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.
Financial Highlights
| | | | | | | | | | | | | | | | | |
(Dollars in thousands) | June 30, |
| 2022 | | 2021 | | 2020 |
| |
Selected financial condition data | | | | | |
Total assets | $ | 3,549,204 | | | $ | 3,524,723 | | | $ | 3,722,852 | |
Cash and cash equivalents | 105,119 | | | 50,990 | | | 121,622 | |
Commercial paper, net | 194,427 | | | 189,596 | | | 304,967 | |
Certificates of deposit in other banks | 23,551 | | | 40,122 | | | 55,689 | |
Debt securities available for sale, at fair value | 126,978 | | | 156,459 | | | 127,537 | |
Loans, net of ACL and deferred loan costs | 2,734,605 | | | 2,697,799 | | | 2,741,047 | |
Deposits | 3,099,761 | | | 2,955,541 | | | 2,785,756 | |
Borrowings | — | | | 115,000 | | | 475,000 | |
Stockholders’ equity | 388,845 | | | 396,519 | | | 408,263 | |
| | | | | | | | | | | | | | | | | |
(Dollars in thousands, except per share data) | Year Ended June 30, |
| 2022 | | 2021 | | 2020 |
| | | | | |
Selected operations data | | | | | |
Total interest and dividend income | $ | 116,114 | | | $ | 118,733 | | | $ | 136,254 | |
Total interest expense | 5,340 | | | 15,411 | | | 32,150 | |
Net interest income | 110,774 | | | 103,322 | | | 104,104 | |
Provision (benefit) for credit losses | (592) | | | (7,135) | | | 8,500 | |
Net interest income after provision (benefit) for credit losses | 111,366 | | | 110,457 | | | 95,604 | |
Service charges and fees on deposit accounts | 9,462 | | | 9,083 | | | 9,382 | |
Loan income and fees | 3,185 | | | 2,208 | | | 2,494 | |
Gain on sale of loans held for sale | 12,876 | | | 17,352 | | | 9,946 | |
BOLI income | 2,000 | | | 2,156 | | | 2,246 | |
| | | | | |
| | | | | |
Operating lease income | 6,392 | | | 5,601 | | | 3,356 | |
Gain on sale of debt securities | 1,895 | | | — | | | — | |
Other | 3,386 | | | 3,421 | | | 2,908 | |
Total noninterest income | 39,196 | | | 39,821 | | | 30,332 | |
Total noninterest expense | 105,184 | | | 131,182 | | | 97,129 | |
Income before income taxes | 45,378 | | | 19,096 | | | 28,807 | |
Income tax expense | 9,725 | | | 3,421 | | | 6,024 | |
Net income | $ | 35,653 | | | $ | 15,675 | | | $ | 22,783 | |
Net income per common share | | | | | |
Basic | $ | 2.27 | | | $ | 0.96 | | | $ | 1.34 | |
Diluted | $ | 2.23 | | | $ | 0.94 | | | $ | 1.30 | |
| | | | | | | | | | | | | | | | | |
| At or For the Year Ended June 30, |
| 2022 | | 2021 | | 2020 |
Performance ratios | | | | | |
Return on assets (ratio of net income to average total assets) | 1.01 | % | | 0.42 | % | | 0.63 | % |
Return on equity (ratio of net income to average equity) | 9.00 | | | 3.88 | | | 5.54 | |
Tax equivalent yield on earning assets(1) | 3.58 | | | 3.49 | | | 4.13 | |
Rate paid on interest-bearing liabilities | 0.23 | | | 0.57 | | | 1.18 | |
Tax equivalent average interest rate spread(1) | 3.35 | | | 2.92 | | | 2.95 | |
Tax equivalent net interest margin(1)(2) | 3.42 | | | 3.04 | | | 3.17 | |
Average interest-earning assets to average interest-bearing liabilities | 138.30 | | | 128.01 | | | 122.10 | |
Noninterest expense to average total assets | 2.97 | | | 3.55 | | | 2.70 | |
Efficiency ratio | 70.14 | | | 91.64 | | | 72.25 | |
Efficiency ratio - adjusted(3) | 69.25 | | | 74.08 | | | 71.62 | |
Asset quality ratios | | | | | |
Nonperforming assets to total assets(4) | 0.18 | % | | 0.36 | % | | 0.44 | % |
Nonperforming loans to total loans(4) | 0.22 | | | 0.46 | | | 0.58 | |
Total classified assets to total assets | 0.61 | | | 0.64 | | | 0.84 | |
Allowance for credit losses to nonperforming loans(4) | 566.83 | | | 281.38 | | | 176.30 | |
Allowance for credit losses to total loans | 1.25 | | | 1.30 | | | 1.01 | |
Net charge-offs to average loans | (0.02) | | | 0.01 | | | 0.07 | |
Capital ratios | | | | | |
Equity to total assets at end of period | 10.96 | % | | 11.25 | % | | 10.97 | % |
Tangible equity to total tangible assets(3) | 10.31 | | | 10.59 | | | 10.33 | |
Average equity to average assets | 11.20 | | | 10.91 | | | 11.46 | |
Dividend payout ratio | 15.30 | | | 32.01 | | | 19.98 | |
Dividends declared per common share | $ | 0.35 | | | $ | 0.31 | | | $ | 0.27 | |
(1)The weighted average rate for municipal leases is adjusted for a 24% combined federal and state tax rate since the interest from these leases is tax exempt.
(2)Net interest income divided by average interest-earning assets.
(3)See "GAAP Reconciliation of Non-GAAP Financial Measures" section below for additional details.
(4)Nonperforming assets and loans include nonaccruing loans, consisting of certain restructured loans, and REO. There were no accruing loans more than 90 days past due at the dates indicated. At June 30, 2022, there were $2.8 million of restructured loans included in nonperforming loans and $3.8 million, or 62.5%, of nonperforming loans were current on their loan payments.
GAAP Reconciliation of Non-GAAP Financial Measures
We believe the non-GAAP financial measures included above provide useful information to management and investors that is supplementary to our financial condition, results of operations and cash flows computed in accordance with US GAAP; however, we acknowledge that our non-GAAP financial measures have a number of limitations. The following reconciliation tables provide detailed analyses of these non-GAAP financial measures.
Set forth below is a reconciliation to US GAAP of our efficiency ratio:
| | | | | | | | | | | | | | | | | |
(Dollars in thousands) | Year Ended June 30, |
| 2022 | | 2021 | | 2020 |
Noninterest expense | $ | 105,184 | | | $ | 131,182 | | | $ | 97,129 | |
| | | | | |
Less: branch closure and restructuring expenses | — | | | 1,513 | | | — | |
Less: officer transition agreement expense | 1,795 | | | — | | | — | |
Less: prepayment penalties on borrowings | — | | | 22,690 | | | — | |
Noninterest expense – adjusted | $ | 103,389 | | | $ | 106,979 | | | $ | 97,129 | |
| | | | | |
Net interest income | $ | 110,774 | | | $ | 103,322 | | | $ | 104,104 | |
Plus: tax equivalent adjustment | 1,231 | | | 1,267 | | | 1,190 | |
Plus: noninterest income | 39,196 | | | 39,821 | | | 30,332 | |
| | | | | |
Less: gain on sale of securities available for sale | 1,895 | | | — | | | — | |
Net interest income plus noninterest income – adjusted | $ | 149,306 | | | $ | 144,410 | | | $ | 135,626 | |
Efficiency ratio | 70.14 | % | | 91.64 | % | | 72.25 | % |
Efficiency ratio – adjusted | 69.25 | % | | 74.08 | % | | 71.62 | % |
Set forth below is a reconciliation to US GAAP of tangible book value and tangible book value per share:
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(Dollars in thousands, except per share data) | June 30, |
| 2022 | | 2021 | | 2020 |
Total stockholders' equity | $ | 388,845 | | | $ | 396,519 | | | $ | 408,263 | |
Less: goodwill, core deposit intangibles, net of taxes | 25,710 | | | 25,902 | | | 26,468 | |
Tangible book value(1) | $ | 363,135 | | | $ | 370,617 | | | $ | 381,795 | |
Common shares outstanding | 15,591,466 | | | 16,636,483 | | | 17,021,357 | |
Book value per share | $ | 24.94 | | | $ | 23.83 | | | $ | 23.99 | |
Tangible book value per share | $ | 23.29 | | | $ | 22.28 | | | $ | 22.43 | |
(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 US GAAP of tangible equity to tangible assets:
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(Dollars in thousands) | | June 30, |
| | 2022 | | 2021 | | 2020 |
Tangible equity(1) | | $ | 363,135 | | | $ | 370,617 | | | $ | 381,795 | |
Total assets | | 3,549,204 | | | 3,524,723 | | | 3,722,852 | |
Less: goodwill, core deposit intangibles, net of taxes | | 25,710 | | | 25,902 | | | 26,468 | |
Total tangible assets | | $ | 3,523,494 | | | $ | 3,498,821 | | | $ | 3,696,384 | |
Tangible equity to tangible assets | | 10.31 | % | | 10.59 | % | | 10.33 | % |
| | | | | | |
(1) Tangible equity (or tangible book value) is equal to total stockholders' equity less goodwill and core deposit intangibles, net of related deferred tax liabilities.
Overview
The following discussion and analysis presents the more significant factors that affected our financial condition as of June 30, 2022 and 2021 and results of operations for each of the years in the three-year period then ended. Refer to "Management’s Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K filed with the SEC on September 10, 2021 (the “2021 Form 10-K”) for a discussion and analysis of the more significant factors that affected periods prior to fiscal year 2021.
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 and fees on deposit accounts, loan income and fees, gains on the sale of loans held for sale, BOLI income, and operating lease income.
An offset to net interest income is the provision for credit losses which is required to establish the ACL at a level that adequately provides for current expected credit losses inherent in our loan portfolio, off balance sheet commitments, and available for sale debt securities. See "Note 1 – Summary of Significant Accounting Policies” of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K for further discussion.
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.
Critical Accounting Policies and Estimates
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 which 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 represents our critical accounting policy:
Allowance for Credit Losses, or ACL, on Loans. The ACL reflects our estimate of credit losses that will result from the inability of our borrowers to make required loan payments. We charge off loans against the ACL and subsequent recoveries, if any, increase the ACL when they are recognized. We use a systematic methodology to determine our ACL for loans held for investment and certain off-balance sheet credit exposures. The ACL is a valuation account that is deducted from the amortized cost basis to present the net amount expected to be collected on the loan portfolio. We consider the effects of past events, current conditions, and reasonable and supportable forecasts on the collectability of the loan portfolio. The estimate of our ACL involves a high degree of judgment; therefore, our process for determining expected credit losses may result in a range of expected credit losses. Our ACL recorded on the balance sheet reflects our best estimate within the range of expected credit losses. We recognize in net income the amount needed to adjust the ACL for management’s current estimate of expected credit losses. Our ACL is calculated using collectively evaluated and individually evaluated loans.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, see “Note 1 – Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements in Item 8 of this report on Form 10-K for further discussion.
Fiscal 2022 Items of Note
Beginning July 1, 2021, the Bank brought its back-office SBA loan servicing process in-house to provide additional servicing fee and gain on sale income. In aggregate, our approach is designated to lead to increased profitability and franchise value over time.
Fiscal 2021 Items of Note
On July 1, 2020, we adopted the CECL accounting standard in accordance with ASU 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." The cumulative effect adjustment from this change in accounting policy resulted in an increase in our ACL for loans of $14.8 million, additional deferred tax assets of $3.9 million, additional reserve for unfunded loan commitments of $2.3 million, and a reduction to retained earnings of $13.4 million. In addition, an ACL for commercial paper was established for $250,000 with a deferred tax asset of $58,000. The adoption of this ASU did not have an effect on available-for-sale debt securities for the year ended June 30, 2021.
On June 15, 2021, we announced a plan to close nine branches in North Carolina, Tennessee, and Virginia. The branch closures were part of our ongoing strategic initiatives to respond to changing customer preferences and were expected to reduce operating expenses and provide additional company-wide efficiencies. The branch closure and restructuring expenses recognized for the year ended June 30, 2021 included costs associated with impacted employees, impairment of an operating lease asset, the write-down of branch facilities, and other net costs. All applicable regulatory requirements were met and the branch closures occurred on September 16, 2021.
In the third and fourth quarters, the Company prepaid its remaining $475 million in long-term debt incurring a prepayment penalty of $22.7 million. No such expenses were incurred in 2022.
Comparison of Results of Operations for the Years Ended June 30, 2022 and June 30, 2021
Net Income. Net income totaled $35.7 million, or $2.23 per diluted share, for the year ended June 30, 2022 compared to $15.7 million, or $0.94 per diluted share, for the year ended June 30, 2021, an increase of $20.0 million, or 127.5%. The results for the year ended June 30, 2022 compared to the year ended June 30, 2021 were positively impacted by higher net interest income and no prepayment penalties on borrowings, partially offset by a lower benefit for credit losses. Details of the changes in the various components of net income are further discussed below.
Net Interest Income. The following table presents the distribution of average assets, liabilities and equity, as well as interest income on average interest-earning assets and interest expense paid on average interest-bearing liabilities. All average balances are daily average balances. Nonaccruing loans have been included in the table as loans carrying a zero yield.
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| Year Ended June 30, |
| 2022 | | 2021 | | 2020 |
(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) |
| | | |
Assets: | | | | | | | | | | | | | | | | | |
Interest-earning assets: | | | | | | | | | | | | | | | | | |
Loans receivable (1) | $ | 2,809,673 | | | $ | 110,834 | | | 3.94 | % | | $ | 2,819,180 | | | $ | 113,065 | | | 4.01 | % | | $ | 2,748,124 | | | $ | 123,364 | | | 4.49 | % |
Commercial paper | 232,676 | | | 1,721 | | | 0.74 | % | | 217,457 | | | 1,206 | | | 0.55 | % | | 276,343 | | | 5,986 | | | 2.17 | % |
Debt securities available for sale | 122,558 | | | 1,802 | | | 1.47 | % | | 137,863 | | | 2,024 | | | 1.47 | % | | 150,249 | | | 3,687 | | | 2.45 | % |
Other interest-earning assets(3) | 114,458 | | | 2,988 | | | 2.61 | % | | 266,783 | | | 3,705 | | | 1.39 | % | | 150,984 | | | 4,407 | | | 2.92 | % |
Total interest-earning assets | 3,279,365 | | | 117,345 | | | 3.58 | % | | 3,441,283 | | | 120,000 | | | 3.49 | % | | 3,325,700 | | | 137,444 | | | 4.13 | % |
Other assets | 258,550 | | | | | | | 257,111 | | | | | | | 265,376 | | | | | |
Total assets | $ | 3,537,915 | | | | | | | $ | 3,698,394 | | | | | | | $ | 3,591,076 | | | | | |
Liabilities and equity: | | | | | | | | | | | | | | | | | |
Interest-bearing liabilities: | | | | | | | | | | | | | | | | | |
Interest-bearing checking accounts | $ | 646,370 | | | $ | 1,378 | | | 0.21 | % | | $ | 609,754 | | | $ | 1,552 | | | 0.25 | % | | $ | 457,455 | | | $ | 1,627 | | | 0.36 | % |
Money market accounts | 996,876 | | | 1,406 | | | 0.14 | % | | 882,252 | | | 1,699 | | | 0.19 | % | | 767,315 | | | 6,910 | | | 0.90 | % |
Savings accounts | 227,452 | | | 163 | | | 0.07 | % | | 211,192 | | | 155 | | | 0.07 | % | | 166,588 | | | 195 | | | 0.12 | % |
Certificate accounts | 457,186 | | | 2,313 | | | 0.51 | % | | 568,284 | | | 5,964 | | | 1.05 | % | | 764,013 | | | 14,105 | | | 1.85 | % |
Total interest-bearing deposits | 2,327,884 | | | 5,260 | | | 0.23 | % | | 2,271,482 | | | 9,370 | | | 0.41 | % | | 2,155,371 | | | 22,837 | | | 1.06 | % |
Borrowings | 43,376 | | | 80 | | | 0.18 | % | | 416,822 | | | 6,041 | | | 1.45 | % | | 568,377 | | | 9,313 | | | 1.64 | % |
Total interest-bearing liabilities | 2,371,260 | | | 5,340 | | | 0.23 | % | | 2,688,304 | | | 15,411 | | | 0.57 | % | | 2,723,748 | | | 32,150 | | | 1.18 | % |
Noninterest-bearing deposits | 724,588 | | | | | | | 550,265 | | | | | | | 365,634 | | | | | |
Other liabilities | 45,834 | | | | | | | 56,315 | | | | | | | 90,247 | | | | | |
Total liabilities | 3,141,682 | | | | | | | 3,294,884 | | | | | | | 3,179,629 | | | | | |
Stockholders' equity | 396,233 | | | | | | | 403,510 | | | | | | | 411,447 | | | | | |
Total liabilities and stockholders' equity | $ | 3,537,915 | | | | | | | $ | 3,698,394 | | | | | | | $ | 3,591,076 | | | | | |
| | | | | | | | | | | | | | | | | |
Net earning assets | $ | 908,105 | | | | | | | $ | 752,979 | | | | | | | $ | 601,952 | | | | | |
Average interest-earning assets to average interest-bearing liabilities | 138.30 | % | | | | | | 128.01 | % | | | | | | 122.10 | % | | | | |
Tax-equivalent: | | | | | | | | | | | | | | | | | |
Net interest income | | | $ | 112,005 | | | | | | | $ | 104,589 | | | | | | | $ | 105,294 | | | |
Interest rate spread | | | | | 3.35 | % | | | | | | 2.92 | % | | | | | | 2.95 | % |
Net interest margin(4) | | | | | 3.42 | % | | | | | | 3.04 | % | | | | | | 3.17 | % |
Non-tax-equivalent: | | | | | | | | | | | | | | | | | |
Net interest income | | | $ | 110,774 | | | | | | | $ | 103,322 | | | | | | | $ | 104,104 | | | |
Interest rate spread | | | | | 3.32 | % | | | | | | 2.88 | % | | | | | | 2.92 | % |
Net interest margin(4) | | | | | 3.38 | % | | | | | | 3.00 | % | | | | | | 3.13 | % |
(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 $1.2 million, $1.3 million, and $1.2 million for fiscal years ended June 30, 2022, 2021, and 2020, respectively, calculated based on a combined federal and state tax rate of 24% for all three years.
(3) The average other interest-earning assets consists of FRB stock, FHLB stock, SBIC investments, and deposits in other banks.
(4) Net interest income divided by average interest-earning assets.
Total interest and dividend income for the year ended June 30, 2022 decreased $2.6 million, or 2.2%, compared to the year ended June 30, 2021, which was driven by a $2.2 million, or 2.0%, decrease in interest income on loans, a $222,000, or 11.0%, decrease in interest income on debt securities available for sale, and a $718,000, or 19.4%, decrease in interest income on other interest-earning assets, partially offset by a $515,000, or 42.7%, increase in interest income on commercial paper. The decline in interest income on loans was partially driven by a decline in PPP interest and fee income of $754,000 year-over-year.
Total interest expense for the year ended June 30, 2022 decreased $10.1 million, or 65.3%, compared to the year ended June 30, 2021. The decrease was driven by a $6.0 million, or 98.7%, decrease in interest expense on borrowings and a $4.1 million, or 43.9%, decrease in interest expense on deposits compared to last year. The overall average cost of funds decreased 34 basis points compared to last year primarily due to the prepayment of long-term borrowings in the prior year and reduced market rates.
The following table shows the effects that changes in average balances (volume) and average interest rates (rate) had on the interest earned on our interest-earning assets and interest-bearing liabilities:
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| Years Ended June 30, |
| 2022 Compared to 2021 | | 2021 Compared to 2020 |
| Increase/ (Decrease) Due to | | Total Increase/ (Decrease) | | Increase/ (Decrease) Due to | | Total Increase/ (Decrease) |
(Dollars in thousands) | Volume | | Rate | | Volume | | Rate | |
Interest-earning assets | | | | | | | | | | | |
Loans receivable | $ | (381) | | | $ | (1,850) | | | $ | (2,231) | | | $ | 3,190 | | | $ | (13,489) | | | $ | (10,299) | |
Commercial paper | 84 | | | 431 | | | 515 | | | (1,276) | | | (3,504) | | | (4,780) | |
Debt securities available for sale | (225) | | | 3 | | | (222) | | | (303) | | | (1,360) | | | (1,663) | |
Other interest-earning assets | (2,115) | | | 1,398 | | | (717) | | | 3,382 | | | (4,084) | | | (702) | |
Total interest-earning assets | (2,637) | | | (18) | | | (2,655) | | | 4,993 | | | (22,437) | | | (17,444) | |
Interest-bearing liabilities | | | | | | | | | | | |
Interest-bearing checking accounts | 93 | | | (267) | | | (174) | | | 541 | | | (616) | | | (75) | |
Money market accounts | 221 | | | (514) | | | (293) | | | 1,035 | | | (6,246) | | | (5,211) | |
Savings accounts | 12 | | | (4) | | | 8 | | | 52 | | | (92) | | | (40) | |
Certificate accounts | (1,166) | | | (2,485) | | | (3,651) | | | (3,612) | | | (4,529) | | | (8,141) | |
Borrowings | (5,412) | | | (549) | | | (5,961) | | | (2,484) | | | (788) | | | (3,272) | |
Total interest-bearing liabilities | $ | (6,252) | | | $ | (3,819) | | | $ | (10,071) | | | $ | (4,468) | | | $ | (12,271) | | | $ | (16,739) | |
Net decrease in tax equivalent interest income | | | | | $ | 7,416 | | | | | | | $ | (705) | |
Provision (Benefit) for Credit Losses. The provision (benefit) for credit losses is the amount of expense that, based on our judgment, is required to maintain the ACL at an appropriate level under the CECL model. The determination of the ACL is complex and involves a high degree of judgment and subjectivity. Refer to "Note 1 – Summary of Significant Accounting Policies” of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K for detailed discussion regarding ACL methodologies for available for sale debt securities, loans held for investment and unfunded commitments.
The following table presents a breakdown of the components of the provision (benefit) for credit losses:
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| Year Ended June 30, | | 2022 vs 2021 | | 2021 vs 2020 |
(Dollars in thousands) | 2022 | | 2021 | | 2020 | | $ | | % | | $ | | % |
Provision (benefit) for credit losses | | | | | | | | | | | | | |
Loans | $ | (1,473) | | | $ | (7,270) | | | $ | 8,500 | | | $ | 5,797 | | | (80) | % | | $ | (15,770) | | | (186) | % |
Off-balance sheet credit exposure | 981 | | | 35 | | | — | | | 946 | | | 2,703 | | | 35 | | | 100 | |
Commercial paper | (100) | | | 100 | | | — | | | (200) | | | (200) | | | 100 | | | 100 | |
Total provision (benefit) for credit losses | $ | (592) | | | $ | (7,135) | | | $ | 8,500 | | | $ | 6,543 | | | (92) | % | | $ | (15,635) | | | (184) | % |
For the year ended June 30, 2022, the "loans" portion of the provision was primarily the result of a slight improvement in the economic forecast, as more clarity was gained regarding the impact of COVID-19 upon the loan portfolio. The provision for off-balance sheet credit exposures increased $946,000, or 2,703%, primarily as the result of loan growth and changes in the loan mix and qualitative adjustments.
For available for sale debt securities in an unrealized loss position, the Company evaluates the securities to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or noncredit-related factors. Any impairment that is not credit related is recognized in other comprehensive income, net of applicable taxes. Credit-related impairment is recognized as an ACL on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings. At June 30, 2022 and 2021, the Company determined that noncredit-related factors were the cause those available for sale securities
in an unrealized loss position. Therefore, the Company carried no ACL at those respective dates and there was no credit loss expense recognized by the Company during the years ended June 30, 2022 and 2021.
See further discussion in the “Allowance for Credit Losses” section below.
Noninterest Income. Noninterest income for the year ended June 30, 2022 decreased $625,000, or 1.6%, year-over-year. Changes in selected components of noninterest income are discussed below:
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| Year Ended June 30, | | 2022 vs 2021 | | 2021 vs 2020 |
(Dollars in thousands) | 2022 | | 2021 | | 2020 | | $ | | % | | $ | | % |
Noninterest income | | | | | | | | | | | | | |
Service charges and fees on deposit accounts | $ | 9,462 | | | $ | 9,083 | | | $ | 9,382 | | | $ | 379 | | | 4 | % | | $ | (299) | | | (3) | % |
Loan income and fees | 3,185 | | | 2,208 | | | 2,494 | | | 977 | | | 44 | | | (286) | | | (11) | |
Gain on sale of loans held for sale | 12,876 | | | 17,352 | | | 9,946 | | | (4,476) | | | (26) | | | 7,406 | | | 74 | |
BOLI income | 2,000 | | | 2,156 | | | 2,246 | | | (156) | | | (7) | | | (90) | | | (4) | |
Operating lease income | 6,392 | | | 5,601 | | | 3,356 | | | 791 | | | 14 | | | 2,245 | | | 67 | |
Gain on sale of debt securities available for sale | 1,895 | | | — | | | — | | | 1,895 | | | 100 | | | — | | | — | |
Other | 3,386 | | | 3,421 | | | 2,908 | | | (35) | | | (1) | | | 513 | | | 18 | |
Total noninterest income | $ | 39,196 | | | $ | 39,821 | | | $ | 30,332 | | | $ | (625) | | | (2) | % | | $ | 9,489 | | | 31 | % |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
•Loan income and fees: The increase in loan income and fees was primarily due to approximately $1.3 million in SBA servicing income, the result of bringing the servicing of these loans in-house effective July 1, 2021 as indicated in the "Fiscal 2022 Items of Note" section above.
