit accounts in HomeTrust Bank up to $250,000 per separately insured deposit ownership right or category.
Under the FDIC’s risk-based assessment system, insured institutions are assessed based on supervisory ratings and in general, stronger institutions pay lower rates while riskier institutions pay higher rates. Currently, assessment rates (inclusive of certain possible adjustments) range from 1.5 to 40.0 basis points of each institution’s total average consolidated assets less average tangible equity (subject to upward adjustment for certain debt). The FDIC has authority to increase insurance assessments, and any significant increases would have an adverse effect on the operating expenses and results of operations of the Company. Management cannot predict what assessment rates will be in the future.
Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. We do not currently know of any practice, condition, or violation that may lead to termination of our deposit insurance.
Transactions with Related Parties. Federal laws strictly limit the ability of banks to engage in certain transactions with their affiliates, including their bank holding companies. Transactions between the Bank and its affiliates are required to be on terms as favorable to the Bank as transactions with non-affiliates. Certain of these transactions, such as loans to an affiliate, are restricted to a percentage of the Bank's capital, and loans to affiliates require eligible collateral in specified amounts. HomeTrust Bancshares, IncInc. is an affiliate of the Bank.
Federal law generally prohibits loans by HomeTrust Bancshares to its executive officers and directors, but there is a specific exception for loans made by HomeTrust Bank to its executive officers and directors in compliance with federal banking laws. However, HomeTrust Bank’s authority to extend credit to its executive officers, directors and 10% shareholdersstockholders (“insiders”), as well as entities those insiders control, is limited. The individual and aggregate amounts of loans that HomeTrust Bank may make to insiders are based, in part, on HomeTrust Bank’s capital level and require that certain board approval procedures be followed. Such loans are required to be made on terms substantially the same as those offered to unaffiliated individuals and not involve more than the normal risk of repayment. There is an exception for loans made pursuant to a benefit or compensation program that is widely available to all employees of the institution and does not give preference to insiders over other employees. Loans to executive officers are subject to additional limitations based on the type of loan involved.
Current Capital Requirements for HomeTrust Bank. The Bank is required to maintain specified levels of regulatory capital under federal banking regulations. The capital adequacy requirements are quantitative measures established by regulation that require the Bank to maintain minimum amounts and ratios of capital. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by bank regulators that, if undertaken, could have a direct material effect on the Company's financial statements.
Effective January 1, 2015 (with some changes transitioned into full effectiveness byon January 1, 2019), the Bank became subject to capital regulations which created a new required ratio for common equity Tier 1 (“CET1”) capital, increased the minimum leverage and Tier 1 capital ratios, changed the risk-weightings of certain assets for purposes of the risk-based capital ratios, createdmandated an additional capital conservation buffer over the requiredminimum capital ratios, and changed what qualifies as capital for purposes of meeting the capital requirements. These regulations implement the regulatory capital reforms required by the Dodd Frank Act and the “Basel III” requirements.
Under the capital regulations, the minimum required capital ratios for the Company and the Bank are (i) a CETI capital ratio of 4.5%; (ii) a Tier 1 capital ratio of 6.0%; (iii) a total capital ratio of 8.0%; and (iv) a leverage ratio (the ratio of Tier 1 leverage ratiocapital to average total consolidated assets) of 4.0% for all financial institutions. CET1 generally consists of common stock and retained earnings. Tier 1 capital generally consists of CET1 and noncumulative perpetual preferred stock. Tier 2 capital generally consists of other preferred stock and subordinated debt meeting certain conditions plus an amount of the allowance for loan and lease losses up to 1.25% of assets. Total capital is the sum of Tier 1 and Tier 2 capital. The CET1 capital ratio, the Tier 1 capital ratio and the total capital ratio are sometimes referred to as the risk-based capital ratios and are determined based on risk-weightings of assets and certain off-balance sheet items that range from 0% to 1,250%.
In addition to the capital requirements, there arewere a number of changes in what constitutes regulatory capital, subject to a certain transition period. These changes include the phasing-out of certain instruments as qualifying capital. At June 30, 20182020 the Bank did not have any of these instruments. Mortgage servicing and deferred tax assets over designated percentages of CET1 are deducted from capital, subject to a transition period endingthat ended December 31, 2017. Because of our asset size, we were eligible to elect and have elected to permanently opt-out of the inclusion of unrealized gains and losses on available for sale debt and equity securities in our capital calculations.
As noted above, in addition to the risk-based capital ratios, the Bank must maintain a capital conservation buffer consisting of additional CET1 capital greater than 2.5% of risk-weighted assets above the minimum levels for such ratios in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses based on percentages of eligible retained income that could be utilized for such actions. The capital conservation buffer requirement began to be phased in starting in January 2016 at an amount more than 0.625% of risk-weighted assets and will increaseincreased each year until fully implemented to an amount more than 2.5% of risk-weighted assets in January 2019. Once fully phased in on January 1, 2019,2019. To meet the new minimum capital ratios and the capital conservation buffer requirements, the capital ratios applicable to the Company and the Bank are (i) a CETI capital ratio ofgreater than 7.0%; (ii) a Tier 1 capital ratio ofgreater than 8.5%; (iii) a total capital ratio ofgreater than 10.5%; and (iv) a Tier 1 leverage ratio ofgreater than 4.0%. As of June 30, 2018,2020, the conservation buffer for HomeTrust Bank was 1.875%3.8%.
To be consider “well capitalized,” a depository institution must have a Tier 1 capital ratio of at least 8%, a total capital ratio of at least 10%, a CET1 capital ratio of at least 6.5% and a leverage ratio of at least 5% and not be subject to an individualized order, directive or agreement under which its primary federal banking regulator requires it to maintain a specific capital level. Institutions that are not well capitalized are subject to certain restrictions on brokered deposits and interest rates on deposits. Under certain circumstances, regulators are required to take certain actions against banks that fail to meet the minimum required capital ratios. Any such institution must submit a capital restoration plan and, until such plan is approved may not increase its assets, acquire another depository institution, establish a branch or engage in any new activities, or make capital distributions. As of June 30, 2018,2020, HomeTrust Bank met the requirements to be “well capitalized” and met the fully phased-in capital conservation buffer requirement. For additional information regarding the Bank’s required and actual capital levels at June 30, 2018,2020, see Note 1819 of the Notes to Consolidated Financial Statements included in Item 8 in this report.
Federal Home Loan Bank System. HomeTrust Bank is a member of the FHLB of Atlanta, one of 11 regional Federal Home Loan Banks that administer the home financing credit function of financial institutions. The Federal Home Loan Banks are subject to the oversight of the Federal Housing Finance Agency (“FHFA”)FHFA and each FHLB serves as a reserve or central bank for its members within its assigned region. The Federal
Home Loan Banks are funded primarily
from proceeds derived from the sale of consolidated obligations of the Federal Home Loan Bank System and makes loans or advances to members in accordance with policies and procedures established by the Board of Directors of the FHLB, which are subject to the oversight of the FHFA. All advances from the FHLB are required to be fully secured by sufficient collateral as determined by the FHLB. In addition, all long-term advances are required to provide funds for residential home financing. See “Business -Sources of Funds - Borrowings.”
At June 30, 2018,2020, the Bank held $29.9$23.3 million in FHLB stock that was in compliance with the holding requirements. The FHLB pays dividends quarterly, and HomeTrust Bank received $1.6 million in dividends during the year ended June 30, 2018.2020.
The FHLBs continue to contribute to low- and moderately-priced housing programs through direct loans or interest subsidies on advances targeted for community investment and low- and moderate-income housing projects. These contributions have adversely affected the level of FHLB dividends paid and could continue to do so in the future. These contributions could also have an adverse effect on the value of FHLB stock in the future. A reduction in value of the Bank’s FHLB stock may result in a decrease in net income and possibly capital.
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 Federal Reserve 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. As of June 30, 2018,2020, HomeTrust Bank’s aggregate recorded loan balances for construction, land development and land loans were 56.1%69.8% of regulatory capital. In addition, at June 30, 2018,2020, HomeTrust Bank’s loans on commercial real estate loans, as defined by the guidance, were 247.6%277.4% of regulatory capital.
Community Reinvestment and Consumer Protection Laws. In connection with its deposit-taking, lending and other activities, the Bank is subject to a number of federal laws designed to protect consumers and promote lending for various purposes. The CFPB issues regulations and standards under these federal consumer protection laws, which include the Equal Credit Opportunity Act, the Truth-in-Lending Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act and others. The CFPB has promulgated a number of proposed and final regulations under these laws that will affect our consumer businesses. Among these regulatory initiatives, are final regulations setting “ability to repay” and “qualified mortgage” standards for residential mortgage loans and establishing new mortgage loan servicing and loan originator compensation standards. In addition, customer privacy regulations limit the ability of the Bank to disclose nonpublic consumer information to non-affiliated third parties. These regulations require disclosure of privacy policies and allow consumers to prevent certain personal information from being shared with non-affiliated parties.
The Community Reinvestment Act ("CRA")CRA requires that the Federal Reserve assess the Bank's record in meeting the credit needs of the communities it serves, especially low and moderate income neighborhoods. Under the CRA, institutions are assigned a rating of "outstanding," "satisfactory," "needs to improve," or "substantial non-compliance." The Bank received ana "satisfactory" rating in its most recent CRA evaluation.
Bank Secrecy Act / Anti-Money Laundering Laws. The Bank is subject to the Bank Secrecy Act and other anti-money laundering laws and regulations, including the USA PATRIOT Act of 2001. These laws and regulations require the Bank to implement policies, procedures, and controls to detect, prevent, and report money laundering and terrorist financing and to verify the identity of their customers. Violations of these requirements can result in substantial civil and criminal sanctions. In addition, provisions of the USA PATRIOT Act require the federal financial institution regulatory agencies to consider the effectiveness of a financial institution's anti-money laundering activities when reviewing mergers and acquisitions.
Limitations on Dividends. NCCOB and the Federal Reserve 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, without the approval of the Federal Reserve. If the Bank proposes to pay a dividend that will exceed this limitation, it must obtain the Federal Reserve's prior approval. The Federal Reserve 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 the Bank does not have the required capital conservation buffer, its ability to pay dividends to HomeTrust Bancshares, Inc. will be limited.
Holding Company Regulation
As a bank holding company under the BHCA, HomeTrust Bancshares, Inc. is subject to regulation, supervision, and examination by the Federal Reserve. The Federal Reserve has enforcement authority with respect to HomeTrust Bancshares, Inc. similar to its enforcement authority over the Bank. We are required to file quarterly reports with the Federal Reserve and provide additional information as the Federal Reserve may require. The Federal Reserve may examine us, and any of our subsidiaries, and charge us for the cost of the examination. The Federal Reserve also has extensive enforcement authority over bank holding companies, including, among other things, the ability to assess civil money penalties, to issue cease and desist or removal orders and to require that a holding company divest subsidiaries (including its bank subsidiaries). In general, enforcement actions may be initiated for violations of law and regulations and unsafe or unsound practices. HomeTrust Bancshares, Inc. is also required to file certain reports with, and otherwise comply with the rules and regulations of the SEC.
The Bank Holding Company Act. Under the BHCA, we are supervised by the Federal Reserve. The Federal Reserve has a policy that a bank holding company is required to serve as a source of financial and managerial strength to its subsidiary banks and may not conduct its operations in an unsafe or unsound manner. In addition, the Dodd-Frank Act and earlier Federal Reserve policy provide that a bank holding company should serve as a source of strength to its subsidiary banks by having the ability to provide financial assistance to its subsidiary banks during periods of financial distress to the banks. A bank holding company's failure to meet its obligation to serve as a source of strength to its subsidiary banks will generally be considered by the Federal Reserve to be an unsafe and unsound banking practice or a violation of the Federal Reserve's regulations or both. No regulations have yet been proposed by the Federal Reserve to implement the source of strength doctrine required by the Dodd-Frank Act. HomeTrust Bancshares, Inc. and any subsidiaries that it may control are considered “affiliates” within the meaning of the Federal Reserve Act, and transactions between HomeTrust Bancshares, Inc. and affiliates are subject to numerous restrictions. With some exceptions, HomeTrust Bancshares, Inc. and its subsidiaries are prohibited from tying the provision of various services, such as extensions of credit, to other services offered by HomeTrust Bancshares, Inc. or by its affiliates.
Permissible Activities. The business activities of HomeTrust Bancshares, Inc. are generally limited to those activities permissible for bank holding companies under Section 4(c)(8) of the BHCA, those permitted for a financial holding company under Section 4(f) of the BHCA, and certain additional activities authorized by regulation. The BHCA generally prohibits a financial 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 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 for HomeTrust Bancshares. As a bank holding company, HomeTrust Bancshares, Inc. is subject to the minimum regulatory capital requirements established by the Federal Reserve regulation, which generally are the same as the capital requirements for the Bank. These capital requirements include provisions that might impact the ability of the Company to pay dividends to its stockholders or repurchase its shares. For a description of the capital regulations, see " Regulation"Regulation of HomeTrust Bank-Current Capital Requirements for HomeTrust Bank" and Note 1819 of the Notes to Consolidated Financial Statements included in Item 8 in this report.
At June 30, 2018,2020, the HomeTrust Bancshares, Inc. exceeded its minimum regulatory capital requirements under Federal Reserve regulations.
Federal Securities Law. The stock of HomeTrust Bancshares, Inc. is registered with the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).Act. HomeTrust Bancshares, Inc. is subject to the information, proxy solicitation, insider trading restrictions, and other requirements of the SEC under the Exchange Act.
The SEC has adopted regulations and policies applicable to a registered company under the Exchange Act that seek to increase corporate responsibility, provide for enhanced penalties for accounting and auditing improprieties and protect investors by improving the accuracy and reliability of corporate disclosures in SEC filings. These regulations and policies include very specific additional disclosure requirements and mandate corporate governance practices.
On October 28, 2015, the Auditing Standards Board of the American Institute of Certified Public Accountants ("AICPA") issued Statement on Auditing Standards ("SAS") No. 130 - An Audit of Internal Control Over Financial Reporting That Is Integrated With an Audit of Financial Statement. Under SAS 130, our auditors are required to opine on the effectiveness of internal controls over financial reporting for the current fiscal year.
Sarbanes-Oxley Act. The Sarbanes-OxleySOX Act (“SOX Act”) of 2002 addresses a broad range of corporate governance, auditing and accounting, executive compensation, and disclosure requirements for public companies and their directors and officers. The SOX Act requires our Chief Executive Officer and Chief Financial Officer to certify the accuracy of certain information included in our quarterly and annual reports. The rules require these officers to certify that they are responsible for establishing, maintaining, and regularly evaluating the effectiveness of our financial reporting and disclosure controls and procedures; that they have made certain disclosures to the auditors and to the Audit Committee of the Board of Directors about our controls and procedures; and that they have included information in their quarterly and annual filings about their evaluation and whether there have been significant changes to the controls and procedures or other factors which would significantly impact these controls subsequent to their evaluation. Section 404 of the SOX Act requires management to undertake an assessment of the adequacy and effectiveness of our internal controls over financial reporting and requires our auditors to attest to and report on the effectiveness of these controls.
Dividends. The Federal Reserve has issued a policy statement on the payment of cash dividends by bank holding companies, which expresses its view that although there are no specific regulations restricting dividend payments by bank holding companies other than state corporate laws, a bank holding company must maintain an adequate capital position and generally should not pay cash dividends unless the company's net income
for the past year is sufficient to fully fund the cash dividends and that the prospective rate of earnings appears consistent with the company's capital needs, asset quality, and overall financial condition. The Federal Reserve policy statement also indicates that it would be inappropriate for a company experiencing serious financial problems to borrow funds to pay dividends. As described above under “Regulation of HomeTrust Bank-Current Capital Requirements for HomeTrust Bank," the capital conservation buffer requirement can also restrict the ability of HomeTrust Bancshares, Inc. and the Bank’s abilityBank to pay dividends.
Stock Repurchases. A bank holding company, except for certain “well-capitalized” and highly rated bank holding companies, 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 redemptions during the preceding twelve months, is equal to 10% or more of its 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.
Legislative and Regulatory Proposals. Any changes in the extensive regulatory scheme to which the HomeTrust Bancshares, Inc. or the Bank is and will be subject, whether by any of the federal banking agencies or Congress, or the North Carolina legislature or NCCOB, could have a material effect on the Company or HomeTrust Bank, and HomeTrust Bancshares, Inc. and the Bank cannot predict what, if any, future actions may be taken by legislative or regulatory authorities or what impact such actions may have.
Federal Taxation
General. HomeTrust Bancshares Inc. and the Bank are subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below. The following discussion of federal taxation is intended only to summarize material federal income tax matters and is not a comprehensive description of the tax rules applicable to HomeTrust Bancshares and HomeTrust.
On December 22, 2017, the U.S. Government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act amends the Internal Revenue CodeIRC to reduce tax rates and modify policies, credits, and deductions for individuals and businesses. For businesses, the Tax Act reducesreduced the corporate federal income tax rate from a maximum of 35% to a flat 21%. The corporate federal income tax rate reduction was effective January 1, 2018. Since the Company has a fiscal year end of June 30th, the reduced federal corporate income tax rate for fiscal year 2018 was the result of the application of a blended federal statutory tax rate of 27.5%, which was based on the applicable tax rates before and after the Tax Act and corresponding number of days in the fiscal year before and after enactment, and then will bebecame a flat 21% corporate income tax rate for fiscal 2019 and thereafter. The Tax Act also required a revaluation the Company’s deferred tax assets and liabilities to account for the future impact of lower corporate income tax rates and other provisions of the legislation. As a result of the Company’s revaluation in fiscal 2018, the net deferred tax asset (“DTA”)DTA was reduced through an increase to the provision for income tax. The revaluation of our DTA balance resulted in a one-time increase for the fiscal year ended June 30, 2018 to federal income tax of $17.6 million. See Note 1213 "Income Taxes" in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K for additional information.
Method of Accounting. For federal income tax purposes, the Company currently reports its income and expenses on the accrual method of accounting and uses a fiscal year ending on June 30th for filing its federal income tax return. The Small Business Protection Act of 1996 eliminated the use of the reserve method of accounting for bad debt reserves by savings institutions, effective for taxable years beginning after 1995.
Minimum Tax. Prior to the enactment of the Tax Act, the Internal Revenue Code ("IRC")IRC imposed an alternative minimum tax at a rate of 20% on a base of regular taxable income plus certain tax preferences, called alternative minimum taxable income. The alternative minimum tax was payable to the extent such alternative minimum taxable income was in excess of the regular tax. Net operating losses could offset no more than 90% of alternative minimum taxable income. Certain payments of alternative minimum tax could be used as credits against regular tax liabilities in future years. At June 30, 2018, we had alternative minimum tax credit carryforwards of approximately $4.9 million. Upon enactment of the Tax Act, the alternative minimum tax was repealed.
Net Operating Loss Carryovers. A financial institution may carryback net operating losses to the preceding two taxable years and forward to the succeeding 20 taxable years. This provision applies to losses incurred in taxable years beginning after August 6, 1997. In 2009, IRC 172 (b) (1) was amended to allow businesses to carry back losses incurred in 2008 and 2009 for up to five years to offset 50% of the available income from the fifth year and 100% of the available income for the other four years. At June 30, 2018,2020, we had $40.8$21.5 million of net operating loss carryforwards for federal income tax purposes.
Corporate Dividends-Received Deduction. HomeTrust Bancshares, Inc. files a consolidated return with the Bank. As a result, any dividends HomeTrust Bancshares, Inc. receives from the Bank will not be included as income to HomeTrust Bancshares, Inc. The corporate dividends-received deduction is 100%, or 80%65% in the case of dividends received from corporations with which a corporate recipient does not file a consolidated tax return, depending on the level of stock ownership of the payer of the dividend.
State Taxation
North Carolina. On July 24, 2013, The Tax Simplification and Reduction Act of 2013 was signed into law. With this act, corporate income tax rates in North Carolina were reduced as net General Fund tax collection revenues goals were met. For tax years beginning on or after January 1, 2017, 2016, and 2015 the tax rate was 3%, 4%, and 5%, respectively. In June 2017, the state announced an additional reduction in the tax rate to 2.5% beginning on January 1, 2019. This rate reduction is not contingent on any revenue goals. The decrease in the North Carolina corporate tax rate will continue to decrease the deferred tax assets currently recorded on our balance sheet with a corresponding increase to our income tax provision, as temporary tax differences are reversed at lower state tax rates.
If a corporation in North Carolina does business in North Carolina and in one or more other states, North Carolina taxes a fraction of the corporation’s income based on the amount of sales, payroll, and property it maintains within North Carolina. North Carolina franchise tax is levied on business corporations at the rate of $1.50 per $1,000 of the largest of the following three alternate bases: (i) the amount of the corporation’s capital stock, surplus, and undivided profits apportionable to the state; (ii) 55% of the appraised value of the corporation’s property in the state subject to local taxation; or (iii) the book value of the corporation’s real and tangible personal property in the state less any outstanding debt that was created to acquire or improve real property in the state.
Any cash dividends, in excess of a certain exempt amount, that would be paid with respect to HomeTrust Bancshares common stock to a shareholderstockholder (including a partnership and certain other entities) who is a resident of North Carolina will be subject to the North Carolina income tax. Any distribution by a corporation from earnings according to percentage ownership is considered a dividend, and the definition of a dividend for North Carolina income tax purposes may not be the same as the definition of a dividend for federal income tax purposes. A corporate distribution may be treated as a dividend for North Carolina income tax purposes if it is paid from funds that exceed the corporation’s earned surplus and profits under certain circumstances.
South Carolina. The state of South Carolina requires banks to file a bank tax return. As a multi-state bank, we pay taxes on the portion of revenue generated within the state. In 20182020 and 20172019 the tax rate was 5.0% and 4.5%, respectively..
Tennessee. The state of Tennessee requires banks to file a franchise and excise tax form for financial institutions. The franchise tax is based on the portion of revenue generated in the state, the net worth of the Bank, and the applicable franchise tax, which was $0.25 per $100 in 20182020 and 2017.2019. The excise tax is based on the taxable income (as defined by the state), the portion of revenue generated in the state, and the applicable excise tax, which was 6.5% in 20182020 and 2017.2019.
Virginia. The state of Virginia requires banks to file a bank franchise tax. The tax is based on the portion of capital deployed within the state and county level (as defined by the state) and taxed at $1 per $100 of taxable value.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
The following individuals are executive officers of HomeTrust Bancshares and HomeTrust Bank and hold the offices set forth below opposite their names. |
| | | | |
| Name | | Age(1) | | Position |
| Dana L. Stonestreet | | 6466 | | Chairman, President and Chief Executive Officer |
| C. Hunter Westbrook | | 57 | | Senior Executive Vice President and Chief Operating Officer |
| Tony J. VunCannon | | 5355 | | Executive Vice President, Chief Financial Officer, Corporate Secretary, and Treasurer |
Howard L. SellingerMarty Caywood | | 6548 | | Executive Vice President and Chief Information Officer |
C. Hunter Westbrook | | 55 | | Executive Vice President and Chief Banking Officer |
| Keith Houghton | | 5658 | | Executive Vice President and Chief Credit Officer |
| Paula C. Labian | | 62 | | Executive Vice President and Chief Human Resources Officer |
| Parrish Little | | 5052 | | Executive Vice President and Chief Risk Officer |
| |
| (1) | As of June 30, 2018. 2020. |
Biographical Information. Set forth below is certain information regarding the executive officers of HomeTrust Bancshares and HomeTrust Bank. There are no family relationships among or between the executive officers.
Dana L. Stonestreet, Chairman and Chief Executive Officer. In his 2931 years of service, Mr. Stonestreet has overseen ten acquisitions and the growth of the Bank from $300 million to $3.3$3.7 billion in assets at June 30, 2018.2020. As part of the CEO succession plan for HomeTrust Bancshares, Inc. and the Bank, Mr. Stonestreet, who had been serving as President and Chief Operating Officer and as a director of HomeTrust Bank since 2008 and as President and Chief Operating Officer of HomeTrust Bancshares, Inc. since HomeTrust Bank’s mutual-to-stock conversion, became co-Chief Executive Officer of HomeTrust Bancshares, Inc. and the Bank in July 2013. Mr. Stonestreet became President, Chairman and Chief Executive Officer of HomeTrust Bancshares, Inc. and the Bank effective at the annual meeting in November 2013. Mr. Stonestreet joined HomeTrust Bank in 1989 as its Chief Financial Officer and was promoted to Chief Operating Officer in 2003. Mr. Stonestreet began his career with Hurdman & Cranston (an accounting firm that was later merged into KPMG) as a certified public accountant. Mr. Stonestreet serves as a director of the HUB Community Economic Development Alliance Board. In addition, Mr. Stonestreet has served as Chairman of the Asheville Chamber of Commerce and as a director for RiverLink, the YMCA, United Way, the North Carolina Bankers Association and other community organizations. In July 2017, Mr. Stonestreet was appointed to the North Carolina Banking Commission for a four-year term. Mr. Stonestreet’s 2931 years of service with HomeTrust Bank gives him in-depth knowledge of nearly all aspects of its operations. Mr. Stonestreet’s accounting background and prior service as HomeTrust Bank’s Chief Financial Officer also provide him with a strong understanding of the various financial matters brought before the Board.
Tony J. VunCannon, Executive Vice President, Chief Financial Officer, Corporate Secretary, and Treasurer. Mr. VunCannon has served as HomeTrust Bank's Chief Financial Officer since July 2006. Mr. VunCannon joined the Bank in April 1992 as Controller; later becoming the Treasurer in March 1997 until July 2006 when he was also named Chief Financial Officer. In 2018, he was named Corporate Secretary. Prior to joining the Bank, Mr. VunCannon worked as an auditor in KPMG’s Charlotte office where his focus was in the community banking sector. Mr. VunCannon is a graduate of the University of North Carolina at Chapel Hill with a Bachelor of Science Degree in Business Administration/Accounting. He is also a Certified Public Accountant.
Howard L. Sellinger,C. Hunter Westbrook, Senior Executive Vice President and Chief Information Officer. Mr. Sellinger has served as Chief Information Officer of HomeTrust Bank since July 1997. Mr. Sellinger joined HomeTrust Bank in 1975 as a management trainee. Mr. Sellinger became the Office Manager of the Skyland office from 1976 until 1978. His experience also includes being the Head of Mortgage Loan Operations with loan approval authority, the Head of Loan Servicing with workout approval authority, and was responsible for regulatory compliance in Lending and Deposit Operations for many years. In 1988, he was named Operations Manager and was promoted to Vice President and Chief Information Officer in 1997.
C. Hunter Westbrook, Executive Vice President and Chief BankingOperating Officer. Mr. Westbrook joined HomeTrust Bank in June 2012 as our Chief Banking Officer.Officer and was promoted to Chief Operating Officer in October 2018. He began his career in banking with TCF Bank in Minneapolis and later joined TCF National Bank Illinois as Senior Vice President of Finance. In 2004 he was promoted to Executive Vice President of Retail Banking for Illinois, Wisconsin and Indiana markets that included 250 branches and $4 billion in deposits. He also served as President and Chief Executive Officer of First Community Bancshares in Texas, from 2006 to 2008, where he was responsible for repositioning the bank’s retail operating model and implemented the bank’s retail and corporate lending product offerings. In his most recent role prior to joining HomeTrust Bank, Mr. Westbrook served as President and Chief Executive Officer of Second Federal Savings and Loan Association of Chicago, from 2010 to 2012, where he significantly grew core operating revenue, net checking account balances, and repositioned the bank’s entire product line.
Tony J. VunCannon, Executive Vice President, Chief Financial Officer, Corporate Secretary, and Treasurer. Mr. VunCannon has served as HomeTrust Bank's Chief Financial Officer since July 2006. Mr. VunCannon joined the Bank in April 1992 as Controller; later becoming the Treasurer in March 1997 until July 2006 when he was also named Chief Financial Officer. In 2018, he was named Corporate Secretary. Prior to
joining the Bank, Mr. VunCannon worked as an auditor in KPMG’s Charlotte office where his focus was in the community banking sector. He is also a Certified Public Accountant.
Marty Caywood, Executive Vice President and Chief Information Officer. Mr. Caywood joined HomeTrust Bank in 1995 as the Bank’s first Network Administrator and worked in various roles including Information Security Officer and most recently as Senior Vice President and Director of Information Technology. Mr. Caywood was promoted to Executive Vice President and Chief Information Officer in April 2019.
Keith Houghton, Executive Vice President and Chief Credit Officer. Mr. Houghton joined HomeTrust Bank in March of 2014 as our Chief Credit Officer. Mr. Houghton has more than 30 years of experience in the banking industry. For nearly 1718 years, he held a variety of senior positions in the credit and lending areas with StellarOne Corporation, a Charlottesville, VA-based bank holding company with approximately $3 billion in assets, and its predecessors, until the sale of StellarOne to another bank in January 2014. The most recent of those positions was Chief Credit Risk Officer, which Mr. Houghton held since 2007.
Paula C.Labian, Executive Vice President and Chief Human Resources Officer. Ms. Labian joined HomeTrust Bank in January 2019 as Executive Vice President and Chief Human Resources Officer. Ms. Labian brings more than 25 years of broad based industry experience in human resource development, strategy, and leadership. She began her career in financial services in Southern California with Bank of Coronado and Guild Mortgage Company, managing human resources and administering loan officer compensation as well as training. Ms. Labian has served in numerous senior level positions with brand name companies such as Blue Cross Blue Shield of Florida, Whole Foods Market, Alterra Mountain Company, and CoBiz Bank. She has significant expertise in employee relations, total rewards, benefit administration, executive compensation, talent acquisition and development, and mergers and acquisitions.
Parrish Little, Executive Vice President and Chief Risk Officer. Mr. Little joined HomeTrust Bank in March 2015 as our Chief Risk Officer. Prior to joining HomeTrust Bank, Mr. Little served as Senior Vice President, Director of Risk Management from 2008 to 2013 and Chief Audit Executive in 2014 for First Citizens Bank and Trust, Columbia, South Carolina. From 1997 to 2007, he served in several leadership roles with Bank of America in the areas of internal audit and risk management.
Item 1A. Risk Factors
An investment in our common stock is subject to risks inherent in our business. Before making an investment decision, you should carefully consider the risks and uncertainties described below together with all of the other information included in this report. In addition to the risks and uncertainties described below, other risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and results of operations. The value or market price of our common stock could decline due to any of these identified or other risks, and you could lose all or part of your investment.
Risks Related to Our Business
COVID-19 Pandemic
The COVID-19 pandemic has adversely impacted our ability to conduct business and has adversely impacted our financial results and those of our customers. The ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.
The COVID-19 pandemic has significantly adversely affected our operations and the way we provide banking services to businesses and individuals, most of whom are currently under government issued modified stay-at-home orders. As an essential business, we continue to provide banking and financial services to our customers with drive-thru access available at the majority of our branch locations and in-person services available by appointment. In addition, we continue to provide access to banking and financial services through online banking, ATMs and by telephone. If the COVID-19 pandemic worsens it could limit or disrupt our ability to provide banking and financial services to our customers.
In response to the stay-at-home orders, many of our employees currently are working remotely to enable us to continue to provide banking services to our customers. Heightened cybersecurity, information security and operational risks may result from these remote work-from-home arrangements. We also could be adversely affected if key personnel or a significant number of employees were to become unavailable due to the effects and restrictions of the COVID-19 pandemic. We also rely upon our third-party vendors to conduct business and to process, record and monitor transactions. If any of these vendors are unable to continue to provide us with these services, it could negatively impact our ability to serve our customers. Although we have business continuity plans and other safeguards in place, there is no assurance that such plans and safeguards will be effective.
There is pervasive uncertainty surrounding the future economic conditions that will emerge in the months and years following the start of the pandemic. As a result, management is confronted with a significant and unfamiliar degree of uncertainty in estimating the impact of the pandemic on credit quality, revenues and asset values. To date, the COVID-19 pandemic has resulted in declines in loan demand and loan originations (other than through government sponsored programs such as the Payroll Protection Program), deposit availability, market interest rates and negatively impacted many of our business and consumer borrower’s ability to make their loan payments. Because the length of the pandemic and the efficacy of the extraordinary measures being put in place to address its economic consequences are unknown, including recent reductions in the targeted federal funds rate, until the pandemic subsides, we expect our net interest income and net interest margin will be adversely affected in the near term, if not longer. Many of our borrowers have become unemployed or may face unemployment, and certain businesses are at risk of insolvency as their revenues decline precipitously, especially in businesses related to travel, hospitality, leisure and physical personal services. Businesses are reopening at lower capacities and there continues to be a significant level of uncertainty regarding the level of economic activity
that will return to our markets over time, the impact of governmental assistance, the speed of economic recovery, the resurgence of COVID-19 in subsequent seasons and changes to demographic and social norms that will take place.
The impact of the pandemic is expected to continue to adversely affect us during 2021 and possibly longer as the ability of many of our customers to make loan payments has been significantly affected. Although the Company makes estimates of loan losses related to the pandemic as part of its evaluation of the allowance for loan losses, such estimates involve significant judgment and are made in the context of significant uncertainty as to the impact the pandemic will have on the credit quality of our loan portfolio. It is likely that increased loan delinquencies, adversely classified loans and loan charge-offs will increase in the future as a result of the pandemic. Consistent with guidance provided by banking regulators, we have modified loans by providing various loan payment deferral options to our borrowers affected by the COVID-19 pandemic. Notwithstanding these modifications, these borrowers may not be able to resume making full payments on their loans once the COVID-19 pandemic is resolved. Any increases in the allowance for credit losses will result in a decrease in net income and, most likely, capital, and may have a material negative effect on our financial condition and results of operations. See "Recent Developments: COVID-19, the CARES Act, and Our Response" under Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 5 of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K for additional details on the Company's loan modifications related to COVID-19.
The PPP loans made by the Bank are guaranteed by the SBA and, if used by the borrower for authorized purposes, may be fully forgiven. However, in the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which the PPP loan was originated, funded or serviced by the Bank, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty or, if it has already made payment under the guaranty, seek recovery of any loss related to the deficiency from the Bank. In addition, since the commencement of the PPP, several larger banks have been subject to litigation regarding their processing of PPP loan applications. The Bank may be exposed to the risk of similar litigation, from both customers and non-customers that approached the Bank seeking PPP loans. PPP lenders, including the Bank, may also be subject to the risk of litigation in connection with other aspects of the PPP, including but not limited to borrowers seeking forgiveness of their loans. If any such litigation is filed against the Bank, it may result in significant financial or reputational harm to us.
In accordance with GAAP, we record assets acquired and liabilities assumed at their fair value with the excess of the purchase consideration over the net assets acquired resulting in the recognition of goodwill. If adverse economic conditions or the recent decrease in our stock price and market capitalization as a result of the pandemic were to be deemed sustained rather than temporary, it may significantly affect the fair value of our goodwill and may trigger impairment charges. Any impairment charge could have a material adverse effect on our results of operations and financial condition.
Even after the COVID-19 pandemic subsides, the U.S. economy will likely require some time to recover from its effects, the length of which is unknown, and during which we may experience a recession. As a result, we anticipate our business may be materially and adversely affected during this recovery. To the extent the effects of the COVID-19 pandemic adversely impact our business, financial condition, liquidity or results of operations, it may also have the effect of heightening many of the other risks described in this section. Goodwill has been evaluated for impairment as of our annual evaluation date, April 1, 2020, as well as for triggering events at June 30, 2020 and it was determined that no impairment was required.
Adverse economic conditions in the market areas we serve could adversely impact our earnings and could increase the credit risk associated with our loan portfolio.
Our primary market areas are concentrated in North Carolina (including the Asheville metropolitan area, Greensboro / “Piedmont”Piedmont region, Charlotte, and Raleigh/Cary), South Carolina (Greenville), East Tennessee (including Kingsport/Johnson City/Bristol, Knoxville, and Morristown) and the Roanoke Valley area of Virginia. Adverse economic conditions in our market areas can reduce our rate of growth, affect our customers’ ability to repay loans and adversely impact our financial condition and earnings. General economic conditions, including inflation, unemployment and money supply fluctuations, also may affect our profitability adversely.
While real estate values and unemployment rates have recently improved, deterioration in economic conditions, particularly within our primary market areas could result in the following consequences, among others, any of which could materially hurt our business:
loan delinquencies, problem assets and foreclosures may increase;
we may increase our allowance for loan losses;
the slowing of sales of foreclosed assets;
demand for our products and services may decline, possibly resulting in a decrease in our total loans or assets;
collateral for loans made may decline further in value, exposing us to increased risk of loss on existing loans and reducing customers’ borrowing power;
the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; and
the amount of our deposits may decrease and the composition of our deposits may be adversely affected.
At June 30, 2018,2020, the most significant portion of our loans located outside of our primary market areas was HELOCs-purchased totaling $166.3$71.8 million, or 6.5%2.6% of our loan portfolio, secured by one-to-four family properties located primarily in several western states. As a result, our financial condition and results of operations will be subject to general economic conditions and the real estate conditions prevailing in the markets in which the underlying properties securing these loans are located, as well as the conditions in our primary market areas. If economic conditions or if the real estate market declines in the areas in which these properties are located, we may suffer decreased net income or losses associated
with higher default rates and decreased collateral values on our existing portfolio. Further, because of their geographical diversity, these loans can be more difficult to oversee than loans in our market areas in the event of delinquency.
A decline in economic conditions may have a greater effect on our earnings and capital than on the earnings and capital of larger financial institutions whose real estate loan portfolios are more geographically diverse. Many of the loans in our portfolio are secured by real estate. Deterioration in the real estate markets where collateral for a mortgage loan is located could negatively affect the borrower’s ability to repay the loan and the value of the collateral securing the loan. Real estate values are affected by various other factors, including changes in general or regional economic conditions, governmental rules or policies and natural disasters. If we are required to liquidate a significant amount of collateral during a period of reduced real estate values, our financial condition and profitability could be adversely affected.
Our business may be adversely affected by credit risk associated with residential property.
At June 30, 2018, $661.72020, $682.9 million, or 26.2%24.7% of our total loan portfolio, was secured by first liens on one-to-four family residential loans. In addition, at June 30, 2018, our home equity lines of credit totaled $303.8 million or 12.0% of our total loan portfolio, including $69.7 million secured by a first lien on the residential property. These types of loans are generally sensitive to regional and local economic conditions that significantly impact the ability of borrowers to meet their loan payment obligations, making loss levels difficult to predict. A decline in residential real estate values resulting from a downturn in the housing market may reduce the value of the real estate collateral securing these types of loans and increase our risk of loss if borrowers default on their loans. Recessionary conditions or declines in the volume of real estate sales and/or the sales prices coupled with elevated unemployment rates may result in higher than expected loan delinquencies or problem assets, and a decline in demand for our products and services. These potential negative events may cause us to incur losses, adversely affect our capital and liquidity, and damage our financial condition and business operations. Further, the Tax Act enacted in December 2017 could negatively impact our customers because it lowers the existing caps on mortgage interest deductions and limits the state and local tax deductions. These changes could make it more difficult for borrowers to make their loan payments, and could also negatively impact the housing market, which could adversely affect our business and loan growth.
A majority of our residential loans are “non-conforming” because they are adjustable rate mortgages which contain interest rate floors or do not satisfy credit or other requirements due to personal and financial reasons (i.e. divorce, bankruptcy, length of time employed, etc.), conforming loan limits (i.e. jumbo mortgages), and other requirements, imposed by secondary market purchasers. Some of these borrowers have higher debt-to-income ratios, or the loans are secured by unique properties in rural markets for which there are no sales of comparable properties to support the value according to secondary market requirements. We may require additional collateral or lower loan-to-value ratios to reduce the risk of these loans. We believe that these loans satisfy a need in our local market areas. As a result, subject to market conditions, we intend to continue to originate these types of loans. Total non-conforming loans were $373.2$350.7 million at June 30, 2018,2020, including $101.6$191.8 million of jumbo one- to four-family residential loans which may also expose us to increased risk because of their larger balances.
High loan-to-value ratios on a portion of our residential mortgage loan portfolio exposes us to greater risk of loss.
Many of our one-to-four family loans and home equity lines of credit are secured by liens on mortgage properties in which the borrowers have little or no equity because of these declines in prior years in home values in our market areas. Residential loans with high combined loan-to-value ratios will be more sensitive to declining property values than those with lower combined loan-to-value ratios and therefore may experience a higher incidence of default and severity of losses. In addition, if the borrowers sell their homes, they may be unable to repay their loans in full from the sale. Further, the majority of our home equity lines of credit consist of second mortgage loans. For those home equity lines secured by a second mortgage, it is unlikely that we will be successful in recovering all or a portion of our loan proceeds in the event of default unless we are prepared to repay the first mortgage loan and such repayment and the costs associated with a foreclosure are justified by the value of the property. For these reasons, we may experience higher rates of delinquencies, defaults and losses.
Our non-owner-occupied real estate loans may expose us to increased credit risk.
At June 30, 2018, $86.12020, $80.1 million, or 13.6%16.9%, of our one-to-four family loans and 4.0%2.9% of our total loan portfolio, consisted of loans secured by non-owner-occupied residential properties. Loans secured by non-owner-occupied properties generally expose a lender to greater risk of non-payment and loss than loans secured by owner-occupied properties because repayment of such loans dependdepends primarily on the tenant’s continuing ability to pay rent to the property owner, who is our borrower, or, if the property owner is unable to find a tenant, the property owner’s ability to repay the loan without the benefit of a rental income stream. In addition, the physical condition of non-owner-occupied properties is often below that of owner-occupied properties due to lax property maintenance standards, which has a negative impact on the value of the collateral properties. Furthermore, some of our non-owner-occupied residential loan borrowers have more than one loan outstanding with HomeTrust Bank which may expose us to a greater risk of loss compared to an adverse development with respect to an owner-occupied residential mortgage loan.
Our construction and development loans and construction and land/lot loans have a higher risk of loss than residential or commercial real estate loans.
At June 30, 2018,2020, construction and land/lot loans in our retail consumer loan portfolio was $65.6$81.9 million, or 2.6%3.0%, of our total loan portfolio, and consists primarily of construction to permanent loans to homeowners building a residence or developing lots in residential subdivisions intending to construct a residence within one year. Construction and development loans in our commercial loan portfolio at June 30, 2018,2020, totaled $192.1$215.9 million, or 7.6%7.8%, of our total loan portfolio, and consists of loans to contractors and builders primarily to finance the construction of single and multi-family homes, subdivisions, as well as commercial properties. We originate these loans whether or not the collateral property underlying the loan is under contract for sale.
Construction and development lending generally involves additional risks because funds are advanced upon estimates of costs in relation to values associated with the completed project. Construction and development lending involves additional risks when compared with permanent residential lending because funds are advanced upon the collateral for the project based on an estimate of costs that will produce a future value at completion. Because of the uncertainties inherent in estimating construction costs, as well as the market value of the complete project and the effects of governmental regulation on real property, it is relatively difficult to evaluate accurately the total funds required to complete a project and the completed project loan-to-value ratio. Changes in demand for new housing and higher than anticipated building costs, may cause actual results to vary significantly from those estimated. For these reasons, thisThis type of lending also typically involves higher loan principal amounts and is often concentrated with a small number of builders. AFor these reasons, a downturn in housing, or the real estate market, could increase loan delinquencies, defaults and foreclosures, and significantly impair the value of our collateral and our ability to sell the collateral upon foreclosure. Some of the builders we deal with have more than one loan outstanding with us. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to a significantly greater risk of loss.
In addition, during the term of some of our construction and development loans, no payment from the borrower is required since the accumulated interest is added to the principal of the loan through an interest reserve. As a result, these loans often involve the disbursement of funds with repayment substantially dependent on the success of the ultimate project and the ability of the borrower to sell or lease the property or obtain permanent take-out financing, rather than the ability of the borrower or guarantor to repay principal and interest. If our appraisal of the value of a completed project proves to be overstated, we may have inadequate security for the repayment of the loan upon completion of construction of the project and may incur a loss. Because construction loans require active monitoring of the building process, including cost comparisons and on-site inspections, these loans are more difficult and costly to monitor. Increases in market rates of interest may have a more pronounced effect on construction loans by rapidly increasing the end-purchasers' borrowing costs, thereby reducing the overall demand for the project. Properties under construction are often difficult to sell and typically must be completed in order to be successfully sold which also complicates the process of working out problem construction loans. This may require us to advance additional funds and/or contract with another builder to complete construction and assume the market risk of selling the project at a future market price, which may or may not enable us to fully recover unpaid loan funds and associated construction and liquidation costs. Furthermore, in the case of speculative construction loans, there is the added risk associated with identifying an end-purchaser for the finished project. At June 30, 2018, $48.72020, $47.7 million of our construction and development loans were for speculative construction loans and none were classified as nonaccruing.
Loans on land under development or held for future construction as well as lot loans made to individuals for the future construction of a residence also pose additional risk because the length of time from financing to completion of a development project is significantly longer than for a traditional construction loan, which makes them more susceptible to declines in real estate values, declines in overall economic conditions which may delay the development of the land and changes in the political landscape that could affect the permitted and intended use of the land being financed, and the potential illiquid nature of the collateral. In addition, during this long period of time from financing to completion, the collateral often does not generate any cash flow to support the debt service.
Our commercial real estate loans involve higher principal amounts than other loans and repayment of these loans may be dependent on factors outside our control or the control of our borrowers.
While commercial real estate lending may potentially be more profitable than single-family residential lending, it is generally more sensitive to regional and local economic conditions, making loss levels more difficult to predict. Collateral evaluation and financial statement analysis in these types of loans require a more detailed analysis at the time of loan underwriting and on an ongoing basis. At June 30, 2018,2020, commercial real estate loans were $857.3 million,$1.1 billion, or 33.9%38.0% of our total loan portfolio, including multifamily loans totaling $106.7$90.3 million or 4.0%3.3% of our total loan portfolio. These loans typically involve higher principal amounts than other types of loans and some of our commercial borrowers have more than one loan outstanding with us. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to a significantly greater risk of loss compared to an adverse development with respect to a one-to-four family residential mortgage loan. Repayment of these loans is dependent upon income being generated from the property securing the loan in amounts sufficient to cover operating expenses and debt service, which may be adversely affected by changes in the economy or local market conditions. Commercial real estate loans also expose a lender to greater credit risk than loans secured by one-to-four family residential real estate because the collateral securing these loans typically cannot be sold as easily as residential real estate. In addition, many of our commercial real estate loans are not fully amortizing and contain large balloon payments upon maturity. Such balloon payments may require the borrower to either sell or refinance the underlying property in order to make the payment, which may increase the risk of default or non-payment. At June 30, 2018,2020, commercial real estate loans that were nonperforming were $2.9totaled $8.9 million, or 26.2%55.7% of our total nonperforming loans.
A secondary market for most types of commercial real estate loans is not readily available, so we have less opportunity to mitigate credit risk by selling part or all of our interest in these loans. As a result of these characteristics, if we foreclose on a commercial real estate loan, our holding period for the collateral typically is longer than for one-to-four family residential loans because there are fewer potential purchasers of the collateral. Accordingly, charge-offs on commercial real estate loans may be larger on a per loan basis than those incurred with our residential and consumer loan portfolios.
The level of our commercial real estate loan portfolio may subject us to additional regulatory scrutiny.
The FDIC, the Federal Reserve Board and the Office of the Comptroller of the Currency have promulgated joint guidance on sound risk management practices for financial institutions with concentrations in commercial real estate lending. Under this guidance, a financial institution that, like us, is actively involved in commercial real estate lending should perform a risk assessment to identify concentrations. A financial institution may have a concentration in commercial real estate lending if, among other factors (i) total reported loans for construction, land development, and other land represent 100% or more of total capital, or (ii) total reported loans secured by multifamily and non-farm residentialnon-farm/non-
residential properties, loans for construction, land development and other land, and loans otherwise sensitive to the general commercial real estate market, including loans to commercial real estate related entities, represent 300% or more of total capital. Based on the criteria, the Bank has a concentration in commercial real estate lending as total loans for multifamily, non-farm/non-residential, construction, land development and other land represented 247.6%277.4% of total risk-based capital at June 30, 2018.2020. The particular focus of the guidance 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 at greater risk 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 to guide banks in developing risk management practices and capital levels commensurate with the level and nature of real estate concentrations. The guidance states that management should employ heightened risk management practices including board and management oversight and strategic planning, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing. While we believe we have implemented policies and procedures with respect to our loan portfolio consistent with this guidance, bank regulators could require us to implement additional policies and procedures consistent with their interpretation of the guidance that may result in additional costs to us.
Our auto finance lending increases our exposure to lending risks.
At June 30, 2018, $173.12020, $132.3 million, or 6.9%4.8%, of our total loan portfolio consisted of indirect auto finance loans originated by us. Indirect auto finance loans are inherently risky as they are secured by assets that depreciate rapidly. In some cases, repossessed collateral for a defaulted automobile loan may not provide an adequate source of repayment for the outstanding loan and the remaining deficiency may not warrant further substantial collection efforts against the borrower. Automobile loan collections depend on the borrower’s continuing financial stability, and therefore, are more likely to be adversely affected by job loss, divorce, illness, or personal bankruptcy. In addition, our ability to originate loans is reliant on our relationships with automotive dealers. In particular, our automotive finance operations depend in large part upon our ability to establish and maintain relationships with reputable automotive dealers that direct customers to our offices or originate loans at the point-of-sale. Although we have relationships with certain automotive dealers, none of our relationships are exclusive and any may be terminated at any time. If our existing dealer base experiences decreased sales we may experience decreased loan volume in the future, which may have an adverse effect on our business, results of operations, and financial condition.
Repayment of our municipal leases is dependent on the fire department receiving tax revenues from the county/municipality.
At June 30, 2018,2020, municipal leases were $109.2$128.0 million, or 4.3%4.6%, of our total loan portfolio. We offer ground and equipment lease financing to fire departments located throughout North Carolina and, to a lesser extent, South Carolina. Repayment of our municipal leases is often dependent on the tax revenues collected by the county/municipality on behalf of the fire department. Although a municipal lease does not constitute a general obligation of the county/municipality for which the county/municipality's taxing power is pledged, a municipal lease is ordinarily backed by the county/municipality's covenant to budget for, appropriate and pay the tax revenues to the fire department. However, certain municipal leases contain "non-appropriation" clauses which provide that the municipality has no obligation to make lease or installment purchase payments in future years unless money is appropriated for that purpose on a yearly basis. In the case of a "non-appropriation" lease, our ability to recover under the lease in the event of non-appropriation or default will be limited solely to the repossession of the leased property, without recourse to the general credit of the lessee, and disposition or releasing of the property might prove difficult. At June 30, 2018, $11.62020, $25.8 million of our municipal leases contained a non-appropriation clause.
Our allowance for loan losses may prove to be insufficient to absorb losses in our loan portfolio.
Lending money is a substantial part of our business and each loan carries a certain risk that it will not be repaid in accordance with its terms, or that any underlying collateral will not be sufficient to assure repayment. This risk is affected by, among other things:
cash flow of the borrower and/or the project being financed;
the changes and uncertainties as to the future value of the collateral, in the case of a collateralized loan;
the duration of the loan;
the character and creditworthiness of a particular borrower; and
changes in economic and industry conditions.
We maintain an allowance for loan losses, which we believe is an appropriate reserve to provide for probable losses in our loan portfolio. The allowance is funded by provisions for loan losses charged to expense. The amount of this allowance is determined by our management through periodic reviews and consideration of several factors, including, but not limited to:
our general reserve, based on our historical default and loss experience, certain macroeconomic factors, and management’s expectations of future events;
our specific reserve, based on our evaluation of nonaccruing loans and their underlying collateral; and
an unallocated reserve to provide for other credit losses inherent in our portfolio that may not have been contemplated in the other loss factors.
We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans. In determining the amount of the allowance for loan losses, we review our loans and our loss and delinquency experience, and we evaluate economic conditions. If our assumptions are incorrect, our allowance for loan losses may not be sufficient to cover probable incurred losses in our loan portfolio, resulting in additions to our allowance for loan losses through the provision for losses on loans which is charged against income.
Additionally, pursuant to our growth strategy, management recognizes that significant new growth in loan portfolios, new loan products and the refinancing of existing loans can result in portfolios comprised of unseasoned loans that may not perform in a historical or projected manner and will increase the risk that our allowance may be insufficient to absorb losses without significant additional provisions. Further, the Financial Accounting Standards BoardFASB has adopted a new accounting standard that will be effective for our fiscal year beginning July 1, 2020. This standard, referred to as Current Expected Credit Loss ("CECL")CECL, will require financial institutions to determine periodic estimates of lifetime expected credit losses on loans and recognize the expected credit losses as allowances for credit losses. This will change the current method of providing allowances for credit losses that are probable, which may require us to increase our allowance for loan losses, and may greatly increase the types of data we would need to collect and review to determine the appropriate level of the allowance for credit losses. In addition, bank regulatory agencies periodically review our allowance for loan losses and may require an increase in the provision for possible loan losses or the recognition of further loan charge-offs, based on judgments different than those of management. If charge-offs in future periods exceed the allowance for loan losses, we will need additional provisions to replenish the allowance for loan losses. Any additional provisions will result in a decrease in net income and possibly capital, and may have a material adverse effect on our financial condition and results of operations.
If our nonperforming assets increase, our earnings will be adversely affected.
Our nonperforming assets (which consist of nonaccruing loans and REO) were $14.6$16.3 million, or 0.4%0.44%, of total assets at June 30, 2018,2020, compared to $20.0$13.3 million, or 0.62%0.38% of total assets, and $24.5$14.6 million, or 0.9%0.44% of total assets, at June 30, 20172019 and 2016,2018, respectively. Our nonperforming assets adversely affect our net income in various ways:
we record interest income only on a cash basis for nonaccrual loans and any nonperforming investment securities; and do not record interest income for REO;
we must provide for probable loan losses through a current period charge to the provision for loan losses;
noninterest expense increases when we write down the value of properties in our REO portfolio to reflect changing market values or recognize other-than-temporary impairment (“OTTI”)OTTI on nonperforming investment securities;
there are legal fees associated with the resolution of problem assets, as well as carrying costs, such as taxes, insurance and maintenance fees related to our REO; and
the resolution of nonperforming assets requires the active involvement of management, which can distract them from more profitable activity.
If additional borrowers become delinquent and do not pay their loans and we are unable to successfully manage our nonperforming assets, our losses and troubled assets could increase significantly, which could have a material adverse effect on our financial condition and results of operations. We have also classified $21.3$13.2 million in loans as performing troubled debt restructuringsTDRs at June 30, 2018.
To meet our growth objectives we may originate or purchase loans outside of our market areas which could affect the level of our net interest margin and nonperforming loans.
In order to achieve our desired loan portfolio growth, we opportunistically purchase loans outside of our primary market areas either individually, through participations, or in bulk or “pools”. We perform certain due diligence procedures and may re-underwrite these loans to our underwriting standards prior to purchase, and anticipate acquiring loans subject to customary limited indemnities, however, we may be exposed to a greater risk of loss as we acquire loans of a type or in geographic areas where management may not have substantial prior experience and which may be more difficult for us to monitor. During the years ended June 30, 2018, 2017 and 2016 we purchased $61.2 million, $345.0 million and $120.6 million of loans, respectively. Loan pools purchased in the past three years consisted primarily of home equity loans secured by single family residential properties located in several western states, most of which are still in our loan portfolio. When determining the purchase price we are willing to pay to acquire loans, management will make certain assumptions about, among other things, if and how much borrowers will prepay their loans, the real estate market and our ability to collect loans successfully and, if necessary, when and how to dispose of any real estate that may be acquired through foreclosure. To the extent that our underlying assumptions prove to be inaccurate or the basis for those assumptions change (such as an unanticipated decline in the real estate market), the purchase price paid may prove to have been excessive, resulting in a lower yield or a loss of some or all of the loan principal. Our success in increasing our loan portfolio through loan purchases will depend on our ability to price the loans properly and on general economic conditions in the geographic areas where the underlying properties or collateral for the loans acquired are located. Inaccurate estimates or declines in economic conditions or real estate values in the markets where we purchase loans could significantly adversely affect the level of our nonperforming loans and our results of operations.
2020.
If our REO is not properly valued or sufficiently reserved to cover actual losses, or if we are required to increase our valuation reserves, our earnings could be reduced.
We obtain updated valuations in the form of appraisals and broker price opinions when a loan has been foreclosed and the property taken in as REO and at certain other times during the asset’s holding period. Our net book value (“NBV”) in the loan at the time of foreclosure and thereafter is compared to the updated market value of the foreclosed property less estimated selling costs (fair value). A charge-off is recorded for any excess in the asset’s NBV over its fair value. If our valuation process is incorrect, or if property values decline, the fair value of our REO may not be sufficient to recover our carrying value in such assets, resulting in the need for additional charge-offs.
Significant charge-offs to our REO could have a material adverse effect on our financial condition and results of operations.
In addition, bank regulators periodically review our REO and may require us to recognize further charge-offs. Any increase in our charge-offs may have a material adverse effect on our financial condition and results of operations.
Our securities portfolio may be negatively impacted by fluctuations in market value and interest rates.
Our securities portfolio may be impacted by fluctuations in market value, potentially reducing accumulated other comprehensive income and/or earnings. Fluctuations in market value may be caused by changes in market interest rates, lower market prices for securities and limited investor demand. OurIn addition, our securities portfolio is evaluated periodically for OTTI. If this evaluation shows impairment to the actual or projected cash flows associated with one or more securities, a potential loss to earnings may occur. Changes in interest rates can also have an adverse effect on our financial condition, as our available-for-sale securities are reported at their estimated fair value, and therefore are impacted by fluctuations in interest rates. We increase or decrease our shareholders'Our stockholders' equity adjusts by the amount of change in the estimated fair value of the available-for-sale securities, net of
taxes. There can be no assurance that the declines in market value will not result in other-than-temporary impairmentsOTTI of these assets, which would lead to accounting charges that could have a material adverse effect on our net income and capital levels.
An increase in interest rates, change in the programs offered by governmental sponsored entities (“GSE”)GSE or our ability to qualify for such programs may reduce our mortgage revenues, which would negatively impact our noninterest income.
Our mortgage banking operations provide a significant portion of our noninterest income. We generate mortgage revenues primarily from gains on the sale of single-family residential loans pursuant to programs currently offered by Fannie Mae, Freddie Mac, Ginnie Mae and other investors on a servicing released basis. These entities account for a substantial portion of the secondary market in residential mortgage loans. Any future changes in these programs, significant impairment of our eligibility to participate in such programs, the criteria for loans to be accepted or laws that significantly affect the activity of such entities could, in turn, result in a lower volume of corresponding loan originations or increase other administrative costs which may materially adversely affect our results of operations. Our commercial business loan originations made under SBA and USDA B&I programs are also subject to these risks.
We have experienced historically low interest rates in recent years but interest rates have been increasing. Mortgage production, especially refinancing, generally declines in rising interest rate environments resulting in fewer loans that are available to be sold to investors. When interest rates rise, or even if they do not, there can be no assurance that our mortgage production will continue at current levels. The profitability of our mortgage banking operations depends in large part upon our ability to aggregate a high volume of loans and sell them in the secondary market at a gain. Thus, in addition to the interest rate environment, our mortgage business is dependent upon (i) the existence of an active secondary market and (ii) our ability to profitably sell loans into that market. The loans in our held for sale portfolio are carried at the lower of cost or fair market value less estimated costs to sell with changes recognized in our statement of operations. Carrying the loans at fair value may also increase the volatility in our earnings.
In addition, our results of operations are affected by the amount of noninterest expense associated with mortgage banking activities, such as salaries and employee benefits, occupancy, equipment and data processing expense and other operating costs. During periods of reduced loan demand, our results of operations may be adversely affected to the extent that we are unable to reduce expenses commensurate with the decline in loan originations. In addition, although we sell loans into the secondary market without recourse, we are required to give customary representations and warranties about the loans to the buyers. If we breach those representations and warranties, the buyers may require us to repurchase the loans and we may incur a loss on the repurchase.
Fluctuating interest rates can adversely affect our profitability.
Our earnings and cash flows are largely dependent upon our net interest income. Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Reserve. In an attempt to help the overall economy, the Federal Reserve has keptdropped interest rates low through its targeted Fed Funds rate. The Federal Reserve has steadily increased the targeted federal funds rate over the last three fiscal yearsis currently at 0.00% to a range of 1.75% to 2.00%0.25% at June 30, 2018 and indicated further increases in the targeted federal funds rate in the future, subject to economic conditions. As2020. In addition, the Federal Reserve increasesannounced in August 2020 a new policy approach of “average inflation” targeting in which inflation will run moderately above the targeted Fed Funds rate, overall interestFederal Reserve’s 2% target “for some time.” This new shift in policy is expected to keep rates will likely rise, which may negatively impact the housing markets by reducing refinancing activity and new home purchases and the U.S. economic recovery. In addition, deflationary pressures, while possibly lowering our operating costs, could have a significant negative effect on our borrowers, especially our business borrowers, and the values of collateral securing loans, which could negatively affect our financial performance.lower for longer.
We principally manage interest rate risk by managing our volume and mix of our earning assets and funding liabilities. Changes in monetary policy, including changes in interest rates, could influence not only the interest we receive on loans and investments and the amount of interest we pay on deposits and borrowings, but these changes could also affect (i) our ability to originate loans and obtain deposits, (ii) the fair value of our financial assets and liabilities, which could negatively impact shareholders'stockholders' equity, and our ability to realize gains from the sale of such
assets; (iii) our ability to obtain and retain deposits in competition with other available investment alternatives; (iv) the ability of our borrowers to repay adjustable or variable rate loans; and (v) the average duration of our investment securities portfolio and other interest-earning assets. 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 net interest income, and therefore earnings, could be adversely affected. In a changing interest rate environment, we may not be able to manage this risk effectively. If we are unable to manage interest rate risk effectively, our business, financial condition and results of operations could be materially affected.
Changes in interest rates could also have a negative impact on our results of operations by reducing the ability of borrowers to repay their current loan obligations (generally, if rates increase) or by reducing our margins and profitability.profitability (generally, if rates decrease). Our net interest margin is the difference between the yield we earn on our assets and the interest rate we pay for deposits and our other sources of funding. Changes in interest rates-up or down-could adversely affect our net interest margin and, as a result, our net interest income. Although the yield we earn on our assets and our funding costs tend to move in the same direction in response to changes in interest rates, one can rise or fall faster than the other, causing our net interest margin to expand or contract. Our liabilities tend to be shorter in duration than our assets, so they may adjust faster in response to changes in interest rates. As a result, when interest rates rise, our funding costs may rise faster than the yield we earn on our assets, causing our net interest margin to contract until the yields on interest-earning assets catch up. Changes in the slope of the “yield curve”, or the spread between short-term and long-term interest rates-couldrates could also reduce our net interest margin. Normally, the yield curve is upward sloping, meaning short-term rates are lower than long-term rates. Because our liabilities tend to be shorter in duration than our assets, when the yield curve flattens or even inverts, we couldwill experience pressure on our net interest margin as our cost of funds increases relative to the yield we can earn on our assets. Also, interest rate decreases can lead to increased prepayments of loans and mortgage-backed securities as borrowers refinance their loans to reduce borrowing costs. Under these circumstances, we are subject to reinvestment risk as we may have to redeploy such repayment proceeds into lower yielding investments, which would likely hurt our income.
A sustained increase in market interest rates could adversely affect our earnings. As a result of the exceptionally low interest rate environment, an increasing percentage of our deposits have been comprised of deposits bearing no or a relatively low rate of interest and having a shorter duration than our assets. At June 30, 2018,2020, we had $385.7$598.8 million in certificates of deposit that mature within one year and $1.7$2.0 billion in checking, savings, and money market accounts. 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 net interest income, and therefore earnings, could be adversely affected.
In addition, a substantial amount of our loans have adjustable interest rates. As a result, these loans may experience a higher rate of default in a rising interest rate environment. Further, a significant portion of our adjustable rate loans have interest rate floors below which the loan’s contractual interest rate may not adjust. As of June 30, 2018,2020, our loans with interest rate floors totaled approximately $611.5$586.8 million or 24.2%21.2% of our total loan portfolio and had a weighted average floor rate of 4.00%4.02%. At that date, $71.3$446.5 million of these loans were at their floor rate, of which $57.0$404.6 million, or 79.9%90.6%, had yields that would begin floating again once prime rates increase at least 200 basis points. The inability of our loans to adjust downward can contribute to increased income in periods of declining interest rates, although this result is subject to the risks that borrowers may refinance these loans during periods of declining interest rates. Also, when loans are at their floors, there is a further risk that our interest income may not increase as rapidly as our cost of funds during periods of increasing interest rates which could have a material adverse effect on our results of operations.
