Document


UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X]            QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2018

[  ]            TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from _______ to ________

Commission file number:     001-35593

HOMETRUST BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Maryland
 
          45-5055422
(State or other jurisdiction of incorporation of organization)
 
(IRS Employer Identification No.)

10 Woodfin Street, Asheville, North Carolina 28801
(Address of principal executive offices; Zip Code)

(828) 259-3939
(Registrant's telephone number, including area code)

None
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 and 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.        Yes [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [  ]      
 
 
 
Accelerated filer [X]
 
 
Non-accelerated filer   [  ]
Smaller reporting company [  ]
 
 
Emerging growth company [ ]
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
[ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes [  ] No [X]
There were 18,394,436 shares of common stock, par value of $.01 per share, issued and outstanding as of February 7, 2018.




HOMETRUST BANCSHARES, INC. AND SUBSIDIARIES
10-Q
TABLE OF CONTENTS
 
 
 
Page
Number
 
 
 
 
Item 1. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2. 
 
 
 
 
Item 3. 
 
 
 
 
Item 4. 
 
 
 
 
 
 
 
 
 
Item 1. 
 
 
 
 
Item 1A. 
 
 
 
 
Item 2. 
 
 
 
 
Item 3. 
 
 
 
 
Item 4. 
 
 
 
 
Item 5 
 
 
 
 
Item 6. 
 
 
 
 

1



PART I.  FINANCIAL INFORMATION
Item 1.    Financial Statements
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(Dollars in thousands, except per share data)
 
(Unaudited)
 
 
 
December 31, 2018
 
June 30,
2018 (1)
Assets
 
 
 
Cash
$
44,425

 
$
45,222

Interest-bearing deposits
26,881

 
25,524

Cash and cash equivalents
71,306

 
70,746

Commercial paper
239,286

 
229,070

Certificates of deposit in other banks
51,936

 
66,937

Debt securities available for sale, at fair value
149,752

 
154,993

Other investments, at cost
44,858

 
41,931

Loans held for sale
13,095

 
5,873

Total loans, net of deferred loan fees
2,632,231

 
2,525,852

Allowance for loan losses
(21,419
)
 
(21,060
)
Net loans
2,610,812

 
2,504,792

Premises and equipment, net
66,610

 
62,537

Accrued interest receivable
10,372

 
9,344

Real estate owned ("REO")
2,955

 
3,684

Deferred income taxes
28,533

 
32,565

Bank owned life insurance ("BOLI")
89,156

 
88,028

Goodwill
25,638

 
25,638

Core deposit intangibles
3,436

 
4,528

Other assets
5,354

 
3,503

Total Assets
$
3,413,099

 
$
3,304,169

Liabilities and Stockholders' Equity
 

 
 

Liabilities
 

 
 

Deposits
$
2,258,069

 
$
2,196,253

Borrowings
688,000

 
635,000

Capital lease obligations
1,897

 
1,914

Other liabilities
54,163

 
61,760

Total liabilities
3,002,129

 
2,894,927

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, 18,520,825 shares
    issued and outstanding at December 31, 2018; 19,041,668 at June 30, 2018
185

 
191

Additional paid in capital
203,660

 
217,480

Retained earnings
215,289

 
200,575

Unearned Employee Stock Ownership Plan ("ESOP") shares
(7,142
)
 
(7,406
)
Accumulated other comprehensive loss
(1,022
)
 
(1,598
)
Total stockholders' equity
410,970

 
409,242

Total Liabilities and Stockholders' Equity
$
3,413,099

 
$
3,304,169

(1)    Derived from audited financial statements.
The accompanying notes are an integral part of these consolidated financial statements.

2



HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Income (Loss)
(Dollars in thousands, except per share data)
 
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
December 31,
 
December 31,
 
2018
 
2017
 
2018
 
2017
Interest and Dividend Income
 
 
 
 
 
 
 
Loans
$
30,544

 
$
26,140

 
$
59,272

 
$
51,390

Securities available for sale
876

 
904

 
1,732

 
1,875

Commercial paper and interest-bearing deposits in other banks
1,966

 
1,303

 
3,823

 
2,472

Other investments
1,014

 
631

 
1,853

 
1,257

Total interest and dividend income
34,400

 
28,978

 
66,680

 
56,994

Interest Expense
 

 
 

 
 

 
 

Deposits
3,607

 
1,541

 
6,357

 
2,887

Borrowings
3,692

 
2,077

 
6,950

 
4,046

Total interest expense
7,299

 
3,618

 
13,307

 
6,933

Net Interest Income
27,101

 
25,360

 
53,373

 
50,061

Provision for Loan Losses

 

 

 

Net Interest Income after Provision for Loan Losses
27,101

 
25,360

 
53,373

 
50,061

Noninterest Income
 

 
 

 
 

 
 

Service charges and fees on deposit accounts
2,577

 
1,987

 
4,978

 
3,831

Loan income and fees
295

 
197

 
623

 
580

Gain on sale of loans held for sale
944

 
1,164

 
2,614

 
1,883

BOLI income
520

 
518

 
1,056

 
1,080

Gain from sale of premises and equipment

 