•Gain on sale of loans held for sale: The decrease in the gain on sale of loans held for sale was primarily driven by decreases in the volume of residential mortgage loans and SBA commercial loans sold during the period as a result of rising interest rates. During the year ended June 30, 2022, $263.0 million of residential mortgage loans originated for sale were sold with gains of $6.4 million compared to $406.5 million sold with gains of $10.5 million in the prior year. There were $54.7 million of sales of the guaranteed portion of SBA commercial loans with recorded gains of $5.4 million in the current year compared to $66.1 million sold with gains of $6.1 million in the prior year. The Company sold $120.0 million of HELOCs during the current year for a gain of $791,000 compared to $110.8 million sold and gains of $724,000 in the prior year. Lastly, $11.5 million of indirect auto finance loans were sold out of the held for investment portfolio during the current year for a gain of $205,000. No such sales occurred in the prior year.
•Operating lease income: The increase in operating lease income year-over-year is a result of increases in lease originations and higher outstanding balances in the current year.
•Gain on sale of debt securities available for sale: The increase in the gain was driven by the sale of seven trust preferred securities during the quarter ended June 30, 2022 which had previously been written down to zero through purchase accounting adjustments from a merger in a prior period. No other securities were sold during the periods presented.
Noninterest Expense. Noninterest expense for the year ended June 30, 2022 decreased $26.0 million, or 19.8%, year-over-year. Changes in selected components of noninterest expense are discussed below:
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| Year Ended June 30, | | 2022 vs 2021 | | 2021 vs 2020 |
(Dollars in thousands) | 2022 | | 2021 | | 2020 | | $ | | % | | $ | | % |
Noninterest expense | | | | | | | | | | | | | |
Salaries and employee benefits | $ | 59,591 | | | $ | 62,956 | | | $ | 56,709 | | | $ | (3,365) | | | (5) | % | | $ | 6,247 | | | 11 | % |
Occupancy expense, net | 9,692 | | | 9,521 | | | 9,228 | | | 171 | | | 2 | | | 293 | | | 3 | |
Computer services | 9,761 | | | 9,607 | | | 8,153 | | | 154 | | | 2 | | | 1,454 | | | 18 | |
Telephone, postage and supplies | 2,754 | | | 3,122 | | | 3,275 | | | (368) | | | (12) | | | (153) | | | (5) | |
Marketing and advertising | 2,583 | | | 1,626 | | | 1,872 | | | 957 | | | 59 | | | (246) | | | (13) | |
Deposit insurance premiums | 1,712 | | | 1,799 | | | 900 | | | (87) | | | (5) | | | 899 | | | 100 | |
REO related expense, net | 588 | | | 582 | | | 1,475 | | | 6 | | | 1 | | | (893) | | | (61) | |
Core deposit intangible amortization | 250 | | | 735 | | | 1,421 | | | (485) | | | (66) | | | (686) | | | (48) | |
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Branch closure and restructuring expenses | — | | | 1,513 | | | — | | | (1,513) | | | (100) | | | 1,513 | | | 100 | |
Officer transition agreement expense | 1,795 | | | — | | | — | | | 1,795 | | | 100 | | | — | | | — | |
Prepayment penalties on borrowings | — | | | 22,690 | | | — | | | (22,690) | | | (100) | | | 22,690 | | | 100 | |
Other | 16,458 | | | 17,031 | | | 14,096 | | | (573) | | | (3) | | | 2,935 | | | 21 | |
Total noninterest expense | $ | 105,184 | | | $ | 131,182 | | | $ | 97,129 | | | $ | (25,998) | | | (20) | % | | $ | 34,053 | | | 35 | % |
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•Salaries and employee benefits: As indicated in the "Fiscal 2021 Items of Note" section above, the decrease in salaries and employee benefits was primarily the result of branch closures and lower mortgage banking incentive pay as a result of the reduction of the volume of originations.
•Marketing and advertising: The increase in marketing and advertising was primarily the result of less media advertising in the prior period during the pandemic.
•Branch closure and restructuring expenses: See explanation in the "Fiscal 2021 Items of Note" section above. No such expenses were incurred in the other two periods presented.
•Officer transition agreement expense: In May 2022, the Company entered into an amended and restated employment and transition agreement with the Company's Chairman and CEO. As part of this agreement, the full amount of the estimated separation payment was accrued in 2022. No such expenses were incurred in the other two periods presented.
•Prepayment penalties on borrowings: See explanation in the "Fiscal 2021 Items of Note" section above. No such expenses were incurred in the other two periods presented.
Income Taxes. The amount of income tax expense is influenced by the amount of pre-tax income, the amount of tax-exempt income, changes in the statutory rate and the effect of changes in valuation allowances maintained against deferred tax benefits. Income tax expense for the year ended June 30, 2022 increased $6.3 million, or 184.3%, to $9.7 million from $3.4 million in the prior year as a result of higher taxable income. The effective tax rate for fiscal 2022 and fiscal 2021 was 21.4% and 17.9%, respectively. The higher effective tax rate in the current year compared to the prior year was driven by a comparable amount of tax-exempt income in each period, compared to a higher pre-tax book income in fiscal 2022. For more information on income taxes and deferred taxes, see "Note 11 – Income Taxes" of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K.
Comparison of Financial Condition at June 30, 2022 and June 30, 2021
Assets. Total assets were $3.5 billion at both June 30, 2022 and 2021, an increase of $24.5 million, or 0.7%, year-over-year, the components of which are discussed below.
Debt Securities Available for Sale. Debt securities available for sale decreased $29.5 million, or 18.8%, to $127.0 million at June 30, 2022. The following table illustrates the changes in the fair value of the portfolio.
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| June 30, | | Change |
(Dollars in thousands) | 2022 | | 2021 | | $ | | % |
| | | | | | | |
U.S. government agencies | $ | 18,459 | | | $ | 19,073 | | | $ | (614) | | | (3) | % |
MBS, residential | 47,233 | | | 43,404 | | | 3,829 | | | 9 | |
Municipal bonds | 5,558 | | | 9,551 | | | (3,993) | | | (42) | |
Corporate bonds | 55,728 | | | 84,431 | | | (28,703) | | | (34) | |
Total | $ | 126,978 | | | $ | 156,459 | | | $ | (29,481) | | | (19) | % |
The overall year-over-year decrease in the portfolio was the result of maturities, calls, and paydowns of the underlying securities, the proceeds of which were re-invested in interest-bearing deposits.
The composition and contractual maturities of our debt securities portfolio as of June 30, 2022 is 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. Weighted average yields were calculated using amortized cost on a fully-taxable equivalent basis. The Company did not hold any tax-exempt debt securities as of June 30, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | 1 year or less | | Over 1 year to 5 years | | Over 5 to 10 years | | Over 10 years | | Total |
| |
U.S. government agencies | | | | | | | | | |
Book value | $ | 3,993 | | | $ | 15,000 | | | $ | — | | | $ | — | | | $ | 18,993 | |
Fair value | 3,998 | | | 14,461 | | | — | | | — | | | 18,459 | |
Weighted average yield | 2.51 | % | | 0.28 | % | | — | % | | — | % | | 0.75 | % |
MBS, residential | | | | | | | | | |
Book value | 15,428 | | | 5,845 | | | 17,590 | | | 9,514 | | | 48,377 | |
Fair value | 15,363 | | | 5,753 | | | 16,955 | | | 9,162 | | | 47,233 | |
Weighted average yield | 2.47 | % | | 1.23 | % | | 2.02 | % | | 2.57 | % | | 2.17 | % |
Municipal bonds | | | | | | | | | |
Book value | 2,007 | | | 2,492 | | | 1,046 | | | — | | | 5,545 | |
Fair value | 2,013 | | | 2,509 | | | 1,036 | | | — | | | 5,558 | |
Weighted average yield | 4.37 | % | | 3.84 | % | | 3.78 | % | | — | % | | 4.02 | % |
Corporate bonds | | | | | | | | | |
Book value | 29,350 | | | 22,833 | | | 5,001 | | | — | | | 57,184 | |
Fair value | 28,945 | | | 22,048 | | | 4,735 | | | — | | | 55,728 | |
Weighted average yield | 1.76 | % | | 1.18 | % | | 3.38 | % | | — | % | | 1.67 | % |
Total | | | | | | | | | |
Book value | $ | 50,778 | | | $ | 46,170 | | | $ | 23,637 | | | $ | 9,514 | | | $ | 130,099 | |
Fair value | $ | 50,319 | | | $ | 44,771 | | | $ | 22,726 | | | $ | 9,162 | | | $ | 126,978 | |
Weighted average yield | 2.14 | % | | 1.04 | % | | 2.38 | % | | 2.57 | % | | 1.82 | % |
Total Loans, Net of Deferred Loan Fees and Costs. Loans held for investment totaled $2.8 billion at June 30, 2022 compared to $2.7 billion at June 30, 2021, an increase of $36,028 or 1.3%. The following table illustrates the changes within the portfolio.
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| | | | | | | | | Percent of Total | | |
| June 30, | | Change | | June 30, | | |
(Dollars in thousands) | 2022 | | 2021 | | $ | | % | | 2022 | | 2021 | | |
Commercial real estate loans | | | | | | | | | | | | | |
Construction and land development | $ | 291,202 | | | $ | 179,427 | | | $ | 111,775 | | | 62 | % | | 11 | % | | 7 | % | | |
Commercial real estate - owner occupied | 335,658 | | | 324,350 | | | 11,308 | | | 3 | | | 12 | | | 12 | | | |
Commercial real estate - non-owner occupied | 662,159 | | | 727,361 | | | (65,202) | | | (9) | | | 24 | | | 27 | | | |
Multifamily | 81,086 | | | 90,565 | | | (9,479) | | | (10) | | | 3 | | | 3 | | | |
Total commercial real estate loans | 1,370,105 | | | 1,321,703 | | | 48,402 | | | 4 | | | 50 | | | 49 | | | |
Commercial loans | | | | | | | | | | | | | |
Commercial and industrial | 192,652 | | | 141,341 | | | 51,311 | | | 36 | | | 7 | | | 5 | | | |
Equipment finance | 394,541 | | | 317,920 | | | 76,621 | | | 24 | | | 14 | | | 12 | | | |
Municipal leases | 129,766 | | | 140,421 | | | (10,655) | | | (8) | | | 5 | | | 5 | | | |
PPP loans | 661 | | | 46,650 | | | (45,989) | | | (99) | | | — | | | 2 | | | |
Total commercial loans | 717,620 | | | 646,332 | | | 71,288 | | | 11 | | | 26 | | | 24 | | | |
Residential real estate loans | | | | | | | | | | | | | |
Construction and land development | 81,847 | | | 66,027 | | | 15,820 | | | 24 | | | 2 | | | 2 | | | |
One-to-four family | 354,203 | | | 406,549 | | | (52,346) | | | (13) | | | 13 | | | 15 | | | |
HELOCs | 160,137 | | | 169,201 | | | (9,064) | | | (5) | | | 6 | | | 6 | | | |
Total residential real estate loans | 596,187 | | | 641,777 | | | (45,590) | | | (7) | | | 21 | | | 23 | | | |
Consumer loans | 85,383 | | | 123,455 | | | (38,072) | | | (31) | | | 3 | | | 4 | | | |
Loans, net of deferred loan fees and costs | $ | 2,769,295 | | | $ | 2,733,267 | | | $ | 36,028 | | | 1 | % | | 100 | % | | 100 | % | | |
The principal categories of our loan portfolio are discussed below.
Commercial Real Estate – Construction and Land Development. 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 one-to-four family (speculative and pre-sold) or commercial real estate.
Our expansion into larger metro markets combined with experienced commercial real estate relationship managers, credit officers, and a construction risk management group to better manage construction risk, has resulted in the purposeful growth of this portfolio. Unfunded commitments at June 30, 2022 totaled $143.4 million compared to $131.8 million at June 30, 2021.
Land acquisition and development loans are included in the construction and development loan portfolio and include completed residential lots where the borrower was not the developer, commercial improved and raw land for future development, and residential development loans. Residential development loans are made to developers for the purpose of acquiring raw land 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.) into residential lots for sale. The end buyer for the majority of these lots are local, regional, and national builders for the ultimate construction of residential units. The primary source of repayment is the sale of the lots or improved parcels of land, while personal guarantees may serve as secondary sources. These 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 65% of the lower of the acquisition price or the appraised value of the unimproved land and 75% of the improved land. Residential acquisition and development loans are generally paid out within three years unless there are multiple phases to the development.
The Bank provides funding to a number of builders for the construction of both speculative and pre-sold 1-4 family homes. 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. Loans to finance the construction of speculative single-family homes are generally offered to experienced builders with a proven track record of performance. These loans require payment of interest-only during the construction phase. Unfunded commitments were $74.6 million at June 30, 2022 and $70.1 million at June 30, 2021.
Commercial vertical construction loans are offered on an adjustable 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 for owner occupied loans is generally limited to 12 to 24 months from the date of origination versus a construction and stabilization period for non-owner occupied loans of 24 to 36 months, both with amortization terms up to 25 years. Construction-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 based on the percent completion of budget as documented by periodic third-party inspections. The maximum loan-to-value limit applicable to these loans is generally 80% of the appraised post-construction value.
Commercial Real Estate Lending, including Multifamily. 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. The average outstanding loan size in our commercial real estate portfolio was $796,000 as of June 30, 2022.
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-based loans typically include a floor and ceiling interest rate and are indexed to The Wall Street Journal prime rate, the one-month LIBOR, or the one-month term SOFR, 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.
Commercial – Commercial and Industrial Loans. We typically offer commercial and industrial loans to 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 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.
We originate commercial business loans made under the SBA 7(a) and USDA B&I programs to small businesses located throughout the country. 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). Typical maturities for this type of loan vary up to twenty-five years and can be thirty years in some circumstances. 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. SBA 7(a) and USDA B&I loans will normally be adjustable rate loans based upon The Wall 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.
In March 2022, the Company began purchasing commercial small business loans originated by a fintech partner. At June 30, 2022, the outstanding balance of these loans totaled $17.5 million, or 0.6% of our loan portfolio. The credit risk characteristics of these loans are different from the remainder of the portfolio as they were not originated by the Company and the collateral may be located outside the Company's market area. The Company will continue to monitor the performance of these loans and adjust the allowance for credit losses as necessary.
Commercial – Equipment Finance. Our Equipment Finance line of business 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, healthcare, 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 outstanding loan size of $130,000.
Commercial – Municipal Leases. We offer ground and equipment lease financing to fire departments located primarily throughout North Carolina, South Carolina and, to a lesser extent, Virginia. 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. We originate and underwrite all leases 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, 2022, $44.4 million, or 34.2%, of our municipal leases were secured by fire trucks, $48.8 million, or 37.6%, were secured by fire stations, $31.7 million, or 24.5%, were secured by both, with the remaining $4.9 million, or 3.7%, secured by miscellaneous firefighting equipment and land. At June 30, 2022, the average outstanding municipal lease size was $423,000.
Residential Real Estate – Construction and Land Development. We are an active originator of construction-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, 2022, unfunded loan commitments totaled $94.9 million, compared to $75.7 million at June 30, 2021.
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. 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. 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.
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.
Residential Real Estate – One-to-Four Family. 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 originate both fixed-rate loans and adjustable-rate loans; however, the majority of our one-to-four family residential loans are originated with fixed rates and have terms of 10 to 30 years. We generally originate fixed rate mortgage loans with terms greater than 10 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 10 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.
Residential Real Estate – Home Equity Lines of Credit. Our HELOCs consist primarily of adjustable-rate lines of credit. 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. HELOCs generally have up to a 10-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, 2022, unfunded commitments on these lines of credit totaled $313.0 million.
Consumer Lending. Our consumer loans consist of loans secured by deposit accounts or personal property such as automobiles, boats, and motorcycles, as well as unsecured consumer debt. This portfolio includes indirect auto finance installment contracts sourced through our relationships with 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. At June 30, 2022, the outstanding balance of indirect auto finance loans was $79.1 million.
The following table details the contractual maturity ranges of our loan portfolio without factoring in scheduled payments or potential prepayments. Loan balances do not include undisbursed loan proceeds, unearned discounts, unearned income and ACL. In addition, we have disclosed those loans with predetermined (fixed) and floating interest rates at June 30, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | 1 Year or Less | | After 1 but Within 5 Years | | After 5 but Within 15 Years | | Over 15 Years | | Total |
Commercial real estate loans | | | | | | | | | |
Construction and land development | $ | 90,315 | | | $ | 133,645 | | | $ | 67,242 | | | $ | — | | | $ | 291,202 | |
Commercial real estate - owner occupied | 16,902 | | | 203,875 | | | 101,510 | | | 13,371 | | | 335,658 | |
Commercial real estate - non-owner occupied | 45,589 | | | 369,632 | | | 241,600 | | | 5,338 | | | 662,159 | |
Multifamily | 6,706 | | | 38,934 | | | 32,601 | | | 2,845 | | | 81,086 | |
Total commercial real estate loans | 159,512 | | | 746,086 | | | 442,953 | | | 21,554 | | | 1,370,105 | |
Commercial loans | | | | | | | | | |
Commercial and industrial | 43,459 | | | 93,289 | | | 54,534 | | | 1,370 | | | 192,652 | |
Equipment finance | 5,143 | | | 308,187 | | | 81,211 | | | — | | | 394,541 | |
Municipal leases | 9,883 | | | 21,122 | | | 72,000 | | | 26,761 | | | 129,766 | |
PPP loans | 56 | | | 518 | | | 87 | | | — | | | 661 | |
Total commercial loans | 58,541 | | | 423,116 | | | 207,832 | | | 28,131 | | | 717,620 | |
Residential real estate loans | | | | | | | | | |
Construction and land development | 162 | | | 996 | | | 2,202 | | | 78,487 | | | 81,847 | |
One-to-four family | 6,416 | | | 55,577 | | | 83,656 | | | 208,554 | | | 354,203 | |
HELOCs | 4,617 | | | 8,459 | | | 8,814 | | | 138,247 | | | 160,137 | |
Total residential real estate loans | 11,195 | | | 65,032 | | | 94,672 | | | 425,288 | | | 596,187 | |
Consumer loans | 1,962 | | | 59,619 | | | 23,492 | | | 310 | | | 85,383 | |
Total loans | $ | 231,210 | | | $ | 1,293,853 | | | $ | 768,949 | | | $ | 475,283 | | | $ | 2,769,295 | |
| | | | | | | | | |
Commercial real estate loans | | | | | | | | | |
Fixed rate loans | $ | 37,323 | | | $ | 484,053 | | | $ | 89,558 | | | $ | 2,845 | | | $ | 613,779 | |
Adjustable rate loans | 122,189 | | | 262,033 | | | 353,395 | | | 18,709 | | | 756,326 | |
Commercial loans | | | | | | | | | |
Fixed rate loans | 17,640 | | | 412,046 | | | 170,205 | | | 27,980 | | | 627,871 | |
Adjustable rate loans | 40,901 | | | 11,070 | | | 37,627 | | | 151 | | | 89,749 | |
Residential real estate loans | | | | | | | | | |
Fixed rate loans | 2,854 | | | 46,852 | | | 62,530 | | | 148,472 | | | 260,708 | |
Adjustable rate loans | 8,341 | | | 18,180 | | | 32,142 | | | 276,816 | | | 335,479 | |
Consumer loans | | | | | | | | | |
Fixed rate loans | 1,962 | | | 56,535 | | | 23,492 | | | 310 | | | 82,299 | |
Adjustable rate loans | — | | | 3,084 | | | — | | | — | | | 3,084 | |
Total fixed rate loans | $ | 59,779 | | | $ | 999,486 | | | $ | 345,785 | | | $ | 179,607 | | | $ | 1,584,657 | |
Total adjustable rate loans | $ | 171,431 | | | $ | 294,367 | | | $ | 423,164 | | | $ | 295,676 | | | $ | 1,184,638 | |
Nonperforming Assets. Nonperforming assets include nonaccrual loans, TDRs that haven’t performed for a sufficient period of time, and REO. 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. 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 below market interest rate, a reduction in principal balance, or a longer term to maturity. Once a nonaccruing TDR 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 TDR is removed from nonaccrual status.
Total nonperforming assets were $6.3 million, or 0.18% of total assets, at June 30, 2022, compared to $12.8 milion, or 0.36% of total assets, at June 30, 2021. The following table sets forth the composition of our nonperforming assets among our different asset categories as of June 30, 2022 and 2021.
| | | | | | | | | | | | | | | | | | | | | | |
| | June 30, | | | | | | | | |
(Dollars in thousands) | | 2022 | | 2021 | | | | | | | | |
Nonaccruing loans | | | | | | | | | | |
Commercial real estate loans | | | | | | | | | | | | |
Construction and land development | | $ | 67 | | | $ | 482 | | | | | | | | | |
Commercial real estate - owner occupied | | 706 | | | 3,265 | | | | | | | | | |
Commercial real estate - non-owner occupied | | 5 | | | 208 | | | | | | | | | |
Multifamily | | 103 | | | 3,542 | | | | | | | | | |
Total commercial real estate loans | | 881 | | | 7,497 | | | | | | | | | |
Commercial loans | | | | | | | | | | | | |
Commercial and industrial | | 1,951 | | | 49 | | | | | | | | | |
Equipment finance | | 270 | | | 630 | | | | | | | | | |
Municipal leases | | — | | | — | | | | | | | | | |
PPP loans | | — | | | — | | | | | | | | | |
Total commercial loans | | 2,221 | | | 679 | | | | | | | | | |
Residential real estate loans | | | | | | | | | | | | |
Construction and land development | | 137 | | | 22 | | | | | | | | | |
One-to-four family | | 1,773 | | | 2,625 | | | | | | | | | |
HELOCs | | 724 | | | 929 | | | | | | | | | |
Total residential real estate loans | | 2,634 | | | 3,576 | | | | | | | | | |
Consumer | | 384 | | | 854 | | | | | | | | | |
Total nonaccruing loans | | $ | 6,120 | | | $ | 12,606 | | | | | | | | | |
| | | | | | | | | | | | |
Total foreclosed assets | | $ | 200 | | | 188 | | | | | | | | | |
Total nonperforming assets | | $ | 6,320 | | | $ | 12,794 | | | | | | | | | |
Total nonperforming assets as a percentage of total assets | | 0.18 | % | | 0.36 | % | | | | | | | | |
| | | | | | | | | | | | |
The significant decrease from June 30, 2021 was primarily a result of the payoff of two commercial real estate loan relationships totaling $5.1 million during the period. The ratio of nonperforming loans to total loans was 0.22% at June 30, 2022 and 0.46% at June 30, 2021. Performing TDRs that were excluded from nonaccruing loans totaled $9.8 million and $11.1 million at June 30, 2022 and June 30, 2021, respectively.
Allowance for Credit Losses on Loans. The ACL is a valuation account that reflects our estimation of the credit losses that will result from the inability of our borrowers to make required loan payments. The allowance is maintained through provisions for credit losses that are charged to earnings in the period they are established. We charge losses on loans against the ACL when we believe the collection of loan principal is unlikely. Recoveries on loans previously charged off are added back to the allowance. See "Note 1 – Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K for discussion of our ACL methodology on loans.