Changes in interest rates also affect the value of our interest-earning assets and in particular our securities portfolio. Generally, the fair value of fixed-rate securities fluctuates inversely with changes in interest rates. Unrealized gains and losses on securities available for sale are reported as a separate component of equity, net of tax. Decreases in the fair value of securities available for sale resulting from increases in interest rates could have an adverse effect on stockholders’ equity.
Although management believes it has implemented effective asset and liability management strategies to reduce the potential effects of changes in interest rates on our results of operations, any substantial, unexpected or prolonged change in market interest rates could have a material adverse effect on our financial condition, liquidity and results of operations. Also, our interest rate risk modeling techniques and assumptions likely may not fully predict or capture the impact of actual interest rate changes on our consolidated balance sheet or projected operating results. For further discussion of how changes in interest rates could impact us, see "Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk" for additional information about our interest rate risk management.
Uncertainty relating to the LIBOR calculation process and potential phasing out of LIBOR may adversely affect our results of operations.
On July 27, 2017, the Chief Executive of the United Kingdom Financial Conduct Authority, which regulates LIBOR, announced that it intends to stop persuading or compelling banks to submit rates for the calibration of LIBOR to the administrator of LIBOR after 2021. The announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021. It is impossible to predict whether and to what extent banks will continue to provide LIBOR submissions to the administrator of LIBOR or whether any additional reforms to LIBOR may be enacted in the United Kingdom or elsewhere. At this time, no consensus exists as to what rate or rates may become acceptable alternatives to LIBOR and it is impossible to predict the effect of any such alternatives on the value of LIBOR-based securities and variable rate loans, subordinated debentures, or other securities or financial arrangements, given LIBOR's role in determining market interest rates globally. Uncertainty as to the nature of alternative reference rates and as to potential changes or other reforms to LIBOR may adversely affect LIBOR rates and the value of LIBOR-based loans and securities in our portfolio, and may impact the availability and cost of hedging instruments and borrowings. If LIBOR rates are no longer available, and we are required to implement substitute indices for the calculation of interest rates under our loan agreements with our borrowers, we may incur significant expenses in effecting the transition, and may be subject to disputes or litigation with customers over the appropriateness or comparability to LIBOR of the substitute indices, which could have an adverse effect on our results of operations.
As of June 30, 2020, there were $354.8 million loans in our portfolio tied to LIBOR.
If limitations arise in our ability to utilize the national brokered deposit market or to replace short-term deposits, our ability to replace maturing deposits on acceptable terms could be adversely impacted.
HomeTrust Bank utilizes the national brokered deposit market for a portion of our funding needs. At June 30, 2018,2020, brokered deposits totaled $107.5$143.2 million or 4.89%5.1% of total deposits, with remaining maturities of one month to four years.26 months. Under FDIC regulations, in the event we are deemed to be less than well-capitalized, we would be subject to restrictions on our use of brokered deposits and the interest rate we can offer on our deposits. If this happens, our use of brokered deposits and the rates we would be allowed to pay on deposits may significantly limit our ability to use deposits as a funding source. If we are unable to participate in this market for any reason in the future, our ability to replace these deposits at maturity could be adversely impacted.
Further, there may be competitive pressures to pay higher interest rates on deposits, which would increase our funding costs. If deposit clients move money out of theour Bank depositsdeposit products and into other investments (or into similar products at other institutions that may provide a higher rate of return), we could lose a relatively low cost source of funds, increasing our funding costs and reducing our net interest income and net income. Additionally, any such loss of funds could result in reduced loan originations, which could materially negatively impact our growth strategy and results of operations.
Conditions in the financial markets may limit our access to additional funding to meet our liquidity needs.
Liquidity is essential to our business. We rely on a number of different sources in order to meet our potential liquidity demands. Our primary sources of liquidity are increases in deposit accounts, cash flows from loan payments and our securities portfolio. Borrowings also provide us with a source of funds to meet liquidity demands. An inability to raise funds through deposits, borrowings, the sale of loans or investment securities and other sources could have a substantial negative effect on our liquidity. Our access to funding sources in amounts adequate to finance
our activities or on terms which are acceptable to us could be impaired by factors that affect us specifically, or the financial services industry or economy in general. Factors that could detrimentally impact our access to liquidity sources include a decrease in the level of our business activity as a result of a downturn in the North Carolina, South Carolina, Virginia, and/or Tennessee markets in which our loans are concentrated or adverse regulatory action against us. Our ability to borrow could also be impaired by factors that are not specific to us, such as a disruption in the financial markets or negative views and expectations about the prospects for the financial services industry or deterioration in credit markets. In particular, our liquidity position could be significantly constrained if we are unable to access funds from the FHLB Atlanta or other wholesale funding sources, or if adequate financing is not available at acceptable interest rates. Finally, if we are required to rely more heavily on more expensive funding sources, our revenues may not increase proportionately to cover our costs. Any decline in available funding could adversely impact our ability to originate loans, invest in securities, meet our expenses, or fulfill obligations such as repaying our borrowings or meeting deposit withdrawal demands, any of which could, in turn, have a material adverse effect on our business, financial condition and results of operations.
Our strategy of pursuing acquisitions exposes us to financial, execution and operational risks that could adversely affect us.
We are implementinghave implemented a strategy of supplementing organic growth by acquiring other financial institutions or theirother businesses that we believe will help us fulfill our strategic objectives and enhance our earnings. There are risks associated with this strategy, however, including the following:
We may be exposed to potential asset quality issues or unknown or contingent liabilities of the banks, businesses, assets and liabilities we acquire. If these issues or liabilities exceed our estimates, our results of operations and financial condition may be materially negatively affected;
Prices at which future acquisitions can be made may not be acceptable to us;
Our growth initiatives may require us to recruit experienced personnel to assist in such initiatives. The failure to identify and retain such personnel would place significant limitations on our ability to execute our growth strategy;
Our strategic efforts may divert resources or management’s attention from ongoing business operations and may subject us to additional regulatory scrutiny;
The acquisition of other entities generally requires integration of systems, procedures and personnel of the acquired entity into our company to make the transaction economically successful. This integration process is complicated and time consuming and can also be disruptive to the customers of the acquired business. If the integration process is not conducted successfully and with minimal effect on the acquired business and its customers, we may not realize the anticipated economic benefits of particular acquisitions to the extent expected or within the expected time frame, and we may lose customers or employees of the acquired business. We may also experience greater than anticipated customer losses even if the integration process is successful;
To finance a future acquisition, we may borrow funds, thereby increasing our leverage and diminishing our liquidity, or raise additional capital, which could dilute the interests of our existing shareholders;stockholders;
We have completed four mergersfive acquisitions during the past fourseven fiscal years that enhanced our rate of growth. We may not be able to continue to sustain our past rate of growth or to grow at all in the future; and
We expect our net income will increase following our acquisitions, however, we also expect our general and administrative expenses and consequently our efficiency rates will also increase. Ultimately, we would expect our efficiency ratio to improve; however, if we are not
successful in our integration process, this may not occur, and our acquisitions or branching activities may not be accretive to earnings in the short or long-term.
The required accounting treatment of loans we acquire through acquisitions, including purchase credit impaired loans, could result in higher net interest margins and interest income in current periods and lower net interest margins and interest income in future periods.
Under U.S. Generally Accepted Accounting Principles ("GAAP"),GAAP, we are required to record loans acquired through acquisitions, including purchase credit impaired loans, at fair value. Estimating the fair value of such loans requires management to make estimates based on available information and facts and circumstances as of the acquisition date. Actual performance could differ from management's initial estimates. If these loans outperform our original fair value estimates, the difference between our original estimate and the actual performance of the loan (the “discount”) is accreted into net interest income. Thus, our net interest margins may initially increase due to the discount. We expect the yields on our loans to decline as our acquired loan portfolio pays down or matures and the discount decreases, and we expect downward pressure on our interest income to the extent that the runoff on our acquired loan portfolio is not replaced with comparable high-yielding loans. This could result in higher net interest margins and interest income in current periods and lower net interest rate margins and lower interest income in future periods.
The financial services market is undergoing rapid technological changes, and if we are unable to stay current with those changes, we will not be able to effectively compete.
The financial services market, including banking services, is undergoing rapid changes with frequent introductions of new technology-driven products and services. Our future success will depend, in part, on our ability to keep pace with the technological changes and to use technology to satisfy and grow customer demand for our products and services and to create additional efficiencies in our operations. We expect that we will need to make substantial investments in our technology and information systems to compete effectively and to stay current with technological changes. Some of our competitors have substantially greater resources to invest in technological improvements and will be able to invest more
heavily in developing and adopting new technologies, which may put us at a competitive disadvantage. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. As a result, our ability to effectively compete to retain or acquire new business may be impaired, and our business, financial condition or results of operations may be adversely affected.
We operate in a highly regulated environment and may be adversely affected by changes in federal and state laws and regulations.
The financial services industry is extensively regulated. Federal and state banking regulations are designed primarily to protect the deposit insurance funds and consumers, not to benefit a company’s shareholders.stockholders. These regulations may sometimes impose significant limitations on operations. The significant federal and state banking regulations that affect us are described under the heading “Item 1. Business-Regulation”"Business-How We Are Regulated” in Item I of this Form 10-K. These regulations, along with the currently existing tax, accounting, securities, insurance, and monetary laws, regulations, rules, standards, policies, and interpretations control the methods by which financial institutions conduct business, implement strategic initiatives and tax compliance, and govern financial reporting and disclosures. New proposals for legislation continue to be introduced in the U.S. Congress that could further alter the regulation of the bank and non-bank financial services industries and the manner in which firms within the industry conduct business. In this regard, in May 2018 the Economic Growth, Regulatory Relief and Consumer Protection Act (the “Act”), was enacted to reduce the application of certain financial reform regulations, including the Dodd-Frank Act, on community banks such as us. 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”CBLR. In September 2019, the regulatory agencies, including the NCCOB and FRB, adopted a final rule, effective January 1, 2020, creating the CBLR for institutions with total consolidated assets of between 8less than $10 billion and 10 percentthat meet other qualifying criteria. The CBLR provides for a simple measure of capital adequacy for qualifying institutions. According to replace the final rule, qualifying institutions that elect to use the CBLR framework and that maintain a leverage ratio of greater than 9% will be considered to have satisfied the generally applicable risk-based and risk-basedleverage capital requirements in the regulatory agencies' capital ratios. It is difficult at this timerules, and to predict when or how any new standardshave met the capital requirements for the well capitalized category under the Act will ultimately be applied to us or what specific impactagencies' prompt corrective action framework. In April 2020, the Act and the yet to be written implementing rules and regulations will have on community banks. However, it is expected that they may impact the profitability of our business activities and enhance our ability to originate residential loans while reducing our operating and compliance costs. In addition to this new legislation, federal and statebank regulatory agencies also frequentlyannounced the issuance of two interim final rules, effective immediately, to provide temporary relief to community banking organizations. Under the interim final rules, the CBLR requirement is minimum of 8% for the remainder of calendar year 2020, 8.5% for calendar year 2021, and 9% thereafter. The Bank has not elected to adopt changes to their regulations or change the mannerCBLR framework at June 30, 2020, but may consider that election in which existing regulations are applied. Future changes in federal policy and at regulatory agencies are expected to occur over time through policy and personnel changes, which could lead to changes involving the level of oversight and focus on the financial services industry. These changes may require us to invest significant management attention and resources to make any necessary changes to operations to comply and could have an adverse effect on our business, financial condition and results of operations. Further, changes in accounting standards can be both difficult to predict and involve judgment and discretion in their interpretation by us and our independent registered public accounting firm. These accounting changes could materially impact, potentially even retroactively, how we report our financial condition and results of our operations as could our interpretation of those changes.future.
Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions and limit our ability to get regulatory approval of acquisitions.
The USA PATRIOT and Bank Secrecy Acts require financial institutions to develop programs to prevent financial institutions from being used for money laundering and terrorist activities. If such activities are detected, financial institutions are obligated to file suspicious activity reports with the U.S. Treasury’s Office of Financial Crimes Enforcement Network. These rules require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts. Failure to comply with these regulations could result in fines or sanctions and limit our ability to get regulatory approval of acquisitions. Recently several banking institutions have received large fines for non-compliance with these laws and regulations. While we have developed policies and procedures designed to assist in compliance
with these laws and regulations, no assurance can be given that these policies and procedures will be effective in preventing violations of these laws and regulations.
Our growth or future losses may require us to raise additional capital in the future, but that capital may not be available when it is needed or the cost of that capital may be very high.
We are required by federal regulatory authorities to maintain adequate levels of capital to support our operations. Currently, we believe our capital resources satisfy our capital requirements for the foreseeable future. However, we may at some point need to raise additional capital to support our growth.
Our ability to raise additional capital, if needed, will depend on conditions in the capital markets at that time, which are outside of our control, and on our financial condition and performance. Accordingly, we cannot make assurances that we will be able to raise additional capital if needed on terms that are acceptable to us, or at all. If we cannot raise additional capital when needed, our ability to further expand our operations could be materially impaired and our financial condition and liquidity could be materially and adversely affected. In addition, any additional capital we obtain may result in the dilution of the interests of existing holders of our common stock. Further, if we are unable to raise additional capital when required by our bank regulators, we may be subject to adverse regulatory action.
We are subject to certain risks in connection with our use of technology.
Our security measures may not be sufficient to mitigate the risk of a cyber attack. Communications and information systems are essential to the conduct of our business, as we use such systems to manage our customer relationships, our general ledger and virtually all other aspects of our business. Our operations rely on the secure processing, storage, and transmission of confidential and other information in our computer systems and networks. Although we take protective measures and endeavor to modify them as circumstances warrant, the security of our computer systems, software, and networks may be vulnerable to breaches, fraudulent or unauthorized access, denial or degradation of service attacks, misuse, computer viruses, malware or other malicious code and cyber-attacks that could have a security impact. If one or more of these events occur, this could jeopardize our or our customers' confidential and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our operations or the operations of our customers or counterparties. We may be required to expend significant additional resources to modify our protective measures or to investigate and remediate
vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are either not insured against or not fully covered through any insurance maintained by us. We could also suffer significant reputational damage.
Further, our cardholders use their debit and credit cards to make purchases from third parties or through third party processing services. As such, we are subject to risk from data breaches of such third party’s information systems or their payment processors. Such a data security breach could compromise our account information. The payment methods that we offer also subject us to potential fraud and theft by criminals, who are becoming increasingly more sophisticated, seeking to obtain unauthorized access to or exploit weaknesses that may exist in the payment systems. If we fail to comply with applicable rules or requirements for the payment methods we accept, or if payment-related data is compromised due to a breach or misuse of data, we may be liable for losses associated with reimbursing our clients for such fraudulent transactions on clients’ card accounts, as well as costs incurred by payment card issuing banks and other third parties or may be subject to fines and higher transaction fees, or our ability to accept or facilitate certain types of payments may be impaired. We may also incur other costs related to data security breaches, such as replacing cards associated with compromised card accounts. In addition, our customers could lose confidence in certain payment types, which may result in a shift to other payment types or potential changes to our payment systems that may result in higher costs.
Breaches of information security also may occur through intentional or unintentional acts by those having access to our systems or our clients’ or counterparties’ confidential information, including employees. The CorporationCompany is continuously working to install new and upgrade its existing information technology systems and provide employee awareness training around phishing, malware, and other cyber risks to further protect the CorporationCompany against cyber risks and security breaches.
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. We are regularly the target of attempted cyber and other security threats and must continuously monitor and develop our information technology networks and infrastructure to prevent, detect, address and mitigate the risk of unauthorized access, misuse, computer viruses and other events that could have a security impact. Insider or employee cyber and security threats are increasingly a concern for companies, including ours. We are not aware that we have experienced any material misappropriation, loss or other unauthorized disclosure of confidential or personally identifiable information as a result of a cyber-security breach or other act, however, some of our clients may have been affected by these breaches, which could increase their risks of identity theft, credit card fraud and other fraudulent activity that could involve their accounts with us.
Security breaches in our internet banking activities could further expose us to possible liability and damage our reputation. 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 to protect data about us, our clients and underlying transactions. Any compromise of our security could deter customers from using our internet banking services that involve the transmission of confidential information. We rely on standard internet security systems to provide the security and authentication necessary to effect secure transmission of data. Although we have developed and continue to invest in systems and processes that are designed to detect and prevent security breaches and cyber-attacks and periodically test our security, these precautions may not protect our systems from compromises or breaches of our security measures, and could result in losses to us or our customers, our loss of business and/or customers, damage to our reputation, the incurrence of additional expenses, disruption to our
business, our inability to grow our online services or other businesses, additional regulatory scrutiny or penalties, or our exposure to civil litigation and possible financial liability, any of which could have a material adverse effect on our business, financial condition and results of operations.
Our security measures may not protect us from system failures or interruptions. While we have established policies and procedures to prevent or limit the impact of systems failures and interruptions, there can be no assurance that such events will not occur or that they will be adequately addressed if they do. In addition, we outsource certain aspects of our data processing and other operational functions to certain third-party providers. While the CorporationCompany selects third-party vendors carefully, it does not control their actions. If our third-party providers encounter difficulties including those resulting from breakdowns or other disruptions in communication services provided by a vendor, failure of a vendor to handle current or higher transaction volumes, cyber-attacks and security breaches or if we otherwise have difficulty in communicating with them, our ability to adequately process and account for transactions could be affected, and our ability to deliver products and services to our customers and otherwise conduct business operations could be adversely impacted. Replacing these third-party vendors could also entail significant delay and expense. Threats to information security also exist in the processing of customer information through various other vendors and their personnel. We cannot assure you that such breaches, failures or interruptions will not occur or, if they do occur, that they will be adequately addressed by us or the third parties on which we rely. We may not be insured against all types of losses as a result of third party failures and insurance coverage may be inadequate to cover all losses resulting from breaches, system failures or other disruptions. If any of our third-party service providers experience financial, operational or technological difficulties, or if there is any other disruption in our relationships with them, we may be required to identify alternative sources of such services, and we cannot assure you that we could negotiate terms that are as favorable to us, or could obtain services with similar functionality as found in our existing systems without the need to expend substantial resources, if at all. Further, the occurrence of any systems failure or interruption could damage our reputation and result in a loss of customers and business, could subject us to additional regulatory scrutiny, or could expose us to legal liability. Any of these occurrences could have a material adverse effect on our financial condition and results of operations.
The board of directors oversees the risk management process, including the risk of cybersecurity, and engages with management on cybersecurity issues.
Our operations rely on numerous external vendors.
We rely on numerous external vendors to provide us with products and services necessary to maintain our day-to-day operations. Accordingly, our operations are exposed to risk that these vendors will not perform in accordance with the contracted arrangements under service level agreements. The failure of an external vendor to perform in accordance with the contracted arrangements under service level agreements because of changes in the vendor’s organizational structure, financial condition, support for existing products and services or strategic focus or for any
other reason, could be disruptive to our operations, which in turn could have a material negative impact on our financial condition and results of operations. We also could be adversely affected to the extent such an agreement is not renewed by a third party vendor or is renewed on terms less favorable to us. Additionally, the bank regulatory agencies expect financial institutions to be responsible for all aspects of our vendors’ performance, including aspects which they delegate to third parties. Disruptions or failures in the physical infrastructure or operating systems that support our business and clients, or cyber-attacks or security breaches of the networks, systems or devices that our clients use to access our products and services could result in client attrition, regulatory fines, penalties or intervention, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs, any of which could materially adversely affect our results of operations or financial condition.
Our framework for managing risks may not be effective in mitigating risk and loss to us.
We have established processes and procedures intended to identify, measure, monitor, report, analyze and control the types of risk to which we are subject. These risks include liquidity risk, credit risk, market risk, interest rate risk, operational risk, legal and compliance risk, and reputational risk, among others. We also maintain a compliance program to identify, measure, assess, and report on our adherence to applicable laws, policies and procedures. While we assess and improve these programs on an ongoing basis, there can be no assurance that our risk management or compliance programs, along with other related controls, will effectively mitigate all risk and limit losses in our business. As with any risk management framework, there are inherent limitations to our risk management strategies as there may exist, or develop in the future, risks that we have not appropriately anticipated or identified. If our risk management framework proves ineffective, we could suffer unexpected losses which could have a material adverse effect on our financial condition and results of operations.
Our business may be adversely affected by an increasing prevalence of fraud and other financial crimes.
As a bank, we are susceptible to fraudulent activity that may be committed against us or our clients, which may result in financial losses or increased costs to us or our clients, disclosure or misuse of our information or our client information, misappropriation of assets, privacy breaches against our clients, 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. Nationally, reported incidents of fraud and other financial crimes have increased. We have also experienced losses due to apparent fraud and other financial crimes. While we have policies and procedures designed to prevent such losses, there can be no assurance that such losses will not occur.
Managing reputational risk is important to attracting and maintaining customers, investors and employees.
Threats to our reputation can come from many sources, including adverse sentiment about financial institutions generally, unethical practices, employee misconduct, failure to deliver minimum standards of service or quality, compliance deficiencies, and questionable or fraudulent activities of our customers. We have policies and procedures in place to protect our reputation and promote ethical conduct, but these policies and procedures may not be fully effective. Negative publicity regarding our business, employees, or customers, with or without merit, may result in the loss of customers, investors and employees, costly litigation, a decline in revenues and increased governmental regulation.
We may experience future goodwill impairment.
In accordance with GAAP, we record assets acquired and liabilities assumed at their fair value, and, as such, acquisitions typically result in recording goodwill. We perform a goodwill evaluation at least annually to test for goodwill impairment. As part of its testing, the Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company determines the fair value of a reporting unit is less than its carrying amount using these qualitative factors, the Company then compares the fair value of goodwill with its carrying amount, and then measures impairment loss by comparing the implied fair value of goodwill with the carrying amount of that goodwill. Adverse conditions in our business climate, including a significant decline in future operating cash flows, a significant change in our stock price or market capitalization, or a deviation from our expected growth rate and performance may significantly affect the fair value of our goodwill and may trigger additional impairment losses, which could be materially adverse to our operating results and financial position.
We cannot provide assurance that we will not be required to take an impairment charge in the future. Any impairment charge has an adverse effect on our results of shareholders’stockholders’ equity and financial results and could cause a decline in our stock price.
Our net operating loss carryforwards could be substantially limited if we experience an ownership change as defined in the Internal Revenue Code.
As of June 30, 2018, we had approximately $40.8 million of federal net operating losses (“NOLs”). The majority of these NOLs will expire for federal tax purposes from 2024 through 2036. Our ability to use our NOLs and other pre-ownership change losses (collectively, “Pre-Change Losses”) to offset future taxable income will be limited if we experience an “ownership change” as defined in Section 382 of the Internal Revenue Code of 1986, as amended from time to time (the “Code”). In general, an ownership change occurs if, among other things, the shareholders (or specified groups of shareholders) who own or have owned, directly or indirectly, 5% or more of a corporation’s common stock or are otherwise treated as 5% shareholders under Section 382 and U.S. Treasury regulations promulgated thereunder increase their aggregate percentage ownership of that corporation’s stock by more than 50 percentage points over the lowest percentage of the stock owned by these shareholders over a rolling three-year period. If we experience an ownership change our Pre-Change Losses will be subject to an annual limitation on their use, which is generally equal to the fair market value of our outstanding stock immediately before the ownership change multiplied by the long-term tax-exempt rate, which was 2.09% for ownership changes occurring in June 2018. Depending on the size of the annual limitation (which is in part a function of our market capitalization at the time of the ownership change) and the remaining carryforward period for our Pre-Change Losses (U.S. federal net operating losses generally may be carried forward for a period of 20 years), we could realize a permanent loss of some or all of our Pre-Change Losses, which could have a material adverse effect on our results of operations and financial condition.
In September 2012, we adopted a shareholder rights plan (the “Rights Plan”), which provides an economic disincentive for any person or group to become an owner, for relevant tax purposes, of 4.99% or more of our stock. While adoption of the Rights Plan should reduce the likelihood that future transactions in our stock will result in an ownership change under Section 382, there can be no assurance that the Rights Plan will be effective to deter a shareholder from increasing its ownership interests beyond the limits set by the Rights Plan or that an ownership change will not occur in the future.
We rely on dividends from the Bank for substantially all of our revenue at the holding company level.
We are an entity separate and distinct from our principal subsidiary, HomeTrust Bank, and derive substantially all of our revenue at the holding company level in the form of dividends from that subsidiary. Accordingly, we are, and will be, dependent upon dividends from the Bank to pay the principal of and interest on our indebtedness, to satisfy our other cash needs and to pay dividends on our common stock, if desired.stock. HomeTrust Bank’s ability to pay dividends is subject to its ability to earn net income and to meet certain regulatory requirements. In the event the Bank is unable to pay dividends to us, we may not be able to pay dividends on our common stock when desired or continue stock repurchases. Also, our right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We maintain our administrative office, which is owned by us, in Asheville, North Carolina. In total, as of June 30, 2018,2020, we have 4341 locations, which include: North Carolina (including the Asheville metropolitan area, Greensboro /the "Piedmont" region, Charlotte, and Raleigh/Cary), Upstate South Carolina (Greenville), East Tennessee (including Kingsport/Johnson City/Bristol, Knoxville, and Morristown) and Southwest Virginia (including the Roanoke Valley).
Of those offices, ten11 are leased facilities. We also own an operations center located in Asheville, North Carolina. We lease additional space, which is adjacent to the facility we own, for administrative and operations personnel. The lease terms for our branch offices, operations center and other offices are not individually material. Lease expirations range from one to five years. In the opinion of management, all properties are adequately covered by insurance, are in a good state of repair and are appropriately designed for their present and future use. See Notes 56 and 1112 in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K for additional information.
We maintain depositor and borrower customer files on an online basis, utilizing a telecommunications network, portions of which are leased. Management has a disaster recovery plan in place with respect to the data processing system, as well as our operations as a whole.
Item 3. Legal Proceedings
The "Litigation" section of Note 1718 to the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K is incorporated herein by reference.
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
The Company’s common stock is listed on the Nasdaq Global Market under the symbol “HTBI.” The common stock was issued at a price of $10.00 per share in connection with the Conversion. The Conversion was completed on July 10, 2012 and the Company’s common stock commenced trading on the Nasdaq Global Market on July 11, 2012. As of the close of business on September 10, 2018,8, 2020, there were 19,015,56817,021,357 shares of common stock outstanding held by 1,2641,158 holders of record. Certain shares are held in “nominee” or “street” name and accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number. The following table presents quarterly market information for the Company’s common stock for the year ended June 30, 2018 and 2017.
|
| | | | | | | | | | | | | | | | |
| | | Year Ended June 30, |
| | | 2018 | | 2017 |
| | | High | | Low | | High | | Low |
| First quarter | | $ | 26.50 |
| | $ | 21.40 |
| | $ | 19.41 |
| | $ | 17.28 |
|
| Second quarter | | 28.00 |
| | 24.41 |
| | 27.05 |
| | 18.00 |
|
| Third quarter | | 28.00 |
| | 24.20 |
| | 26.30 |
| | 21.80 |
|
| Fourth quarter | | 29.60 |
| | 25.88 |
| | 25.73 |
| | 22.90 |
|
The Company did not declare anybegan paying its first cash dividends on its common stock during the second fiscal years ended June 30, 2018 or 2017.quarter of 2019. The timing and amount of cash dividends paid depends on our earnings, capital requirements, financial condition and other relevant factors. We also have the ability to receive dividends or capital distributions from HomeTrust Bank, our wholly owned subsidiary. There are regulatory restrictions on the ability of HomeTrust Bank to pay dividends. See Item 1, “Business—How We Are Regulated,” for more information regarding the restrictions on the Company’s and the Bank’s abilities to pay dividends.
Unregistered SalesPurchases of Equity Securities by the Issuer and Use of ProceedsAffiliated Purchasers
The Company has periodically repurchased sharesfollowing table provides information about repurchases of its common stock as authorized by our Board of Directors.the Company during the quarter ended June 30, 2020:
|
| | | | | | | | | | | | |
| Period | Total Number Of Shares Purchased | | Average Price Paid per Share | | Total Number Of Shares Purchased as Part of Publicly Announced Plans | | Maximum Number of Shares that May Yet Be Purchased Under Publicly Announced Plans |
| April 1 - April 30, 2020 | 81,873 |
| | $ | 15.41 |
| | 81,873 |
| | 889,123 |
|
| May 1 - May 31, 2020 | — |
| | — |
| | — |
| | 889,123 |
|
| June 1 - June 30, 2020 | — |
| | — |
| | — |
| | 889,123 |
|
| Total | 81,873 |
| | $ | 15.41 |
| | 81,873 |
| | 889,123 |
|
On November 19, 2014,April 2, 2020, the Company announced that its Board of Directors had authorized the repurchase of up to 1,023,266 shares of the Company’s common stock, representing 5% of the Company’s outstanding shares. We completed this stock repurchase program during the first fiscal quarter of 2016 at an average price of $15.93 per share.
On July 1, 2015, the Company announced that its Board of Directors had authorized the repurchase of up to 971,271 shares of the Company's common stock, representing 5% of the Company's outstanding shares. We completed this stock repurchase program during the second fiscal quarter of 2016 at an average price of $18.62 per share.
On December 15, 2015, the Company announced that its Board of Directors had authorized the repurchase of up to 922,855889,123 shares of the Company's common stock, representing 5% of the Company's outstanding shares of which 443,155 remain available for repurchase at June 30, 2018. There were no shares repurchased during the year ended June 30, 2018 andduring the year ended June 30, 2017,479,700time of the announcement. The shares approved on December 15, 2015 were repurchased at an average price of $18.00.
Since its Conversionmay be purchased in July 2012, as of June 30, 2018, the Company has repurchased a total of 5,351,065 shares of common stock at an average price of $16.63.
open market or in privately negotiated transactions, from time to time depending upon market conditions and other factors.
Equity Compensation Plans
The equity compensation plan information presented under Part III, Item 12 of this report is incorporated herein by reference.
Shareholder Return Performance Graph Presentation
The performance graph below compares the Company’s cumulative shareholder return on its common stock since June 30, 20132015 to the cumulative total return of the Nasdaq Composite and the Nasdaq Bank Index for the periods indicated. The information presented below assumes $100 was invested on June 30, 2013,2015, in the Company’s common stock and in each of the indices and assumes the reinvestment of all dividends. Historical stock price performance is not necessarily indicative of future stock price performance. Total return assumes the reinvestment of all dividends and that the value of common stock and each index was $100 on June 30, 2013.2015.
| | | | Year Ended June 30, | Year Ended June 30, |
| | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | 2018 | 2015 | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 |
| HomeTrust Bancshares, Inc. | 100.00 | | 92.98 | | 98.82 | | 109.08 | | 143.87 | | 165.98 | 100.00 | | 110.38 | | 145.58 | | 167.96 | | 150.00 | | 95.47 |
| NASDAQ Bank Index | 100.00 | | 117.83 | | 130.36 | | 123.63 | | 169.83 | | 186.90 | 100.00 | | 94.84 | | 130.28 | | 143.37 | | 121.67 | | 92.47 |
| NASDAQ Composite | 100.00 | | 152.64 | | 172.68 | | 167.68 | | 212.62 | | 260.05 | 100.00 | | 97.11 | | 123.13 | | 150.60 | | 160.55 | | 201.71 |
Item 6. Selected Financial and Other Data.
The summary information presented below under “Selected Financial Condition Data” and “Selected Operations Data” for the years ended June 30, 2018, 20172020, 2019 and 20162018 are derived in part from the audited consolidated financial statements that appear in this annual report. The following information is only a summary and you should read it in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Item 7 of this report and “Financial Statements and Supplementary Data” under Item 8 of this report below.
| | | | At June 30, | At June 30, |
| | 2018 | | 2017 | | 2016 | | 2015 | | 2014 | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| | (In thousands) | (In thousands) |
| Selected Financial Condition Data: | | | | | | | | | | | | | | | | | | |
| Total assets | $ | 3,304,169 |
| | $ | 3,206,533 |
| | $ | 2,717,677 |
| | $ | 2,783,114 |
| | $ | 2,074,454 |
| $ | 3,722,852 |
| | $ | 3,476,178 |
| | $ | 3,304,169 |
| | $ | 3,206,533 |
| | $ | 2,717,677 |
|
Loans receivable, net(1) | 2,504,792 |
| | 2,330,319 |
| | 1,811,539 |
| | 1,663,333 |
| | 1,473,529 |
| 2,741,047 |
| | 2,683,761 |
| | 2,504,792 |
| | 2,330,319 |
| | 1,811,539 |
|
| Allowance for loan losses | 21,060 |
| | 21,151 |
| | 21,292 |
| | 22,374 |
| | 23,429 |
| 28,072 |
| | 21,429 |
| | 21,060 |
| | 21,151 |
| | 21,292 |
|
| Commercial paper | | 304,967 |
| | 241,446 |
| | 229,070 |
| | 149,863 |
| | 229,859 |
|
| Certificates of deposit in other banks | 66,937 |
| | 132,274 |
| | 161,512 |
| | 210,629 |
| | 163,780 |
| 55,689 |
| | 52,005 |
| | 66,937 |
| | 132,274 |
| | 161,512 |
|
| Securities available for sale, at fair value | 154,993 |
| | 199,667 |
| | 200,652 |
| | 257,606 |
| | 168,774 |
| 127,537 |
| | 121,786 |
| | 154,993 |
| | 199,667 |
| | 200,652 |
|
FHLB and FRB stock(2) | 37,214 |
| | 39,355 |
| | 29,486 |
| | 28,711 |
| | 3,697 |
| |
| Other investments, at cost | | 38,946 |
| | 45,378 |
| | 41,931 |
| | 39,355 |
| | 29,486 |
|
| Deposits | 2,196,253 |
| | 2,048,451 |
| | 1,802,696 |
| | 1,872,126 |
| | 1,583,047 |
| 2,785,756 |
| | 2,327,257 |
| | 2,196,253 |
| | 2,048,451 |
| | 1,802,696 |
|
| Borrowings | 635,000 |
| | 696,500 |
| | 491,000 |
| | 475,000 |
| | 50,000 |
| 475,000 |
| | 680,000 |
| | 635,000 |
| | 696,500 |
| | 491,000 |
|
| Stockholders’ equity | 409,242 |
| | 397,647 |
| | 359,976 |
| | 371,050 |
| | 377,151 |
| 408,263 |
| | 408,896 |
| | 409,242 |
| | 397,647 |
| | 359,976 |
|
| | | | Years Ended June 30, | Years Ended June 30, |
| | 2018 | | 2017 | | 2016 | | 2015 | | 2014 | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| | (In thousands) | (In thousands) |
| Selected Operations Data: | | | | | | | | | | | | | | | | | | |
| Total interest and dividend income | $ | 116,702 |
| | $ | 99,436 |
| | $ | 87,747 |
| | $ | 85,156 |
| | $ | 60,281 |
| $ | 136,254 |
| | $ | 137,214 |
| | $ | 117,402 |
| | $ | 99,436 |
| | $ | 87,747 |
|
| Total interest expense | 16,072 |
| | 8,245 |
| | 6,040 |
| | 5,390 |
| | 5,432 |
| 32,150 |
| | 30,383 |
| | 16,072 |
| | 8,245 |
| | 6,040 |
|
| Net interest income | 100,630 |
| | 91,191 |
| | 81,707 |
| | 79,766 |
| | 54,849 |
| 104,104 |
| | 106,831 |
| | 101,330 |
| | 91,191 |
| | 81,707 |
|
| Provision for (recovery of) loan losses | — |
| | — |
| | — |
| | 150 |
| | (6,300 | ) | |
| Net interest income after provision for (recovery of) loan losses | 100,630 |
| | 91,191 |
| | 81,707 |
| | 79,616 |
| | 61,149 |
| |
| Provision for loan losses | | 8,500 |
| | 5,700 |
| | — |
| | — |
| | — |
|
| Net interest income after provision for loan losses | | 95,604 |
| | 101,131 |
| | 101,330 |
| | 91,191 |
| | 81,707 |
|
| Service charges and fees on deposit accounts | 8,802 |
| | 7,709 |
| | 7,469 |
| | 5,930 |
| | 2,783 |
| 9,382 |
| | 9,611 |
| | 8,802 |
| | 7,709 |
| | 7,469 |
|
| Mortgage banking income and fees | 5,452 |
| | 3,645 |
| | 3,069 |
| | 2,989 |
| | 3,218 |
| |
| Loan income and fees | | 2,494 |
| | 1,422 |
| | 1,176 |
| | 971 |
| | 1,426 |
|
| Gain on sale of loans held for sale | | 9,946 |
| | 6,218 |
| | 4,276 |
| | 2,674 |
| | 1,643 |
|
| Bank owned life insurance income | 2,117 |
| | 2,088 |
| | 1,643 |
| | 1,651 |
| | 1,484 |
| 2,246 |
| | 2,103 |
| | 2,117 |
| | 2,088 |
| | 1,874 |
|
| Gain on sale of securities | — |
| | 22 |
| | — |
| | 61 |
| | 10 |
| — |
| | — |
| | — |
| | 22 |
| | — |
|
| Gain on sale of fixed assets | 164 |
| | 385 |
| | 10 |
| | — |
| | — |
| |
| Other noninterest income | 3,137 |
| | 2,258 |
| | 2,101 |
| | 1,888 |
| | 1,243 |
| |
| Gain from sale of premises and equipment | | — |
| | — |
| | 164 |
| | 385 |
| | 10 |
|
| Other, net | | 6,264 |
| | 3,586 |
| | 2,437 |
| | 2,258 |
| | 1,869 |
|
| Total noninterest income | 19,672 |
| | 16,107 |
| | 14,291 |
| | 12,519 |
| | 8,738 |
| 30,332 |
| | 22,940 |
| | 18,972 |
| | 16,107 |
| | 14,291 |
|
| Total noninterest expense | 85,331 |
| | 90,259 |
| | 79,641 |
| | 81,552 |
| | 55,032 |
| 97,129 |
| | 90,134 |
| | 85,331 |
| | 90,259 |
| | 79,641 |
|
| Income before provision for income taxes | 34,971 |
| | 17,039 |
| | 16,357 |
| | 10,583 |
| | 14,855 |
| |
| Income before income taxes | | 28,807 |
| | 33,937 |
| | 34,971 |
| | 17,039 |
| | 16,357 |
|
| Income tax expense | 26,736 |
| | 5,192 |
| | 4,901 |
| | 2,558 |
| | 4,513 |
| 6,024 |
| | 6,791 |
| | 26,736 |
| | 5,192 |
| | 4,901 |
|
| Net income | $ | 8,235 |
| | $ | 11,847 |
| | $ | 11,456 |
| | $ | 8,025 |
| | $ | 10,342 |
| $ | 22,783 |
| | $ | 27,146 |
| | $ | 8,235 |
| | $ | 11,847 |
| | $ | 11,456 |
|
| Per Share Data: | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
|
| Net income per common share: | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
|
| Basic | $ | 0.45 |
| | $ | 0.66 |
| | $ | 0.65 |
| | $ | 0.42 |
| | $ | 0.54 |
| $ | 1.34 |
| | $ | 1.52 |
| | $ | 0.45 |
| | $ | 0.66 |
| | $ | 0.65 |
|
| Diluted | $ | 0.44 |
| | $ | 0.65 |
| | $ | 0.65 |
| | $ | 0.42 |
| | $ | 0.54 |
| $ | 1.30 |
| | $ | 1.46 |
| | $ | 0.44 |
| | $ | 0.65 |
| | $ | 0.65 |
|
| | | | At or For the Years Ended June 30, | At or For the Years Ended June 30, |
| | 2018 | | 2017 | | 2016 | | 2015 | | 2014 | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| Selected Financial Ratios and Other Data: | | | | | | | | | | | | | | | | | | |
| Performance ratios: | | | | | | | | | | | | | | | | | | |
| Return on assets (ratio of net income to average total assets) | 0.25 | % | | 0.40 | % | | 0.42 | % | | 0.32 | % | | 0.62 | % | 0.63 | % | | 0.80 | % | | 0.25 | % | | 0.40 | % | | 0.42 | % |
| Return on equity (ratio of net income to average equity) | 2.05 |
| | 3.14 |
| | 3.16 |
| | 2.12 |
| | 2.86 |
| 5.54 |
| | 6.62 |
| | 2.05 |
| | 3.14 |
| | 3.16 |
|
Tax equivalent yield on earning assets(3)(2) | 3.97 |
| | 3.79 |
| | 3.62 |
| | 3.88 |
| | 4.15 |
| 4.13 |
| | 4.39 |
| | 4.00 |
| | 3.79 |
| | 3.62 |
|
| Rate paid on interest-bearing liabilities | 0.65 |
| | 0.37 |
| | 0.29 |
| | 0.29 |
| | 0.46 |
| 1.18 |
| | 1.16 |
| | 0.65 |
| | 0.37 |
| | 0.29 |
|
Tax equivalent average interest rate spread(3)(2) | 3.32 |
| | 3.42 |
| | 3.33 |
| | 3.59 |
| | 3.69 |
| 2.95 |
| | 3.23 |
| | 3.35 |
| | 3.42 |
| | 3.33 |
|
Tax equivalent net interest margin(4)(3) | 3.43 |
| | 3.49 |
| | 3.37 |
| | 3.64 |
| | 3.79 |
| 3.17 |
| | 3.43 |
| | 3.46 |
| | 3.49 |
| | 3.37 |
|
| Noninterest expense to average total assets | 2.63 |
| | 3.04 |
| | 2.88 |
| | 3.25 |
| | 3.29 |
| 2.70 |
| | 2.65 |
| | 2.63 |
| | 3.04 |
| | 2.88 |
|
| Average interest-earning assets to average interest-bearing liabilities | 120.77 |
| | 120.26 |
| | 119.25 |
| | 120.61 |
| | 130.20 |
| 122.10 |
| | 120.39 |
| | 120.77 |
| | 120.26 |
| | 119.25 |
|
| Efficiency ratio | 70.93 |
| | 84.12 |
| | 82.96 |
| | 88.37 |
| | 86.55 |
| 72.25 |
| | 69.46 |
| | 70.93 |
| | 84.12 |
| | 82.96 |
|
Efficiency ratio - adjusted(5)(4) | 70.12 |
| | 75.48 |
| | 80.43 |
| | 79.78 |
| | 78.50 |
| 71.62 |
| | 68.83 |
| | 70.12 |
| | 75.48 |
| | 80.43 |
|
| Asset quality ratios: | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
|
Nonperforming assets to total assets(6)(5) | 0.44 | % | | 0.62 | % | | 0.90 | % | | 1.15 | % | | 2.53 | % | 0.44 | % | | 0.38 | % | | 0.44 | % | | 0.62 | % | | 0.90 | % |
Nonaccruing loans to total loans(6)(5) | 0.43 |
| | 0.58 |
| | 1.01 |
| | 1.47 |
| | 2.53 |
| 0.58 |
| | 0.38 |
| | 0.43 |
| | 0.58 |
| | 1.01 |
|
| Total classified assets to total assets | 1.00 |
| | 1.57 |
| | 2.17 |
| | 2.92 |
| | 4.51 |
| 0.84 |
| | 0.89 |
| | 1.00 |
| | 1.57 |
| | 2.17 |
|
Allowance for loan losses to nonaccruing loans(6)(5) | 192.96 |
| | 154.77 |
| | 114.98 |
| | 90.02 |
| | 61.79 |
| 176.30 |
| | 206.90 |
| | 192.96 |
| | 154.77 |
| | 114.98 |
|
| Allowance for loan losses to total loans | 0.83 |
| | 0.90 |
| | 1.16 |
| | 1.33 |
| | 1.56 |
| 1.01 |
| | 0.79 |
| | 0.83 |
| | 0.90 |
| | 1.16 |
|
| Net charge-offs (recoveries) to average loans | — |
| | 0.01 |
| | 0.06 |
| | 0.07 |
| | 0.19 |
| |
| Net charge-offs to average loans | | 0.07 |
| | 0.20 |
| | — |
| | 0.01 |
| | 0.06 |
|
| Capital ratios: | | | | | | | | | | | | | | | | | | |
| Equity to total assets at end of period | 12.39 | % | | 12.40 | % | | 13.25 | % | | 13.33 | % | | 18.18 | % | 10.97 | % | | 11.76 | % | | 12.39 | % | | 12.40 | % | | 13.25 | % |
| Average equity to average assets | 12.41 |
| | 12.80 |
| | 13.24 |
| | 15.11 |
| | 21.62 |
| 11.46 |
| | 12.06 |
| | 12.41 |
| | 12.80 |
| | 13.24 |
|
| Dividend payout to common shareholders | — |
| | — |
| | — |
| | — |
| | — |
| |
| Dividend payout ratio | | 19.98 |
| | 11.70 |
| | — |
| | — |
| | — |
|
| Dividends declared per common share | | $ | 0.27 |
| | $ | 0.18 |
| | — |
| | — |
| | — |
|
| |
| (1) | Net of allowances for loan losses loans in process and deferred loan fees.costs. |
| |
| (2) | FRB stock was first purchased as part of membership requirements in fiscal year 2015. |
| |
(3) | For the yearyears ended June 30, 20182020 and 2019 the weighted average rate for municipal leases is adjusted for a 30%24% combined federal and state tax rate since the interest from these leases is tax exempt. Allexempt.For 2018 it was adjusted at 30% and all other periodsyears were at 37%. |
| |
(4)(3) | Net interest income divided by average interest-earning assets. |
| |
(5)(4) | See Part II, Item 7 - "Non-GAAP Financial Measures" for additional details. |
| |
(6)(5) | Nonperforming assets include nonaccruing loans including certain restructured loans and real estate owned. At June 30, 2018,2020, there were $4.2$6.3 million of restructured loans included in nonaccruing loans and $5.6$2.8 million, or 51.6%17.6%, of nonaccruing loans were current on their loan payments. |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This discussion and analysis reviews our consolidated financial statements and other relevant statistical data and is intended to enhance your understanding of our financial condition and results of operations. The information in this section has been derived from the Consolidated Financial Statements and notes thereto, which are included in Item 8 of this Form 10-K. You should read the information in this section in conjunction with the business and financial information regarding us as provided in this Form 10-K.
Overview
Our principal business consists of attracting deposits from the general public and investing those funds, along with borrowed funds, in loans secured by first and second mortgages on one-to-four family residences, including home equity loans and construction and land/lot loans, commercial real estate loans, construction and development loans, commercial and industrial loans, U.S. Small Business Administration ("SBA")SBA loans, equipment finance leases, indirect automobile loans, and municipal leases. We also work with a third party to originate HELOCs which are pooled and sold. In addition, we purchase investment securities consisting primarily of securities issued by United States Government agencies and government-sponsored enterprises, as well as, commercial paper and certificates of deposit insured by the FDIC.
We offer a variety of deposit accounts for individuals, businesses, and nonprofit organizations. Deposits and borrowings are our primary source of funds for our lending and investing activities.
We are significantly affected by prevailing economic conditions, as well as, government policies and regulations concerning, among other things, monetary and fiscal affairs, housing and financial institutions. Deposit flows are influenced by a number of factors, including interest rates paid
on competing time deposits, other investments, account maturities, and the overall level of personal income and savings. Lending activities are influenced by the demand for funds, the number and quality of lenders, and regional economic cycles.
Our primary source of pre-tax income is net interest income. Net interest income is the difference between interest income, which is the income that we earn on our loans and investments, and interest expense, which is the interest that we pay on our deposits and borrowings. Changes in levels of interest rates affect our net interest income. A secondary source of income is noninterest income, which includes revenue we receive from providing products and services, including service charges on deposit accounts, loan income and fees, gains on the sale of loans held for sale, and gains and losses from sales of securities.
An offset to net interest income is the provision for loan losses which is required to establish the allowance for loan losses at a level that adequately provides for probable losses inherent in our loan portfolio. As a loan's risk rating improves, property values increase, or recoveries of amounts previously charged off are received, a recapture of previously recognized provision for loan losses may be added to net interest income.
Our noninterest expenses consist primarily of salaries and employee benefits, expenses for occupancy, marketing and computer services, and FDIC deposit insurance premiums. Salaries and benefits consist primarily of the salaries and wages paid to our employees, payroll taxes, expenses for retirement and other employee benefits. Occupancy expenses, which are the fixed and variable costs of buildings and equipment, consist primarily of lease payments, property taxes, depreciation charges, maintenance and costs of utilities.
In recent years, we have expanded ourOur geographic footprint intoincludes seven additional markets accessed through numerous strategic acquisitions as well as threetwo de novo commercial loan offices. Looking forward, we believe opportunities currently exist within our market areas to grow our franchise. We anticipate organicWhile COVID-19 has dampened our growth activities, we believe as the local and global economy and loan demand strengthens,returns to normalcy we remain in a position to create organic growth through our marketing efforts and as a result of the opportunities being created as a result of the consolidation of financial institutions occurring in our market areas.efforts. We may also seek to expand our franchise through the selective acquisition of individual branches, loan purchases and, to a lesser degree, whole bank transactions that meet our investment and market objectives. We will continue to be disciplined as it pertains to future expansion focusing primarily on organic growth in our current market areas.
At June 30, 2018,2020, we had 4341 locations in North Carolina (including the Asheville metropolitan area, Greensboro/"Piedmont"Piedmont region, Charlotte, and Raleigh/Cary), Upstate South Carolina (Greenville), East Tennessee (including Kingsport/Johnson City/Bristol, Knoxville, and Morristown) and Southwest Virginia (including the Roanoke Valley).
Recent Merger, Acquisition, and Consolidation Activity
On March 29, 2018, the Company opened a de novo branch office in Cary, North Carolina.
On August 1, 2017, the Company opened a commercial loan production office in Greensboro, North Carolina.
On January 1, 2017, the Company completed its acquisition of TriSummit Bancorp, Inc. ("TriSummit") pursuant to an Agreement and Plan of Merger, dated as of September 20, 2016, under which TriSummit merged with and into HomeTrust with HomeTrust as the surviving corporation in the Merger. Immediately following the Merger, TriSummit's wholly owned subsidiary bank, TriSummit Bank, merged with and into the Bank. TriSummit had seven offices throughout the East Tennessee market. The acquisition added approximately $258.0 million in loans and $280.0 million in deposits.
On December 31, 2016, the Bank acquired United Financial of North Carolina, Inc. ("United Financial"), a municipal lease company headquartered in Fletcher, North Carolina that specializes in providing financing for fire departments and municipalities for the purchase of fire trucks and related equipment as well as the construction of fire stations and other municipal buildings across the Carolinas and other southeastern states. United Financial underwrites and originates these municipal leases and then sells them to HomeTrust and other financial institutions. Beginning January 1, 2017, United Financial has conducted business under the name United Financial, a division of HomeTrust Bank.
On October 30, 2015, the Bank consolidated six branch offices located in North Carolina and Tennessee. The closures were the result of a review of customer banking preferences and the current branch network. The Company had a nonrecurring impairment charge of $400,000 for the year ended June 30, 2016 in relation to the consolidation of these offices.
Business and Operating Strategy and Goals
Our primary objective is to continue to operate and grow HomeTrust Bank as a well-capitalized, profitable, independent, community banking organization. Our mission is to create stockholder value by building relationships with our employees, customers, and communities in our primary markets in North Carolina (including the Asheville metropolitan area, Greensboro / "Piedmont"Piedmont region, Charlotte, and Raleigh/Cary), Upstate South Carolina (Greenville), East Tennessee (including Kingsport/Johnson City/Bristol, Knoxville, and Morristown) and Southwest Virginia (including the Roanoke Valley) through exceptional service and helping our customers every day to be "Ready For What’s Next" in their financial lives. We will also need to continue providing our employees with the tools necessary to effectively deliver our products and services to customers in order to compete effectively with other financial institutions operating in our market areas and to fulfill our "Commitment to the Customer Experience."
Continuing to originate residential and commercial real estate loans and municipal leases. Our primary lending focus has been, and will continue to be, on operating as a residential and commercial mortgage lender. We originate both fixed and adjustable-rate residential and commercial mortgage loans. Most of the long term fixed-rate residential mortgage loans that we originate are sold into the secondary market with servicing released, while most of the residential adjustable rate mortgages and fixed rate mortgages with terms to maturity of 15 years or less, all commercial real estate loans, and all municipal leases that we originate, are retainedSince our Conversion in our portfolio. We intend to continue to emphasize these lending activities particularly in the larger attractive markets2012, we have added in the past several years.
Expanding our lines of businesses. In our commitment to sound and profitable organic growth, we continuously focus on enhancing our lines of businesses. During fiscal year 2018, we added 13 additional commercial market presidents/relationship managers primarily throughout our seven metro markets to further expand our commercial and industrial lending, as well as our knowledge of the growing markets. During fiscal 2018, we implemented a new loan decision platform and overhauled our home equity lines of credit ("HELOCs") origination process resulting in 75% increase in branch originations and a 68% decrease in the amount of time to close the loan. Commercial loan originations for the years ended June 30, 2018, 2017, 2016 were $590.5 million, $532.5 million, and $325.5 million, respectively. Fiscal year 2018 marked the fourth full year of our indirect auto finance line of business, which serves automobile dealerships, its owners, and consumers buying automobiles from these dealerships throughout western North Carolina and upstate South Carolina. Our focus on working with strong dealerships affords us the opportunity to expand into additional market areas and to actively deepen relationships through cross-selling opportunities, while building a strong reputation. Indirect auto loans grew to $173.1 million at June 30, 2018 from $140.9 million at June 30, 2017.
Building on the momentum we have generated, we opened a de novo branch in Cary, North Carolina in March 2018 and a new Commercial LPO in Greensboro, North Carolina in August 2017. In addition, we began operations for our new SBA 7(a) loan program and equipment finance line of business. As we look forward, we will continue to focus on organic loan growth through both established andbeen busy implementing new lines of business, as well as refocusingadding new markets, improving processes, and updating our systems. We now have the lines of business and markets necessary to continue our growth. Our focus over the next few years will be on maturing our lines of business banking and consumer lending through branches.
Disciplined franchise expansion. We believe opportunities currently exist withinoperating environment. Maturing these lines of business will allow us to deepen current customer relationships and further penetrate our newer robust markets. The focus on the operating environment will be designed to maximize our new market areassystems and create efficient scalable processes. This two-pronged approach will lead to grow ourincreased profitability and franchise as illustrated by 84% of our commercial loan originations in fiscal year 2018 were originated by commercial relationship managers located in market areas we entered subsequent to 2012. We anticipate organic growth as the local economy and loan demand strengthens, through our marketing efforts and as a result of the opportunities being created as a result of the consolidation of financial institutions occurring in our market areas. We may also seek to expand our franchise through the selective acquisition of individual branches, loan purchases and, to a lesser degree, whole bank transactions that meet our investment and market objectives. We will continue to be disciplined as it pertains to future expansion focusing primarily on organic growth in our current market areas.value over time.
Maintaining and improving asset quality. The Company believes that strong asset quality is a key to long-term financial success. The percentage of nonperforming loans to total loans was 0.43% and 0.58% for June 30, 2018 and 2017, respectively. The Company’s percentage of nonperforming assets to total assets at June 30, 2018 was 0.44% compared to 0.62% at June 30, 2017. The Company has actively managed the delinquent loans and nonperforming assets by aggressively pursuing the collection of consumer debts and marketing saleable properties upon foreclosure or repossession, work-outs of classified assets and loan charge-offs. In the past several years, the Company has applied more conservative and stringent underwriting practices to new loans, including, among other things, an increased emphasis on a borrower’s ongoing ability to repay a loan by requiring lower debt to income ratios, higher credit scores and lower loan to value ratios than our previous lending policies had required. Although the Company intends to grow the commercial loan portfolio by expanding commercial real estate and commercial and industrial lending, the Company intends to manage credit exposures through the use of experienced bankers in this area, internal concentration limits, and a conservative approach to lending.
Emphasizing lower cost core deposits to manage the funding costs of our loan growth. We offer personal checking, savings and money-market accounts, which generally are lower-cost sources of funds than certificates of deposit and are less sensitive to withdrawal when interest rates fluctuate. To build our core deposit base, over the past several years, we have sought to reduce our dependence on traditional higher cost deposits in favor of stable lower cost demand deposits. We have utilized additional product offerings, technology and a focus on customer service in working toward this goal. In addition, we intend to increase demand deposits by growing business banking relationships through a recently expanded product line tailored to our target business customers’ needs. We are also pursuing a number of strategies that include enhancing our online and mobile banking platform, including improvements to online account opening and sales promotions on money market and checking accounts to encourage the growth of lower cost deposits. As a result, core deposits (which we define as our non-certificate or non-time deposit accounts) have increased 6% during fiscal 2018 and were 77% of total deposits at June 30, 2018.
Improving profitability through customer growth and balance sheet management. We are continuing to focus significant efforts on creating brand awareness, offering competitive products and employing a strong and experienced workforce. In order to deepen the relationships with our customers and increase individual customer profitability, we have continued our cross-marketing program, which allows us to better identify lending opportunities and services for customers when a new account is opened. In addition, we have targeted our direct mail campaigns to take advantage of competitor mergers and/or branch closures to acquire new customer core deposits. We believe these initiatives have positioned us well to implement a strategy focused on improving revenue growth and noninterest income.
Hiring and retaining experienced employees with a customer service focus. We have been successful in attracting and retaining banking professionals with strong community relationships and significant knowledge of our markets, through both individual hires and business combinations, which is central to our business strategy. Exceptional service, local involvement and timely decision-making are integral parts of our business strategy, and we continue to seek additional highly qualified and motivated individuals. We believe that by focusing on experienced bankers who are established in their communities, we enhance our market position and add profitable growth opportunities. Our compensation and incentive systems are aligned with our strategies to grow core deposits and our loan portfolio as the economy improves, while improving asset quality. We have a strong corporate culture based on personal accountability and high ethical standards with an emphasis on "character" and "competence" across all our business lines and locations.
Critical Accounting Policies
Certain of our accounting policies are important to the portrayal of our financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances. Facts and circumstances which could affect these judgments include, but are not limited to, changes in interest rates, changes in the performance of the economy and changes in the financial condition of borrowers.
The following represent our critical accounting policies:
Allowance for Loan Losses. The allowance for loan losses is the amount estimated by management as necessary to cover losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses, which is charged to income. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Among the material estimates required to establish the allowance are: loss exposure at default; the amount and timing of future cash flows on impaired loans; value of collateral; and determination of loss factors to be applied to the various elements of the portfolio. All of these estimates are susceptible to significant change. Management reviews the level of the allowance quarterly and establishes the provision for loan losses based upon an evaluation of the portfolio, past loss experience, current economic conditions, and other factors related to the collectability of the loan portfolio. Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if economic or other conditions differ substantially from the assumptions used in making the evaluation. In addition, bank regulators, as an integral part of their examination process, periodically review our allowance for loan losses and may require us to recognize adjustments to the allowance based on their judgments about information available to them at the time of their examination. A large loss could deplete the allowance and require increased provisions to replenish the allowance, which would adversely affect earnings.
Business Combinations and Acquired Loans. We useThe Company will be adopting the acquisition methodnew CECL standard as of accounting for all business combinations. The acquisition methodJuly 1, 2020, the first quarter of accounting requires us as acquirerfiscal 2021. While management continues to recognizefinalize documentation on the fair value of assets acquired and liabilities assumed at the acquisition date,methodologies utilized as well as recognize goodwill or a gain from a bargain purchase, if appropriate. Any acquisition-related coststhe controls, processes, policies, and restructuring costs are recognized as period expenses as incurred.
We account for purchased performing loans acquired in business combinations using the contractual cash flows method of recognizing discount accretion based on the acquired loans’ contractual cash flows. We record purchased performing loans at fair value, including a credit discount. The fair value discount is accreted as an adjustment to yield over the estimated lives of the loans. We do not establish any allowance for loan losses for purchased performing loans, howeverdisclosures, we will record a provision for loan losses for any further deterioration in these loans subsequent to the acquisition.
We consider loans purchased with evidence of credit deterioration and for which it is probable that all contractually required payments will not be collected as purchased credit-impaired (“PCI”) loans. Evidence of credit quality deterioration as of the purchase date may include the internal loan risk grade, delinquent and nonaccrual status, recent credit scores, and recent loan-to-value percentages. We initially record PCI loans at fair value, which includes estimated future credit losses expected to be incurred over the life of the loan. Thus, we do not establish any allowance for loan losses for PCI loans. We estimate the cash flows expected to be collected at the purchase date using specific credit reviews of certain loans and quantitative models incorporating credit risk, prepayment assumptions, and various other factors. These estimates require significant judgment given the impact of real estate prices, changing loss estimates, prepayment assumptions, and other relevant factors. The excess of cash flows expected to be collected over the estimated fair value is the accretable yield and is recognized in interest income over the remaining life of the loan. The difference between the contractually required payments and the cash flows expected to be collected at the purchase date, considering the impact of prepayments, is the nonaccretable difference and is available to absorb future loan chargeoffs.
Real Estate Owned (“REO”). REO represents real estate acquired as a result of customers’ loan defaults. At the time of foreclosure, REO is recorded at fair value less costs to sell, which becomes the property’s new basis. Any write-downs based on the asset’s fair value at the date of acquisition are charged to the allowance for loan losses. After foreclosure, management periodically performs valuations such that the real estate is carried at the lowercredit losses will be in a range of its new cost basis or fair value, net of estimated costs$42 million to sell. Revenue and expenses from operations and subsequent valuation adjustments to the carrying amount of the property are included in noninterest expense in the consolidated statements of income. In some instances, we may make loans to facilitate the sales of REO. Management reviews all sales for which it is the lending institution for compliance with sales treatment under provisions established by Accounting Standards Codification ("ASC") Topic 360, “Accounting for Sales of Real Estate.” Any gains related to sales of REO may be deferred until the buyer has a sufficient initial and continuing investment in the property.$48 million.
Goodwill and Intangibles. Goodwill is reviewed for potential impairment on an annual basis during the fourth quarter, or more often if events or circumstances indicate there may be impairment. In testing goodwill for impairment, we have the option to assess either qualitative or quantitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the estimated fair value of a reporting unit is less than its carrying amount. If we elect to perform a qualitative assessment and determine that an impairment is more likely than not, we are then required to perform a quantitative impairment test, otherwise no further analysis is required. Under the quantitative impairment test, the evaluation involves comparing the current fair value of each reporting unit to its carrying value, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying value, goodwill is considered not to be impaired. If the carrying value exceeds estimated fair value an impairment charge is recognized for the difference, but limited by the amount of goodwill allocated to that reporting unit. Other identifiable intangible assets are evaluated for impairment if events or changes in circumstances indicate a possible impairment.
Deferred Tax Assets. We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred tax asset will not be realized. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These judgments require us to make projections of future taxable income. The judgments and estimates we make in determining our deferred tax assets, which are inherently subjective, are reviewed on a continual basis as regulatory and business factors change. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets. See Note 12 in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K for additional information.
Non-GAAP Financial Measures
In addition to results presented in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"),GAAP, this Form 10-K contains certain non-GAAP financial measures, which include: efficiency ratio; tangible book value per share; tangible equity to tangible assets ratio; net interest income and net interest margin as adjusted to exclude additional Federal Home Loan Bank ("FHLB") borrowings and proceeds from such borrowings; net income, earnings per share ("EPS"), return on assets ("ROA"), and return on equity ("ROE") excluding merger-related expenses, certain state tax expense, adjustments for the change in federal tax law, and gain from the sale of premises and equipment; and the ratio of the allowance for loan losses to total loans excluding PPP loans and acquired loans.
Management elected to utilize short-term FHLB borrowings beginning in November 2014 as part of a leverage strategy to increase net interest income. The Company believes that showing the effects of these borrowings on net interest income and net interest margin is useful to both management and investors as these measures are commonly used to measure financial institution's performance and against peers.
The Company believes these non-GAAP financial measures facilitate comparisonand ratios as presented are useful for both investors and management to understand the effects of the qualitycertain items and compositionprovide an alternative view of the Company's capital and earnings abilityperformance over time and in comparison to itsthe Company's competitors. These non-GAAP measures have inherent limitations, are not required to be uniformly applied and are not audited. They should not be considered in isolation or as a substitute for total stockholders' equity or operating results determined in accordance with GAAP. These non-GAAP measures may not be comparable to similarly titled measures reported by other companies.