 

 
164

Other, net
749

 
593

 
1,427

 
1,183

Total noninterest income
5,085

 
4,459

 
10,698

 
8,721

Noninterest Expense
 

 
 

 
 

 
 

Salaries and employee benefits
12,857

 
11,973

 
25,542

 
24,325

Net occupancy expense
2,551

 
2,473

 
4,898

 
4,822

Marketing and advertising
402

 
319

 
819

 
772

Telephone, postage, and supplies
743

 
748

 
1,512

 
1,433

Deposit insurance premiums
335

 
419

 
639

 
833

Computer services
1,895

 
1,595

 
3,744

 
3,140

Loss (gain) on sale and impairment of REO
75

 
104

 
254

 
(42
)
REO expense
173

 
205

 
348

 
446

Core deposit intangible amortization
526

 
681

 
1,092

 
1,400

Other
2,301

 
2,460

 
4,893

 
4,734

Total noninterest expense
21,858

 
20,977

 
43,741

 
41,863

Income Before Income Taxes
10,328

 
8,842

 
20,330

 
16,919

Income Tax Expense
2,287

 
19,508

 
4,499

 
22,018

Net Income (Loss)
$
8,041

 
$
(10,666
)
 
$
15,831

 
$
(5,099
)
Per Share Data:
 

 
 

 
 

 
 

Net income (loss) per common share:
 

 
 

 
 

 
 

Basic
$
0.45

 
$
(0.59
)
 
$
0.88

 
$
(0.28
)
Diluted
$
0.43

 
$
(0.59
)
 
$
0.84

 
$
(0.28
)
Cash dividends declared per common share
$
0.06

 
$

 
$
0.06

 
$

Average shares outstanding:
 

 
 

 
 

 
 

Basic
17,797,553

 
17,975,883

 
17,961,465

 
17,971,439

Diluted
18,497,334

 
17,975,883

 
18,689,584

 
17,971,439

The accompanying notes are an integral part of these consolidated financial statements.

3



HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Comprehensive Income (Loss)
(Dollars in thousands)
 
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
December 31,
 
December 31,
 
2018
 
2017
 
2018
 
2017
Net Income (Loss)
$
8,041

 
$
(10,666
)
 
$
15,831

 
$
(5,099
)
Other Comprehensive Income (Loss)
 

 
 

 
 

 
 

  Unrealized holding gains (losses) on securities available for sale
 

 
 

 
 

 
 

Gains (losses) arising during the period
1,126

 
(1,009
)
 
748

 
(859
)
Deferred income tax benefit (expense)
(259
)
 
303

 
(172
)
 
258

Total other comprehensive income (loss)
$
867

 
$
(706
)
 
$
576

 
$
(601
)
Comprehensive Income (Loss)
$
8,908

 
$
(11,372
)
 
$
16,407

 
$
(5,700
)
The accompanying notes are an integral part of these consolidated financial statements.

4



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, 2017
18,967,875

 
$
190

 
$
213,459

 
$
191,660

 
$
(7,935
)
 
$
273

 
$
397,647

Net loss

 

 

 
(5,099
)
 

 

 
(5,099
)
Cumulative-effect adjustment on the change in accounting for share-based payments

 

 

 
680

 

 

 
680

Forfeited restricted stock
(6,600
)
 

 

 

 

 

 

Granted restricted stock
2,000

 

 

 

 

 

 

Exercised stock options
3,900

 

 
57

 

 

 

 
57

Stock option expense

 

 
1,209

 

 

 

 
1,209

Restricted stock expense

 

 
805

 

 

 

 
805

ESOP shares allocated

 

 
398

 

 
265

 

 
663

Other comprehensive loss

 

 

 

 

 
(601
)
 
(601
)
Balance at December 31, 2017
18,967,175

 
$
190

 
$
215,928

 
$
187,241

 
$
(7,670
)
 
$
(328
)
 
$
395,361

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at June 30, 2018
19,041,668

 
$
191

 
$
217,480

 
$
200,575

 
$
(7,406
)
 
$
(1,598
)
 
$
409,242

Net income

 

 

 
15,831

 

 

 
15,831

Cash dividends declared on common stock

 

 

 
(1,117
)
 

 

 
(1,117
)
Stock repurchased
(559,755
)
 
(6
)
 
(15,640
)
 

 

 

 
(15,646
)
Forfeited restricted stock
(2,700
)
 

 

 

 

 

 

Retired stock
(588
)
 

 
(17
)
 

 

 

 
(17
)
Exercised stock options
42,200

 

 
608

 

 

 

 
608

Stock option expense

 

 
359

 

 

 

 
359

Restricted stock expense

 

 
397

 

 

 

 
397

ESOP shares allocated

 

 
473

 

 
264

 

 
737

Other comprehensive income

 

 

 

 

 
576

 
576

Balance at December 31, 2018
18,520,825

 
$
185

 
$
203,660

 
$
215,289

 
$
(7,142
)
 
$
(1,022
)
 
$
410,970

The accompanying notes are an integral part of these consolidated financial statements.