The following table summarizes the distribution of the allowance for credit losses by loan category at the dates indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, |
| 2022 | | 2021 |
(Dollars in thousands) | Allocated Allowance | | % of Loan Portfolio | | ACL to Loans | | Allocated Allowance | | % of Loan Portfolio | | ACL to Loans |
Commercial real estate loans | | | | | | | | | | | |
Construction and land development | $ | 4,402 | | | 11 | % | | 0.16 | % | | $ | 1,801 | | | 7 | % | | 0.07 | % |
Commercial real estate - owner occupied | 3,038 | | | 12 | | | 0.11 | | | 3,295 | | | 12 | | | 0.12 | |
Commercial real estate - non-owner occupied | 5,589 | | | 24 | | | 0.20 | | | 9,296 | | | 27 | | | 0.34 | |
Multifamily | 385 | | | 3 | | | 0.01 | | | 692 | | | 3 | | | 0.03 | |
Total commercial real estate loans | 13,414 | | | 50 | | | 0.48 | | | 15,084 | | | 49 | | | 0.56 | |
Commercial loans | | | | | | | | | | | |
Commercial and industrial | 5,083 | | | 7 | | | 0.18 | | | 2,592 | | | 5 | | | 0.09 | |
Equipment finance | 6,651 | | | 14 | | | 0.24 | | | 6,537 | | | 12 | | | 0.24 | |
Municipal leases | 302 | | | 5 | | | 0.01 | | | 534 | | | 5 | | | 0.02 | |
PPP loans | — | | | — | | | — | | | — | | | 2 | | | — | |
Total commercial loans | 12,036 | | | 26 | | | 0.43 | | | 9,663 | | | 24 | | | 0.35 | |
Residential real estate loans | | | | | | | | | | | |
Construction and land development | 1,052 | | | 2 | | | 0.04 | | | 812 | | | 2 | | | 0.03 | |
One-to-four family | 4,673 | | | 13 | | | 0.17 | | | 5,409 | | | 15 | | | 0.20 | |
HELOCs | 1,886 | | | 6 | | | 0.07 | | | 1,964 | | | 6 | | | 0.07 | |
Total residential real estate loans | 7,611 | | | 21 | | | 0.28 | | | 8,185 | | | 23 | | | 0.30 | |
Consumer loans | 1,629 | | | 3 | | | 0.06 | | | 2,536 | | | 4 | | | 0.09 | |
Total loans | $ | 34,690 | | | 100 | % | | 1.25 | % | | $ | 35,468 | | | 100 | % | | 1.30 | % |
| | | | | | | | | | | |
| At or For the Year Ended June 30, |
| 2022 | | 2021 |
Asset quality ratios | | | |
Nonaccruing loans to total loans(1) | 0.22 | % | | 0.46 | % |
ACL to nonaccruing loans(1) | 566.83 | | | 281.38 | |
Net charge-offs (recoveries) to average loans | (0.02) | | | 0.01 | |
(1) At June 30, 2022, $2.8 million of restructured loans were included in nonaccruing loans and $3.8 million, or 62.5%, of nonaccruing loans were current on their loan payments. At June 30, 2021, $5.5 million of restructured loans were included in nonaccruing loans and $6.6 million, or 52.6%, of nonaccruing loans were current on their loan payments.
The ACL on loans decreased $778,000, or 2.2%, between June 30, 2022 and 2021 and there was a net benefit for credit losses on loans of $1.5 million for the year ended June 30, 2022, compared to a net benefit of $7.3 million for fiscal year 2021. The net benefit on loans for the year ended June 30, 2022 was primarily the result of a slight improvement in the economic forecast, as more clarity was gained regarding the impact of COVID-19 upon the loan portfolio.
Our individually evaluated loans are comprised of loans meeting certain thresholds, on nonaccrual status, and all TDRs, whether performing or on nonaccrual status under their restructured terms. Individually evaluated loans may be evaluated for reserve purposes using either the cash flow or the collateral valuation method. As of June 30, 2022, there were $5.3 million in loans individually evaluated compared to $8.8 million at June 30, 2021. For more information on these individually evaluated loans, see "Note 5 – Loans and Allowance for Credit Losses on Loans" of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K.
The following table summarizes net charge-offs (recoveries) to average loans outstanding by loan category as of the dates indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended June 30, |
| 2022 | | 2021 |
(Dollars in thousands) | Net Charge-Offs (Recoveries) | | Average Loans Outstanding | | Net Charge-Off (Recovery) Ratio | | Net Charge-Offs (Recoveries) | | Average Loans Outstanding | | Net Charge-Off (Recovery) Ratio |
Commercial real estate loans | $ | (603) | | | $ | 1,389,895 | | | (0.04) | % | | $ | 851 | | | $ | 1,319,309 | | | 0.06 | % |
Commercial loans | 737 | | | 707,959 | | | 0.10 | | | (1,166) | | | 647,363 | | | (0.18) | |
Residential real estate loans | (849) | | | 613,270 | | | (0.14) | | | (121) | | | 716,998 | | | (0.02) | |
Consumer loans | 21 | | | 98,549 | | | 0.02 | | | 579 | | | 135,510 | | | 0.43 | |
Total | $ | (694) | | | $ | 2,809,673 | | | (0.02) | % | | $ | 143 | | | $ | 2,819,180 | | | 0.01 | % |
Liabilities. Total liabilities were $3.2 billion at June 30, 2022, compared to $3.1 billion at June 30, 2021, an increase of $32.2 million, the components of which are discussed below.
Deposits. The following table summarizes the composition of our deposit portfolio as of the dates indicated.
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended June 30, | | Change |
(Dollars in thousands) | 2022 | | 2021 | | $ | | % |
Core deposits | | | | | | | |
Noninterest-bearing deposits | $ | 745,746 | | | $ | 636,414 | | | $ | 109,332 | | | 17 | % |
Interest-bearing checking accounts | 654,981 | | | 644,958 | | | 10,023 | | | 2 | |
Money market accounts | 969,661 | | | 975,001 | | | (5,340) | | | (1) | |
Savings accounts | 238,197 | | | 226,391 | | | 11,806 | | | 5 | |
Total core deposits | $ | 2,608,585 | | | $ | 2,482,764 | | | $ | 125,821 | | | 5 | % |
Certificates of deposit | 491,176 | | | 472,777 | | | 18,399 | | | 4 | |
Total | $ | 3,099,761 | | | $ | 2,955,541 | | | $ | 144,220 | | | 5 | % |
As of June 30, 2022, we held approximately $640.4 million in uninsured deposits, including $156.6 million of uninsured time deposits. The uninsured amount is an estimate consistent with the methodology used for the Company's regulatory reporting disclosures. The following table indicates the amount of our CDs, both within and in excess of the $250,000 FDIC insurance limit, by time remaining until maturity as of June 30, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | 3 Months or Less | | Over 3 to 6 Months | | Over 6 to 12 Months | | Over 12 Months | | Total |
CDs less than $250,000 | $ | 114,062 | | | $ | 108,999 | | | $ | 58,081 | | | $ | 53,476 | | | $ | 334,618 | |
CDs of $250,000 or more | 33,588 | | | 77,299 | | | 36,704 | | | 8,967 | | | 156,558 | |
Total certificates of deposit | $ | 147,650 | | | $ | 186,298 | | | $ | 94,785 | | | $ | 62,443 | | | $ | 491,176 | |
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. Our borrowings typically consist of advances from the FHLB of Atlanta and FRB. We may obtain advances from the FHLB of Atlanta upon the security of certain of our commercial and residential real estate loans and/or securities as well as obtain advances from the FRB upon the security of certain of our commercial and consumer loans. 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.
The following tables set forth information regarding our borrowings at the end of and during the periods indicated.
| | | | | | | | | | | |
| Year Ended June 30, |
(Dollars in thousands) | 2022 | | 2021 |
| | | |
Average balances | | | |
FHLB advances | $ | 38,370 | | | $ | 416,822 | |
FRB advances | 5,006 | | | — | |
Weighted average interest rate | | | |
FHLB advances | 0.16 | % | | 1.45 | % |
FRB advances | 0.38 | | | — | |
| | | | | | | | | | | |
| June 30, |
(Dollars in thousands) | 2022 | | 2021 |
Balance outstanding at end of period | | | |
FHLB advances | $ | — | | | $ | 115,000 | |
| | | |
| | | |
Weighted average interest rate | | | |
FHLB advances | — | % | | 0.16 | % |
| | | |
| | | |
There were no borrowings at June 30, 2022 compared to $115.0 million at June 30, 2021 due to continual paydown of borrowings during the period. As of June 30, 2022, we had the ability to borrow an additional $277.6 million through the FHLB. In addition to FHLB advances, at June 30, 2022, we had an unused line of credit with the FRB in the amount of $68.2 million, subject to qualifying collateral, and $120.0 million available through lines of credit with three unaffiliated banks. See “Note 9 – Borrowings” of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for more information about our borrowings.
Capital Resources
At June 30, 2022, stockholders' equity totaled $388.8 million, compared to $396.5 million at June 30, 2021, a decrease of $7.7 million. Stockholders’ equity decreased during the period primarily due to the cost of repurchased shares of $43.3 million, offset by our net income of
$35.7 million. See “Business – How We are Regulated” included in Item 1 and “Note 17 – Regulatory Capital Matters” of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K for additional details on our capital requirements.
Liquidity Management
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 outlined in the "Comparison of Financial Condition – Borrowings" section above. Additionally, we classify our 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, 2022, brokered deposits totaled $26.3 million, or 0.8% 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 debt securities, including mortgage-backed securities. On a stand-alone level we are a separate legal entity from HomeTrust Bank and must provide for our own liquidity and pay our own operating expenses. Our primary source of funds consists of dividends or capital distributions from HomeTrust Bank, although there are regulatory restrictions on the ability of HomeTrust Bank to pay dividends. At June 30, 2022, we (on an unconsolidated basis) had liquid assets of $6.9 million.
At 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, 2022, the total approved loan commitments and unused lines of credit outstanding amounted to $417.6 million and $485.2 million, respectively, as compared to $401.1 million and $530.5 million, respectively, as of June 30, 2021. Certificates of deposit scheduled to mature in one year or less at June 30, 2022, totaled $428.7 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.
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, mainly to manage customers' requests for funding. These transactions primarily take the form of loan commitments and lines of credit and involve varying degrees of off-balance sheet credit, interest rate and liquidity risks. For further information, see “Note 16 – Commitments and Contingencies” of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.
Asset/Liability Management and Interest Rate Risk
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 our 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 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 have 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 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 rates, we believe that the increased net interest income resulting from a mismatch in the maturity of our assets and liabilities portfolios 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 evaluates 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, 2022, 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 1.50% to 1.75% making an immediate change of -300 or -400 basis points improbable, a PVE calculation for a decrease of greater than 200 basis points has not been prepared. An increase in rates would 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, 2022, our loans with interest rate floors totaled approximately $511.4 million, or 18.5% of our total loan portfolio, and had a weighted average floor rate of 3.70%. Of these loans, $22.3 million were at their floor rate and $17.3 million, or 77.7%, had yields that would begin floating again once prime rates increase at least 100 basis points.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
June 30, 2022 |
Change in Interest Rates in | | Present Value Equity | | PVE |
Basis Points | | Amount | | $ Change | | % Change | | Ratio |
(Dollars in Thousands) |
+ 400 | | $ | 904,290 | | | $ | 150,107 | | | 20 | % | | 27 | % |
+ 300 | | 878,297 | | | 124,114 | | | 16 | | | 26 | |
+ 200 | | 848,331 | | | 94,148 | | | 12 | | | 25 | |
+ 100 | | 807,639 | | | 53,456 | | | 7 | | | 23 | |
Base | | 754,183 | | | — | | | — | | | 22 | |
- 100 | | 639,196 | | | (114,987) | | | (15) | | | 18 | |
- 200 | | 477,864 | | | (276,319) | | | (37) | | | 13 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
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.
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors
HomeTrust Bancshares, Inc. and Subsidiary
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of HomeTrust Bancshares, Inc. and Subsidiary (the "Company") as of June 30, 2022 and 2021, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows, for each of the years in the three-year period ended June 30, 2022, and the related notes (collectively referred to as the "consolidated financial statements"). We have also audited the Company’s internal control over financial reporting as of June 30, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended June 30, 2022, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by COSO.
Change in Accounting Principle
As discussed in Notes 1 and 5 to the consolidated financial statements, the Company changed its method of accounting for credit losses effective July 1, 2020 due to the adoption of Accounting Standard Codification (“ASC”) Topic 326, Financial Instruments – Credit Losses.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, including in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's consolidated financial statements and an opinion on internal control over financial reporting based on our audits.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States "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 audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material aspects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of reliable 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.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current-period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for Credit Losses
As described in Notes 1 and 5 to the consolidated financial statements, the Company’s allowance for credit losses on loans (“ACL”) was $34.7 million as of June 30, 2022. The allowance is estimated by management using information about past events, current conditions and reasonable and supportable forecasts on the collectability of the loan portfolio. The Company collectively evaluates loan pools that share similar risk characteristics which results in the most significant portion of the ACL. A discounted cash flow method is used to evaluate the cash flows for each loan in each collectively evaluated pool which relies on a periodic tendency to default and absolute loss given default applied to a projective model of the pool’s cash flow while considering prepayment and principal curtailment effects. Management has determined that peer loss data provides the best basis for assessing expected credit losses and has incorporated macroeconomic drivers using a statistical regression modeling methodology, where considered appropriate, to adjust historical loss information for current conditions. Included in management’s systematic methodology is consideration of the need to qualitatively adjust the ACL for risks not already incorporated within the loss estimation process. The Company considers qualitative adjustments which can either increase or decrease the quantitative model within their qualitative framework.
We identified the allowance for credit losses as a critical audit matter. The principal considerations for our determination included the high degree of judgment and subjectivity involved in management’s determination of reasonable and supportable forecasts and the identification and measurement of qualitative adjustments. Auditing management’s judgments around those estimates involved a high degree of subjectivity, audit effort, and specialized skills and knowledge.
The primary procedures we performed to address this critical audit matter included:
•We obtained an understanding of the Company’s model and process for determining the ACL, and evaluated the design and operating effectiveness of controls relating to the ACL, including:
◦Controls over the completeness and accuracy of data input into the model used to determine the ACL, and
◦Controls over management’s review and approval of the ACL, including management’s determination of a reasonable and supportable forecast and qualitative factor adjustments applied within the qualitative framework to address risks not already incorporated within the model.
•We evaluated management’s determination of reasonable and supportable forecasts, including comparing key factors to independent sources, as well as involving our valuation specialists in testing the application of forecasts in the model calculation.
•We evaluated the reasonableness and adequacy of management’s qualitative factor adjustment framework, including substantively testing management's identification of risks not already incorporated within the model, the application of qualitative factor adjustments within the framework, and assessing the completeness and accuracy of data utilized in development of the qualitative adjustments.
•We evaluated management’s judgments and assumptions related to the magnitude of qualitative adjustments for reasonableness by assessing relevant trends in credit quality and evaluating the relationship of the trends to the qualitative adjustments applied to the ACL.
/s/ FORVIS, LLP (Formerly, Dixon Hughes Goodman LLP)
We have served as the Company's auditor since 2005.
Atlanta, Georgia
September 12, 2022
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(Dollars in thousands, except per share data)
| | | | | | | | | | | |
| June 30, |
| 2022 | | 2021 |
Assets | | | |
Cash | $ | 20,910 | | | $ | 22,312 | |
Interest-bearing deposits | 84,209 | | | 28,678 | |
Cash and cash equivalents | 105,119 | | | 50,990 | |
Commercial paper, net | 194,427 | | | 189,596 | |
Certificates of deposit in other banks | 23,551 | | | 40,122 | |
Debt securities available for sale, at fair value (amortized cost of $130,099 and $154,493 at June 30, 2022 and June 30, 2021, respectively) | 126,978 | | | 156,459 | |
FHLB and FRB stock | 9,326 | | | 13,539 | |
SBIC investments, at cost | 12,758 | | | 10,171 | |
| | | |
Loans held for sale | 79,307 | | | 93,539 | |
Total loans, net of deferred loan fees and costs | 2,769,295 | | | 2,733,267 | |
Allowance for credit losses – loans | (34,690) | | | (35,468) | |
Loans, net | 2,734,605 | | | 2,697,799 | |
Premises and equipment, net | 69,094 | | | 70,909 | |
Accrued interest receivable | 8,573 | | | 7,933 | |
| | | |
Deferred income taxes, net | 11,487 | | | 16,901 | |
BOLI | 95,281 | | | 93,108 | |
Goodwill | 25,638 | | | 25,638 | |
Core deposit intangibles, net | 93 | | | 343 | |
Other assets | 52,967 | | | 57,676 | |
Total assets | $ | 3,549,204 | | | $ | 3,524,723 | |
Liabilities and stockholders’ equity | | | |
Liabilities | | | |
Deposits | $ | 3,099,761 | | | $ | 2,955,541 | |
Borrowings | — | | | 115,000 | |
| | | |
Other liabilities | 60,598 | | | 57,663 | |
Total liabilities | 3,160,359 | | | 3,128,204 | |
Commitments and contingencies – see Note 16 | | | |
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, 15,591,466 shares issued and outstanding at June 30, 2022; 16,636,483 at June 30, 2021 | 156 | | | 167 | |
Additional paid in capital | 126,106 | | | 160,582 | |
Retained earnings | 270,276 | | | 240,075 | |
Unearned ESOP shares | (5,290) | | | (5,819) | |
Accumulated other comprehensive income (loss) | (2,403) | | | 1,514 | |
Total stockholders’ equity | 388,845 | | | 396,519 | |
Total liabilities and stockholders’ equity | $ | 3,549,204 | | | $ | 3,524,723 | |
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)
| | | | | | | | | | | | | | | | | |
| Year Ended June 30, |
| 2022 | | 2021 | | 2020 |
Interest and dividend income | | | | | |
Loans | $ | 109,603 | | | $ | 111,798 | | | $ | 122,174 | |
Commercial paper | 1,721 | | | 1,206 | | | 5,986 | |
Debt securities available for sale | 1,802 | | | 2,024 | | | 3,687 | |
Other investments and interest-bearing deposits | 2,988 | | | 3,705 | | | 4,407 | |
Total interest and dividend income | 116,114 | | | 118,733 | | | 136,254 | |
Interest expense | | | | | |
Deposits | 5,260 | | | 9,370 | | | 22,837 | |
Borrowings | 80 | | | 6,041 | | | 9,313 | |
Total interest expense | 5,340 | | | 15,411 | | | 32,150 | |
Net interest income | 110,774 | | | 103,322 | | | 104,104 | |
Provision (benefit) for credit losses | (592) | | | (7,135) | | | 8,500 | |
Net interest income after provision (benefit) for credit losses | 111,366 | | | 110,457 | | | 95,604 | |
Noninterest income | | | | | |
Service charges and fees on deposit accounts | 9,462 | | | 9,083 | | | 9,382 | |
Loan income and fees | 3,185 | | | 2,208 | | | 2,494 | |
Gain on sale of loans held for sale | 12,876 | | | 17,352 | | | 9,946 | |
BOLI income | 2,000 | | | 2,156 | | | 2,246 | |
| | | | | |
| | | | | |
Operating lease income | 6,392 | | | 5,601 | | | 3,356 | |
Gain on sale of debt securities available for sale | 1,895 | | | — | | | — | |
Other | 3,386 | | | 3,421 | | | 2,908 | |
Total noninterest income | 39,196 | | | 39,821 | | | 30,332 | |
Noninterest expense | | | | | |
Salaries and employee benefits | 59,591 | | | 62,956 | | | 56,709 | |
Occupancy expense, net | 9,692 | | | 9,521 | | | 9,228 | |
Computer services | 9,761 | | | 9,607 | | | 8,153 | |
Telephone, postage and supplies | 2,754 | | | 3,122 | | | 3,275 | |
Marketing and advertising | 2,583 | | | 1,626 | | | 1,872 | |
Deposit insurance premiums | 1,712 | | | 1,799 | | | 900 | |
| | | | | |
REO related expense, net | 588 | | | 582 | | | 1,475 | |
Core deposit intangible amortization | 250 | | | 735 | | | 1,421 | |
| | | | | |
Branch closure and restructuring expenses | — | | | 1,513 | | | — | |
Officer transition agreement expense | 1,795 | | | — | | | — | |
Prepayment penalties on borrowings | — | | | 22,690 | | | — | |
Other | 16,458 | | | 17,031 | | | 14,096 | |
Total noninterest expense | 105,184 | | | 131,182 | | | 97,129 | |
Income before income taxes | 45,378 | | | 19,096 | | | 28,807 | |
Income tax expense | 9,725 | | | 3,421 | | | 6,024 | |
Net income | $ | 35,653 | | | $ | 15,675 | | | $ | 22,783 | |
Per share data | | | | | |
Net income per common share: | | | | | |
Basic | $ | 2.27 | | | $ | 0.96 | | | $ | 1.34 | |
Diluted | $ | 2.23 | | | $ | 0.94 | | | $ | 1.30 | |
Average shares outstanding: | | | | | |
Basic | 15,516,173 | | | 16,078,066 | | | 16,729,056 | |
Diluted | 15,810,409 | | | 16,495,115 | | | 17,292,239 | |
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)
| | | | | | | | | | | | | | | | | |
| Year Ended June 30, |
| 2022 | | 2021 | | 2020 |
Net income | $ | 35,653 | | | $ | 15,675 | | | $ | 22,783 | |
Other comprehensive income (loss) | | | | | |
Unrealized holding gains (losses) on debt securities available for sale | | | | | |
Gains (losses) arising during the period | (5,087) | | | (653) | | | 1,667 | |
Deferred income tax benefit (expense) | 1,170 | | | 150 | | | (383) | |
| | | | | |
| | | | | |
Total other comprehensive income (loss) | (3,917) | | | (503) | | | 1,284 | |
Comprehensive income | $ | 31,736 | | | $ | 15,172 | | | $ | 24,067 | |
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 |
| Shares | | Amount | | | | | |
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) | |
| | | | | | | | | | | | | |
Common stock repurchased | (1,114,094) | | | (12) | | | (24,472) | | | — | | | — | | | — | | | (24,484) | |
Forfeited restricted stock | (3,400) | | | — | | | — | | | — | | | — | | | — | | | — | |
Retired stock | (8,474) | | | — | | | (222) | | | — | | | — | | | — | | | (222) | |
Granted restricted stock | 56,306 | | | — | | | — | | | — | | | — | | | — | | | — | |
Exercised stock options | 106,914 | | | 2 | | | 1,539 | | | — | | | — | | | — | | | 1,541 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Share-based compensation expense | — | | | — | | | 1,822 | | | — | | | — | | | — | | | 1,822 | |
ESOP compensation expense | — | | | — | | | 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 | |
Net income | — | | | — | | | — | | | 15,675 | | | — | | | — | | | 15,675 | |
Cumulative-effect adjustment on the change in accounting for share-based payments | — | | | — | | | — | | | (13,358) | | | — | | | — | | | (13,358) | |
Cash dividends declared on common stock, $0.31/common share | — | | | — | | | — | | | (5,018) | | | — | | | — | | | (5,018) | |
Common stock repurchased | (733,347) | | | (8) | | | (16,147) | | | — | | | — | | | — | | | (16,155) | |
Forfeited restricted stock | (6,575) | | | — | | | — | | | — | | | — | | | — | | | — | |
Retired stock | (9,106) | | | — | | | (204) | | | — | | | — | | | — | | | (204) | |
Granted restricted stock | 45,260 | | | — | | | — | | | — | | | — | | | — | | | — | |
Exercised stock options | 318,894 | | | 5 | | | 4,587 | | | — | | | — | | | — | | | 4,592 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Share-based compensation expense | — | | | — | | | 2,102 | | | — | | | — | | | — | | | 2,102 | |
ESOP compensation expense | — | | | — | | | 596 | | | — | | | 529 | | | — | | | 1,125 | |
Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | (503) | | | (503) | |
Balance at June 30, 2021 | 16,636,483 | | | $ | 167 | | | $ | 160,582 | | | $ | 240,075 | | | $ | (5,819) | | | $ | 1,514 | | | $ | 396,519 | |
Net income | — | | | — | | | — | | | 35,653 | | | — | | | — | | | 35,653 | |
Cash dividends declared on common stock, $0.35/common share | — | | | — | | | — | | | (5,452) | | | — | | | — | | | (5,452) | |
| | | | | | | | | | | | | |
Common stock repurchased | (1,482,959) | | | (15) | | | (43,333) | | | — | | | — | | | — | | | (43,348) | |
Forfeited restricted stock | (13,600) | | | — | | | — | | | — | | | — | | | — | | | — | |
Retired stock | (11,335) | | | — | | | (345) | | | — | | | — | | | — | | | (345) | |
Granted restricted stock | 42,123 | | | — | | | — | | | — | | | — | | | — | | | — | |
Stock issued for RSUs | 7,118 | | | — | | | — | | | — | | | — | | | — | | | — | |
Exercised stock options | 413,636 | | | 4 | | | 6,077 | | | — | | | — | | | — | | | 6,081 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Share-based compensation expense | — | | | — | | | 2,152 | | | — | | | — | | | — | | | 2,152 | |
ESOP compensation expense | — | | | — | | | 973 | | | — | | | 529 | | | — | | | 1,502 | |
Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | (3,917) | | | (3,917) | |
Balance at June 30, 2022 | 15,591,466 | | | $ | 156 | | | $ | 126,106 | | | $ | 270,276 | | | $ | (5,290) | | | $ | (2,403) | | | $ | 388,845 | |
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)
| | | | | | | | | | | | | | | | | |
| | | | | |
| Year Ended June 30, |
| 2022 | | 2021 | | 2020 |
Operating activities | | | | | |
Net income | $ | 35,653 | | | $ | 15,675 | | | $ | 22,783 | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | | | |
Provision (benefit) for credit losses | (592) | | | (7,135) | | | 8,500 | |
Depreciation and amortization | 9,348 | | | 9,499 | | | 5,856 | |
Deferred income tax expense | 6,584 | | | 3,573 | | | 5,196 | |
Net accretion of purchase accounting adjustments on loans | (1,628) | | | (2,088) | | | (1,517) | |
Net amortization and accretion | 2,450 | | | 2,717 | | | (1,078) | |
Prepayment penalties paid on borrowings | — | | | 22,690 | | | — | |
Impairment on assets held for sale | 87 | | | 1,311 | | | — | |
| | | | | |
Loss (gain) on sale of REO | 7 | | | (65) | | | 536 | |
BOLI income | (2,000) | | | (2,156) | | | (2,246) | |
Gain on sale of securities available for sale | (1,895) | | | — | | | — | |
Gain on sale of loans held for sale | (12,876) | | | (17,352) | | | (9,946) | |
Origination of loans held for sale | (465,263) | | | (622,400) | | | (376,455) | |
Proceeds from sales of loans held for sale | 463,603 | | | 600,784 | | | 313,967 | |
| | | | | |
| | | | | |
| | | | | |
New deferred loan origination (costs) fees, net | (316) | | | 1,698 | | | 161 | |
Increase in accrued interest receivable and other assets | (3,592) | | | (799) | | | (4,584) | |
| | | | | |
ESOP compensation expense | 1,502 | | | 1,125 | | | 1,195 | |
Share-based compensation expense | 2,152 | | | 2,102 | | | 1,822 | |
Increase (decrease) in other liabilities | 1,577 | | | 1,507 | | | (3,280) | |
Net cash provided by (used in) operating activities | 34,801 | | | 10,686 | | | (39,090) | |
Investing activities | | | | | |
Purchase of debt securities available for sale | (41,649) | | | (107,988) | | | (77,228) | |
Proceeds from maturities, calls and paydowns of debt securities available for sale | 65,399 | | | 76,663 | | | 72,406 | |
Proceeds from sale of debt securities available for sale | 1,895 | | | — | | | — | |
Purchases of commercial paper | (558,482) | | | (715,635) | | | (1,528,262) | |
Proceeds from maturities and calls of commercial paper | 555,472 | | | 831,862 | | | 1,470,727 | |
Purchase of CDs in other banks | (1,244) | | | (7,321) | | | (32,949) | |
Proceeds from maturities of CDs in other banks | 17,815 | | | 22,888 | | | 29,265 | |
| | | | | |
Net redemptions of FHLB and FRB stock | 4,213 | | | 17,138 | | | 8,627 | |
Net purchases of SBIC investments, at cost | (2,587) | | | (1,902) | | | (2,195) | |
Proceeds from sale of loans not originated for sale | — | | | — | | | 154,870 | |
Net (increase) decrease in loans | (6,462) | | | 56,296 | | | (208,663) | |
Purchase of BOLI | (173) | | | (72) | | | (164) | |
Proceeds from redemption of BOLI | — | | | 1,307 | | | 477 | |
Purchase of equipment for operating leases | (2,901) | | | (11,879) | | | (14,510) | |
Payoff of equipment for operating leases | 5,981 | | | 2,647 | | | 517 | |
Purchase of premises and equipment | (6,608) | | | (16,081) | | | (2,925) | |
Proceeds from sale of premises and equipment | 2,322 | | | — | | | — | |
Proceeds from sale of REO | 181 | | | 449 | | | 2,102 | |
| | | | | |
| | | | | |
| | | | | |
Net cash provided by (used in) investing activities | 33,172 | | | 148,372 | | | (127,905) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows (continued)
(Dollars in thousands)
| | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Year Ended June 30, |
| 2022 | | 2021 | | 2020 |
Financing activities | | | | | |
Net increase in deposits | 144,220 | | | 169,785 | | | 450,291 | |
Net increase (decrease) in short-term borrowings | (115,000) | | | 115,000 | | | (380,000) | |
Proceeds from long-term borrowings | 60,000 | | | — | | | 175,000 | |
Repayment of long-term borrowings | (60,000) | | | (497,690) | | | — | |
| | | | | |
| | | | | |
Common stock repurchased | (43,348) | | | (16,155) | | | (24,484) | |
Cash dividends paid | (5,452) | | | (5,018) | | | (4,552) | |
Retired stock | (345) | | | (204) | | | (222) | |
Exercised stock options | 6,081 | | | 4,592 | | | 1,541 | |
| | | | | |
Net cash provided by (used in) financing activities | (13,844) | | | (229,690) | | | 217,574 | |
Net increase (decrease) in cash and cash equivalents | 54,129 | | | (70,632) | | | 50,579 | |
Cash and cash equivalents at beginning of period | 50,990 | | | 121,622 | | | 71,043 | |
Cash and cash equivalents at end of period | $ | 105,119 | | | $ | 50,990 | | | $ | 121,622 | |
| | | | | | | | | | | | | | | | | |
| Year Ended June 30, |
| 2022 | | 2021 | | 2020 |
Supplemental disclosures | | | | | |
Cash paid during the period for: | | | | | |
Interest | $ | 5,312 | | | $ | 16,446 | | | $ | 33,315 | |
Income taxes | 684 | | | 532 | | | 1,686 | |
Noncash transactions: | | | | | |
Unrealized gain (loss) in value of debt securities available for sale, net of income taxes | (3,917) | | | (503) | | | 1,284 | |
Transfers of loans to REO | — | | | 235 | | | 46 | |
| | | | | |
Transfers of loans held for sale to loans held for investment | 43,083 | | | 23,106 | | | 98,288 | |
Transfers of loans held for investment to loans held for sale | 12,825 | | | — | | | 240,453 | |
ROU asset and lease liabilities for operating lease accounting | 1,186 | | | 2,586 | | | 5,296 | |
Transfer of land from premises and equipment to other assets due to the adoption of ASU 2016-02 | — | | | — | | | 2,052 | |
ACL due to the adoption of ASU 2016-13 | — | | | 17,347 | | | — | |
Transfer of premises and equipment to assets held for sale (included in other assets) | 3,229 | | | — | | | — | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
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
Nature of Operations
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, Knoxville, and Morristown) and Southwest Virginia (the Roanoke Valley). During the quarter ended September 30, 2021, we closed nine branches located in North Carolina, Tennessee, and Virginia. The Bank operates under a single set of corporate policies and procedures and is recognized as a single banking segment for financial reporting purposes.