Set forth below is a reconciliation to GAAP of our efficiency ratio:
| | | | | Year Ended | | Year Ended |
| (Dollars in thousands) | | June 30, | | June 30, |
| | | 2018 | | 2017 | | 2016 | | 2015 | | 2014 | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| Noninterest expense | | $ | 85,331 |
| | $ | 90,259 |
| | $ | 79,641 |
| | $ | 81,552 |
| | $ | 55,032 |
| | $ | 97,129 |
| | $ | 90,134 |
| | $ | 85,331 |
| | $ | 90,259 |
| | $ | 79,641 |
|
| Less merger-related expenses | | — |
| | 7,805 |
| | — |
| | 5,417 |
| | 2,708 |
| | — |
| | — |
| | — |
| | 7,805 |
| | — |
|
| Less impairment charge for branch consolidations | | — |
| | — |
| | 400 |
| | 375 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 400 |
|
| Noninterest expense – as adjusted | | $ | 85,331 |
| | $ | 82,454 |
| | $ | 79,241 |
| | $ | 75,760 |
| | $ | 52,324 |
| | $ | 97,129 |
| | $ | 90,134 |
| | $ | 85,331 |
| | $ | 82,454 |
| | $ | 79,241 |
|
| | | | | | | | | | | | | | | | | | | | | |
| Net interest income | | $ | 100,630 |
| | $ | 91,191 |
| | $ | 81,707 |
| | $ | 79,766 |
| | $ | 54,849 |
| | $ | 104,104 |
| | $ | 106,831 |
| | $ | 101,330 |
| | $ | 91,191 |
| | $ | 81,647 |
|
| Plus noninterest income | | 19,672 |
| | 16,107 |
| | 14,291 |
| | 12,519 |
| | 8,738 |
| | 30,332 |
| | 22,940 |
| | 18,972 |
| | 16,107 |
| | 14,351 |
|
| Plus tax equivalent adjustment | | 1,559 |
| | 2,354 |
| | 2,537 |
| | 2,736 |
| | 3,076 |
| | 1,190 |
| | 1,173 |
| | 1,559 |
| | 2,354 |
| | 2,537 |
|
| Less gain on sale of fixed assets | | 164 |
| | 385 |
| | 10 |
| | — |
| | — |
| |
| Less realized gain on securities | | — |
| | 22 |
| | — |
| | 61 |
| | 10 |
| |
| Less gain from sale of premises and equipment | | | — |
| | — |
| | 164 |
| | 385 |
| | 10 |
|
| Less realized gain on sale of securities | | | — |
| | — |
| | — |
| | 22 |
| | — |
|
| Net interest income plus noninterest income – as adjusted | | $ | 121,697 |
| | $ | 109,245 |
| | $ | 98,525 |
| | $ | 94,960 |
| | $ | 66,653 |
| | $ | 135,626 |
| | $ | 130,944 |
| | $ | 121,697 |
| | $ | 109,245 |
| | $ | 98,525 |
|
| Efficiency ratio | | 70.12 | % | | 75.48 | % | | 80.43 | % | | 79.78 | % | | 78.50 | % | | 71.62 | % | | 68.83 | % | | 70.12 | % | | 75.48 | % | | 80.43 | % |
| Efficiency ratio (without adjustments) | | 70.93 | % | | 84.12 | % | | 82.96 | % | | 88.37 | % | | 86.55 | % | | 72.25 | % | | 69.46 | % | | 70.93 | % | | 84.12 | % | | 82.96 | % |
Set forth below is a reconciliation to GAAP of tangible book value and tangible book value per share:
| | | (Dollars in thousands, except per share data) | | At June 30, | | At June 30, |
| | | 2018 | | 2017 | | 2016 | | 2015 | | 2014 | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| Total stockholders' equity | | $ | 409,242 |
| | $ | 397,647 |
| | $ | 359,976 |
| | $ | 371,050 |
| | $ | 377,151 |
| | $ | 408,263 |
| | $ | 408,896 |
| | $ | 409,242 |
| | $ | 397,647 |
| | $ | 359,976 |
|
| Less: goodwill, core deposits intangibles, net of taxes | | 29,125 |
| | 30,157 |
| | 17,169 |
| | 19,000 |
| | 12,344 |
| |
| Less: goodwill, core deposit intangibles, net of taxes | | | 26,468 |
| | 27,562 |
| | 29,125 |
| | 30,157 |
| | 17,169 |
|
Tangible book value (1) | | $ | 380,117 |
| | $ | 367,490 |
| | $ | 342,807 |
| | $ | 352,050 |
| | $ | 364,807 |
| | $ | 381,795 |
| | $ | 381,334 |
| | $ | 380,117 |
| | $ | 367,490 |
| | $ | 342,807 |
|
| Common shares outstanding | | 19,041,668 |
| | 18,967,875 |
| | 17,998,750 |
| | 19,488,449 |
| | 20,632,008 |
| | 17,021,357 |
| | 17,984,105 |
| | 19,041,668 |
| | 18,967,875 |
| | 17,998,750 |
|
| Tangible book value per share | | $ | 19.96 |
| | $ | 19.37 |
| | $ | 19.05 |
| | $ | 18.06 |
| | $ | 17.68 |
| | $ | 22.43 |
| | $ | 21.20 |
| | $ | 19.96 |
| | $ | 19.37 |
| | $ | 19.05 |
|
| Book value per share | | $ | 21.49 |
| | $ | 20.96 |
| | $ | 20.00 |
| | $ | 19.04 |
| | $ | 18.28 |
| | $ | 23.99 |
| | $ | 22.74 |
| | $ | 21.49 |
| | $ | 20.96 |
| | $ | 20.00 |
|
| |
| (1) | Tangible book value is equal to total stockholders' equity less goodwill and core deposit intangibles, net of related deferred tax liabilities. |
Set forth below is a reconciliation to GAAP of tangible equity to tangible assets:
| | | | | At June 30, | | At June 30, |
| (Dollars in thousands) | | 2018 | | 2017 | | 2020 | | 2019 |
Tangible book value(1) | | $ | 380,117 |
| | $ | 367,490 |
| |
Tangible equity(1) | | | $ | 381,795 |
| | $ | 381,334 |
|
| Total assets | | 3,304,169 |
| | 3,206,533 |
| | 3,722,852 |
| | 3,476,178 |
|
| Less: goodwill, core deposit intangibles, net of taxes | | 29,125 |
| | 30,157 |
| | 26,468 |
| | 27,562 |
|
Total tangible assets(2) | | $ | 3,275,044 |
| | $ | 3,176,376 |
| | $ | 3,696,384 |
| | $ | 3,448,616 |
|
| Tangible equity to tangible assets | | 11.61 | % | | 11.57 | % | | 10.33 | % | | 11.06 | % |
| |
| (1) | Tangible equity (or tangible book valuevalue) is equal to total shareholders'stockholders' equity less goodwill and core deposit intangibles, net of related deferred tax liabilities. |
| |
| (2) | Total tangible assets is equal to total assets less goodwill and core deposit intangibles, net of related deferred tax liabilities. |
Set forth below is a reconciliation to GAAP net interest income and net interest margin as adjusted to exclude additional FHLB borrowings and proceeds from such borrowings:
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended June 30, 2018 | | Year Ended June 30, 2017 |
| | | Average Balance Outstanding | | Interest Earned / Paid | | Yield/ Rate | | Average Balance Outstanding | | Interest Earned / Paid | | Yield/ Rate |
| Interest-earning assets | | $ | 2,976,262 |
| | $ | 118,261 |
| | 3.97 | % | | $ | 2,683,956 |
| | $ | 101,790 |
| | 3.79 | % |
Less: Interest-earning assets funded by additional FHLB borrowings (1) | | 213,750 |
| | 4,069 |
| | 1.90 | % | | 318,000 |
| | 3,640 |
| | 1.14 | % |
| Interest-earning assets - adjusted | | $ | 2,762,512 |
| | $ | 114,192 |
| | 4.13 | % | | $ | 2,365,956 |
| | $ | 98,150 |
| | 4.15 | % |
| | | | | | | | | | | | | |
| Interest-bearing liabilities | | $ | 2,464,339 |
| | $ | 16,072 |
| | 0.65 | % | | $ | 2,231,759 |
| | $ | 8,245 |
| | 0.37 | % |
| Additional FHLB borrowings | | 213,750 |
| | 2,971 |
| | 1.39 | % | | 318,000 |
| | 1,856 |
| | 0.58 | % |
| Interest-bearing liabilities - adjusted | | $ | 2,250,589 |
| | $ | 13,101 |
| | 0.58 | % | | $ | 1,913,759 |
| | $ | 6,389 |
| | 0.33 | % |
| | | | | | | | | | | | | |
| Net interest income and net interest margin | | | | $ | 102,189 |
| | 3.43 | % | | | | $ | 93,545 |
| | 3.49 | % |
| Net interest income and net interest margin - adjusted | | | | 101,091 |
| | 3.66 | % | | | | 91,762 |
| | 3.88 | % |
| Difference | | | | $ | 1,098 |
| | (0.23 | )% | | | | $ | 1,783 |
| | (0.39 | )% |
| |
(1) | Proceeds from the additional borrowings were invested in various interest-earning assets including: deposits with the Federal Reserve Bank of Richmond ("FRB"), FHLB stock, certificates of deposit in other banks, and commercial paper. |
Set forth below is a reconciliation to GAAP net income, ROA, ROE, and EPS as adjusted to exclude merger-related expenses, certain state tax expense, adjustments for the change in federal tax law, gain on sale of premises and equipment, and impairment charges for branch consolidation:
|
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended |
| (Dollars in thousands, except per share data) | | June 30, |
| | | 2018 | | 2017 | | 2016 | | 2015 | | 2014 |
| Merger-related expenses | | $ | — |
| | $ | 7,805 |
| | $ | — |
| | $ | 5,417 |
| | $ | 2,708 |
|
State tax expense adjustment (1) | | (142 | ) | | 490 |
| | 526 |
| | — |
| | — |
|
Change in federal tax law adjustment (2) | | 17,908 |
| | — |
| | — |
| | — |
| | — |
|
| Gain on sale of premises and equipment | | (164 | ) | | (385 | ) | | (10 | ) | | — |
| | — |
|
| Impairment charges for branch consolidation | | — |
| | — |
| | 400 |
| | 374 |
| | — |
|
Provision/(recovery) of loan losses (3) | | N/A |
| | N/A |
| | N/A |
| | (150 | ) | | (6,300 | ) |
| Total adjustments | | 17,602 |
| | 7,910 |
| | 916 |
| | 5,641 |
| | (3,592 | ) |
Tax effect (4) | | 49 |
| | (2,646 | ) | | (144 | ) | | (1,882 | ) | | 1,506 |
|
| Total adjustments, net of tax | | 17,651 |
| | 5,264 |
| | 772 |
| | 3,759 |
| | (2,086 | ) |
| | | | | | | | | | | |
| Net income (GAAP) | | 8,235 |
| | 11,847 |
| | 11,456 |
| | 8,025 |
| | 10,342 |
|
| | | | | | | | | | | |
| Net income (non-GAAP) | | $ | 25,886 |
| | $ | 17,111 |
| | $ | 12,228 |
| | $ | 11,784 |
| | $ | 8,256 |
|
| | | | | | | | | | | |
| Per Share Data | | | | | | | | | | |
| Average shares outstanding - basic | | 18,028,854 |
| | 17,379,487 |
| | 17,417,046 |
| | 19,038,098 |
| | 18,630,744 |
|
| Average shares outstanding - diluted | | 18,726,431 |
| | 17,956,443 |
| | 17,606,689 |
| | 19,117,902 |
| | 18,715,669 |
|
| | | | | | | | | | | |
| Basic EPS | | | | | | | | | | |
| EPS (GAAP) | | $ | 0.45 |
| | $ | 0.66 |
| | $ | 0.65 |
| | $ | 0.42 |
| | $ | 0.54 |
|
| Non-GAAP adjustment | | 0.99 |
| | 0.30 |
| | 0.05 |
| | 0.19 |
| | (0.10 | ) |
| EPS (non-GAAP) | | $ | 1.44 |
| | $ | 0.96 |
| | $ | 0.70 |
| | $ | 0.61 |
| | $ | 0.44 |
|
| | | | | | | | | | | |
| Diluted EPS | | | | | | | | | | |
| EPS (GAAP) | | $ | 0.44 |
| | $ | 0.65 |
| | $ | 0.65 |
| | $ | 0.42 |
| | $ | 0.54 |
|
| Non-GAAP adjustment | | 0.94 |
| | 0.29 |
| | 0.05 |
| | 0.19 |
| | (0.10 | ) |
| EPS (non-GAAP) | | $ | 1.38 |
| | $ | 0.94 |
| | $ | 0.70 |
| | $ | 0.61 |
| | $ | 0.44 |
|
| | | | | | | | | | | |
| Average Balances | | | | | | | | | | |
| Average assets | | $ | 3,243,661 |
| | $ | 2,945,365 |
| | $ | 2,741,188 |
| | $ | 2,510,296 |
| | $ | 1,673,267 |
|
| Average equity | | $ | 402,605 |
| | $ | 376,970 |
| | $ | 362,916 |
| | $ | 379,316 |
| | $ | 361,727 |
|
| | | | | | | | | | | |
| ROA | | | | | | | | | | |
| ROA (GAAP) | | 0.25 | % | | 0.40 | % | | 0.42 | % | | 0.32 | % | | 0.62 | % |
| Non-GAAP adjustment | | 0.55 | % | | 0.18 | % | | 0.03 | % | | 0.15 | % | | (0.13 | )% |
| ROA (non-GAAP) | | 0.80 | % | | 0.58 | % | | 0.45 | % | | 0.47 | % | | 0.49 | % |
| | | | | | | | | | | |
| ROE | | | | | | | | | | |
| ROE (GAAP) | | 2.05 | % | | 3.14 | % | | 3.16 | % | | 2.12 | % | | 2.86 | % |
| Non-GAAP adjustment | | 4.38 | % | | 1.40 | % | | 0.21 | % | | 0.99 | % | | (0.58 | )% |
| ROE (non-GAAP) | | 6.43 | % | | 4.54 | % | | 3.37 | % | | 3.11 | % | | 2.28 | % |
(1) State tax adjustment is a result of various revaluations of state deferred tax assets.
(2) Revaluation of net deferred tax assets due to the Tax Cuts and Jobs Act.
(3) Tax amounts have been adjusted for certain nondeductible merger-related expenses.
(4) Beginning in fiscal 2016, the Provision/(recovery) of loan losses was no longer included in this calculation.
Set forth below is a reconciliation to GAAP of the allowance for loan losses to total loans and the allowance for loan losses as adjusted to exclude loans acquired through business combinations:
| | | | As of | As of |
| (Dollars in thousands) | June 30, 2018 | | June 30, 2017 | June 30, 2020 | | June 30, 2019 |
| Total gross loans receivable (GAAP) | $ | 2,526,616 |
| | $ | 2,352,415 |
| $ | 2,768,930 |
| | $ | 2,705,186 |
|
| Less: acquired loans | 271,801 |
| | 374,538 |
| 168,266 |
| | 214,046 |
|
| Less: PPP loans | | 80,697 |
| | — |
|
| Adjusted loans (non-GAAP) | $ | 2,254,815 |
| | $ | 1,977,877 |
| $ | 2,519,967 |
| | $ | 2,491,140 |
|
| | | | | | | |
| Allowance for loan losses (GAAP) | $ | 21,060 |
| | $ | 21,151 |
| $ | 28,072 |
| | $ | 21,429 |
|
| Less: allowance for loan losses on acquired loans | 483 |
| | 727 |
| 182 |
| | 201 |
|
| Adjusted allowance for loan losses | 20,577 |
| | 20,424 |
| 27,890 |
| | 21,228 |
|
| Allowance for loan losses / Adjusted loans (non-GAAP) | 0.91 | % | | 1.03 | % | 1.11 | % | | 0.85 | % |
Recent Developments: COVID-19, the CARES Act, and Our Response
The COVID-19 pandemic has caused economic and social disruption on an unprecedented scale. While some industries have been impacted more severely than others, all businesses have been impacted to some degree. This disruption has resulted in business closures across the country, significant job loss, and aggressive measures by the federal government.
Congress, the President, and the Federal Reserve have taken several actions designed to cushion the economic fallout. Most notably, the CARES Act (Coronavirus Aid, Relief, and Economic Security Act of 2020) was signed into law on March 27, 2020 as a $2.2 trillion legislative package. The goal of the CARES Act is to prevent a severe economic downturn through various measures, including direct financial aid to families and economic stimulus to significantly impacted industry sectors. The package also includes extensive emergency funding for hospitals and healthcare providers. In addition to the general impact of COVID-19, certain provisions of the CARES Act as well as other recent legislative and regulatory relief efforts are expected to have a material impact on our operations. While it is not possible to know the full extent of the impact as of the date of this filing, we are disclosing potentially material items of which we are aware.
In response to the COVID-19 pandemic, the Company is offering a variety of relief options designed to support our customers and the communities we serve.
Paycheck Protection Program Participation. The CARES Act authorized the SBA to temporarily guarantee loans under the new PPP loan program. The goal of the PPP is to avoid as many layoffs as possible, and to encourage small businesses to maintain payrolls. As a qualified SBA lender, the Company was automatically authorized to originate PPP loans upon commencement of the program in April 2020. PPP loans have: (a) an interest rate of 1.0%, (b) a two-year loan term to maturity; and (c) principal and interest payments deferred for six months from the date of disbursement. The SBA guarantees 100% of the PPP loans made to eligible borrowers. The entire principal amount of the borrower’s PPP loan, including any accrued interest, is eligible to be forgiven and repaid by the SBA so long as employee and compensation levels of the business are maintained and 75% of the loan proceeds are used for payroll expenses, with the remaining 25% of the loan proceeds used for other qualifying expenses.
As of June 30, 2020, we had originated $80.7 million PPP loans for 285 customer applications totaling $82.2 million. Net origination fees on these loans are approximately $2.1 million which will be deferred and amortized into interest income over the life of the loans. Due to demand exceeding our capacity, we partnered with a third party to process and fund an additional $30.4 million PPP loans for almost 900 customers. With the recent approval by Congress of additional funds for this program, applications will continue to be processed through our third party relationship.
Loan Modifications.The Company is closely monitoring the effects of COVID-19 on our loan portfolio and will continue to monitor all the associated risks to minimize any potential losses. HomeTrust Bank is offering payment and financial relief programs for borrowers impacted by COVID-19. These programs include loan payment deferrals for up to 90 days, waived late fees, and suspension of foreclosure proceedings and repossessions. We have received numerous requests from borrowers for some type of payment relief. The breakout by loan type is as follows:
|
| | | | | | | | | | | | | | | | | | | | | |
Payment Deferrals by Loan Types (1) | | | | | | | | |
| (dollars in thousands) | | | | | | | | | | |
| | | March 31, 2020 | | June 30, 2020 | | August 31, 2020 |
| | | $ Deferral | | Percent of Total Loan Portfolio | | $ Deferral | | Percent of Total Loan Portfolio | | $ Deferral | | Percent of Total Loan Portfolio |
| Lodging | | 26,815 |
| | 1.0 | % | | 108,171 |
| | 4.0 | % | | 64,686 |
| | 2.4 | % |
| Other commercial real estate, construction and development, and commercial and industrial | | 116,198 |
| | 4.4 |
| | 367,443 |
| | 13.7 |
| | 43,056 |
| | 1.6 |
|
| Equipment finance | | 19,443 |
| | 0.7 |
| | 33,693 |
| | 1.3 |
| | 4,547 |
| | 0.2 |
|
| One-to-four family | | 10,802 |
| | 0.4 |
| | 36,821 |
| | 1.4 |
| | 2,360 |
| | 0.1 |
|
| Other consumer loans | | 3,546 |
| | 0.1 |
| | 5,203 |
| | 0.2 |
| | 589 |
| | — |
|
| Total | | $ | 176,804 |
| | 6.6 | % | | $ | 551,331 |
| | 20.5 | % | | $ | 115,238 |
| | 4.3 | % |
(1) Modified loans are not included in classified assets or nonperforming asset.
In addition, the Company’s management has evaluated its loan portfolio and identified the following loan categories as potentially the most impacted by the COVID-19 pandemic:
|
| | | | | | | | | | | | | | |
| Payment Deferrals In Higher Risk Loan Sub-Categories as of June 30, 2020 |
| (dollars in thousands) | | Total Deferrals | | Total Balance | | Percent of Dollars in Deferral | | Percent of Total Loan Portfolio |
| | | | | |
| Lodging | | $ | 108,171 |
| | $ | 118,729 |
| | 91.1 | % | | 3.9 | % |
| Restaurants | | 28,044 |
| | 45,560 |
| | 61.6 |
| | 1.0 |
|
| Shopping centers | | 53,337 |
| | 89,285 |
| | 59.7 |
| | 1.9 |
|
| Other retail businesses | | 36,101 |
| | 150,229 |
| | 24.0 |
| | 1.3 |
|
| Equipment finance | | 33,693 |
| | 229,239 |
| | 14.7 |
| | 1.2 |
|
| Total | | $ | 259,346 |
| | $ | 633,042 |
| | 41.0 | % | | 9.3 | % |
The Company does not have any exposure to oil/gas or credit cards at June 30, 2020.
We believe the steps we are taking are necessary to effectively manage our portfolio and assist our customers through the ongoing uncertainty surrounding the duration, impact and government response to the COVID-19 pandemic. In addition, we will continue to work with our customers to determine the best option for repayment of accrued interest on the deferred payments.
Allowance for Loan Losses. The Company recorded a provision for loan losses of $8.5 million for the year ended June 30, 2020, compared to a $5.7 million provision in the year ended June 30, 2019. Approximately $4.3 million of the provision for the current year reflects probable credit losses related to COVID-19 based upon the conditions that existed as of June 30, 2020, including consideration for the recent downturn in certain leading economic indicators, such as the weaker stock market, lower manufacturing activity and retail sales, consumer confidence, and increases
in unemployment with the remaining provision being driven by increased charge-offs and impairments in our commercial and equipment finance portfolios. The provision during the previous year was primarily related to one commercial customer relationship.
Branch Operations and Support Personnel. We have taken various steps to ensure the safety of our customers and our team members by continuing to limit branch activities to appointment only and use of our drive-up facilities, and by encouraging the use of our digital and electronic banking channels, all the while adjusting for evolving State and Federal guidelines. Many of our employees are continuing to work remotely or have flexible work schedules, and we have established protective measures within our offices to help ensure the safety of those employees who must work on-site.
Capital. At June 30, 2020, the Company’s tangible equity to total tangible assets ratio was 10.33% and HomeTrust Bank’s capital was well in excess of all regulatory requirements. Our strong capital level positions us well in the face of the challenges of the COVID-19 pandemic.
Accounting and Reporting Considerations. The CARES Act provides that a financial institution may elect to suspend (1) the requirements under GAAP for certain loan modifications that would otherwise be categorized as a TDR and (2) any determination that such loan modifications would be considered a TDR, including the related impairment for accounting purposes. The Bank has elected this as a policy change.
Also in response to the COVID-19 pandemic, the Federal Reserve, the FDIC, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the Consumer Financial Protection Bureau, in consultation with the state financial regulators (collectively, the “agencies”) issued a joint interagency statement (issued March 22, 2020; revised statement issued April 7, 2020). Some of the provisions applicable to the Company include, but are not limited to: (i) loan modifications that do not meet the conditions of the CARES Act may still qualify as a modification that does not need to be accounted for as a TDR. The agencies confirmed with FASB staff that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or insignificant delays in payment. (ii) with regard to loans not otherwise reportable as past due, financial institutions are not expected to designate loans with deferrals granted due to COVID-19 as past due because of the deferral. A loan’s payment date is governed by the due date stipulated in the legal agreement. If a financial institution agrees to a payment deferral, these loans would not be considered past due during the period of the deferral. (iii) while short-term COVID-19 modifications are in effect, these loans generally should not be reported as nonaccrual or as classified.
See "Risk Factors" under Part I, Item 1A for additional risks related to COVID-19.
Comparison of Financial Condition at June 30, 20182020 and June 30, 20172019
General. Total assets increased $97.6$246.7 million, or 3.0%7.1% to $3.7 billion at June 30, 2020 from $3.5 billion at June 30, 2019. Total liabilities increased $247.3 million, or 8.1% to $3.3 billion at June 30, 20182020 from $3.2$3.1 billion at June 30, 2017. Total liabilities increased $86.02019. Deposit growth of $458.5 million, or 3.1%19.7% was used to $2.9 billionpay down $205.0 million, or 30.1% of borrowings and fund the increase in total assets for fiscal 2020. The increase in loans held for sale primarily relates to home equity loans originated for sale during the period. Deferred income taxes decreased $5.6 million, or 21.0% to $20.9 million at June 30, 20182020 from $2.8 billion$26.5 million at June 30, 2017. Deposit growth2019 due to the use of $147.8net operating loss carryforwards and increases in deferred tax liabilities from bonus depreciation during the year.
As of July 1, 2019, the Company adopted the new lease accounting standard, which drove several changes on the balance sheet. Land totaling $2.1 million or 7.2%related to the Company's one finance lease (f/k/a capital lease) was reclassed from premises and equipment, net to other assets as a ROU asset and the cumulative decreasecorresponding liability was reclassed from a separate line on the balance sheet to other liabilities as a lease liability. As of $126.3June 30, 2020, the Company has $4.6 million or 30.1% in cashROU assets and cash equivalents, certificates of depositcorresponding lease liabilities, which are maintained in other banksassets and investment securities during the year ended June 30, 2018 were used to partially fund the $174.4 million, or 7.4% increase in total loans receivable, the $79.2 million, or 52.9% increase in commercial paper, and reduce borrowings by $61.5 million, or 8.8%. We continue to utilize our leveraging strategy, where designated short-term FHLB borrowings are invested in various short-term liquid assets to generate additional net interest income, as well as the required purchase of additional FHLB stock which generates increased dividend income; however, we have reduced the amount of assets purchased andother liabilities, assumed as part of the leveraging strategy during the past year and expect to continue reducing these amounts commensurate with anticipated organic loan growth.respectively.
Cash, cash equivalents, and commercial paper. Total cash and cash equivalents decreased $16.2increased $50.6 million, or 18.7%71.2%, to $70.7$121.6 million at June 30, 20182020 from $87.0$71.0 million at June 30, 2017. In conjunction with our leveraging strategy, we purchase commercial paper to take advantage of higher returns with relatively low risk while remaining highly liquid.2019. The commercial paper balance increased $79.2$63.5 million, or 52.9%26.3% to $229.1$305.0 million at June 30, 20182020 from $149.9$241.4 million at June 30, 2017.2019. Our investments in commercial paper have short-term maturities and limited exposure of $15.0 million or less per each highly-rated company.
Investments. Securities available for sale decreased $44.7increased $5.8 million, or 4.7%, to $155.0$127.5 million at June 30, 20182020 compared to $199.7$121.8 million at June 30, 2017.2019. During fiscal year 2020, $77.2 million of securities were purchased (primarily shorter term corporate bonds) partially offset by $57.9 million of securities which matured and $14.5 million of MBS principal payments which were received. The overall increase in shorter-term corporate bonds provides the Company with higher yields compared to MBS and agency securities while remaining within our investment policy. At June 30, 2018,2020, certificates of deposit in other banks totaled $66.9increased $3.7 million, or 7.1% to $55.7 million compared to $132.3$52.0 million at June 30, 2017.2019. The increase in certificates of deposit in other banks was due to $32.9 million in CD purchases partially offset by $29.3 million in maturities. All of the certificates of deposit in other banks are fully insured by the FDIC. The Company has reduced its liquidity position in order to fund recent loan growth. We evaluate individual investment securities quarterly for other-than-temporary declines in market value. We do not believe that there arewere any other-than-temporary impairments at June 30, 2018;2020; therefore, no impairment losses have beenwere recorded forduring fiscal 2018.year 2020. Other investments include FHLB and FRB stock.at cost decreased $6.4 million, or 14.2% to $38.9 million at June 30, 2020 from $45.4 million at June 30, 2019. Other investments at cost included FHLB stock, decreased $2.2FRB stock, and SBIC investments totaling $23.3 million, to $29.9$7.4 million, over the last fiscal yearand $8.3 million, respectively. The overall decrease was driven by a $8.7 million, or 27.1% reduction in FHLB stock as a result of required redemptions of FHLB stock due$205.0 million in borrowings paid down during fiscal year 2020.
Loans held for sale. Loans held for sale increased to reduced FHLB borrowings. As a member of the Federal Reserve System, the Bank is required to own FRB stock, which totaled $7.3$77.2 million as ofat June 30, 2018 and 2017. In addition, we held in other assets, $5.22020 from $18.2 million of equity securities in small business investment companies.at June 30, 2019. The $59.0 million increase was primarily from HELOCs originated for sale.
Loans. Net loans receivable increased $174.4$57.3 million, or 7.4%2.1%, to $2.5$2.7 billion at June 30, 2018 compared to $2.3 billion at June 30, 2017, primarily due to $170.52020 driven by $183.3 million in net organic loan growth.
For fiscal year 2018, the retail loan segment portfolio originations increasedgrowth (which excludes one-to-four family loans transferred to $323.6held for sale, PPP loans, and purchases of home equity lines of credit) partially offset by $154.9 million or 5.9%,from $305.4 million the previous fiscal year. The commercial loan segment portfolio originations increasedof one-to-four family loans moved to $590.5 million, or 9.0%, from $541.5 million the previous fiscal year.held for sale and sold.
Retail consumer and commercial loans consist of the following at the dates indicated: | | | | | | | | | | | | Percent of total | | | | | | | | | Percent of total |
| | June 30, | | June 30, | | Change | | June 30, | | June 30, | June 30, | | June 30, | | Change | | June 30, | | June 30, |
| | 2018 | | 2017 | | $ | | % | | 2018 | | 2017 | 2020 | | 2019 | | $ | | % | | 2020 | | 2019 |
| Retail consumer loans: | | | | | | | | | | | | | | | | | | | | | | |
| One-to-four family | $ | 664,289 |
| | $ | 684,089 |
| | $ | (19,800 | ) | | (2.9 | )% | | 26.3 | % | | 29.1 | % | $ | 473,693 |
| | $ | 660,591 |
| | $ | (186,898 | ) | | (28.3 | )% | | 17.1 | % | | 24.4 | % |
| HELOCs - originated | 137,564 |
| | 157,068 |
| | (19,504 | ) | | (12.4 | ) | | 5.4 |
| | 6.7 |
| 137,447 |
| | 139,435 |
| | (1,988 | ) | | (1.4 | ) | | 5.0 |
| | 5.2 |
|
| HELOCs - purchased | 166,276 |
| | 162,407 |
| | 3,869 |
| | 2.4 |
| | 6.6 |
| | 6.9 |
| 71,781 |
| | 116,972 |
| | (45,191 | ) | | (38.6 | ) | | 2.6 |
| | 4.3 |
|
| Construction and land/lots | 65,601 |
| | 50,136 |
| | 15,465 |
| | 30.8 |
| | 2.6 |
| | 2.1 |
| 81,859 |
| | 80,602 |
| | 1,257 |
| | 1.6 |
| | 3.0 |
| | 3.0 |
|
| Indirect auto finance | 173,095 |
| | 140,879 |
| | 32,216 |
| | 22.9 |
| | 6.9 |
| | 6.0 |
| 132,303 |
| | 153,448 |
| | (21,145 | ) | | (13.8 | ) | | 4.8 |
| | 5.7 |
|
| Consumer | 12,379 |
| | 7,900 |
| | 4,479 |
| | 56.7 |
| | 0.5 |
| | 0.3 |
| 10,259 |
| | 11,416 |
| | (1,157 | ) | | (10.1 | ) | | 0.4 |
| | 0.4 |
|
| Total retail consumer loans | 1,219,204 |
| | 1,202,479 |
| | 16,725 |
| | 1.4 |
| | 48.3 |
| | 51.1 |
| 907,342 |
| | 1,162,464 |
| | (255,122 | ) | | (21.9 | ) | | 32.8 |
| | 43.0 |
|
| Commercial loans: | |
| | |
| | | | | | | | | |
| | |
| | | | | | | | |
| Commercial real estate | 857,315 |
| | 730,408 |
| | 126,907 |
| | 17.4 |
| | 33.9 |
| | 31.0 |
| 1,052,906 |
| | 927,261 |
| | 125,645 |
| | 13.6 |
| | 38.0 |
| | 34.3 |
|
| Construction and development | 192,102 |
| | 197,966 |
| | (5,864 | ) | | (3.0 | ) | | 7.6 |
| | 8.4 |
| 215,934 |
| | 210,916 |
| | 5,018 |
| | 2.4 |
| | 7.8 |
| | 7.8 |
|
| Commercial and industrial | 148,823 |
| | 120,387 |
| | 28,436 |
| | 23.6 |
| | 5.9 |
| | 5.1 |
| 154,825 |
| | 160,471 |
| | (5,646 | ) | | (3.5 | ) | | 5.6 |
| | 5.9 |
|
| Equipment finance | | 229,239 |
| | 132,058 |
| | 97,181 |
| | 73.6 |
| | 8.3 |
| | 4.9 |
|
| Municipal leases | 109,172 |
| | 101,175 |
| | 7,997 |
| | 7.9 |
| | 4.3 |
| | 4.3 |
| 127,987 |
| | 112,016 |
| | 15,971 |
| | 14.3 |
| | 4.6 |
| | 4.1 |
|
| Paycheck Protection Program | | 80,697 |
| | — |
| | 80,697 |
| | 100.0 |
| | 2.9 |
| | — |
|
| Total commercial loans | 1,307,412 |
| | 1,149,936 |
| | 157,476 |
| | 13.7 |
| | 51.7 |
| | 48.9 |
| 1,861,588 |
| | 1,542,722 |
| | 318,866 |
| | 20.7 |
| | 67.2 |
| | 57.0 |
|
| Total loans | $ | 2,526,616 |
| | $ | 2,352,415 |
| | $ | 174,201 |
| | 7.4 | % | | 100.0 | % | | 100.0 | % | $ | 2,768,930 |
| | $ | 2,705,186 |
| | $ | 63,744 |
| | 2.4 | % | | 100.0 | % | | 100.0 | % |
Recently, our expansion into larger metro markets as well as in-market acquisitions combined with improvements in the economy, employment rates, stronger real estate prices, and a general lack of new housing inventory in certain markets have led to us significantly increasing originations of construction loans for properties located in our market areas. We have hired experienced commercial real estate relationship managers, credit officers, and developed a construction risk management group to better manage construction risk, as part of our efforts to grow the construction portfolio. We will continue to take a disciplined approach in our construction and land development lending by concentrating our efforts on smaller one-to-four residential loans to builders known to us and developers of commercial real estate and multifamily properties with proven success in this type of construction. At June 30, 2018, construction and land/lots totaled $65.6 million including $52.8 million of one-to-four family construction loans that will roll over to permanent loans upon completion of the construction period. Undisbursed construction and land/lots loan commitments at June 30, 2018 totaled $58.9 million. Total construction and developmentequipment finance loans at June 30, 2020, were $229.2 million, an increase of $97.2 million from June 30, 2019. Our Equipment Finance line of business first began operations in May 2018 were $192.1 million, excluding unfunded loan commitmentsand offers companies that are purchasing equipment for their business flexible and customizable repayment terms while managing related tax and accounting issues. These products are primarily made up of $209.7 million, of which $74.5 million wascommercial finance agreements and commercial loans for non-residential commercial real estate construction, $64.5 million was for land development, $48.7 million was for speculative construction of single family properties, and $4.8 million was for multi-family construction. Undisbursedtransportation, construction, and development loan commitments at June 30, 2018 included $108.0manufacturing equipment. The loans have terms ranging from 24 to 84 months, with an average of five years and are secured by the financed equipment. Typical transaction sizes range from $25,000 to $1.0 million, with an average size of commercial real estate projects, multi-family residential projects of $12.4 million and $30.5 million for the speculative construction of one- to four-family residential properties.approximately $150,000.
Asset Quality. Our overall asset quality metrics continue to demonstrate our commitment to growing and maintaining a loan portfolio with a moderate risk profile. Nonperforming assets decreased 27.0%increased by $3.0 million, or 22.4% to $14.6$16.3 million, or 0.44% of total assets, at June 30, 2018,2020 compared to $20.0$13.3 million, or 0.62%0.38% of total assets at June 30, 2017.2019. Nonperforming assets included $10.9$15.9 million in nonaccruing loans and $3.7 million$337,000 in REO at June 30, 2018,2020, compared to $13.7$10.4 million and $6.3$2.9 million, in nonaccruing loans and REO, respectively, at June 30, 2017.2019. The increase in nonaccruing loans primarily relates to one commercial loan relationship totaling $4.4 millionthat was moved to nonaccrual during the second fiscal quarter. Included in nonperforming loans are $4.2$6.3 million of loans restructured from their original terms totaling $6.3 million, of which $2.6 million$293,000 were current at June 30, 2020, with respect to their modified payment terms. The decrease in nonaccruing loans was primarily due to continued improvements in credit quality throughout the loan portfolio and loans returning to performing status as payment history and the borrower's financial status improved. At June 30, 2018, $5.6 million, or 51.6%, of nonaccruing loans were current on their required loan payments. Purchased impaired loans aggregating $3.4 million acquired from$965,000 obtained through prior acquisitions are excluded from nonaccruing loans due to the accretion of discounts established in accordance with the acquisition method of accounting for business combinations. Nonperforming loans to total loans decreased to 0.43% at June 30, 2018 fromwas 0.58% at June 30, 2017.2020 and 0.38% at June 30, 2019.
The ratio of classified assets to total assets decreased to 1.00%0.84% at June 30, 20182020 from 1.57%0.89% at June 30, 2017.2019 due to the increase in total assets during fiscal 2020. Classified assets decreased 34.2%increased slightly to $33.1$31.1 million at June 30, 20182020 compared to $50.2$30.9 million at June 30, 2017.2019. Delinquent loans (loans delinquent 30 days or more) at June 30, 20182020 were $9.8$16.1 million, or 0.6% of total loans compared to $10.1 million, or 0.4% of total loans compared to $15.2 million, or 0.6% of total loans at June 30, 2017.2019.
As of June 30, 2018,2020, impaired loans decreased to $31.4$30.2 million from $39.0$33.0 million at June 30, 2017.2019. Our impaired loans are comprised of loans on non-accrual status and all TDRs, whether performing or on non-accrual status under their restructured terms. Impaired loans may be evaluated for reserve purposes using either a specific impairment analysis or on a collective basis as part of homogeneous pools. For more information on these impaired loans, see Note 45 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.
Allowance for loan losses.We establish an allowance for loan losses by charging amounts to the loan provision at a level required to reflect estimated credit losses in the loan portfolio. In evaluating the level of the allowance for loans losses, management considers, among other factors, historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect borrowers’ ability to repay, estimated value of any underlying collateral, prevailing economic conditions and current risk factors specifically related to each loan
type. See "Critical Accounting Policies – Allowance for Loan Losses" for a description of the manner in which the provision for loan losses is established.
OurThe allowance for loan losses at June 30, 2018 was $21.1$28.1 million, or 0.83% of total loans, compared to $21.2 million, or 0.90%1.01% of total loans, at June 30, 2017.2020 compared to $21.4 million, or 0.79% of total loans, at June 30, 2019, which was primarily driven by additional allowance stemming from the Company's assessment of COVID-19 on the loan
portfolio. The allowance for loan losses was 0.91% ofto total gross loans excluding PPP loans and acquired loans was 1.11% at June 30, 2018, excluding acquired loans from the allowance for loan losses in accordance with the acquisition method of accounting for business combinations, as2020, compared to 1.03%0.85% at June 30, 2017.2019. The Company recorded these acquired loans at fair value, which includes a credit discount, therefore, no allowance for loan losses is established for these loans at the time of acquisition. Any subsequent deterioration in credit quality will result in a provision for loan losses. The allowance for our acquired loans at June 30, 20182020 was $483,000$182,000 compared to $727,000$201,000 at June 30, 2017. 2019.
There was noa $8.5 million provision for loan losses for the yearsyear ended June 30, 20182020, compared to $5.7 million for the corresponding period in fiscal year 2019. The increase in the current year provision included significant adjustments relating to COVID-19 as a result of changes in qualitative factors based on increased risk in loan sub-categories, which include: lodging, restaurants, shopping centers, other retail businesses, and 2017 asequipment finance. The provision in the allowance forprior year primarily related to one commercial loan losses required by our loan growth was offset by continued improvements in our asset quality.relationship. Net loan charge-offs decreased to $91,000charge offs totaled $1.9 million for the year ended June 30, 2018 from $141,0002020, compared to $5.3 million for fiscal 2017.year 2019. Net charge-offs as a percentage of average loans decreased to 0.00%were 0.07% and 0.20% for the year ended June 30, 2018 from 0.01% for last fiscal year. The allowance as a percentage of nonaccruing loans increased to 192.96% at June 30, 2018, compared to 154.77% a year earlier.2020 and 2019, respectively.
We believe that the allowance for loan losses as of June 30, 20182020 was adequate to absorb the known and inherent risks of loss in the loan portfolio at that date. While we believe the estimates and assumptions used in our determination of the adequacy of the allowance are reasonable, there can be no assurance that such estimates and assumptions will not be proven incorrect in the future, or that the actual amount of future provisions will not exceed the amount of past provisions or that any increased provisions that may be required will not adversely impact our financial condition and results of operations. In addition, the determination of the amount of the allowance for loan losses is subject to review by bank regulators as part of the routine examination process, which may result in the establishment of additional reserves based upon their judgment of information available to them at the time of their examination.
See "Recent Accounting Developments" in Note 1 of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K for further discussion of the adoption of CECL.
Real estate owned. REO decreased $2.6 million, to $3.7 million$337,000 at June 30, 20182020 primarily due to $3.9$2.1 million in sales of REO which were partially offset by $1.3 millionand $536,000 in transfers from foreclosed loans.writedowns and losses on the sales of REO. The total balance of REO included $1.7 million in commercial real estate, $998,000$97,000 in single-family homes and $956,000$240,000 in land, construction and development projects (both residential and commercial) at June 30, 2018.2020.
Deferred income taxes. Deferred income taxes decreased $24.8$10.2 million, or 43.3%38.4%, to $32.6$16.3 million at June 30, 20182020 from $57.4$26.5 million at June 30, 2017.2019. The decrease was primarily driven by the revaluation of deferred tax assets as a resultreclassification of the Tax Cutsremaining AMT credit to other assets, bonus depreciation taken on our equipment finance assets, the increase in our allowance for loan losses, and Jobs Act of 2017 (the “Tax Act”) enacted on December 22, 2017,from the realization of net operating losses through increases in taxable income,income.
Other assets. Other assets increased $21.8 million, or 93.9%, to $44.9 million at June 30, 2020 from $23.2 million at June 30, 2019. The increase was driven by the previously mentioned ROU assets on our finance and tooperating leases and a lesser extent, the revaluation$11.6 million increase in operating leases from our newer equipment finance line of various state deferred tax assets, as discussed below. For more information on the Tax Act's impact on the Company's deferred income taxes, see Note 12 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.business.
Deposits. Total deposits increased $147.8$458.5 million, or 7.2%19.7%, to $2.2$2.8 billion at June 30, 20182020 from $2.0$2.3 billion at June 30, 2017.2019. The increase was primarily due to $93.8deposit growth initiatives which led to a $431.5 million increase in our core deposits in particularas well as a $108.1 million or 19.0% increase in money market accounts, from marketing initiatives and a $54.0$27.0 million increase in certificates of deposit, which related to additional brokered deposits.At June 30, 2018 and 2017, we had $108.9 million and $16.8 million in brokered deposits, respectively.deposit.
Borrowings. Borrowings, comprised of FHLB advances, decreased to $635.0$475.0 million at June 30, 20182020 from $696.5$680.0 million at June 30, 2017.2019. At June 30, 2018 there were $255.0 million in2020 all FHLB advances withhad maturities of seven years or more (but callable in less than 90 days and $150.0 million in convertible FHLB advances with maturities greater than one year; togethertwo years) with a weighted average interest rate of 1.95%1.39%.
Equity. Stockholders’ equity at June 30, 2018 increased2020 decreased to $409.2$408.3 million from $397.6$408.9 million at June 30, 2017. The increase was primarily driven by $8.22019. Changes within stockholders' equity included $22.8 million in net income $3.0and $2.5 million in stock-based compensation, and $680,000 in a cumulative adjustment for the adoption of Accounting Standard Update 2016-09, "Improvements to Employee Share-Based Payment Accounting," partially offset by a $1.91,114,094 shares of common stock repurchased at an average cost of $21.98, or approximately $24.5 million decrease in other comprehensive income representing unrealized losses on investment securities, nettotal, and $4.6 million related to cash dividends declared. The Company has not repurchased any stock since April 1, 2020. As of tax.June 30, 2020, HomeTrust Bank and the Company were considered "well capitalized" in accordance with their regulatory capital guidelines and exceeded all regulatory capital requirements. Tangible book value per share increased $0.59,$1.24, or 3.0%5.6% to $19.96$22.43 as of June 30, 20182020 compared to $19.37$21.20 at June 30, 2017.2019.
Average Balances, Interest and Average Yields/Cost
The following table sets forth the average balance sheets,sheet, interest income and expense, and average yields and costs.costs for the years indicated. All average balances are daily average balances. Nonaccruing loans have been included in the table as loans carrying a zero yield.
| | | | Years Ended June 30, | Years Ended June 30, |
| | 2018 | | 2017 | | 2016 | 2020 | | 2019 | | 2018 |
| (Dollars in thousands) | Average
Balance
Outstanding | | Interest
Earned/
Paid(2) | | Yield/
Rate(2) | | Average
Balance
Outstanding | | Interest
Earned/
Paid(2) | | Yield/
Rate(2) | | Average
Balance
Outstanding | | Interest
Earned/
Paid(2) | | Yield/
Rate(2) | Average
Balance
Outstanding | | Interest
Earned/
Paid(2) | | Yield/
Rate(2) | | Average
Balance
Outstanding | | Interest
Earned/
Paid(2) | | Yield/
Rate(2) | | Average
Balance
Outstanding | | Interest
Earned/
Paid(2) | | Yield/
Rate(2) |
| Assets: | | | | | | | | | | | | | | | | | | |
| Interest-earning assets: | | | | | | | | | | | | | | | | | | |
Loans receivable (1) | $2,418,946 | | $106,641 | | 4.41% | | $2,080,490 | | $92,423 | | 4.44% | | $1,764,229 | | $80,974 | | 4.59% | $ | 2,748,124 |
| | $ | 123,364 |
| | 4.49 | % | | $ | 2,633,298 |
| | $ | 123,076 |
| | 4.67 | % | | $ | 2,418,946 |
| | $ | 106,641 |
| | 4.41 | % |
| Deposits in other financial institutions | 137,026 | | 1,934 | | 1.41% | | 177,753 | | 1,900 | | 1.07% | | 213,011 | | 1,974 | | 0.93% | |
| Investment securities | 172,461 | | 3,668 | | 2.13% | | 202,866 | | 3,983 | | 1.96% | | 229,287 | | 4,161 | | 1.81% | |
| Commercial paper and deposits in other banks | | 385,208 |
| | 7,699 |
| | 2.00 | % | | 326,035 |
| | 8,278 |
| | 2.54 | % | | 346,982 |
| | 5,939 |
| | 1.71 | % |
| Securities available for sale | | 150,249 |
| | 3,687 |
| | 2.45 | % | | 145,344 |
| | 3,443 |
| | 2.37 | % | | 172,461 |
| | 3,668 |
| | 2.13 | % |
Other interest-earning assets(3) | 247,829 | | 6,018 | | 2.43% | | 222,847 | | 3,484 | | 1.56% | | 289,922 | | 3,174 | | 1.09% | 42,119 |
| | 2,694 |
| | 6.40 | % | | 46,360 |
| | 3,590 |
| | 7.74 | % | | 37,873 |
| | 2,713 |
| | 7.16 | % |
| Total interest-earning assets | 2,976,262 | | 118,261 | | 3.97% | | 2,683,956 | | 101,790 | | 3.79% | | 2,496,449 | | 90,283 | | 3.62% | 3,325,700 |
| | 137,444 |
| | 4.13 | % | | 3,151,037 |
| | 138,387 |
| | 4.39 | % | | 2,976,262 |
| | 118,961 |
| | 4.00 | % |
| Other assets | 267,399 | | 261,410 | | 244,739 | | 265,376 |
| | | | | | 245,859 |
| | | | | | 267,399 |
| | | | |
| Total Assets | 3,243,661 | | 2,945,366 | | 2,741,188 | | 3,591,076 |
| | | | | | 3,396,896 |
| | | | | | 3,243,661 |
| | | | |
| Liabilities and equity: | | | | | | | | | | | | | | | | | | |
| Interest-bearing liabilities: | | | | | | | | | | | | | | | | | | |
| Interest-bearing checking accounts | 473,880 | | 970 | | 0.20% | | 430,527 | | 772 | | 0.18% | | 389,027 | | 581 | | 0.15% | 457,455 |
| | 1,627 |
| | 0.36 | % | | 462,933 |
| | 1,251 |
| | 0.27 | % | | 473,880 |
| | 970 |
| | 0.20 | % |
| Money market accounts | 644,331 | | 2,442 | | 0.38% | | 541,030 | | 1,405 | | 0.26% | | 501,871 | | 1,112 | | 0.22% | 767,315 |
| | 6,910 |
| | 0.90 | % | | 689,946 |
| | 5,102 |
| | 0.74 | % | | 644,331 |
| | 2,442 |
| | 0.38 | % |
| Savings accounts | 224,582 | | 295 | | 0.13% | | 228,360 | | 308 | | 0.13% | | 215,584 | | 289 | | 0.13% | 166,588 |
| | 195 |
| | 0.12 | % | | 194,635 |
| | 245 |
| | 0.13 | % | | 224,582 |
| | 295 |
| | 0.13 | % |
| Certificate accounts | 463,306 | | 3,051 | | 0.66% | | 453,994 | | 2,103 | | 0.46% | | 504,469 | | 2,549 | | 0.51% | 764,013 |
| | 14,105 |
| | 1.85 | % | | 596,727 |
| | 9,159 |
| | 1.53 | % | | 463,306 |
| | 3,051 |
| | 0.66 | % |
| Total interest-bearing deposits | 1,806,099 | | 6,758 | | 0.37% | | 1,653,911 | | 4,588 | | 0.28% | | 1,610,951 | | 4,531 | | 0.28% | 2,155,371 |
| | 22,837 |
| | 1.06 | % | | 1,944,241 |
| | 15,757 |
| | 0.81 | % | | 1,806,099 |
| | 6,758 |
| | 0.37 | % |
| Borrowings | 658,240 | | 9,314 | | 1.41% | | 577,848 | | 3,657 | | 0.63% | | 482,576 | | 1,510 | | 0.31% | 568,377 |
| | 9,313 |
| | 1.64 | % | | 672,186 |
| | 14,626 |
| | 2.18 | % | | 658,240 |
| | 9,314 |
| | 1.41 | % |
| Total interest-bearing liabilities | 2,464,339 | | 16,072 | | 0.65% | | 2,231,759 | | 8,245 | | 0.37% | | 2,093,527 | | 6,041 | | 0.29% | 2,723,748 |
| | 32,150 |
| | 1.18 | % | | 2,616,427 |
| | 30,383 |
| | 1.16 | % | | 2,464,339 |
| | 16,072 |
| | 0.65 | % |
| Noninterest-bearing deposits | 311,210 | | 271,477 | | 220,764 | | 365,634 |
| | | | | | 307,420 |
| | | | | | 311,210 |
| | | | |
| Other liabilities | 65,489 | | 65,160 | | 63,981 | | 90,247 |
| | | | | | 63,229 |
| | | | | | 65,489 |
| | | | |
| Total liabilities | 2,841,038 | | 2,568,396 | | 2,378,272 | | 3,179,629 |
| | | | | | 2,987,076 |
| | | | | | 2,841,038 |
| | | | |
| Stockholders' equity | 402,623 | | 376,970 | | 362,916 | | 411,447 |
| | | | | | 409,820 |
| | | | | | 402,623 |
| | | | |
| Total liabilities and stockholders' equity | 3,243,661 | | 2,945,366 | | 2,741,188 | | 3,591,076 |
| | | | | | 3,396,896 |
| | | | | | 3,243,661 |
| | | | |
| Net earning assets | $511,923 | | $452,197 | | $402,922 | | $ | 601,952 |
| | | | | | $ | 534,610 |
| | | | | | $ | 511,923 |
| | | | |
| Average interest-earning assets to average interest-bearing liabilities | 120.77% | | 120.26% | | 119.25% | | 122.10 | % | | | | | | 120.43 | % | | | | | | 120.77 | % | | | | |
| Tax-equivalent: | | | | | | | | | | | | | | | | | | |
| Net interest income | | $102,189 | | $93,545 | | $84,242 | | | | $ | 105,294 |
| | | | | | $ | 108,004 |
| | | | | | $ | 102,889 |
| | |
| Interest rate spread | | 3.32% | | 3.42% | | 3.33% | | | | | 2.95 | % | | | | | | 3.23 | % | | | | | | 3.35 | % |
Net interest margin(4) | | 3.43% | | 3.49% | | 3.37% | | | | | 3.17 | % | | | | | | 3.43 | % | | | | | | 3.46 | % |
| Non-tax-equivalent: | | | | | | | | | | | | | | | | | | |
| Net interest income | | $100,630 | | $91,191 | | $81,707 | | | | $ | 104,104 |
| | | | | | $ | 106,831 |
| | | | | | $ | 101,330 |
| | |
| Interest rate spread | | 3.27% | | 3.34% | | 3.23% | | | | | 2.92 | % | | | | | | 3.19 | % | | | | | | 3.29 | % |
Net interest margin(4) | | 3.38% | | 3.40% | | 3.27% | | | | | 3.13 | % | | | | | | 3.39 | % | | | | | | 3.40 | % |
| |
| (1) | The average loans receivable, net balances include loans held for sale and nonaccruing loans. |
| |
| (2) | Interest income used in the average interest/earned and yield calculation includes the tax equivalent adjustment of $1.6$1.2 million, $2.4$1.2 million, and $2.5$1.6 million for fiscal years ended June 30, 2018, 2017,2020, 2019, and 2016,2018, respectively, calculated based on a combined federal and state tax rate of 30%24%, 37%24%, and 37%30%, respectively. |
| |
| (3) | The average other interest-earning assets consists of FRB stock, FHLB stock, and commercial paper.SBIC investments. |
| |
| (4) | Net interest income divided by average interest-earning assets. |
Rate/Volume Analysis
The following schedule presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. It distinguishes between the changes related to outstanding balances and that due to the changes in interest rates. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (i.e., changes in volume multiplied by old rate) and (ii) changes in rate (i.e., changes in rate multiplied by old volume). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate.
| | | | Years Ended June 30, | | Years Ended June 30, | Years Ended June 30, | | Years Ended June 30, |
| | 2018 vs. 2017 | | 2017 vs. 2016 | 2020 vs. 2019 | | 2019 vs. 2018 |
| | Increase/
(decrease)
due to | | Total
increase/
(decrease) | | Increase/
(decrease)
due to | | Total
increase/
(decrease) | Increase/
(decrease)
due to | | Total
increase/
(decrease) | | Increase/
(decrease)
due to | | Total
increase/
(decrease) |
| (Dollars in thousands) | Volume | | Rate | | Volume | | Rate | | Volume | | Rate | | Volume | | Rate | |
| Interest-earning assets: | | | | | | | | | | | | | | | | | | | | | | |
| Loans receivable | $ | 15,036 |
| | $ | (818 | ) | | $ | 14,218 |
| | $ | 14,515 |
| | $ | (3,066 | ) | | $ | 11,449 |
| $ | 5,367 |
| | $ | (5,079 | ) | | $ | 288 |
| | $ | 9,450 |
| | $ | 6,985 |
| | $ | 16,435 |
|
| Deposits in other financial institutions | (435 | ) | | 469 |
| | 34 |
| | (327 | ) | | 253 |
| | (74 | ) | 1,502 |
| | (2,081 | ) | | (579 | ) | | (359 | ) | | 2,698 |
| | 2,339 |
|
| Investment securities | (597 | ) | | 282 |
| | (315 | ) | | (479 | ) | | 301 |
| | (178 | ) | 116 |
| | 128 |
| | 244 |
| | (577 | ) | | 352 |
| | (225 | ) |
| Other | 391 |
| | 2,143 |
| | 2,534 |
| | (734 | ) | | 1,044 |
| | 310 |
| (328 | ) | | (568 | ) | | (896 | ) | | 608 |
| | 269 |
| | 877 |
|
| Total interest-earning assets | 14,395 |
| | 2,076 |
| | 16,471 |
| | 12,975 |
| | (1,468 | ) | | 11,507 |
| 6,657 |
| | (7,600 | ) | | (943 | ) | | 9,122 |
| | 10,304 |
| | 19,426 |
|
| Interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | |
| Interest-bearing checking accounts | $ | 77 |
| | $ | 121 |
| | $ | 198 |
| | $ | 62 |
| | $ | 129 |
| | $ | 191 |
| $ | (15 | ) | | $ | 391 |
| | $ | 376 |
| | $ | (22 | ) | | $ | 303 |
| | $ | 281 |
|
| Money market accounts | 269 |
| | 768 |
| | 1,037 |
| | 86 |
| | 207 |
| | 293 |
| 572 |
| | 1,236 |
| | 1,808 |
| | 173 |
| | 2,487 |
| | 2,660 |
|
| Savings accounts | (6 | ) | | (7 | ) | | (13 | ) | | 17 |
| | 2 |
| | 19 |
| (35 | ) | | (15 | ) | | (50 | ) | | (39 | ) | | (11 | ) | | (50 | ) |
| Certificate accounts | 43 |
| | 905 |
| | 948 |
| | (255 | ) | | (191 | ) | | (446 | ) | 2,568 |
| | 2,378 |
| | 4,946 |
| | 879 |
| | 5,229 |
| | 6,108 |
|
| Borrowings | 508 |
| | 5,149 |
| | 5,657 |
| | 298 |
| | 1,849 |
| | 2,147 |
| (2,258 | ) | | (3,055 | ) | | (5,313 | ) | | 198 |
| | 5,114 |
| | 5,312 |
|
| Total interest-bearing liabilities | $ | 891 |
| | $ | 6,936 |
| | $ | 7,827 |
| | $ | 208 |
| | $ | 1,996 |
| | $ | 2,204 |
| $ | 832 |
| | $ | 935 |
| | $ | 1,767 |
| | $ | 1,189 |
| | $ | 13,122 |
| | $ | 14,311 |
|
| Net increase in tax equivalent interest income | | | | | $ | 8,644 |
| | | | | | $ | 9,303 |
| |
| Net increase (decrease) in tax equivalent interest income | | | | | | $ | (2,710 | ) | | | | | | $ | 5,115 |
|
Comparison of Results of Operations for the Years Ended June 30, 20182020 and June 30, 20172019
General. During 2018, we had2020, net income of $8.2 million, a $3.6totaled $22.8 million, or 30.5% decrease compared to net income of $11.8 million earned in 2017. The Company's$1.30 per diluted earnings per share was $0.44 for the year ended June 30, 2018 compared to $0.65 for the year ended June 30, 2017. Earnings for the year ended June 30, 2018 included a $17.9 million write-down of deferred tax assets following a deferred tax revaluation resulting from enactment of the Tax Act with no comparable charge in fiscal year 2017, which was partially offset by the absence of merger-related expenses, which totaled $7.8 million in fiscal year 2017.
For the year ended June 30, 2018 and before the write-down of deferred tax assets from the change in the federal tax rate, merger-related expenses, certain state income tax expenses, and gains from the sale of premises and equipment (non-GAAP) net income was $25.9 million, or $1.38 in diluted earnings per share compared to $17.1 million, or $0.94 in diluted earnings per share for the year ended June 30, 2017.2020, compared to $27.1 million, or $1.46 per diluted share for fiscal year 2019. Earnings during the year ended June 30, 2020 were negatively impacted by a significant increase in the provision for loan losses based on the Company's assessment of COVID-19 on various macroeconomic factors. In addition, the decrease in interest rates over the past year has negatively affected the Company's net interest margin.
Net Interest Income. Net interest income for 20182020 was $100.6$104.1 million, a $9.4compared to $106.8 million for 2019. The $2.7 million, or 10.4% increase from $91.2 million in 2017. The increase in net interest income for the year ended June 30, 2018 reflects2.6% decrease was due to a $17.3 million increase$960,000 decrease in interest and dividend income due primarily to an increase in average interest-earning assets, partially offsetdriven by a $7.8decrease in yields and a $1.8 million increase in interest expense.
During 2018,2020, average interest-earning assets increased $292.3$174.7 million, or 10.9%5.5% to $3.0$3.3 billion compared to $2.7$3.2 billion for 2017. The $338.5 million, or 16.3% increase in the prior year. For the year ended June 30, 2020, the average balance of total loans receivable for theincreased $114.8 million, or 4.4% compared to last year ended June 30, 2018 wasprimarily due to a full year's impact of the TriSummit acquisition and increased organic loan growth. This increase was mainlyThe average balance of commercial paper and deposits in other banks increased $59.2 million, or 18.1% between the years driven by increases in commercial paper investments. These increases were primarily funded by the cumulative decrease of $46.2$165.5 million, or 7.6% in all other average interest-earning assets, an5.7% increase in average interest-bearing liabilities and noninterest-bearing deposits, of $152.2 million, or 9.2%, and an $80.4 million, or 13.9% increase in average borrowings, consisting entirely of FHLB advances.
as compared to last year. Net interest margin (on a fully taxable-equivalent basis) for the year ended June 30, 20182020 decreased six basis points to 3.17% from 3.43% from 3.49% for last year. For the year ended June 30, 2018, our leveraging strategy produced an additional $4.1 million in interest and dividend income at an average yield of 1.90%, while the average cost of the borrowings was 1.39%, resulting in approximately $1.1 million in net interest income. Our leveraging strategy produced an additional $3.6 million in interest and dividend income at an average yield of 1.14% during fiscal year 2017, while the average cost of the borrowings was 0.58%, resulting in approximately $1.8 million in net interest income. Excluding the effects of the leveraging strategy, the tax equivalent net interest margin would be 3.66% and 3.88% for the years ended June 30, 2018 and 2017, respectively.
2019.
Interest Income. Total interest and dividend income for 2018 was $116.7 million,2020 decreased $960,000, or 0.7%, compared to $99.4 million for 2017, an increase of $17.3 million, or 17.4%. The increase2019, which was primarily driven by a $15.0 million,$896,000, or 16.7%25.0% decrease in interest income on other interest-earning assets and a $579,000, or 7.0% decrease in interest income from commercial paper and interest-bearing deposits in other banks. The reduced income was a result of lower interest rates on commercial paper and other investments as well as lower interest earned on FHLB stock as borrowings were paid down during the year. The overall decreases were partially offset by a $271,000, or 0.2% increase in loan interest income a $2.2 million, or 59.4% increase in certificates of deposit and other interest-bearing deposits, and a $354,000,$244,000, or 21.3%7.1% increase in other investment income partially offset by a $315,000, or 7.9% decrease in interest income from securities available for sale. The additional loan interest income was primarily due todriven by the increase in the average balance of loans receivable which was partially offset by a $3.0 million decrease in loan interest yield compared to the prior year. Average loan yields decreased by 18 basis points to 4.49% for the year ended June 30, 2020 from 4.67% last year. For the years ended June 30, 2020 and 2019, average loan yields included six and eight basis points, respectively, from the accretion of purchase discounts on acquired loans to $3.2 million for the year ended June 30, 2018 from $6.1 million for fiscal year 2017, resulting from the full repayments of several loans with large discounts in the previous year. This decrease caused average loan yields to decrease three basis points to 4.41% for the year ended June 30, 2018 from 4.44% in fiscal 2017.loans. The accretion on purchase discounts on acquired loans stems from the discount established at the time these loan portfolios were acquired and the related impact of prepayments on purchased loans. Each quarter, the Company analyzes the cash flow assumptions on loan pools purchased and, at least semi-annually, the Company updates loss estimates, prepayment speeds, and other variables when analyzing cash flows. In addition to this accretion income, which is recognized over the estimated life of the loans pools, if a loan is removed from a pool
due to payoff or foreclosure, the unaccreted discount in excess of losses is recognized as an accretion gain in interest income. As a result, income from loan pools can be volatile from quarter to quarter as well as year over year. Excluding
Interest Expense. Total interest expense in 2020 increased $1.8 million, or 5.8%, compared to 2019. The increase was driven by a $7.1 million, or 44.9% increase in deposit interest expense partially offset by a $5.3 million, or 36.3% decrease in interest expense on borrowings. The additional deposit interest expense was a result of a $211.1 million, or 10.9% increase in the effectsaverage balance of interest-bearing deposits along with a 25 basis point increase in the accretion on purchase discounts on acquired loans, loan yieldsaverage cost of those deposits for the year ended June 30, 2020 as compared to last year. Average borrowings for the year ended June 30, 2020 decreased $103.8 million, or 15.4% along with a 54 basis point decrease in the average cost of borrowings compared to last year. The overall cost of funds increased 13two basis points to 4.28%1.18% for the year ended June 30, 2020 compared to 1.16% last year.