Principles of Consolidation and Subsidiary Activities
The accompanying consolidated financial statements include the accounts of HomeTrust, the Bank, and its wholly-owned subsidiary, WNCSC, at or for the years ended June 30, 2022, 2021, and 2020. WNCSC owns office buildings in Asheville, North Carolina that are leased to the Bank. All intercompany items have been eliminated.
Reclassifications
To maintain consistency and comparability, certain amounts from prior periods have been reclassified to conform to current period presentation with no effect on net income or stockholders’ equity as previously reported.
Subsequent Events
The Company has evaluated subsequent events for recognition and disclosure through September 12, 2022, which is the date the financial statements were available to be issued.
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 Flows
Cash and cash equivalents include cash and interest-bearing deposits with initial terms to maturity of 90 days or less. Net cash flows are reported for customer loan and deposit transactions, FHLB and FRB stock, SBIC investments at cost, and short-term borrowings.
Commercial Paper
Commercial paper includes highly liquid short-term debt of investment graded corporations with maturities less than one year. These instruments are typically purchased at a discount based on prevailing interest rates and do not exceed $15,000 per issuer.
Debt Securities
Debt 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 (loss), 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.
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 the trade date using the specific identification method.
ACL – Available for Sale Securities
For available for sale debt securities in an unrealized loss position, the Company evaluates the securities to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or noncredit-related factors. Any impairment that is not credit related is recognized in other comprehensive income, net of applicable taxes. Credit-related impairment is recognized as an ACL on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings. Both the ACL and the adjustment to net income may be reversed if conditions change. However, if the Company intends to sell an impaired available for sale debt security, or more likely than not will be required to sell such a security before recovering its amortized cost basis, the entire impairment amount must be recognized in earnings with a corresponding adjustment to the security’s amortized cost basis. Because the security’s amortized cost basis is adjusted to fair value, there is no ACL in such a situation.
In evaluating available for sale debt securities in unrealized loss positions for impairment and the criteria regarding its intent or requirement to sell such securities, the Company considers the extent to which fair value is less than amortized cost, whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuers’ financial condition, among other factors.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Changes in the ACL are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the ACL when management believes the uncollectability of an available for sale debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met.
Accrued interest receivable is excluded from the estimate of credit losses.
ACL – Held to Maturity Securities
The ACL on held to maturity securities is estimated on a collective basis by major security type. Expected credit losses are estimated using a discounted cash flow methodology which considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.
Accrued interest receivable is excluded from the estimate of credit losses.
FHLB and FRB Stock
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, or cost, approximates their fair value based on the redemption provisions of the FHLB of Atlanta and the FRB, respectively. Both cash and stock dividends are reported as income.
SBIC Investments, At Cost
SBIC investments are equity securities without a readily determinable fair value and are recorded at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment. Adjustments to the cost basis occur as a result of capital contributions, distributions or changes in the value of the Company's equity position. The Company's share of earnings is included in interest and dividend income with a one-quarter lag period.
Loans Held for Sale
Residential mortgages held for sale are carried at the lower of cost or fair value as determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings.
The Company originates loans guaranteed by the 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 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. A gain is recorded for any premium received in excess of the carrying value of the net assets transferred in the sale and is included in noninterest income. The portion of SBA loans that are retained are adjusted to fair value and reclassified to total loans, net of deferred costs (loans held for investment). The net value of the retained loans is included in the appropriate loan classification for disclosure purposes.
HELOCs held for sale are originated through a third party in various states outside the Company's geographic footprint, but are underwritten to the Company's underwriting guidelines. The loans are generally held for sale by the Company over a 90 to 180 day period and 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 in noninterest income.
Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are carried at their outstanding principal amount, less unearned income and deferred nonrefundable loan fees, net of certain origination costs. The Company has made a policy election to exclude accrued interest from the amortized cost basis of loans and report accrued interest separately from the related loan balance on the consolidated balance sheets. 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.
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.
ACL – Loans and Leases
The Company adopted the CECL model under ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” on July 1, 2020 using the modified retrospective approach. Results for the periods beginning after July 1, 2020 are presented under ASU 2016-13 while prior period amounts are reported in accordance with the incurred loss model previously applicable US GAAP.
The ACL reflects management’s estimate of losses that will result from the inability of its borrowers to make required loan payments. Expected credit losses are reflected in the ACL through a provision for credit losses. Management records loans charged off against the ACL
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
and subsequent recoveries, if any, increase the ACL when they are recognized. Management uses a systematic methodology to determine its ACL for loans held for investment and certain off-balance sheet credit exposures. The ACL is a valuation account that is deducted from the amortized costs basis to present the net amount expected to be collected on the loan portfolio. Management considers the effects of past events, current conditions, and reasonable and supportable forecasts on the collectability of the loan portfolio.
The Company has identified the following loan pools with similar risk characteristics for measuring expected credit losses:
Commercial real estate – This category of loans consists of the following loan types:
Construction and land development – These loans finance the ground up construction, improvement, carrying for sale, and loans secured by raw or improved land. The repayment of construction loans is generally dependent upon the successful completion of the improvements by the builder for the end user, or sale of the property to a third-party.
Commercial real estate – owner and non-owner occupied – These loans include real estate loans for a variety of commercial property types and purposes, including those secured by commercial office or industrial buildings, warehouses, retail buildings, and various special purpose properties.
Multifamily – These are investment real estate loans, primarily secured by non-owner occupied apartment or multifamily residential buildings. Generally, these types of loans are thought to involve a greater degree of credit risk than owner occupied commercial real estate as they are more sensitive to adverse economic conditions.
Commercial – This category of loans consists of the following loan types:
Commercial and industrial – These loans are for commercial, corporate, and business purposes across a variety of industries. These loans include general commercial and industrial loans, loans to purchase capital equipment, and other business loans for working capital and operational purposes. These loans are generally secured by accounts receivable, inventory, and other business assets.
Equipment finance – These loans are primarily made up of commercial finance agreements and commercial leases provided by our Equipment Finance line of business, primarily for transportation, construction, healthcare, and manufacturing equipment. These loans have average terms of five years or less and are secured by the financed equipment.
Municipal leases – These loans are primarily made to fire departments and depend on the tax revenues received from the applicable county or municipality. These leases are mainly secured by vehicles, fire stations, land, or equipment.
PPP loans – With the passage of the PPP, the Company actively participated in assisting its customers with applications for loans through the program. Loans funded through the PPP program are fully guaranteed by the U.S. government subject to certain representations and warranties. This guarantee exists at the inception of the loans and throughout the lives of the loans and was not entered into separately and apart from the loans. ASC 326 requires credit enhancements that mitigate credit losses, such as the U.S. government guarantee on PPP loans, to be considered in estimating credit losses. The guarantee is considered “embedded” and, therefore, is considered when estimating credit loss on the PPP loans. Given that the loans are fully guaranteed by the U.S. government and absent any specific loss information on any of our PPP loans, the Company did not carry an ACL on its PPP loans at June 30, 2022 and 2021.
Residential real estate – This category of loans consists of the following loan types:
Construction and land development – These loans are to individuals and are typically secured by a one-to-four family residential property under construction or undeveloped or partially developed land in anticipation of the construction of a personal residence.
One-to-four family – These loans are to individuals and are typically secured by one-to-four family residential property.
HELOCs – These loans include both loans originated by the Company and those purchased from a third party and are often secured by second liens on residential real estate.
Consumer – Consumer loans include loans secured by deposit accounts or personal property such as automobiles, boats, and motorcycles, as well as unsecured consumer debt.
For collectively evaluated loans, the Company uses a DCF method for each loan in a pool, and the results are aggregated at the pool level. A periodic tendency to default and absolute loss given default are applied to a projective model of the pool’s cash flows while considering prepayment and principal curtailment effects. The analysis produces expected cash flows for each instrument in the pool by pairing loan-level term information (maturity date, payment amount, interest rate, etc.) with top-down pool assumptions (default rates and prepayment speeds).
Management has determined that peer loss experience provides the best basis for its assessment of expected credit losses to determine the ACL. The Company utilized peer call report data to measure historical credit loss experience with similar risk characteristics within the segments over an economic cycle. Management reviewed the historical loss information to appropriately adjust for differences in current asset specific risk characteristics. Management also considered further adjustments to historical loss information for current conditions and reasonable and supportable forecasts that differ from the conditions that existed for the period over which historical information was evaluated. For all segment models for collectively evaluated loans (except for HELOCs), the Company incorporated one macroeconomic driver, the national unemployment rate, using a statistical regression modeling methodology. The HELOC segment incorporated two macroeconomic drivers, the national unemployment rate and one-year percentage change in the national home price index. Due to the low loss rates of municipal leases and the expectation of them remaining low, management has elected to separately pool these loans. Management has elected to use readily available municipal default rates and loss given defaults in order to calculate expected credit losses.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Management considers forward-looking information in estimating expected credit losses. The Company uses the Fannie Mae quarterly economic forecast which is a baseline outlook for the United States economy. For the contractual term that extends beyond the reasonable and supportable forecast period, the Company reverts to historical loss information within four quarters using a straight-line approach. Management may apply different reversion techniques depending on the economic environment for the financial asset portfolio and as of the current period has utilized a linear reversion technique.
Included in its systematic methodology to determine its ACL for loans held for investment and certain off-balance sheet credit exposures, management considers the need to qualitatively adjust expected credit losses for risks not already captured in the loss estimation process. These qualitative adjustments can either increase or decrease the quantitative model estimation (i.e. formulaic model results). Each period the Company considers qualitative factors that are relevant within the qualitative framework consistent with the regulatory interagency policy statement on the ACL.
When a loan no longer shares similar risk characteristics with its segment, the asset is assessed to determine whether it should be included in another pool or should be individually evaluated, which includes consideration of the materiality of the loan. Generally, individually evaluated loans other than TDRs are on nonaccrual status. The expected credit losses on individually evaluated loans will be estimated based on a DCF analysis unless the loan meets the criteria for use of the fair value of collateral, either by virtue of an expected foreclosure or through meeting the definition of collateral dependent. Financial assets that have been individually evaluated can be returned to a pool for purposes of estimating the expected credit loss insofar as their credit profile improves and that the repayment terms are not considered to be unique to the asset.
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 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 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.
Management measures expected credit losses over the contractual term of the loans. When determining the contractual term, the Company considers expected prepayments but is precluded from considering expected extensions, renewals, or modifications, unless the Company reasonably expects it will execute a TDR with a borrower. In the event of a reasonably-expected TDR, the Company factors the reasonably-expected TDR into the current expected credit losses estimate. The effects of a TDR are recorded when an individual asset is specifically identified as a reasonably-expected TDR. The Company identifies the point at which it offers the modification to the borrower as the point at which the TDR is reasonably expected. The Company uses a DCF methodology to calculate the effect of the concession provided to the borrower within the ACL.
Acquired Loans
Acquired loans are recorded at fair value at the date of acquisition based on a discounted cash flow methodology that considers various factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan and whether or not the loan was amortizing, and a discount rate reflecting the Company’s assessment of risk inherent in the cash flow estimates. Certain larger purchased loans are individually evaluated while certain purchased loans are grouped together according to similar risk characteristics and are treated in the aggregate when applying various valuation techniques. These cash flow evaluations are inherently subjective as they require material estimates, all of which may be susceptible to significant change.
Prior to July 1, 2020, loans acquired in a business combination that had evidence of deterioration of credit quality since origination and for which it was probable, at acquisition, that the Company would be unable to collect all contractually required payments receivable were considered PCI loans. PCI loans were individually evaluated and recorded at fair value at the date of acquisition with no initial valuation allowance based on a discounted cash flow methodology that considered various factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan and whether or not the loan was amortizing, and a discount rate reflecting the Company’s assessment of risk inherent in the cash flow estimates. The difference between the undiscounted cash flows expected at acquisition and the investment in the loan, or the “accretable yield,” was recognized as interest income on a level-yield method over the life of the loan. Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition, or the “nonaccretable difference,” were not recognized on the balance sheet and did not result in any yield adjustments, loss accruals or valuation allowances. Increases in expected cash flows, including prepayments, subsequent to the initial investment were recognized prospectively through adjustment of the yield on the loan over its remaining life. Decreases in expected cash flows were recognized as impairment. Valuation allowances on PCI loans reflected only losses incurred after the acquisition (meaning the present value of all cash flows expected at acquisition that ultimately were not to be received).
Subsequent to July 1, 2020, loans acquired in a business combination that have experienced more-than-insignificant deterioration in credit quality since origination are considered PCD loans. At the acquisition date, an estimate of expected credit losses is made for groups of PCD loans with similar risk characteristics and individual PCD loans without similar risk characteristics. This initial ACL is allocated to individual PCD loans and added to the purchase price or acquisition date fair values to establish the initial amortized cost basis of the PCD loans. As the initial ACL is added to the purchase price, there is no credit loss expense recognized upon acquisition of a PCD loan. Any difference between the unpaid principal balance of PCD loans and the amortized cost basis is considered to relate to noncredit factors and results in a discount or premium. Discounts and premiums are recognized through interest income on a level-yield method over the life of the loans. All loans considered to be PCI prior to July 1, 2020 were converted to PCD on that date.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
For acquired loans not deemed purchased credit deteriorated at acquisition, the differences between the initial fair value and the unpaid principal balance are recognized as interest income on a level-yield basis over the lives of the related loans. At the acquisition date, an initial ACL is estimated and recorded as credit loss expense.
The subsequent measurement of expected credit losses for all acquired loans is the same as the subsequent measurement of expected credit losses for originated loans.
Loan Commitments and ACL on Off-Balance Sheet Credit Exposures
Financial instruments include off-balance sheet credit instruments, such as undisbursed portions of construction loans, commitments to originate loans, unused lines of credit, and standby letters of credit. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded.
The Company records an ACL on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancelable, through a provision for credit losses charged against earnings. The ACL on these exposures is estimated by loan segment at each balance sheet date under the CECL model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur, and is included in other liabilities on the Company’s consolidated balance sheets.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed using 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.
Real Estate Owned
Foreclosed assets are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. Physical possession of real property collateralizing a loan occurs when legal title is obtained upon completion of foreclosure or when the borrower conveys all interest in the property to satisfy the loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. If the fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Operating costs after acquisition are expensed.
Bank Owned Life Insurance
The Company has purchased life insurance policies on certain key executives. BOLI is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.
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.
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.
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 as a basis for determining the need to perform the test for goodwill impairment (the qualitative method). If the qualitative method cannot be used or if the Company determines, based on the qualitative method, that the fair value is more likely than not less than the carrying amount, the Company compares the estimated fair value of a reporting unit with its carrying amount, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired. If the carrying amount of a reporting unit exceeds its estimated fair value, the Company will record an impairment charge based on that difference. Our annual goodwill impairment test did not identify any impairment for the years ended June 30, 2022 and 2021.
Core Deposit Intangibles
Core deposit intangibles represent 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 10 years. The estimated useful lives are periodically reviewed for reasonableness.
Servicing Rights
When loans are sold with servicing retained, servicing rights are initially recorded at fair value with the income statement effect recorded in gains on sales of loans. Fair value is based on market prices for comparable mortgage servicing contracts, when available or alternatively, is
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
based on a valuation model that calculates the present value of estimated future net servicing income. All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans.
Servicing rights are evaluated for impairment based upon the fair value of the rights as compared to carrying amount. Impairment is determined by stratifying rights into groupings based on predominant risk characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance for an individual grouping, to the extent that fair value is less than the carrying amount. If the Company later determines that all or a portion of the impairment no longer exists for a particular grouping, a reduction of the allowance may be recorded as an increase to income. Changes in valuation allowances are reported within loan income and fees on the income statement. The fair values of servicing rights are subject to significant fluctuations as a result of changes in estimated and actual prepayment speeds and default rates and losses.
Servicing fee income, which is reported on the income statement as loan income and fees, is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned. The amortization of servicing rights is netted against loan servicing fee income. Late fees and ancillary fees related to loan servicing are not material.
Revenue from Contracts with Customers
The Company records revenue from contracts with customers in accordance with ASC Topic 606, “Revenue from Contracts with Customers”. Under Topic 606, the Company must identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) the Company satisfies a performance obligation. Significant revenue has not been recognized in the current reporting period that results from performance obligations satisfied in previous periods.
The Company’s primary sources of revenue are derived from interest and dividends earned on loans, investment securities, and other financial instruments that are not within the scope of Topic 606. The Company has evaluated the nature of its contracts with customers and determined that further disaggregation of revenue from contracts with customers into more granular categories beyond what is presented in the Consolidated Statements of Income was not necessary. The Company generally fully satisfies its performance obligations on its contracts with customers as services are rendered and the transaction prices are typically fixed, charged either on a periodic basis or based on activity. Since performance obligations are satisfied as services are rendered and the transaction prices are fixed, the Company has made no significant judgments in applying the revenue guidance prescribed in ASC 606 that affect the determination of the amount and timing of revenue from contracts with customers.
Stock-Based Compensation
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 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 debt securities available for sale and is presented in the Consolidated Statements of Comprehensive Income.
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 11 – Income Taxes" 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, 2022 and 2021, there were no accruals for uncertain tax positions. As of June 30, 2022, $28,000 was accrued for interest and penalties. No such accrual was in place as of June 30, 2021.
Derivative Instruments and Hedging
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.
Net Income per Share
Basic EPS is 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 EPS reflects the potential dilution from the issuance of additional shares of common
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
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 EPS pursuant to the two-class method. The two-class method is an earnings allocation formula that determines EPS 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 EPS 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 15 – Net Income per Share" for further discussion on the Company’s EPS.
2. Recent Accounting Pronouncements
Adoption of New Accounting Standards
In June 2016, the FASB issued ASU 2016-13 which makes significant changes to the ACL on financial instruments presented on an amortized cost basis and disclosures about them. The CECL impairment model requires an estimate of expected credit losses, measured over the contractual life of an instrument, which considers reasonable and supportable forecasts of future economic conditions in addition to information about past events and current conditions. The standard provides significant flexibility and requires a high degree of judgment with regards to pooling financial assets with similar risk characteristics and adjusting the relevant historical loss information in order to develop an estimate of expected lifetime losses. ASU 2016-13 permits the use of estimation techniques that are practical and relevant to the Company’s circumstances, as long as they are applied consistently over time and faithfully estimate expected credit losses in accordance with the standard. The ASU lists several common credit loss methods that are acceptable such as a DCF method, loss-rate method and roll-rate method. In addition, ASU 2016-13 amends the ACL on debt securities and purchased financial assets with credit deterioration.
The Company adopted ASU 2016-13 on July 1, 2020 using the modified retrospective approach. Results for the periods beginning after July 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable US GAAP. The Company recorded a net reduction of retained earnings of $13,358 upon adoption. The transition adjustment included an increase in the ACL on loans of $14,809, an increase in the ACL on off-balance sheet credit exposures of $2,288, and the establishment of an ACL on commercial paper of $250, net of the corresponding increases in deferred tax assets of $3,989. The adoption of this ASU did not have an effect on AFS debt securities.
The Company adopted ASU 2016-13 using the prospective transition approach for PCD financial assets that were previously classified as PCI and accounted for under ASC 310-30. In accordance with the standard, the Company did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. The remaining discount on the PCD assets was determined to be related to noncredit factors and will be accreted into interest income on a level-yield method over the life of the loans.
Newly Issued but Not Yet Effective Accounting Standards
ASU 2021-05, "Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments." This ASU amends the lease classification requirements for lessors to classify as an operating lease any lease that would otherwise be classified as a sales-type or direct financing lease that would result in the recognition of a day-one loss at lease commencement, provided that the lease includes variable lease payments that do not depend on an index or rate. When a lease is classified as operating, the lessor does not recognize a net investment in the lease, does not derecognize the underlying asset and therefore, does not recognize a selling profit or loss. The amendments in this ASU are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years and early adoption is permitted. The adoption of ASU 2021-05 is not expected to have a material impact on the financial statements.
ASU 2022-02, "Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures." This ASU eliminates the TDR recognition and measurement guidance and requires that an entity evaluate whether the modification represents a new loan or a continuation of an existing loan. The amendment also adjusts the disclosures related to modifications and requires entities to disclose current-period gross write-offs by year of origination within the existing vintage disclosures. The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years and early adoption is permitted. The Company is currently evaluating the impact of adopting the new guidance on the consolidated financial statements.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
3. Debt Securities
Debt securities available for sale consist of the following at the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
U.S. government agencies | $ | 18,993 | | | $ | 5 | | | $ | (539) | | | $ | 18,459 | |
MBS, residential | 48,377 | | | 3 | | | (1,147) | | | 47,233 | |
Municipal bonds | 5,545 | | | 31 | | | (18) | | | 5,558 | |
Corporate bonds | 57,184 | | | 1 | | | (1,457) | | | 55,728 | |
| | | | | | | |
Total | $ | 130,099 | | | $ | 40 | | | $ | (3,161) | | | $ | 126,978 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
U.S. government agencies | $ | 18,975 | | | $ | 135 | | | $ | (37) | | | $ | 19,073 | |
MBS, residential | 42,119 | | | 1,339 | | | (54) | | | 43,404 | |
Municipal bonds | 9,098 | | | 453 | | | — | | | 9,551 | |
Corporate bonds | 84,301 | | | 257 | | | (127) | | | 84,431 | |
| | | | | | | |
Total | $ | 154,493 | | | $ | 2,184 | | | $ | (218) | | | $ | 156,459 | |
Debt securities available for sale by contractual maturity at June 30, 2022 and 2021 are shown below. MBS 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, 2022 |
| Amortized Cost | | Estimated Fair Value |
Due within one year | $ | 35,350 | | | $ | 34,956 | |
Due after one year through five years | 40,325 | | | 39,018 | |
Due after five years through ten years | 6,047 | | | 5,771 | |
Due after ten years | — | | | — | |
MBS, residential | 48,377 | | | 47,233 | |
Total | $ | 130,099 | | | $ | 126,978 | |
| | | | | | | | | | | |
| June 30, 2021 |
| Amortized Cost | | Estimated Fair Value |
Due within one year | $ | 34,615 | | | $ | 34,684 | |
Due after one year through five years | 73,249 | | | 73,633 | |
Due after five years through ten years | 4,510 | | | 4,738 | |
Due after ten years | — | | | — | |
MBS, residential | 42,119 | | | 43,404 | |
Total | $ | 154,493 | | | $ | 156,459 | |
During the year ended June 30, 2022, the Company received proceeds of $1,895 from the sale of seven trust preferred securities, recognizing gross gains of $1,895. These securities had previously been written down to zero through purchase accounting adjustments from a merger in a prior period and continued to be carried at this amount as there was no active market, therefore the full amount of the proceeds received were recognized as a gain. The Company had no sales of debt securities available for sale and no gross realized gains or losses were recognized during the years ended June 30, 2021 and 2020.
Debt securities available for sale with amortized costs totaling $43,187 and $52,603 and market values of $41,876 and $53,897 at June 30, 2022 and June 30, 2021, respectively, were pledged as collateral to secure various public deposits and other borrowings.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The gross unrealized losses and the fair value for debt 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, 2022 and June 30, 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 |
| 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 | $ | 14,461 | | | $ | (539) | | | $ | — | | | $ | — | | | $ | 14,461 | | | $ | (539) | |
MBS, residential | 41,658 | | | (994) | | | 5,269 | | | (153) | | | 46,927 | | | (1,147) | |
Municipal Bonds | 1,970 | | | (18) | | | — | | | — | | | 1,970 | | | (18) | |
Corporate bonds | 39,454 | | | (730) | | | 14,273 | | | (727) | | | 53,727 | | | (1,457) | |
Total | $ | 97,543 | | | $ | (2,281) | | | $ | 19,542 | | | $ | (880) | | | $ | 117,085 | | | $ | (3,161) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 |
| 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 | $ | 14,963 | | | $ | (37) | | | $ | — | | | $ | — | | | $ | 14,963 | | | $ | (37) | |
MBS, residential | 5,212 | | | (28) | | | 1,205 | | | (26) | | | 6,417 | | | (54) | |
| | | | | | | | | | | |
Corporate bonds | 19,873 | | | (127) | | | — | | | — | | | 19,873 | | | (127) | |
Total | $ | 40,048 | | | $ | (192) | | | $ | 1,205 | | | $ | (26) | | | $ | 41,253 | | | $ | (218) | |
The total number of securities with unrealized losses at June 30, 2022 and June 30, 2021 were 177 and 28, respectively.
Management evaluates securities for impairment where there has been a decline in fair value below the amortized cost basis of a security to determine whether there is a credit loss associated with the decline in fair value on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. All debt securities available for sale in an unrealized loss position as of June 30, 2022 continue to perform as scheduled and management does not believe that there is a credit loss or that a provision for credit losses is necessary. Also, as part of management's evaluation of its intent and ability to hold investments for a period of time sufficient to allow for any anticipated recovery in the market, management considers its investment strategy, cash flow needs, liquidity position, capital adequacy and interest rate risk position. Management does not currently intend to sell the securities within the portfolio and it is not more-likely-than-not that securities will be required to be sold. See "Note 1 – Summary of Significant Account Policies" for further discussion.
Management continues to monitor all of its securities with a high degree of scrutiny. There can be no assurance that management will not conclude in future periods that conditions existing at that time indicate some or all of its securities may be sold or would require a charge to earnings as a provision for credit losses in such periods.
Management excludes the accrued interest receivable balance from the amortized cost basis in measuring expected credit losses on investment securities and does not record an allowance for credit losses on accrued interest receivable. As of June 30, 2022 and June 30, 2021, the accrued interest receivable for debt securities available for sale was $533 and $754, respectively.
4. Loans Held For Sale
Loans held for sale as of the dates indicated consist of the following:
| | | | | | | | | | | |
| June 30, |
| 2022 | | 2021 |
One-to-four family | $ | 4,176 | | | $ | 31,873 | |
SBA | 14,774 | | | 4,160 | |
HELOCs | 60,357 | | | 57,506 | |
Total | $ | 79,307 | | | $ | 93,539 | |
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
5. Loans and Allowance for Credit Losses on Loans
Loans consist of the following at the dates indicated:
| | | | | | | | | | | | | |
| June 30, | | |
| 2022 | | 2021 | | |
Commercial real estate loans | | | | | |
Construction and land development | $ | 291,202 | | | $ | 179,427 | | | |
Commercial real estate - owner occupied | 335,658 | | | 324,350 | | | |
Commercial real estate - non-owner occupied | 662,159 | | | 727,361 | | | |
Multifamily | 81,086 | | | 90,565 | | | |
Total commercial real estate loans | 1,370,105 | | | 1,321,703 | | | |
Commercial loans | | | | | |
Commercial and industrial | 192,652 | | | 141,341 | | | |
Equipment finance | 394,541 | | | 317,920 | | | |
Municipal leases | 129,766 | | | 140,421 | | | |
PPP loans | 661 | | | 46,650 | | | |
Total commercial loans | 717,620 | | | 646,332 | | | |
Residential real estate loans | | | | | |
Construction and land development | 81,847 | | | 66,027 | | | |
One-to-four family | 354,203 | | | 406,549 | | | |
HELOCs | 160,137 | | | 169,201 | | | |
Total residential real estate loans | 596,187 | | | 641,777 | | | |
Consumer loans | 85,383 | | | 123,455 | | | |
Total loans, net of deferred loan fees and costs | 2,769,295 | | | 2,733,267 | | | |
Allowance for credit losses on loans | (34,690) | | | (35,468) | | | |
Loans, net | $ | 2,734,605 | | | $ | 2,697,799 | | | |
(1) June 30, 2022 and 2021 accrued interest receivable of $7,969 and $7,339 was accounted for separately from the amortized cost basis.
All qualifying one-to-four family loans, HELOCs, commercial real estate loans, and FHLB of Atlanta stock are pledged as collateral by a blanket pledge to secure outstanding FHLB advances.
Loans are made to the Company's executive officers, directors and their associates during the ordinary course of business. The aggregate amount of loans to related parties totaled approximately $231 and $256 at June 30, 2022 and 2021, respectively. In relation to these loans are unfunded commitments that totaled approximately $14 and $11 at June 30, 2022 and 2021, respectively.
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 loan is not adversely classified because it does not display any of the characteristics for adverse classification.
Special Mention—A special mention loan 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 loans are not adversely classified and do not warrant adverse classification.
Substandard—A substandard loan is inadequately protected by the current net worth and paying capacity of the obligor, or of the collateral pledged, if any. Loans classified as substandard generally have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. These loans are characterized by the distinct possibility of loss if the deficiencies are not corrected.
Doubtful—A loan classified as doubtful has all the weaknesses inherent in a loan 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—Loans classified as loss are considered uncollectible and of such little value that their continuing to be carried as a loan 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.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The following table presents the credit risk profile by risk grade for commercial real estate, commercial, residential real estate, and consumer loans by origination year as of June 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Term Loans By Origination Fiscal Year | | | | |
June 30, 2022 | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Revolving | | Total |
Construction and land development | | | | | | | | | | | | | | | |
Risk rating | | | | | | | | | | | | | | | |
Pass | $ | 21,988 | | | $ | 5,686 | | | $ | 627 | | | $ | 2,089 | | | $ | 1,092 | | | $ | 5,819 | | | $ | 248,189 | | | $ | 285,490 | |
Special mention | — | | | — | | | — | | | — | | | — | | | 97 | | | 4,677 | | | 4,774 | |
Substandard | 871 | | | — | | | — | | | — | | | — | | | 67 | | | — | | | 938 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total construction and land development | 22,859 | | | 5,686 | | | 627 | | | 2,089 | | | 1,092 | | | 5,983 | | | 252,866 | | | 291,202 | |
Commercial real estate - owner occupied | | | | | | | | | | | | | | | |
Risk rating | | | | | | | | | | | | | | | |
Pass | 55,167 | | | 71,429 | | | 45,665 | | | 43,786 | | | 21,720 | | | 74,602 | | | 16,857 | | | 329,226 | |
Special mention | — | | | — | | | 396 | | | 418 | | | — | | | 2,416 | | | — | | | 3,230 | |
Substandard | — | | | — | | | — | | | — | | | 577 | | | 2,227 | | | 398 | | | 3,202 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total commercial real estate - owner occupied | 55,167 | | | 71,429 | | | 46,061 | | | 44,204 | | | 22,297 | | | 79,245 | | | 17,255 | | | 335,658 | |
Commercial real estate - non-owner occupied | | | | | | | | | | | | | | | |
Risk rating | | | | | | | | | | | | | | | |
Pass | 97,885 | | | 122,975 | | | 95,268 | | | 56,846 | | | 81,037 | | | 182,664 | | | 7,214 | | | 643,889 | |
Special mention | — | | | — | | | — | | | — | | | 13,844 | | | 4,421 | | | — | | | 18,265 | |
Substandard | — | | | — | | | — | | | — | | | — | | | 5 | | | — | | | 5 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total commercial real estate - non-owner occupied | 97,885 | | | 122,975 | | | 95,268 | | | 56,846 | | | 94,881 | | | 187,090 | | | 7,214 | | | 662,159 | |
Multifamily | | | | | | | | | | | | | | | |
Risk rating | | | | | | | | | | | | | | | |
Pass | 10,135 | | | 19,985 | | | 15,881 | | | 8,614 | | | 2,796 | | | 20,587 | | | 2,495 | | | 80,493 | |
Special mention | — | | | — | | | — | | | 29 | | | — | | | 217 | | | — | | | 246 | |
Substandard | — | | | — | | | — | | | — | | | — | | | 347 | | | — | | | 347 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total multifamily | 10,135 | | | 19,985 | | | 15,881 | | | 8,643 | | | 2,796 | | | 21,151 | | | 2,495 | | | 81,086 | |
Total commercial real estate | | | | | | | | | | | | | | | |
Risk rating | | | | | | | | | | | | | | | |
Pass | $ | 185,175 | | | $ | 220,075 | | — | | $ | 157,441 | | | $ | 111,335 | | | $ | 106,645 | | | $ | 283,672 | | | $ | 274,755 | | | $ | 1,339,098 | |
Special mention | — | | | — | | | 396 | | | 447 | | | 13,844 | | | 7,151 | | | 4,677 | | | 26,515 | |
Substandard | 871 | | | — | | | — | | | — | | | 577 | | | 2,646 | | | 398 | | | 4,492 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total commercial real estate | $ | 186,046 | | | $ | 220,075 | | | $ | 157,837 | | | $ | 111,782 | | | $ | 121,066 | | | $ | 293,469 | | | $ | 279,830 | | | $ | 1,370,105 | |
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Term Loans By Origination Fiscal Year | | | | |
June 30, 2022 | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Revolving | | Total |
Commercial and industrial | | | | | | | | | | | | | | | |
Risk rating | | | | | | | | | | | | | | | |
Pass | $ | 70,863 | | | $ | 21,059 | | | $ | 11,361 | | | $ | 9,377 | | | $ | 6,338 | | | $ | 20,856 | | | $ | 43,119 | | | $ | 182,973 | |
Special mention | — | | | 346 | | | 260 | | | 364 | | | — | | | — | | | 1,957 | | | 2,927 | |
Substandard | — | | | 770 | | | 343 | | | 1,152 | | | — | | | 52 | | | 4,337 | | | 6,654 | |
Doubtful | — | | | 98 | | | — | | | — | | | — | | | — | | | — | | | 98 | |
Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total commercial and industrial | 70,863 | | | 22,273 | | | 11,964 | | | 10,893 | | | 6,338 | | | 20,908 | | | 49,413 | | | 192,652 | |
Equipment finance | | | | | | | | | | | | | | | |
Risk rating | | | | | | | | | | | | | | | |
Pass | 186,139 | | | 113,363 | | | 64,400 | | | 26,467 | | | 1,755 | | | — | | | — | | | 392,124 | |
Special mention | 200 | | | 331 | | | 1,002 | | | 547 | | | — | | | — | | | — | | | 2,080 | |
Substandard | — | | | 123 | | | 18 | | | 159 | | | — | | | — | | | — | | | 300 | |
Doubtful | 32 | | | — | | | — | | | 5 | | | — | | | — | | | — | | | 37 | |
Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total equipment finance | 186,371 | | | 113,817 | | | 65,420 | | | 27,178 | | | 1,755 | | | — | | | — | | | 394,541 | |
Municipal leases | | | | | | | | | | | | | | | |
Risk rating | | | | | | | | | | | | | | | |
Pass | 19,425 | | | 24,480 | | | 8,962 | | | 11,034 | | | 13,584 | | | 39,529 | | | 12,715 | | | 129,729 | |
Special mention | — | | | 37 | | | — | | | — | | | — | | | — | | | — | | | 37 | |
Substandard | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total municipal leases | 19,425 | | | 24,517 | | | 8,962 | | | 11,034 | | | 13,584 | | | 39,529 | | | 12,715 | | | 129,766 | |
PPP loans | | | | | | | | | | | | | | | |
Risk rating | | | | | | | | | | | | | | | |
Pass | — | | | 375 | | | 286 | | | — | | | — | | | — | | | — | | | 661 | |
Special mention | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Substandard | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total PPP loans | — | | | 375 | | | 286 | | | — | | | — | | | — | | | — | | | 661 | |
Total commercial | | | | | | | | | | | | | | | |
Risk rating | | | | | | | | | | | | | | | |
Pass | $ | 276,427 | | | $ | 159,277 | | | $ | 85,009 | | | $ | 46,878 | | | $ | 21,677 | | | $ | 60,385 | | | $ | 55,834 | | | $ | 705,487 | |
Special mention | 200 | | | 714 | | | 1,262 | | | 911 | | | — | | | — | | | 1,957 | | | 5,044 | |
Substandard | — | | | 893 | | | 361 | | | 1,311 | | | — | | | 52 | | | 4,337 | | | 6,954 | |
Doubtful | 32 | | | 98 | | | — | | | 5 | | | — | | | — | | | — | | | 135 | |
Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total commercial | $ | 276,659 | | | $ | 160,982 | | | $ | 86,632 | | | $ | 49,105 | | | $ | 21,677 | | | $ | 60,437 | | | $ | 62,128 | | | $ | 717,620 | |
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Term Loans By Origination Fiscal Year | | | | |
June 30, 2022 | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Revolving | | Total |
Construction and land development | | | | | | | | | | | | | | | |
Risk rating | | | | | | | | | | | | | | | |
Pass | $ | 864 | | | $ | — | | | $ | 53 | | | $ | — | | | $ | — | | | $ | 1,783 | | | $ | 78,775 | | | $ | 81,475 | |
Special mention | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Substandard | — | | | — | | | — | | | — | | | — | | | 372 | | | — | | | 372 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total construction and land development | 864 | | | — | | | 53 | | | — | | | — | | | 2,155 | | | 78,775 | | | 81,847 | |
One-to-four family | | | | | | | | | | | | | | | |
Risk rating | | | | | | | | | | | | | | | |
Pass | 55,415 | | | 74,035 | | | 47,364 | | | 29,075 | | | 23,250 | | | 113,307 | | | 4,077 | | | 346,523 | |
Special mention | — | | | — | | | — | | | — | | | — | | | 835 | | | — | | | 835 | |
Substandard | 128 | | | — | | | 1,002 | | | 540 | | | 430 | | | 4,590 | | | — | | | 6,690 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | 155 | | | — | | | 155 | |
Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total one-to-four family | 55,543 | | | 74,035 | | | 48,366 | | | 29,615 | | | 23,680 | | | 118,887 | | | 4,077 | | | 354,203 | |
HELOCs | | | | | | | | | | | | | | | |
Risk rating | | | | | | | | | | | | | | | |
Pass | 1,466 | | | 458 | | | 282 | | | 901 | | | 107 | | | 7,441 | | | 148,526 | | | 159,181 | |
Special mention | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Substandard | — | | | — | | | — | | | — | | | — | | | 879 | | | 49 | | | 928 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | 28 | | | — | | | 28 | |
Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total HELOCs | 1,466 | | | 458 | | | 282 | | | 901 | | | 107 | | | 8,348 | | | 148,575 | | | 160,137 | |
Total residential real estate | | | | | | | | | | | | | | | |
Risk rating | | | | | | | | | | | | | | | |
Pass | $ | 57,745 | | | $ | 74,493 | | | $ | 47,699 | | | $ | 29,976 | | | $ | 23,357 | | | $ | 122,531 | | | $ | 231,378 | | | $ | 587,179 | |
Special mention | — | | | — | | | — | | | — | | | — | | | 835 | | | — | | | 835 | |
Substandard | 128 | | | — | | | 1,002 | | | 540 | | | 430 | | | 5,841 | | | 49 | | | 7,990 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | 183 | | | — | | | 183 | |
Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total residential real estate | $ | 57,873 | | | $ | 74,493 | | | $ | 48,701 | | | $ | 30,516 | | | $ | 23,787 | | | $ | 129,390 | | | $ | 231,427 | | | $ | 596,187 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Term Loans By Origination Fiscal Year | | | | |
June 30, 2022 | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Revolving | | Total |
Total consumer | | | | | | | | | | | | | | | |
Risk rating | | | | | | | | | | | | | | | |
Pass | $ | 25,935 | | | $ | 20,443 | | | $ | 15,849 | | | $ | 11,329 | | | $ | 8,235 | | | $ | 2,398 | | | $ | 277 | | | $ | 84,466 | |
Special mention | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Substandard | 72 | | | 169 | | | 274 | | | 85 | | | 182 | | | 100 | | | 33 | | | 915 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | — | | | — | | | — | | | 2 | | | — | | | — | | | — | | | 2 | |
Total consumer | $ | 26,007 | | | $ | 20,612 | | | $ | 16,123 | | | $ | 11,416 | | | $ | 8,417 | | | $ | 2,498 | | | $ | 310 | | | $ | 85,383 | |
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The following table presents the credit risk profile by risk grade for commercial real estate, commercial, residential real estate, and consumer loans by origination year as of June 30, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Term Loans By Origination Fiscal Year | | | | |
June 30, 2021 | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Revolving | | Total |
Construction and land development | | | | | | | | | | | | | | | |
Risk rating | | | | | | | | | | | | | | | |
Pass | $ | 18,262 | | | $ | 6,523 | | | $ | 10,349 | | | $ | 6,008 | | | $ | 2,693 | | | $ | 7,153 | | | $ | 123,843 | | | $ | 174,831 | |
Special mention | — | | | — | | | — | | | — | | | — | | | 286 | | | 3,827 | | | 4,113 | |
Substandard | — | | | — | | | — | | | — | | | — | | | 482 | | | — | | | 482 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | — | | | — | | | — | | | — | | | — | | | 1 | | | — | | | 1 | |
Total construction and land development | 18,262 | | | 6,523 | | | 10,349 | | | 6,008 | | | 2,693 | | | 7,922 | | | 127,670 | | | 179,427 | |
Commercial real estate - owner occupied | | | | | | | | | | | | | | | |
Risk rating | | | | | | | | | | | | | | | |
Pass | 73,353 | | | 51,983 | | | 57,189 | | | 25,837 | | | 40,780 | | | 57,188 | | | 11,248 | | | 317,578 | |
Special mention | — | | | — | | | — | | | — | | | 172 | | | 2,139 | | | — | | | 2,311 | |
Substandard | — | | | — | | | — | | | 630 | | | 1,572 | | | 1,861 | | | 398 | | | 4,461 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total commercial real estate - owner occupied | 73,353 | | | 51,983 | | | 57,189 | | | 26,467 | | | 42,524 | | | 61,188 | | | 11,646 | | | 324,350 | |
Commercial real estate - non-owner occupied | | | | | | | | | | | | | | | |
Risk rating | | | | | | | | | | | | | | | |
Pass | 130,682 | | | 107,874 | | | 74,430 | | | 127,418 | | | 112,857 | | | 140,111 | | | 13,498 | | | 706,870 | |
Special mention | — | | | — | | | — | | | 16,951 | | | 946 | | | 952 | | | — | | | 18,849 | |
Substandard | — | | | — | | | — | | | — | | | — | | | 1,642 | | | — | | | 1,642 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total commercial real estate - non-owner occupied | 130,682 | | | 107,874 | | | 74,430 | | | 144,369 | | | 113,803 | | | 142,705 | | | 13,498 | | | 727,361 | |
Multifamily | | | | | | | | | | | | | | | |
Risk rating | | | | | | | | | | | | | | | |
Pass | 23,816 | | | 17,834 | | | 10,787 | | | 4,892 | | | 4,887 | | | 23,535 | | | 1,115 | | | 86,866 | |
Special mention | — | | | — | | | — | | | — | | | 138 | | | — | | | — | | | 138 | |
Substandard | — | | | — | | | — | | | — | | | 3,421 | | | 140 | | | — | | | 3,561 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total multifamily | 23,816 | | | 17,834 | | | 10,787 | | | 4,892 | | | 8,446 | | | 23,675 | | | 1,115 | | | 90,565 | |
Total commercial real estate | | | | | | | | | | | | | | | |
Risk rating | | | | | | | | | | | | | | | |
Pass | $ | 246,113 | | | $ | 184,214 | | | $ | 152,755 | | | $ | 164,155 | | | $ | 161,217 | | | $ | 227,987 | | | $ | 149,704 | | | $ | 1,286,145 | |