Provision for Loan Losses. During 2020, there was an $8.5 million provision for loan losses, compared to a $5.7 million in 2019. As discussed earlier, the current year provision was driven by COVID-19 and increased charge-offs compared to prior year's provision which primarily related to one commercial relationship. See "Comparison of Financial Condition at June 30, 2020 and 2019 - Asset Quality and Allowance for Loan Losses" for additional details.
Noninterest Income. Noninterest income in 2020 increased $7.4 million, or 32.2% to $30.3 million from $22.9 million in 2019 primarily due to a $3.7 million, or 60.0% increase in the gain on sale of loans held for sale, a $2.7 million, or 74.7% increase in other noninterest income, and a $1.1 million, or 75.4% increase in loan income and fees. The increase in the gain on sale of loans held for sale was a result of the one-to-four family loans sold during the period which resulted in a non-recurring $1.3 million gain. In addition to this non-recurring gain, $203.9 million of residential mortgage loans were sold with gains of $5.4 million for the year ended June 30, 2020, compared to $120.6 million sold with gains of $2.8 million in the prior year. During the year ended June 30, 2020, $38.1 million of SBA commercial loans were sold with recorded gains of $2.8 million compared to $47.4 million sold and gains of $3.4 million in the prior year. In addition, $71.1 million of home equity loans were sold during the year for a gain of $415,000. The increase in other noninterest income primarily related to a $2.4 million increase in operating lease income from the equipment finance line of business. The increase in loan income and fees is primarily a result of our adjustable rate conversion program and prepayment fees on equipment finance loans.
Noninterest Expense. Noninterest expense for 2020 increased $7.0 million, or 7.8% to $97.1 million compared to $90.1 million in 2019. The increase was primarily due to a $4.4 million, or 8.4% increase in salaries and employee benefits; a $3.0 million, or 27.4% increase in other expenses, mainly driven by depreciation from our equipment finance line of business and expenses related to our core conversion; a $489,000, or 6.4% increase in computer services; a $235,000, or 7.7% increase in telephone, postage, and supplies; and a $162,000, or 12.3% increase in REO-related expenses. Partially offsetting these increases was a $608,000, or 30.0% decrease in core deposit intangible amortization; a decrease of $526,000, or 36.9% in deposit insurance premiums related to credit from the FDIC; and a $226,000, or 2.4% decrease in net occupancy expenses for the year ended June 30, 2020 compared to the last year.
Income Taxes. Income tax expense for 2020 decreased $767,000, or 11.3% to $6.0 million from $6.8 million in 2019 as a result of lower taxable income. The effective tax rate for the years ended June 30, 2020 and 2019 was 20.9% and 20.0%, respectively. For more information on income taxes and deferred taxes, see Note 13 of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K.
Comparison of Results of Operation for the Year Ended June 30, 2019 and June 30, 2018
General. During 2019, net income totaled $27.1 million, or $1.46 per diluted share for the year ended June 30, 2019, compared to $8.2 million, or $0.44 per diluted share for fiscal year 2018. Earnings during the year ended June 30, 2019 were negatively impacted by a $5.7 million provision for loan losses primarily related to the previously mentioned commercial lending relationship, which was fully charged off. Earnings for the year ended June 30, 2018 compared to 4.15%included a $17.9 million write-down of deferred tax assets following a deferred tax revaluation resulting from enactment of the Tax Act with no comparable charge in fiscal 2017.year 2019.
Due toNet Interest Income. Net interest income for 2019 was $106.8 million, a significant number of adjustable-rate loans$5.5 million, or 5.4% increase from $101.3 million in the loan portfolio with interest rate floors below which the loans' contractual interest rate may not adjust,2018. The increase in net interest income will be negatively impacted in a rising interest rate environment until such time asfor the current rate exceeds these interest rate floors. As ofyear ended June 30, 2018, our loans with2019 reflects a $19.8 million increase in interest rate floors totaled approximately $611.5and dividend income due primarily to an increase in average interest-earning assets, partially offset by a $14.3 million increase in interest expense.
During 2019, average interest-earning assets increased $174.8 million, or 16.1% of our total loan portfolio and had a weighted average floor rate of 4.00%; $71.3 million of these loans were at their floor rate, of which $57.05.9% to $3.1 billion compared to $3.0 billion for 2018. The $214.4 million, or 79.9%, had8.9% increase in average balance of total loans receivable for the year ended June 30, 2019 was primarily due to organic loan growth. The average balance of other interest-earning assets increased $8.5 million, or 22.5% between the periods primarily due to increases in FHLB stock. These increases were mainly funded by the cumulative decrease of $48.4 million, or 9.3% in average commercial paper and securities available for sale, and an increase in average interest-bearing liabilities of $152.1 million, or 6.2%. Net interest margin (on a fully taxable-equivalent basis) for the year ended June 30, 2019 decreased three basis points to 3.43% from 3.46% for last year.
Interest Income. Total interest and dividend income for 2019 was $137.2 million, compared to $117.4 million for 2018, an increase of $19.8 million, or 16.9%. The increase was primarily driven by a $16.8 million, or 16.0% increase in loan interest income and a $2.3 million, or 39.4% increase in interest income from commercial paper and deposits in other banks, partially offset by a $225,000, or 6.1% decrease in interest income from securities available for sale. The additional loan interest income was primarily due to the increase in the average balance of loans receivable, which was partially offset by a $1.1 million decrease in the accretion of purchase discounts on acquired loans to $2.1 million for the year ended June 30, 2019 from $3.2 million for fiscal year 2018. Average loan yields that would begin floating again once prime rates increase at least 200increased 26 basis points.points to 4.67% for the year ended June 30, 2019 from 4.41% last year. For the year ended June 30, 2019 and 2018, average loan yields included eight and 14 basis points, respectively, from the accretion of purchase discounts on acquired loans.
Interest Expense. Total interest expense was $30.4 million in 2019, a $14.3 million, or 89.0% increase from $16.1 million in 2018, a $7.8 million, or 94.9% increase from $8.2 million in 2017.2018. The increase was primarily related to the the 44 basis point increase in the average cost of deposits and to a lesser extent the $138.1 million, or 7.7% increase in average interest-bearing deposits, and borrowings coupled with the increased costresulting in additional deposit interest expense of nine and 78 basis points$9.0 million for the yearsyear ended June 30, 20182019 as compared to the year ended June 30, 2018. In addition, there was an increase of 77 basis points in the average cost of borrowings and 2017, respectively.a $13.9 million, or 2.1% increase in average borrowings, resulting in additional interest expense of $5.3 million for the year ended June 30, 2019 as compared to the year ended June 30, 2018. The overall cost of funds increased 2851 basis points to 0.65%1.16% for the year ended June 30, 20182019 compared to 0.37% in the0.65% last fiscal year primarily due to the impact of the recent increases in the target federal funds rate on the cost of our borrowings.year.
Provision for Loan Losses. During 2018 and 2017,2019, there was noa $5.7 million provision for loan losses, reflecting the decline in our required provision loan losses duewhich primarily related to the continued improvements in our asset quality outpacing the additionalpreviously mentioned $6.0 million commercial lending relationship that was fully charged off, compared to no provision otherwise required due to our loan growth.for 2018. The provision for loan losses reflects the amount required to maintain the allowance for losses at an appropriated level based upon management's evaluation of the adequacy of general and specific loss reserves, trends in delinquencies and net charge-offs and current economic conditions.
See "Comparison of Financial Condition at June 30, 2018 and 2017 - Asset Quality and Allowance for Loan Losses" for additional details.
Noninterest Income. Noninterest income was $19.7 million for 2018 compared to $16.1 million for 2017. The $3.6 million, or 22.1% increase was primarily due to a $1.1 million, or 14.2% increase in service charges on deposit accounts as a result of the increase in deposit accounts and related fees; a $1.8 million, or 49.6% increase in loan income from the gain on sale of mortgage loans and various commercial loan-related fees driven by the commencing of originations and sales of the guaranteed portion of U.S Small Business Administration (“SBA”) commercial loans; and an $879,000, or 38.9% increase in other noninterest income mainly from investments in small business investment companies. Partially offsetting these increases was a $221,000, or 57.4% decrease in gains from the sale of premises and equipment for the year ended June 30, 2018 compared to last fiscal year.
Noninterest Expense. Noninterest expense was $85.3 million in 2018, a $4.9 million, or 5.5% decrease from $90.3 million in 2017. The decrease was primarily driven by the absence of the previously mentioned $7.8 million of merger-related expenses; a $192,000, or 11.5% decrease in marketing and advertising; a $210,000, or 3.2% decrease in computer services; and a $222,000, or 15.7% decrease in real estate owned ("REO") related expenses primarily as a result of fewer REO properties held. Partially offsetting these decreases were the additional expenses related to the TriSummit acquisition, a new commercial loan production office in Greensboro, NC, new SBA and equipment finance lines of business, and the opening of a de novo branch in Cary, NC as shown in the cumulative increase of $3.4 million, or 5.0% in salaries and employee benefits; net occupancy expense; telephone, postage, and supplies; and other expenses for the year ended June 30, 2018 compared to last year. Deposit insurance premiums increased $241,000, or 17.5% as the net asset base has increased.
Income Taxes. The provision for income taxes was $26.7 million for fiscal 2018 as compared to $5.2 million in 2017. The increase was mainly driven by the Tax Act's reduction in the federal corporate tax rate, which required the Company to revalue net deferred tax assets and establish the tax valuation allowance on a portion of our alternative minimum tax ("AMT") credits in accordance with Internal Revenue Service guidelines, resulting in a $17.9 million adjustment through income tax expense; and to a lesser extent higher pre-tax income. In addition, for the year ended June 30, 2018, the Company had a benefit of $142,000 as compared to a charge of $490,000 for the year ended June 30, 2017 related to the revaluation of various state deferred tax assets. In addition, our June 30 fiscal year end required the use of a blended federal income tax rate as prescribed by the Internal Revenue Code. The blended federal income tax rate of 27.5% was retroactively effective July 1, 2017 and was used for the entire fiscal year ended June 30, 2018. For more information on income taxes and deferred taxes, see Note 12 of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K.
Comparison of Results of Operation for the Year Ended June 30, 2017 and June 30, 2016
General. During 2017, we had net income of $11.8 million, a $391,000 or 3.4% increase compared to net income of $11.5 million earned in 2016. The Company's diluted earnings per share were $0.65 for both years ended June 30, 2017 and 2016. The leading factors in the increase of net income for both periods ended June 30, 2017 were an increase in net interest income from organic loan growth and the acquisition of TriSummit, which outpaced all merger-related expenses. The Company's earnings per share were impacted by the issuance of 765,277 new common shares in conjunction with the TriSummit acquisition on January 1, 2017.
Net Interest Income. Net interest income for 2017 was $91.2 million, a $9.5 million, or 11.6% increase from $81.7 million in 2016. During 2017, average interest-earning assets increased $187.5 million, or 7.5% to $2.7 billion compared to $2.5 billion for 2016. The $316.3 million, or 17.9% increase in average balance of loan receivables for 2017 was due to the TriSummit acquisition and increased organic loan growth, which was mainly funded by the cumulative decrease of $128.8 million, or 17.6% in average interest-earning deposits with banks, securities available for sale, and other interest-earning assets and an increase in average FHLB borrowings of $95.3 million, or 19.7%.
Net interest margin (on a fully taxable-equivalent basis) for 2017 increased 12 basis points to 3.49% from 3.37% for last year. During 2017, our leveraging strategy produced an additional $3.6 million in interest income at an average yield of 1.14%, while the average cost of the borrowings was 0.58%, resulting in approximately $1.8 million in net interest income. Our leveraging strategy produced an additional $3.3 million in interest income at an average yield of 0.81% during 2016, while the average cost of the borrowings was 0.31%, resulting in approximately $2.0 million in net interest income. Excluding the effects of the leveraging strategy, the net interest margin would have decreased five basis points to 3.88% for 2017 compared to 3.93% for 2016.
Interest Income. Total interest and dividend income for 2017 was $99.4 million, compared to $87.7 million for 2016, an increase of $11.7 million, or 13.3%.The increase was primarily driven by an $11.6 million, or 14.8% increase in loan interest income and a $196,000, or 13.4% increase in other investment income, which were partially offset by a $178,000, or 4.3% decrease in interest from securities available for sale. The additional loan interest income was due to the increase in the average balance of loans receivable and a $1.6 million increase in the accretion of purchase discounts on acquired loans to $6.1 million for 2017 from $4.5 million for 2016, as a result of early prepayments. Net interest margin is enhanced by the amortization of purchase accounting discounts on purchased loans and certificates of deposit received in recent acquisitions, which is accreted into net interest income. This additional income stems from the discount established at the time these loan portfolios were acquired and the related impact of prepayments on purchased loans. Each quarter, the Company analyzes the cash flow assumptions on loan pools purchased and, at least semi-annually, the Company updates loss estimates, prepayment speeds, and other variables when analyzing cash flows. In addition to this accretion income, which is recognized over the estimated life of the loans pools, if a loan is removed from a pool due to payoff or foreclosure, the unaccreted discount in excess of losses is recognized as an accretion gain in interest income. As a result, income from loan pools can be volatile from quarter to quarter as well as year over year.
Average loan yields decreased 15 basis points to 4.44% for the year ended June 30, 2017 from 4.59% in fiscal 2016. For the years ended June 30, 2017 and 2016, the average loan yields included 29 and 26 basis points, respectively, from the accretion of purchase discounts on acquired loans.
Due to a significant number of adjustable-rate loans in the loan portfolio with interest rate floors below which the loans' contractual interest rate may not adjust, net interest income will be negatively impacted in a rising interest rate environment until such time as the current rate exceeds these interest rate floors. As of June 30, 2017, our loans with interest rate floors totaled approximately $633.8 million or 27.0% of our total loan portfolio and had a weighted average floor rate of 4.00%; $192.6 million of these loans were at their floor rate, of which $148.0 million, or 76.9%, had yields that would begin floating again once prime rates increase at least 200 basis points.
Interest Expense. Total interest expense was $8.2 million in 2017, a $2.2 million, or 36.5% increase from $6.0 million in 2016. The increase was primarily due to a 32 basis point increase in the average cost of borrowings increasing interest expense on borrowings by $2.1 million to $3.7 million for 2017 as compared to $1.5 million in 2016. In addition, average borrowings increased by $95.3 million to $577.8 million to partially fund the increase in total loans and to provide funds for the TriSummit acquisition and our leveraging strategy. The TriSummit acquisition was the leading factor for the $298.6 million increase in the average balance of interest-bearing deposits. The overall average cost of funds increased eight basis points to 0.37% for 2017 compared to 0.29% for 2016 primarily due to the impact of the recent increases in the federal funds rate on our borrowings.
Provision for Loan Losses. During 2017 and 2016, there was no provision for loan losses reflecting the decline in our required provision loan losses due to the continued improvements in our asset quality outpacing the additional provision otherwise required due to our loan growth. The provision for loan losses reflects the amount required to maintain the allowance for losses at an appropriatedappropriate level based upon management's evaluation of the adequacy of general and specific loss reserves, trends in delinquencies and net charge-offs and current economic conditions.
Noninterest Income. Noninterest income was $16.1$22.9 million for 20172019 compared to $14.3$19.0 million for 2016.2018. The $1.8$3.9 million, or 12.7%20.9% increase was primarily due to a $576,000,$1.9 million, or 18.8%45.4% increase in gain on sale of loans primarily due to originations and sales of SBA commercial loans; a $1.1 million, or 47.1% increase in other noninterest income primarily related to operating lease income; an $809,000, or 9.2% increase in service charges on deposit accounts as a result of an increase in deposit accounts and related fees; and a $246,000, or 20.9% increase in loan income and feesfees. There was also no gain from increases in originations of mortgage loans held for sale, a $445,000, or 27.1% increase in BOLI income, and a $385,000 gain on the sale of a previously closed branch office building. In addition, service charges on deposit accounts increased $362,000, or 5.4%, reflectingpremises and equipment for the increase in deposit accounts from the TriSummit acquisition.year ended June 30, 2019 as compared to $164,000 last year.
Noninterest Expense. Noninterest expense was $90.3$90.1 million in 2017,2019, a $10.6$4.8 million, or 13.3%5.6% increase from $79.6$85.3 million in 2016.2018. The overall increase was primarily due to $7.8a $4.1 million, of merger-related expensesor 8.6% increase in salaries and employee benefits; a $1.2 million, or 19.0% increase in computer services; a $375,000, or 25.4% increase in marketing and advertising; and a $121,000, or 10.2% increase in REO-related expenses. The $4.1 million increase in salaries and benefits was primarily related to the TriSummit acquisition. Salariesadditional personnel in our new SBA and employee benefits expense increased $3.9 million,equipment finance lines of business. Partially offsetting these increases was a $616,000, or 9.3%23.3% decrease in core deposit intangible amortization; a $235,000, or 2.4% decrease in net occupancy expense; and a $193,000, or 11.9% decrease in deposit insurance premiums as a result of the TriSummit acquisition and an increase in stock-based compensation expense primarily driven by the increase in the Company's stock price. As a result of management's continued commitment to reduce operating expenses and the
consolidation of six brancheslower nonaccrual loans during the second quarter of 2016, there was a cumulative decrease of $773,000, or 5.4% in net occupancy expense; marketing and advertising; and telephone, postage, and supplies. This decrease was offset by an $837,000, or 14.4% increase in computer services as a result of the TriSummit acquisition. In addition, deposit insurance premiums decreased $607,000, or 30.6% dueyear ended June 30, 2019 compared to a decline in the rates charged by the FDIC that occurred during the first quarter of fiscal 2017. REO-related expenses decreased $385,000 as a result of a $234,000 decrease in writedowns and net losses on the sale of REO properties and a $151,000 decrease in REO expenses.last year.
Income Taxes. The provision for income taxes was $5.2$6.8 million for fiscal 2017, representing an effective tax rate of 30.5%,2019 as compared to $4.9$26.7 million and an effectivein 2018. The Company’s corporate federal income tax rate for the years ended June 30, 2019 and 2018 was 21% and 27.5%, respectively. In the quarter ended December 31, 2017, following a revaluation of 30.0% in 2016, as a result of higher income before taxes. During 2017 and 2016, the Company incurred a charge of $490,000 and $526,000, respectively, which related to the decrease in value of ournet deferred tax assets based on recent decreases in North Carolina's corporatedue to the Tax Act, the Company wrote down deferred tax rate. The rate was reduced to 4.0% in August 2015 and to 3.0% in August 2016 once certain state revenue triggersassets of $17.9 million, which were achieved.reflected as an adjustment through income tax expense.
Asset/Liability Management
Our Risk When Interest Rates Change. The rates of interest we earn on assets and pay on liabilities generally are established contractually for a period of time. Market interest rates change over time. Our loans generally have longer maturities than our deposits. Accordingly, our results of operations, like those of other financial institutions, are impacted by changes in interest rates and the interest rate sensitivity of our assets and liabilities. The risk associated with changes in interest rates and our ability to adapt to these changes is known as interest rate risk and is our most significant market risk. If interest rates rise, our net interest income could be reduced because interest paid on interest-bearing liabilities, including deposits and borrowings, could increase more quickly than interest received on interest-earning assets, including loans and other investments. In addition, rising interest rates may hurt our income because they may reduce the demand for loans.
How We Measure Our Risk of Interest Rate Changes. As part of our process to manage our exposure to changes in interest rates and comply with applicable regulations, we monitor our interest rate risk. In monitoring interest rate risk we continually analyze and manage assets and liabilities based on market conditions, their payment streams and interest rates, the timing of their maturities, their sensitivity to actual or potential changes in market interest rates, and interest rate sensitivities of the Company's non-maturity deposits with respect to interest rates paid and the level of balances. The board of directors sets the asset and liability policy of HomeTrust Bank, which is implemented by management and an asset/liability committee whose members include certain members of senior management.
The purpose of this committee is to communicate, coordinate and control asset/liability management consistent with our business plan and board approved policies. The committee establishes and monitors the volume and mix of assets and funding sources taking into account relative costs and spreads, interest rate sensitivity and liquidity needs. The objectives are to manage assets and funding sources to produce results that are consistent with liquidity, capital adequacy, growth, risk, and profitability goals.
The committee generally meets on a quarterly basis to review, among other things, economic conditions and interest rate outlook, current and projected liquidity needs and capital position, anticipated changes in the volume and mix of assets and liabilities and interest rate risk exposure limits versus current projections pursuant to net present value of portfolio equity analysis and income simulations. The committee recommends appropriate strategy changes based on this review. The committee is responsible for reviewing and reporting on the effects of the policy implementations and strategies to the board of directors at least quarterly.
Among the techniques we usehave used at various times to manage interest rate risk are: (i) increasing our portfolio of hybrid and adjustable-rate one-to-four family residential loans and commercial loans; (ii) maintaining a strong capital position, which provides for a favorable level of interest-earning assets relative to interest-bearing liabilities; and (iii) emphasizing less interest rate sensitive and lower-costing “core deposits.” We also maintain a portfolio of short-term or adjustable-rate assets and use fixed-rate FHLB advances and brokered deposits to extend the term to repricing of our liabilities.
We consider the relatively short duration of our deposits in our overall asset/liability management process. As short-term rates increase, we have assets and liabilities that increase with the market. This is reflected in the change in our present value equity (“PVE”)PVE when rates increase (see the table below). PVE is defined as the net present value of our existing assets and liabilities. In addition, we have historically demonstrated an ability to maintain retail deposits through various interest rate cycles. If local retail deposit rates increase dramatically, we also have access to wholesale funding through our lines of credit with the FHLB and FRB, as well as through the brokered deposit market to replace retail deposits, as needed.
Depending on the level of general interest rates, the relationship between long- and short-term interest rates, market conditions and competitive factors, the committee may in the future determine to increase our interest rate risk position somewhat in order to maintain or increase our net interest margin. In particular, during certain periods of stable or declining interest rate, we believe that the increased net interest income resulting from a mismatch in the maturity of our assets and liabilities portfolios can, during periods of stable or declining interest rates,may provide high enough returns to justify increased exposure to sudden and unexpected increases in interest rates. As a result of this philosophy, our results of operations and the economic value of our equity will remain vulnerable to increases in interest rates and to declines due to differences between long- and short-term interest rates.
The committee regularly reviews interest rate risk by forecasting the impact of alternative interest rate environments on net interest income and our PVE. The committee also valuatesevaluates these impacts against the potential changes in net interest income and market value of our portfolio equity that are monitored by the board of directors of HomeTrust Bank generally on a quarterly basis.
Our asset/liability management strategy sets limits on the change in PVE given certain changes in interest rates. The table presented here, as of June 30, 2018,2020, is forward-looking information about our sensitivity to changes in interest rates. The table incorporates data from an independent
service, as it relates to maturity repricing and repayment/withdrawal of interest-earning assets and interest-bearing liabilities. Interest rate risk is measured by changes in PVE for instantaneous parallel shifts in the yield curve up and down 400 basis points. Given the current targeted federal funds rate is 1.75%0.00% to 2.00%0.25% making an immediate change of -200, -300 and -300-400 basis points improbable, a PVE calculation for a decrease of greater than 100 basis points has not been prepared. An increase in rates would slightly increase our PVE because the repricing of nonmaturing deposits tend to lag behind the increase in market rates. This positive impact is partially offset by the negative effect from our loans with interest rate floors which will not adjust until such time as a loan’s current interest rate adjusts to an increase in market rates which exceeds the interest rate floor. Conversely, in a falling interest rate environment these interest rate floors will assist in maintaining our net interest income. As of June 30, 2018,2020, our loans with interest rate floors totaled approximately $611.5$586.8 million or 16.1%21.2% of our total loan portfolio and had a weighted average floor rate of 4.00%4.02%, $71.3$446.5 million of these loans were at their floor rate, of which $57.0$404.6 million, or 79.9%90.6%, had yields that would begin floating again once prime rates increase at least 200 basis points.
| | | June 30, 2018 | |
| June 30, 2020 | | June 30, 2020 |
| Change in Interest Rates in | | Present Value Equity | | PVE | | Present Value Equity | | PVE |
| Basis Points | | Amount | | $ Change | | % Change | | Ratio | | Amount | | $ Change | | % Change | | Ratio |
(Dollars in Thousands) | | + 400 | | $ | 744,049 |
| | $ | 28,227 |
| | 4 | % | | 24 | % | | $ | 638,703 |
| | $ | 152,383 |
| | 31 | % | | 18 | % |
| + 300 | | 742,932 |
| | 27,110 |
| | 4 |
| | 24 |
| | 617,786 |
| | 131,466 |
| | 27 |
| | 18 |
|
| + 200 | | 738,771 |
| | 22,949 |
| | 3 |
| | 23 |
| | 588,487 |
| | 102,167 |
| | 21 |
| | 16 |
|
| + 100 | | 730,437 |
| | 14,615 |
| | 2 |
| | 23 |
| | 549,435 |
| | 63,115 |
| | 13 |
| | 15 |
|
| Base | | 715,822 |
| | — |
| | — |
| | 22 |
| | 486,320 |
| | — |
| | — |
| | 13 |
|
| - 100 | | 668,983 |
| | (46,839 | ) | | (7 | ) | | 20 |
| | 362,682 |
| | (123,638 | ) | | (25 | ) | | 10 |
|
In evaluating our exposure to interest rate movements, certain shortcomings inherent in the method of analysis presented in the foregoing table must be considered. For example, although certain assets and liabilities may have similar maturities or repricing periods, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in interest rates. Additionally, certain assets, such as adjustable rate mortgages, have features which restrict changes in interest rates on a short-term basis and over the life of the asset. Further, in the event of a significant change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed above. Finally, the ability of many borrowers to service their debt may decrease in the event of an interest rate increase. We consider all of these factors in monitoring our exposure to interest rate risk.
The board of directors and management of HomeTrust Bank believe that certain factors afford HomeTrust Bank the ability to operate successfully despite its exposure to interest rate risk. HomeTrust Bank may manage its interest rate risk by originating and retaining adjustable rate loans in its portfolio, by borrowing from the FHLB to match the duration of our funding to the duration of originated fixed rate one-to-four family and commercial loans held in portfolio and by selling on an ongoing basis certain currently originated longer term fixed rate one-to-four family real estate loans.
Liquidity
Management maintains a liquidity position that it believes will adequately provide funding for loan demand and deposit run-off that may occur in the normal course of business. We rely on a number of different sources in order to meet our potential liquidity demands. The primary sources are increases in deposit accounts and cash flows from loan payments and the securities portfolio.
In addition to these primary sources of funds, management has several secondary sources available to meet potential funding requirements. As of June 30, 2018,2020, HomeTrust Bank had an additional borrowing capacity of $79.3$186.2 million with the FHLB of Atlanta, a $132.3$109.2 million line of credit with the FRB, and three lines of credit with three unaffiliated banks totaling $60.0$100.0 million. At June 30, 2018,2020, we had $635.0$475.0 million in FHLB advances outstanding. Additionally, the Company classifies its securities portfolio as available for sale, providing an additional source of liquidity. Management believes that our security portfolio is of high quality and the securities would therefore be marketable. In addition, we have historically sold fixed-rate mortgage loans in the secondary market to reduce interest rate risk and to create still another source of liquidity. From time to time we also utilize brokered time deposits to supplement our other sources of funds. Brokered time deposits are obtained by utilizing an outside broker that is paid a fee. This funding requires advance notification to structure the type of deposit desired by us. Brokered deposits can vary in term from one month to several years and have the benefit of being a source of longer-term funding. We also utilize brokered deposits to help manage interest rate risk by extending the term to repricing of our liabilities, enhance our liquidity and fund asset growth. Brokered deposits are typically from outside our primary market areas, and our brokered deposit levels may vary from time to time depending on competitive interest rate conditions and other factors. At June 30, 2018,2020, brokered deposits totaled $108.9$143.2 million or 4.96%5.1% of total deposits.
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 and federal funds. On a longer term basis, we maintain a strategy of investing in various lending products and investment securities, including mortgage-backed securities. The Company on a stand-alone level is a separate legal entity from HomeTrust
Bank and must provide for its own liquidity and pay its own operating expenses. The Company’s primary source of funds consists of the net proceeds retained by the Company from the Conversion. We also have the ability to receive dividends or capital distributions from HomeTrust Bank, although there are regulatory restrictions on the ability of HomeTrust Bank to pay dividends. At June 30, 2018,2020, the Company (on an unconsolidated basis) had liquid assets of $23.0$3.9 million.
WeAt the Bank level, we use our sources of funds primarily to meet our ongoing commitments, pay maturing deposits and fund withdrawals, and to fund loan commitments. At June 30, 2018,2020, the total approved loan commitments and unused lines of credit outstanding amounted to $259.7$199.4 million and $491.6$398.8 million, respectively, as compared to $202.1$274.9 million and $414.4$353.7 million, respectively, as of June 30, 2017.2019. Certificates of deposit scheduled to mature in one year or less at June 30, 2018,2020, totaled $385.7$598.8 million. It is management's policy to manage deposit rates that are competitive with other local financial institutions. Based on this management strategy, we believe that a majority of maturing deposits will remain with us.
During fiscal 2018,2020, cash and cash equivalents decreased $16.2increased $50.6 million, or 18.7%71.2%, from $87.0$71.0 million as of June 30, 20172019 to $70.7$121.6 million as of June 30, 2018.2020. Cash provided by operating activities of $31.3 million and financing activities of $86.4$217.6 million was partially offset by cash used in investing activities of $134.0$124.9 million and operating activities of $42.1 million. Primary sources of cash for the year ended June 30, 2020 included a $458.5 million increase in deposits, $154.9 million in loans not initially originated for sale were sold, $57.9 million in maturing securities available for sale, $14.5 million in principal repayments from MBSs, and $6.4 million in net redemptions of other investments. Primary uses of cash during the year included a $205.0 million decrease in borrowings, an increase in loans of $205.7 million, a net increase in commercial paper of $57.5 million, $77.2 million in purchases of debt securities available for sale, $3.7 million in purchases of certificates of deposit in other banks, net of maturities, $14.0 million in purchases of operating lease equipment, $4.6 million in cash dividends, and $24.5 million in common stock repurchases. All sources and uses of cash reflect our cash management strategy to increase our higher yielding investments and loans by increasing lower costing borrowings and reducing our holdings of lower yielding investments.
During fiscal 2019, cash and cash equivalents increased $297,000, or 0.4%, from $70.7 million as of June 30, 2018 to $71.0 million as of June 30, 2019. Cash provided by operating activities of $7.6 million and financing activities of $143.2 million was partially offset by cash used in investing activities of $150.5 million. Primary sources of cash for the year ended June 30, 2019 included proceeds from maturities of investment securities of $20.7$38.4 million, maturities of certificates of deposit in other banks, net of purchases, of $65.3$14.9 million, principal repayments of mortgage-backed securitiesMBS of $20.5$31.6 million, a $45.0 million increase in borrowings, and a $147.8$131.0 million increase in net deposits. Primary uses of cash during the period included an increase in portfolio loans of $168.6$173.8 million, a $3.5$34.7 million increase in fixed asset purchases,the purchase of investment securities, a decrease$16.6 million increase in borrowings of $61.5operating lease equipment and other assets, $30.6 million andin common stock repurchases, the purchase of commercial paper, net of maturities, of $75.2 million. All sources and uses of cash reflect our cash management strategy to increase our amount of higher yielding investments and loans, reducing our holdings in lower yielding investments and increasing our lower costing deposits.
During fiscal 2017, cash and cash equivalents increased $34.4 million, or 65.4%, from $52.6 million as of June 30, 2016 to $87.0 million as of June 30, 2017 primarily due to the increase in borrowings to partially fund the increase in total loans, and to provide funds for the TriSummit acquisition and our leveraging strategy. Cash provided by operating activities of $15.1$5.8 million, and financing activities of $126.0$3.2 million was partially offset byin cash used in investing activities of $106.8 million. Primary sources of cash for the year ended June 30, 2017 included proceeds from an increase in borrowings of $158.0 million, maturities and sales of investment securities of $46.4 million, maturities of commercial paper, net of purchases, of $81.0 million, maturities of certificates of deposit in other banks, net of purchases, of $29.5 million, and principal repayments of mortgage-backed securities of $23.9 million. Primary uses of cash during the period included, the purchase of securities available for sale of $15.1 million, a $34.5 million decrease in net deposits, an increase in portfolio loans of $255.9 million, a $2.8 million increase in fixed asset purchases, and $10.6 million for the TriSummit acquisition, net of cash received.dividends paid on common stock.
Contractual Obligations
The following table presents the Company's significant contractual obligations at June 30, 20182020 (in thousands):
| | | | 1 Year or Less | | Over 1 to 3 Years | | Over 3 to 5 Years | | More Than 5 Years | | Total | 1 Year or Less | | Over 1 to 3 Years | | Over 3 to 5 Years | | More Than 5 Years | | Total |
| Borrowings | $ | 435,000 |
| | $ | — |
| | $ | — |
| | $ | 200,000 |
| | $ | 635,000 |
| $ | — |
| | $ | — |
| | $ | — |
| | $ | 475,000 |
| | $ | 475,000 |
|
| Capital lease | 133 |
| | 402 |
| | 423 |
| | 1,849 |
| | 2,807 |
| 134 |
| | 268 |
| | 291 |
| | 1,848 |
| | 2,541 |
|
| Operating leases | 1,661 |
| | 2,413 |
| | 1,902 |
| | 1,543 |
| | 7,519 |
| 1,242 |
| | 2,178 |
| | 880 |
| | 676 |
| | 4,976 |
|
| Total contractual obligations | $ | 436,794 |
| | $ | 2,815 |
| | $ | 2,325 |
| | $ | 203,392 |
| | $ | 645,326 |
| $ | 1,376 |
| | $ | 2,446 |
| | $ | 1,171 |
| | $ | 477,524 |
| | $ | 482,517 |
|
Off-Balance Sheet Activities
In the normal course of operations, we engage in a variety of financial transactions that are not recorded in our financial statements. These transactions involve varying degrees of off-balance sheet credit, interest rate and liquidity risks. These transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments and lines of credit. For the year ended June 30, 2018,2020, we engaged in no off-balance sheet transactions likely to have a material effect on our financial condition, results of operations or cash flows.
A summary of our off-balance sheet commitments to extend credit at June 30, 2018,2020, is as follows (in thousands):
| | | Undisbursed portion of construction loans | | $ | 209,726 |
| | $ | 141,557 |
|
| Commitments to make loans | | 49,949 |
| | 57,798 |
|
| Unused lines of credit | | 491,649 |
| | 398,781 |
|
| Unused letters of credit | | 8,227 |
| | 7,766 |
|
| Total loan commitments | | $ | 759,551 |
| | $ | 605,902 |
|
Capital Resources
At June 30, 2018,2020, stockholders' equity totaled $409.2$408.3 million. Management monitors the capital levels of the Company to provide for current and future business opportunities and to ensure HomeTrust Bank meets regulatory guidelines for “well-capitalized” institutions.
HomeTrust Bancshares, Inc. is a bank holding company and a financial holding company subject to regulation by the Board of Governors of the Federal Reserve System (“Federal Reserve”).Reserve. As a bank holding company, we are subject to capital adequacy requirements of the Federal Reserve
under the Bank Holding Company ActBHCA and the regulations of the Federal Reserve. Our subsidiary, the Bank, an FDIC-insured, North Carolina state-chartered bank and a member of the Federal Reserve System, is supervised and regulated by the Federal Reserve and the North Carolina Office of the Commissioner of BanksNCCOB and is subject to minimum capital requirements applicable to state member banks established by the Federal Reserve that are calculated in the same manner toas those applicable to bank holding companies.
HomeTrust Bancshares, Inc. and the Bank are required to maintain specified levels of regulatory capital under federal banking regulations. The capital adequacy requirements are quantitative measures established by regulation that require HomeTrust Bancshares, Inc. and the Bank to maintain minimum amounts and ratios of capital. HomeTrust Bancshares, Inc.’s and the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by bank regulators that, if undertaken, could have a direct material effect on the Company's financial statements. At June 30, 2018,2020, HomeTrust Bancshares, Inc. and the Bank each exceeded all regulatory capital requirements.
Consistent with our goals to operate a sound and profitable organization, our policy is for the Bank to maintain a “well-capitalized” status under the regulatory capital categories of the Federal Reserve. As of June 30, 2018,2020, the Bank was considered "well capitalized" in accordance with its regulatory capital guidelines and exceeded all regulatory capital requirements with Common Equity Tier 1, Tier 1 Risk-Based, Total Risk-Based, and Tier 1 Leverage capital ratios of 11.70%10.91%, 11.70%10.91%, 12.45%11.77%, and 10.33%9.94%, respectively. As of June 30, 2017,2019, Common Equity Tier 1, Tier 1 Risk-Based, Total Risk-Based, and Tier 1 Leverage capital ratios were 11.68%11.59%, 11.68%11.59%, 12.50%12.30%, and 9.97%10.34%, respectively.
As of June 30, 2018,2020, HomeTrust Bancshares, Inc. exceeded all regulatory capital requirements with Common Equity Tier 1, Tier 1 Risk-Based, Total Risk-Based, and Tier 1 Leverage capital ratios of 12.97%11.26%, 12.97%11.26%, 13.72%12.12%, and 11.45%10.26%, respectively. As of June 30, 2017,2019, Common Equity Tier 1, Tier 1 Risk-Based, Total Risk-Based, and Tier 1 Leverage capital ratios were 13.07%12.20%, 13.07%12.20%, 13.89%12.91%, and 11.13%10.89%, respectively.
See Item 1, “Business-How We are Regulated,” and Note 1819 of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K for additional details on the Company's capital requirements.
Impact of Inflation
The Consolidated Financial Statements and related financial data presented herein have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles generally require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation.
Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. The primary impact of inflation is reflected in the increased cost of our operations. As a result, interest rates generally have a more significant impact on a financial institution’s performance than do general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services. In a period of rapidly rising interest rates, the liquidity and maturity structures of our assets and liabilities are critical to the maintenance of acceptable performance levels.
The principal effect of inflation on earnings, as distinct from levels of interest rates, is in the area of noninterest expense. Expense items such as employee compensation, employee benefits, and occupancy and equipment costs may be subject to increases as a result of inflation. An additional effect of inflation is the possible increase in dollar value of the collateral securing loans that we have made. Our management is unable to determine the extent, if any, to which properties securing loans have appreciated in dollar value due to inflation.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, see Note 1 of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K for additional details on the Company's capital requirements.10-K.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of loss from adverse changes in market prices and rates. Our market risk arises principally from interest rate risk inherent in our lending, investing, deposit and borrowings activities. Management actively monitors and manages its interest rate risk exposure. In addition to other risks that we manage in the normal course of business, such as credit quality and liquidity, management considers interest rate risk to be a significant market risk that could have a potentially material effect on our financial condition and result of operations. The information contained in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Asset Liability Management” in this Form 10-K is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
| |
| | Page |
| Report of Independent Registered Public Accounting Firm | |
| Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting |
|
Consolidated Balance Sheets, June 30, 20182020 and 20172019 | |
Consolidated Statements of Income for the Years Ended June 30, 2018, 20172020, 2019 and 20162018 | |
Consolidated Statements of Comprehensive Income for the Years Ended June 30, 2018, 20172020, 2019 and 20162018 | |
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended June 30, 2018, 20172020, 2019 and 20162018 | |
Consolidated Statements of Cash Flows for the Years Ended June 30, 2018, 20172020, 2019 and 20162018 | |
Notes to Consolidated Financial Statements for the Years Ended June 30, 2018, 20172020, 2019 and 20162018 | |
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors
HomeTrust Bancshares, Inc. and Subsidiary
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of HomeTrust Bancshares, Inc. and Subsidiary (the “Company”"Company") as of June 30, 20182020 and 2017,2019, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for each of the three years in the three-year period ended June 30, 2018,2020, and the related notes (collectively referred to as the “consolidated"consolidated financial statements”statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 20182020 and 2017,2019, and the result of their operations and their cash flows for each of the three years in the period ended June 30, 2018,2020, in conformity with U.S. generally accepted accounting principles.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”)(PCAOB), the Company’s internal control over financial reporting as of June 30, 2018,2020, based on criteria established in Internal Control- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated September 13, 201811, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements 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 the U.S. federal securities laws and the 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 audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the 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. We believe that our audits provide a reasonable basis for our opinion.
/s/ DIXON HUGHES GOODMAN LLP
We have served as the Company's auditor since 2005.
Asheville, North Carolina
September 13, 201811, 2020
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors
HomeTrust Bancshares, Inc. and Subsidiary
Opinion on Internal Control Over Financial Reporting
We have audited HomeTrust Bancshares, Inc. and Subsidiary (the “Company”)’s internal control over financial reporting as of June 30, 2018,2020, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, HomeTrust Bancshares, Inc. and Subsidiary maintained, in all material respects, effective internal control over financial reporting as of June 30, 2018,2020, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of HomeTrust Bancshares, Inc. and Subsidiary as of June 30, 20182020 and 2017, 2019, and for each of the years in the three years ended June 30, 2018,2020, and our report dated September 13, 2018,11, 2020, expressed an unqualified opinion on those consolidated financial
statements.
Basis for Opinion
The Company's management is responsible 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 management’s report on internal control over financial reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
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 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 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 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.
/s/ DIXON HUGHES GOODMAN LLP
Asheville, North Carolina
September 13, 201811, 2020
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(Dollars in thousands, except per share data)
| | | | June 30, | June 30, |
| | 2018 | | 2017 | 2020 | | 2019 |
| Assets | | | | | | |
| Cash | $ | 45,222 |
| | $ | 41,982 |
| $ | 31,908 |
| | $ | 40,909 |
|
| Interest-bearing deposits | 25,524 |
| | 45,003 |
| 89,714 |
| | 30,134 |
|
| Cash and cash equivalents | 70,746 |
| | 86,985 |
| 121,622 |
| | 71,043 |
|
| Commercial paper | 229,070 |
| | 149,863 |
| 304,967 |
| | 241,446 |
|
| Certificates of deposit in other banks | 66,937 |
| | 132,274 |
| 55,689 |
| | 52,005 |
|
| Securities available for sale, at fair value | 154,993 |
| | 199,667 |
| 127,537 |
| | 121,786 |
|
| Other investments, at cost | 37,214 |
| | 39,355 |
| 38,946 |
| | 45,378 |
|
| Loans held for sale | 5,873 |
| | 5,607 |
| 77,177 |
| | 18,175 |
|
| Total loans, net of deferred loan fees | 2,525,852 |
| | 2,351,470 |
| |
| Total loans, net of deferred loan costs | | 2,769,119 |
| | 2,705,190 |
|
| Allowance for loan losses | (21,060 | ) | | (21,151 | ) | (28,072 | ) | | (21,429 | ) |
| Net loans | 2,504,792 |
| | 2,330,319 |
| 2,741,047 |
| | 2,683,761 |
|
| Premises and equipment, net | 62,537 |
| | 63,648 |
| 58,462 |
| | 61,051 |
|
| Accrued interest receivable | 9,344 |
| | 8,758 |
| 12,312 |
| | 10,533 |
|
| Real estate owned (REO) | 3,684 |
| | 6,318 |
| 337 |
| | 2,929 |
|
| Deferred income taxes | 32,565 |
| | 57,387 |
| 16,334 |
| | 26,523 |
|
| Bank owned life insurance (BOLI) | 88,028 |
| | 85,981 |
| 92,187 |
| | 90,254 |
|
| Goodwill | 25,638 |
| | 25,638 |
| 25,638 |
| | 25,638 |
|
| Core deposit intangibles | 4,528 |
| | 7,173 |
| 1,078 |
| | 2,499 |
|
| Other assets | 8,220 |
| | 7,560 |
| 49,519 |
| | 23,157 |
|
| Total Assets | $ | 3,304,169 |
| | $ | 3,206,533 |
| $ | 3,722,852 |
| | $ | 3,476,178 |
|
| Liabilities and Stockholders’ Equity | |
| | |
| |
| | |
|
| Liabilities | |
| | |
| |
| | |
|
| Deposits | $ | 2,196,253 |
| | $ | 2,048,451 |
| $ | 2,785,756 |
| | $ | 2,327,257 |
|
| Borrowings | 635,000 |
| | 696,500 |
| 475,000 |
| | 680,000 |
|
| Capital lease obligations | 1,914 |
| | 1,937 |
| |
| Other liabilities | 61,760 |
| | 61,998 |
| 53,833 |
| | 60,025 |
|
| Total liabilities | 2,894,927 |
| | 2,808,886 |
| 3,314,589 |
| | 3,067,282 |
|
| Stockholders’ Equity | |
| | |
| |
| | |
|
| Preferred stock, $0.01 par value, 10,000,000 shares authorized, none issued or outstanding | — |
| | — |
| — |
| | — |
|
| Common stock, $0.01 par value, 60,000,000 shares authorized, 19,041,668, shares issued and outstanding at June 30, 2018; 18,967,875 at June 30, 2017 | 191 |
| | 190 |
| |
| Common stock, $0.01 par value, 60,000,000 shares authorized, 17,021,357 shares issued and outstanding at June 30, 2020; 17,984,105 at June 30, 2019 | | 170 |
| | 180 |
|
| Additional paid in capital | 217,480 |
| | 213,459 |
| 169,648 |
| | 190,315 |
|
| Retained earnings | 200,575 |
| | 191,660 |
| 242,776 |
| | 224,545 |
|
| Unearned Employee Stock Ownership Plan (ESOP) shares | (7,406 | ) | | (7,935 | ) | (6,348 | ) | | (6,877 | ) |
| Accumulated other comprehensive income (loss) | (1,598 | ) | | 273 |
| |
| Accumulated other comprehensive income | | 2,017 |
| | 733 |
|
| Total stockholders’ equity | 409,242 |
| | 397,647 |
| 408,263 |
| | 408,896 |
|
| Total Liabilities and Stockholders’ Equity | $ | 3,304,169 |
| | $ | 3,206,533 |
| $ | 3,722,852 |
| | $ | 3,476,178 |
|
The accompanying notes are an integral part of these consolidated financial statements.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Income
(Dollars in thousands, except per share data)
| | | | June 30, | June 30, |
| | 2018 | | 2017 | | 2016 | 2020 | | 2019 | | 2018 |
| Interest and Dividend Income | | | | | | | | | | |
| Loans | $ | 105,082 |
| | $ | 90,069 |
| | $ | 78,437 |
| $ | 122,174 |
| | $ | 121,903 |
| | $ | 105,082 |
|
| Commercial paper and interest-bearing deposits | | 7,699 |
| | 8,278 |
| | 5,939 |
|
| Securities available for sale | 3,668 |
| | 3,983 |
| | 4,161 |
| 3,687 |
| | 3,443 |
| | 3,668 |
|
| Certificates of deposit and other interest-bearing deposits | 5,939 |
| | 3,725 |
| | 3,686 |
| |
| Other investments | 2,013 |
| | 1,659 |
| | 1,463 |
| 2,694 |
| | 3,590 |
| | 2,713 |
|
| Total interest and dividend income | 116,702 |
| | 99,436 |
| | 87,747 |
| 136,254 |
| | 137,214 |
| | 117,402 |
|
| Interest Expense | |
| | |
| | |
| |
| | |
| | |
|
| Deposits | 6,758 |
| | 4,588 |
| | 4,531 |
| 22,837 |
| | 15,757 |
| | 6,758 |
|
| Borrowings | 9,314 |
| | 3,657 |
| | 1,509 |
| 9,313 |
| | 14,626 |
| | 9,314 |
|
| Total interest expense | 16,072 |
| | 8,245 |
| | 6,040 |
| 32,150 |
| | 30,383 |
| | 16,072 |
|
| Net Interest Income | 100,630 |
| | 91,191 |
| | 81,707 |
| 104,104 |
| | 106,831 |
| | 101,330 |
|
| Provision for Loan Losses | — |
| | — |
| | — |
| 8,500 |
| | 5,700 |
| | — |
|
| Net Interest Income after Provision for Loan Losses | 100,630 |
| | 91,191 |
| | 81,707 |
| 95,604 |
| | 101,131 |
| | 101,330 |
|
| Noninterest Income | |
| | |
| | |
| |
| | |
| | |
|
| Service charges and fees on deposit accounts | 8,802 |
| | 7,709 |
| | 7,469 |
| 9,382 |
| | 9,611 |
| | 8,802 |
|
| Loan income and fees | 5,452 |
| | 3,645 |
| | 3,069 |
| 2,494 |
| | 1,422 |
| | 1,176 |
|
| Gain on sale of loans held for sale | | 9,946 |
| | 6,218 |
| | 4,276 |
|
| BOLI income | 2,117 |
| | 2,088 |
| | 1,643 |
| 2,246 |
| | 2,103 |
| | 2,117 |
|
| Gain from sale of premises and equipment | 164 |
| | 385 |
| | 10 |
| — |
| | — |
| | 164 |
|
| Gain from sales of securities available for sale | — |
| | 22 |
| | — |
| |
| Other, net | 3,137 |
| | 2,258 |
| | 2,101 |
| 6,264 |
| | 3,586 |
| | 2,437 |
|
| Total noninterest income | 19,672 |
| | 16,107 |
| | 14,291 |
| 30,332 |
| | 22,940 |
| | 18,972 |
|
| Noninterest Expense | |
| | |
| | |
| |
| | |
| | |
|
| Salaries and employee benefits | 48,170 |
| | 46,446 |
| | 42,491 |
| 56,709 |
| | 52,291 |
| | 48,170 |
|
| Net occupancy expense | 9,689 |
| | 9,121 |
| | 9,106 |
| 9,228 |
| | 9,454 |
| | 9,689 |
|
| Computer services | | 8,153 |
| | 7,664 |
| | 6,440 |
|
| Telephone, postage, and supplies | | 3,275 |
| | 3,040 |
| | 2,958 |
|
| Marketing and advertising | 1,478 |
| | 1,670 |
| | 2,037 |
| 1,872 |
| | 1,853 |
| | 1,478 |
|
| Telephone, postage, and supplies | 2,958 |
| | 2,732 |
| | 3,153 |
| |
| Deposit insurance premiums | 1,619 |
| | 1,378 |
| | 1,985 |
| 900 |
| | 1,426 |
| | 1,619 |
|
| Computer services | 6,440 |
| | 6,650 |
| | 5,813 |
| |
| Loss on sale and impairment of REO | 127 |
| | 300 |
| | 534 |
| 536 |
| | 439 |
| | 127 |
|
| REO expense | 1,065 |
| | 1,114 |
| | 1,265 |
| 939 |
| | 874 |
| | 1,065 |
|
| Core deposit intangible amortization | 2,645 |
| | 2,823 |
| | 2,907 |
| 1,421 |
| | 2,029 |
| | 2,645 |
|
| Merger-related expenses | — |
| | 7,805 |
| | — |
| |
| Impairment charges for branch consolidation | — |
| | — |
| | 400 |
| |
| Other | 11,140 |
| | 10,220 |
| | 9,950 |
| 14,096 |
| | 11,064 |
| | 11,140 |
|
| Total noninterest expense | 85,331 |
| | 90,259 |
| | 79,641 |
| 97,129 |
| | 90,134 |
| | 85,331 |
|
| Income Before Income Taxes | 34,971 |
| | 17,039 |
| | 16,357 |
| 28,807 |
| | 33,937 |
| | 34,971 |
|
| Income Tax Expense | 26,736 |
| | 5,192 |
| | 4,901 |
| 6,024 |
| | 6,791 |
| | 26,736 |
|
| Net Income | $ | 8,235 |
| | $ | 11,847 |
| | $ | 11,456 |
| $ | 22,783 |
| | $ | 27,146 |
| | $ | 8,235 |
|
| Per Share Data: | |
| | |
| | |
| |
| | |
| | |
|
| Net income per common share: | |
| | |
| | |
| |
| | |
| | |
|
| Basic | $ | 0.45 |
| | $ | 0.66 |
| | $ | 0.65 |
| $ | 1.34 |
| | $ | 1.52 |
| | $ | 0.45 |
|
| Diluted | $ | 0.44 |
| | $ | 0.65 |
| | $ | 0.65 |
| $ | 1.30 |
| | $ | 1.46 |
| | $ | 0.44 |
|
| Average shares outstanding: | |
| | |
| | |
| |
| | |
| | |
|
| Basic | 18,028,854 |
| | 17,379,487 |
| | 17,417,046 |
| 16,729,056 |
| | 17,692,493 |
| | 18,028,854 |
|
| Diluted | 18,726,431 |
| | 17,956,443 |
| | 17,606,689 |
| 17,292,239 |
| | 18,393,184 |
| | 18,726,431 |
|
The accompanying notes are an integral part of these consolidated financial statements.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
(Dollars in thousands)
| | | | June 30, | June 30, |
| | 2018 | | 2017 | | 2016 | 2020 | | 2019 | | 2018 |
| Net Income | $ | 8,235 |
| | $ | 11,847 |
| | $ | 11,456 |
| $ | 22,783 |
| | $ | 27,146 |
| | $ | 8,235 |
|
| Other Comprehensive Income (Loss) | |
| | |
| | |
| |
| | |
| | |
|
| Unrealized holding gains (losses) on securities available for sale | |
| | |
| | |
| |
| | |
| | |
|
| Gains (losses) arising during the period | $ | (2,489 | ) | | $ | (3,113 | ) | | $ | 2,233 |
| $ | 1,667 |
| | $ | 3,027 |
| | $ | (2,489 | ) |
| Deferred income tax benefit (expense) | 618 |
| | 1,058 |
| | (760 | ) | (383 | ) | | (696 | ) | | 618 |
|
| Reclassification of securities gains recognized in net income | — |
| | (22 | ) | | — |
| |
| Deferred income tax expense | — |
| | 7 |
| | — |
| |
| Total other comprehensive income (loss) | $ | (1,871 | ) | | $ | (2,070 | ) | | $ | 1,473 |
| $ | 1,284 |
| | $ | 2,331 |
| | $ | (1,871 | ) |
| Comprehensive Income | $ | 6,364 |
| | $ | 9,777 |
| | $ | 12,929 |
| $ | 24,067 |
| | $ | 29,477 |
| | $ | 6,364 |
|
The accompanying notes are an integral part of these consolidated financial statements.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders’ Equity
(Dollars in thousands)
| | | | Common Stock | | Additional Paid In Capital | | Retained Earnings | | Unearned ESOP Shares | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders’ Equity | Common Stock | | Additional Paid In Capital | | Retained Earnings | | Unearned ESOP Shares | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders’ Equity |
| | Shares | | Amount | | Shares | | Amount | |
| Balance at June 30, 2015 | 19,488,449 |
| | $ | 195 |
| | $ | 210,621 |
| | $ | 168,357 |
| | $ | (8,993 | ) | | $ | 870 |
| | $ | 371,050 |
| |
| Net income | — |
| | — |
| | — |
| | 11,456 |
| | — |
| | — |
| | 11,456 |
| |
| Stock repurchased | (1,510,994 | ) | | (15 | ) | | (27,719 | ) | | — |
| | — |
| | — |
| | (27,734 | ) | |
| Granted restricted stock | 34,500 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
| Forfeited restricted stock | (2,550 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
| Retired stock | (12,855 | ) | | — |
| | (223 | ) | | — |
| | — |
| | — |
| | (223 | ) | |
| Exercised stock options | 2,200 |
| | — |
| | 32 |
| | — |
| | — |
| | — |
| | 32 |
| |
| Stock option expense | — |
| | — |
| | 1,512 |
| | — |
| | — |
| | — |
| | 1,512 |
| |
| Restricted stock expense | — |
| | — |
| | 1,427 |
| | — |
| | — |
| | — |
| | 1,427 |
| |
| ESOP shares allocated | — |
| | — |
| | 454 |
| | — |
| | 529 |
| | — |
| | 983 |
| |
| Other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | 1,473 |
| | 1,473 |
| |
| Balance at June 30, 2016 | 17,998,750 |
| | $ | 180 |
| | $ | 186,104 |
| | $ | 179,813 |
| | $ | (8,464 | ) | | $ | 2,343 |
| | $ | 359,976 |
| |
| Net income | — |
| | — |
| | — |
| | 11,847 |
| | — |
| | — |
| | 11,847 |
| |
| Granted restricted stock | 47,500 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
| Forfeited restricted stock | (6,000 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
| Retired stock | (22,794 | ) | | | | (569 | ) | | | | | | | | (569 | ) | |
| Exercised stock options | 185,142 |
| | 3 |
| | 3,065 |
| | — |
| | — |
| | — |
| | 3,068 |
| |
| Shares issued for TriSummit Bancorp, Inc. merger | 765,277 |
| | 7 |
| | 20,036 |
| | — |
| | — |
| | — |
| | 20,043 |
| |
| Stock option expense | — |
| | — |
| | 2,627 |
| | — |
| | — |
| | — |
| | 2,627 |
| |
| Restricted stock expense | — |
| | — |
| | 1,539 |
| | — |
| | — |
| | — |
| | 1,539 |
| |
| ESOP shares allocated | — |
| | — |
| | 657 |
| | — |
| | 529 |
| | — |
| | 1,186 |
| |
| Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | — |
| | (2,070 | ) | | (2,070 | ) | |
| Balance at June 30, 2017 | 18,967,875 |
| | $ | 190 |
| | $ | 213,459 |
| | $ | 191,660 |
| | $ | (7,935 | ) | | $ | 273 |
| | $ | 397,647 |
| 18,967,875 |
| | $ | 190 |
| | $ | 213,459 |
| | $ | 191,660 |
| | $ | (7,935 | ) | | $ | 273 |
| | $ | 397,647 |
|
| Net income | — |
| | — |
| | — |
| | 8,235 |
| | — |
| | — |
| | 8,235 |
| — |
| | — |
| | — |
| | 8,235 |
| | — |
| | — |
| | 8,235 |
|
| Cumulative-effect adjustment on the change in accounting for share-based payments | — |
| | — |
| | — |
| | 680 |
| | — |
| | — |
| | 680 |
| — |
| | — |
| | — |
| | 680 |
| | — |
| | — |
| | 680 |
|
| Granted restricted stock | 55,200 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| 55,200 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Forfeited restricted stock | (6,600 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| (6,600 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Retired stock | (19,007 | ) | | — |
| | (494 | ) | | — |
| | — |
| | — |
| | (494 | ) | (19,007 | ) | | — |
| | (494 | ) | | — |
| | — |
| | — |
| | (494 | ) |
| Exercised stock options | 44,200 |
| | 1 |
| | 650 |
| | — |
| | — |
| | — |
| | 651 |
| 44,200 |
| | 1 |
| | 650 |
| | — |
| | — |
| | — |
| | 651 |
|
| Stock option expense | — |
| | — |
| | 1,758 |
| | — |
| | — |
| | — |
| | 1,758 |
| — |
| | — |
| | 1,758 |
| | — |
| | — |
| | — |
| | 1,758 |
|
| Restricted stock expense | — |
| | — |
| | 1,269 |
| | — |
| | — |
| | — |
| | 1,269 |
| — |
| | — |
| | 1,269 |
| | — |
| | — |
| | — |
| | 1,269 |
|
| ESOP shares allocated | — |
| | — |
| | 838 |
| | — |
| | 529 |
| | — |
| | 1,367 |
| — |
| | — |
| | 838 |
| | — |
| | 529 |
| | — |
| | 1,367 |
|
| Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | — |
| | (1,871 | ) | | (1,871 | ) | — |
| | — |
| | — |
| | — |
| | — |
| | (1,871 | ) | | (1,871 | ) |
| Balance at June 30, 2018 | 19,041,668 |
| | $ | 191 |
| | $ | 217,480 |
| | $ | 200,575 |
| | $ | (7,406 | ) | | $ | (1,598 | ) | | $ | 409,242 |
| 19,041,668 |
| | $ | 191 |
| | $ | 217,480 |
| | $ | 200,575 |
| | $ | (7,406 | ) | | $ | (1,598 | ) | | $ | 409,242 |
|
| Net income | | — |
| | — |
| | — |
| | 27,146 |
| | — |
| | — |
| | 27,146 |
|
| Cash dividends declared on common stock, $0.18/common share | | — |
| | — |
| | — |
| | (3,176 | ) | | — |
| | — |
| | (3,176 | ) |
| Stock repurchased | | (1,149,785 | ) | | (11 | ) | | (30,627 | ) | | — |
| | — |
| | — |
| | (30,638 | ) |
| Granted restricted stock | | 23,625 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Forfeited restricted stock | | (4,300 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Retired stock | | (7,414 | ) | | | | (205 | ) | | | | | | | | (205 | ) |
| Exercised stock options | | 80,311 |
| | — |
| | 1,173 |
| | — |
| | — |
| | — |
| | 1,173 |
|
| Stock option expense | | — |
| | — |
| | 736 |
| | — |
| | — |
| | — |
| | 736 |
|
| Restricted stock expense | | — |
| | — |
| | 865 |
| | — |
| | — |
| | — |
| | 865 |
|
| ESOP shares allocated | | — |
| | — |
| | 893 |
| | — |
| | 529 |
| | — |
| | 1,422 |
|
| Other comprehensive income | | — |
| | — |
| | — |
| | — |
| | — |
| | 2,331 |
| | 2,331 |
|
| Balance at June 30, 2019 | | 17,984,105 |
| | $ | 180 |
| | $ | 190,315 |
| | $ | 224,545 |
| | $ | (6,877 | ) | | $ | 733 |
| | $ | 408,896 |
|
| Net income | | — |
| | — |
| | — |
| | 22,783 |
| | — |
| | — |
| | 22,783 |
|
| Cash dividends declared on common stock, $0.27/common share | | — |
| | — |
| | — |
| | (4,552 | ) | | — |
| | — |
| | (4,552 | ) |
| Stock repurchased | | (1,114,094 | ) | | (12 | ) | | (24,472 | ) | | — |
| | — |
| | — |
| | (24,484 | ) |
| Granted restricted stock | | 56,306 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Forfeited restricted stock | | (3,400 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Retired stock | | (8,474 | ) | | — |
| | (222 | ) | | — |
| | — |
| | — |
| | (222 | ) |
| Exercised stock options | | 106,914 |
| | 2 |
| | 1,539 |
| | — |
| | — |
| | — |
| | 1,541 |
|
| Stock option expense | | — |
| | — |
| | 717 |
| | — |
| | — |
| | — |
| | 717 |
|
| Restricted stock expense | | — |
| | — |
| | 1,105 |
| | — |
| | — |
| | — |
| | 1,105 |
|
| ESOP shares allocated | | — |
| | — |
| | 666 |
| | — |
| | 529 |
| | — |
| | 1,195 |
|
| Other comprehensive income | | — |
| | — |
| | — |
| | — |
| | — |
| | 1,284 |
| | 1,284 |
|
| Balance at June 30, 2020 | | 17,021,357 |
| | $ | 170 |
| | $ | 169,648 |
| | $ | 242,776 |
| | $ | (6,348 | ) | | $ | 2,017 |
| | $ | 408,263 |
|
The accompanying notes are an integral part of these consolidated financial statements.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Dollars in thousands)
| | | | | | | | | | | | | |
| | June 30, | June 30, |
| | 2018 | | 2017 | | 2016 | 2020 | | 2019 | | 2018 |
| Operating Activities: | | | | | | | | | | |
| Net income | $ | 8,235 |
| | $ | 11,847 |
| | $ | 11,456 |
| $ | 22,783 |
| | $ | 27,146 |
| | $ | 8,235 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| | |
| |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | | |
| | |
|
| Provision for loan losses | | 8,500 |
| | 5,700 |
| | — |
|
| Depreciation | 3,810 |
| | 3,816 |
| | 4,035 |
| 5,856 |
| | 4,243 |
| | 3,810 |
|
| Deferred income tax expense | 26,121 |
| | 4,947 |
| | 4,581 |
| 5,196 |
| | 5,346 |
| | 26,121 |
|
| Net amortization and accretion | (5,950 | ) | | (6,658 | ) | | (3,986 | ) | (5,352 | ) | | (6,828 | ) | | (5,950 | ) |
| Gain on sale of premises and equipment | (164 | ) | | (385 | ) | | (10 | ) | — |
| | — |
| | (164 | ) |
| Loss on sale and impairment of REO | 127 |
| | 300 |
| | 534 |
| 536 |
| | 439 |
| | 127 |
|
| BOLI income | (2,117 | ) | | (2,088 | ) | | (1,643 | ) | (2,246 | ) | | (2,103 | ) | | (2,117 | ) |
| Gain from sales of securities available for sale | — |
| | (22 | ) | | — |
| |
| Gain on sale of loans held for sale | (4,276 | ) | | (2,674 | ) | | (1,643 | ) | (9,946 | ) | | (6,218 | ) | | (4,276 | ) |
| Origination of loans held for sale | (143,755 | ) | | (134,258 | ) | | (91,963 | ) | (377,741 | ) | | (190,870 | ) | | (143,755 | ) |
| Proceeds from sales of loans held for sale | 143,350 |
| | 137,108 |
| | 93,697 |
| 313,967 |
| | 174,973 |
| | 143,350 |
|
| Increase (decrease) in deferred loan fees, net | 181 |
| | (1,317 | ) | | (349 | ) | (187 | ) | | (768 | ) | | 181 |
|
| Decrease (increase) in accrued interest receivable and other assets | (1,246 | ) | | (2,727 | ) | | 8,295 |
| |
| Increase in accrued interest receivable and other assets | | (4,584 | ) | | (4,835 | ) | | (1,246 | ) |
| Core deposit intangible amortization | 2,645 |
| | 2,823 |
| | 2,907 |
| 1,421 |
| | 2,029 |
| | 2,645 |
|
| ESOP compensation expense | 1,367 |
| | 1,186 |
| | 983 |
| 1,195 |
| | 1,422 |
| | 1,367 |
|
| Restricted stock and stock option expense | 3,027 |
| | 4,166 |
| | 2,939 |
| 1,822 |
| | 1,601 |
| | 3,027 |
|
| Increase in other liabilities | (13 | ) | | (949 | ) | | (912 | ) | (3,280 | ) | | (3,649 | ) | | (36 | ) |
| Net cash provided by operating activities | 31,342 |
| | 15,115 |
| | 28,921 |
| |
| Net cash provided by (used in) operating activities | | (42,060 | ) | | 7,628 |
| | 31,319 |
|
| Investing Activities: | |
| | |
| | |
| |
| | |
| | |
|
| Purchase of securities available for sale | — |
| | (15,082 | ) | | (66,000 | ) | (77,228 | ) | | (34,675 | ) | | — |
|
| Proceeds from sales of securities available for sale | — |
| | 19,279 |
| | — |
| |
| Proceeds from maturities of securities available for sale | 20,675 |
| | 27,145 |
| | 100,836 |
| 57,894 |
| | 38,430 |
| | 20,675 |
|
| Maturities (purchase) of commercial paper, net | (75,202 | ) | | 81,821 |
| | 28,004 |
| |
| Purchase of commercial paper, net | | (57,535 | ) | | (5,824 | ) | | (75,202 | ) |
| Purchase of certificates of deposit in other banks | (17,201 | ) | | (41,988 | ) | | (49,638 | ) | (32,949 | ) | | (18,154 | ) | | (17,201 | ) |
| Maturities of certificates of deposit in other banks | 82,538 |
| | 71,476 |
| | 98,755 |
| 29,265 |
| | 33,086 |
| | 82,538 |
|
| Principal repayments of mortgage-backed securities | 20,471 |
| | 23,919 |
| | 24,165 |
| 14,512 |
| | 31,627 |
| | 20,471 |
|
| Net redemptions (purchases) of other investments | 2,141 |
| | (7,255 | ) | | (775 | ) | 6,432 |
| | (3,447 | ) | | 2,141 |
|
| Proceeds from sale of loans not originated for sale | | 154,870 |
| | — |
| | — |
|
| Net increase in loans | (168,602 | ) | | (255,853 | ) | | (147,586 | ) | (205,693 | ) | | (173,754 | ) | | (168,602 | ) |
| Purchase of BOLI | (76 | ) | | (273 | ) | | (4,481 | ) | (164 | ) | | (137 | ) | | (76 | ) |
| Proceeds from redemption of BOLI | 146 |
| | — |
| | 3,620 |
| 477 |
| | 14 |
| | 146 |
|
| Purchase of equipment for operating leases and other assets | | (13,993 | ) | | (16,578 | ) | | — |
|
| Purchase of premises and equipment | (3,458 | ) | | (2,821 | ) | | (801 | ) | (2,925 | ) | | (2,124 | ) | | (3,458 | ) |
| Proceeds from sale of premises and equipment | 923 |
| | 395 |
| | 69 |
| — |
| | — |
| | 923 |
|
| Capital improvements to REO | (30 | ) | | (11 | ) | | (99 | ) | — |
| | — |
| | (30 | ) |
| Proceeds from sale of REO | 3,883 |
| | 3,277 |
| | 2,822 |
| 2,102 |
| | 1,047 |
| | 3,883 |
|
| Acquisition of United Financial of North Carolina, Inc. | (225 | ) | | (200 | ) | | — |
| — |
| | — |
| | (225 | ) |
| Acquisition of TriSummit Bancorp, Inc., net of cash received | — |
| | (10,585 | ) | | — |
| |
| Net cash used in investing activities | (134,017 | ) | | (106,756 | ) | | (11,109 | ) | (124,935 | ) | | (150,489 | ) | | (134,017 | ) |
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows (continued)
(Dollars in thousands)
| | | | | | | | | | | | | |
| | June 30, | June 30, |
| | 2018 | | 2017 | | 2016 | 2020 | | 2019 | | 2018 |
| Financing Activities: | |
| | |
| | |
| |
| | |
| | |
|
| Net increase (decrease) in deposits | 147,802 |
| | (34,479 | ) | | (69,430 | ) | |
| Net increase in deposits | | 450,291 |
| | 131,004 |
| | 147,802 |
|
| Net increase (decrease) in borrowings | (61,500 | ) | | 158,031 |
| | 16,000 |
| (205,000 | ) | | 45,000 |
| | (61,500 | ) |
| Common stock repurchased | — |
| | — |
| | (27,734 | ) | (24,484 | ) | | (30,638 | ) | | — |
|
| Cash dividends paid | | (4,552 | ) | | (3,176 | ) | | — |
|
| Retired stock | (494 | ) | | (569 | ) | | (223 | ) | (222 | ) | | (205 | ) | | (494 | ) |
| Stock options exercised | 651 |
| | 3,068 |
| | 32 |
| |
| Decrease in capital lease obligations | (23 | ) | | (21 | ) | | (21 | ) | |
| Net cash provided by (used in) financing activities | 86,436 |
| | 126,030 |
| | (81,376 | ) | |
| Exercised stock options | | 1,541 |
| | 1,173 |
| | 651 |
|
| Net cash provided by financing activities | | 217,574 |
| | 143,158 |
| | 86,459 |
|
| Net Increase (Decrease) in Cash and Cash Equivalents | (16,239 | ) | | 34,389 |
| | (63,564 | ) | 50,579 |
| | 297 |
| | (16,239 | ) |
| Cash and Cash Equivalents at Beginning of Period | 86,985 |
| | 52,596 |
| | 116,160 |
| 71,043 |
| | 70,746 |
| | 86,985 |
|
| Cash and Cash Equivalents at End of Period | $ | 70,746 |
| | $ | 86,985 |
| | $ | 52,596 |
| $ | 121,622 |
| | $ | 71,043 |
| | $ | 70,746 |
|
| | | | June 30, | June 30, |
| | 2018 | | 2017 | | 2016 | 2020 | | 2019 | | 2018 |
| Supplemental Disclosures: | | | | | | | | | | |
| Cash paid during the period for: | | | | | | | | | | |
| Interest | $ | 15,716 |
| | $ | 7,980 |
| | $ | 6,468 |
| $ | 33,315 |
| | $ | 28,997 |
| | $ | 15,716 |
|
| Income taxes | 887 |
| | 383 |
| | 428 |
| 1,686 |
| | 1,549 |
| | 887 |
|
| Noncash transactions: | |
| | |
| | |
| |
| | |
| | |
|
| Unrealized gain (loss) in value of securities available for sale, net of income taxes | (1,871 | ) | | (2,070 | ) | | 1,473 |
| 1,284 |
| | 2,331 |
| | (1,871 | ) |
| Transfers of loans to REO | 1,346 |
| | 2,417 |
| | 2,189 |
| 46 |
| | 731 |
| | 1,346 |
|
| Transfers of loans held for sale to loans held for investment | 4,415 |
| | — |
| | — |
| |
| Business Combinations: | |
| | |
| | |
| |
| Assets acquired | — |
| | 364,504 |
| | — |
| |
| Liabilities assumed | — |
| | 328,378 |
| | — |
| |
| Net assets acquired | — |
| | 36,126 |
| | — |
| |
| Transfers from loans held for sale to total loans held for investment | | 98,288 |
| | — |
| | — |
|
| Transfers of loans to held for sale from loans held for investment | | 240,453 |
| | 5,794 |
| | — |
|
| New ROU asset and lease liabilities from adoption of new lease accounting standard | | 5,296 |
| | — |
| | — |
|
| Transfer of land from property & equipment to other assets for new finance lease accounting | | 2,052 |
| | — |
| | — |
|
The accompanying notes are an integral part of these consolidated financial statements.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
1. Summary of Significant Accounting Policies
Business
The consolidated financial statements presented in this report include the accounts of HomeTrust Bancshares, Inc., a Maryland corporation (“HomeTrust”), and its wholly-owned subsidiary, HomeTrust Bank (the “Bank”). As used throughout this report, the term the “Company” refers to HomeTrust and its consolidated subsidiary, unless the context otherwise requires. HomeTrust is a bank holding company primarily engaged in the business of planning, directing, and coordinating the business activities of the Bank. The Bank is a North Carolina state chartered bank and provides a wide range of retail and commercial banking products within its geographic footprint, which includes: North Carolina (the Asheville metropolitan area, Greensboro/"Piedmont" region, Charlotte, and Raleigh/Cary), Upstate South Carolina (Greenville), East Tennessee (Kingsport/Johnson City/Bristol, Knoxville, and Morristown) and Southwest Virginia (the Roanoke Valley). The Bank operates under a single set of corporate policies and procedures and is recognized as a single banking segment for financial reporting purposes.