Special mention | — | | | — | | | — | | | 16,951 | | | 1,256 | | | 3,377 | | | 3,827 | | | 25,411 | |
Substandard | — | | | — | | | — | | | 630 | | | 4,993 | | | 4,125 | | | 398 | | | 10,146 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | — | | | — | | | — | | | — | | | — | | | 1 | | | — | | | 1 | |
Total commercial real estate | $ | 246,113 | | | $ | 184,214 | | | $ | 152,755 | | | $ | 181,736 | | | $ | 167,466 | | | $ | 235,490 | | | $ | 153,929 | | | $ | 1,321,703 | |
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Term Loans By Origination Fiscal Year | | | | |
June 30, 2021 | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Revolving | | Total |
Commercial and industrial | | | | | | | | | | | | | | | |
Risk rating | | | | | | | | | | | | | | | |
Pass | $ | 29,606 | | | $ | 14,010 | | | $ | 18,826 | | | $ | 10,759 | | | $ | 15,346 | | | $ | 10,589 | | | $ | 36,165 | | | $ | 135,301 | |
Special mention | — | | | 21 | | | 438 | | | 110 | | | 32 | | | 125 | | | 37 | | | 763 | |
Substandard | 31 | | | 33 | | | 300 | | | — | | | — | | | 83 | | | 4,829 | | | 5,276 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | — | | | — | | | — | | | — | | | — | | | 1 | | | — | | | 1 | |
Total commercial and industrial | 29,637 | | | 14,064 | | | 19,564 | | | 10,869 | | | 15,378 | | | 10,798 | | | 41,031 | | | 141,341 | |
Equipment finance | | | | | | | | | | | | | | | |
Risk rating | | | | | | | | | | | | | | | |
Pass | 154,685 | | | 104,681 | | | 53,178 | | | 4,773 | | | — | | | — | | | — | | | 317,317 | |
Special mention | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Substandard | — | | | — | | | 323 | | | — | | | — | | | — | | | — | | | 323 | |
Doubtful | — | | | — | | | 280 | | | — | | | — | | | — | | | — | | | 280 | |
Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total equipment finance | 154,685 | | | 104,681 | | | 53,781 | | | 4,773 | | | — | | | — | | | — | | | 317,920 | |
Municipal leases | | | | | | | | | | | | | | | |
Risk rating | | | | | | | | | | | | | | | |
Pass | 23,358 | | | 19,240 | | | 14,005 | | | 17,979 | | | 9,738 | | | 47,144 | | | 8,700 | | | 140,164 | |
Special mention | — | | | — | | | — | | | — | | | — | | | 257 | | | — | | | 257 | |
Substandard | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total municipal leases | 23,358 | | | 19,240 | | | 14,005 | | | 17,979 | | | 9,738 | | | 47,401 | | | 8,700 | | | 140,421 | |
PPP | | | | | | | | | | | | | | | |
Risk rating | | | | | | | | | | | | | | | |
Pass | 29,667 | | | 16,983 | | | — | | | — | | | — | | | — | | | — | | | 46,650 | |
Special mention | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Substandard | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total PPP loans | 29,667 | | | 16,983 | | | — | | | — | | | — | | | — | | | — | | | 46,650 | |
Total commercial | | | | | | | | | | | | | | | |
Risk rating | | | | | | | | | | | | | | | |
Pass | $ | 237,316 | | | $ | 154,914 | | | $ | 86,009 | | | $ | 33,511 | | | $ | 25,084 | | | $ | 57,733 | | | $ | 44,865 | | | $ | 639,432 | |
Special mention | — | | | 21 | | | 438 | | | 110 | | | 32 | | | 382 | | | 37 | | | 1,020 | |
Substandard | 31 | | | 33 | | | 623 | | | — | | | — | | | 83 | | | 4,829 | | | 5,599 | |
Doubtful | — | | | — | | | 280 | | | — | | | — | | | — | | | — | | | 280 | |
Loss | — | | | — | | | — | | | — | | | — | | | 1 | | | — | | | 1 | |
Total commercial | $ | 237,347 | | | $ | 154,968 | | | $ | 87,350 | | | $ | 33,621 | | | $ | 25,116 | | | $ | 58,199 | | | $ | 49,731 | | | $ | 646,332 | |
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Term Loans By Origination Fiscal Year | | | | |
June 30, 2021 | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Revolving | | Total |
Construction and land development | | | | | | | | | | | | | | | |
Risk rating | | | | | | | | | | | | | | | |
Pass | $ | 4,244 | | | $ | 12,133 | | | $ | 2,357 | | | $ | 956 | | | $ | — | | | $ | 3,558 | | | $ | 42,267 | | | $ | 65,515 | |
Special mention | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Substandard | — | | | — | | | — | | | 96 | | | — | | | 416 | | | — | | | 512 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total construction and land development | 4,244 | | | 12,133 | | | 2,357 | | | 1,052 | | | — | | | 3,974 | | | 42,267 | | | 66,027 | |
One-to-four family | | | | | | | | | | | | | | | |
Risk rating | | | | | | | | | | | | | | | |
Pass | 72,723 | | | 52,987 | | | 46,958 | | | 40,461 | | | 37,361 | | | 143,531 | | | 4,345 | | | 398,366 | |
Special mention | — | | | — | | | — | | | — | | | 27 | | | 1,084 | | | — | | | 1,111 | |
Substandard | 246 | | | 981 | | | — | | | 216 | | | 86 | | | 5,037 | | | — | | | 6,566 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | 191 | | | — | | | 191 | |
Loss | — | | | — | | | — | | | — | | | — | | | 315 | | | — | | | 315 | |
Total one-to-four family | 72,969 | | | 53,968 | | | 46,958 | | | 40,677 | | | 37,474 | | | 150,158 | | | 4,345 | | | 406,549 | |
HELOCs | | | | | | | | | | | | | | | |
Risk rating | | | | | | | | | | | | | | | |
Pass | 2,767 | | | 465 | | | 1,294 | | | 217 | | | 716 | | | 9,469 | | | 152,571 | | | 167,499 | |
Special mention | — | | | — | | | — | | | — | | | — | | | 12 | | | — | | | 12 | |
Substandard | — | | | — | | | 159 | | | — | | | 38 | | | 935 | | | 558 | | | 1,690 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total HELOCs | 2,767 | | | 465 | | | 1,453 | | | 217 | | | 754 | | | 10,416 | | | 153,129 | | | 169,201 | |
Total residential real estate | | | | | | | | | | | | | | | |
Risk rating | | | | | | | | | | | | | | | |
Pass | $ | 79,734 | | | $ | 65,585 | | | $ | 50,609 | | | $ | 41,634 | | | $ | 38,077 | | | $ | 156,558 | | | $ | 199,183 | | | $ | 631,380 | |
Special mention | — | | | — | | | — | | | — | | | 27 | | | 1,096 | | | — | | | 1,123 | |
Substandard | 246 | | | 981 | | | 159 | | | 312 | | | 124 | | | 6,388 | | | 558 | | | 8,768 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | 191 | | | — | | | 191 | |
Loss | — | | | — | | | — | | | — | | | — | | | 315 | | | — | | | 315 | |
Total residential real estate | $ | 79,980 | | | $ | 66,566 | | | $ | 50,768 | | | $ | 41,946 | | | $ | 38,228 | | | $ | 164,548 | | | $ | 199,741 | | | $ | 641,777 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Term Loans By Origination Fiscal Year | | | | |
June 30, 2021 | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Revolving | | Total |
Total consumer | | | | | | | | | | | | | | | |
Risk rating | | | | | | | | | | | | | | | |
Pass | $ | 43,472 | | | $ | 28,153 | | | $ | 21,428 | | | $ | 19,105 | | | $ | 7,651 | | | $ | 2,152 | | | $ | 288 | | | $ | 122,249 | |
Special mention | — | | | — | | | | | 14 | | | — | | | — | | | — | | | 14 | |
Substandard | 29 | | | 418 | | | 214 | | | 284 | | | 147 | | | 85 | | | 11 | | | 1,188 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | 2 | | | 1 | | | 1 | | | — | | | — | | | — | | | — | | | 4 | |
Total consumer | $ | 43,503 | | | $ | 28,572 | | | $ | 21,643 | | | $ | 19,403 | | | $ | 7,798 | | | $ | 2,237 | | | $ | 299 | | | $ | 123,455 | |
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The following tables present aging analyses of past due loans (including nonaccrual loans) by segment and class for the periods indicated below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Past Due | | | | Total |
| 30-89 Days | | 90 Days+ | | Total | | Current | | Loans |
June 30, 2022 | | | | | | | | | |
Commercial real estate | | | | | | | | | |
Construction and land development | $ | — | | | $ | — | | | $ | — | | | $ | 291,202 | | | $ | 291,202 | |
Commercial real estate - owner occupied | — | | | 52 | | | 52 | | | 335,606 | | | 335,658 | |
Commercial real estate - non-owner occupied | — | | | — | | | — | | | 662,159 | | | 662,159 | |
Multifamily | — | | | — | | | — | | | 81,086 | | | 81,086 | |
Total commercial real estate | — | | | 52 | | | 52 | | | 1,370,053 | | | 1,370,105 | |
Commercial | | | | | | | | | |
Commercial and industrial | 255 | | | — | | | 255 | | | 192,397 | | | 192,652 | |
Equipment finance | 186 | | | 56 | | | 242 | | | 394,299 | | | 394,541 | |
Municipal leases | — | | | — | | | — | | | 129,766 | | | 129,766 | |
PPP loans | — | | | — | | | — | | | 661 | | | 661 | |
Total commercial | 441 | | | 56 | | | 497 | | | 717,123 | | | 717,620 | |
Residential real estate | | | | | | | | | |
Construction and land development | 115 | | | 22 | | | 137 | | | 81,710 | | | 81,847 | |
One-to-four family | 910 | | | 1,394 | | | 2,304 | | | 351,899 | | | 354,203 | |
HELOCs | 283 | | | 122 | | | 405 | | | 159,732 | | | 160,137 | |
Total residential real estate | 1,308 | | | 1,538 | | | 2,846 | | | 593,341 | | | 596,187 | |
Consumer | 330 | | | 177 | | | 507 | | | 84,876 | | | 85,383 | |
Total loans | $ | 2,079 | | | $ | 1,823 | | | $ | 3,902 | | | $ | 2,765,393 | | | $ | 2,769,295 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Past Due | | | | Total |
| 30-89 Days | | 90 Days+ | | Total | | Current | | Loans |
June 30, 2021 | | | | | | | | | |
Commercial real estate | | | | | | | | | |
Construction and land development | $ | — | | | $ | 37 | | | $ | 37 | | | $ | 179,390 | | | $ | 179,427 | |
Commercial real estate - owner occupied | 396 | | | 1,680 | | | 2,076 | | | 322,274 | | | 324,350 | |
Commercial real estate - non-owner occupied | — | | | — | | | — | | | 727,361 | | | 727,361 | |
Multifamily | — | | | — | | | — | | | 90,565 | | | 90,565 | |
Total commercial real estate | 396 | | | 1,717 | | | 2,113 | | | 1,319,590 | | | 1,321,703 | |
Commercial | | | | | | | | | |
Commercial and industrial | 634 | | | 19 | | | 653 | | | 140,688 | | | 141,341 | |
Equipment finance | — | | | 347 | | | 347 | | | 317,573 | | | 317,920 | |
Municipal leases | — | | | — | | | — | | | 140,421 | | | 140,421 | |
PPP loans | — | | | — | | | — | | | 46,650 | | | 46,650 | |
Total commercial | 634 | | | 366 | | | 1,000 | | | 645,332 | | | 646,332 | |
Residential real estate | | | | | | | | | |
Construction and land development | 6 | | | 35 | | | 41 | | | 65,986 | | | 66,027 | |
One-to-four family | 1,112 | | | 1,124 | | | 2,236 | | | 404,313 | | | 406,549 | |
HELOCs | 488 | | | 265 | | | 753 | | | 168,448 | | | 169,201 | |
Total residential real estate | 1,606 | | | 1,424 | | | 3,030 | | | 638,747 | | | 641,777 | |
Consumer | 677 | | | 295 | | | 972 | | | 122,483 | | | 123,455 | |
Total loans | $ | 3,313 | | | $ | 3,802 | | | $ | 7,115 | | | $ | 2,726,152 | | | $ | 2,733,267 | |
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The following table presents recorded investment in loans on nonaccrual status, by segment and class, including restructured loans. It also includes interest income recognized on nonaccrual loans for the year ended June 30, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 | | June 30, 2021 | | | | 90 Days + & Still Accruing as of June 30, 2022 | | Nonaccrual with No Allowance as of June 30, 2022 | | Interest Income Recognized | | |
Commercial real estate | | | | | | | | | | | | | | |
Construction and land development | | $ | 67 | | | $ | 482 | | | | | $ | — | | | $ | — | | | $ | 5 | | | |
Commercial real estate - owner occupied | | 706 | | | 3,265 | | | | | — | | | — | | | 23 | | | |
Commercial real estate - non-owner occupied | | 5 | | | 208 | | | | | — | | | — | | | 1 | | | |
Multifamily | | 103 | | | 3,542 | | | | | — | | | — | | | 7 | | | |
Total commercial real estate | | 881 | | | 7,497 | | | | | — | | | — | | | 36 | | | |
Commercial | | | | | | | | | | | | | | |
Commercial and industrial | | 1,951 | | | 49 | | | | | — | | | — | | | 290 | | | |
Equipment finance | | 270 | | | 630 | | | | | — | | | — | | | 17 | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Total commercial | | 2,221 | | | 679 | | | | | — | | | — | | | 307 | | | |
Residential real estate | | | | | | | | | | | | | | |
Construction and land development | | 137 | | | 22 | | | | | — | | | — | | | 4 | | | |
One-to-four family | | 1,773 | | | 2,625 | | | | | — | | | 540 | | | 49 | | | |
HELOCs | | 724 | | | 929 | | | | | — | | | — | | | 28 | | | |
Total residential real estate | | 2,634 | | | 3,576 | | | | | — | | | 540 | | | 81 | | | |
Consumer | | 384 | | | 854 | | | | | — | | | — | | | 24 | | | |
Total loans | | $ | 6,120 | | | $ | 12,606 | | | | | $ | — | | | $ | 540 | | | $ | 448 | | | |
The significant decrease in the nonaccrual balance in the above schedule compared to June 30, 2021 is mainly due to the payoff of two commercial real estate loan relationships totaling $5.1 million during the period.
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. The above table excludes $9,818 and $11,088 of TDRs that were performing under their restructured payment terms as of June 30, 2022 and June 30, 2021, respectively.
The following tables present analyses of the ACL on loans by segment for the period indicated below. In addition to the provision (benefit) for credit losses on loans presented below, provisions (benefits) of $981 and $35 for off-balance sheet credit exposures and $(100) and $100 for commercial paper were recorded during the fiscal years ended June 30, 2022 and June 30, 2021, respectively.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended June 30, 2022 |
| Commercial Real Estate | | Commercial | | Residential Real Estate | | Consumer | | Total |
Balance at beginning of period | $ | 15,084 | | | $ | 9,663 | | | $ | 8,185 | | | $ | 2,536 | | | $ | 35,468 | |
Provision (benefit) for credit losses | (2,273) | | | 3,110 | | | (1,423) | | | (886) | | | (1,472) | |
Charge-offs | (485) | | | (1,728) | | | (116) | | | (183) | | | (2,512) | |
Recoveries | 1,088 | | | 991 | | | 965 | | | 162 | | | 3,206 | |
Net recoveries (charge-offs) | 603 | | | (737) | | | 849 | | | (21) | | | 694 | |
Balance at end of period | $ | 13,414 | | | $ | 12,036 | | | $ | 7,611 | | | $ | 1,629 | | | $ | 34,690 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended June 30, 2021 |
| Commercial Real Estate | | Commercial | | Residential Real Estate | | Consumer | | Total |
Balance at beginning of period | $ | 15,413 | | | $ | 5,703 | | | $ | 5,685 | | | $ | 1,271 | | | $ | 28,072 | |
Impact of adoption ASU 2016-13 | 833 | | | 3,240 | | | 8,687 | | | 2,049 | | | 14,809 | |
Benefit for credit losses | (311) | | | (446) | | | (6,308) | | | (205) | | | (7,270) | |
Charge-offs | (1,000) | | | (977) | | | (611) | | | (945) | | | (3,533) | |
Recoveries | 149 | | | 2,143 | | | 732 | | | 366 | | | 3,390 | |
Net recoveries (charge-offs) | (851) | | | 1,166 | | | 121 | | | (579) | | | (143) | |
Balance at end of period | $ | 15,084 | | | $ | 9,663 | | | $ | 8,185 | | | $ | 2,536 | | | $ | 35,468 | |
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The following table presents an analysis of the ALL by segment, prior to the adoption of ASU 2016-13: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended June 30, 2020 | | |
| PCI | | Commercial | | Retail Consumer | | Total | | |
Balance at beginning of period | $ | 201 | | | $ | 14,809 | | | $ | 6,419 | | | $ | 21,429 | | | |
Provision (benefit) for credit losses | (19) | | | 8,656 | | | (137) | | | 8,500 | | | |
Charge-offs | — | | | (2,961) | | | (855) | | | (3,816) | | | |
Recoveries | — | | | 480 | | | 1,479 | | | 1,959 | | | |
Net recoveries (charge-offs) | — | | | (2,481) | | | 624 | | | (1,857) | | | |
Balance at end of period | $ | 182 | | | $ | 20,984 | | | $ | 6,906 | | | $ | 28,072 | | | |
The following tables present ending balances of loans and the related ACL, by segment and class for the periods indicated below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Allowance for Credit Losses | Total Loans Receivable |
| | Loans Individually Evaluated | | Loans Collectively Evaluated | | Total | | Loans Individually Evaluated | | Loans Collectively Evaluated | | Total |
June 30, 2022 | | | | | | | | | | | | |
Commercial real estate | | | | | | | | | | | | |
Construction and land development | | $ | — | | | $ | 4,402 | | | $ | 4,402 | | | $ | — | | | $ | 291,202 | | | $ | 291,202 | |
Commercial real estate - owner occupied | | — | | | 3,038 | | | 3,038 | | | — | | | 335,658 | | | 335,658 | |
Commercial real estate - non-owner occupied | | — | | | 5,589 | | | 5,589 | | | — | | | 662,159 | | | 662,159 | |
Multifamily | | — | | | 385 | | | 385 | | | — | | | 81,086 | | | 81,086 | |
Total commercial real estate | | — | | | 13,414 | | | 13,414 | | | — | | | 1,370,105 | | | 1,370,105 | |
Commercial | | | | | | | | | | | | |
Commercial and industrial | | 2,191 | | | 2,892 | | | 5,083 | | | 2,854 | | | 189,798 | | | 192,652 | |
Equipment finance | | — | | | 6,651 | | | 6,651 | | | — | | | 394,541 | | | 394,541 | |
Municipal leases | | — | | | 302 | | | 302 | | | — | | | 129,766 | | | 129,766 | |
PPP loans | | — | | | — | | | — | | | — | | | 661 | | | 661 | |
Total commercial | | 2,191 | | | 9,845 | | | 12,036 | | | 2,854 | | | 714,766 | | | 717,620 | |
Residential real estate | | | | | | | | | | | | |
Construction and land development | | — | | | 1,052 | | | 1,052 | | | — | | | 81,847 | | | 81,847 | |
One-to-four family | | — | | | 4,673 | | | 4,673 | | | 2,486 | | | 351,717 | | | 354,203 | |
HELOCs | | — | | | 1,886 | | | 1,886 | | | — | | | 160,137 | | | 160,137 | |
Total residential real estate | | — | | | 7,611 | | | 7,611 | | | 2,486 | | | 593,701 | | | 596,187 | |
Consumer | | — | | | 1,629 | | | 1,629 | | | — | | | 85,383 | | | 85,383 | |
Total | | $ | 2,191 | | | $ | 32,499 | | | $ | 34,690 | | | $ | 5,340 | | | $ | 2,763,955 | | | $ | 2,769,295 | |
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Allowance for Credit Losses | Total Loans Receivable | | |
| | Loans Individually Evaluated | | Loans Collectively Evaluated | | Total | | Loans Individually Evaluated | | Loans Collectively Evaluated | | Total | | |
June 30, 2021 | | | | | | | | | | | | | | |
Commercial real estate | | | | | | | | | | | | | | |
Construction and land development | | $ | — | | | $ | 1,801 | | | $ | 1,801 | | | $ | 80 | | | $ | 179,347 | | | $ | 179,427 | | | |
Commercial real estate - owner occupied | | 456 | | | 2,839 | | | 3,295 | | | 2,308 | | | 322,042 | | | 324,350 | | | |
Commercial real estate - non-owner occupied | | — | | | 9,296 | | | 9,296 | | | — | | | 727,361 | | | 727,361 | | | |
Multifamily | | — | | | 692 | | | 692 | | | 3,421 | | | 87,144 | | | 90,565 | | | |
Total commercial real estate | | 456 | | | 14,628 | | | 15,084 | | | 5,809 | | | 1,315,894 | | | 1,321,703 | | | |
Commercial | | | | | | | | | | | | | | |
Commercial and industrial | | 9 | | | 2,583 | | | 2,592 | | | 760 | | | 140,581 | | | 141,341 | | | |
Equipment finance | | — | | | 6,537 | | | 6,537 | | | 275 | | | 317,645 | | | 317,920 | | | |
Municipal leases | | — | | | 534 | | | 534 | | | — | | | 140,421 | | | 140,421 | | | |
PPP loans | | — | | | — | | | — | | | — | | | 46,650 | | | 46,650 | | | |
Total commercial | | 9 | | | 9,654 | | | 9,663 | | | 1,035 | | | 645,297 | | | 646,332 | | | |
Residential real estate | | | | | | | | | | | | | | |
Construction and land development | | — | | | 812 | | | 812 | | | — | | | 66,027 | | | 66,027 | | | |
One-to-four family | | 2 | | | 5,407 | | | 5,409 | | | 1,977 | | | 404,572 | | | 406,549 | | | |
HELOCs | | — | | | 1,964 | | | 1,964 | | | — | | | 169,201 | | | 169,201 | | | |
Total residential real estate | | 2 | | | 8,183 | | | 8,185 | | | 1,977 | | | 639,800 | | | 641,777 | | | |
Consumer | | — | | | 2,536 | | | 2,536 | | | — | | | 123,455 | | | 123,455 | | | |
Total | | $ | 467 | | | $ | 35,001 | | | $ | 35,468 | | | $ | 8,821 | | | $ | 2,724,446 | | | $ | 2,733,267 | | | |
The following table presents average recorded investments in impaired loans and interest income recognized on impaired loans, prior to the adoption of ASU 2016-13:
| | | | | | | | | | | |
| |
| 2020 |
| Average Recorded Investment | | Interest Income Recognized |
Commercial | | | |
Commercial real estate | $ | 8,661 | | | $ | 336 | |
Construction and development | 1,218 | | | 54 | |
Commercial and industrial | 868 | | | 236 | |
Equipment finance | 652 | | | 29 | |
| | | |
Total commercial | 11,399 | | | 655 | |
Retail consumer | | | |
One-to-four family | 14,796 | | | 687 |
HELOCs - originated | 1,698 | | | 99 |
HELOCs - purchased | 533 | | | 41 |
Construction and land/lots | 1,149 | | | 83 |
Indirect auto finance | 547 | | | 53 |
Consumer | 194 | | | 7 |
Total retail consumer | 18,917 | | | 970 | |
Total loans | $ | 30,316 | | | $ | 1,625 | |
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The following table presents a summary of changes in the accretable yield for PCI loans, prior to the adoption of ASU 2016-13:
| | | | | |
| |
| 2020 |
Accretable yield, beginning of period | $ | 5,259 | |
| |
| |
| |
Reclass from nonaccretable yield (1) | 458 | |
Other changes, net (2) | (316) | |
Interest income | (1,496) | |
Accretable yield, end of period | $ | 3,905 | |
(1) Represents changes attributable to expected loss 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 In estimating ECL, ASC 326 prescribes that if foreclosure is expected, a CDA is required to be measured at the fair value of collateral, but as a practical expedient, if foreclosure is not probable, fair value measurement is optional. For those CDA loans measured at the fair value of collateral, a credit loss expense is recorded for loan amounts in excess of fair value. The following tables provide a breakdown between loans identified as CDAs and non-CDAs, by segment and class, and securing collateral, as well as collateral coverage for those loans for the periods indicated below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Type of Collateral and Extent to Which Collateral Secures Financial Assets | | | | |
June 30, 2022 | Residential Property | | Investment Property | | Commercial Property | | Business Assets | | | | Financial Assets Not Considered Collateral Dependent | | Total |
| | | | | | | | | | | | | |
Commercial real estate | | | | | | | | | | | | | |
Construction and land development | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | | $ | 291,202 | | | $ | 291,202 | |
Commercial real estate - owner occupied | — | | | — | | | — | | | — | | | | | 335,658 | | | 335,658 | |
Commercial real estate - non-owner occupied | — | | | — | | | — | | | — | | | | | 662,159 | | | 662,159 | |
Multifamily | — | | | — | | | — | | | — | | | | | 81,086 | | | 81,086 | |
Total commercial real estate | — | | | — | | | — | | | — | | | | | 1,370,105 | | | 1,370,105 | |
Commercial | | | | | | | | | | | | | |
Commercial and industrial | — | | | — | | | — | | | 2,594 | | | | | 190,058 | | | 192,652 | |
Equipment finance | — | | | — | | | — | | | — | | | | | 394,541 | | | 394,541 | |
Municipal leases | — | | | — | | | — | | | — | | | | | 129,766 | | | 129,766 | |
PPP loans | — | | | — | | | — | | | — | | | | | 661 | | | 661 | |
Total commercial | — | | | — | | | — | | | 2,594 | | | | | 715,026 | | | 717,620 | |
Residential real estate | | | | | | | | | | | | | |
Construction and land development | — | | | — | | | — | | | — | | | | | 81,847 | | | 81,847 | |
One-to-four family | 1,318 | | | — | | | — | | | — | | | | | 352,885 | | | 354,203 | |
HELOCs | — | | | — | | | — | | | — | | | | | 160,137 | | | 160,137 | |
Total residential real estate | 1,318 | | | — | | | — | | | — | | | | | 594,869 | | | 596,187 | |
Consumer | — | | | — | | | — | | | — | | | | | 85,383 | | | 85,383 | |
Total | $ | 1,318 | | | $ | — | | | $ | — | | | $ | 2,594 | | | | | $ | 2,765,383 | | | $ | 2,769,295 | |
Total collateral value | $ | 2,443 | | | $ | — | | | $ | — | | | $ | 69 | | | | | | | |
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Type of Collateral and Extent to Which Collateral Secures Financial Assets | | | | |
June 30, 2021 | Residential Property | | Investment Property | | Commercial Property | | Business Assets | | | | Financial Assets Not Considered Collateral Dependent | | Total |
| | | | | | | | | | | | | |
Commercial real estate | | | | | | | | | | | | | |
Construction and land development | $ | — | | | $ | 80 | | | $ | — | | | $ | — | | | | | $ | 179,347 | | | $ | 179,427 | |
Commercial real estate - owner occupied | — | | | — | | | 2,308 | | | — | | | | | 322,042 | | | 324,350 | |
Commercial real estate - non-owner occupied | — | | | — | | | — | | | | | | | 727,361 | | | 727,361 | |
Multifamily | — | | | 3,421 | | | — | | | — | | | | | 87,144 | | | 90,565 | |