Operating, Accounting and Reporting Considerations Related to COVID-19
The COVID-19 pandemic has negatively impacted the global economy. In response to this crisis, the CARES Act was passed by Congress and signed into law on March 27, 2020. The CARES Act provides an estimated $2.2 trillion to fight the COVID-19 pandemic and stimulate the economy by supporting individuals and businesses through loans, grants, tax changes, and other types of relief. Some of the provisions applicable to the Company include, but are not limited to:
• Accounting for Loan Modifications - The CARES Act provides that a financial institution may elect to suspend (1) the requirements under GAAP for certain loan modifications that would otherwise be categorized as a TDR and (2) any determination that such loan modifications would be considered a TDR, including the related impairment for accounting purposes. The Bank has elected this as a policy change.
• PPP - The CARES Act established the PPP, an expansion of the SBA's 7(a) loan program and the Economic Injury Disaster Loan Program, administered directly by the SBA.
Also in response to the COVID-19 pandemic, the Federal Reserve, the FDIC, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the Consumer Financial Protection Bureau, in consultation with the state financial regulators (collectively, the “agencies”) issued a joint interagency statement (issued March 22, 2020; revised statement issued April 7, 2020). Some of the provisions applicable to the Company include, but are not limited to:
• Accounting for Loan Modifications - Loan modifications that do not meet the conditions of the CARES Act may still qualify as a modification that does not need to be accounted for as a TDR. The agencies confirmed with FASB staff that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or insignificant delays in payment.
• Past Due Reporting - With regard to loans not otherwise reportable as past due, financial institutions are not expected to designate loans with deferrals granted due to COVID-19 as past due because of the deferral. A loan’s payment date is governed by the due date stipulated in the legal agreement. If a financial institution agrees to a payment deferral, these loans would not be considered past due during the period of the deferral.
• Nonaccrual Status and Charge-offs - While short-term COVID-19 modifications are in effect, these loans generally should not be reported as nonaccrual or as classified.
See Note 5 Loans for more information on COVID-19 specific loans that have been modified or in deferral.
If the negative impact of COVID-19 is sustained into future quarters and years, the Company will be adversely affected. As such, we will maintain our heightened sense of awareness during our review of triggering events that could lead to goodwill impairment.
Accounting Principles
The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States (“US GAAP”).
Principles of Consolidation and Subsidiary Activities
The accompanying consolidated financial statements include the accounts of HomeTrust, the Bank, and its wholly-owned subsidiary, Western North Carolina Service Corporation (“WNCSC”)WNCSC at or for the years ended June 30, 2018, 2017,2020, 2019, and 2016.2018. WNCSC owns office buildings in Asheville, North Carolina that are leased to the Bank. All intercompany items have been eliminated.
Reclassifications
Certain amounts reported in prior periods’ consolidated financial statements have been reclassified to conform to the current presentation. Such reclassifications had no effect on previously reported cash flows, stockholders’ equity or net income.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Use of Estimates in Financial Statements
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at 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.
Cash and Cash Equivalents
Cash and cash equivalents include cash and interest-bearing deposits with initial terms to maturity of 90 days or less.
Commercial Paper
Commercial paper includes highly liquid short-term debt of investment graded corporations with maturities less than 270 days. These instruments are typically purchased at a discount based on prevailing interest rates and do not exceed $10.0 million$15,000 per issuer.
Debt Securities
The Company classifies investmentdebt securities as trading, available for sale, or held to maturity.
Securities available for sale are carried at fair value. These securities are used to execute asset/liability management strategies, manage liquidity, and leverage capital, and therefore may be sold prior to maturity. Adjustments for unrealized gains or losses, net of the income tax effect, are made to accumulated other comprehensive income, a separate component of total stockholders’ equity.
Securities held to maturity are stated at cost, net of unamortized balances of premiums and discounts. When these securities are purchased, the Company intends to and has the ability to hold such securities until maturity.
Declines in the fair value of individual securities available for sale or held to maturity below their cost that are other-than-temporary result in write-downs of the individual securities to their fair value. The related write-downs are included in earnings as realized losses. In estimating other-than-temporary impairment losses, the Company considers among other things, (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery of the unrealized loss, and in the case of debt securities, whether it is more likely than not that the Company will be required to sell the security prior to a recovery.
Premiums and discounts are amortized or accreted over the life of the security as an adjustment to yield. Dividend and interest income are recognized when earned. Gains or losses on the sale of securities are recognized on a specific identification, trade date basis.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Loans
Portfolio loans are carried at their outstanding principal amount, less unearned income and deferred nonrefundable loan fees, net of certain origination costs. Interest income is recorded as earned on an accrual basis based on the contractual rate and the outstanding balance, except for nonaccruing loans where interest is recorded as earned on a cash basis. Net deferred loan origination fees/costs are deferred and amortized to interest income over the life of the related loan.
Acquired Loans
Purchased loans are recorded at their fair value at the acquisition date. Credit discounts are included in the determination of fair value; therefore, an allowance for loan and lease losses is not recorded at the acquisition date. Acquired loans are evaluated upon acquisition and classified as either purchased impaired or purchased non-impaired. Purchased impaired loans reflect credit deterioration since origination such that it is probable at acquisition that the Company will be unable to collect all contractually required payments.
The cash flows expected to be received over the life of the loans were estimated by management. These cash flows were provided to third party analysts to calculate carrying values of the loans, book yields, effective interest income and impairment, if any, based on actual and projected events. Default rates, loss severity, and prepayment speed assumptions will be periodically reassessed to update our expectation of future cash flows. The excess of the cash flows expected to be collected over a loan's carrying value is considered to be the accretable yield and is recognized as interest income over the estimated life of the loan using the effective yield method. The accretable yield may change due to changes in the timing and amounts of expected cash flows. Changes in the accretable yield are disclosed quarterly.
The excess of the undiscounted contractual balances due over the cash flows expected to be collected is considered to be the nonaccretable difference. The nonaccretable difference represents our estimate of the credit losses expected to occur and was considered in determining the fair value of the loans as of the acquisition date. Subsequent to the acquisition date, any increases in expected cash flows over those expected at purchase date in excess of fair value are adjusted through a change to the accretable yield on a prospective basis. Any subsequent decreases in expected cash flows attributable to credit deterioration are recognized by recording a provision for loan losses. The purchased impaired loans acquired are and will continue to be subject to the Company's internal and external credit review and monitoring.
For purchased non-impaired loans, the difference between the fair value and unpaid principal balance of the loan at the acquisition date is amortized or accreted to interest income over the life of the loans.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Loan Segments and Classes
The Company’s loan portfolio is grouped into two segments (retail consumer loans and commercial loans) and into various classes within each segment. The Company originates, services, and manages its loans based on these segments and classes. The Company’s portfolio segments and classes within those segments are subject to risks that could have an adverse impact on the credit quality of the loan portfolio. Management identified the risks described below as significant risks that are generally similar among the loan segments and classes.
Retail Consumer loan segmentLoan Segment
The Company underwrites its retail consumer loans using automated credit scoring and analysis tools. These credit scoring tools take into account factors such as payment history, credit utilization, length of credit history, types of credit currently in use, and recent credit inquiries. To the extent that the loan is secured by collateral, the value of the collateral is also evaluated. Common risks to each class of retail consumer loans include general economic conditions within the Company’s markets, such as unemployment and potential declines in collateral values, and the personal circumstances of the borrowers. In addition to these common risks for the Company’s retail consumer loans, various retail consumer loan classes may also have certain risks specific to them.
One-to-four family and construction and land/lot loans are to individuals and are typically secured by one-to-four family residential property, undeveloped land, and partially developed land in anticipation of pending construction of a personal residence. Significant and rapid declines in real estate values can result in residential mortgage loan borrowers having debt levels in excess of the current market value of the collateral, which can lead to higher levels of foreclosures. Construction and land/lot loans may experience delays in completion and cost overruns that exceed the borrower’s financial ability to complete the project. Such cost overruns can result in foreclosure of partially completed and unmarketable collateral.
Originated home equity lines of credit ("HELOCs") are often secured by second liens on residential real estate, thereby making such loans particularly susceptible to declining collateral values. A substantial decline in collateral value could render the Company’s second lien position to be effectively unsecured. Additional risks include lien perfection inaccuracies and disputes with first lien holders that may further weaken collateral positions. Further, the open-end structure of these loans creates the risk that customers may draw on the lines in excess of the collateral value if there have been significant declines since origination. In addition,From time to time, the Company purchases certain HELOCs from a third party. The credit risk characteristics are different for these loans since they were not originated by the Company and the collateral is located outside the Company’s market area, primarily in several western states. The Company established an allowance for loan losses based on the historical losses of the portfolio. The Company monitors the performance of these loans and adjusts the allowance for loan losses as necessary.
Indirect auto finance loans are primarily for new and used personal automobiles originated by franchised and independent auto dealers within the Company's geographic footprint. The bank-dealer relationship is governed by contract, which provides warranties and
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
representations, payment schedules, and rights and remedies upon breach. The underwriting process and standards are maintained by the Company and implemented via an automated decision tool, which incorporates the borrower's credit score, loan to value ratio, and terms of the loan to determine the borrower's creditworthiness.
Consumer loans include loans secured by deposit accounts or personal property such as automobiles, boats, and motorcycles, as well as unsecured consumer debt. The value of underlying collateral within this class is especially volatile due to potential rapid depreciation in values since date of loan origination in excess of principal repayment.
Commercial loan segmentLoan Segment
The Company’s commercial loans are centrally underwritten based primarily on the customer’s ability to generate the required cash flow to service the debt in accordance with the contractual terms and conditions of the loan agreement. The Company’s commercial lenders and underwriters work to understand the borrower’s businesses and management experiences. The majority of the Company’s commercial loans are secured by collateral, so collateral values are important to the transaction. In commercial loan transactions where the principals or other parties provide personal guarantees, the Company’s commercial lenders and underwriters analyze the relative financial strength and liquidity of each guarantor. Risks that are common to the Company’s commercial loan classes include general economic conditions, demand for the borrowers’ products and services, the personal circumstances of the principals, and reductions in collateral values. In addition to these common risks for the Company’s commercial loans, the various commercial loan classes also have certain risks specific to them.
Construction and development loans are highly dependent on the supply and demand for commercial real estate in the Company’s markets as well as the demand for the newly constructed residential and commercial properties and lots being developed by the Company’s commercial loan customers. Prolonged deterioration in demand could result in significant decreases in the underlying collateral values and make repayment of the outstanding loans more difficult for the Company’s commercial borrowers.
Commercial real estate and commercial and industrial loans are primarily dependent on the ability of the Company’s commercial loan customers to achieve business results consistent with those projected at loan origination resulting in cash flow sufficient to service the debt. To the extent that a borrower’s actual business results significantly underperform the original projections, the ability of that borrower to service the Company’s loan on a basis consistent with the contractual terms may be at risk. While these loans and leases are generally secured by real property, personal property, or business assets such as inventory or accounts receivable, it is possible that the liquidation of the collateral will not fully satisfy the obligation.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Municipal leases are primarily made to volunteer fire departments and depend on the tax revenues received from the county or municipality. These leases are mainly secured by vehicles, fire stations, land, or equipment. The underwriting of the municipal leases is based on the cash flows of the fire department as well as projections of future income.
Equipment finance is primarily made up of commercial finance agreements and commercial loans and leases provided by our new Equipment Finance line of business, and primarily for transportation, construction, and manufacturing equipment. The loans have terms on average of five years or less and are secured by the financed equipment.
PPP loans are an expansion of the SBA's 7(a) loan program and the Economic Injury Disaster Loan Program, administered directly by the SBA and as a result of the CARES Act passed by Congress in response to the COVID-19 pandemic. The PPP loans are low interest notes to small business customers to cover payroll expenses and to a lesser extent other various expense ranging from interest on mortgage obligations, rent, utilities, and interest on outstanding debt. The loans are intended to be forgivable if the borrower maintains employees and complies with the CARES Act.
Credit Quality Indicators
Loans are monitored for credit quality on a recurring basis and the composition of the loans outstanding by credit quality indicator is provided below. Loan credit quality indicators are developed through review of individual borrowers on an ongoing basis. Generally, loans are monitored for performance on a quarterly basis with the credit quality indicators adjusted as needed. The indicators represent the rating for loans as of the date presented based on the most recent assessment performed. These credit quality indicators are defined as follows:
Pass—A pass rated asset is not adversely classified because it does not display any of the characteristics for adverse classification.
Special Mention—A special mention asset has potential weaknesses that deserve management’s close attention. If left uncorrected, such potential weaknesses may result in deterioration of the repayment prospects or collateral position at some future date. Special mention assets are not adversely classified and do not warrant adverse classification.
Substandard—A substandard asset is inadequately protected by the current net worth and paying capacity of the obligor, or of the collateral pledged, if any. Assets classified as substandard generally have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. These assets are characterized by the distinct possibility of loss if the deficiencies are not corrected.
Doubtful—An asset classified doubtful has all the weaknesses inherent in an asset classified substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable, on the basis of currently existing facts, conditions, and values.
Loss—Assets classified loss are considered uncollectible and of such little value that their continuing to be carried as an asset is not warranted. This classification is not necessarily equivalent to no potential for recovery or salvage value, but rather that it is not appropriate to defer a full write-off even though partial recovery may be effected in the future.
Loans Held for Sale
LoansResidential mortgages held for sale are residential mortgages and are valued at the lower of cost or fair value less estimated costs to sell as determined by outstanding commitments from investors on a “best efforts” basis or current investor yield requirements, calculated on the aggregate loan basis. Loans sold are generally sold at par value and with servicing released.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Beginning in fiscal year 2018, theThe Company began providingoriginates loans guaranteed by the U.S. Small Business Administration ("SBA")SBA for the purchase of businesses, business startups, business expansion, equipment, and working capital. All SBA loans are underwritten and documented as prescribed by the SBA. SBA loans are generally fully amortizing and have maturity dates and amortizations of up to 25 years. SBA loans originated that are guaranteed and intended for sale on the secondary market are classified as held for sale and are carried at the lower of cost or fair value. The guaranteed portion of the loan is sold and the servicing rights are retained. At the time of the sale, an asset is recorded for the value of the servicing rights and is amortized over the remaining life of the loan on the effective interest method. The servicing asset is included in other assets and the corresponding servicing fees are recorded in noninterest income. A gain is recorded for any premium received in excess of the carrying value of the net assets transferred in the sale and is also included in noninterest income. The portion of SBA loans that are retained are also adjusted to fair value and reclassified total loans, net of deferred costs (loans held for a retained discount to reflect the effective interest rate on the retained unguaranteed portion of the loans.investment). The net value of the retained loans is included in the appropriate loan classification for disclosure purposes. SBA
Beginning in fiscal year 2019, the Company began originating HELOCs through a third party. These loans are classified as commercialoriginated in various states outside the Company's geographic footprint, but are underwritten to the Company's underwriting guidelines. The loans are held for sale by the Company over a 90 to 180 day period and industrial loans.are serviced by the third party. The loans are marketed by the third party to investors in pools and once sold the Company recognizes a gain or loss on the sale.
Allowance for Loan Losses
The allowance for loan losses is management’s estimate of probable credit losses that are inherent in the Company’s loan portfolios at the balance sheet date. The allowance increases when the Company provides for loan losses through charges to operating earnings and when the Company recovers amounts from loans previously written down or charged off. The allowance decreases when the Company writes down or charges off loan amounts that are deemed uncollectible.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Management determines the allowance for loan losses based on periodic evaluations that are inherently subjective and require substantial judgment because the evaluations require the use of material estimates that are susceptible to significant change. The Company generally uses two allowance methodologies that are primarily based on management’s determination as to whether or not a loan is considered to be impaired.
All classified loans above a certain threshold meeting certain criteria are evaluated for impairment on a loan-by-loan basis and are considered impaired when it is probable, based on current information, that the borrower will be unable to pay contractual interest or principal as required by the loan agreement. Impaired loans below the threshold are evaluated as a pool with additional adjustments to the allowance for loan losses. Loans that experience insignificant payment delays and payment shortfalls are not necessarily considered impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment history, and the amount of the shortfall relative to the principal and interest owed. Impaired loans are measured at their estimated net realizable value based on either the value of the loan’s expected future cash flows discounted at the loan’s effective interest rate or on the collateral value, net of the estimated costs of disposal, if the loan is collateral dependent. For loans considered impaired, an individual allowance for loan losses is recorded when the loan principal balance exceeds the estimated net realizable value.
For loans not considered impaired, management determines the allowance for loan losses based on estimated loss percentages that are determined by and applied to the various classes of loans that comprise the segments of the Company’s loan portfolio. The estimated loss percentages by loan class are based on a number of factors that include by class (i) average historical losses over the past two years, (ii) levels and trends in delinquencies, impairments, and net charge-offs, (iii) trends in the volume, terms, and concentrations, (iv) trends in interest rates, (v) effects of changes in the Company’s risk tolerance, underwriting standards, lending policies, procedures, and practices, and (vi) national and local business and economic conditions.
Future material adjustments to the allowance for loan losses may be necessary due to changing economic conditions or declining collateral values. In addition, bank regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses and may require the Company to make adjustments to the allowance for loan losses based upon judgments that differ significantly from those of management. See "Recent Accounting Pronouncements" for details on the adoption of CECL.
Nonperforming Assets
Nonperforming assets can include loans that are past due 90 days or more based on the loan’s contractual terms and continue to accrue interest, loans on which interest is not being accrued, and REO.
Loans Past Due 90 Days or More, Nonaccruing, Impaired, or Restructured
The Company’s policies related to when loans are placed on nonaccruing status conform to guidelines prescribed by bank regulatory authorities. Generally, the Company suspends the accrual of interest on loans (i) that are maintained on a cash basis because of the deterioration of the financial condition of the borrower, (ii) for which payment in full of principal or interest is not expected (impaired loans), or (iii) on which principal or interest has been in default for a period of 90 days or more, unless the loan is both well secured and in the process of collection. Under the Company’s cost recovery method, interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accruing status when all principal and interest amounts contractually due are brought current and concern no longer exists as to the future collectability of principal and interest, which is generally confirmed when the loan demonstrates performance for six consecutive months or payment cycles.
Restructured loans to borrowers who are experiencing financial difficulty, and on which the Company has granted concessions that modify the terms of the loan, are accounted for as troubled debt restructurings (“TDRs”). These loans remain as TDRs until the loan has been paid in full, modified to its original terms, or charged off. The Company may place these loans on accrual or nonaccrual status depending on the individual facts and circumstances of the borrower. Generally, these loans are put on nonaccrual status until there is adequate performance that evidences
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
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the ability of the borrower to make the contractual payments. This period of performance is normally at least six months, and may include performance immediately prior to or after the modification, depending on the specific facts and circumstances of the borrower.
Loan Charge-offs
The Company charges off loan balances, in whole or in part to net realizable value or fair market value less costs to sell, when available, verifiable, and documentable information confirms that specific loans, or portions of specific loans, are uncollectible or unrecoverable. For unsecured loans, losses are confirmed when it can be determined that the borrower, or any guarantors, are unwilling or unable to pay the amounts as agreed. When the borrower, or any guarantor, is unwilling or unable to pay the amounts as agreed on a loan secured by collateral and any recovery will be realized upon the sale of the collateral, the loan is deemed to be collateral dependent. Repayments or recoveries for collateral dependent loans are directly affected by the value of the collateral at liquidation. As such, loan repayment can be affected by factors that influence the amount recoverable, the timing of the recovery, or a combination of the two. Such factors include economic conditions that affect the markets in which the loan or its collateral is sold, bankruptcy, repossession and foreclosure laws, and consumer banking regulations. Losses are also confirmed when the loan, or a portion of the loan, is classified as loss resulting from loan reviews conducted by the Company or its bank regulatory examiners.
Charge-offs of loans in the commercial loan segment are recognized when the uncollectibility of the loan balance and the inability to recover sufficient value from the sale of any collateral securing the loan is confirmed. The uncollectibility of the loan balance is evidenced by the inability of the commercial borrower to generate cash flows sufficient to repay the loan as agreed causing the loan to become delinquent. For collateral dependent commercial loans, the Company determines the net realizable value of the collateral based on appraisals, current market conditions,
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
and estimated costs to sell the collateral. For collateral dependent commercial loans where the loan balance, including any accrued interest, net deferred fees or costs, and unamortized premiums or discounts, exceeds the net realizable value of the collateral securing the loan, the deficiency is identified as unrecoverable, is deemed to be a confirmed loss, and is charged off.
Charge-offs of loans in the retail consumer loan segment are generally confirmed and recognized in a manner similar to charge-offs of loans in the commercial loan segment. Secured retail consumer loans that are identified as uncollectible and are deemed to be collateral dependent are confirmed as loss to the extent the net realizable value of the collateral is insufficient to recover the loan balance. Consumer loans not secured by real estate that become 90 days past due are charged off to the extent that the fair value of any collateral, less estimated costs to sell the collateral, is insufficient to recover the loan balance. Consumer loans secured by real estate that become 120 days past due are charged off to the extent that the fair value of the real estate securing the loan, less estimated costs to sell the collateral, is insufficient to recover the loan balance. Loans to borrowers in bankruptcy are subject to modification by the bankruptcy court and are charged off to the extent that the fair value of any collateral securing the loan, less estimated costs to sell the collateral, is insufficient to recover the loan balance, unless the Company expects repayment is likely to occur. Such loans are charged off within 60 days of the receipt of notification from a bankruptcy court or when the loans become 120 days past due, whichever is shorter.
Real Estate Owned
REO consists of real estate acquired as a result of customers’ loan defaults. REO is stated at the fair value of the property net of the estimated costs of disposal with a charge to the allowance for loan losses upon foreclosure, if necessary. Any write-downs subsequent to foreclosure are charged against operating earnings. To the extent recoverable, costs relating to the development and improvement of property are capitalized, whereas those costs relating to holding the property are charged to expense.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the 150% declining balance and the straight-line method over the estimated useful lives. Leasehold improvements are amortized over the lives of the respective leases or the estimated useful life of the leasehold improvement, whichever is less. Maintenance and repair costs are expensed as incurred. Capitalized leases are amortized using the same methods as premises and equipment over the estimated useful lives or lease terms, whichever is less. Obligations under capital leases are amortized using the interest method to allocate payments between principal reduction and interest expense.
Other Investments, at costAt Cost
As a requirement for membership, the Bank invests in stock of the Federal Home Loan BankFHLB of Atlanta ("FHLB") and the Federal Reserve Bank of Richmond ("Federal Reserve Bank").FRB. These investments are carried at cost due to the redemption provisions of these entities and the restricted nature of the securities. SBICs are considered equity securities without a readily determinable fair value. Prior to the adoption of ASU 2016-01 in the first quarter of fiscal 2019, SBICs were maintained in other assets. Beginning July 1, 2018, the SBIC investments are accounted for at cost less impairment, plus or minus changes resulting from observable price changes. Management reviews the investments for impairment based on the ultimate recoverability of thetheir cost basis of these stocks. Our investments in these stocks are maintained in "other investments, at cost" on our balance sheet.basis.
Business Combinations
The Company uses the acquisition method of accounting for all business combinations. An acquirer must be identified for each business combination, and the acquisition date is the date the acquirer achieves control. The acquisition method of accounting requires the Company as acquirer to recognize the fair value of assets acquired and liabilities assumed at the acquisition date as well as recognize goodwill or a gain from a bargain purchase, if appropriate. Any acquisition-related costs and restructuring costs are recognized as period expenses as incurred.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Goodwill
Goodwill represents the excess of the purchase price over the sum of the estimated fair values of the tangible and identifiable intangible assets acquired less the estimated fair value of the liabilities assumed in a business combination. Goodwill has an indefinite useful life and is evaluated for impairment annually in the fourth quarter or more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value.
In testing goodwill for impairment, we have the option to assess either qualitative or quantitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the estimated fair value of a reporting unit is less than its carrying amount. If we elect to perform a qualitative assessment and determine that an impairment is more likely than not, we are then required to perform a quantitative impairment test, otherwise no further analysis is required.
Under the quantitative impairment test, the evaluation involves comparing the current fair value of each reporting unit to its carrying value, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying value, goodwill is considered not to be impaired. If the carrying value exceeds estimated fair value an impairment charge is recognized for the difference, but limited by the amount of goodwill allocated to thatthe reporting unit. The Company uses a combination of the market and income approaches to estimate the fair value of its reporting unit.unit when the quantitative impairment approach is chosen or required. All inputs are evaluated by management at the evaluation date of April 1st and reviewed again at year endeach reporting period for triggering events to ensure no significant changes occurred that could indicate impairment. Subsequent reversal of goodwill impairment losses is not permitted.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Core Deposit Intangibles
Core deposit intangibles representsrepresent the estimated value of long-term deposit relationships acquired in business combinations. These core deposit premiums are amortized using an accelerated method over the estimated useful lives of the related deposits typically between five and ten years. The estimated useful lives are periodically reviewed for reasonableness.
Income Taxes
The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced, if necessary, by the amount of such benefits that are not expected to be realized based upon available evidence. See Note 1213 for additional information.
The Company recognizes interest and penalties accrued relative to unrecognized tax benefits in its respective federal or state income taxes accounts. As of June 30, 20182020 and 2017,2019, there were no accruals for uncertain tax positions and no accruals for interest and penalties. The Company is no longer subject to examination for federal and state purposes for tax years prior to 2014.2016.
Employee Stock OwnershipBenefit Plans
The KSOP is comprised of two components, the 401(k) Plan
In connection with the conversion from a mutual to a stock form of organization in July 2012, the Bank established an ESOP for the benefit of all of its eligible employees. Full-time employees of the Company and the Bank who have been creditedESOP. The KSOP benefits employees with at least 1000 hours of service during a 12-month period and who have attained age 21 are21.
Under the 401(k), the Company matches employee contributions at 50% of employee deferrals up to 6% of each employee’s compensation. The Company may also make discretionary profit sharing contributions for the benefit of all eligible to participateparticipants as long as total contributions do not exceed applicable limitations. Employees become fully vested in the ESOP.Company’s contributions after six years of service.
Under the ESOP, the amount of the Bank's annual contribution is discretionary, however it must be sufficient to pay the annual loan payment to the Company. Shares released are allocated to each eligible participant based on the ratio of each participant’s compensation, as defined in the ESOP, to the total compensation of all eligible plan participants. Forfeited shares shall beare reallocated among other participants in the Plan. At the discretion of the Bank, cash dividends, when paid on allocated shares, will beare distributed to participants’ accounts, paid in cash to the participants, or used to repay the principal and interest on the ESOP loan used to acquire Company stock on which dividends were paid. Cash dividends on unallocated shares will beare used to repay the outstanding debt of the ESOP.
It is anticipated that the Bank will make contributions to the ESOP in amounts necessary to amortize the ESOP loan payable to the Company over a 20-year period.
Unearned ESOP shares are shown as a reduction of stockholders’ equity. Dividends on unearned ESOP shares, if paid, will be considered to be compensation expense. The Company recognizes compensation expense equal to the fair value of the Company’s ESOP shares during the periods in which they become 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 recognized as additional paid in capital. The Company recognizes a tax deduction equal to the cost of the shares released. Because the ESOP is internally leveraged through a loan from the Company to the ESOP, the loan receivable by the Company from the ESOP is not reported as an asset nor is the debt of the ESOP shown as a liability in the consolidated financial statements.
As of July 1, 2015, the ESOP and the HomeTrust Bank 401(k) Plan was combined to form the HomeTrust Bank KSOP Plan. See Note 1314 for additional information.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Equity Incentive Plan
The Company issues restricted stock, restricted stock units, and stock options under the HomeTrust Bancshares, Inc. 2013 Omnibus Incentive Plan (“2013 Omnibus Incentive Plan”) to key officers and outside directors. In accordance with the requirements of the Financial Accounting Standards Board (the "FASB") Accounting Standards Codification (“ASC”)FASB 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 based on the fair value of the award as of the grant date and recognized over the vesting period. The Company accounts for forfeitures as they occur.
Comprehensive Income
Comprehensive income consists of net income and net unrealized gains (losses) on securities available for sale and is presented in the consolidated statements of comprehensive income.
Derivative Instruments and Hedging
The Company recognizes all derivatives as either assets or liabilities in the balance sheet, and measures those instruments at fair value. Changes in the fair value of those derivatives are reported in current earnings or other comprehensive income depending on the purpose for which the derivative is held and whether the derivative qualifies for hedge accounting. Loan commitments related to the origination or acquisition of mortgage loans that will be held for sale must be accounted for as derivative instruments. The Company enters into commitments to originate loans whereby the interest rate on the loan is determined prior to funding (rate lock commitments). The Company also enters into forward sales commitments for the mortgage loans underlying the rate lock commitments. The fair values of these two derivative financial instruments are collectively insignificant to the consolidated financial statements.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Net Income Per Share
Per the provisions of ASC 260, Earnings Per Share, basic earnings per shareEPS are computed by dividing net income by the weighted-average number of common shares outstanding for the year, less the average number of nonvested restricted stock awards. Diluted earnings per shareEPS reflect the potential dilution from the issuance of additional shares of common stock caused by the exercise of stock options and restricted stock awards. In addition, nonvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are considered participating securities and are included in the computation of earnings per shareEPS pursuant to the two-class method. The two-class method is an earnings allocation formula that determines earnings per shareEPS for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. ESOP shares are considered outstanding for basic and diluted earnings per shareEPS when the shares are committed to be released.
Net income is allocated between the common stock and participating securities pursuant to the two-class method, based on their rights to receive dividends, participate in earnings, or absorb losses. See Note 1516 for further discussion on the Company’s earnings per share.EPS.
Recent Accounting Pronouncements
In August 2015, the Financial Accounting Standards Board ("FASB") issued ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606)”, which defers the effective dateAdoption of Lease Accounting Standard Update ("ASU") No. 2014-09 one year.
On July 1, 2019, the Company adopted ASU No. 2014-09 created 2016-02, Leases (“Topic 606842”), and supersedessubsequent related ASUs. The new leasing standard modifies the accounting, presentation, and disclosures for both lessees and lessors. The Company elected the modified retrospective transition option which allows for application of the Topic 605, Revenue Recognition. The core principle of Topic 606 is that an entity recognizes revenue to depict842 guidance at the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expectsadoption date. Therefore, comparative prior period financial information was not adjusted and will continue to be entitled in exchange for those goods or services. In general,reported under the previous accounting guidance of ASC 840, Leases (ASC 840). No cumulative-effect adjustment to retained earnings as of July 1, 2019 was necessary as a result of adopting the new standard. The Company elected the “package of practical expedients” permitted under the transition guidance which allows the Company not to reassess its prior conclusions regarding lease identification, classification of existing leases, and treatment of initial direct costs on existing leases. Any lease arrangements and significant modifications entered into subsequent to the adoption date are accounted for in accordance with the new standard.
Lessee Topic 842 Accounting
The new leasing standard requires companiesrecognition of operating leases on the consolidated balance sheets as ROU assets and lease liabilities. ROU assets represent our right to use more judgmentunderlying assets for the lease terms and lease liabilities represent our obligation to make more estimates than under current guidance, including identifying performance obligationslease payments arising from the leases. ROU assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. We use our estimated incremental borrowing rate in determining the present value of lease payments for operating leases and the implicit rate in the contract, estimatinglease for our one finance lease.
For operating leases, the amountCompany recognized lease liabilities, with corresponding ROU assets, based on the present value of variable consideration to includeunpaid lease payments for existing operating leases longer than twelve months as of July 1, 2019. The ROU assets were adjusted per Topic 842 transition guidance for existing lease-related balances of accrued and prepaid rent, and unamortized lease incentives provided by lessors. As a result, the Company recognized ROU assets of approximately $5,300 in other assets and corresponding lease liabilities of approximately $5,300 in other liabilities as of July 1, 2019. The July 1, 2019 incremental borrowing rates determined on a collateralized basis for the transaction price and allocatingremaining lease terms were utilized when determining the transaction price to each separate performance obligation. In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which provides clarifying guidance in certain narrow areas and adds some practical expedients, but does not change the core revenue recognition principle in Topic 606. For financial reporting purposes, the standard allows for either full retrospective adoption, meaning the standard is applied to allpresent value of the periods presented, or modified retrospective adoption, meaning the standard is applied only to the most current period presented in the financial statements with the cumulative effect of initially applying the standard recognizedlease payments at the date of initial application. Management adoptedadoption.
For our finance lease, the new guidance on July 1, 2018. Management has completedCompany leases land for one of its identification of all revenue streams included in the financial statements (excluding interest income, which is outside of the scope of the pronouncement) and identified which revenue streams are within the scope of the pronouncement. Management is finalizing its evaluation on whether the implementation of this ASU will result in any accounting changes for the revenue streams within the scope of this ASU. Management does not expect theretail locations. Upon adoption of this ASUTopic 842, the Company reclassed $2,100 from land to have a material impact onROU assets in other assets. In addition, the Company’s Consolidated Financial Statements other than reclassificationcorresponding liability of expenses from noninterest expense to noninterest income and additional disclosure requirements.
In January 2016, the FASB issued ASU 2016-01, "Financial Instruments (Subtopic 825-10) Recognition and Measurement of Financial Assets and Financial Liabilities." The ASU amends the guidance in GAAP on the classification and measurement of financial instruments. The ASU includes the following changes: i) equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (ii) requires the use of exit price notion when measuring the fair value of financial instruments for disclosure purposes; (iii) require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e. securities or loans and receivables)$1,900, which was disclosed separately on the balance sheet was reclassified to other liabilities.
The Company elected the lessee practical expedient to not separate lease and non-lease components. The Company also elected the short-term lease recognition exemption and will not recognize ROU assets or lease liabilities for leases with a term less than 12 months.
Operating lease cost is recognized as a single lease cost on a straight-line basis over the accompanying noteslease term and is recorded in net occupancy expense. Variable lease payments for common area maintenance, property taxes and other operating expenses are recognized as expense in the period when the changes in facts and circumstances on which the variable lease payments are based occur.
Finance lease cost is recognized as a single lease cost using the effective interest method and is recorded in net occupancy expense.
Lessee Accounting Prior to Adoption of Topic 842
Prior to the financial statements; (iv) allows an equity investment that doesadoption of ASC 842, the Company applied the guidance of ASC 840. Under ASC 840, operating lease arrangements were off-balance sheet and ROU assets and lease liabilities were not have readily determinable fair values,recognized. Operating lease rent expense was recognized on a straight-line basis over the lease term and recorded in net occupancy expense. Common area maintenance, property taxes, and other operating expenses related to be measuredleased premises were also recognized in net occupancy expenses, consistent with similar costs for owned locations.
Lessor Topic 842 Accounting
Prior to the adoption of Topic 842, we determined the lease classification at cost minus impairment (if any), pluscommencement date. Leases not classified as sales-type or minus changes resulting from observable price changes in orderly transactionsdirect financing leases are classified as operating leases. The primary accounting criteria we use for lease classification are (i) review to determine if the identical or a similar investmentlease transfers ownership of the same issuer; (v) eliminatesunderlying asset to the requirementlessee by the end of the lease term, (ii) review to disclosedetermine if the method(s)lease grants the lessee a purchase option that the lessee is reasonably certain to exercise, (iii) determine if the lease term is for a major part of the remaining economic life of the underlying asset and significant assumptions used to estimate(iv) determine if the present value of the sum of the lease payments and any residual value guarantees
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, and requires a reporting organization to present separately in other comprehensive income the portionequals or exceeds substantially all of the total change in the fair value of the underlying asset. We do not lease equipment of such a liability resultingspecialized nature that it is expected to have no alternative use to the lessor at the end of the lease term.
The Company elected a lessor accounting policy to exclude from revenue and expenses sales taxes and other similar taxes assessed by a governmental authority on lease revenue-producing transactions and collected by the lessor from a lessee.
Operating Leases - Assets leased under an operating lease are carried at cost less accumulated depreciation. These assets are depreciated to their estimated residual value using the straight-line method over the lesser of the lease term or estimated useful life of the asset. Assets received at the end of the lease, which are intended to be sold, are marked to the lower of cost or fair value less selling costs with the adjustment recorded in other noninterest income.
At the inception of each operating lease, we record a residual value for the leased equipment based on our estimate of the future value of the equipment at the end of the lease term or end of the equipment’s estimated useful life as indicated by industry data. Operating leases have higher risk because a smaller percentage of the equipment's value is covered by contractual cash flows over the term of the lease. If the market value of leased equipment under operating leases decreases at a rate greater than we projected, whether due to rapid technological or economic obsolescence, unusual wear and tear on the equipment, excessive use of the equipment, recession or other adverse economic conditions, or other factors, it could adversely affect the current values or the residual values of such equipment. The Company seeks to mitigate these risks by maintaining a relatively young fleet of leased assets with wide operator bases, which can facilitate attractive lease and utilization rates. The Company manages and evaluates residual values by performing periodic reviews of estimated residual values and monitoring levels of residual realizations. A change in estimated operating lease residual values would result in a change in future depreciation expense. Any impairments are recognized at the instrument-specific credit risk (also referredtime a change is identified.
Rental revenue on operating leases is recognized on a straight-line basis over the lease term and is included in other noninterest income.
Finance Leases - The Company’s finance leases are classified as direct financing leases under ASC 842. The Company’s finance lease activity primarily relates to as “own credit”) when the organization has elected to measure the liability at fair value in accordanceleasing of new equipment with the fair value option for financial instruments; (vi) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e. securities or loans and receivables) on the balance sheet or in the accompanying notes to the financial statements; and (vii) clarifies that a valuation allowance on a deferred tax asset related to available-for-sale securities should be evaluated in combination with the organization’s other deferred tax assets. Exitequipment purchase price is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Management adopted the new guidance on July 1, 2018. The adoption of ASU No. 2016-01 is not expected to have a material impact on the Company's Consolidated Financial Statements. Management is finalizing the processes and procedures to comply with the disclosures requirements of this ASU, which could impact the disclosures the Company makes relatedequal to fair value and therefore there is no selling profit or loss at lease commencement. When there is no selling profit or loss, initial direct costs are deferred at the commencement date and included in the measurement of its loan portfolios.the net investment in the lease.
In February 2016,A lease receivable is recorded for finance leases at present value discounted using the FASB issued ASU 2016-02, "Leases (Accounting Standards Codification ("ASC") 842)."rate implicit in the lease. The guidancelease receivable includes lease payments not yet paid and the guarantee of the residual value by the lessee or unrelated third party, as applicable. Interest income is recognized over the lease term at a constant periodic discount rate on the remaining balance of the lease net investment using the rate implicit in the lease. After the commencement date, lease payments collected are applied to reduce net investment and recognize interest income.
The recognition of interest income is suspended, and an account is placed on non-accrual status when, in the opinion of management, full collection of all principal and interest due is doubtful. All future interest income accruals, as well as amortization of deferred fees, costs, and purchase premiums or discounts are suspended. Subsequent lease payments received are applied to the outstanding net investment balance until such time as the account is collected, charged-off or returned to accrual status. Finance leases that are nonaccrual do not accrue interest income; however, payments designated by the borrower as interest payments may be recorded as interest income. To qualify for this ASU requires mosttreatment, the remaining recorded investment in the lease must be deemed fully collectible.
The recognition of interest income on finance leases is suspended, and all previously accrued but uncollected revenue is reversed, when lease payments are contractually delinquent for 90 days or more. Accounts, including accounts that have been modified, are returned to accrual status when, in the opinion of management, collection of remaining lease receivables are reasonably assured, and there is a sustained period of repayment performance, generally for a minimum of six months.
Certain finance leases also have residual values at the inception of the lease which are based on our estimate of the future value of the equipment at the end of the lease term or end of the equipment’s estimated useful life as indicated by industry data. Finance leases bear the least risk because contractual payments usually cover approximately 90% of the equipment's cost at the inception of the lease. A change in estimated finance lease residual values during the lease term may impact the loss allowance as a decrease in the residual value may cause an impairment to be recognizedrecorded on the balance sheet as a right-of-use assetfinance lease.
Lessor Accounting Prior to Adoption of Topic 842
Lessor accounting was not fundamentally changed by Topic 842 and a lease liability. It will be critical to identify leases embedded in a contract to avoid misstating the lessee’s balance sheet. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largelyremains similar to those applied in current leasethe prior accounting but without explicit bright lines. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. The Company is currently evaluatingmodel, with updates to align with certain changes to the impact of this guidance on its Consolidated Financial Statementslessee model (e.g., certain definitions, such as initial direct costs, have been updated) and the timing of adoption.new revenue recognition standard. The Company will compile an inventory of all leased assets to determine the impact of ASU 2016-02 on its financial condition and results of operations. Once adopted, the Company expects to report higher assets and liabilities on its Consolidated Balance Sheets as a result of including right-of-use assets and lease liabilities related to certain banking offices and certain equipment under noncancelable operating lease agreements, which currently arenew rules did not reflected in its Consolidated Balance Sheets. The Company does not expect the guidance to have a materialsignificant impact on our classification of leases as finance or operating. The new lease guidance has a narrower definition of initial direct costs that may be capitalized and allocated internal costs and professional fees to negotiate and arrange the Consolidated Statementslease agreement that would have been incurred regardless of Income or the Consolidated Statements of Changes in Stockholders' Equity.lease execution no longer qualify as initial direct cost.
In March 2016, the FASB issued ASU 2016-09, "Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting." The ASU changes the accounting for certain aspects of share-based payments to employees. The guidance requires the recognition of the income tax effects of awards in the income statement when the awards vest or are settled, thus eliminating additional paid in capital pools. The guidance also allows for the employer to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting. In addition, the guidance allows for a policy election to account for forfeitures as they occur rather than on an estimated basis. We have elected to account for forfeitures of stock-based awards as they occur. The Company adopted the amendments in this ASU during the year ended June 30, 2018. Upon the adoption of this ASU, the Company had a cumulative adjustment to retained earnings of $680. In accordance with the transition guidance outlined in this ASU, the adoption had no effect on net income or shareholder's equity in any previously issued periods. Going forward, the Company expects this ASU to create some volatility in its reported income tax expense related to the excess tax benefits for employee stock-based transactions, however, the actual amounts recognized will be dependent on the amount of employee stock-based transactions and the stock price at the time of exercise or vesting.Recent Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." The ASU significantly changes the impairment model for most financial assets that are measured at amortized cost and certain other instruments from an incurred loss model to an expected loss model. This ASU is effective for annual periods, and interim andperiods within those annual reporting periods, beginning after December 15, 2019. Early adoption is permitted for all entities beginning after December 15, 2018, including
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
interim periods within those fiscal years. The Company is evaluating ourhas not early adopted. The Company has selected a third-party vendor to provide ongoing support under the new methodology to apply vendor credit models to its portfolios. The Company has evaluated the impact of the current expected credit loss methodology of our loan and investment portfolios to identify the necessary modifications in accordance with this standard and expectswhich will require a change in the processes and procedures to calculate the allowance for loan losses, including changes in assumptions and estimates to consider expected credit losses over the life of the loan versus the current accounting practice that utilizes the incurred loss model. A valuation adjustment to our allowance for loan losses or investment portfolio that is identified in this process will be reflected as a one-time adjustment in equity rather than earnings. The Company is inmethodology. Management does not expect the process of compiling historical data that will be used to calculate expected credit losses on its loan portfolio to ensure it is fully compliant with the ASU at the adoption date and is evaluating the potential impact adoption of this ASU will have on its consolidated financial statements. Once adopted, the Company expects its allowance for loan losses to increase, however, until its evaluation is complete the magnitude of the increase will be unknown.
In August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments." The ASU amends the guidance on the classification of certain cash receipts and payments in the statement of cash flows and is intended to reduce the diversity in practice. Management adopted the new guidance on July 1, 2018. The adoption of ASU No. 2016-15 is not expectedstandard to have a material impact on its commercial paper and investment securities portfolios at adoption. Management has determined that peer loss experience provides the Company’s Consolidated Financial Statements.
In January 2017, FASB issued ASU 2017-03, "Accounting Changesbest basis for its assessment of expected credit losses to determine its allowance and Error Corrections (Topic 250)has run parallel model results in preparation for adopting the new standard on July 1, 2020. Management continues to finalize documentation on the methodologies utilized as well as the controls, processes, policies, and Investments-Equity Methoddisclosures. The Company will recognize a cumulative-effect adjustment to the opening retained earnings as of the adoption date. Management currently estimates theallowance for credit losses will be in a range of $42,000 to $48,000, increasing the allowance by approximately$14,000to$20,000. Management also currently estimates a liability for unfunded commitments in a range of $1,500 to $3,000. The estimated decline in equity, net of tax, will range from $12,000 to $18,000. The actual impact will depend on a number of internal and Joint Ventures (Topic 323)." The ASU amends the Codification for SEC staff announcements made at recent Emerging Issues Task Force (EITF) meetings. The SEC guidance that specifically relates toexternal factors including: outstanding balances, characteristics of our Consolidated Financial Statements was from the September 2016 meeting, where the SEC staff expressed their expectations about the extent of disclosures registrants should make about the effectsloan and securities portfolios, macroeconomic conditions, forecast information, and management's judgment. Additionally, adoption of the new FASB guidance as well as any amendments issued prior to adoption, on revenue (ASU 2014-09), leases (ASU 2016-02)ASU could result in higher volatility in our quarterly credit loss provision than the current reserve process and credit losses on financial instruments (ASU 2016-13) in accordance with SAB Topic 11.M. Registrants are required to disclose the effect that recently issued accounting standards will have on their financial statements when adopted in a future period. In cases where a registrant cannot reasonably estimate thecould adversely impact of the adoption, then additional qualitative disclosures should be considered. The ASU incorporates these SEC staff views into ASC 250 and adds references to that guidance in the transition paragraphs of each of the three new standards. The Company has adopted the amendments in this ASU and appropriate disclosures have been included in this Note for each recently issued accounting standard.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
In January 2017, FASB issued ASU 2017-04, "Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." The ASU removes the requirement to compare the implied fair value of goodwill with its carrying value as required in Step 2 of the goodwill impairment test. Under the ASU, registrants would perform their goodwill impairment test and recognize an impairment charge for any amount the carrying value exceeds the reporting unit's fair value, but limited by the amount of goodwill allocated to that reporting unit. The Company early adopted this ASU during the year ended June 30, 2018, and the adoption did not have a material effect on the Company's Consolidated Financial Statements.
In March 2017, FASB issued ASU 2017-08, "Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities." The ASU requires entities to amortize the premium on certain purchased callable debt securities to the earliest call date, which more closely aligns the amortization period of premiums and discounts to expectations incorporated in the market prices. Entities will no longer recognize a loss in earnings upon the debtor's exercise of a call on a purchased debt security held at a premium. The ASU does not require any accounting change for debt securities held at a discount, therefore the discount will continue to be amortized as an adjustment of yield over the contractual life of the investment. This ASU is effective for interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted for all entities. The adoption of ASU No. 2017-08 is not expected to have a material impact on the Company's Consolidated Financial Statements.
In May 2017, the FASB issued ASU 2017-09, "Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting." This ASU provides clarity on the guidance related to stock compensation when there have been changes to the terms or conditions of a share-based payment award to which an entity would be required to apply modification accounting under ASC 718. The ASU provides the three following criteria must be met in order to not account for the effect of the modification of terms or conditions: the fair value, the vesting conditions and the classification as an equity or liability instrument of the modified award is the same as the original award immediately before the original award is modified. Management adopted the new guidance on July 1, 2018. The adoption of ASU No. 2017-09 is not expected to have a material impact on the Company's Consolidated Financial Statements.ongoing earnings.
In August 2017, FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities." This ASU improves the transparency and understandability of disclosures in the financial statements regarding the entities risk management activities and reduces the complexity of hedge accounting. The amendments in this ASU permit hedge accounting for hedging relationships involving nonfinancial risk and interest rate risk by removing certain limitations in cash flow and fair value hedging relationships. In addition, the ASU requires an entity to present the earnings effect of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is reported. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018 and early adoption is permitted. The Company adopted this ASU on July 1, 2019. The adoption did not have a material effect on the Company's Consolidated Financial Statements.
In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement." The amendments in this ASU removes, modifies, and adds certain disclosure requirements related to fair value measurements in ASC 820. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2019 and early adoption is permitted. The adoption of ASU No. 2017-122018-13 is not expected to have a material impact on the Company's Consolidated Financial Statements.
In February 2018, FASB issued ASU 2018-02, "Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." The ASU allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the revaluation of the Company’s net deferred tax assets (“DTA”) to the new corporate federal income tax rate of 21% as a result of the Tax Cuts and Jobs Act (‘Tax Act”). The Company elected to early adopt this ASU during the year ended June 30, 2018. The affected amount for the Company was immaterial and did not have an effect on the Company's Consolidated Financial Statements.
In March 2018, FASB issued ASU No. 2018-05, "Income Taxes (Topic 740)." This ASU was issued to provide guidance on the income tax accounting implications of the Tax Act and allows for entities to report provisional amounts for specific income tax effects of the Act for which the accounting under Topic 740 was not yet complete, but a reasonable estimate could be determined. A measurement period of one-year is allowed to complete the accounting effects under Topic 740 and revise any previous estimates reported. Any provisional amounts or subsequent adjustments included in an entity’s financial statements during the measurement period should be included in income from continuing operations as an adjustment to tax expense in the reporting period the amounts are determined. The Company adopted this ASU with the provisional adjustments as reported in the Company's Consolidated Financial Statements in the Form 10-Q for the quarter ended December 31, 2017. As of June 30, 2018, the Company did not incur any material adjustments to the provisional recognition.
In JuneNovember 2018, the FASB issued ASU No. 2018-07, "Compensation - Stock Compensation (Topic 718):2018-19, "Codification Improvements to Nonemployee Share-Based Payment Accounting.Topic 326, Financial Instruments-Credit Losses." This ASU was issued to expandupdate clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 718 to include share-based payment transactions842, Leases. The effective date and transition requirements for acquiring goods and services from nonemployees. Previously, these awards were recorded at the fair value of consideration received or the fair value of the equity instruments issued and was measured at the earlier of the commitment date or the date performance was completed. The amendments in this ASU require nonemployee share-based payment awards to be measured atare the grant-date fair value of the equity instrument. Thissame as ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, but no earlier than an entity's adoption of Topic 606.2016-13. The adoption of ASU No. 2018-072018-19 is not expected to have a material impact on the Company's Consolidated Financial Statements.
2. Business Combinations
All business combinationsIn December 2018, the FASB issued ASU 2018-20, "Leases (Topic 842): Narrow-Scope Improvements for Lessors." The amendments in this update permit lessors, as an accounting policy election, to not evaluate whether certain sales taxes and other similar taxes are accountedlessor costs or lessee costs. Instead, those lessors will account for usingthose costs as if they are lessee costs. A lessor making this election will exclude from the acquisition methodconsideration in the contract and from variable payments not included in the consideration in the contract all collections from lessees of accounting and, accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at acquisition date fair values. Fair values are preliminary and subject to refinement for up to one year aftertaxes within the closing datescope of the acquisitionelection and will provide certain disclosures. For certain lessor costs, the lessor must exclude from variable payments, and therefore revenue, lessor costs paid by lessees directly to third parties from variable payments. In addition, the lessor must account for costs excluded from the consideration of a contract that are paid by the lessor and reimbursed by the lessee as additional information regardingvariable payments. A lessor will record those reimbursed costs as revenue. The amendments in this ASU related to recognizing variable payments for contracts with lease and nonlease components require lessors to allocate (rather than recognize as currently required) certain variable payments to the closinglease and nonlease components when the changes in facts and circumstances on which the variable payment is based occur. After the allocation, the amount of variable payments allocated to the lease components will be recognized as income in profit or loss in accordance with Topic 842, while the amount of variable payments allocated to nonlease components will be recognized in accordance with other Topics, such as Topic 606. The Company adopted this ASU on July 1, 2019. The adoption did not have a material effect on the Company's Consolidated Financial Statements.
In March 2019, the FASB issued ASU 2019-01, "Leases (Topic 842): Codification Improvements." The amendments in this update include the following items: i) determining the fair value of the underlying asset by lessors that are not manufacturers or dealers; ii) requiring cash received from lessors from sales-type and direct financing leases to be presented in the cash flow statement within investing activities; and iii) clarifying interim disclosure requirements. The Company adopted this ASU on July 1, 2019. The adoption did not have a material effect on the Company's Consolidated Financial Statements.
In April 2019, the FASB issued ASU 2019-04, "Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments." The amendments in this update are part of the FASB's ongoing project to improve codification and correcting unintended application. The items within this ASU are not expected to have significant effect on current accounting practice. The effective date fair values becomes available.and transition requirements for the amendments to Financial Instruments (ASU 2016-01) are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2019 and early adoption is permitted. The effective date and transition requirements for the amendments to Financial Instruments-Credit Losses (ASU 2016-13) are the same as ASU 2016-13 noted above. The effective date and transition requirements for the amendments to Derivatives and Hedging (ASU 2017-12) are the
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Unitedsame as ASU 2017-12 noted above.The adoption of ASU No. 2019-04 is not expected to have a material impact on the Company's Consolidated Financial of North Carolina, Inc.Statements.
On December 31, 2016,In May 2019, the Bank acquired United FinancialFASB issued ASU 2019-05, "Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief." The amendments in this update allow companies to irrevocably elect, upon the adoption of North Carolina, Inc. ("United Financial"), a municipal lease company headquarteredASU 2016-13, the fair value option for financial instruments that i) were previously recorded at amortized cost and ii) are within the scope of the credit losses guidance in Fletcher, North Carolina that specializes in providing financing for fire departments and municipalitiesASC 326-20, iii) are eligible for the purchasefair value option under ASC 825-10, and iv) are not held-to-maturity debt securities. The effective date and transition requirements for this ASU is the same as ASU 2016-13. The adoption of fire trucksASU No. 2019-05 is not expected to have a material impact on the Company's Consolidated Financial Statements.
In July 2019, the FASB issued ASU 2019-07, "Codification Updates to SEC Sections." This ASU amends certain paragraphs in the ASC to reflect the issuance of SEC final rules on Disclosure Update and related equipment as well as the construction of fire stationsSimplification and Investment Company Reporting Modernization and other municipal buildings acrossmiscellaneous updates. The amendments became effective upon issuance. The adoption did not have a material effect on the CarolinasCompany's Consolidated Financial Statements.
In November 2019, the FASB issued ASU 2019-11, "Codification Improvements to Topic 326, Financial Instruments-Credit Losses." This ASU clarifies certain aspects of the amendments in ASU 2016-13 and other southeastern states. Unitedis part of the FASB's ongoing project to improve codification and correcting unintended application. The items within this ASU are not expected to have a significant effect on current accounting practice. The effective date and transition requirements for this ASU is the same as ASU 2016-13. The adoption of ASU No. 2019-11 is not expected to have a material impact on the Company's Consolidated Financial underwritesStatements.
In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." This ASU is part of the FASB's simplification initiative to reduce complexity in accounting standards. The items within this ASU are not expected to have a significant effect on current accounting practice. The effective date and originates these municipal leasestransition requirements for the first and then sells themsecond items of this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2020 and early adoption is permitted. The adoption of ASU No. 2019-12 is not expected to HomeTrusthave a material impact on the Company's Consolidated Financial Statements.
In January 2020, the FASB issued ASU 2020-01, "Investment—Equity Securities (Topic 321), Investments—Equity Method and other financial institutions. Beginning January 1, 2017, United Financial has conducted businessJoint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815." This ASU clarified the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the name United Financial,equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2021 and early adoption is permitted. The adoption of ASU No. 2020-01 is not expected to have a division of HomeTrust Bank.
The total consideration paid by the Bank in the United Financial acquisition was $425. Per the merger agreement, a cash payment of $200 was paidmaterial impact on the acquisition date with an additional $225 due inCompany's Consolidated Financial Statements.
In March 2020, the third quarter of fiscal 2018;FASB issued ASU 2020-03, "Codification Improvements to Financial Instruments." This ASU makes certain narrow-scope amendments to the following: i) clarified that all of which was allocatedentities are required to goodwill.
TriSummit Bancorp. Inc.
On January 1, 2017, HomeTrust completed its acquisition of TriSummit Bancorp, Inc., (“TriSummit”) pursuant to an Agreement and Plan of Merger, dated as of September 20, 2016, under which TriSummit merged with and into HomeTrust (the “Merger”) with HomeTrust asprovide fair value option disclosures; ii) clarified the surviving corporation in the Merger. Immediately following the Merger, TriSummit's wholly owned subsidiary bank, TriSummit Bank, merged with and into the Bank (together with the Merger, the “TriSummit Merger”).
Pursuant to the Merger Agreement, each shareapplicability of the common stock of TriSummitportfolio exception in ASC 820 to nonfinancial items; iii) aligned disclosures for depository and each share of Series A Preferred Stock of TriSummit issuedlending institutions (Topic 942) with guidance in Topic 320; iv) added cross-references to guidance in ASC 470-50 on line-of-credit or revolving-debt arrangements; v) added cross-references to net asset value practical expedient in ASC 820-10; vi) clarified the interaction between ASC 842 and outstanding immediately priorASC 326; and vii) clarified the interaction between ASC 326 and ASC 860-20. The amendments for issues i, ii, iv, and v became effective upon issuance and did not have a material effect on the Company's Consolidated Financial Statements. The amendment related to issue iii has the Merger (on ansame effective date and transition requirements as converted basisASU 2019-04 and is not expected to have a share of TriSummit common stock) was converted intomaterial impact on the rightCompany's Consolidated Financial Statements. The amendments related to receive $4.40 in cashissues vi and .2099 shares of HomeTrust common stock, with cash paid in lieu of fractional share interests. Atvii have the Mergersame effective date 50% of outstanding options granted by TriSummit were canceled. The remaining options were assumed by HomeTrust and converted into optionstransition requirements as ASU 2016-13 and is not expected to purchase 86,185 shares of HomeTrust Common Stock. In addition, TriSummit’s $7,222 Series B, Series C and Series D TARP preferred stock (all held by private shareholders) was redeemed in connection withhave a material impact on the closingCompany's Consolidated Financial Statements.
2. Debt Securities
Securities available for sale consist of the merger.following at the dates indicated:
The total consideration paid by HomeTrust in the TriSummit Merger approximates $36,126. The total number of HomeTrust shares issued was 765,277 shares. HomeTrust paid aggregate cash consideration of approximately $16,083. |
| | | | | | | | | | | | | | | |
| | June 30, 2020 |
| | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
| U.S. government agencies | $ | 3,957 |
| | $ | 216 |
| | $ | — |
| | $ | 4,173 |
|
| Residential MBS of U.S. government agencies and GSEs | 46,629 |
| | 1,776 |
| | (50 | ) | | 48,355 |
|
| Municipal bonds | 16,090 |
| | 541 |
| | — |
| | 16,631 |
|
| Corporate bonds | 58,242 |
| | 270 |
| | (134 | ) | | 58,378 |
|
| Total | $ | 124,918 |
| | $ | 2,803 |
| | $ | (184 | ) | | $ | 127,537 |
|
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The following table presents the consideration paid by the Company in the acquisition of TriSummit and the assets acquired and liabilities assumed as of January 1, 2017: |
| | | | | | | | | | | |
| | As Recorded by TriSummit | | Fair Value and Other Merger Related Adjustments | | As Recorded by the Company |
| Consideration Paid: | | | | | |
| Cash paid including cash in lieu of fractional shares | | | | | $ | 16,083 |
|
| Fair value of HomeTrust common stock at $25.90 per share | | | | | 20,043 |
|
| Total consideration | | | | | $ | 36,126 |
|
| Assets: | | | | | |
| Cash and cash equivalents | $ | 5,498 |
| | $ | — |
| | $ | 5,498 |
|
| Certificates of deposit in other banks | 250 |
| | — |
| | 250 |
|
| Investment securities | 58,728 |
| | (203 | ) | | 58,525 |
|
| Other investments, at cost | 2,614 |
| | — |
| | 2,614 |
|
| Loans, net | 261,926 |
| | (3,867 | ) | | 258,059 |
|
| Premises and equipment, net | 12,841 |
| | (2,419 | ) | | 10,422 |
|
| REO | 1,633 |
| | (122 | ) | | 1,511 |
|
| Deferred income taxes | 2,653 |
| | 4,462 |
| | 7,115 |
|
| Bank owned life insurance | 3,762 |
| | — |
| | 3,762 |
|
| Core deposit intangibles | 1,285 |
| | 1,575 |
| | 2,860 |
|
| Other assets | 1,453 |
| | (105 | ) | | 1,348 |
|
| Total assets acquired | $ | 352,643 |
| | $ | (679 | ) | | $ | 351,964 |
|
| | | | | | |
| Liabilities: | | | | | |
| Deposits | $ | 279,647 |
| | $ | 587 |
| | 280,234 |
|
| Borrowings | 47,453 |
| | 16 |
| | 47,469 |
|
| Other liabilities | 675 |
| | — |
| | 675 |
|
| Total liabilities assumed | $ | 327,775 |
| | $ | 603 |
| | $ | 328,378 |
|
| Net identifiable assets acquired over liabilities assumed | $ | 24,868 |
| | $ | (1,282 | ) | | $ | 23,586 |
|
| Goodwill | | | | | $ | 12,540 |
|
The carrying amount of acquired loans from TriSummit as of January1, 2017 consisted of purchased performing loans and Purchase Credit Impaired ("PCI") loans as detailed in the following table: |
| | | | | | | | | | | |
| | Purchased Performing | | PCI | | Total Loans |
| Retail Consumer Loans: | | | | | |
| One-to-four family | $ | 75,179 |
| | $ | 3,753 |
| | $ | 78,932 |
|
| HELOCs | 6,479 |
| | 2 |
| | 6,481 |
|
| Construction and land/lots | 15,591 |
| | — |
| | 15,591 |
|
| Consumer | 1,686 |
| | 17 |
| | 1,703 |
|
| Commercial: | | | |
| | |
| Commercial real estate | 107,880 |
| | 3,494 |
| | 111,374 |
|
| Construction and development | 15,253 |
| | 142 |
| | 15,395 |
|
| Commercial and industrial | 28,295 |
| | 288 |
| | 28,583 |
|
| Total | $ | 250,363 |
| | $ | 7,696 |
| | $ | 258,059 |
|
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The following table presents the performing loans receivable purchased from TriSummit at January 1, 2017, the acquisition date:
|
| | | |
| Contractually required principal payments receivable | $ | 255,852 |
|
| Adjustment for credit, interest rate, and liquidity | 5,489 |
|
| Balance of purchased loans receivable | $ | 250,363 |
|
The following table presents the PCI loans acquired from TriSummit at January 1, 2017, the acquisition date: |
| | | |
| Contractually required principal and interest payments receivable | $ | 11,474 |
|
| Amounts not expected to be collected - nonaccretable difference | 2,490 |
|
| Estimated payments expected to be received | 8,984 |
|
| Accretable yield | 1,288 |
|
| Fair value of PCI loans | $ | 7,696 |
|
3. Securities Available for Sale
Securities available for sale consist of the following at the dates indicated:
|
| | | | | | | | | | | | | | | |
| | June 30, 2018 |
| | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
| U.S. Government Agencies | $ | 48,025 |
| | $ | 1 |
| | $ | (484 | ) | | $ | 47,542 |
|
| Residential Mortgage-backed Securities of U.S. Government Agencies and Government-Sponsored Enterprises | 71,949 |
| | 88 |
| | (1,438 | ) | | 70,599 |
|
| Municipal Bonds | 30,865 |
| | 127 |
| | (226 | ) | | 30,766 |
|
| Corporate Bonds | 6,166 |
| | 25 |
| | (168 | ) | | 6,023 |
|
| Equity Securities | 63 |
| | — |
| | — |
| | 63 |
|
| Total | $ | 157,068 |
| | $ | 241 |
| | $ | (2,316 | ) | | $ | 154,993 |
|
|
| | | | | | | | | | | | | | | |
| | June 30, 2017 |
| | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
| U.S. Government Agencies | $ | 65,947 |
| | $ | 184 |
| | $ | (301 | ) | | $ | 65,830 |
|
| Residential Mortgage-backed Securities of U.S. Government Agencies and Government-Sponsored Enterprises | 92,841 |
| | 411 |
| | (281 | ) | | 92,971 |
|
| Municipal Bonds | 34,135 |
| | 403 |
| | (28 | ) | | 34,510 |
|
| Corporate Bonds | 6,267 |
| | 114 |
| | (88 | ) | | 6,293 |
|
| Equity Securities | 63 |
| | — |
| |
|
| | $ | 63 |
|
| Total | $ | 199,253 |
| | $ | 1,112 |
| | $ | (698 | ) | | $ | 199,667 |
|
|
| | | | | | | | | | | | | | | |
| | June 30, 2019 |
| | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
| U.S. government agencies | $ | 15,099 |
| | $ | 122 |
| | $ | (11 | ) | | $ | 15,210 |
|
| Residential MBS of U.S. government agencies and GSEs | 74,778 |
| | 586 |
| | (184 | ) | | 75,180 |
|
| Municipal bonds | 24,896 |
| | 423 |
| | (7 | ) | | 25,312 |
|
| Corporate bonds | 6,061 |
| | 43 |
| | (20 | ) | | 6,084 |
|
| Equity securities | — |
| | — |
| |
|
| | $ | — |
|
| Total | $ | 120,834 |
| | $ | 1,174 |
| | $ | (222 | ) | | $ | 121,786 |
|
Debt securities available for sale by contractual maturity at the dates indicated are shown below. Mortgage-backed securities are not included in the maturity categories because the borrowers in the underlying pools may prepay without penalty; therefore, it is unlikely that the securities will pay at their stated maturity schedule.
|
| | | | | | | |
| | June 30, 2018 |
| | Amortized Cost | | Estimated Fair Value |
| Due within one year | $ | 28,728 |
| | $ | 28,573 |
|
| Due after one year through five years | 41,273 |
| | 40,663 |
|
| Due after five years through ten years | 5,749 |
| | 5,829 |
|
| Due after ten years | 9,306 |
| | 9,266 |
|
| Mortgage-backed securities | 71,949 |
| | 70,599 |
|
| Total | $ | 157,005 |
| | $ | 154,930 |
|
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
|
| | | | | | | |
| | June 30, 2020 |
| | Amortized Cost | | Estimated Fair Value |
| Due within one year | $ | 29,190 |
| | $ | 29,247 |
|
| Due after one year through five years | 44,881 |
| | 45,516 |
|
| Due after five years through ten years | 2,434 |
| | 2,630 |
|
| Due after ten years | 1,784 |
| | 1,789 |
|
| Mortgage-backed securities | 46,629 |
| | 48,355 |
|
| Total | $ | 124,918 |
| | $ | 127,537 |
|
| | | | June 30, 2017 | June 30, 2019 |
| | Amortized Cost | | Estimated Fair Value | Amortized Cost | | Estimated Fair Value |
| Due within one year | $ | 1,430 |
| | $ | 1,430 |
| $ | 5,350 |
| | $ | 5,359 |
|
| Due after one year through five years | 75,025 |
| | 74,949 |
| 30,526 |
| | 30,784 |
|
| Due after five years through ten years | 19,535 |
| | 19,828 |
| 5,538 |
| | 5,798 |
|
| Due after ten years | 10,359 |
| | 10,426 |
| 4,642 |
| | 4,665 |
|
| Mortgage-backed securities | 92,841 |
| | 92,971 |
| 74,778 |
| | 75,180 |
|
| Total | $ | 199,190 |
| | $ | 199,604 |
| $ | 120,834 |
| | $ | 121,786 |
|
Gross proceedsThe Company had no sales of securities available for sale during the years ended June 30, 2020, 2019, and 2018. There were no gross realized gains or losses for the years ended June 30, 2020, 2019, and losses from sales of securities recognized in net income follow:
|
| | | | | | | | | | | |
| | June 30, |
| | 2018 | | 2017 | | 2016 |
| Gross proceeds from sales of securities | $ | — |
| | $ | 19,279 |
| | $ | — |
|
| Gross realized gains from sales of securities | — |
| | 70 |
| | — |
|
| Gross realized losses from sales of securities | — |
| | (48 | ) | | — |
|
Securities available for sale with amortized costs totaling $136,914$82,888 and $156,592 with$94,337 and market values of $135,313$84,456 and $154,264$94,876 at June 30, 20182020 and June 30, 2017,2019, respectively, were pledged as collateral to secure various public deposits and borrowings.
The gross unrealized losses and the fair value for securities available for sale aggregated by the length of time that individual securities have been in a continuous unrealized loss position as of June 30, 20182020 and June 30, 20172019 were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2018 |
| | Less than 12 Months | | 12 Months or More | | Total |
| | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
| U.S. Government Agencies | $ | 10,962 |
| | $ | (93 | ) | | $ | 35,605 |
| | $ | (391 | ) | | $ | 46,567 |
| | $ | (484 | ) |
| Residential Mortgage-backed Securities of U.S. Government Agencies and Government-Sponsored Enterprises | 39,238 |
| | (827 | ) | | 21,297 |
| | (611 | ) | | 60,535 |
| | (1,438 | ) |
| Municipal Bonds | 19,795 |
| | (208 | ) | | 1,446 |
| | (18 | ) | | 21,241 |
| | (226 | ) |
| Corporate Bonds | — |
| | — |
| | 3,566 |
| | (168 | ) | | 3,566 |
| | (168 | ) |
| Total | $ | 69,995 |
| | $ | (1,128 | ) | | $ | 61,914 |
| | $ | (1,188 | ) | | $ | 131,909 |
| | $ | (2,316 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2020 |
| | Less than 12 Months | | 12 Months or More | | Total |
| | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
| Residential MBS of U.S. government agencies and GSEs | $ | 227 |
| | $ | (10 | ) | | $ | 2,435 |
| | $ | (40 | ) | | $ | 2,662 |
| | $ | (50 | ) |
| Corporate bonds | 11,779 |
| | (134 | ) | | — |
| | — |
| | 11,779 |
| | (134 | ) |
| Total | $ | 12,006 |
| | $ | (144 | ) | | $ | 2,435 |
| | $ | (40 | ) | | $ | 14,441 |
| | $ | (184 | ) |
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2017 |
| | Less than 12 Months | | 12 Months or More | | Total |
| | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
| U.S. Government Agencies | $ | 46,767 |
| | $ | (222 | ) | | $ | 6,921 |
| | $ | (79 | ) | | $ | 53,688 |
| | $ | (301 | ) |
| Residential Mortgage-backed Securities of U.S. Government Agencies and Government-Sponsored Enterprises | 42,921 |
| | (240 | ) | | 3,970 |
| | (41 | ) | | 46,891 |
| | (281 | ) |
| Municipal Bonds | 9,153 |
| | (28 | ) | | — |
| | — |
| | 9,153 |
| | (28 | ) |
| Corporate Bonds | $ | 3,734 |
| | $ | (88 | ) | | $ | — |
| | $ | — |
| | $ | 3,734 |
| | $ | (88 | ) |
| Total | $ | 102,575 |
| | $ | (578 | ) | | $ | 10,891 |
| | $ | (120 | ) | | $ | 113,466 |
| | $ | (698 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2019 |
| | Less than 12 Months | | 12 Months or More | | Total |
| | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
| U.S. government agencies | $ | — |
| | $ | — |
| | $ | 6,988 |
| | $ | (11 | ) | | $ | 6,988 |
| | $ | (11 | ) |
| Residential MBS of U.S. government agencies and GSEs | 1,144 |
| | (3 | ) | | 24,242 |
| | (181 | ) | | 25,386 |
| | (184 | ) |
| Municipal bonds | — |
| | — |
| | 4,895 |
| | (7 | ) | | 4,895 |
| | (7 | ) |
| Corporate bonds | $ | 393 |
| | $ | (5 | ) | | $ | 3,630 |
| | $ | (15 | ) | | $ | 4,023 |
| | $ | (20 | ) |
| Total | $ | 1,537 |
| | $ | (8 | ) | | $ | 39,755 |
| | $ | (214 | ) | | $ | 41,292 |
| | $ | (222 | ) |
The total number of securities with unrealized losses at June 30, 2018,2020, and June 30, 20172019 were 21824 and 136,100, respectively. Unrealized losses on securities have not been recognized in income because management has the intent and ability to hold the securities for the foreseeable future, and has determined that it is not more likely than not that the Company will be required to sell the securities prior to a recovery in value. The declineincrease in fair value was largely due to increasesdecreases in market interest rates. The Company had no other than temporary impairment losses during the years ended June 2018, 20172020, 2019 or 2016.2018.
Other investments, at cost consist of the following at the dates indicated:
|
| | | | | | | |
| | June 30, 2020 | | June 30, 2019 |
| FHLB of Atlanta stock | $ | 23,309 |
| | $ | 31,969 |
|
| FRB stock | 7,368 |
| | 7,335 |
|
| SBIC investments | 8,269 |
| | 6,074 |
|
| Total | $ | 38,946 |
| | $ | 45,378 |
|
As a requirement for membership, the Bank invests in the stock of both the FHLB of Atlanta and the FRB. No ready market exists for these securities so carrying value approximates their fair value based on the redemption provisions of the FHLB of Atlanta and the FRB, respectively. SBIC investments are equity securities without a readily determinable fair value.
Loans held for sale as of the dates indicated consist of the following:
|
| | | | | | | |
| | June 30, 2020 | | June 30, 2019 |
| One-to-four family | $ | 28,152 |
| | $ | 8,196 |
|
| SBA | 1,240 |
| | 3,746 |
|
| HELOCs | 47,785 |
| | 6,233 |
|
| Total | $ | 77,177 |
| | $ | 18,175 |
|
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
As a requirement for membership, the Bank invests in stock of the FHLB and the Federal Reserve Bank. No ready market exists for these stocks and the carrying value approximates its fair value based on the redemption provisions of the FHLB and the Federal Reserve Bank.
4.5. Loans
Loans consist of the following at the dates indicated:
| | | | June 30,
2018 | | June 30,
2017 | June 30,
2020 | | June 30,
2019 |
| Retail consumer loans: | | | | | | |
| One-to-four family | $ | 664,289 |
| | $ | 684,089 |
| $ | 473,693 |
| | $ | 660,591 |
|
| HELOCs - originated | 137,564 |
| | 157,068 |
| 137,447 |
| | 139,435 |
|
| HELOCs - purchased | 166,276 |
| | 162,407 |
| 71,781 |
| | 116,972 |
|
| Construction and land/lots | 65,601 |
| | 50,136 |
| 81,859 |
| | 80,602 |
|
| Indirect auto finance | 173,095 |
| | 140,879 |
| 132,303 |
| | 153,448 |
|
| Consumer | 12,379 |
| | 7,900 |
| 10,259 |
| | 11,416 |
|
| Total retail consumer loans | 1,219,204 |
| | 1,202,479 |
| 907,342 |
| | 1,162,464 |
|
| Commercial loans: | | | | | | |
| Commercial real estate | 857,315 |
| | 730,408 |
| 1,052,906 |
| | 927,261 |
|
| Construction and development | 192,102 |
| | 197,966 |
| 215,934 |
| | 210,916 |
|
| Commercial and industrial | 148,823 |
| | 120,387 |
| 154,825 |
| | 160,471 |
|
| Equipment finance | | 229,239 |
| | 132,058 |
|
| Municipal leases | 109,172 |
| | 101,175 |
| 127,987 |
| | 112,016 |
|
| Paycheck Protection Program | | 80,697 |
| | — |
|
| Total commercial loans | 1,307,412 |
| | 1,149,936 |
| 1,861,588 |
| | 1,542,722 |
|
| Total loans | 2,526,616 |
| | 2,352,415 |
| 2,768,930 |
| | 2,705,186 |
|
| Deferred loan fees, net | (764 | ) | | (945 | ) | |
| Total loans, net of deferred loan fees | 2,525,852 |
| | 2,351,470 |
| |
| Deferred loan costs, net | | 189 |
| | 4 |
|
| Total loans, net of deferred loan costs | | 2,769,119 |
| | 2,705,190 |
|
| Allowance for loan and lease losses | (21,060 | ) | | (21,151 | ) | (28,072 | ) | | (21,429 | ) |
| Net loans | $ | 2,504,792 |
| | $ | 2,330,319 |
| $ | 2,741,047 |
| | $ | 2,683,761 |
|
All qualifying one-to-four family first mortgage loans, HELOCs, commercial real estate loans, and FHLB Stock are pledged as collateral by a blanket pledge to secure outstanding FHLB advances.
Loans are made to the Company's executive officers and directors and their associates during the ordinary course of business. The aggregate amount of loans to related parties totaled approximately $409$1,498 and $338$1,800 at June 30, 20182020 and 2017,2019, respectively. In relation to these loans are unfunded commitments that totaled approximately $287$54 and $750$118 at June 30, 20182020 and 2017,2019, respectively.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The Company’s total non-purchased and purchased performing loans by segment, class, and risk grade at the dates indicated follow:follows:
| | | | Pass | | Special Mention | | Substandard | | Doubtful | | Loss | | Total | Pass | | Special Mention | | Substandard | | Doubtful | | Loss | | Total |
| June 30, 2018 | | | | | | | | | | | | |
| June 30, 2020 | | | | | | | | | | | | |
| Retail consumer loans: | | | | | | | | | | | | | | | | | | | | | | |
| One-to-four family | $ | 643,077 |
| | $ | 3,576 |
| | $ | 10,059 |
| | $ | 746 |
| | $ | 14 |
| | $ | 657,472 |
| $ | 458,248 |
| | $ | 1,724 |
| | $ | 9,042 |
| | $ | 206 |
| | $ | — |
| | $ | 469,220 |
|
| HELOCs - originated | 135,336 |
| | 113 |
| | 1,735 |
| | 150 |
| | 6 |
| | 137,340 |
| 134,697 |
| | 902 |
| | 1,848 |
| | — |
| | — |
| | 137,447 |
|
| HELOCs - purchased | 166,089 |
| | — |
| | 187 |
| | — |
| | — |
| | 166,276 |
| 71,119 |
| | — |
| | 662 |
| | — |
| | — |
| | 71,781 |
|
| Construction and land/lots | 64,823 |
| | 23 |
| | 257 |
| | 54 |
| | — |
| | 65,157 |
| 81,112 |
| | — |
| | 402 |
| | — |
| | — |
| | 81,514 |
|
| Indirect auto finance | 172,675 |
| | — |
| | 420 |
| |
|
| | — |
| | 173,095 |
| 130,975 |
| | — |
| | 1,328 |
| |
|
| | — |
| | 132,303 |
|
| Consumer | 11,723 |
| | 85 |
| | 558 |
| | 2 |
| | 11 |
| | 12,379 |
| 9,894 |
| | 4 |
| | 361 |
| | — |
| | — |
| | 10,259 |
|
| Commercial loans: | | | | | | | | | | | | | | | | | | | | | | |
| Commercial real estate | 835,485 |
| | 5,804 |
| | 6,787 |
| | — |
| | — |
| | 848,076 |
| 1,028,709 |
| | 7,580 |
| | 10,779 |
| | — |
| | 16 |
| | 1,047,084 |
|
| Construction and development | 187,187 |
| | 621 |
| | 2,067 |
| | — |
| | — |
| | 189,875 |
| 212,370 |
| | 2,723 |
| | 250 |
| | 1 |
| | — |
| | 215,344 |
|
| Commercial and industrial | 145,177 |
| | 1,279 |
| | 414 |
| | — |
| | — |
| | 146,870 |
| 130,202 |
| | 20,439 |
| | 2,622 |
| | — |
| | — |
| | 153,263 |
|
| Equipment finance | | 228,288 |
| | 150 |
| | 801 |
| | — |
| | — |
| | 229,239 |
|
| Municipal leases | 108,864 |
| | 308 |
| | — |
| | — |
| | — |
| | 109,172 |
| 127,706 |
| | 281 |
| | — |
| | — |
| | — |
| | 127,987 |
|
| Paycheck Protection Program | | 80,697 |
| | — |
| | — |
| | — |
| | — |
| | 80,697 |
|
| Total loans | $ | 2,470,436 |
| | $ | 11,809 |
| | $ | 22,484 |
| | $ | 952 |
| | $ | 31 |
| | $ | 2,505,712 |
| $ | 2,694,017 |
| | $ | 33,803 |
| | $ | 28,095 |
| | $ | 207 |
| | $ | 16 |
| | $ | 2,756,138 |
|
| | | | Pass | | Special Mention | | Substandard | | Doubtful | | Loss | | Total | Pass | | Special Mention | | Substandard | | Doubtful | | Loss | | Total |
| June 30, 2017 | | | | | | | | | | | | |
| June 30, 2019 | | | | | | | | | | | | |
| Retail consumer loans: | | | | | | | | | | | | | | | | | | | | | | |
| One-to-four family | $ | 655,424 |
| | $ | 4,715 |
| | $ | 14,769 |
| | $ | 1,101 |
| | $ | 11 |
| | $ | 676,020 |
| $ | 644,159 |
| | $ | 2,089 |
| | $ | 8,072 |
| | $ | 384 |
| | $ | 19 |
| | $ | 654,723 |
|
| HELOCs - originated | 153,676 |
| | 809 |
| | 2,100 |
| | 188 |
| | 7 |
| | 156,780 |
| 137,001 |
| | 766 |
| | 1,434 |
| | — |
| | 9 |
| | 139,210 |
|
| HELOCs - purchased | 162,215 |
| | — |
| | 192 |
| | — |
| | — |
| | 162,407 |
| 116,306 |
| | — |
| | 666 |
| | — |
| | — |
| | 116,972 |
|
| Construction and land/lots | 48,728 |
| | 479 |
| | 341 |
| | 60 |
| | — |
| | 49,608 |
| 79,995 |
| | 71 |
| | 164 |
| | — |
| | — |
| | 80,230 |
|
| Indirect auto finance | 140,780 |
| | — |
| | 97 |
| | 1 |
| | 1 |
| | 140,879 |
| 152,393 |
| | 13 |
| | 1,042 |
| |
|
| | — |
| | 153,448 |
|
| Consumer | 7,828 |
| | 12 |
| | 34 |
| | — |
| | 8 |
| | 7,882 |
| 11,375 |
| | 1 |
| | 33 |
| | 3 |
| | 4 |
| | 11,416 |
|
| Commercial loans: | | | | | | | | | | | | | | | | | | | | | | |
| Commercial real estate | 700,060 |
| | 5,847 |
| | 7,118 |
| | — |
| | — |
| | 713,025 |
| 901,214 |
| | 8,066 |
| | 10,306 |
| | — |
| | — |
| | 919,586 |
|
| Construction and development | 192,025 |
| | 992 |
| | 2,320 |
| | — |
| | — |
| | 195,337 |
| 207,827 |
| | 790 |
| | 1,357 |
| | 1 |
| | — |
| | 209,975 |
|
| Commercial and industrial | 113,923 |
| | 883 |
| | 2,954 |
| | — |
| | 1 |
| | 117,761 |
| 157,325 |
| | 877 |
| | 600 |
| | — |
| | — |
| | 158,802 |
|
| Equipment finance | | 131,674 |
| | — |
| | 384 |
| | — |
| | — |
| | 132,058 |
|
| Municipal leases | 99,811 |
| | 1,258 |
| | 106 |
| | — |
| | — |
| | 101,175 |
| 111,721 |
| | 295 |
| | — |
| | — |
| | — |
| | 112,016 |
|
| Total loans | $ | 2,274,470 |
| | $ | 14,995 |
| | $ | 30,031 |
| | $ | 1,350 |
| | $ | 28 |
| | $ | 2,320,874 |
| $ | 2,650,990 |
| | $ | 12,968 |
| | $ | 24,058 |
| | $ | 388 |
| | $ | 32 |
| | $ | 2,688,436 |
|
The Company’s total PCI loans by segment, class, and risk grade at the dates indicated follow:follows:
| | | | Pass | | Special Mention | | Substandard | | Doubtful | | Loss | | Total | Pass | | Special Mention | | Substandard | | Doubtful | | Loss | | Total |
| June 30, 2018 | | | | | | | | | | | | |
| June 30, 2020 | | | | | | | | | | | | |
| Retail consumer loans: | | | | | | | | | | | | | | | | | | | | | | |
| One-to-four family | $ | 4,620 |
| | $ | 388 |
| | $ | 1,809 |
| | $ | — |
| | $ | — |
| | $ | 6,817 |
| $ | 2,994 |
| | $ | 465 |
| | $ | 1,014 |
| | $ | — |
| | $ | — |
| | $ | 4,473 |
|
| HELOCs - originated | 224 |
| | — |
| | — |
| | — |
| | — |
| | 224 |
| |
| Construction and land/lots | 444 |
| | — |
| | — |
| | — |
| | — |
| | 444 |
| 108 |
| | — |
| | 237 |
| | — |
| | — |
| | 345 |
|
| Commercial loans: | | | | | | | | | | | | | | | | | | | | | | |
| Commercial real estate | 4,718 |
| | 2,162 |
| | 2,359 |
| | — |
| | — |
| | 9,239 |
| 3,181 |
| | 1,742 |
| | 899 |
| | — |
| | — |
| | 5,822 |
|
| Construction and development | 547 |
| | — |
| | 1,680 |
| | — |
| | — |
| | 2,227 |
| 271 |
| | — |
| | 319 |
| | — |
| | — |
| | 590 |
|
| Commercial and industrial | 1,894 |
| | — |
| | 59 |
| | — |
| | — |
| | 1,953 |
| 1,556 |
| | — |
| | 3 |
| | — |
| | 3 |
| | 1,562 |
|
| Total loans | $ | 12,447 |
| | $ | 2,550 |
| | $ | 5,907 |
| | $ | — |
| | $ | — |
| | $ | 20,904 |
| $ | 8,110 |
| | $ | 2,207 |
| | $ | 2,472 |
| | $ | — |
| | $ | 3 |
| | $ | 12,792 |
|
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
| | | | Pass | | Special Mention | | Substandard | | Doubtful | | Loss | | Total | Pass | | Special Mention | | Substandard | | Doubtful | | Loss | | Total |
| June 30, 2017 | | | | | | | | | | | | |
| June 30, 2019 | | | | | | | | | | | | |
| Retail consumer loans: | | | | | | | | | | | | | | | | | | | | | | |
| One-to-four family | $ | 3,115 |
| | $ | 1,129 |
| | $ | 3,615 |
| | $ | 210 |
| | $ | — |
| | $ | 8,069 |
| $ | 4,124 |
| | $ | 248 |
| | $ | 1,496 |
| | $ | — |
| | $ | — |
| | $ | 5,868 |
|
| HELOCs - originated | 258 |
| | — |
| | 30 |
| | — |
| | — |
| | 288 |
| 225 |
| | — |
| | — |
| | — |
| | — |
| | 225 |
|
| Construction and land/lots | 487 |
| | — |
| | 41 |
| | — |
| | — |
| | 528 |
| 142 |
| | — |
| | 230 |
| | — |
| | — |
| | 372 |
|
| Consumer | 4 |
| | 14 |
| | — |
| | — |
| | — |
| | 18 |
| |
| Commercial loans: | | | | | | | | | | | | | | | | | | | | | | |
| Commercial real estate | 8,909 |
| | 2,299 |
| | 6,175 |
| | — |
| | — |
| | 17,383 |
| 4,503 |
| | 1,903 |
| | 1,300 |
| | — |
| | — |
| | 7,706 |
|
| Construction and development | 338 |
| | — |
| | 2,291 |
| | — |
| | — |
| | 2,629 |
| 453 |
| | — |
| | 488 |
| | — |
| | — |
| | 941 |
|
| Commercial and industrial | 2,460 |
| | 44 |
| | 122 |
| | — |
| | — |
| | 2,626 |
| 1,666 |
| | — |
| | — |
| | — |
| | 3 |
| | 1,669 |
|
| Total loans | $ | 15,571 |
| | $ | 3,486 |
| | $ | 12,274 |
| | $ | 210 |
| | $ | — |
| | $ | 31,541 |
| $ | 11,113 |
| | $ | 2,151 |
| | $ | 3,514 |
| | $ | — |
| | $ | 3 |
| | $ | 16,781 |
|
The Company’s total loans by segment, class, and delinquency status at the dates indicated follows:
| | | | Past Due | | | | Total | Past Due | | | | Total |
| | 30-89 Days | | 90 Days+ | | Total | | Current | | Loans | 30-89 Days | | 90 Days+ | | Total | | Current | | Loans |
| June 30, 2018 | | | | | | | | | | |
| June 30, 2020 | | | | | | | | | | |
| Retail consumer loans: | | | | | | | | | | | | | | | | | | |
| One-to-four family | $ | 3,001 |
| | $ | 1,756 |
| | $ | 4,757 |
| | $ | 659,532 |
| | $ | 664,289 |
| $ | 1,679 |
| | $ | 3,147 |
| | $ | 4,826 |
| | $ | 468,867 |
| | $ | 473,693 |
|
| HELOCs - originated | 98 |
| | 268 |
| | 366 |
| | 137,198 |
| | 137,564 |
| 442 |
| | 310 |
| | 752 |
| | 136,695 |
| | 137,447 |
|
| HELOCs - purchased | — |
| | — |
| | — |
| | 166,276 |
| | 166,276 |
| 214 |
| | 47 |
| | 261 |
| | 71,520 |
| | 71,781 |
|
| Construction and land/lots | 44 |
| | 54 |
| | 98 |
| | 65,503 |
| | 65,601 |
| — |
| | 252 |
| | 252 |
| | 81,607 |
| | 81,859 |
|
| Indirect auto finance | 335 |
| | 127 |
| | 462 |
| | 172,633 |
| | 173,095 |
| 756 |
| | 285 |
| | 1,041 |
| | 131,262 |
| | 132,303 |
|
| Consumer | 238 |
| | 39 |
| | 277 |
| | 12,102 |
| | 12,379 |
| 30 |
| | 25 |
| | 55 |
| | 10,204 |
| | 10,259 |
|
| Commercial loans: | | | | | | | | | | | | | | | | | | |
| Commercial real estate | 169 |
| | 1,412 |
| | 1,581 |
| | 855,734 |
| | 857,315 |
| 4,528 |
| | 2,892 |
| | 7,420 |
| | 1,045,486 |
| | 1,052,906 |
|
| Construction and development | 260 |
| | 1,928 |
| | 2,188 |
| | 189,914 |
| | 192,102 |
| 293 |
| | 341 |
| | 634 |
| | 215,300 |
| | 215,934 |
|
| Commercial and industrial | 15 |
| | 69 |
| | 84 |
| | 148,739 |
| | 148,823 |
| — |
| | 91 |
| | 91 |
| | 154,734 |
| | 154,825 |
|
| Equipment finance | | 303 |
| | 498 |
| | 801 |
| | 228,438 |
| | 229,239 |
|
| Municipal leases | — |
| | — |
| | — |
| | 109,172 |
| | 109,172 |
| — |
| | — |
| | — |
| | 127,987 |
| | 127,987 |
|
| Paycheck Protection Program | | — |
| | — |
| | — |
| | 80,697 |
| | 80,697 |
|
| Total loans | $ | 4,160 |
| | $ | 5,653 |
| | $ | 9,813 |
| | $ | 2,516,803 |
| | $ | 2,526,616 |
| $ | 8,245 |
| | $ | 7,888 |
| | $ | 16,133 |
| | $ | 2,752,797 |
| | $ | 2,768,930 |
|
| | | | Past Due | | | | Total | Past Due | | | | Total |
| | 30-89 Days | | 90 Days+ | | Total | | Current | | Loans | 30-89 Days | | 90 Days+ | | Total | | Current | | Loans |
| June 30, 2017 | | | | | | | | | | |
| June 30, 2019 | | | | | | | | | | |
| Retail consumer loans: | | | | | | | | | | | | | | | | | | |
| One-to-four family | $ | 3,496 |
| | $ | 3,990 |
| | $ | 7,486 |
| | $ | 676,603 |
| | $ | 684,089 |
| $ | 1,615 |
| | $ | 1,389 |
| | $ | 3,004 |
| | $ | 657,587 |
| | $ | 660,591 |
|
| HELOCs - originated | 1,037 |
| | 274 |
| | 1,311 |
| | 155,757 |
| | 157,068 |
| 226 |
| | 231 |
| | 457 |
| | 138,978 |
| | 139,435 |
|
| HELOCs - purchased | — |
| | — |
| | — |
| | 162,407 |
| | 162,407 |
| — |
| | 485 |
| | 485 |
| | 116,487 |
| | 116,972 |
|
| Construction and land/lots | 132 |
| | 129 |
| | 261 |
| | 49,875 |
| | 50,136 |
| 138 |
| | 6 |
| | 144 |
| | 80,458 |
| | 80,602 |
|
| Indirect auto finance | 96 |
| | — |
| | 96 |
| | 140,783 |
| | 140,879 |
| 459 |
| | 237 |
| | 696 |
| | 152,752 |
| | 153,448 |
|
| Consumer | 5 |
| | 14 |
| | 19 |
| | 7,881 |
| | 7,900 |
| 6 |
| | 8 |
| | 14 |
| | 11,402 |
| | 11,416 |
|
| Commercial loans: | | | | | | | | | | | | | | | | | | |
| Commercial real estate | 809 |
| | 3,100 |
| | 3,909 |
| | 726,499 |
| | 730,408 |
| 2,279 |
| | 516 |
| | 2,795 |
| | 924,466 |
| | 927,261 |
|
| Construction and development | 385 |
| | 887 |
| | 1,272 |
| | 196,694 |
| | 197,966 |
| — |
| | 1,133 |
| | 1,133 |
| | 209,783 |
| | 210,916 |
|
| Commercial and industrial | 37 |
| | 831 |
| | 868 |
| | 119,519 |
| | 120,387 |
| 207 |
| | 99 |
| | 306 |
| | 160,165 |
| | 160,471 |
|
| Equipment finance | | 649 |
| | 384 |
| | 1,033 |
| | 131,025 |
| | 132,058 |
|
| Municipal leases | — |
| | — |
| | — |
| | 101,175 |
| | 101,175 |
| — |
| | — |
| | — |
| | 112,016 |
| | 112,016 |
|
| Total loans | $ | 5,997 |
| | $ | 9,225 |
| | $ | 15,222 |
| | $ | 2,337,193 |
| | $ | 2,352,415 |
| $ | 5,579 |
| | $ | 4,488 |
| | $ | 10,067 |
| | $ | 2,695,119 |
| | $ | 2,705,186 |
|
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The Company’s recorded investment in loans, by segment and class that are not accruing interest or are 90 days or more past due and still accruing interest at the dates indicated follow:follows:
| | | | June 30, 2018 | | June 30, 2017 | June 30, 2020 | | June 30, 2019 |
| | Nonaccruing | | 90 Days + & still accruing | | Nonaccruing | | 90 Days + & still accruing | Nonaccruing | | 90 Days + & still accruing | | Nonaccruing | | 90 Days + & still accruing |
| Retail consumer loans: | | | | | | | | | | | | | | |
| One-to-four family | $ | 4,308 |
| | $ | — |
| | $ | 6,453 |
| | $ | — |
| $ | 3,582 |
| | $ | — |
| | $ | 3,223 |
| | $ | — |
|
| HELOCs - originated | 656 |
| | — |
| | 1,291 |
| | — |
| 531 |
| | — |
| | 372 |
| | — |
|
| HELOCs - purchased | 187 |
| | — |
| | 192 |
| | — |
| 662 |
| | — |
| | 666 |
| | — |
|
| Construction and land/lots | 165 |
| | — |
| | 245 |
| | — |
| 37 |
| | — |
| | 6 |
| | — |
|
| Indirect auto finance | 255 |
| | — |
| | 1 |
| | — |
| 668 |
| | — |
| | 463 |
| | — |
|
| Consumer | 321 |
| | — |
| | 29 |
| | — |
| 49 |
| | — |
| | 21 |
| | — |
|
| Commercial loans: | | | | | | | | | | | | | | |
| Commercial real estate | 2,863 |
| | — |
| | 2,756 |
| | — |
| 8,869 |
| | — |
| | 3,559 |
| | — |
|
| Construction and development | 2,045 |
| | — |
| | 1,766 |
| | — |
| 465 |
| | — |
| | 1,357 |
| | — |
|
| Commercial and industrial | 114 |
| | — |
| | 827 |
| | — |
| 259 |
| | — |
| | 307 |
| | — |
|
| Municipal leases | — |
| | — |
| | 106 |
| | — |
| |
| Equipment finance | | 801 |
| | — |
| | 384 |
| | — |
|
| Total loans | $ | 10,914 |
| | $ | — |
| | $ | 13,666 |
| | $ | — |
| $ | 15,923 |
| | $ | — |
| | $ | 10,358 |
| | $ | — |
|
PCI loans totaling $3,353 $965at June 30, 20182020 and $6,664$1,344 at June 30, 20172019 are excluded from nonaccruing loans due to the accretion of discounts established in accordance with the acquisition method of accounting for business combinations.
TDRs are loans which have renegotiated loan terms to assist borrowers who are unable to meet the original terms of their loans. Such modifications to loan terms may include a lower interest rate, a reduction in principal, or a longer term to maturity. Additionally, all TDRs are considered impaired.
The Company’s loans that were performing under the payment terms of TDRs that were excluded from nonaccruing loans above at the dates indicated follow:follows:
|
| | | | | | | |
| | June 30, 2018 | | June 30, 2017 |
| Performing TDRs | $ | 21,251 |
| | $ | 27,043 |
|
|
| | | | | | | |
| | June 30, 2020 | | June 30, 2019 |
| Performing TDRs included in impaired loans | $ | 13,153 |
| | $ | 23,116 |
|
An analysis of the allowance for loan losses by segment for the periods shown is as follows:
| | | | June 30, 2018 | June 30, 2020 |
| | PCI | | Retail Consumer | | Commercial | | Total | PCI | | Retail Consumer | | Commercial | | Total |
| Balance at beginning of period | $ | 727 |
| | $ | 8,585 |
| | $ | 11,839 |
| | $ | 21,151 |
| $ | 201 |
| | $ | 6,419 |
| | $ | 14,809 |
| | $ | 21,429 |
|
| Provision for (recovery of) loan losses | 228 |
| | (906 | ) | | 678 |
| | — |
| (19 | ) | | (137 | ) | | 8,656 |
| | 8,500 |
|
| Charge-offs | (472 | ) | | (1,142 | ) | | (1,033 | ) | | (2,647 | ) | — |
| | (855 | ) | | (2,961 | ) | | (3,816 | ) |
| Recoveries | — |
| | 990 |
| | 1,566 |
| | 2,556 |
| — |
| | 1,479 |
| | 480 |
| | 1,959 |
|
| Balance at end of period | $ | 483 |
| | $ | 7,527 |
| | $ | 13,050 |
| | $ | 21,060 |
| $ | 182 |
| | $ | 6,906 |
| | $ | 20,984 |
| | $ | 28,072 |
|
| | | | June 30, 2017 | June 30, 2019 |
| | PCI | | Retail Consumer | | Commercial | | Total | PCI | | Retail Consumer | | Commercial | | Total |
| Balance at beginning of period | $ | 361 |
| | $ | 11,549 |
| | $ | 9,382 |
| | $ | 21,292 |
| $ | 483 |
| | $ | 7,527 |
| | $ | 13,050 |
| | $ | 21,060 |
|
| Provision for (recovery of) loan losses | 366 |
| | (2,829 | ) | | 2,463 |
| | — |
| (282 | ) | | (1,244 | ) | | 7,226 |
| | 5,700 |
|
| Charge-offs | — |
| | (1,219 | ) | | (1,331 | ) | | (2,550 | ) | — |
| | (1,136 | ) | | (6,273 | ) | | (7,409 | ) |
| Recoveries | — |
| | 1,084 |
| | 1,325 |
| | 2,409 |
| — |
| | 1,272 |
| | 806 |
| | 2,078 |
|
| Balance at end of period | $ | 727 |
| | $ | 8,585 |
| | $ | 11,839 |
| | $ | 21,151 |
| $ | 201 |
| | $ | 6,419 |
| | $ | 14,809 |
| | $ | 21,429 |
|
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
| | | | June 30, 2016 | June 30, 2018 |
| | PCI | | Retail Consumer | | Commercial | | Total | PCI | | Retail Consumer | | Commercial | | Total |
| Balance at beginning of period | $ | 401 |
| | $ | 12,575 |
| | $ | 9,398 |
| | $ | 22,374 |
| $ | 727 |
| | $ | 8,585 |
| | $ | 11,839 |
| | $ | 21,151 |
|
| Provision for (recovery of) loan losses | (40 | ) | | (597 | ) | | 637 |
| | — |
| 228 |
| | (906 | ) | | 678 |
| | — |
|
| Charge-offs | — |
| | (1,663 | ) | | (2,041 | ) | | (3,704 | ) | (472 | ) | | (1,142 | ) | | (1,033 | ) | | (2,647 | ) |
| Recoveries | — |
| | 1,234 |
| | 1,388 |
| | 2,622 |
| — |
| | 990 |
| | 1,566 |
| | 2,556 |
|
| Balance at end of period | $ | 361 |
| | $ | 11,549 |
| | $ | 9,382 |
| | $ | 21,292 |
| $ | 483 |
| | $ | 7,527 |
| | $ | 13,050 |
| | $ | 21,060 |
|
The Company’s ending balances of loans and the related allowance, by segment and class, at the dates indicated follows:
| | | | Allowance for Loan Losses | | Total Loans Receivable | Allowance for Loan Losses | | Total Loans Receivable |
| | PCI | | Loans individually evaluated for impairment | | Loans Collectively Evaluated | | Total | | PCI | | Loans individually evaluated for impairment | | Loans Collectively Evaluated | | Total | PCI | | Loans individually evaluated for impairment | | Loans Collectively Evaluated | | Total | | PCI | | Loans individually evaluated for impairment | | Loans Collectively Evaluated | | Total |
| June 30, 2018 | | | | | | | | | | | | | | | | |
| June 30, 2020 | | | | | | | | | | | | | | | | |
| Retail consumer loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| One-to-four family | $ | 98 |
| | $ | 125 |
| | $ | 3,137 |
| | $ | 3,360 |
| | $ | 6,817 |
| | $ | 7,104 |
| | $ | 650,368 |
| | $ | 664,289 |
| $ | 17 |
| | $ | 52 |
| | $ | 2,400 |
| | $ | 2,469 |
| | $ | 4,473 |
| | $ | 4,304 |
| | $ | 464,916 |
| | $ | 473,693 |
|
| HELOCs - originated | — |
| | 6 |
| | 1,117 |
| | 1,123 |
| | 224 |
| | 452 |
| | 136,888 |
| | 137,564 |
| — |
| | — |
| | 1,344 |
| | 1,344 |
| | — |
| | — |
| | 137,447 |
| | 137,447 |
|
| HELOCs - purchased | — |
| | — |
| | 795 |
| | 795 |
| | — |
| | — |
| | 166,276 |
| | 166,276 |
| — |
| | — |
| | 430 |
| | 430 |
| | — |
| | — |
| | 71,781 |
| | 71,781 |
|
| Construction and land/lots | — |
| | 19 |
| | 1,134 |
| | 1,153 |
| | 444 |
| | 583 |
| | 64,574 |
| | 65,601 |
| 33 |
| | — |
| | 1,409 |
| | 1,442 |
| | 345 |
| | 296 |
| | 81,218 |
| | 81,859 |
|
| Indirect auto finance | — |
| | — |
| | 1,126 |
| | 1,126 |
| | — |
| | — |
| | 173,095 |
| | 173,095 |
| — |
| | — |
| | 1,136 |
| | 1,136 |
| | — |
| | 10 |
| | 132,293 |
| | 132,303 |
|
| Consumer | — |
| | 11 |
| | 57 |
| | 68 |
| | — |
| | 11 |
| | 12,368 |
| | 12,379 |
| — |
| | — |
| | 135 |
| | 135 |
| | — |
| | — |
| | 10,259 |
| | 10,259 |
|
| Commercial loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial real estate | 138 |
| | 28 |
| | 8,029 |
| | 8,195 |
| | 9,239 |
| | 3,511 |
| | 844,565 |
| | 857,315 |
| 113 |
| | 961 |
| | 10,731 |
| | 11,805 |
| | 5,822 |
| | 7,924 |
| | 1,039,160 |
| | 1,052,906 |
|
| Construction and development | 229 |
| | 8 |
| | 3,109 |
| | 3,346 |
| | 2,227 |
| | 2,223 |
| | 187,652 |
| | 192,102 |
| 4 |
| | 5 |
| | 3,599 |
| | 3,608 |
| | 590 |
| | 299 |
| | 215,045 |
| | 215,934 |
|
| Commercial and industrial | 18 |
| | — |
| | 1,458 |
| | 1,476 |
| | 1,953 |
| | — |
| | 146,870 |
| | 148,823 |
| 15 |
| | 31 |
| | 2,153 |
| | 2,199 |
| | 1,562 |
| | 852 |
| | 152,411 |
| | 154,825 |
|
| Equipment finance | | — |
| | 209 |
| | 2,598 |
| | 2,807 |
| | — |
| | 801 |
| | 228,438 |
| | 229,239 |
|
| Municipal leases | — |
| | — |
| | 418 |
| | 418 |
| | — |
| | — |
| | 109,172 |
| | 109,172 |
| — |
| | — |
| | 697 |
| | 697 |
| | — |
| | — |
| | 127,987 |
| | 127,987 |
|
| Paycheck Protection Program | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 80,697 |
| | 80,697 |
|
| Total | $ | 483 |
| | $ | 197 |
| | $ | 20,380 |
| | $ | 21,060 |
| | $ | 20,904 |
| | $ | 13,884 |
| | $ | 2,491,828 |
| | $ | 2,526,616 |
| $ | 182 |
| | $ | 1,258 |
| | $ | 26,632 |
| | $ | 28,072 |
| | $ | 12,792 |
| | $ | 14,486 |
| | $ | 2,741,652 |
| | $ | 2,768,930 |
|
| June 30, 2017 | | | | | | | | | | | | | | | | |
| June 30, 2019 | | | | | | | | | | | | | | | | |
| Retail consumer loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| One-to-four family | $ | 28 |
| | $ | 863 |
| | $ | 3,585 |
| | $ | 4,476 |
| | $ | 8,069 |
| | $ | 10,305 |
| | $ | 665,715 |
| | $ | 684,089 |
| $ | 62 |
| | $ | 74 |
| | $ | 2,375 |
| | $ | 2,511 |
| | $ | 5,868 |
| | $ | 5,318 |
| | $ | 649,405 |
| | $ | 660,591 |
|
| HELOCs - originated | — |
| | 44 |
| | 1,340 |
| | 1,384 |
| | 288 |
| | 12 |
| | 156,768 |
| | 157,068 |
| — |
| | 7 |
| | 1,023 |
| | 1,030 |
| | 225 |
| | 7 |
| | 139,203 |
| | 139,435 |
|
| HELOCs - purchased | — |
| | — |
| | 838 |
| | 838 |
| | — |
| | — |
| | 162,407 |
| | 162,407 |
| — |
| | — |
| | 518 |
| | 518 |
| | — |
| | — |
| | 116,972 |
| | 116,972 |
|
| Construction and land/lots | — |
| | 88 |
| | 889 |
| | 977 |
| | 528 |
| | 634 |
| | 48,974 |
| | 50,136 |
| — |
| | — |
| | 1,265 |
| | 1,265 |
| | 372 |
| | 323 |
| | 79,907 |
| | 80,602 |
|
| Indirect auto finance | — |
| | 1 |
| | 880 |
| | 881 |
| | — |
| | 1 |
| | 140,878 |
| | 140,879 |
| — |
| | — |
| | 927 |
| | 927 |
| | — |
| | — |
| | 153,448 |
| | 153,448 |
|
| Consumer | — |
| | 8 |
| | 49 |
| | 57 |
| | 18 |
| | 8 |
| | 7,874 |
| | 7,900 |
| — |
| | 4 |
| | 226 |
| | 230 |
| | — |
| | 4 |
| | 11,412 |
| | 11,416 |
|
| Commercial loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial real estate | 512 |
| | 239 |
| | 6,600 |
| | 7,351 |
| | 17,383 |
| | 6,284 |
| | 706,741 |
| | 730,408 |
| 118 |
| | 28 |
| | 7,890 |
| | 8,036 |
| | 7,706 |
| | 8,692 |
| | 910,863 |
| | 927,261 |
|
| Construction and development | 171 |
| | 13 |
| | 2,982 |
| | 3,166 |
| | 2,629 |
| | 2,184 |
| | 193,153 |
| | 197,966 |
| 4 |
| | 5 |
| | 3,187 |
| | 3,196 |
| | 941 |
| | 1,397 |
| | 208,578 |
| | 210,916 |
|
| Commercial and industrial | 16 |
| | 287 |
| | 1,221 |
| | 1,524 |
| | 2,626 |
| | 1,514 |
| | 116,247 |
| | 120,387 |
| 17 |
| | 2 |
| | 1,957 |
| | 1,976 |
| | 1,669 |
| | 2 |
| | 158,800 |
| | 160,471 |
|
| Equipment finance | | — |
| | — |
| | 1,305 |
| | 1,305 |
| | — |
| | — |
| | 132,058 |
| | 132,058 |
|
| Municipal leases | — |
| | — |
| | 497 |
| | 497 |
| | — |
| | — |
| | 101,175 |
| | 101,175 |
| — |
| | — |
| | 435 |
| | 435 |
| | — |
| | — |
| | 112,016 |
| | 112,016 |
|
| Total | $ | 727 |
| | $ | 1,543 |
| | $ | 18,881 |
| | $ | 21,151 |
| | $ | 31,541 |
| | $ | 20,942 |
| | $ | 2,299,932 |
| | $ | 2,352,415 |
| $ | 201 |
| | $ | 120 |
| | $ | 21,108 |
| | $ | 21,429 |
| | $ | 16,781 |
| | $ | 15,743 |
| | $ | 2,672,662 |
| | $ | 2,705,186 |
|
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Loans acquired from acquisitions are initially excluded from the allowance for loan losses in accordance with the acquisition method of accounting for business combinations. The Company records these loans at fair value, which includes a credit discount, therefore, no allowance for loan losses areis established for these acquired loans at acquisition. A provision for loan losses is recorded for any further deterioration in these acquired loans subsequent to the acquisition.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The Company’s impaired loans and the related allowance, by segment and class, excluding PCI loans that were not individually evaluated for impairment, at the dates indicated follows:
| | | | Total Impaired Loans | Total Impaired Loans |
| | Unpaid Principal Balance | | Recorded Investment | | Related Recorded Allowance | Unpaid Principal Balance | | Recorded Investment | | Related Recorded Allowance |
| | | With a Recorded Allowance | | With No Recorded Allowance | | Total | | | With a Recorded Allowance | | With No Recorded Allowance | | Total | |
| June 30, 2018 | | | | | | | | | | |
| June 30, 2020 | | | | | | | | | | |
| Retail consumer loans: | | | | | | | | | | | | | | | | | | |
| One-to-four family | $ | 23,295 |
| | $ | 16,035 |
| | $ | 4,140 |
| | $ | 20,175 |
| | $ | 554 |
| $ | 16,560 |
| | $ | 10,805 |
| | $ | 3,374 |
| | $ | 14,179 |
| | $ | 412 |
|
| HELOCs - originated | 2,544 |
| | 1,017 |
| | 737 |
| | 1,754 |
| | 9 |
| 2,087 |
| | 1,585 |
| | 53 |
| | 1,638 |
| | 43 |
|
| HELOCs - purchased | 187 |
| | — |
| | 187 |
| | 187 |
| | — |
| 662 |
| | 662 |
| | — |
| | 662 |
| | 3 |
|
| Construction and land/lots | 2,348 |
| | 1,098 |
| | 446 |
| | 1,544 |
| | 53 |
| 1,585 |
| | 749 |
| | 296 |
| | 1,045 |
| | 13 |
|
| Indirect auto finance | 395 |
| | 122 |
| | 133 |
| | 255 |
| | 1 |
| 1,075 |
| | 486 |
| | 241 |
| | 727 |
| | 5 |
|
| Consumer | 501 |
| | 12 |
| | 46 |
| | 58 |
| | 11 |
| 297 |
| | 38 |
| | 27 |
| | 65 |
| | 2 |
|
| Commercial loans: | | | | | | | | | | | | | | | | | | |
| Commercial real estate | 5,343 |
| | 2,862 |
| | 2,246 |
| | 5,108 |
| | 42 |
| 10,401 |
| | 8,062 |
| | 1,068 |
| | 9,130 |
| | 976 |
|
| Construction and development | 3,166 |
| | 828 |
| | 1,217 |
| | 2,045 |
| | 14 |
| 1,785 |
| | 818 |
| | 80 |
| | 898 |
| | 11 |
|
| Commercial and industrial | 4,898 |
| | 235 |
| | — |
| | 235 |
| | 3 |
| 9,782 |
| | 1,058 |
| | 26 |
| | 1,084 |
| | 34 |
|
| Municipal leases | — |
| | — |
| | — |
| | — |
| | — |
| |
| Equipment finance | | 2,631 |
| | 303 |
| | 498 |
| | 801 |
| | 209 |
|
| Total impaired loans | $ | 42,677 |
| | $ | 22,209 |
| | $ | 9,152 |
| | $ | 31,361 |
| | $ | 687 |
| $ | 46,865 |
| | $ | 24,566 |
| | $ | 5,663 |
| | $ | 30,229 |
| | $ | 1,708 |
|
| June 30, 2017 | | | | | | | | | | |
| June 30, 2019 | | | | | | | | | | |
| Retail consumer loans: | | | | | | | | | | | | | | | | | | |
| One-to-four family | $ | 26,032 |
| | $ | 16,557 |
| | $ | 6,338 |
| | $ | 22,895 |
| | $ | 719 |
| $ | 18,302 |
| | $ | 12,461 |
| | $ | 3,152 |
| | $ | 15,613 |
| | $ | 472 |
|
| HELOCs - originated | 3,746 |
| | 2,036 |
| | 736 |
| | 2,772 |
| | 49 |
| 2,410 |
| | 564 |
| | 1,219 |
| | 1,783 |
| | 46 |
|
| HELOCs - purchased | 192 |
| | — |
| | 192 |
| | 192 |
| | — |
| 666 |
| | — |
| | 666 |
| | 666 |
| | — |
|
| Construction and land/lots | 2,817 |
| | 1,310 |
| | 468 |
| | 1,778 |
| | 88 |
| 1,917 |
| | 957 |
| | 323 |
| | 1,280 |
| | 26 |
|
| Indirect auto finance | 22 |
| | — |
| | 1 |
| | 1 |
| | 1 |
| 601 |
| | 353 |
| | 137 |
| | 490 |
| | 2 |
|
| Consumer | 552 |
| | 15 |
| | 27 |
| | 42 |
| | 8 |
| 379 |
| | 7 |
| | 41 |
| | 48 |
| | 6 |
|
| Commercial loans: | | | | | | | | | | | | | | | | | | |
| Commercial real estate | 7,144 |
| | 4,721 |
| | 2,131 |
| | 6,852 |
| | 253 |
| 10,127 |
| | 6,434 |
| | 3,404 |
| | 9,838 |
| | 36 |
|
| Construction and development | 2,956 |
| | 935 |
| | 1,021 |
| | 1,956 |
| | 16 |
| 2,574 |
| | 940 |
| | 791 |
| | 1,731 |
| | 7 |
|
| Commercial and industrial | 7,757 |
| | 845 |
| | 1,231 |
| | 2,076 |
| | 288 |
| 10,173 |
| | 354 |
| | 768 |
| | 1,122 |
| | 6 |
|
| Municipal leases | 400 |
| | 106 |
| | 294 |
| | 400 |
| | — |
| |
| Equipment finance | | 462 |
| | — |
| | 384 |
| | 384 |
| | — |
|
| Total impaired loans | $ | 51,618 |
| | $ | 26,525 |
| | $ | 12,439 |
| | $ | 38,964 |
| | $ | 1,422 |
| $ | 47,611 |
| | $ | 22,070 |
| | $ | 10,885 |
| | $ | 32,955 |
| | $ | 601 |
|
The table above includes $19,926$15,743 and $22,023$17,212 of recorded investments in impaired loans that were not individually evaluated at June 30, 20182020 and June 30, 2017,2019, respectively, because these loans did not meet the Company’s threshold for individual impairment evaluation. The recorded allowance above includes $595$450 and $41$481 related to these loans that were not individually evaluated at June 30, 20182020 and June 30, 2017,2019, respectively.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The Company’s average recorded investment and interest income recognized on impaired loans as of the dates indicated below:follows:
| | | | Year Ended | Year Ended |
| | June 30, 2018 | | June 30, 2017 | | June 30, 2016 | June 30, 2020 | | June 30, 2019 | | June 30, 2018 |
| | Average Recorded Investment | | Interest Income Recognized | | Average Recorded Investment | | Interest Income Recognized | | Average Recorded Investment | | Interest Income Recognized | Average Recorded Investment | | Interest Income Recognized | | Average Recorded Investment | | Interest Income Recognized | | Average Recorded Investment | | Interest Income Recognized |
| Retail consumer loans: | | | | | | | | | | | | | | | | | | | | | | |
| One-to-four family | $ | 23,257 |
| | $ | 1,170 |
| | $ | 25,256 |
| | $ | 1,147 |
| | $ | 28,479 |
| | $ | 1,477 |
| $ | 14,796 |
| | $ | 687 |
| | $ | 17,319 |
| | $ | 950 |
| | $ | 23,257 |
| | $ | 1,170 |
|
| HELOCs - originated | 2,304 |
| | 104 |
| | 2,548 |
| | 152 |
| | 3,593 |
| | 200 |
| 1,698 |
| | 99 |
| | 1,005 |
| | 63 |
| | 2,304 |
| | 104 |
|
| HELOCs - purchased | 189 |
| | 15 |
| | 48 |
| | 12 |
| | — |
| | — |
| 533 |
| | 41 |
| | 320 |
| | 13 |
| | 189 |
| | 15 |
|
| Construction and land/lots | 1,575 |
| | 109 |
| | 1,734 |
| | 139 |
| | 1,787 |
| | 135 |
| 1,149 |
| | 83 |
| | 1,441 |
| | 94 |
| | 1,575 |
| | 109 |
|
| Indirect auto finance | 256 |
| | 23 |
| | 106 |
| | 2 |
| | 7 |
| | 2 |
| 547 |
| | 53 |
| | 373 |
| | 29 |
| | 256 |
| | 23 |
|
| Consumer | 43 |
| | 17 |
| | 35 |
| | 20 |
| | 55 |
| | 23 |
| 194 |
| | 7 |
| | 1,328 |
| | 67 |
| | 43 |
| | 17 |
|
| Commercial loans: | | | | | | | | | | | | | | | | | | | | | | |
| Commercial real estate | 6,496 |
| | 209 |
| | 7,771 |
| | 272 |
| | 8,506 |
| | 440 |
| 8,661 |
| | 336 |
| | 5,026 |
| | 466 |
| | 6,496 |
| | 209 |
|
| Construction and development | 2,703 |
| | 56 |
| | 2,450 |
| | 58 |
| | 3,469 |
| | 84 |
| 1,218 |
| | 54 |
| | 1,779 |
| | 65 |
| | 2,703 |
| | 56 |
|
| Commercial and industrial | 1,205 |
| | 60 |
| | 2,737 |
| | 125 |
| | 4,379 |
| | 155 |
| 868 |
| | 236 |
| | 315 |
| | 249 |
| | 1,205 |
| | 60 |
|
| Equipment finance | | 652 |
| | 29 |
| | 192 |
| | 37 |
| | — |
| | — |
|
| Municipal leases | 75 |
| | — |
| | 406 |
| | 18 |
| | 452 |
| | 22 |
| — |
| | — |
| | — |
| | — |
| | 75 |
| | — |
|
| Total loans | $ | 38,103 |
| | $ | 1,763 |
| | $ | 43,091 |
| | $ | 1,945 |
| | $ | 50,727 |
| | $ | 2,538 |
| $ | 30,316 |
| | $ | 1,625 |
| | $ | 29,098 |
| | $ | 2,033 |
| | $ | 38,103 |
| | $ | 1,763 |
|
A summary of changes in the accretable yield for PCI loans atfor the datesperiods indicated below:follows:
| | | | Year Ended June 30, 2018 | | Year Ended June 30, 2017 | Year Ended June 30, 2020 | | Year Ended June 30, 2019 |
| Accretable yield, beginning of period | $ | 7,080 |
| | $ | 9,532 |
| $ | 5,259 |
| | $ | 5,734 |
|
| Addition from TriSummit acquisition | — |
| | 1,288 |
| |
Reclass from nonaccretable yield (1) | 513 |
| | 1,537 |
| 458 |
| | 576 |
|
Other changes, net (2) | 393 |
| | (427 | ) | (316 | ) | | 1,018 |
|
| Interest income | (2,252 | ) | | (4,850 | ) | (1,496 | ) | | (2,069 | ) |
| Accretable yield, end of period | $ | 5,734 |
| | $ | 7,080 |
| $ | 3,905 |
| | $ | 5,259 |
|
| |
| (1) | Represents changes attributable to expected losses assumptions. |
| |
| (2) | Represents changes in cash flows expected to be collected due to the impact of modifications, changes in prepayment assumptions, and changes in interest rates. |
The following table presents carrying values and unpaid principal balances for PCI loans at the dates indicated below:
| | | | June 30, 2018 | | June 30, 2017 | June 30, 2020 | | June 30, 2019 |
| Carrying value of PCI loans | $ | 20,904 |
| | $ | 31,541 |
| $ | 12,792 |
| | $ | 16,750 |
|
| Unpaid principal balance of PCI loans | $ | 25,746 |
| | $ | 37,955 |
| $ | 15,581 |
| | $ | 20,141 |
|
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The following table presents a breakdown of the types of concessions made on TDRs by loan class:class for the periods indicated below:
| | | | Year Ended June 30, 2018 | | Year Ended June 30, 2017 | | Year Ended June 30, 2016 | Year Ended June 30, 2020 | | Year Ended June 30, 2019 | | Year Ended June 30, 2018 |
| | Number of Loans | | Pre Modification Outstanding Recorded Investment | | Post Modification Outstanding Recorded Investment | | Number of Loans | | Pre Modification Outstanding Recorded Investment | | Post Modification Outstanding Recorded Investment | | Number of Loans | | Pre Modification Outstanding Recorded Investment | | Post Modification Outstanding Recorded Investment | Number of Loans | | Pre Modification Outstanding Recorded Investment | | Post Modification Outstanding Recorded Investment | | Number of Loans | | Pre Modification Outstanding Recorded Investment | | Post Modification Outstanding Recorded Investment | | Number of Loans | | Pre Modification Outstanding Recorded Investment | | Post Modification Outstanding Recorded Investment |
| Below market interest rate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Retail consumer: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| One-to-four family | — |
| | $ | — |
| | $ | — |
| | 3 |
| | $ | 288 |
| | $ | 285 |
| | 5 |
| | $ | 234 |
| | $ | 238 |
| — |
| | $ | — |
| | $ | — |
| | 1 |
| | $ | 85 |
| | $ | 84 |
| | — |
| | $ | — |
| | $ | — |
|
| Construction and land/lots | — |
| | — |
| | — |
| | 2 |
| | 80 |
| | 79 |
| | — |
| | — |
| | — |
| |
| Commercial: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial real estate | — |
| | $ | — |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | 1 |
| | $ | 590 |
| | 578 |
| 1 |
| | $ | 88 |
| | $ | 86 |
| | — |
| | $ | — |
| | — |
| | — |
| | $ | — |
| | — |
|
| Total | — |
| | $ | — |
| | $ | — |
| | 5 |
| | $ | 368 |
| | $ | 364 |
| | 6 |
| | $ | 824 |
| | $ | 816 |
| 1 |
| | $ | 88 |
| | $ | 86 |
| | 1 |
| | $ | 85 |
| | $ | 84 |
| | — |
| | $ | — |
| | $ | — |
|
| Extended payment terms: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Retail consumer: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| One-to-four family | 4 |
| | $ | 514 |
| | $ | 502 |
| | 5 |
| | $ | 186 |
| | $ | 179 |
| | 5 |
| | $ | 142 |
| | $ | 147 |
| 2 |
| | $ | 70 |
| | $ | 61 |
| | 1 |
| | $ | 34 |
| | $ | 34 |
| | 4 |
| | $ | 514 |
| | $ | 502 |
|
| HELOCs - originated | — |
| | — |
| | — |
| | 1 |
| | 37 |
| | 37 |
| | 2 |
| | 28 |
| | 25 |
| |
| Construction and land/lots | 1 |
| | 36 |
| | 32 |
| | 1 |
| | 280 |
| | 264 |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | 36 |
| | 32 |
|
| Consumer | — |
| | — |
| | — |
| | 2 |
| | 11 |
| | 11 |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | 2 |
| | 34 |
| | 33 |
| | — |
| | — |
| | — |
|
| Commercial: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial real estate | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | 286 |
| | 284 |
| |
| Construction and development | — |
| | — |
| | — |
| | 1 |
| | 439 |
| | 439 |
| | 1 |
| | 128 |
| | 128 |
| |
| Commercial and industrial | — |
| | — |
| | — |
| | 2 |
| | 52 |
| | $ | 50 |
| | 2 |
| | 164 |
| | $ | 155 |
| 1 |
| | 826 |
| | 826 |
| | — |
| | — |
| | $ | — |
| | — |
| | — |
| | $ | — |
|
| Total | 5 |
| | $ | 550 |
| | $ | 534 |
| | 12 |
| | $ | 1,005 |
| | $ | 980 |
| | 11 |
| | $ | 748 |
| | $ | 739 |
| 3 |
| | $ | 896 |
| | $ | 887 |
| | 3 |
| | $ | 68 |
| | $ | 67 |
| | 5 |
| | $ | 550 |
| | $ | 534 |
|
| Other TDRs: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Retail consumer: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| One-to-four family | 25 |
| | $ | 3,646 |
| | $ | 3,747 |
| | 13 |
| | $ | 525 |
| | $ | 517 |
| | 30 |
| | $ | 2,890 |
| | $ | 2,498 |
| 5 |
| | $ | 511 |
| | $ | 502 |
| | 18 |
| | $ | 1,452 |
| | $ | 1,433 |
| | 25 |
| | $ | 3,646 |
| | $ | 3,747 |
|
| HELOCs - originated | — |
| | — |
| | — |
| | 2 |
| | 33 |
| | 31 |
| | 4 |
| | 228 |
| | 227 |
| 1 |
| | 27 |
| | 27 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Construction and land/lots | — |
| | — |
| | — |
| | 4 |
| | 404 |
| | 318 |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | 1 |
| | 29 |
| | 28 |
| | — |
| | — |
| | — |
|
| Indirect auto finance | | 3 |
| | 63 |
| | 49 |
| | 1 |
| | 33 |
| | 26 |
| | — |
| | — |
| | — |
|
| Consumer | 1 |
| | 2 |
| | 2 |
| | — |
| | — |
| | — |
| | 1 |
| | 2 |
| | 1 |
| — |
| | — |
| | — |
| | 1 |
| | 2 |
| | 2 |
| | 1 |
| | 2 |
| | 2 |
|
| Commercial: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial real estate | — |
| | — |
| | — |
| | 3 |
| | 2,349 |
| | 2,035 |
| | — |
| | — |
| | — |
| 1 |
| | 30 |
| | 21 |
| | 3 |
| | 5,440 |
| | 5,427 |
| | — |
| | — |
| | — |
|
| Construction and development | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2 |
| | 386 |
| | 371 |
| 1 |
| | 182 |
| | 79 |
| | 1 |
| | 182 |
| | 182 |
| | — |
| | — |
| | — |
|
| Commercial and industrial | — |
| | — |
| | — |
| | 2 |
| | 231 |
| | 227 |
| | 1 |
| | 997 |
| | 957 |
| |
| Total | 26 |
| | $ | 3,648 |
| | $ | 3,749 |
| | 24 |
| | $ | 3,542 |
| | $ | 3,128 |
| | 38 |
| | $ | 4,503 |
| | $ | 4,054 |
| 11 |
| | $ | 813 |
| | $ | 678 |
| | 25 |
| | $ | 7,138 |
| | $ | 7,098 |
| | 26 |
| | $ | 3,648 |
| | $ | 3,749 |
|
| Total | 31 |
| | $ | 4,198 |
| | $ | 4,283 |
| | 41 |
| | $ | 4,915 |
| | $ | 4,472 |
| | 55 |
| | $ | 6,075 |
| | $ | 5,609 |
| 15 |
| | $ | 1,797 |
| | $ | 1,651 |
| | 29 |
| | $ | 7,291 |
| | $ | 7,249 |
| | 31 |
| | $ | 4,198 |
| | $ | 4,283 |
|
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The following table presents loans that were modified as TDRs within the previous 12 months and for which there was a payment default during the years ended June 30, 2018 and 2017.periods indicated below:
| | | | Year Ended June 30, 2018 | | Year Ended June 30, 2017 | | Year Ended June 30, 2016 | Year Ended June 30, 2020 | | Year Ended June 30, 2019 | | Year Ended June 30, 2018 |
| | Number of Loans | | Recorded Investment | | Number of Loans | | Recorded Investment | | Number of Loans | | Recorded Investment | Number of Loans | | Recorded Investment | | Number of Loans | | Recorded Investment | | Number of Loans | | Recorded Investment |
| Below market interest rate: | | | | | | | | | | | | |
| Retail consumer: | | | | | | | | | | | | |
| One-to-four family | — |
| | $ | — |
| | — |
| | $ | — |
| | 2 |
| | $ | 63 |
| |
| Total | — |
| | $ | — |
| | — |
| | $ | — |
| | 2 |
| | $ | 63 |
| |
| Extended payment terms: | | | | | | | | | | | | |
| Retail consumer: | | | | | | | | | | | | |
| One-to-four family | — |
| | $ | — |
| | — |
| | $ | — |
| | 2 |
| | $ | 43 |
| |
| Total | — |
| | $ | — |
| | — |
| | $ | — |
| | 2 |
| | $ | 43 |
| |
| Other TDRs: | | | | | | | | | | | | | | | | | | | | | | |
| Retail consumer: | | | | | | | | | | | | | | | | | | | | | | |
| One-to-four family | 5 |
| | $ | 277 |
| | 2 |
| | $ | 27 |
| | 11 |
| | $ | 529 |
| — |
| | $ | — |
| | 1 |
| | $ | 72 |
| | 5 |
| | $ | 277 |
|
| HELOCs - originated | — |
| | — |
| | — |
| | — |
| | 1 |
| | 8 |
| |
| Construction and land/lots | — |
| | — |
| | 1 |
| | 19 |
| | — |
| | — |
| |
| Consumer | | — |
| | — |
| | 1 |
| | 2 |
| | — |
| | — |
|
| Commercial: | | | | | | | | | | | | | | | | | | | | | | |
| Construction and development | — |
| | — |
| | — |
| | — |
| | 2 |
| | 371 |
| 1 |
| | 79 |
| | — |
| | — |
| | — |
| | — |
|
| Total Other TDRs | 5 |
| | $ | 277 |
| | 3 |
| | $ | 46 |
| | 14 |
| | $ | 908 |
| 1 |
| | $ | 79 |
| | 2 |
| | $ | 74 |
| | 5 |
| | $ | 277 |
|
| Total | 5 |
| | $ | 277 |
| | 3 |
| | $ | 46 |
| | 18 |
| | $ | 1,014 |
| 1 |
| | $ | 79 |
| | 2 |
| | $ | 74 |
| | 5 |
| | $ | 277 |
|
Other TDRs include TDRs that have a below market interest rate and extended payment terms. The Company does not typically forgive principal when restructuring troubled debt.