Total commercial real estate | — | | | 3,501 | | | 2,308 | | | — | | | | | 1,315,894 | | | 1,321,703 | |
Commercial | | | | | | | | | | | | | |
Commercial and industrial | — | | | — | | | — | | | 25 | | | | | 141,316 | | | 141,341 | |
Equipment finance | — | | | — | | | — | | | 275 | | | | | 317,645 | | | 317,920 | |
Municipal leases | — | | | — | | | — | | | — | | | | | 140,421 | | | 140,421 | |
PPP loans | — | | | — | | | — | | | — | | | | | 46,650 | | | 46,650 | |
Total commercial | — | | | — | | | — | | | 300 | | | | | 646,032 | | | 646,332 | |
Residential real estate | | | | | | | | | | | | | |
Construction and land development | — | | | — | | | — | | | — | | | | | 66,027 | | | 66,027 | |
One-to-four family | 807 | | | — | | | — | | | — | | | | | 405,742 | | | 406,549 | |
HELOCs | — | | | — | | | — | | | — | | | | | 169,201 | | | 169,201 | |
Total residential real estate | 807 | | | — | | | — | | | — | | | | | 640,970 | | | 641,777 | |
Consumer | — | | | — | | | — | | | — | | | | | 123,455 | | | 123,455 | |
Total | $ | 807 | | | $ | 3,501 | | | $ | 2,308 | | | $ | 300 | | | | | $ | 2,726,351 | | | $ | 2,733,267 | |
Total collateral value | $ | 1,160 | | | $ | 3,602 | | | $ | 2,723 | | | $ | 301 | | | | | | | |
The following table presents a breakdown of the types of concessions made on TDRs by loan class for the periods indicated below: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended June 30, |
| 2022 | | 2021 | | 2020 |
| 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 | | | | | | | | | | | | | | | | | |
Commercial real estate | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Commercial real estate - non-owner occupied | — | | | $ | — | | | $ | — | | | — | | | $ | — | | | $ | — | | | 1 | | | $ | 88 | | | $ | 86 | |
| | | | | | | | | | | | | | | | | |
Commercial | | | | | | | | | | | | | | | | | |
Commercial and industrial | 1 | | | 275 | | | 260 | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Residential real estate | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
One-to-four family | 1 | | | 124 | | | 120 | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Total below market interest rate | 2 | | | 399 | | | 380 | | | — | | | — | | | — | | | 1 | | | 88 | | | 86 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended June 30, |
| 2022 | | 2021 | | 2020 |
| 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 |
Extended payment terms | | | | | | | | | | | | | | | | | |
Commercial: | | | | | | | | | | | | | | | | | |
Commercial and industrial | — | | | — | | | — | | | — | | | — | | | — | | | 1 | | | 826 | | | 826 | |
Residential real estate | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
One-to-four family | 1 | | | 35 | | | 34 | | | — | | | — | | | — | | | 2 | | | 70 | | | 61 | |
| | | | | | | | | | | | | | | | | |
Consumer | 1 | | | 50 | | | 51 | | | 2 | | | 28 | | | 27 | | | — | | | — | | | — | |
Total extended payment terms | 2 | | | 85 | | | 85 | | | 2 | | | 28 | | | 27 | | | 3 | | | 896 | | | 887 | |
| | | | | | | | | | | | | | | | | |
Other TDRs | | | | | | | | | | | | | | | | | |
Commercial real estate | | | | | | | | | | | | | | | | | |
Construction and land development | — | | | — | | | — | | | — | | | — | | | — | | | 1 | | | 182 | | | 79 | |
| | | | | | | | | | | | | | | | | |
Commercial real estate - non-owner occupied | — | | | — | | | — | | | — | | | — | | | — | | | 1 | | | 30 | | | 21 | |
Multifamily | — | | | — | | | — | | | 1 | | | 4,408 | | | 3,421 | | | — | | | — | | | — | |
Commercial | | | | | | | | | | | | | | | | | |
Commercial and industrial | 2 | | | 840 | | | 826 | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Residential real estate | | | | | | | | | | | | | | | | | |
Construction and land development | — | | | — | | | — | | | 1 | | | 225 | | | 213 | | | — | | | — | | | — | |
One-to-four family | 2 | | | 93 | | | 91 | | | 4 | | | 269 | | | 256 | | | 5 | | | 511 | | | 502 | |
HELOCs | 1 | | | 18 | | | 18 | | | 2 | | | 53 | | | 74 | | | 1 | | | 27 | | | 27 | |
Consumer | 6 | | | 74 | | | 61 | | | 14 | | | 207 | | | 144 | | | 3 | | | 63 | | | 49 | |
Total other TDRs | 11 | | | 1,025 | | | 996 | | | 22 | | | 5,162 | | | 4,108 | | | 11 | | | 813 | | | 678 | |
Total | 15 | | | $ | 1,509 | | | $ | 1,461 | | | 24 | | | $ | 5,190 | | | $ | 4,135 | | | 15 | | | $ | 1,797 | | | $ | 1,651 | |
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 periods indicated below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended June 30, |
| 2022 | | 2021 | | 2020 |
| Number of Loans | | Recorded Investment | | Number of Loans | | Recorded Investment | | Number of Loans | | Recorded Investment |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Other TDRs | | | | | | | | | | | |
Commercial real estate | | | | | | | | | | | |
Construction and land development | — | | | $ | — | | | — | | | $ | — | | | 1 | | | $ | 79 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Consumer | 1 | | | 25 | | | 1 | | | 30 | | — | | | — | |
| | | | | | | | | | | |
Total | 1 | | | $ | 25 | | | 1 | | | $ | 30 | | | 1 | | | $ | 79 | |
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.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
In the determining the ACL, management considers TDRs for all loan classes, and the subsequent nonperformance in accordance with their modified terms, by measuring a reserve 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.
Off-Balance Sheet Credit Exposure
The Company maintains a separate reserve for credit losses on off-balance sheet credit exposures, including unfunded loan commitments, which is included in other liabilities on the consolidated balance sheet. The reserve for credit losses on off-balance sheet credit exposures is adjusted as a provision for credit losses in the consolidated statement of income. The estimate includes consideration of the likelihood that funding will occur and an estimate of ECLs on commitments expected to be funded over its estimated life, utilizing the same models and approaches for the Company's other loan portfolio segments described above, as these unfunded commitments share similar risk characteristics as its loan portfolio segments. The Company has identified the unfunded portion of certain lines of credit as unconditionally cancellable credit exposures, meaning the Company can cancel the unfunded commitment at any time. No credit loss estimate is reported for off-balance sheet credit exposures that are unconditionally cancellable by the Company or for undrawn amounts under such arrangements that may be drawn prior to the cancellation of the arrangement. At June 30, 2022, the allowance for credit losses on off-balance sheet credit exposures included in other liabilities was $3,304.
6. Premises and Equipment
Premises and equipment as of the dates indicated consist of the following:
| | | | | | | | | | | |
| June 30, |
| 2022 | | 2021 |
Land | $ | 24,332 | | | $ | 25,488 | |
| | | |
Office buildings | 68,385 | | | 68,861 | |
Furniture, fixtures and equipment | 16,550 | | | 16,244 | |
Total | 109,267 | | | 110,593 | |
Less: accumulated depreciation | (40,173) | | | (39,684) | |
Premises and equipment, net | $ | 69,094 | | | $ | 70,909 | |
Depreciation expense associated with premises and equipment was $3,986, $3,634, and $3,462 for the years ended June 30, 2022, 2021, and 2020.
7. Goodwill and Core Deposit Intangibles
The carrying amount of the Company's goodwill was $25,638 as of June 30, 2022 and 2021. Amortization expense related to core deposit intangibles was $250, $735, and $1,421 for the years ended June 30, 2022, 2021, and 2020, respectively. As of June 30, 2022, the estimated amortization expense for each of the next two years is as follows:
8. Deposit Accounts
Deposit accounts at the dates indicated consist of the following:
| | | | | | | | | | | |
| |
| June 30, |
| 2022 | | 2021 |
Noninterest-bearing accounts | $ | 745,746 | | | $ | 636,414 | |
NOW accounts | 654,981 | | | 644,958 | |
Money market accounts | 969,661 | | | 975,001 | |
Savings accounts | 238,197 | | | 226,391 | |
Certificates of deposit | 491,176 | | | 472,777 | |
Total | $ | 3,099,761 | | | $ | 2,955,541 | |
Deposits received from executive officers and directors and their associates totaled approximately $1,012 and $4,618 at June 30, 2022 and 2021, respectively.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
As of June 30, 2022, scheduled maturities of certificates of deposit are as follows:
| | | | | | | |
| | | |
2023 | $ | 428,734 | | | |
2024 | 33,134 | | | |
2025 | 17,401 | | | |
2026 | 6,440 | | | |
2027 | 5,467 | | | |
Thereafter | — | | | |
Total | $ | 491,176 | | | |
Certificates of deposit with balances of $250 or greater totaled $156,558 and $75,447 at June 30, 2022 and 2021, respectively. Generally, deposit amounts in excess of $250 are not federally insured.
9. Borrowings
Borrowings consist of the following at the dates indicated: | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, |
| 2022 | | 2021 |
| Balance | | Weighted Average Rate | | Balance | | Weighted Average Rate |
| | | | | | | |
| | | | | | | |
| | | | | | | |
FHLB Advances | $ | — | | | — | % | | $ | 115,000 | | | 0.16 | % |
All qualifying one-to-four family loans, HELOCs, commercial real estate loans, and FHLB of Atlanta stock are pledged as collateral to secure outstanding FHLB advances. During the year ended June 30, 2021, the Company paid $22.7 million in prepayment penalties on FHLB advances.
At June 30, 2022 and 2021, the Company had the ability to borrow $277,561 and $289,411, respectively, through FHLB advances. At these same dates, the Company had an unused line of credit with the FRB in the amounts of $68,230 and $92,913 and unused lines of credit with three unaffiliated banks for $120,000 and $100,000, respectively.
10. Leases
As Lessee - Operating Leases
The Company's 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 management's sole discretion. When it is reasonably certain that the Company 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. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants. Most of the Company's 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 the Company's Consolidated Balance Sheets. The Company recognizes lease expense 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.
| | | | | | | | | | | |
| June 30, |
| 2022 | | 2021 |
Supplemental balance sheet information | | | |
ROU assets | $ | 5,846 | | | $ | 5,498 | |
| | | |
Lease liabilities | $ | 6,641 | | | $ | 5,926 | |
| | | |
Weighted-average remaining lease terms (years) | 10.80 | | 9.49 |
Weighted-average discount rate | 2.90 | % | | 3.18 | % |
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The following schedule summarizes aggregate future minimum lease payments under these operating leases at June 30, 2022:
| | | | | |
Fiscal year ending June 30 | |
2023 | $ | 1,425 | |
2024 | 981 | |
2025 | 680 | |
2026 | 555 | |
2027 | 573 | |
Thereafter | 3,772 | |
Total undiscounted minimum lease payments | 7,986 | |
Less: amount representing interest | (1,345) | |
Total lease liability | $ | 6,641 | |
The following table presents components of operating lease expense as of the dates indicated:
| | | | | | | | | | | | | |
| | | Year Ended June 30, |
| | | 2022 | | 2021 |
Operating lease cost (included in occupancy expense, net) | | | $ | 1,559 | | | $ | 1,637 | |
Variable lease cost (included in occupancy expense, net) | | | 9 | | | 24 | |
Sublease income (included in other noninterest income) | | | (189) | | | (207) | |
Total operating lease expense, net | | | $ | 1,379 | | | $ | 1,454 | |
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, 2022 and 2021 and is included in other assets. The corresponding lease liability totaled $1,763 and $1,804 at June 30, 2022 and 2021, respectively, and is included in other liabilities. For the years ended June 30, 2022 and 2021, interest expense on the lease liability totaled $93 and $95, respectively. The finance lease has a maturity date of July 2028 and a discount rate of 5.18%.
The following schedule summarizes aggregate future minimum lease payments under this finance lease obligation at June 30, 2022:
| | | | | |
Fiscal year ending June 30 | |
2023 | $ | 134 | |
2024 | 145 | |
2025 | 146 | |
2026 | 146 | |
2027 | 146 | |
Thereafter | 1,557 | |
Total undiscounted minimum lease payments | 2,274 | |
Less: amount representing interest | (511) | |
Total lease liability | $ | 1,763 | |
Supplemental lease cash flow information as of the dates indicated:
| | | | | | | | | | | |
| Year Ended June 30, |
| 2022 | | 2021 |
ROU assets - noncash additions (operating leases) | $ | 1,186 | | | $ | 2,586 | |
| | | |
Cash paid for amounts included in the measurement of lease liabilities (operating leases) | 1,438 | | | 2,036 | |
Cash paid for amounts included in the measurement of lease liabilities (finance leases) | 134 | | | 134 | |
As Lessor - General
The Company leases equipment to commercial end users under operating and finance lease arrangements. The Company's equipment finance leases consist mainly of construction, transportation, healthcare, and manufacturing equipment. Many of its 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. The Company's 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.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
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 one to five 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 $20,075 and $25,932 with a residual value of $12,874 and $15,330 as of June 30, 2022 and 2021, respectively.
The following table presents total equipment finance operating lease income and depreciation expense as of the dates indicated:
| | | | | | | | | | | |
| Year Ended June 30, |
| 2022 | | 2021 |
Operating lease income | $ | 6,392 | | | $ | 5,601 | |
Depreciation expense | 5,362 | | | 5,864 | |
The following schedule summarizes aggregate future minimum lease payments to be received at June 30, 2022:
| | | | | |
Fiscal year ending June 30 | |
2023 | $ | 5,080 | |
2024 | 3,010 | |
2025 | 998 | |
2026 | 355 | |
2027 | 113 | |
Thereafter | — | |
Total of future minimum payments | $ | 9,556 | |
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 loans segment of the loan portfolio. For the years ended June 30, 2022 and 2021, total interest income on equipment finance leases totaled $3,057 and $2,444, respectively.
The lease receivable component of finance lease net investment included within equipment finance class of financing receivables was $62.2 million and $63.3 million at June 30, 2022 and 2021, respectively.
The following schedule summarizes aggregate future minimum finance lease payments to be received at June 30, 2022:
| | | | | |
Fiscal year ending June 30 | |
2023 | $ | 21,287 | |
2024 | 18,615 | |
2025 | 13,772 | |
2026 | 9,299 | |
2027 | 4,578 | |
Thereafter | 1,047 | |
Total undiscounted minimum payments | 68,598 | |
Less: amount representing interest | (6,410) | |
Total lease receivable | $ | 62,188 | |
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
11. Income Taxes
Income tax expense as of the dates indicated consisted of:
| | | | | | | | | | | | | | | | | |
| Year Ended June 30, |
| 2022 | | 2021 | | 2020 |
Current | | | | | |
Federal | $ | 2,411 | | | $ | (340) | | | $ | 80 | |
State | 730 | | | 188 | | | 748 | |
Total current expense (benefit) | 3,141 | | | (152) | | | 828 | |
Deferred | | | | | |
Federal | 5,992 | | | 3,374 | | | 5,184 | |
State | 592 | | | 199 | | | 12 | |
| | | | | |
Total deferred expense | 6,584 | | | 3,573 | | | 5,196 | |
| | | | | |
Total income tax expense | $ | 9,725 | | | $ | 3,421 | | | $ | 6,024 | |
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, |
| 2022 | | 2021 | | 2020 |
| Amount | | Rate | | Amount | | Rate | | Amount | | Rate |
Tax at federal income tax rate | $ | 9,529 | | | 21 | % | | $ | 4,010 | | | 21 | % | | $ | 6,049 | | | 21 | % |
Increase (decrease) resulting from | | | | | | | | | | | |
Tax exempt income | (844) | | | (2) | | | (911) | | | (5) | | | (872) | | | (3) | |
| | | | | | | | | | | |
State tax, net of federal benefit | 818 | | | 2 | | | 306 | | | 2 | | | 600 | | | 2 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Other | 222 | | | — | | | 16 | | | — | | | 247 | | | 1 | |
Total | $ | 9,725 | | | 21 | % | | $ | 3,421 | | | 18 | % | | $ | 6,024 | | | 21 | % |
The sources and tax effects of temporary differences that give rise to significant portions of the deferred tax assets (liabilities) at June 30, 2022 and 2021 are presented below:
| | | | | | | | | | | |
| June 30, |
| 2022 | | 2021 |
Deferred tax assets | | | |
| | | |
Allowance for credit losses | $ | 8,796 | | | $ | 8,158 | |
Deferred compensation and post-retirement benefits | 8,407 | | | 8,349 | |
| | | |
Impairments on real estate owned | 61 | | | 110 | |
Other than temporary impairment on investments | — | | | 2,205 | |
Net operating loss carryforward | 3,353 | | | 4,489 | |
Discount from business combinations | 1,228 | | | 2,474 | |
Unrealized loss on securities held for sale | 718 | | | — | |
Share-based compensation expense | 1,860 | | | 2,166 | |
Other | 2,000 | | | 1,412 | |
Total deferred tax assets | 26,423 | | | 29,363 | |
| | | |
| | | |
Deferred tax liabilities | | | |
Depreciable basis of fixed assets | (8,565) | | | (6,555) | |
Deferred loan fees | (774) | | | (753) | |
FHLB stock, book basis in excess of tax | (89) | | | (89) | |
Unrealized gain on debt securities available for sale | — | | | (452) | |
BOLI available for redemption | (4,679) | | | (3,902) | |
Other | (829) | | | (711) | |
Total deferred tax liabilities | (14,936) | | | (12,462) | |
Net deferred tax assets | $ | 11,487 | | | $ | 16,901 | |
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The Company had federal NOL carry forwards of $15,967 and $21,377 as of June 30, 2022 and June 30, 2021, respectively, with a recorded tax benefit of $3,353 and $4,489 included in deferred tax assets. The majority of these NOLs will expire for federal tax purposes from 2028 through 2036, if not previously used.
Retained earnings at June 30, 2022 and 2021 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 2018.
12. Employee Benefit Plans
The HomeTrust Bank KSOP Plan is comprised of two components, the 401(k) Plan and the ESOP. The KSOP benefits employees who have attained age 21 and who are employed on the last day of the plan year, or separated during the plan year due to death, disability, or after meeting normal retirement age. Under the 401(k), the Company matches employee contributions at 50% of employee deferrals up to 6% of each employee’s eligible 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 four 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 $911, $914, and $782 for the years ended June 30, 2022, 2021, and 2020, respectively. The Company's expense related to the ESOP for the fiscal years ended June 30, 2022, 2021, and 2020 was $1,502, $1,125, and $1,195, respectively.
Shares held by the ESOP at the dates indicated include the following:
| | | | | | | | | | | |
| June 30, |
| 2022 | | 2021 |
Unallocated ESOP shares | 529,000 | | | 581,900 | |
Allocated ESOP shares | 502,550 | | | 449,650 | |
ESOP shares committed to be released | 26,450 | | | 26,450 | |
Total ESOP shares | 1,058,000 | | | 1,058,000 | |
Fair value of unallocated ESOP shares | $ | 13,225 | | | $ | 16,235 | |
Post-retirement health care benefits are provided to certain key current and former officers under the Company’s Executive Medical Care Plan (“EMCP”). The EMCP is unfunded and is not qualified under the IRC. Plan expense for the years ended June 30, 2022, 2021, and 2020 was $219, $263, and $260, respectively. Total accrued expenses related to this plan included in other liabilities were $5,533 and $5,444 as of June 30, 2022 and 2021, respectively.
13. 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, 2022, 2021, and 2020 were $313, $392, and $398, respectively. Total accrued expenses related to these plans included in other liabilities were $7,224 and $7,576 as of June 30, 2022 and 2021, respectively.
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 at the time of the director’s death. For the years ended June 30, 2022, 2021, and 2020 deferred compensation expense was $7, $18, and $21, 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, |
| 2022 | | 2021 |
Net cash surrender value of life insurance, related to deferred compensation | $ | 6,725 | | | $ | 6,481 | |
Deferred compensation liability, included in other liabilities | 430 | | | 675 | |
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 death. Plan expenses for the years ended June 30, 2022, 2021, and 2020 were $616, $653, and $783, respectively. Total accrued expenses related to these plans included in other liabilities were $17,048 and $17,900 as of June 30, 2022 and 2021, 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
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
not qualified under the IRC. Plan expenses for the years ended June 30, 2022, 2021, and 2020 were $150, $164, and $208, respectively. The total deferred compensation plan payable included in other liabilities was $4,435 and $4,617 as of June 30, 2022 and 2021, respectively.
14. 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, directors emeritus, 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 plan would be issued out of authorized but unissued shares, some or all of which may be repurchased shares. The Company repurchased a number of shares on the open market sufficient to cover awards of restricted stock and restricted stock units available to be granted under the 2013 Omnibus Incentive Plan, for $13,297, at an average cost of $15.71 per share during the year ended June 30, 2013.
The table below presents share-based compensation expense and the estimated related tax benefit for stock options and restricted stock for the dates indicated below:
| | | | | | | | | | | | | | | | | |
| Year Ended June 30, |
| 2022 | | 2021 | | 2020 |
Share-based compensation expense | $ | 2,152 | | | $ | 2,102 | | | $ | 1,822 | |
Tax benefit | 508 | | | 494 | | | 428 | |
The table below presents stock option activity and related information for the periods indicated below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Options | | Weighted- Average Exercise Price | | Remaining Contractual Life (Years) | | Aggregate Intrinsic Value |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Options outstanding at June 30, 2020 | 1,615,500 | | | $ | 18.12 | | | 4.4 | | $ | 1,711 | |
Granted | 49,750 | | | 23.44 | | | | | |
| | | | | | | |
Exercised | (318,894) | | | 14.40 | | | | | |
Forfeited | (26,900) | | | 25.77 | | | | | |
| | | | | | | |
Options outstanding at June 30, 2021 | 1,319,456 | | | $ | 19.07 | | | 3.9 | | $ | 11,657 | |
Exercisable at June 30, 2021 | 1,074,706 | | | $ | 17.63 | | | 3.1 | | $ | 11,036 | |
Non-vested at June 30, 2021 | 244,750 | | | $ | 25.37 | | | 7.5 | | $ | 621 | |
| | | | | | | |
Options outstanding at June 30, 2021 | 1,319,456 | | | $ | 19.07 | | | 3.9 | | $ | 11,657 | |
Granted | 47,850 | | | 30.90 | | | | | |
| | | | | | | |
Exercised | (413,636) | | | 14.70 | | | | | |
Forfeited | (24,800) | | | 23.96 | | | | | |
| | | | | | | |
Options outstanding at June 30, 2022 | 928,870 | | | $ | 21.49 | | | 4.1 | | $ | 4,036 | |
Exercisable at June 30, 2022 | 756,720 | | | $ | 20.24 | | | 3.3 | | $ | 3,971 | |
Non-vested at June 30, 2022 | 172,150 | | | $ | 26.96 | | | 7.5 | | $ | 65 | |
Assumptions used in estimating the fair value of option granted during the periods indicated were as follows:
| | | | | | | | | | | | | |
| Year Ended June 30, | | |
| 2022 | | 2021 | | |
Weighted-average volatility | 28.01 | % | | 28.32 | % | | |
Expected dividend yield | 1.13 | % | | 1.33 | % | | |
Risk-free interest rate | 2.02 | % | | 0.77 | % | | |
Expected life (years) | 6.5 | | 6.5 | | |
Weighted-average fair value of options granted | $ | 8.60 | | | $ | 5.61 | | | |
At June 30, 2022, the Company had $954 of unrecognized compensation expense related to 172,150 stock options originally scheduled to vest over a five-year period. 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, 2022. At June 30, 2021, the Company had $1,258 of unrecognized compensation expense related to 244,750 stock options originally scheduled to vest over a five-year period. 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, 2021.