In the determination of the allowance for loan losses, management considers TDRs for all loan classes, and the subsequent nonperformance in accordance with their modified terms, by measuring impairment on a loan-by-loan basis based on either the value of the loan’s expected future cash flows discounted at the loan’s original effective interest rate or on the collateral value, net of the estimated costs of disposal, if the loan is collateral dependent.
Modifications and deferrals in response to COVID-19 5. PremisesBeginning in March 2020, the Company began offering short-term loan modifications to assist borrowers during the COVID-19 pandemic. The CARES Act along with a joint agency statement issued by banking agencies and Equipmentconfirmed by FASB staff that short-term modifications made in response to COVID-19 are not TDRs. Accordingly, the Company does not account for such loan modifications as TDRs. As of June 30, 2020, modifications totaling $42,000 and $509,300 had been granted in retail consumer loans and commercial loans, respectively.
PremisesHomeTrust Bank is offering payment and equipment consistfinancial relief programs for borrowers impacted by COVID-19. These programs include loan payment deferrals for up to 90 days (which can be renewed for another 90 days under certain circumstances) waived late fees, and suspension of the following:foreclosure proceedings and repossessions. We have received numerous requests from borrowers for some type of payment relief. The breakout by loan type is as follows:
|
| | | | | | | |
| | June 30, |
| | 2018 | | 2017 |
| Land | $ | 19,934 |
| | $ | 20,148 |
|
| Land held under capital lease | 2,052 |
| | 2,052 |
|
| Office buildings | 57,873 |
| | 56,765 |
|
| Furniture, fixtures and equipment | 15,582 |
| | 14,877 |
|
| Total | 95,441 |
| | 93,842 |
|
| Less accumulated depreciation | (32,904 | ) | | (30,194 | ) |
| Premises and equipment, net | $ | 62,537 |
| | $ | 63,648 |
|
|
| | | | | | | | | | | | | | | | | | | | | |
Payment Deferrals by Loan Types (1) | | | | | | | | |
| | | March 31, 2020 | | June 30, 2020 | | August 31, 2020 |
| | | $ Deferral | | Percent of Total Loan Portfolio | | $ Deferral | | Percent of Total Loan Portfolio | | $ Deferral | | Percent of Total Loan Portfolio |
| Lodging | | 26,815 |
| | 1.0 | % | | 108,171 |
| | 4.0 | % | | 64,686 |
| | 2.4 | % |
| Other commercial real estate, construction and development, and commercial and industrial | | 116,198 |
| | 4.4 |
| | 367,443 |
| | 13.7 |
| | 43,056 |
| | 1.6 |
|
| Equipment finance | | 19,443 |
| | 0.7 |
| | 33,693 |
| | 1.3 |
| | 4,547 |
| | 0.2 |
|
| One-to-four family | | 10,802 |
| | 0.4 |
| | 36,821 |
| | 1.4 |
| | 2,360 |
| | 0.1 |
|
| Other consumer loans | | 3,546 |
| | 0.1 |
| | 5,203 |
| | 0.2 |
| | 589 |
| | — |
|
| Total | | $ | 176,804 |
| | 6.6 | % | | $ | 551,331 |
| | 20.5 | % | | $ | 115,238 |
| | 4.3 | % |
(1) �� Modified loans are not included in classified assets or nonperforming asset.
See Note 1 Summary of Significant Accounting Policies for more details.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
6. Premises and Equipment
Premises and equipment as of the dates indicated consist of the following:
|
| | | | | | | |
| | June 30, |
| | 2020 | | 2019 |
| Land | $ | 20,785 |
| | $ | 19,730 |
|
Land held under capital lease(1) | — |
| | 2,052 |
|
| Office buildings | 59,333 |
| | 58,952 |
|
| Furniture, fixtures and equipment | 15,724 |
| | 15,918 |
|
| Total | 95,842 |
| | 96,652 |
|
| Less accumulated depreciation | (37,380 | ) | | (35,601 | ) |
| Premises and equipment, net | $ | 58,462 |
| | $ | 61,051 |
|
(1) Land held under capital lease was reclassed to other assets upon the adoption of ASC 842. See additional details in footnote 1 and 12.
7. Accrued Interest Receivable
Accrued interest receivable as of the dates indicated consists of the following:
| | | | June 30, | June 30, |
| | 2018 | | 2017 | 2020 | | 2019 |
| Loans | $ | 8,164 |
| | $ | 7,349 |
| $ | 11,360 |
| | $ | 9,433 |
|
| Securities available for sale | 776 |
| | 880 |
| 710 |
| | 690 |
|
| Other | 404 |
| | 529 |
| 242 |
| | 410 |
|
| Total | $ | 9,344 |
| | $ | 8,758 |
| $ | 12,312 |
| | $ | 10,533 |
|
7.8. Real Estate Owned
The activity within REO for the periods shown is as follows: | | | | | | | Year Ended |
| | June 30, | June 30, |
| | 2018 | | 2017 | 2020 | | 2019 |
| Balance at beginning of period | $ | 6,318 |
| | $ | 5,956 |
| $ | 2,929 |
| | $ | 3,684 |
|
| Transfers from loans | 1,346 |
| | 2,417 |
| 46 |
| | 731 |
|
| Acquired through mergers | — |
| | 1,511 |
| |
| Sales, net of gain/loss | (3,471 | ) | | (3,285 | ) | (2,432 | ) | | (1,191 | ) |
| Writedowns | (539 | ) | | (292 | ) | (206 | ) | | (295 | ) |
| Capital improvements | 30 |
| | 11 |
| |
| Balance at end of period | $ | 3,684 |
| | $ | 6,318 |
| $ | 337 |
| | $ | 2,929 |
|
At June 30, 20182020 and 2017,2019, the Bank had $998$97 and $1,015,$1,018, respectively, of foreclosed residential real estate property in REO. The recorded investment in consumer mortgage loans collateralized by residential real estate in the process of foreclosure totaled $395$1,318 and $2,230$243 for June 30, 20182020 and 2017,2019, respectively.
8.9. Goodwill and Core Deposit Intangibles
The changes in the carrying amount of the Company's goodwill arewas $25,638 as follows:of June 30, 2020 and 2019.
|
| | | |
| | Goodwill |
| Balance, June 30, 2016 | $ | 12,673 |
|
| Additions | 12,965 |
|
| Balance, June 30, 2017 | $ | 25,638 |
|
| Additions | — |
|
| Balance, June 30, 2018 | $ | 25,638 |
|
During 2017, the Company recorded $12,965 in goodwill as a result of the United Financial and TriSummit acquisitions. See Note 2 for more details regarding these acquisitions.
The Company added $2,860 in core deposit intangibles during 2017 related to TriSummit. Amortization expense related to core deposit intangibles was $2,645, $2,823,$1,421, $2,029, and $2,907$2,645 for the years ended June 30, 2018, 2017,2020, 2019, and 2016,2018, respectively.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
EstimatedAs of June 30, 2020, estimated amortization expense for each of the next five years and thereafter is as follows:
|
| | | |
| | June 30, 2018 |
| 2019 | $ | 2,029 |
|
| 2020 | 1,414 |
|
| 2021 | 741 |
|
| 2022 | 251 |
|
| 2023 | 90 |
|
| Thereafter | 3 |
|
| Total | $ | 4,528 |
|
9. Deposit Accounts
Deposit accounts consist of the following:
|
| | | | | | | | | | | | | |
| | | | Weighted Average Interest Rates |
| | June 30, | | June 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
| Noninterest-bearing accounts | $ | 317,822 |
| | $ | 310,172 |
| | — | % | | — | % |
| NOW accounts | 471,364 |
| | 469,377 |
| | 0.11 | % | | 0.08 | % |
| Money market accounts | 677,665 |
| | 569,607 |
| | 0.48 | % | | 0.27 | % |
| Savings accounts | 213,250 |
| | 237,149 |
| | 0.13 | % | | 0.13 | % |
| Certificates of deposit | 516,152 |
| | 462,146 |
| | 1.01 | % | | 0.60 | % |
| Total | $ | 2,196,253 |
| | $ | 2,048,451 |
| | 0.42 | % | | 0.24 | % |
Deposits received from executive officers and directors and their associates totaled approximately $5,692 and $4,408 at June 30, 2018 and 2017, respectively.
Maturities of certificates of deposit are as follows:
|
| | | |
| | June 30, 2018 |
| 2019 | $ | 385,736 |
|
| 2020 | 72,055 |
|
| 2021 | 25,878 |
|
| 2022 | 13,835 |
|
| 2023 | 18,431 |
|
| Thereafter | 217 |
|
| Total | $ | 516,152 |
|
Certificates of deposit with balances of $250 or greater totaled $70,553 and $53,893 at June 30, 2018 and 2017, respectively. Generally, deposit amounts in excess of $250 are not federally insured.
Interest expense on deposits consists of the following:
|
| | | | | | | | | | | |
| | June 30, |
| | 2018 | | 2017 | | 2016 |
| NOW accounts | $ | 970 |
| | $ | 772 |
| | $ | 581 |
|
| Money market accounts | 2,442 |
| | 1,405 |
| | 1,112 |
|
| Savings accounts | 295 |
| | 308 |
| | 289 |
|
| Certificates of deposit | 3,051 |
| | 2,103 |
| | 2,549 |
|
| Total | $ | 6,758 |
| | $ | 4,588 |
| | $ | 4,531 |
|
|
| | | |
| 2021 | $ | 734 |
|
| 2022 | 251 |
|
| 2023 | 90 |
|
| 2024 | 3 |
|
| 2025 | — |
|
| Total | $ | 1,078 |
|
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
10. Deposit Accounts
Deposit accounts at the dates indicated consist of the following:
|
| | | | | | | | | | | | | |
| | | | Weighted Average Interest Rates |
| | June 30, | | June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
| Noninterest-bearing accounts | $ | 429,901 |
| | $ | 294,322 |
| | — | % | | — | % |
| NOW accounts | 582,299 |
| | 452,295 |
| | 0.10 | % | | 0.15 | % |
| Money market accounts | 836,738 |
| | 691,172 |
| | 0.46 | % | | 0.89 | % |
| Savings accounts | 197,676 |
| | 177,278 |
| | 0.07 | % | | 0.12 | % |
| Certificates of deposit | 739,142 |
| | 712,190 |
| | 1.45 | % | | 1.99 | % |
| Total | $ | 2,785,756 |
| | $ | 2,327,257 |
| | 0.54 | % | | 0.91 | % |
Deposits received from executive officers and directors and their associates totaled approximately $4,307 and $4,448 at June 30, 2020 and 2019, respectively. As part of our system conversion, certain escrow and official check accounts are now included in noninterest-bearing accounts. As of June 30, 2019, these accounts totaled $8,208 and were included in other liabilities.
As of June 30, 2020, maturities of certificates of deposit are as follows:
|
| | | |
| 2021 | $ | 598,777 |
|
| 2022 | 97,507 |
|
| 2023 | 26,833 |
|
| 2024 | 11,207 |
|
| 2025 | 4,818 |
|
| Thereafter | — |
|
| Total | $ | 739,142 |
|
Certificates of deposit with balances of $250 or greater totaled $118,308 and $93,654 at June 30, 2020 and 2019, respectively. Generally, deposit amounts in excess of $250 are not federally insured.
Interest expense on deposits at the dates indicated consists of the following:
|
| | | | | | | | | | | |
| | June 30, |
| | 2020 | | 2019 | | 2018 |
| NOW accounts | $ | 1,627 |
| | $ | 1,251 |
| | $ | 970 |
|
| Money market accounts | 6,910 |
| | 5,102 |
| | 2,442 |
|
| Savings accounts | 195 |
| | 245 |
| | 295 |
|
| Certificates of deposit | 14,105 |
| | 9,159 |
| | 3,051 |
|
| Total | $ | 22,837 |
| | $ | 15,757 |
| | $ | 6,758 |
|
11. Borrowings
Borrowings consist of the following at the dates indicated: |
| | | | | | | | | | | | | |
| | June 30, |
| | 2018 | | 2017 |
| | Balance | | Weighted Average Rate | | Balance | | Weighted Average Rate |
| FHLB Advances | $ | 635,000 |
| | 1.95 | % | | $ | 696,500 |
| | 1.13 | % |
The scheduled maturity dates, call dates, and related interest rates on FHLB advances at June 30, 2018:
|
| | | | | | | | |
| Maturity Date | | Interest Rate | | Call Date | | Outstanding Amount |
| 7/2/2018 | | 1.93% | | — | | $ | 10,000 |
|
| 7/11/2018 | | 2.04% | | — | | 200,000 |
|
| 7/25/2018 | | 2.04% | | — | | 180,000 |
|
| 7/30/2018 | | 2.00% | | — | | 45,000 |
|
| 3/6/2028 | | 1.73% | | 3/6/2019 | | 100,000 |
|
| 3/22/2028 | | 1.82% | | 3/22/2019 | | 50,000 |
|
| 6/5/2028 | | 1.87% | | 6/5/2019 | | 50,000 |
|
| Total FHLB Advances | | | | | | $ | 635,000 |
|
All qualifying one-to-four family first mortgage loans, HELOCs, commercial real estate loans, FHLB Stock, and certain investment securities were pledged as collateral to secure the FHLB advances.
At June 30, 2018 and 2017, the Company had the ability to borrow $79,226 and $22,300, respectively, in additional FHLB advances. At June 30, 2018 and 2017, the Company had an unused line of credit with the FRB for $132,349 and $105,500, respectively. At June 30, 2018 and 2017, the Company had unused lines of credit with three unaffiliated banks for $60,000.
11. Leases
The Company leases certain real property under long-term operating lease agreements. Rent expense under operating leases was $1,829, $1,583, and $1,361 for the years ended June 30, 2018, 2017, and 2016, respectively.
The following schedule summarizes aggregate future minimum lease payments under these operating leases at June 30, 2018.
|
| | | |
| Fiscal year ending: | June 30, |
| 2019 | $ | 1,661 |
|
| 2020 | 1,381 |
|
| 2021 | 1,032 |
|
| 2022 | 965 |
|
| 2022 | 937 |
|
| Thereafter | 1,543 |
|
| Total of future minimum payments | $ | 7,519 |
|
The Company currently leases land for one of its retail office locations under a capital lease. Leases that meet the criteria for capitalization are recorded as assets and the related obligations are reflected as capital lease obligations on the accompanying balance sheets, because the lease has been deemed to have a bargain purchase option. Included in premises and equipment at June 30, 2018 and June 30, 2017 is $2,052 as the capitalized cost of the leased land. |
| | | | | | | | | | | | | |
| | June 30, |
| | 2020 | | 2019 |
| | Balance | | Weighted Average Rate | | Balance | | Weighted Average Rate |
| FHLB Advances | $ | 475,000 |
| | 1.39 | % | | $ | 680,000 |
| | 2.10 | % |
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
AggregateThe scheduled maturity dates, call dates, and related interest rates on FHLB advances at June 30, 2020:
|
| | | | | | | | |
| Maturity Date | | Interest Rate | | Call Date | | Outstanding Amount |
| 3/6/2028 | | 1.73% | | 9/8/2020 | | $ | 100,000 |
|
| 3/22/2028 | | 1.82% | | 9/22/2020 | | 50,000 |
|
| 6/5/2028 | | 1.87% | | 9/8/2020 | | 50,000 |
|
| 9/13/2028 | | 1.76% | | 9/14/2020 | | 25,000 |
|
| 11/24/2028 | | 2.07% | | 8/26/2020 | | 25,000 |
|
| 11/24/2028 | | 1.79% | | 8/26/2020 | | 25,000 |
|
| 7/23/2029 | | 0.99% | | 7/23/2020 | | 50,000 |
|
| 8/8/2029 | | 0.92% | | 8/10/2020 | | 50,000 |
|
| 2/27/2030 | | 0.63% | | 2/26/2021 | | 50,000 |
|
| 3/4/2030 | | 0.72% | | 3/4/2022 | | 50,000 |
|
| | | | | | | $ | 475,000 |
|
All qualifying one-to-four family first mortgage loans, HELOCs, commercial real estate loans, FHLB stock, and certain investment securities were pledged as collateral to secure the FHLB advances.
At June 30, 2020 and 2019, the Company had the ability to borrow $186,222 and $89,499, respectively, in additional FHLB advances. At June 30, 2020 and 2019, the Company had an unused line of credit with the FRB for $109,242 and $130,036, respectively. At June 30, 2020 and 2019, the Company had unused lines of credit with three unaffiliated banks for $100,000 and $70,000, respectively.
12. Leases
As Lessee - Operating Leases
Company operating leases primarily include office space and bank branches. Certain leases include one or more options to renew, with renewal terms that can extend the lease term up to 15 additional years. The exercise of lease renewal options is at our sole discretion. When it is reasonably certain that we will exercise our option to renew or extend the lease term, that option is included in estimating the value of the ROU and lease liability. At June 30, 2020, we did not have any leases that had not yet commenced for which we had created a ROU asset and a lease liability. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. Most of our lease agreements include periodic rate adjustments for inflation. The depreciable life of ROU assets and leasehold improvements are limited to the shorter of the useful life or the expected lease term. Leases with an initial term of 12 months or less are not recorded on our Consolidated Balance Sheets; we recognize lease expenses for these leases over the lease term.
The following tables present supplemental balance sheet information related to operating leases. ROU assets are included in other assets and lease liabilities are included in other liabilities.
|
| | | |
| Supplemental Balance Sheet Information: | June 30, 2020 |
| ROU assets | $ | 4,601 |
|
| Lease liabilities | 4,590 |
|
| Weighted-average remaining lease terms | 5.02 |
|
| Weighted-average discount rate | 2.97 | % |
The following schedule summarizes aggregate future minimum lease payments due under thisthese operating leases at June 30, 2020:
|
| | | |
| Fiscal year ending June 30: | |
| 2021 | $ | 1,242 |
|
| 2022 | 1,115 |
|
| 2023 | 1,063 |
|
| 2022 | 593 |
|
| 2023 | 287 |
|
| Thereafter | 676 |
|
| Total of future minimum payments | $ | 4,976 |
|
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The following table presents components of operating lease expense for the year ended June 30, 2020:
|
| | | |
| | Year Ended June 30, 2020 |
| Operating lease cost (included in occupancy expense) | $ | 1,821 |
|
| Sublease income (included in other, net noninterest income) | (242 | ) |
| Total operating lease expense, net | 1,579 |
|
As Lessee - Finance Lease
The Company currently leases land for one of its branch office locations under a finance lease. The ROU asset for the finance lease totaled $2,052 at June 30, 2020 and is included in other assets. As of June 30, 2019, the amount was recorded in premises and equipment, net. The corresponding lease liability totaled $1,843 at June 30, 2020 and is included in other liabilities. For the year ended June 30, 2020, interest expense on the lease liability totaled $97. The finance lease has a maturity date of July 2028 and a discount rate of 5.18%. Upon adoption of ASC 842, the capital lease obligation are as follows:for June 30, 2019 was also reclassified to other liabilities.
The following schedule summarizes aggregate future minimum lease payments under this finance lease obligation at June 30, 2020:
| | | Fiscal year ending: | June 30, | |
| 2019 | $ | 133 |
| |
| 2020 | 134 |
| |
| Fiscal year ending June 30: | | |
| 2021 | 134 |
| $ | 134 |
|
| 2022 | 134 |
| 134 |
|
| 2023 | 134 |
| 134 |
|
| 2024-2030 | 2,138 |
| |
| 2023 | | 145 |
|
| 2024 | | 146 |
|
| Thereafter | | 1,848 |
|
| Total minimum lease payments | 2,807 |
| 2,541 |
|
| Less: amount representing interest | (893 | ) | (698 | ) |
| Present value of net minimum lease payments | $ | 1,914 |
| $ | 1,843 |
|
Supplemental lease cash flow information for the year ended June 30, 2020:
|
| | | |
| ROU assets - noncash additions (operating leases) | $ | 5,296 |
|
| ROU assets - noncash addition (finance lease) | 2,052 |
|
| Cash paid for amounts included in the measurement of lease liabilities (operating leases) | 2,142 |
|
| Cash paid for amounts included in the measurement of lease liabilities (finance leases) | 134 |
|
As Lessor - General
The Company leases equipment to commercial end users under operating and finance lease arrangements. Our equipment finance leases consist mainly of construction, transportation, medical, and manufacturing equipment. Many of our operating and finance leases offer the lessee the option to purchase the equipment at fair value or for a nominal fixed purchase option; and most of the leases that do not have a nominal purchase option include renewal provisions resulting in some leases continuing beyond initial contractual terms. Our leases do not include early termination options, and continued rent payments are due if leased equipment is not returned at the end of the lease.
As Lessor - Operating Leases
Operating lease income is recognized as a component of noninterest income on a straight-line basis over the lease term. Lease terms range from 1 to 5 years. Assets related to operating leases are included in other assets and the corresponding depreciation expense is recorded on a straight-line basis as a component of other noninterest expense. The net book value of leased assets totaled $21,595 and $9,995 with a residual value of $12,370 and $5,800 as of June 30, 2020 and 2019, respectively. For the years ended June 30, 2020 and 2019, equipment finance operating lease income totaled $3,356 and $936, respectively. For the years ended June 30, 2020 and 2019, depreciation expense totaled $2,394 and $633, respectively.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The following schedule summarizes aggregate future minimum operating lease payments to be received at June 30, 2020:
|
| | | |
| Fiscal year ending June 30: | |
| 2021 | $ | 4,732 |
|
| 2022 | 3,643 |
|
| 2023 | 2,061 |
|
| 2024 | 649 |
|
| 2025 | 104 |
|
| Thereafter | — |
|
| Total of future minimum payments | $ | 11,189 |
|
As Lessor - Finance Leases
Finance lease income is recognized as a component of loan interest income over the lease term. The finance leases are included as a component of the equipment finance class of financing receivables under the commercial loan segment. For the years ended June 30, 2020 and 2019, total interest income on equipment finance leases totaled $1,595 and $775, respectively.
The following table presents components of finance lease net investment included within equipment finance class of financing receivables:
|
| | | |
| | June 30, 2020 |
| Lease receivables | $ | 44,927 |
|
The following schedule summarizes aggregate future minimum finance lease payments to be received at June 30, 2020:
|
| | | |
| Fiscal year ending June 30: | |
| 2021 | $ | 11,453 |
|
| 2022 | 11,054 |
|
| 2023 | 10,697 |
|
| 2024 | 8,813 |
|
| 2025 | 4,848 |
|
| Thereafter | 2,667 |
|
| Total minimum payments | 49,532 |
|
| Less: amount representing interest | (4,605 | ) |
| Total | $ | 44,927 |
|
12.13. Income Taxes
Income tax expense consistsas of the dates indicated consisted of:
| | | | June 30, | June 30, |
| | 2018 | | 2017 | | 2016 | 2020 | | 2019 | | 2018 |
| Current: | | | | | | | | | | |
| Federal | $ | 291 |
| | $ | 191 |
| | $ | 266 |
| $ | 80 |
| | $ | 755 |
| | $ | 291 |
|
| State | 324 |
| | 54 |
| | 54 |
| 748 |
| | 690 |
| | 324 |
|
| Total current expense | 615 |
| | 245 |
| | 320 |
| |
| Total current expense (benefit) | | 828 |
| | 1,445 |
| | 615 |
|
| Deferred: | | | | | | | | | | |
| Federal | 7,909 |
| | 4,561 |
| | 4,038 |
| 5,184 |
| | 5,404 |
| | 7,909 |
|
| State | 625 |
| | 386 |
| | 543 |
| 12 |
| | 267 |
| | 625 |
|
| Adjustment due to the Tax Act | 17,587 |
| | — |
| | — |
| — |
| | (325 | ) | | 17,587 |
|
| Total deferred expense | 26,121 |
| | 4,947 |
| | 4,581 |
| 5,196 |
| | 5,346 |
| | 26,121 |
|
| Total income tax expense | $ | 26,736 |
| | $ | 5,192 |
| | $ | 4,901 |
| $ | 6,024 |
| | $ | 6,791 |
| | $ | 26,736 |
|
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to income before income taxes as a result of the following differences for the periods indicated:
|
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended June 30, |
| | 2018 | | 2017 | | 2016 |
| | $ | | Rate | | $ | | Rate | | $ | | Rate |
| Tax at federal income tax rate | $ | 9,617 |
| | 28 | % | | $ | 5,793 |
| | 34 | % | | $ | 5,561 |
| | 34 | % |
| Increase (decrease) resulting from: | | | | | | | | | | | |
| Tax exempt income | (1,075 | ) | | (3 | )% | | (1,391 | ) | | (8 | )% | | (1,486 | ) | | (9 | )% |
| Nondeductible merger expenses | — |
| | — | % | | 91 |
| | 1 | % | | — |
| | — | % |
| Change in valuation allowance for deferred tax assets, allocated to income tax expense | 87 |
| | — | % | | (327 | ) | | (2 | )% | | (459 | ) | | (3 | )% |
| State tax, net of federal benefit | 688 |
| | 2 | % | | 290 |
| | 2 | % | | 394 |
| | 2 | % |
| Change in deferred tax assets due to the Tax Act | 17,587 |
| | 50 | % | | — |
| | — | % | | — |
| | — | % |
| Other | (168 | ) | | (1 | )% | | 736 |
| | 4 | % | | 891 |
| | 6 | % |
| Total | $ | 26,736 |
| | 76 | % | | $ | 5,192 |
| | 31 | % | | $ | 4,901 |
| | 30 | % |
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
|
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended June 30, |
| | 2020 | | 2019 | | 2018 |
| | $ | | Rate | | $ | | Rate | | $ | | Rate |
| Tax at federal income tax rate | $ | 6,049 |
| | 21 | % | | $ | 7,127 |
| | 21 | % | | $ | 9,617 |
| | 28 | % |
| Increase (decrease) resulting from: | | | | | | | | | | | |
| Tax exempt income | (872 | ) | | (3 | )% | | (855 | ) | | (2 | )% | | (1,075 | ) | | (3 | )% |
| Change in valuation allowance for deferred tax assets, allocated to income tax expense | — |
| | — | % | | (325 | ) | | (1 | )% | | 87 |
| | — | % |
| State tax, net of federal benefit | 600 |
| | 2 | % | | 756 |
| | 2 | % | | 688 |
| | 2 | % |
| Change in deferred tax assets due to the Tax Act | — |
| | — | % | | — |
| | — | % | | 17,587 |
| | 50 | % |
| Other | 247 |
| | 1 | % | | 88 |
| | — | % | | (168 | ) | | (1 | )% |
| Total | $ | 6,024 |
| | 21 | % | | $ | 6,791 |
| | 20 | % | | $ | 26,736 |
| | 76 | % |
The sources and tax effects of temporary differences that give rise to significant portions of the deferred tax assets (liabilities) at June 30, 20182020 and 20172019 are presented below:
| | | | June 30, | June 30, |
| | 2018 | | 2017 | 2020 | | 2019 |
| Deferred tax assets: | | | | | | |
| Alternative minimum tax credit | $ | 4,920 |
| | $ | 4,418 |
| $ | — |
| | $ | 4,799 |
|
| Allowance for loan losses | 4,637 |
| | 7,452 |
| 6,456 |
| | 4,685 |
|
| Deferred compensation and post-retirement benefits | 9,400 |
| | 16,055 |
| 8,637 |
| | 8,988 |
|
| Accrued vacation and sick leave | 18 |
| | 29 |
| 18 |
| | 18 |
|
| Impairments on real estate owned | 495 |
| | 1,337 |
| 198 |
| | 461 |
|
| Other than temporary impairment on investments | 2,254 |
| | 3,617 |
| 2,207 |
| | 2,232 |
|
| Net operating loss carryforward | 8,635 |
| | 21,443 |
| 4,513 |
| | 5,092 |
|
| Discount from business combination | 2,605 |
| | 3,645 |
| 2,192 |
| | 2,373 |
|
| Unrealized loss on securities held for sale | 477 |
| | — |
| |
| Stock compensation plans | 2,271 |
| | 2,884 |
| 2,279 |
| | 2,162 |
|
| Other | 1,562 |
| | 2,687 |
| 1,256 |
| | 1,140 |
|
| Total gross deferred tax assets | 37,274 |
| | 63,567 |
| 27,756 |
| | 31,950 |
|
| Less valuation allowance | (325 | ) | | (238 | ) | |
| Deferred tax assets | 36,949 |
| | 63,329 |
| |
| Deferred tax (liabilities): | |
| | |
| |
| | |
|
| Depreciable basis of fixed assets | (566 | ) | | (670 | ) | (6,017 | ) | | (1,089 | ) |
| Deferred loan fees | (453 | ) | | (493 | ) | (603 | ) | | (520 | ) |
| FHLB stock, book basis in excess of tax | (89 | ) | | (143 | ) | (89 | ) | | (89 | ) |
| Unrealized gain on securities available for sale | — |
| | (152 | ) | (602 | ) | | (219 | ) |
| Other | (3,276 | ) | | (4,484 | ) | (4,111 | ) | | (3,510 | ) |
| Total gross deferred tax liabilities | (4,384 | ) | | (5,942 | ) | (11,422 | ) | | (5,427 | ) |
| Net deferred tax assets | $ | 32,565 |
| | $ | 57,387 |
| $ | 16,334 |
| | $ | 26,523 |
|
The decrease in net deferred tax assets was primarily due to the enactment of the Tax Act and subsequent Internal Revenue Service guidelines which among other things reduced the statutory federal corporate income tax rate to 21% effective January 1, 2018, requiring the Company to revalue its DTA. The resulting estimated $17.6 million$17,600 in adjustments were reflected as an increase to the Company's income tax expense with an additional $325,000$325 in income tax expense during the fiscal year ended June 30, 2018 to establish a tax valuation allowance on our alternative minimum tax ("AMT")AMT credits. The valuation allowance of $325 was reversed during the year ended June 30, 2019 and the remaining AMT credit of $4,601 was reclassed to other assets from deferred taxes during the year ended June 30, 2020 based on clarifying guidance released by the Internal Revenue Service. In addition, our June 30, 2018 fiscal year end required the use of a blended federal income tax rate as prescribed by the Internal Revenue Code. The blended federal income tax rate of 27.5% was retroactively effective July 1, 2017 and was used for the entire fiscal year ended June 30, 2018. The Company's preliminary estimate of the impact of the Tax Act is based on currently available information and interpretation of its provisions. We do not anticipate additional updates to our estimate, however actual results may differ from the current estimate due to, among other things, further guidance that may be issued by U.S. tax authorities or regulatory bodies and/or changes in interpretations and assumptions that the Company has preliminarily made. The Company's evaluation of the impact of the Tax Act is subject to refinement for up to one year after enactment.
The Company had federal net operating loss ("NOL")NOL carry forwards of $40,780$21,488 and $62,368$24,248 as of June 30, 20182020 and June 30, 2017,2019, respectively, with a recorded tax benefit of $8,635$4,513 and $21,443$5,092 included in deferred tax assets. The majority of these NOLs will expire for federal tax purposes from 20242028 through 2036.
The Company also adjusted its net deferred tax asset as a result of additional reductions in the North Carolina corporate income tax rates that were enacted July 23, 2013, and effective January 1, 2014 through 2017. The lower corporate income tax rate resulted in a reduction in the deferred tax assets as of June 30, 2018 and June 30, 2017 and an increase in the current period income tax expense for the years ended June 30, 2018 and June 30, 2017.
The valuation allowance for deferred tax assets as of June 30, 2018 and 2017 was $325 and $238, respectively. The net increase in the total valuation allowance was $87 for the year ended June 30, 2018 which relates to the valuation allowance established on our AMT credits mentioned above. The net decrease in the total valuation allowance for the years ended June 30,2017 and 2016 was $315 and $459, respectively, which relates to North Carolina state income taxes due to limitations on state net operating loss carry forwards. In assessing the realizability of deferred tax assets, management considers whether it is more likely than2036, if not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management performed a robust evaluation of the Company’s deferred tax assets at June 30, 2018 and June 30, 2017. Management considered all available positive and negative evidence including the possibility of future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, and recent financial performance in making this assessment.previously used.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Based upon this evaluation, management believes there is more positive evidence than negative evidence and it is more likely than not the Company will realize the benefits of these deductible differences, net of the existing valuation allowances at June 30, 2018 and June 30, 2017. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if negative trends occur with credit quality and earnings during the carryforward period.
Retained earnings at June 30, 20182020 and 20172019 include $19,570 representing pre-1988 tax bad debt reserve base year amounts for which no deferred tax liability has been provided since these reserves are not expected to reverse and may never reverse. Circumstances that would require an accrual of a portion or all of this unrecorded tax liability are a failure to meet the definition of a bank, dividend payments in excess of current year or accumulated earnings and profits, or other distributions in dissolution or liquidation of the Bank. The Company is no longer subject to examination for federal and state purposes for tax years prior to 2014.2016.
13.14. Employee Benefit Plans
Effective July 1, 2015, the Bank established theThe HomeTrust Bank KSOP Plan ("KSOP") by combining the existing HomeTrust Bank 401(k) Plan and the ESOP. The KSOP is comprised of two components, the 401(k) Plan and the ESOP. The KSOP benefits employees with at least 1000 hours of service during a 12-month period and who have attained age 21. Under the 401(k), the Company matches employee contributions at 50% of employee deferrals up to 6% of each employee’s compensation. The Company may also make discretionary profit sharing contributions for the benefit of all eligible participants as long as total contributions do not exceed applicable limitations. Employees become fully vested in the Company’s contributions after six years of service. Under the ESOP, the amount of the Bank's annual contribution is discretionary, however it must be sufficient to pay the annual loan payment to the Company.
The Company’s expense for 401(k) contributions to this plan was $737, $450,$782, $810, and $583$737 for the years ended June 30, 2018, 2017,2020, 2019, and 2016,2018, respectively. The Company's expense related to the ESOP for the fiscal year ended June 30, 2020, 2019, and 2018 2017,was $1,195, $1,422, and 2016 was $1,367, $1,186, and $983, respectively.
Shares held by the ESOP at the dates indicated include the following:
| | | | June 30, | June 30, |
| | 2018 | | 2017 | 2020 | | 2019 |
| Unallocated ESOP shares | 740,600 |
| | 793,500 |
| 634,800 |
| | 687,700 |
|
| Allocated ESOP shares | 264,500 |
| | 211,600 |
| 370,300 |
| | 317,400 |
|
| ESOP shares committed to be released | 52,900 |
| | 52,900 |
| 52,900 |
| | 52,900 |
|
| Total ESOP shares | 1,058,000 |
| | 1,058,000 |
| 1,058,000 |
| | 1,058,000 |
|
| Fair value of unallocated ESOP shares | $ | 20,848 |
| | $ | 19,361 |
| $ | 10,157 |
| | $ | 17,289 |
|
Post-retirement health care benefits are provided to certain key officers under the Company’s Executive Medical Care Plan (“EMCP”). The EMCP is unfunded and is not qualified under the Internal Revenue Code ("IRC").IRC. Plan expense for the years ended June 30, 2020, 2019, and 2018 2017, and 2016 was $224, $135,$260, $210, and $224, respectively. Total accrued expenses related to this plan included in other liabilities were $5,237$5,301 and $5,156,$5,289, respectively, as of June 30, 20182020 and 2017.2019.
14.15. Deferred Compensation Agreements
The Company’s Director Emeritus Plans (“Plans”) provide certain benefits to Emeritus Directors for providing current advisory services to the Company. The Plans are unfunded and are not qualified under the IRC. Plan benefits vary by participant and are payable to a designated beneficiary in the event of death. The Company records an expense based on the present value of expected future benefits. Plan expenses for the years ended June 30, 2020, 2019, and 2018 2017,were $398, $410, and 2016 were $417, $419, and $489, respectively. Total accrued expenses related to these plans included in other liabilities were $8,542$7,895 and $9,225,$8,268, respectively, as of June 30, 20182020 and 2017.2019.
The Company has deferred compensation agreements with certain members of the Company’s Board of Directors. The future payments related to these agreements are to be funded with life insurance contracts which are payable to the Company inat the eventtime of the director’s death. For the years ended June 30, 2018, 2017,2020, 2019, and 20162018 deferred compensation expense was $32, $34,$21, $28, and $41,$32, respectively.
The net cash surrender value of the related life insurance policies and deferred compensation liability as of the dates indicated are detailed below:
| | | | June 30, | June 30, |
| | 2018 | | 2017 | 2020 | | 2019 |
| Net cash surrender value of life insurance, related to deferred compensation | $ | 7,142 |
| | $ | 7,096 |
| $ | 7,463 |
| | $ | 7,413 |
|
| Deferred compensation liability, included in other liabilities | $ | 1,075 |
| | $ | 1,229 |
| $ | 771 |
| | $ | 956 |
|
Long term deferred compensation and supplemental retirement plans are provided to certain key current and former officers. These plans are unfunded and are not qualified under the IRC. The benefits will vary by participant and are payable to a designated beneficiary in the event of
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
death. Plan expenses for the years ended June 30, 2020, 2019, and 2018 2017,were $783, $771, and 2016 were $519, $1,253, and $826, respectively. Total accrued expenses related to these plans included in other liabilities were $20,257$18,743 and $20,785,$19,499, as of June 30, 20182020 and 2017,2019, respectively.
In addition, the Company has a deferred compensation plan provided to certain officers and directors. The plan allows the participants to defer any of their annual compensation, including bonus payments, up to the maximum allowed for each participant. The plan is unfunded and is not qualified under the IRC. Plan expenses for the years ended June 30, 2020, 2019, and 2018 2017,were $208, $223, and 2016 were $205, $197, and $199, respectively. The total deferred compensation plan payable included in other liabilities was $5,274$4,779 and $5,832,$4,966, respectively as of June 30, 20182020 and 2017.2019.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Dollars in thousands, except per share data)
15.16. Net Income per Share
The following is a reconciliation of the numerator and denominator of basic and diluted net income per share of common stock:stock as of the dates indicated:
| | | | June 30, | June 30, |
| | 2018 | | 2017 | | 2016 | 2020 | | 2019 | | 2018 |
| Numerator: | | | | | | | | | | |
| Net income | $ | 8,235 |
| | $ | 11,847 |
| | $ | 11,456 |
| $ | 22,783 |
| | $ | 27,146 |
| | $ | 8,235 |
|
| Allocation of earnings to participating securities | (60 | ) | | (125 | ) | | (161 | ) | (194 | ) | | (189 | ) | | (60 | ) |
| Numerator for basic EPS - Net income available to common stockholders | $ | 8,175 |
| | $ | 11,722 |
| | $ | 11,295 |
| $ | 22,589 |
| | $ | 26,957 |
| | $ | 8,175 |
|
| Effect of dilutive securities: | | | | | | | | | | |
| Dilutive effect to participating securities | 2 |
| | 4 |
| | 1 |
| 6 |
| | 7 |
| | 2 |
|
| Numerator for diluted EPS | $ | 8,177 |
| | $ | 11,726 |
| | $ | 11,296 |
| $ | 22,595 |
| | $ | 26,964 |
| | $ | 8,177 |
|
| Denominator: | | | | | | | | | | |
| Weighted-average common shares outstanding - basic | 18,028,854 |
| | 17,379,487 |
| | 17,417,046 |
| 16,729,056 |
| | 17,692,493 |
| | 18,028,854 |
|
| Effect of dilutive shares | 697,577 |
| | 576,956 |
| | 189,643 |
| 563,183 |
| | 700,691 |
| | 697,577 |
|
| Weighted-average common shares outstanding - diluted | 18,726,431 |
| | 17,956,443 |
| | 17,606,689 |
| 17,292,239 |
| | 18,393,184 |
| | 18,726,431 |
|
| Net income per share - basic | $ | 0.45 |
| | $ | 0.66 |
| | $ | 0.65 |
| $ | 1.34 |
| | $ | 1.52 |
| | $ | 0.45 |
|
| Net income per share - diluted | $ | 0.44 |
| | $ | 0.65 |
| | $ | 0.65 |
| $ | 1.30 |
| | $ | 1.46 |
| | $ | 0.44 |
|
There were 420,800511,800 and 60,500455,800 outstanding stock options that were anti-dilutive for the years endedas of June 30, 20182020 and 2017,2019, respectively.
16.17. Equity Incentive Plan
The Company provides stock-based awards through the 2013 Omnibus Incentive Plan which provides for awards of restricted stock, restricted stock units, stock options, stock appreciation rights, and cash awards to directors, emeritus directors, officers, employees, and advisory directors. The cost of equity-based awards under the 2013 Omnibus Incentive Plan generally is based on the fair value of the awards on their grant date. The maximum number of shares that may be utilized for awards under the plan is 2,962,400, including 2,116,000 for stock options and stock appreciation rights and 846,400 for awards of restricted stock and restricted stock units.
Shares of common stock issued under the 2013 Omnibus Incentive Plan may be authorized but unissued shares or in the case of restricted stock awards, may be repurchased shares. As of June 30, 2013, the Company had repurchased all 846,400 shares on the open market for issuance under the 2013 Omnibus Incentive Plan, for $13,297, at an average cost of $15.71 per share.
Share based compensation expense related to stock options and restricted stock recognized for the fiscal year ended June 30, 2020, 2019, and 2018 2017, and 2016 was $3,027$1,822, $4,166,1,601, and $2,939,$3,027, respectively, before the related tax benefit of $908, $1,541,$428, $376, and $1,087,$908, respectively.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The table below presents stock option activity and related information:
| | | | Options | | Weighted- average exercise price | | Remaining contractual life (years) | | Aggregate Intrinsic Value | Options | | Weighted- average exercise price | | Remaining contractual life (years) | | Aggregate Intrinsic Value |
| Options outstanding at June 30, 2015 | 1,498,000 |
| | 14.41 |
| | 7.7 |
| | $ | 3,519 |
| |
| Granted | 46,500 |
| | 17.35 |
| | — |
| | — |
| |
| Exercised | 2,200 |
| | 14.37 |
| | — |
| | — |
| |
| Forfeited | 13,000 |
| | 14.37 |
| | — |
| | — |
| |
| Expired | — |
| | — |
| | — |
| | — |
| |
| Options outstanding at June 30, 2016 | 1,529,300 |
| | $ | 14.50 |
| | 6.8 |
| | $ | 6,117 |
| |
| Exercisable at June 30, 2016 | 829,400 |
| | $ | 14.40 |
| | | | | |
| Granted | 60,500 |
| | 24.95 |
| | — |
| | — |
| |
| Granted, TriSummit acquisition | 86,185 |
| | 23.82 |
| | — |
| | — |
| |
| Exercised | 185,142 |
| | 16.56 |
| | — |
| | — |
| |
| Forfeited | 19,000 |
| | 14.53 |
| | — |
| | — |
| |
| Expired | 1,800 |
| | 14.37 |
| | — |
| | — |
| |
| Options outstanding at June 30, 2017 | 1,470,043 |
| | $ | 15.22 |
| | 5.8 |
| | $ | 13,533 |
| 1,470,043 |
| | 15.22 |
| | 5.8 |
| | $ | 13,533 |
|
| Exercisable at June 30, 2017 | 1,033,943 |
| | $ | 14.82 |
| | | | | |
| Granted | 360,400 |
| | 26.01 |
| | — |
| | — |
| 360,400 |
| | 26.01 |
| | — |
| | — |
|
| Exercised | 44,200 |
| | 14.72 |
| | — |
| | — |
| 44,200 |
| | 14.72 |
| | — |
| | — |
|
| Forfeited | 24,700 |
| | 14.43 |
| | — |
| | — |
| 24,700 |
| | 14.43 |
| | — |
| | — |
|
| Expired | 43,273 |
| | 23.82 |
| | — |
| | — |
| 43,273 |
| | 23.82 |
| | — |
| | — |
|
| Options outstanding at June 30, 2018 | 1,718,270 |
| | $ | 17.29 |
| | 5.9 |
| | $ | 18,664 |
| 1,718,270 |
| | $ | 17.29 |
| | 5.9 |
| | $ | 18,664 |
|
| Exercisable at June 30, 2018 | 1,223,470 |
| | $ | 14.51 |
| | 4.7 |
| | $ | 16,691 |
| 1,223,470 |
| | $ | 14.51 |
| | | | |
| Non-vested at June 30, 2018 | 494,800 |
| | $ | 24.16 |
| | 8.9 |
| | $ | 1,973 |
| |
| Granted | | 40,500 |
| | 27.51 |
| | — |
| | — |
|
| Exercised | | 80,311 |
| | 14.62 |
| | — |
| | — |
|
| Forfeited | | 20,300 |
| | 23.30 |
| | — |
| | — |
|
| Expired | | 945 |
| | 23.82 |
| | — |
| | — |
|
| Options outstanding at June 30, 2019 | | 1,657,214 |
| | $ | 17.59 |
| | 5.0 |
| | $ | 12,909 |
|
| Exercisable at June 30, 2019 | | 1,279,614 |
| | $ | 15.39 |
| | | | |
| Granted | | 66,000 |
| | 25.46 |
| | — |
| | — |
|
| Exercised | | 106,914 |
| | 14.41 |
| | — |
| | — |
|
| Forfeited | | 800 |
| | 17.35 |
| | — |
| | — |
|
| Options outstanding at June 30, 2020 | | 1,615,500 |
| | $ | 18.12 |
| | 4.4 |
| | $ | 1,711 |
|
| Exercisable at June 30, 2020 | | 1,298,000 |
| | $ | 16.27 |
| | 3.5 |
| | $ | 1,701 |
|
| Non-vested at June 30, 2020 | | 317,500 |
| | $ | 25.67 |
| | 7.9 |
| | $ | 105 |
|
The fair value of each option is estimated on the date of grant using the Black-Scholes-Merton option pricing model. Assumptions used for grants were as follows:
| | Assumptions in Estimating Option Values | | | 2018 | | 2017 | 2020 | | 2019 |
| Weighted-average volatility | 17.69 | % | | 16.69 | % | 25.60 | % | | 17.84 | % |
Expected dividend yield | — | % | | — | % | 1.05 | % | | 0.87 | % |
| Risk-free interest rate | 2.67 | % | | 2.36 | % | 1.43 | % | | 2.52 | % |
| Expected life (years) | 6.5 |
| | 6.5 |
| 6.5 |
| | 6.5 |
|
| Weighted-average fair value of options granted | $ | 6.62 |
| | $ | 7.76 |
| $ | 5.88 |
| | $ | 6.62 |
|
(1) The Company began paying a cash dividend during the second quarter of fiscal 2019.
At June 30, 2018,2020, the Company had $2,705$1,701 of unrecognized compensation expense related to 494,800317,500 stock options originally scheduled to vest over a five-year vesting period. The weighted average period over which compensation cost related to non-vested awards is expected to be recognized was 1.8 years at June 30, 2020. At June 30, 2019, the Company had $2,133 of unrecognized compensation expense related to 377,600 stock options originally scheduled to vest over five- and seven-year vesting periods. The weighted average period over which compensation cost related to non-vested awards is expected to be recognized was 2.31.9 years at June 30, 2018. At June 30, 2017, the Company had $1,526 of unrecognized compensation expense related to 436,100 stock options originally scheduled to vest over five- and seven-year vesting periods. The weighted average period over which compensation cost related to non-vested awards is expected to be recognized was 1.2 years at June 30, 2017.2019. All unexercised options expire ten years after the grant date.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The table below presents restricted stock award activity and related information:
| | | | Restricted stock awards | | Weighted- average grant date fair value | | Aggregate Intrinsic Value | Restricted stock awards | | Weighted- average grant date fair value | | Aggregate Intrinsic Value |
| Non-vested at June 30, 2015 | 310,470 |
| | $ | 14.40 |
| | $ | 5,203 |
| |
| Granted | 34,500 |
| | 17.35 |
| | — |
| |
| Vested | 93,670 |
| | 14.39 |
| | — |
| |
| Forfeited | 2,550 |
| | 14.37 |
| | — |
| |
| Non-vested at June 30, 2016 | 248,750 |
| | $ | 14.81 |
| | $ | 4,602 |
| |
| Granted | 47,500 |
| | 24.70 |
| | — |
| |
| Vested | 104,620 |
| | 14.58 |
| | — |
| |
| Forfeited | 6,000 |
| | 15.07 |
| | — |
| |
| Non-vested at June 30, 2017 | 185,630 |
| | $ | 17.46 |
| | $ | 3,419 |
| 185,630 |
| | $ | 17.46 |
| | $ | 3,419 |
|
| Granted | 55,200 |
| | 25.89 |
| | — |
| 55,200 |
| | 25.89 |
| | — |
|
| Vested | 100,820 |
| | 15.14 |
| | — |
| 100,820 |
| | 15.14 |
| | — |
|
| Forfeited | 6,600 |
| | 14.37 |
| | — |
| 6,600 |
| | 14.37 |
| | — |
|
| Non-vested at June 30, 2018 | 133,410 |
| | $ | 22.85 |
| | $ | 3,755 |
| 133,410 |
| | $ | 22.85 |
| | $ | 3,755 |
|
| Granted | | 34,000 |
| | 27.51 |
| | — |
|
| Vested | | 39,310 |
| | 21.64 |
| | — |
|
| Forfeited | | 4,300 |
| | 19.08 |
| | — |
|
| Non-vested at June 30, 2019 | | 123,800 |
| | $ | 24.65 |
| | $ | 2,258 |
|
| Granted | | 67,556 |
| | 26.39 |
| | — |
|
| Vested | | 38,925 |
| | 23.02 |
| | — |
|
| Forfeited | | 8,385 |
| | 24.88 |
| | — |
|
| Non-vested at June 30, 2020 | | 144,046 |
| | $ | 25.89 |
| | $ | 2,305 |
|
The table above includes performance-based restrictive stock units totaling 11,250 and 5,190 which were granted during the years ended June 30, 2020 and 2019, respectively. These stock units are scheduled to vest over 3.0 years assuming certain performance metrics are met.
At June 30, 2018,2020, unrecognized compensation expense was $2,570$3,048 related to 133,410144,046 shares of restricted stock originally scheduled to vest over three- and five-year vesting periods. The weighted average period over which compensation cost related to non-vested awards is expected to be recognized was 1.8 years at June 30, 2020. At June 30, 2019, unrecognized compensation expense was $2,547 related to 123,800 shares of restricted stock originally scheduled to vest over five- and seven-year vesting periods. The weighted average period over which compensation cost related to non-vested awards is expected to be recognized was 2.11.9 years at June 30, 2018. At June 30, 2017, unrecognized compensation expense was $2,493 related to 185,630 shares of restricted stock originally scheduled to vest over five- and seven-year vesting periods. The weighted average period over which compensation cost related to non-vested awards is expected to be recognized was 1.6 years at June 30, 2017.2019.
17.18. Commitments and Contingencies
Loan Commitments
Legally binding 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 commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. In the normal course of business, there are various outstanding commitments to extend credit that are not reflected in the consolidated financial statements. At June 30, 20182020 and June 30, 2017,2019, respectively, loan commitments (excluding $209,726$141,557 and $158,380$181,477 of undisbursed portions of construction loans) totaled $49,949$57,798 and $43,730$93,432 of which $19,812$10,678 and $21,221$34,631 were variable rate commitments and $30,137$47,120 and $22,509$58,801 were fixed rate commitments. The fixed rate loans had interest rates ranging from 2.10%1.74% to 6.15%8.54% at June 30, 20182020 and 1.95%2.69% to 6.25%8.59% at June 30, 2017,2019, and terms ranging from three to 30 years. Pre-approved but unused lines of credit (principally second mortgage home equity loans and overdraft protection loans) totaled $491,649$398,781 and $414,373$353,663 at June 30, 20182020 and 2017,2019, respectively. These amounts represent the Company’s exposure to credit risk, and in the opinion of management have no more than the normal lending risk that the Company commits to its borrowers. The Company has two types of commitments related to loans held for sale: rate lock commitments and forward loan sale commitments. Rate lock commitments are commitments to extend credit to a customer that has an interest rate lock and are considered derivative instruments. The rate lock commitments do not qualify for hedge accounting. In order to mitigate the risk from interest rate fluctuations, we enter into forward loan sale commitments on a “best efforts” basis, which do not meet the definition of a derivative instrument. The fair value of these commitments was not material at June 30, 20182020 or June 30, 2017.2019.
The Company grants construction and permanent loans collateralized primarily by residential and commercial real estate to customers throughout its primary market area. In addition, the Company grants equipment financing throughout the eastern United States and municipal leases to customers throughout North and South Carolina. The Company’s loan portfolio can be affected by the general economic conditions within these market areas. Management believes that the Company has no significant concentration of credit in the loan portfolio.
Restrictions on Cash
TheIn response to COVID-19, the FRB reduced the reserve requirements to zero on March 15, 2020. Prior to this change the Bank iswas required by regulation to maintain a varying cash reserve balance with the Federal Reserve System.FRB. The daily average calculated cash reserve required as of June 30, 20182020 and 20172019 was $2,304,$0, and $2,152,$2,633, respectively, which was satisfied by vault cash and balances held at the Federal Reserve Bank.FRB.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Guarantees
Standby letters of credit obligate the Company to meet certain financial obligations of its customers, if, under the contractual terms of the agreement, the customers are unable to do so. The financial standby letters of credit issued by the Company are irrevocable and payment is only guaranteed upon the borrower’s failure to perform its obligations to the beneficiary. Total commitments under standby letters of credit as of June
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
30, 20182020 and 20172019 were $8,227$7,766 and $5,164,$9,460, respectively. There was no liability recorded for these letters of credit at June 30, 20182020 or June 30, 2017.2019.
Litigation
The Company is involved in several litigation matters in the ordinary course of business. These proceedings and the associated legal claims are often contested and the outcome of individual matters is not always predictable. These claims and counter claims typically arise during the course of collection efforts on problem loans or with respect to actions to enforce liens on properties in which the Company holds a security interest. There can be no assurance that loan workouts and other activities will not expose the Company to additional legal actions, including lender liability or environmental claims. Therefore, the Company may be exposed to substantial liabilities, which could adversely affect its results of operations and financial condition. Moreover, the expenses of legal proceedings will adversely affect its results of operations until they are resolved. The Company is not a party to any pending legal proceedings that management believes would have a material adverse effect on the Company’s financial condition or results of operations.
18.19. Capital
At June 30, 2018,2020, stockholder's equity totaled $409,242.$408,263. HomeTrust Bancshares, Inc. is a bank holding company subject to regulation by the Federal Reserve. As a bank holding company, we are subject to capital adequacy requirements of the Federal Reserve under the Bank Holding Company Act of 1956, as amended and the regulations of the Federal Reserve. Our subsidiary, the Bank, an FDIC-insured, North Carolina state-chartered bank and a member of the Federal Reserve System, is supervised and regulated by the Federal Reserve and the North Carolina Commissioner of Banks ("NCCOB")NCCOB and is subject to minimum capital requirements applicable to state member banks established by the Federal Reserve that are calculated in a manner similar to those applicable to bank holding companies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by bank 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 the Bank’s 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.
At June 30, 2018,2020, HomeTrust Bancshares, Inc. and the Bank each exceeded all regulatory capital requirements as of that date. Consistent with our goals to operate a sound and profitable organization, our policy is for the Bank to maintain a “well-capitalized” status under the regulatory capital categories of the Federal Reserve. The Bank was categorized as "well-capitalized" at June 30, 20182020 under applicable regulatory requirements.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
HomeTrust Bancshares, Inc. and the Bank's actual and required minimum capital amounts and ratios are as follows:
| | | | | | Regulatory Requirements | | | Regulatory Requirements |
| | Actual | | Minimum for Capital Adequacy Purposes | | Minimum to Be Well Capitalized | Actual | | Minimum for Capital Adequacy Purposes | | Minimum to Be Well Capitalized |
| | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
| HomeTrust Bancshares, Inc. | | | | | | | | | | | | | | | | | | | | | | |
| As of June 30, 2018 | | | | | | | | | | | | |
| As of June 30, 2020 | | | | | | | | | | | | |
| Common Equity Tier I Capital (to Risk-weighted Assets) | $ | 372,188 |
| | 12.97 | % | | $ | 129,109 |
| | 4.50 | % | | $ | 186,491 |
| | 6.50 | % | $ | 374,437 |
| | 11.26 | % | | $ | 149,614 |
| | 4.50 | % | | $ | 216,109 |
| | 6.50 | % |
| Tier I Capital (to Total Adjusted Assets) | $ | 372,188 |
| | 11.45 | % | | $ | 130,032 |
| | 4.00 | % | | $ | 162,539 |
| | 5.00 | % | $ | 374,437 |
| | 10.26 | % | | $ | 146,047 |
| | 4.00 | % | | $ | 182,559 |
| | 5.00 | % |
| Tier I Capital (to Risk-weighted Assets) | $ | 372,188 |
| | 12.97 | % | | $ | 172,145 |
| | 6.00 | % | | $ | 229,527 |
| | 8.00 | % | $ | 374,437 |
| | 11.26 | % | | $ | 199,485 |
| | 6.00 | % | | $ | 265,980 |
| | 8.00 | % |
| Total Risk-based Capital (to Risk-weighted Assets) | $ | 393,703 |
| | 13.72 | % | | $ | 229,527 |
| | 8.00 | % | | $ | 286,909 |
| | 10.00 | % | $ | 402,964 |
| | 12.12 | % | | $ | 265,980 |
| | 8.00 | % | | $ | 332,476 |
| | 10.00 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| As of June 30, 2017 | |
| | |
| | |
| | |
| | |
| | |
| |
| As of June 30, 2019 | | |
| | |
| | |
| | |
| | |
| | |
|
| Common Equity Tier I Capital (to Risk-weighted Assets) | $ | 342,664 |
| | 13.07 | % | | $ | 118,024 |
| | 4.50 | % | | $ | 170,478 |
| | 6.50 | % | $ | 374,729 |
| | 12.20 | % | | $ | 138,226 |
| | 4.50 | % | | $ | 199,659 |
| | 6.50 | % |
| Tier I Capital (to Total Adjusted Assets) | $ | 342,664 |
| | 11.13 | % | | $ | 123,149 |
| | 4.00 | % | | $ | 153,936 |
| | 5.00 | % | $ | 374,729 |
| | 10.89 | % | | $ | 137,649 |
| | 4.00 | % | | $ | 172,062 |
| | 5.00 | % |
| Tier I Capital (to Risk-weighted Assets) | $ | 342,664 |
| | 13.07 | % | | $ | 157,365 |
| | 6.00 | % | | $ | 209,820 |
| | 8.00 | % | $ | 374,729 |
| | 12.20 | % | | $ | 184,301 |
| | 6.00 | % | | $ | 245,734 |
| | 8.00 | % |
| Total Risk-based Capital (to Risk-weighted Assets) | $ | 364,269 |
| | 13.89 | % | | $ | 209,820 |
| | 8.00 | % | | $ | 262,275 |
| | 10.00 | % | $ | 396,613 |
| | 12.91 | % | | $ | 245,734 |
| | 8.00 | % | | $ | 307,168 |
| | 10.00 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| HomeTrust Bank: | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
|
| As of June 30, 2018 | |
| | |
| | |
| | |
| | |
| | |
| |
| As of June 30, 2020 | | |
| | |
| | |
| | |
| | |
| | |
|
| Common Equity Tier I Capital (to Risk-weighted Assets) | $ | 335,152 |
| | 11.70 | % | | $ | 128,889 |
| | 4.50 | % | | $ | 186,173 |
| | 6.50 | % | $ | 362,841 |
| | 10.91 | % | | $ | 149,608 |
| | 4.50 | % | | $ | 216,100 |
| | 6.50 | % |
| Tier I Capital (to Total Adjusted Assets) | $ | 335,152 |
| | 10.33 | % | | $ | 129,769 |
| | 4.00 | % | | $ | 162,211 |
| | 5.00 | % | $ | 362,841 |
| | 9.94 | % | | $ | 146,010 |
| | 4.00 | % | | $ | 182,512 |
| | 5.00 | % |
| Tier I Capital (to Risk-weighted Assets) | $ | 335,152 |
| | 11.70 | % | | $ | 171,852 |
| | 6.00 | % | | $ | 229,136 |
| | 8.00 | % | $ | 362,841 |
| | 10.91 | % | | $ | 199,477 |
| | 6.00 | % | | $ | 265,969 |
| | 8.00 | % |
| Total Risk-based Capital (to Risk-weighted Assets) | $ | 356,603 |
| | 12.45 | % | | $ | 229,136 |
| | 8.00 | % | | $ | 286,421 |
| | 10.00 | % | $ | 391,368 |
| | 11.77 | % | | $ | 265,969 |
| | 8.00 | % | | $ | 332,461 |
| | 10.00 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| As of June 30, 2017 | |
| | |
| | |
| | |
| | |
| | |
| |
| As of June 30, 2019 | | |
| | |
| | |
| | |
| | |
| | |
|
| Common Equity Tier I Capital (to Risk-weighted Assets) | $ | 305,216 |
| | 11.68 | % | | $ | 117,560 |
| | 4.50 | % | | $ | 169,809 |
| | 6.50 | % | $ | 355,759 |
| | 11.59 | % | | $ | 138,153 |
| | 4.50 | % | | $ | 199,555 |
| | 6.50 | % |
| Tier I Capital (to Total Adjusted Assets) | $ | 305,216 |
| | 9.97 | % | | $ | 122,453 |
| | 4.00 | % | | $ | 153,066 |
| | 5.00 | % | $ | 355,759 |
| | 10.34 | % | | $ | 137,590 |
| | 4.00 | % | | $ | 171,988 |
| | 5.00 | % |
| Tier I Capital (to Risk-weighted Assets) | $ | 305,216 |
| | 11.68 | % | | $ | 156,747 |
| | 6.00 | % | | $ | 208,996 |
| | 8.00 | % | $ | 355,759 |
| | 11.59 | % | | $ | 184,204 |
| | 6.00 | % | | $ | 245,606 |
| | 8.00 | % |
| Total Risk-based Capital (to Risk-weighted Assets) | $ | 326,635 |
| | 12.50 | % | | $ | 208,996 |
| | 8.00 | % | | $ | 261,245 |
| | 10.00 | % | $ | 377,639 |
| | 12.30 | % | | $ | 245,606 |
| | 8.00 | % | | $ | 307,007 |
| | 10.00 | % |
In addition to the minimum common equity Tier 1 ("CET1"),CET1, Tier 1 and total risk-based capital ratios, HomeTrust Bancshares, Inc. and the Bank now have to maintain a capital conservation buffer consisting of additional CET1 capital of more than 2.50% above the required minimum levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses based on percentages of eligible retained income that could be utilized for such actions. This new capital conservation buffer requirement began to be phased in starting in January 2016 at an amount more than 0.625% of risk-weighted assets and will increase each year until fully implemented to an amount more than 2.5% of risk-weighted assets in January 2019. As of June 30, 2018,2020, the CET1 capital ofconservation buffer was 4.12% and 3.77% for HomeTrust Bancshares, Inc. and the Bank, exceeded the required conservation buffer of more than 1.875%.
2018 Regulatory Reform
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 Wall Street Reform and Consumer Protection Act (“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 HomeTrust Bank.
The Act, among other matters, 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. Any qualifying depository institution or its holding company that exceeds the “community bank leverage ratio” will be considered to have met applicable leverage and risk-based regulatory capital requirements and any qualifying depository institution that exceeds the new ratio will be considered to be “well capitalized” under the prompt corrective action rules.respectively.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
A reconciliation of HomeTrust Bancshares, Inc.'s stockholders' equity under US GAAP and regulatory capital amounts as of the dates indicated follows:
| | | | June 30, | June 30, |
| | 2018 | | 2017 | 2020 | | 2019 |
| Total stockholders' equity under US GAAP | $ | 409,242 |
| | $ | 397,647 |
| $ | 408,263 |
| | $ | 408,896 |
|
| Accumulated other comprehensive income (loss), net of tax | 1,598 |
| | (273 | ) | |
| Accumulated other comprehensive income, net of tax | | (2,017 | ) | | (733 | ) |
| Investment in nonincludable subsidiary | (826 | ) | | (881 | ) | (815 | ) | | (780 | ) |
| Disallowed deferred tax assets | (8,701 | ) | | (24,576 | ) | (4,526 | ) | | (5,092 | ) |
| Disallowed goodwill and other disallowed intangible assets | (29,125 | ) | | (29,253 | ) | (26,468 | ) | | (27,562 | ) |
| Tier I Capital | 372,188 |
| | 342,664 |
| |
| Allowable portion of allowance for loan losses | 21,515 |
| | 21,605 |
| |
| Tier I Capital and CET1 | | 374,437 |
| | 374,729 |
|
| Allowable portion of allowance for loan losses and loan commitments | | 28,527 |
| | 21,884 |
|
| Total Risk-based Capital | $ | 393,703 |
| | $ | 364,269 |
| $ | 402,964 |
| | $ | 396,613 |
|
19.20. Parent Company Financial Information
The Company’s principal asset is its investment in its subsidiary, the Bank. The following tables present condensed financial information of the Company:
Condensed balance sheet
| | | | June 30,
2018 | | June 30,
2017 | June 30,
2020 | | June 30,
2019 |
| Assets: | | | | | | |
| Cash and equivalents | $ | 23,042 |
| | $ | 11,078 |
| $ | 3,888 |
| | $ | 8,481 |
|
| Certificates of deposit in other banks | 994 |
| | 7,211 |
| — |
| | 746 |
|
| Other securities | 63 |
| | 63 |
| |
| Total loans | 3,840 |
| | 5,345 |
| — |
| | 1,243 |
|
| Allowance for loan losses | (64 | ) | | (186 | ) | — |
| | (4 | ) |
| Net loans | 3,776 |
| | 5,159 |
| — |
| | 1,239 |
|
| REO | 805 |
| | 1,462 |
| 143 |
| | 621 |
|
| Investment in bank subsidiary | 372,206 |
| | 363,603 |
| 396,667 |
| | 389,926 |
|
| ESOP loan receivable | 7,896 |
| | 8,368 |
| 6,918 |
| | 7,412 |
|
| Other assets | 499 |
| | 790 |
| 731 |
| | 510 |
|
| Total Assets | $ | 409,281 |
| | $ | 397,734 |
| $ | 408,347 |
| | $ | 408,935 |
|
| Liabilities and Stockholders’ Equity: | | | | | | |
| Other liabilities | 39 |
| | 87 |
| 84 |
| | 39 |
|
| Stockholders’ Equity | 409,242 |
| | 397,647 |
| 408,263 |
| | 408,896 |
|
| Total Liabilities and Stockholders’ Equity | $ | 409,281 |
| | $ | 397,734 |
| $ | 408,347 |
| | $ | 408,935 |
|
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Condensed statement of income
| | | | June 30,
2018 | | June 30,
2017 | | June 30,
2016 | June 30,
2020 | | June 30,
2019 | | June 30,
2018 |
| Income: | | | | | | | | | | |
| Interest income | $ | 456 |
| | $ | 565 |
| | $ | 716 |
| $ | 217 |
| | $ | 329 |
| | $ | 456 |
|
| Other income | 44 |
| | 1 |
| | — |
| 1 |
| | 54 |
| | 44 |
|
| Equity earnings in Bank subsidiary | 8,427 |
| | 12,003 |
| | 11,284 |
| 23,522 |
| | 27,287 |
| | 8,427 |
|
| Total income | 8,927 |
| | 12,569 |
| | 12,000 |
| 23,740 |
| | 27,670 |
| | 8,927 |
|
| Expense: | | | | | | | | | | |
| Management fee expense | 385 |
| | 354 |
| | 317 |
| 399 |
| | 407 |
| | 385 |
|
| REO expense | 34 |
| | 62 |
| | 71 |
| 5 |
| | 11 |
| | 34 |
|
| Loss on sale and impairment of REO | 158 |
| | 39 |
| | 115 |
| 249 |
| | 114 |
| | 158 |
|
| Provision for (recovery of) loan losses | (131 | ) | | 90 |
| | (275 | ) | |
| Recovery of loan losses | | (4 | ) | | (259 | ) | | (131 | ) |
| Other expense | 246 |
| | 177 |
| | 166 |
| 258 |
| | 251 |
| | 246 |
|
| Total expense | 692 |
| | 722 |
| | 394 |
| 907 |
| | 524 |
| | 692 |
|
| Income Before Income Taxes | 8,235 |
| | 11,847 |
| | 11,606 |
| 22,833 |
| | 27,146 |
| | 8,235 |
|
| Income Tax Expense | — |
| | — |
| | 150 |
| 50 |
| | — |
| | — |
|
| Net Income | $ | 8,235 |
| | $ | 11,847 |
| | $ | 11,456 |
| $ | 22,783 |
| | $ | 27,146 |
| | $ | 8,235 |
|
Condensed statement of cash flows
| | | | June 30,
2018 | | June 30,
2017 | | June 30,
2016 | June 30,
2020 | | June 30,
2019 | | June 30,
2018 |
| Operating Activities: | | | | | | | | | | |
| Net income | $ | 8,235 |
| | $ | 11,847 |
| | $ | 11,456 |
| $ | 22,783 |
| | $ | 27,146 |
| | $ | 8,235 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | |
Provision for (recovery of) loan losses
| (131 | ) | | 90 |
| | (275 | ) | |
Recovery of loan losses
| | (4 | ) | | (259 | ) | | (131 | ) |
| Loss on sale and impairment of REO | 158 |
| | 39 |
| | 115 |
| 249 |
| | 114 |
| | 158 |
|
| Decrease (increase) in accrued interest receivable and other assets | 291 |
| | (30 | ) | | 1,799 |
| |
| Decrease (increase) in other assets | | (221 | ) | | 52 |
| | 291 |
|
| Equity in undistributed income of Bank | (8,427 | ) | | (12,003 | ) | | (11,284 | ) | (23,522 | ) | | (27,287 | ) | | (8,427 | ) |
| ESOP compensation expense | 1,367 |
| | 1,186 |
| | 983 |
| 1,195 |
| | 1,422 |
| | 1,367 |
|
| Restricted stock and stock option expense | 3,027 |
| | 4,166 |
| | 2,939 |
| 1,822 |
| | 1,601 |
| | 3,027 |
|
| Decrease in other liabilities | (48 | ) | | (260 | ) | | (774 | ) | |
| Decrease (increase) in other liabilities | | 45 |
| | — |
| | (48 | ) |
| Net cash provided by operating activities | 4,472 |
| | 5,035 |
| | 4,959 |
| 2,347 |
| | 2,789 |
| | 4,472 |
|
| Investing Activities: | | | | | | | | | | |
| Purchase of certificates of deposit in other banks | — |
| | — |
| | (996 | ) | |
| Maturities of certificates of deposit in other banks | 6,217 |
| | 1,245 |
| | 2,487 |
| 746 |
| | 248 |
| | 6,217 |
|
| Repayment of loans | 1,514 |
| | 2,176 |
| | 3,024 |
| 1,243 |
| | 2,796 |
| | 1,514 |
|
| Capital improvements to REO | — |
| | — |
| | — |
| |
| Increase in investment in Bank subsidiary | (1,367 | ) | | (3,408 | ) | | (982 | ) | (1,380 | ) | | (1,556 | ) | | (1,367 | ) |
| Dividend from subsidiary | — |
| | 10,291 |
| | 7,952 |
| 19,445 |
| | 13,454 |
| | — |
|
| ESOP principal payments received | 472 |
| | 462 |
| | 450 |
| 494 |
| | 484 |
| | 472 |
|
| Proceeds from sale of REO | 499 |
| | 61 |
| | 496 |
| 229 |
| | 70 |
| | 499 |
|
| Acquisition of TriSummit Bancorp, Inc. | — |
| | (13,862 | ) | | — |
| |
| Net cash provided by (used in) investing activities | 7,335 |
| | (3,035 | ) | | 12,431 |
| |
| Net cash provided by investing activities | | 20,777 |
| | 15,496 |
| | 7,335 |
|
| Financing Activities: | | | | | | | | | | |
| Common stock repurchased | — |
| | — |
| | (27,734 | ) | (24,484 | ) | | (30,638 | ) | | — |
|
| Cash dividends paid | | (4,552 | ) | | (3,176 | ) | | — |
|
| Retired stock | (494 | ) | | (569 | ) | | (223 | ) | (222 | ) | | (205 | ) | | (494 | ) |
| Exercised stock options | 651 |
| | 3,068 |
| | 32 |
| 1,541 |
| | 1,173 |
| | 651 |
|
| Net cash provided by (used in) financing activities | 157 |
| | 2,499 |
| | (27,925 | ) | (27,717 | ) | | (32,846 | ) | | 157 |
|
| Net Increase (Decrease) in Cash and Cash Equivalents | 11,964 |
| | 4,499 |
| | (10,535 | ) | (4,593 | ) | | (14,561 | ) | | 11,964 |
|
| Cash and Cash Equivalents at Beginning of Period | 11,078 |
| | 6,579 |
| | 17,114 |
| 8,481 |
| | 23,042 |
| | 11,078 |
|
| Cash and Cash Equivalents at End of Period | $ | 23,042 |
| | $ | 11,078 |
| | $ | 6,579 |
| $ | 3,888 |
| | $ | 8,481 |
| | $ | 23,042 |
|
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
20.21. Fair Value of Financial Instruments
The Company utilizes fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. Securities available for sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as impaired loans. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets. The Company measures the fair value of loans receivable under the exit price notion. The fair value of nonperforming loans is based on the underlying value of the collateral.
Fair Value Hierarchy
The Company groups assets at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value. These levels are:
| |
| Level 1: | Valuation is based upon quoted prices for identical instruments traded in active markets. |
| |
| Level 2: | Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. |
| |
| Level 3: | Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques. |
Following is a description of valuation methodologies used for assets recorded at fair value. The Company does not have any liabilities recorded at fair value.
Investment Securities Available for Sale
Securities available for sale are valued on a recurring basis at quoted market prices where available. If quoted market prices are not available, fair values are based on quoted prices of comparable securities. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange or U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securitiesMBS and debentures issued by government sponsored enterprises,GSEs, municipal bonds, and corporate debt securities. The Company has no Level 3 securities.
Impaired Loans
The Company does not record loans at fair value on a recurring basis. From time to time, however, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, the fair value is estimated using one of several methods, includingtwo ways, which include collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. The Company reviews all impaired loans each quarter to determine if an allowance is necessary. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans.
The fair value of impaired loans is estimated in one of two ways, which include collateral value and discounted cash flows. Loans are considered collateral dependent if repayment is expected solely from the collateral. For these collateral dependent impaired loans, the Company obtains updated appraisals at least annually. These appraisals are reviewed for appropriateness and then discounted for estimated closing costs to determine if an allowance is necessary. As part of the quarterly review of impaired loans, the Company reviews these appraisals to determine if any additional discounts to the fair value are necessary. If a current appraisal is not obtained, the Company determines whether a discount is needed to the value from the original appraisal based on the decline in value of similar properties with recent appraisals. For loans that are not collateral dependent, estimated fair value is based on the present value of expected future cash flows using the interest rate implicit in the original agreement. Impaired loans where a charge-off has occurred or an allowance is established during the period being reported require classification in the fair value hierarchy. The Company records such impaired loans as a nonrecurring Level 3 in the fair value hierarchy.
Loans Held for Sale
Loans held for sale are adjusted to lower of cost or fair value. Fair value is based upon investor pricing.on commitments on hand from investors or, if commitments have not yet been obtained, what investors are currently offering for loans with similar characteristics. The Company considers all loans held for sale carried at fair value as nonrecurring Level 3.
Real Estate Owned
REO is considered held for sale and is adjusted to fair value less estimated selling costs upon transfer of the loan to foreclosed assets. Fair value is based upon independent market prices, appraised value of the collateral or management’s estimation of the value of the collateral. The Company considers all REO that has been charged off or received an allowance during the period as nonrecurring Level 3.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Financial Assets Recorded at Fair Value on a Recurring Basis
The following table presents financial assets measured at fair value on a recurring basis at the dates indicated:
|
| | | | | | | | | | | | | | | |
| | June 30, 2018 |
| Description | Total | | Level 1 | | Level 2 | | Level 3 |
| U.S Government Agencies | $ | 47,542 |
| | $ | — |
| | $ | 47,542 |
| | $ | — |
|
| Residential Mortgage-backed Securities of U.S. Government Agencies and Government sponsored Enterprises | 70,599 |
| | — |
| | 70,599 |
| | — |
|
| Municipal Bonds | 30,766 |
| | — |
| | 30,766 |
| | — |
|
| Corporate Bonds | 6,023 |
| | — |
| | 6,023 |
| | — |
|
| Equity Securities | 63 |
| | — |
| | 63 |
| | — |
|
| Total | $ | 154,993 |
| | $ | — |
| | $ | 154,993 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | |
| | June 30, 2020 |
| Description | Total | | Level 1 | | Level 2 | | Level 3 |
| U.S government agencies | $ | 4,173 |
| | $ | — |
| | $ | 4,173 |
| | $ | — |
|
| Residential MBS of U.S. government agencies and GSE | 48,355 |
| | — |
| | 48,355 |
| | — |
|
| Municipal bonds | 16,631 |
| | — |
| | 16,631 |
| | — |
|
| Corporate bonds | 58,378 |
| | — |
| | 58,378 |
| | — |
|
| Total | $ | 127,537 |
| | $ | — |
| | $ | 127,537 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | |
| | June 30, 2017 |
| Description | Total | | Level 1 | | Level 2 | | Level 3 |
| U.S Government Agencies | $ | 65,830 |
| | $ | — |
| | $ | 65,830 |
| | $ | — |
|
| Residential Mortgage-backed Securities of U.S. Government Agencies and Government sponsored Enterprises | 92,971 |
| | — |
| | 92,971 |
| | — |
|
| Municipal Bonds | 34,510 |
| | — |
| | 34,510 |
| | — |
|
| Corporate Bonds | 6,293 |
| | — |
| | 6,293 |
| | — |
|
| Equity Securities | 63 |
| | — |
| | 63 |
| | — |
|
| Total | $ | 199,667 |
| | $ | — |
| | $ | 199,667 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | |
| | June 30, 2019 |
| Description | Total | | Level 1 | | Level 2 | | Level 3 |
| U.S government agencies | $ | 15,210 |
| | $ | — |
| | $ | 15,210 |
| | $ | — |
|
| Residential MBS of U.S. government agencies and GSE | 75,180 |
| | — |
| | 75,180 |
| | — |
|
| Municipal bonds | 25,312 |
| | — |
| | 25,312 |
| | — |
|
| Corporate bonds | 6,084 |
| | — |
| | 6,084 |
| | — |
|
| Total | $ | 121,786 |
| | $ | — |
| | $ | 121,786 |
| | $ | — |
|
Financial Assets Recorded at Fair Value on a Nonrecurring Basis
The following table presents financial assets measured at fair value on a non-recurring basis at the dates indicated:
| | | | June 30, 2018 | June 30, 2020 |
| Description | Total | | Level 1 | | Level 2 | | Level 3 | Total | | Level 1 | | Level 2 | | Level 3 |
| Impaired loans | $ | 8,423 |
| | $ | — |
| | $ | — |
| | $ | 8,423 |
| $ | 9,168 |
| | $ | — |
| | $ | — |
| | $ | 9,168 |
|
| REO | 2,104 |
| | — |
| | — |
| | 2,104 |
| 97 |
| | — |
| | — |
| | 97 |
|
| Total | $ | 10,527 |
| | $ | — |
| | $ | — |
| | $ | 10,527 |
| $ | 9,265 |
| | $ | — |
| | $ | — |
| | $ | 9,265 |
|
| | | | June 30, 2017 | June 30, 2019 |
| Description | Total | | Level 1 | | Level 2 | | Level 3 | Total | | Level 1 | | Level 2 | | Level 3 |
| Impaired loans | $ | 9,156 |
| | $ | — |
| | $ | — |
| | $ | 9,156 |
| $ | 9,071 |
| | $ | — |
| | $ | — |
| | $ | 9,071 |
|
| REO | 4,044 |
| | — |
| | — |
| | 4,044 |
| 1,804 |
| | — |
| | — |
| | 1,804 |
|
| Total | $ | 13,200 |
| | $ | — |
| | $ | — |
| | $ | 13,200 |
| $ | 10,875 |
| | $ | — |
| | $ | — |
| | $ | 10,875 |
|
Quantitative information about Level 3 fair value measurements during the period ended June 30, 20182020 is shown in the table below:
| | | | Fair Value at June 30, 2018 | | Valuation Techniques | | Unobservable Input | | Range | | Weighted Average | Fair Value at June 30, 2020 | | Valuation Techniques | | Unobservable Input | | Range | | Weighted Average |
| Nonrecurring measurements: | | | | |
| Impaired loans, net | $ | 8,423 |
| | Discounted appraisals and discounted cash flows | | Collateral discounts: Discount spread: | | 3% - 56% 1% - 3% | | 4% | $ | 9,168 |
| | Discounted appraisals and discounted cash flows | | Collateral discounts: Discount spread: | | 0% - 63% 2% - 3% | | 27% |
| REO | $ | 2,104 |
| | Discounted Appraisals | | Collateral discounts | | 10% - 15% | | 11% | $ | 97 |
| | Discounted Appraisals | | Collateral discounts | | 8% | | 8% |
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The stated carrying value and estimated fair value amounts of financial instruments as of June 30, 20182020 and June 30, 2017,2019, are summarized below:
| | | | June 30, 2018 | June 30, 2020 |
| | Carrying Value | | Fair Value | | Level 1 | | Level 2 | | Level 3 | Carrying Value | | Fair Value | | Level 1 | | Level 2 | | Level 3 |
| Assets: | | | | | | | | | | |
| Cash and interest-bearing deposits | $ | 70,746 |
| | $ | 70,746 |
| | $ | 70,746 |
| | $ | — |
| | $ | — |
| $ | 121,622 |
| | $ | 121,622 |
| | $ | 121,622 |
| | $ | — |
| | $ | — |
|
| Commercial paper | 229,070 |
| | 229,070 |
| | 229,070 |
| | — |
| | — |
| 304,967 |
| | 304,967 |
| | 304,967 |
| | — |
| | — |
|
| Certificates of deposit in other banks | 66,937 |
| | 66,937 |
| | — |
| | 66,937 |
| | — |
| 55,689 |
| | 55,689 |
| | — |
| | 55,689 |
| | — |
|
| Securities available for sale | 154,993 |
| | 154,993 |
| | — |
| | 154,993 |
| | — |
| 127,537 |
| | 127,537 |
| | — |
| | 127,537 |
| | — |
|
| Loans, net | 2,504,792 |
| | 2,414,647 |
| | — |
| | — |
| | 2,414,647 |
| 2,741,047 |
| | 2,692,265 |
| | — |
| | — |
| | 2,692,265 |
|
| Loans held for sale | 5,873 |
| | 5,990 |
| | — |
| | — |
| | 5,990 |
| 77,177 |
| | 78,129 |
| | — |
| | — |
| | 78,129 |
|
| FHLB stock | 29,907 |
| | 29,907 |
| | 29,907 |
| | — |
| | — |
| 23,309 |
| | 23,309 |
| | 23,309 |
| | — |
| | — |
|
| FRB stock | 7,307 |
| | 7,307 |
| | 7,307 |
| | — |
| | — |
| 7,368 |
| | 7,368 |
| | 7,368 |
| | — |
| | — |
|
| SBIC investments | | 8,269 |
| | 8,269 |
| | — |
| | — |
| | 8,269 |
|
| Accrued interest receivable | 9,344 |
| | 9,344 |
| | 297 |
| | 883 |
| | 8,164 |
| 12,312 |
| | 12,312 |
| | 208 |
| | 744 |
| | 11,360 |
|
| Liabilities: | | | | | | | | | | |
| Noninterest-bearing and NOW deposits | 789,186 |
| | 789,186 |
| | — |
| | 789,186 |
| | — |
| 1,012,200 |
| | 1,012,200 |
| | — |
| | 1,012,200 |
| | — |
|
| Money market accounts | 677,665 |
| | 677,665 |
| | — |
| | 677,665 |
| | — |
| 836,738 |
| | 836,738 |
| | — |
| | 836,738 |
| | — |
|
| Savings accounts | 213,250 |
| | 213,250 |
| | — |
| | 213,250 |
| | — |
| 197,676 |
| | 197,676 |
| | — |
| | 197,676 |
| | — |
|
| Certificates of deposit | 516,152 |
| | 509,924 |
| | — |
| | 509,924 |
| | — |
| 739,142 |
| | 745,078 |
| | — |
| | 745,078 |
| | — |
|
| Borrowings | 635,000 |
| | 635,187 |
| | — |
| | 635,187 |
| | — |
| 475,000 |
| | 511,529 |
| | — |
| | 511,529 |
| | — |
|
| Accrued interest payable | 805 |
| | 805 |
| | — |
| | 805 |
| | — |
| 1,087 |
| | 1,087 |
| | — |
| | 1,087 |
| | — |
|
| | | | June 30, 2017 | June 30, 2019 |
| | Carrying Value | | Fair Value | | Level 1 | | Level 2 | | Level 3 | Carrying Value | | Fair Value | | Level 1 | | Level 2 | | Level 3 |
| Assets: | | | | | | | | | | |
| Cash and interest-bearing deposits | $ | 86,985 |
| | $ | 86,985 |
| | $ | 86,985 |
| | $ | — |
| | $ | — |
| $ | 71,043 |
| | $ | 71,043 |
| | $ | 71,043 |
| | $ | — |
| | $ | — |
|
| Commercial paper | 149,863 |
| | 149,863 |
| | 149,863 |
| | — |
| | — |
| 241,446 |
| | 241,446 |
| | 241,446 |
| | — |
| | — |
|
| Certificates of deposit in other banks | 132,274 |
| | 132,274 |
| | — |
| | 132,274 |
| | — |
| 52,005 |
| | 52,005 |
| | — |
| | 52,005 |
| | — |
|
| Securities available for sale | 199,667 |
| | 199,667 |
| | — |
| | 199,667 |
| | — |
| 121,786 |
| | 121,786 |
| | — |
| | 121,786 |
| | — |
|
| Loans, net | 2,330,319 |
| | 2,230,683 |
| | — |
| | — |
| | 2,230,683 |
| 2,683,761 |
| | 2,604,827 |
| | — |
| | — |
| | 2,604,827 |
|
| Loans held for sale | 5,607 |
| | 5,719 |
| | — |
| | — |
| | 5,719 |
| 18,175 |
| | 18,591 |
| | — |
| | — |
| | 18,591 |
|
| FHLB stock | 32,071 |
| | 32,071 |
| | 32,071 |
| | — |
| | — |
| 31,969 |
| | 31,969 |
| | 31,969 |
| | — |
| | — |
|
| FRB stock | 7,284 |
| | 7,284 |
| | 7,284 |
| | — |
| | — |
| 7,335 |
| | 7,335 |
| | 7,335 |
| | — |
| | — |
|
| SBIC investments | | 6,074 |
| | 6,074 |
| | — |
| | — |
| | 6,074 |
|
| Accrued interest receivable | 8,758 |
| | 8,758 |
| | 331 |
| | 1,078 |
| | 7,349 |
| 10,533 |
| | 10,533 |
| | 350 |
| | 750 |
| | 9,433 |
|
| Liabilities: | | | | | | | | | | |
| Noninterest-bearing and NOW deposits | 779,549 |
| | 779,549 |
| | — |
| | 779,549 |
| | — |
| 746,617 |
| | 746,617 |
| | — |
| | 746,617 |
| | — |
|
| Money market accounts | 569,607 |
| | 569,607 |
| | — |
| | 569,607 |
| | — |
| 691,172 |
| | 691,172 |
| | — |
| | 691,172 |
| | — |
|
| Savings accounts | 237,149 |
| | 237,149 |
| | — |
| | 237,149 |
| | — |
| 177,278 |
| | 177,278 |
| | — |
| | 177,278 |
| | — |
|
| Certificates of deposit | 462,146 |
| | 458,818 |
| | — |
| | 458,818 |
| | — |
| 712,190 |
| | 712,485 |
| | — |
| | 712,485 |
| | — |
|
| Borrowings | 696,500 |
| | 696,500 |
| | — |
| | 696,500 |
| | — |
| 680,000 |
| | 688,418 |
| | — |
| | 688,418 |
| | — |
|
| Accrued interest payable | 512 |
| | 512 |
| | — |
| | 512 |
| | — |
| 2,252 |
| | 2,252 |
| | — |
| | 2,252 |
| | — |
|
The Company had off-balance sheet financial commitments, which include approximately $751,324$598,136 and $616,483$628,572 of commitments to originate loans, undisbursed portions of interim construction loans, and unused lines of credit at June 30, 20182020 and June 30, 20172019 (see Note 17)18). Since these commitments are based on current rates, the carrying amount approximates the fair value.
Estimated fair values were determined using the following methods and assumptions:
Cash and interest-bearing deposits – The stated amounts approximate fair values as maturities are less than 90 days.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Commercial paper – The stated amounts approximate fair value due to the short-term nature of these investments. Commercial paper values are based on broker quotes that utilize observable market inputs at the time of purchase.
Certificates of deposit in other banks – The stated amounts approximate fair values.
Securities available for sale – Fair values are based on quoted market prices where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Loans, net – Fair values for loans are estimated by segregating the portfolio by type of loan and discounting scheduled cash flows using current market interest rates for loans with similar terms and credit quality. A prepayment assumption is used as an estimate of the portion of loans that will be repaid prior to their scheduled maturity. BothA liquidity premium assumption is used as an estimate for the carrying value and estimated fair value amountsadditional return required by an investor of assets that are shown net of the allowance for loan losses and purchase discounts.potentially considered illiquid.
Loans held for sale -– The fair value of mortgage loans held for sale is determined by outstanding commitments from investors on a “best efforts”"best efforts" basis or current investor yield requirements, calculated on the aggregate loan basis. The fair value of SBA loans and HELOCs held for sale is based on what investors are currently offering for loans with similar characteristics.
FHLB and FRB stock – No ready market exists for these stocks and they have no quoted market value. However, redemption of these stocks has historically been at par value. Accordingly, cost is deemed to be a reasonable estimate of fair value.
SBIC – No ready market exists for these investments and they have no quoted market value. SBIC investments are valued at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions of identical or similar investments. Accordingly, cost is deemed to be a reasonable estimate of fair value.
Deposits – Fair values for demand deposits, money market accounts, and savings accounts are the amounts payable on demand as of June 30, 20182020 and June 30, 2017.2019. The fair value of certificates of deposit is estimated by discounting the contractual cash flows using current market interest rates for accounts with similar maturities.
Borrowings – The fair value of advances from the FHLB is estimated based on current rates for borrowings with similar terms.
Accrued interest receivable and payable – The stated amounts of accrued interest receivable and payable approximate the fair value.
Limitations – Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. 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 are based on existing on-and-off balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. For example, a significant asset not considered a financial asset is premises and equipment. In addition, 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 any of the estimates.
21. Unaudited Interim Financial Information
On July 1, 2018, the Company adopted ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” and all subsequent ASUs that modified ASC 606. The unaudited statements of income for eachadoption of the quarters duringnew standard did not have a material impact on the fiscalmeasurement or recognition of revenue. Results for years ended June 30, 2020 and 2019 are presented under Topic 606, while the year ended June 30, 2018 reflects an offset of $660 of interchange costs against interchange income.
Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and 2017securities. In addition, certain noninterest income streams such as fees associated with mortgage servicing rights, financial guarantees, and certain credit card fees are summarized below:
|
| | | | | | | | | | | | | | | |
| | Three months ended |
| | June 30,
2018 | | March 31, 2018 | | December 31, 2017 | | September 30, 2017 |
| Interest and dividend income | $ | 30,693 |
| | $ | 29,265 |
| | $ | 28,848 |
| | $ | 27,896 |
|
| Interest expense | 5,103 |
| | 4,036 |
| | 3,618 |
| | 3,315 |
|
| Net interest income | 25,590 |
| | 25,229 |
| | 25,230 |
| | 24,581 |
|
| Provision for loan losses | — |
| | — |
| | — |
| | — |
|
| Net interest income after provision for loan losses | 25,590 |
| | 25,229 |
| | 25,230 |
| | 24,581 |
|
| Noninterest income | 5,382 |
| | 4,926 |
| | 4,787 |
| | 4,577 |
|
| Noninterest expense | 21,754 |
| | 21,321 |
| | 21,175 |
| | 21,081 |
|
| Net income before provision for income taxes | 9,218 |
| | 8,834 |
| | 8,842 |
| | 8,077 |
|
| Income tax expense | 2,011 |
| | 2,707 |
| | 19,508 |
| | 2,510 |
|
| Net income (loss) | $ | 7,207 |
| | $ | 6,127 |
| | $ | (10,666 | ) | | $ | 5,567 |
|
| Net income per common share: | |
| | |
| | |
| | |
|
| Basic | $ | 0.40 |
| | $ | 0.34 |
| | $ | (0.59 | ) | | $ | 0.31 |
|
| Diluted | $ | 0.38 |
| | $ | 0.32 |
| | $ | (0.59 | ) | | $ | 0.30 |
|
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The table below presents the Company's sources of noninterest income, segregated by in-scope and out-of-scope revenue streams of Topic 606 for the periods indicated:
|
| | | | | | | | | | | | | | | |
| | Three months ended |
| | June 30,
2017 | | March 31, 2017 | | December 31, 2016 | | September 30, 2016 |
| Interest and dividend income | $ | 27,291 |
| | $ | 27,291 |
| | $ | 22,063 |
| | $ | 22,791 |
|
| Interest expense | 2,724 |
| | 2,219 |
| | 1,648 |
| | 1,654 |
|
| Net interest income | 24,567 |
| | 25,072 |
| | 20,415 |
| | 21,137 |
|
| Provision for loan losses | — |
| | — |
| | — |
| | — |
|
| Net interest income after provision for loan losses | 24,567 |
| | 25,072 |
| | 20,415 |
| | 21,137 |
|
| Noninterest income | 4,059 |
| | 3,538 |
| | 3,767 |
| | 4,076 |
|
| Noninterest expense | 21,660 |
| | 28,661 |
| | 20,306 |
| | 18,965 |
|
| Net income before provision for income taxes | 6,966 |
| | (51 | ) | | 3,876 |
| | 6,248 |
|
| Income tax expense | 2,200 |
| | (325 | ) | | 893 |
| | 2,424 |
|
| Net income | $ | 4,766 |
| | $ | 274 |
| | $ | 2,983 |
| | $ | 3,824 |
|
| Net income per common share: | |
| | |
| | |
| | |
|
| Basic | $ | 0.26 |
| | $ | 0.01 |
| | $ | 0.17 |
| | $ | 0.22 |
|
| Diluted | $ | 0.25 |
| | $ | 0.01 |
| | $ | 0.17 |
| | $ | 0.22 |
|
|
| | | | | | | | | | | | |
| | | Year Ended June 30, |
| | | 2020 | | 2019 | | 2018 |
| In-scope of Topic 606: | | | | | | |
| Service charges on deposit accounts | | $ | 3,772 |
| | $ | 3,978 |
| | $ | 3,674 |
|
| Fees, interchange, and other service charges | | 6,332 |
| | 6,377 |
| | 5,576 |
|
| Other | | 470 |
| | 775 |
| | 909 |
|
| Noninterest income (in-scope of Topic 606) | | 10,574 |
| | 11,130 |
| | 10,159 |
|
| Noninterest income (out-of-scope of Topic 606) | | 19,758 |
| | 11,810 |
| | 8,813 |
|
| Total noninterest income | | $ | 30,332 |
| | $ | 22,940 |
| | $ | 18,972 |
|
The following is a description of revenue streams accounted for under Topic 606:
Service charges on deposit accounts
Service charges on deposit accounts consist of account analysis fees (i.e., net fees earned on analyzed business and public checking accounts), monthly service fees, nonsufficient fund fees, check orders, and other deposit account related fees. The Company’s performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Nonsufficient fund fees, check orders and other deposit account related fees are largely transactional based, and therefore, the Company’s performance obligation is satisfied and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts.
Fees, interchange, and other service charges
Fees, interchange, and other service charges are primarily comprised of debit and credit card income, ATM fees, merchant services income, and other service charges. Debit and credit card income is primarily comprised of interchange fees earned whenever the Company’s debit and credit cards are processed through card payment networks such as Visa. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. Merchant services income mainly represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees. Other service charges include revenue from processing wire transfers, cashier’s checks, and other services. The Company’s performance obligation for fees, interchange, and other service charges are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month.
Other
Other noninterest income consists of safety deposit box rental fees and other miscellaneous revenue streams. Safe deposit box rental fees are charged to the customer on an annual basis and recognized upon receipt of payment. The Company determined that since rentals and renewals occur fairly consistently over time, revenue is recognized on a basis consistent with the duration of the performance obligation.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
23. Unaudited Interim Financial Information
The unaudited statements of income for each of the quarters during the fiscal years ended June 30, 2020 and 2019 are summarized below:
|
| | | | | | | | | | | | | | | |
| | Three months ended |
| | June 30,
2020 | | March 31, 2020 | | December 31, 2019 | | September 30, 2019 |
| Interest and dividend income | $ | 31,074 |
| | $ | 33,037 |
| | $ | 35,896 |
| | $ | 36,247 |
|
| Interest expense | 6,386 |
| | 7,728 |
| | 8,862 |
| | 9,174 |
|
| Net interest income | 24,688 |
| | 25,309 |
| | 27,034 |
| | 27,073 |
|
| Provision for loan losses | 2,700 |
| | 5,400 |
| | 400 |
| | — |
|
| Net interest income after provision for loan losses | 21,988 |
| | 19,909 |
| | 26,634 |
| | 27,073 |
|
| Noninterest income | 7,223 |
| | 6,375 |
| | 9,074 |
| | 7,660 |
|
| Noninterest expense | 24,652 |
| | 24,903 |
| | 24,041 |
| | 23,533 |
|
| Net income before income taxes | 4,559 |
| | 1,381 |
| | 11,667 |
| | 11,200 |
|
| Income tax expense | 964 |
| | 188 |
| | 2,476 |
| | 2,396 |
|
| Net income | $ | 3,595 |
| | $ | 1,193 |
| | $ | 9,191 |
| | $ | 8,804 |
|
| Net income per common share: | |
| | |
| | |
| | |
|
| Basic | $ | 0.22 |
| | $ | 0.07 |
| | $ | 0.54 |
| | $ | 0.51 |
|
| Diluted | $ | 0.22 |
| | $ | 0.07 |
| | $ | 0.52 |
| | $ | 0.49 |
|
|
| | | | | | | | | | | | | | | |
| | Three months ended |
| | June 30,
2019 | | March 31, 2019 | | December 31, 2018 | | September 30, 2018 |
| Interest and dividend income | $ | 35,820 |
| | $ | 34,714 |
| | $ | 34,400 |
| | $ | 32,280 |
|
| Interest expense | 8,931 |
| | 8,145 |
| | 7,299 |
| | 6,008 |
|
| Net interest income | 26,889 |
| | 26,569 |
| | 27,101 |
| | 26,272 |
|
| Provision for loan losses | 200 |
| | 5,500 |
| | — |
| | — |
|
| Net interest income after provision for loan losses | 26,689 |
| | 21,069 |
| | 27,101 |
| | 26,272 |
|
| Noninterest income | 6,846 |
| | 5,396 |
| | 5,085 |
| | 5,613 |
|
| Noninterest expense | 23,415 |
| | 22,978 |
| | 21,858 |
| | 21,883 |
|
| Net income before income taxes | 10,120 |
| | 3,487 |
| | 10,328 |
| | 10,002 |
|
| Income tax expense | 2,107 |
| | 185 |
| | 2,287 |
| | 2,212 |
|
| Net income | $ | 8,013 |
| | $ | 3,302 |
| | $ | 8,041 |
| | $ | 7,790 |
|
| Net income per common share: | |
| | |
| | |
| | |
|
| Basic | $ | 0.45 |
| | $ | 0.19 |
| | $ | 0.45 |
| | $ | 0.43 |
|
| Diluted | $ | 0.44 |
| | $ | 0.18 |
| | $ | 0.43 |
| | $ | 0.41 |
|
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures An evaluation of the Company’s disclosure controls and procedures (as defined in Section 13a-15(e) of the Securities Exchange Act of 1934 (the “Act”)) was carried out under the supervision and with the participation of the Company’s Chief Executive Officer, Chief Financial Officer, and several other members of the Company’s senior management as of the end of the period covered by this report. The Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures as of June 30, 20182020 were effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Act is (i) accumulated and communicated to the Company’s management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Report of Management on Internal Control over Financial Reporting The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The internal control process has been designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America.
Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting as of June 30, 2018,2020, utilizing the framework established in Internal Control – Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on this assessment, management has determined that the Company’s internal control over financial reporting as of June 30, 20182020 was effective.
Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that accurately and fairly reflect, in reasonable detail, transactions and dispositions of assets; and provide reasonable assurances that: (1) transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States; (2) receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and (3) unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the Company’s financial statements are prevented or timely detected.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. 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.
Dixon Hughes Goodman LLP, an independent registered public accounting firm, has audited the consolidated financial statements included in this Annual Report and has issued a report on the effectiveness of our internal control over financial reporting, which report is included in Item 8 of this Form 10-K. The audit report expresses an unqualified opinion on the effectiveness of the Company's internal control over financial reporting as of June 30, 2018.2020.
Changes in Internal Controls There have been no changes in the Company’s internal control over financial reporting during the quarter ended June 30, 20182020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
The Company intends to continually review and evaluate the design and effectiveness of its disclosure controls and procedures and to improve its controls and procedures over time and to correct any deficiencies that it may discover in the future. The goal is to ensure that senior management has timely access to all material financial and non-financial information concerning the Company's business. While the Company believes the present design of its disclosure controls and procedures is effective to achieve its goal, future events affecting its business may cause the Company to modify its disclosure controls and procedures. The Company does not expect that its disclosure controls and procedures and internal control over financial reporting will prevent every error or instance of fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns in controls or procedures can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any control procedure is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Directors and Executive Officers The information concerning our directors required by this item is incorporated herein by reference from our definitive proxy statement for our Annual Meeting of Shareholders being held on November 26, 2018, a copy of which will be filed with the Securities and Exchange Commission not later than 120 days after the end of our fiscal year. Information required by this item regarding the audit committee of the Company’s Board of Directors, including information regarding the audit committee financial expert serving on the audit committee, is incorporated herein by reference from our definitive proxy statement for our Annual Meeting of Shareholders being held on November 26, 2018,16, 2020, a copy of which will be filed with the Securities and Exchange Commission not later than 120 days after the end of our fiscal year. Information about our executive officers is contained under the caption “Executive“Information About Our Executive Officers” in Part I of this Form 10-K, and is incorporated herein by this reference.
Delinquent Section 16(a) Beneficial Ownership Reporting ComplianceReports The information concerning compliance with the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934 by our directors, officers and ten percent shareholders required by this item is incorporated herein by reference from our definitive proxy statement for our Annual Meeting of Shareholders being held on November 26, 2018,16, 2020, a copy of which will be filed with the Securities and Exchange Commission not later than 120 days after the end of our fiscal year.
Code of Ethics We have adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer, and persons performing similar functions, and to all of our other employees and our directors. A copy of our code of ethics is available on our Internet website address, http://www.hometrustbancshares.com.www.htb.com.
Nominating Procedures There have been no material changes to the procedures by which shareholders may recommend nominees to our Board of Directors since last disclosed to shareholders.
Audit Committee and Audit Committee Financial Experts Information required by this item regarding the audit committee of the Company's Board of Directors, including information regarding the audit committee financial expert serving on the audit committee, is incorporated herein by reference from our definitive proxy statement for our Annual Meeting of Shareholders being held on November 16, 2020, a copy of which will be filed with the Securities and Exchange Commission not later than 120 days after the end of our fiscal year.
Item 11. Executive Compensation
The information concerning compensation required by this item is incorporated herein by reference from our definitive proxy statement for our Annual Meeting of Shareholders being held on November 26, 2018,16, 2020, a copy of which will be filed with the Securities and Exchange Commission not later than 120 days after the end of our fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
The information concerning security ownership of certain beneficial owners and management and our equity incentive plan required by this item is incorporated herein by reference from our definitive proxy statement for our Annual Meeting of Shareholders being held on November 26, 2018,16, 2020, a copy of which will be filed with the Securities and Exchange Commission not later than 120 days after the end of our fiscal year. Management is not aware of any arrangements, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control of the Company. The information concerning our equity incentive plan required by this item is set forth below.
|
| | | | | | | | | | |
| Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants, and rights | | Weighted-average exercise price of outstanding options, warrants, and rights | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |
| | (a) | | (b) | | (c) | |
| Equity compensation plans approved by security holders | 1,615,500 |
| | $ | 18.12 |
| | 236,344 |
| (1) |
(1) 132,444 securities remain for issuance of restricted stock and 103,900 securities remain for issuance of stock options.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information concerning certain relationships and related transactions and director independence required by this item is incorporated herein by reference from our definitive proxy statement for our Annual Meeting of Shareholders being held on November 26, 2018,16, 2020, a copy of which will be filed with the Securities and Exchange Commission not later than 120 days after the end of our fiscal year.
Item 14. Principal Accountant Fees and Services
The information concerning principal accountant fees and services is incorporated herein by reference from our definitive proxy statement for our Annual Meeting of Shareholders being held on November 26, 2018,16, 2020, a copy of which will be filed with the Securities and Exchange Commission not later than 120 days after the end of our fiscal year.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)(1) Financial Statements: See Part II--Item 8. Financial Statements and Supplementary Data.
(a)(2) Financial Statement Schedules: All financial statement schedules have been omitted as the information is not required under the related instructions or is not applicable.
(a)(3) Exhibits: See Exhibit Index.
(b) Exhibits: The following exhibits are filed as part of this Form 10-K and this list constitutes the Exhibit Index.
|
| | |
Regulation S-K Exhibit Number | Document | Reference to Prior Filing or Exhibit Number Attached Hereto |
| | |
2.1 | | (a) |
2.2 | | (b) |
2.3 | | (c) |
3.1 | | (d) |
3.2 | | (e) |
3.3 | | (f) |
4.1 | | (e) |
4.2 | | (o) |
4.3 | | (t) |
10.1 | | (s) |
10.2 | | (g) |
10.3 | | (g) |
10.4 | | (g) |
10.5 | | (g) |
10.6 | | (d) |
10.7 | | (d) |
10.7A | | (d) |
10.7B | | (d) |
10.7C | | (d) |
10.7D | | (d) |
10.7E | | (d) |
10.7F | | (d) |
10.7G | | (d) |
10.7H | | (d) |
10.7I | | (i) |
10.8 | | (d) |
|
| | |
| Regulation S-K Exhibit Number | Document | Reference to Prior Filing or Exhibit Number Attached Hereto |
| | | |
| 2.1 | | (a) |
| 2.2 | | (b) |
| 2.3 | | (c) |
| 3.1 | | (d) |
| 3.2 | | (e) |
| 3.3 | | (f) |
| 4.1 | | (e) |
| 4.2 | | (o) |
| 4.3 | | (t) |
| 4.4 | | 4.4 |
| 10.1 | | (s) |
| 10.2 | | (g) |
| 10.3 | | (g) |
| 10.3A | | (u) |
| 10.4 | | (g) |
| 10.5 | | (g) |
| 10.6 | | (d) |
| 10.7 | | (d) |
| 10.7A | | (d) |
| 10.7B | | (d) |
| 10.7C | | (d) |
| 10.7D | | (d) |
| 10.7E | | (d) |
| 10.7F | | (d) |
|
| | |
| 10.8A | | (d) |
| 10.8B | | (d) |
| 10.8C | | (d) |
| 10.8D | | (d) |
| 10.8E | | (d) |
| 10.8F | | (d) |
| 10.8G | | (d) |
| 10.9 | | (d) |
| 10.10 | | (d) |
| 10.11 | | (d) |
| 10.12 | | (r) |
| 10.13 | | (j) |
| 10.14 | | (k) |
| 10.15 | | (k) |
| 10.16 | | (k) |
| 10.17 | | (k) |
| 10.18 | | (k) |
| 10.19 | | (l) |
| 10.20 | | (m) |
| 10.21 | | (n) |
| 10.22 | | (n) |
| 10.23 | | (n) |
| 10.24 | | (n) |
| 10.25 | | (n) |
| 10.26 | | (n) |
| 10.27 | | (p) |
| 10.28 | | (p) |
| 10.29 | | (g) |
| 10.30 | | 10.30 |
| 21.0 | | 21.0 |
| 23.0 | | 23.0 |
| 31.1 | | 31.1 |
| 31.2 | | 31.2 |
| 32.0 | | 32.0 |
| 101 | The following materials from HomeTrust Bancshares’ Annual Report on Form 10-K for the year ended June 30, 2018, formatted in Extensible Business Reporting Language (XBRL): (a) Consolidated Balance Sheets; (b) Consolidated Statements of Income; (c) Consolidated Statements of Comprehensive Income; (d) Consolidated Statements of Changes in Stockholders' Equity; (e) Consolidated Statements of Cash Flows; and (f) Notes to Consolidated Financial Statements. | 101 |
_________________ |
| | |
| 10.7G | | (d) |
| 10.7H | | (d) |
| 10.7I | | (i) |
| 10.8 | | (d) |
| 10.8A | | (d) |
| 10.8B | | (d) |
| 10.8C | | (d) |
| 10.8D | | (d) |
| 10.8E | | (d) |
| 10.8F | | (d) |
| 10.8G | | (d) |
| 10.9 | | (d) |
| 10.10 | | (d) |
| 10.11 | | (d) |
| 10.12 | | (r) |
| 10.13 | | (j) |
| 10.14 | | (k) |
| 10.15 | | (k) |
| 10.16 | | (k) |
| 10.17 | | (k) |
| 10.18 | | (k) |
| 10.19 | Reserved | |
| 10.20 | Reserved | |
| 10.21 | | (n) |
| 10.22 | | (n) |
| 10.23 | | (n) |
| 10.24 | | (n) |
| 10.25 | | (n) |
| 10.26 | | (n) |
| 10.27 | | (p) |
| 10.28 | | (p) |
| 10.29 | | (g) |
| 10.30 | | (v) |
| 10.31 | | (w) |
| 10.32 | | (x) |
| 21.0 | | 21.0 |
| 23.0 | | 23.0 |
| 31.1 | | 31.1 |
| 31.2 | | 31.2 |
| 32.0 | | 32.0 |
|
| | |
| 101 | The following materials from HomeTrust Bancshares’ Annual Report on Form 10-K for the year ended June 30, 2020, formatted in Extensible Business Reporting Language (XBRL): (a) Consolidated Balance Sheets; (b) Consolidated Statements of Income; (c) Consolidated Statements of Comprehensive Income; (d) Consolidated Statements of Changes in Stockholders' Equity; (e) Consolidated Statements of Cash Flows; and (f) Notes to Consolidated Financial Statements. | 101 |
| |
| (a) | Attached as Appendix A to the proxy statement/prospectus filed by HomeTrust Bancshares on November 2, 2016 pursuant to Rule 424(b) of the Securities Act of 1933. |
| |
| (b) | Filed as an exhibit to HomeTrust Bancshares’s Current Report on Form 8-K filed on June 10, 2014 (File No. 001-35593). |
| |
| (c) | Attached as Appendix A to the joint proxy statement/prospectus filed by HomeTrust Bancshares on April 28, 2014 pursuant to Rule 424(b) of the Securities Act of 1933. |
| |
| (d) | Filed as an exhibit to HomeTrust Bancshares’s Registration Statement on Form S-1 (File No. 333-178817) filed on December 29, 2011. |
| |
| (e) | Filed as an exhibit to HomeTrust Bancshares’s Current Report on Form 8-K filed on September 25, 2012 (File No. 001-35593). |
| |
| (f) | Filed as an exhibit to HomeTrust Bancshares’s Current Report on Form 8-K filed on May 1, 2018 (File No. 001-35593). |
| |
| (g) | Filed as an exhibit to HomeTrust Bancshares’s Current Report on Form 8-K filed on September 11, 2018 (File No. 001-35593). |
| |
| (i) | Filed as an exhibit to Amendment No. One to HomeTrust Bancshares’s Registration Statement on Form S-1 (File No. 333-178817) filed on March 9, 2012. |
| |
| (j) | Attached as Appendix A to HomeTrust Bancshares’s definitive proxy statement filed on December 5, 2012 (File No. 001-35593). |
| |
| (k) | Filed as an exhibit to HomeTrust Bancshares’s Registration Statement on Form S-8 (File No. 333-186666) filed on February 13, 2013. |
| |
| (l) | Filed as an exhibit to HomeTrust Bancshares’s Current Report on Form 8-K filed on June 3, 2014 (File No. 001-35593). |
| |
| (m) | Filed as an exhibit to Jefferson Bancshares's, Inc.’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2008 (File No. 000-50347). |
| |
| (n) | Filed as an exhibit to HomeTrust Bancshares's Annual Report on Form 10-K for the fiscal year ended June 30, 2014 (File No. 001-35593). |
| |
| (o) | Filed as an exhibit to HomeTrust Bancshares’s Current Report on Form 8-K filed on August 31, 2015 (File No. 001-35593). |
| |
| (p) | Filed as an exhibit to HomeTrust Bancshares's Annual Report on Form 10-K for the fiscal year ended June 30, 2015 (File No. 001-35593). |
| |
| (r) | Filed as an exhibit to HomeTrust Bancshares's Annual Report on Form 10-K for the fiscal year ended June 30, 2016 (File No. 001-35593). |
| |
| (s) | Filed as an exhibit to HomeTrust Bancshares's Quarterly Report on Form 10-Q for the quarter ended September 30, 20172019 (File No. 000-50347)001-35593). |
| |
| (t) | Filed as an exhibit to HomeTrust Bancshares’s Current Report on Form 8-K filed on August 21, 2018 (File No. 001-35593). |
| |
| (u) | Filed as an exhibit to HomeTrust Bancshares’s Current Report on Form 8-K filed on September 25, 2018 (File No. 001-35593. |
| |
| (v) | Filed as an exhibit to HomeTrust Bancshares's Annual Report on Form 10-K for the fiscal year ended June 30, 2018 (File No. 001-35593). |
| |
| (w) | Filed as an exhibit to HomeTrust Bancshares's Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 (File No. 001-35593). |
| |
| (x) | Filed as an exhibit to HomeTrust Bancshares's Quarterly Report on Form 10-Q for the quarter ended December 31, 2018 (File No. 001-35593. |
Item 16. Form 10-K Summary
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| | |
| | HOMETRUST BANCSHARES, INC. |
| | | |
Date: September 13, 201811, 2020 | By: | /s/ Dana L. Stonestreet |
| | | Dana L. Stonestreet |
| | | 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 dates indicated.
|
| | | | |
| Signature | | Title | | Date |
| | | | | |
| /s/ Dana L. Stonestreet | | Chairman of the Board, President and Chief Executive Officer | | September 13, 201811, 2020 |
| Dana L. Stonestreet | | (Principal Executive Officer) | | |
| | | | | |
| /s/ Tony J. VunCannon | | Executive Vice President, Chief Financial Officer, Corporate Secretary and Treasurer | | September 13, 201811, 2020 |
| Tony J. VunCannon | | (Principal Financial and Accounting Officer) | | |
| | | | | |
| /s/ Sidney A. Biesecker | | Director | | September 13, 201811, 2020 |
| Sidney A. Biesecker | | | | |
| | | | |
/s/ Robert G. Dinsmore, Jr. | | Director | | September 13, 2018 |
Robert G. Dinsmore, Jr. | | | | |
| | | | | |
| /s/ J. Steven Goforth | | Director | | September 13, 201811, 2020 |
| J. Steven Goforth | | | | |
| | | | | |
| /s/ Robert E. James | | Director | | September 13, 201811, 2020 |
| Robert E. James | | | | |
| | | | | |
| /s/ Laura C. Kendall | | Director | | September 13, 201811, 2020 |
| Laura C. Kendall | | | | |
| | | | | |
| /s/ Craig C. Koontz | | Director | | September 13, 201811, 2020 |
| Craig C. Koontz | | | | |
| | | | |
| /s/ Rebekah Lowe | | Director | | September 11, 2020 |
| Rebekah Lowe | | | | |
| | | | | |
| /s/ F.K. McFarland, III | | Director | | September 13, 201811, 2020 |
| F.K. McFarland, III | | | | |
| | | | | |
/s/ Peggy C. MelvilleJohn A. Switzer | | Director | | September 13, 201811, 2020 |
Peggy C. MelvilleJohn A. Switzer | | | | |
| | | | | |
| /s/ Richard T. Williams | | Director | | September 13, 201811, 2020 |
| Richard T. Williams | | | | |