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 |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Non-vested at June 30, 2020 | 144,046 | | | $ | 25.89 | | | $ | 2,305 | |
Granted | 58,547 | | | 23.10 | | | |
Vested | (45,296) | | | 25.17 | | | |
Forfeited | (5,722) | | | 25.02 | | | |
Non-vested at June 30, 2021 | 151,575 | | | $ | 25.06 | | | $ | 4,229 | |
Granted | 51,679 | | | 31.18 | | | |
Vested | (53,744) | | | 25.22 | | | |
Forfeited | (13,600) | | | 25.27 | | | |
Non-vested at June 30, 2022 | 135,910 | | | $ | 27.40 | | | $ | 2,345 | |
The table above includes non-vested performance-based restrictive stock units totaling 33,218 and 30,780 at June 30, 2022 and 2021, respectively. Each issuance of these stock units is scheduled to vest over 3.0 years assuming the applicable dilutive EPS goals are met.
At June 30, 2022, unrecognized compensation expense was $2,771 related to 135,910 shares of restricted stock originally scheduled to vest over three- and five-year 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, 2022. At June 30, 2021, unrecognized compensation expense was $2,811 related to 151,575 shares of restricted stock originally scheduled to vest over three- and five-year periods. The weighted average period over which compensation cost related to non-vested awards is expected to be recognized was 1.7 years at June 30, 2021.
15. 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 as of the dates indicated:
| | | | | | | | | | | | | | | | | |
| Year Ended June 30, |
| 2022 | | 2021 | | 2020 |
Numerator | | | | | |
Net income | $ | 35,653 | | | $ | 15,675 | | | $ | 22,783 | |
Allocation of earnings to participating securities | (310) | | | (145) | | | (194) | |
Numerator for basic EPS - Net income available to common stockholders | $ | 35,343 | | | $ | 15,530 | | | $ | 22,589 | |
Effect of dilutive securities: | | | | | |
Dilutive effect of participating securities | — | | | 4 | | | 6 | |
Numerator for diluted EPS | $ | 35,343 | | | $ | 15,534 | | | $ | 22,595 | |
Denominator | | | | | |
Weighted-average common shares outstanding - basic | 15,516,173 | | | 16,078,066 | | | 16,729,056 | |
Dilutive effect of assumed exercise of stock options | 294,236 | | | 417,049 | | | 563,183 | |
Weighted-average common shares outstanding - diluted | 15,810,409 | | | 16,495,115 | | | 17,292,239 | |
Net income per share - basic | $ | 2.27 | | | $ | 0.96 | | | $ | 1.34 | |
Net income per share - diluted | $ | 2.23 | | | $ | 0.94 | | | $ | 1.30 | |
Potential dilutive shares are excluded from the computation of earnings per share if their effect is anti-dilutive. There were 96,350 and 529,850 stock options that were anti-dilutive as of June 30, 2022 and 2021, respectively.
16. 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, 2022 and June 30, 2021, respectively, loan commitments (excluding $312,893 and $277,600 of undisbursed portions of construction loans) totaled $104,745 and $123,463 of which $23,159 and $45,270 were variable rate commitments and $81,586 and $78,193 were fixed rate commitments. The fixed rate loans had interest rates ranging from 1.41% to 9.00% at June 30, 2022 and 2.50% to 8.36% at June 30, 2021, and terms ranging from three to 30 years. Pre-approved but unused lines of credit (principally HELOCs, commercial lines of credit, and overdraft protection loans) totaled $485,239 and $530,505 at June 30, 2022 and 2021, 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 certain one-to-four
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
family loans held for sale: rate lock commitments and forward loan 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, the Company enters 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, 2022 or June 30, 2021, respectively.
The Company grants construction and permanent loans collateralized primarily by residential and commercial real estate to customers throughout its primary market areas. In addition, the Company grants equipment financing throughout the United States and municipal financing 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 - In response to COVID-19, the FRB reduced the reserve requirements to zero on March 15, 2020. Prior to this change the Bank was required by regulation to maintain a varying cash reserve balance with the FRB.
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 30, 2022 and 2021 were $18,362 and $8,681, respectively. There was no liability recorded for these letters of credit at June 30, 2022 or June 30, 2021, respectively.
Litigation - From time to time, the Company is involved in 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. 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.
17. Regulatory Capital Matters
HomeTrust Bancshares, Inc. is a bank holding company subject to regulation by the Federal Reserve. As a bank holding company, it is 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. The Company's 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 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, 2022, HomeTrust Bancshares, Inc. and the Bank each exceeded all regulatory capital requirements. Consistent with the Company's goals to operate a sound and profitable organization, its 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, 2022 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 |
| Actual | | Minimum for Capital Adequacy Purposes | | Minimum to Be Well Capitalized |
| Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
HomeTrust Bancshares, Inc. | | | | | | | | | | | |
June 30, 2022 | | | | | | | | | | | |
CET1 Capital (to risk-weighted assets) | $ | 372,797 | | | 10.76 | % | | $ | 155,844 | | | 4.50 | % | | $ | 225,108 | | | 6.50 | % |
Tier 1 Capital (to total adjusted assets) | 372,797 | | | 10.50 | | | 142,028 | | | 4.00 | | | 177,535 | | | 5.00 | |
Tier 1 Capital (to risk-weighted assets) | 372,797 | | | 10.76 | | | 207,792 | | | 6.00 | | | 277,057 | | | 8.00 | |
Total Risk-based Capital (to risk-weighted assets) | 395,962 | | | 11.43 | | | 277,057 | | | 8.00 | | | 346,321 | | | 10.00 | |
| | | | | | | | | | | |
June 30, 2021 | | | | | | | | | | | |
CET1 Capital (to risk-weighted assets) | $ | 375,320 | | | 11.26 | % | | $ | 149,943 | | | 4.50 | % | | $ | 216,584 | | | 6.50 | % |
Tier 1 Capital (to total adjusted assets) | 375,320 | | | 10.29 | | | 145,915 | | | 4.00 | | | 182,393 | | | 5.00 | |
Tier 1 Capital (to risk-weighted assets) | 375,320 | | | 11.26 | | | 199,924 | | | 6.00 | | | 266,565 | | | 8.00 | |
Total Risk-based Capital (to risk-weighted assets) | 398,408 | | | 11.96 | | | 266,565 | | | 8.00 | | | 333,206 | | | 10.00 | |
| | | | | | | | | | | |
HomeTrust Bank: | | | | | | | | | | | |
June 30, 2022 | | | | | | | | | | | |
CET1 Capital (to risk-weighted assets) | $ | 358,600 | | | 10.35 | % | | $ | 155,844 | | | 4.50 | % | | $ | 225,108 | | | 6.50 | % |
Tier 1 Capital (to total adjusted assets) | 358,600 | | | 10.11 | | | 141,814 | | | 4.00 | | | 177,267 | | | 5.00 | |
Tier 1 Capital (to risk-weighted assets) | 358,600 | | | 10.35 | | | 207,792 | | | 6.00 | | | 277,057 | | | 8.00 | |
Total Risk-based Capital (to risk-weighted assets) | 381,765 | | | 11.02 | | | 277,057 | | | 8.00 | | | 346,321 | | | 10.00 | |
| | | | | | | | | | | |
June 30, 2021 | | | | | | | | | | | |
CET1 Capital (to risk-weighted assets) | $ | 357,767 | | | 10.74 | % | | $ | 149,936 | | | 4.50 | % | | $ | 216,575 | | | 6.50 | % |
Tier 1 Capital (to total adjusted assets) | 357,767 | | | 9.81 | | | 145,933 | | | 4.00 | | | 182,417 | | | 5.00 | |
Tier 1 Capital (to risk-weighted assets) | 357,767 | | | 10.74 | | | 199,915 | | | 6.00 | | | 266,553 | | | 8.00 | |
Total Risk-based Capital (to risk-weighted assets) | 380,855 | | | 11.43 | | | 266,553 | | | 8.00 | | | 333,192 | | | 10.00 | |
As permitted by the interim final rule issued on March 27, 2020 by the federal banking regulatory agencies, the Company has elected the option to delay the estimated impact on regulatory capital of ASU 2016-13, which was adopted on July 1, 2020. The initial adoption of ASU 2016-13 as well as 25% of the quarterly increases in the ACL subsequent to adoption (collectively the “transition adjustments”) will be delayed for two years. After two years, the cumulative amount of the transition adjustments will become fixed and will be phased out of the regulatory capital calculations evenly over a three-year period, with 75% recognized in year three, 50% recognized in year four, and 25% recognized in year five. After five years, the temporary regulatory capital benefits will be fully reversed.
In addition to the minimum CET1, Tier 1 and total risk-based capital ratios, both HomeTrust Bancshares, Inc. and the Bank 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. As of June 30, 2022, the Company's and Bank's risk-based capital exceeded the required capital contribution buffer.
Dividends paid by HomeTrust Bank are limited, without prior regulatory approval, to current year earnings and earnings less dividends paid during the preceding two years.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
18. Parent Company Only Condensed Financial Information
The following tables present parent company only condensed financial information:
| | | | | | | | | | | |
Condensed Balance Sheets | June 30, |
| 2022 | | 2021 |
Assets | | | |
Cash and cash equivalents | $ | 6,852 | | | $ | 9,602 | |
| | | |
| | | |
| | | |
| | | |
| | | |
REO | — | | | 143 | |
Investment in bank subsidiary | 374,648 | | | 378,966 | |
ESOP loan receivable | 6,154 | | | 6,665 | |
Other assets | 1,252 | | | 1,241 | |
Total assets | $ | 388,906 | | | $ | 396,617 | |
Liabilities and stockholders’ equity | | | |
Other liabilities | $ | 61 | | | $ | 98 | |
Stockholders’ equity | 388,845 | | | 396,519 | |
Total liabilities and stockholders’ equity | $ | 388,906 | | | $ | 396,617 | |
| | | | | | | | | | | | | | | | | |
Condensed Statements of Income | Year Ended June 30, |
| 2022 | | 2021 | | 2020 |
Income | | | | | |
Interest income | $ | 149 | | | $ | 158 | | | $ | 217 | |
| | | | | |
| | | | | |
Equity in undistributed bank subsidiary income | 36,281 | | | 16,246 | | | 23,522 | |
Other | — | | | — | | | 1 | |
Total income | 36,430 | | | 16,404 | | | 23,740 | |
Expense | | | | | |
Management fee expense | 516 | | | 474 | | | 399 | |
REO related expense, net | (3) | | | — | | | 254 | |
Recovery of loan losses | — | | | — | | | (4) | |
Other | 264 | | | 255 | | | 258 | |
Total expense | 777 | | | 729 | | | 907 | |
Income before income taxes | 35,653 | | | 15,675 | | | 22,833 | |
Income tax expense | — | | | — | | | 50 | |
| | | | | |
Net income | $ | 35,653 | | | $ | 15,675 | | | $ | 22,783 | |
| | | | | |
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
| | | | | | | | | | | | | | | | | |
Condensed Statement of Cash Flows | Year Ended June 30, |
| 2022 | | 2021 | | 2020 |
Operating activities | | | | | |
Net income | $ | 35,653 | | | $ | 15,675 | | | $ | 22,783 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Provision (benefit) for credit losses | — | | | — | | | (4) | |
(Gain) loss on sale of REO | (3) | | | — | | | 249 | |
Increase in other assets | (11) | | | (435) | | | (221) | |
Equity in undistributed bank subsidiary income | (36,281) | | | (16,246) | | | (23,522) | |
ESOP compensation expense | 1,502 | | | 1,125 | | | 1,195 | |
Share-based compensation expense | 2,152 | | | 2,102 | | | 1,822 | |
Increase (decrease) in other liabilities | (37) | | | (61) | | | 45 | |
Net cash provided by operating activities | 2,975 | | | 2,160 | | | 2,347 | |
Investing activities | | | | | |
| | | | | |
Proceeds from maturities of CDs in other banks | — | | | — | | | 746 | |
| | | | | |
| | | | | |
| | | | | |
Decrease in loans | — | | | — | | | 1,243 | |
| | | | | |
| | | | | |
Increase in investment in bank subsidiary | (1,707) | | | (1,330) | | | (1,380) | |
Dividends from bank subsidiary | 38,389 | | | 21,416 | | | 19,445 | |
| | | | | |
ESOP principal payments received | 511 | | | 253 | | | 494 | |
Proceeds from sale of REO | 146 | | | — | | | 229 | |
| | | | | |
| | | | | |
Net cash provided by investing activities | 37,339 | | | 20,339 | | | 20,777 | |
Financing activities | | | | | |
| | | | | |
| | | | | |
Common stock repurchased | (43,348) | | | (16,155) | | | (24,484) | |
Cash dividends paid | (5,452) | | | (5,018) | | | (4,552) | |
Retired stock | (345) | | | (204) | | | (222) | |
Exercised stock options | 6,081 | | | 4,592 | | | 1,541 | |
Net cash used in financing activities | (43,064) | | | (16,785) | | | (27,717) | |
Net increase (decrease) in cash and cash equivalents | (2,750) | | | 5,714 | | | (4,593) | |
Cash and cash equivalents at beginning of period | 9,602 | | | 3,888 | | | 8,481 | |
Cash and cash equivalents at end of period | $ | 6,852 | | | $ | 9,602 | | | $ | 3,888 | |
19. Fair Value of Financial Instruments
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a company's own assumptions about the assumptions that market participants would use in pricing an asset or liability.
A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The 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.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Financial Assets Recorded at Fair Value
The following table presents financial assets measured at fair value on a recurring basis at the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 |
| Total | | Level 1 | | Level 2 | | Level 3 |
U.S government agencies | $ | 18,459 | | | $ | — | | | $ | 18,459 | | | $ | — | |
MBS, residential | 47,233 | | | — | | | 47,233 | | | — | |
Municipal bonds | 5,558 | | | — | | | 5,558 | | | — | |
Corporate bonds | 55,728 | | | — | | | 55,728 | | | — | |
| | | | | | | |
Total | $ | 126,978 | | | $ | — | | | $ | 126,978 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 |
| Total | | Level 1 | | Level 2 | | Level 3 |
U.S government agencies | $ | 19,073 | | | $ | — | | | $ | 19,073 | | | $ | — | |
MBS, residential | 43,404 | | | — | | | 43,404 | | | — | |
Municipal bonds | 9,551 | | | — | | | 9,551 | | | — | |
Corporate bonds | 84,431 | | | — | | | 84,431 | | | — | |
| | | | | | | |
Total | $ | 156,459 | | | $ | — | | | $ | 156,459 | | | $ | — | |
Debt 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 MBS and debentures issued by GSEs, municipal bonds, and corporate debt securities. The Company has no Level 3 securities.
There were no transfers between levels during the years ended June 30, 2022 and 2021.
The following table presents financial assets measured at fair value on a non-recurring basis at the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 |
| Total | | Level 1 | | Level 2 | | Level 3 |
Collateral dependent loans | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Commercial loans | | | | | | | |
Commercial and industrial | $ | 415 | | | $ | — | | | $ | — | | | $ | 415 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Residential real estate loans | | | | | | | |
| | | | | | | |
One-to-four family | — | | | — | | | — | | | — | |
| | | | | | | |
| | | | | | | |
Total | $ | 415 | | | $ | — | | | $ | — | | | $ | 415 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 |
| Total | | Level 1 | | Level 2 | | Level 3 |
Collateral dependent loans | | | | | | | |
Commercial real estate loans | | | | | | | |
| | | | | | | |
Commercial real estate - owner occupied | $ | 1,422 | | | $ | — | | | $ | — | | | $ | 1,422 | |
| | | | | | | |
Multifamily | 3,421 | | | — | | | — | | | 3,421 | |
Commercial loans | | | | | | | |
Equipment finance | 275 | | | — | | | — | | | 275 | |
Total | $ | 5,118 | | | $ | — | | | $ | — | | | $ | 5,118 | |
A loan is considered to be collateral dependent when, based on current information and events, the Company expects repayment of the financial assets to be provided substantially through the operation or sale of the collateral and the Company has determined that the borrower is experiencing financial difficulty as of the measurement date. For real estate loans, the fair value of the loan's collateral is determined by a third party appraisal, which is then adjusted for the estimated selling and closing costs related to liquidation of the collateral (typically ranging from 8% to 12% of the appraised value). For this asset class, the actual valuation methods (income, sales comparable, or cost) vary based on the status of the project or property. Additional discounts of 5% to 15% may be applied depending on the age of the appraisals. The unobservable inputs may vary depending on the age of the appraisals. The unobservable inputs may vary depending on the individual asset with no one of the three methods being the predominant approach. For non-real estate loans, the fair value of the loan's collateral may be determined using an appraisal, net book value per the borrower's financial statements, or aging reports, adjusted or discounted based on
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
management's historical knowledge, changes in market conditions from the time of the valuation, and management's expertise and knowledge of the customer and customer's business.
The stated carrying value and estimated fair value amounts of financial instruments as of June 30, 2022 and June 30, 2021, are summarized below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 |
| Carrying Value | | Fair Value | | Level 1 | | Level 2 | | Level 3 |
Assets | | | | | | | | | |
Cash and cash equivalents | $ | 105,119 | | | $ | 105,119 | | | $ | 105,119 | | | $ | — | | | $ | — | |
Commercial paper, net | 194,427 | | | 194,427 | | | 194,427 | | | — | | | — | |
Certificates of deposit in other banks | 23,551 | | | 23,551 | | | — | | | 23,551 | | | — | |
Debt securities available for sale | 126,978 | | | 126,978 | | | — | | | 126,978 | | | — | |
Loans held for sale | 79,307 | | | 80,489 | | | — | | | — | | | 80,489 | |
Loans, net | 2,734,605 | | | 2,687,293 | | | — | | | — | | | 2,687,293 | |
FHLB and FRB stock | 9,326 | | | N/A | | N/A | | N/A | | N/A |
SBIC investments | 12,758 | | | 12,758 | | | — | | | — | | | 12,758 | |
| | | | | | | | | |
Accrued interest receivable | 8,573 | | | 8,573 | | | 24 | | | 580 | | | 7,969 | |
Liabilities | | | | | | | | | |
Noninterest-bearing and NOW deposits | 1,400,727 | | | 1,400,727 | | | — | | | 1,400,727 | | | — | |
Money market accounts | 969,661 | | | 969,661 | | | — | | | 969,661 | | | — | |
Savings accounts | 238,197 | | | 238,197 | | | — | | | 238,197 | | | — | |
Certificates of deposit | 491,176 | | | 485,452 | | | — | | | 485,452 | | | — | |
| | | | | | | | | |
Accrued interest payable | 80 | | | 80 | | | — | | | 80 | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 |
| Carrying Value | | Fair Value | | Level 1 | | Level 2 | | Level 3 |
Assets | | | | | | | | | |
Cash and cash equivalents | $ | 50,990 | | | $ | 50,990 | | | $ | 50,990 | | | $ | — | | | $ | — | |
Commercial paper, net | 189,596 | | | 189,596 | | | 189,596 | | | — | | | — | |
Certificates of deposit in other banks | 40,122 | | | 40,122 | | | — | | | 40,122 | | | — | |
Debt securities available for sale | 156,459 | | | 156,459 | | | — | | | 156,459 | | | — | |
Loans held for sale | 93,539 | | | 94,779 | | | — | | | — | | | 94,779 | |
Loans, net | 2,697,799 | | | 2,668,570 | | | — | | | — | | | 2,668,570 | |
FHLB and FRB stock | 13,521 | | | N/A | | N/A | | N/A | | N/A |
SBIC investments | 10,171 | | | 10,171 | | | — | | | — | | | 10,171 | |
Accrued interest receivable | 7,933 | | | 7,933 | | | 52 | | | 542 | | | 7,339 | |
Liabilities | | | | | | | | | |
Noninterest-bearing and NOW deposits | 1,281,372 | | | 1,281,372 | | | — | | | 1,281,372 | | | — | |
Money market accounts | 975,001 | | | 975,001 | | | — | | | 975,001 | | | — | |
Savings accounts | 226,391 | | | 226,391 | | | — | | | 226,391 | | | — | |
Certificates of deposit | 472,777 | | | 474,397 | | | — | | | 474,397 | | | — | |
Borrowings | 115,000 | | | 115,000 | | | — | | | 115,000 | | | — | |
Accrued interest payable | 52 | | | 52 | | | — | | | 52 | | | — | |
The Company had off-balance sheet financial commitments, which include approximately $921,239 and $931,568 of commitments to originate loans, undisbursed portions of construction loans, unused lines of credit, and standing letters of credit at June 30, 2022 and 2021, respectively (see "Note 16 - Commitments and Contingencies"). Since these commitments are based on current rates, the carrying amount approximates the fair value.
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
20. Unaudited Interim Financial Information
The unaudited statements of income for each of the quarters during the fiscal years ended June 30, 2022, 2021 and 2020 are summarized below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| June 30, 2022 | | March 31, 2022 | | December 31, 2021 | | September 30, 2021 |
Interest and dividend income | $ | 30,126 | | | $ | 28,195 | | | $ | 28,488 | | | $ | 29,305 | |
Interest expense | 1,267 | | | 1,155 | | | 1,320 | | | 1,598 | |
Net interest income | 28,859 | | | 27,040 | | | 27,168 | | | 27,707 | |
Provision (benefit) for credit losses | 3,413 | | | (45) | | | (2,500) | | | (1,460) | |
Net interest income after provision (benefit) for credit losses | 25,446 | | | 27,085 | | | 29,668 | | | 29,167 | |
Noninterest income | 9,716 | | | 8,947 | | | 10,180 | | | 10,352 | |
Noninterest expense | 27,459 | | | 25,799 | | | 25,909 | | | 26,016 | |
Income before income taxes | 7,703 | | | 10,233 | | | 13,939 | | | 13,503 | |
Income tax expense | 1,678 | | | 2,210 | | | 2,861 | | | 2,976 | |
Net income | $ | 6,025 | | | $ | 8,023 | | | $ | 11,078 | | | $ | 10,527 | |
Net income per common share | | | | | | | |
Basic | $ | 0.40 | | | $ | 0.51 | | | $ | 0.70 | | | $ | 0.66 | |
Diluted | $ | 0.39 | | | $ | 0.51 | | | $ | 0.68 | | | $ | 0.65 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| June 30, 2021 | | March 31, 2021 | | December 31, 2020 | | September 30, 2020 |
Interest and dividend income | $ | 28,806 | | | $ | 29,321 | | | $ | 30,157 | | | $ | 30,449 | |
Interest expense | 2,808 | | | 3,628 | | | 4,035 | | | 4,940 | |
Net interest income | 25,998 | | | 25,693 | | | 26,122 | | | 25,509 | |
Provision (benefit) for credit losses | (955) | | | (4,100) | | | (3,030) | | | 950 | |
Net interest income after provision (benefit) for credit losses | 26,953 | | | 29,793 | | | 29,152 | | | 24,559 | |
Noninterest income | 11,160 | | | 10,678 | | | 9,344 | | | 8,639 | |
Noninterest expense | 48,233 | | | 30,506 | | | 26,443 | | | 26,000 | |
Income (loss) before income taxes | (10,120) | | | 9,965 | | | 12,053 | | | 7,198 | |
Income tax expense (benefit) | (2,712) | | | 2,096 | | | 2,592 | | | 1,445 | |
Net income (loss) | $ | (7,408) | | | $ | 7,869 | | | $ | 9,461 | | | $ | 5,753 | |
Net income (loss) per common share | | | | | | | |
Basic | $ | (0.46) | | | $ | 0.49 | | | $ | 0.58 | | | $ | 0.35 | |
Diluted | $ | (0.46) | | | $ | 0.48 | | | $ | 0.57 | | | $ | 0.35 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 credit losses | 2,700 | | | 5,400 | | | 400 | | | — | |
Net interest income after provision for credit 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 | |
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 | |
21. Subsequent Events
On July 24, 2022, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Quantum Capital Corp., a Georgia corporation (“Quantum”). Pursuant to the terms and conditions set forth in the Merger Agreement, Quantum will merge with and into the Company, with the Company surviving, and Quantum National Bank, the wholly owned subsidiary of Quantum, will merge with and into the Bank with the Bank as the surviving bank. The Merger Agreement was unanimously approved by the Boards of both Quantum and HomeTrust and by the Quantum stockholders. The parties anticipate that the Merger will close in the first quarter of calendar year 2023.