5



HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Dollars in thousands)
 
(Unaudited)
 
Six Months Ended December 31,
 
2018
 
2017
Operating Activities:
 
 
 
Net income (loss)
$
15,831

 
$
(5,099
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 

 
 

Depreciation
2,144

 
1,950

Deferred income tax expense
3,860

 
21,780

Net amortization and accretion
(3,611
)
 
(2,567
)
Gain from sale of premises and equipment

 
(164
)
Loss (gain) on sale and impairment of REO
254

 
(42
)
Gain on sale of loans held for sale
(2,614
)
 
(1,883
)
Origination of loans held for sale
(79,420
)
 
(68,114
)
Proceeds from sales of loans held for sale
78,998

 
66,999

Increase (decrease) in deferred loan fees, net
(265
)
 
297

Increase in accrued interest receivable and other assets
(2,816
)
 
(2,818
)
Amortization of core deposit intangibles
1,092

 
1,400

BOLI income
(1,056
)
 
(1,080
)
ESOP compensation expense
737

 
663

Restricted stock and stock option expense
756

 
2,014

Decrease in other liabilities
(7,597
)
 
(1,904
)
Net cash provided by operating activities
6,293

 
11,432

Investing Activities:
 

 
 

Purchase of securities available for sale
(15,750
)
 

Proceeds from maturities of securities available for sale
11,565

 
19,680

Net purchases of commercial paper
(7,204
)
 
(48,440
)
Purchase of certificates of deposit in other banks
(6,709
)
 
(12,619
)
Maturities of certificates of deposit in other banks
21,710

 
44,544

Principal repayments of mortgage-backed securities
9,668

 
10,941

Net redemptions (purchases) of other investments
(2,927
)
 
478

Net increase in loans
(108,995
)
 
(64,275
)
Purchase of BOLI
(79
)
 
(69
)
Proceeds from redemption of BOLI
7

 
146

Purchase of premises and equipment
(692
)
 
(1,496
)
Purchase of operating lease equipment
(5,525
)
 

Capital improvements to REO

 
(18
)
Proceeds from sale of premises and equipment

 
923

Proceeds from sale of REO
571

 
2,151

Net cash used in investing activities
(104,360
)
 
(48,054
)
Financing Activities:
 

 
 

Net increase in deposits
61,816

 
59,757

Net increase (decrease) in other borrowings
53,000

 
(11,500
)
Common stock repurchased
(15,646
)
 

Cash dividend declared
(1,117
)
 

Retired stock
(17
)
 

Exercised stock options
608

 
57

Decrease in capital lease obligations
(17
)
 
(12
)
Net cash provided by financing activities
98,627

 
48,302

Net Increase in Cash and Cash Equivalents
560

 
11,680

Cash and Cash Equivalents at Beginning of Period
70,746

 
86,985

Cash and Cash Equivalents at End of Period
$
71,306

 
$
98,665


6



HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows (continued)
(Dollars in thousands)
 
(Unaudited)
Supplemental Disclosures:
Six Months Ended December 31,
 
2018
 
2017
Cash paid during the period for:
 
 
 
Interest
$
12,534

 
$
6,788

Income taxes
277

 
266

Noncash transactions:
 

 
 

Unrealized gain (loss) in value of securities available for sale, net of income taxes
576

 
(601
)
Transfers of loans to REO
96

 
591

Transfers of loans held for sale from loans held for investment
5,794

 

Cumulative-effect adjustment on the change in accounting for share-based payments


 
680

Transfers of loans to held for sale to loans held for investment
1,608

 
1,533

The accompanying notes are an integral part of these consolidated financial statements.

7


HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
1.
Summary of Significant Accounting Policies
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 the Bank, its consolidated subsidiary, unless the context otherwise requires.
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission ("SEC"). Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. It is recommended that these unaudited interim consolidated financial statements be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended June 30, 2018 ("2018 Form 10-K") filed with the SEC on September 13, 2018. The results of operations for the three and six months ended December 31, 2018 are not necessarily indicative of results that may be expected for the entire fiscal year ending June 30, 2019.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported in the financial statements. Various elements of the Company's accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions, and other subjective assessments. In particular, management has identified several accounting policies that, due to the judgments, estimates and assumptions inherent in those policies, are critical to an understanding of the Company's financial statements. These policies relate to (i) the determination of the provision and the allowance for loan losses, (ii) business combinations and acquired loans, (iii) the valuation of REO, (iv) the valuation of goodwill and other intangible assets, and (v) the valuation of or recognition of deferred tax assets and liabilities. These policies and judgments, estimates and assumptions are described in greater detail in subsequent notes to the Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations (Critical Accounting Policies) in our 2018 Form 10-K. Management believes that the judgments, estimates and assumptions used in the preparation of the financial statements are appropriate based on the factual circumstances at the time. However, given the sensitivity of the financial statements to these critical accounting policies, the use of other judgments, estimates and assumptions could result in material differences in the Company's results of operations or financial condition. Further, subsequent changes in economic or market conditions could have a material impact on these estimates and the Company's financial condition and operating results in future periods.
Certain amounts reported in prior periods' consolidated financial statements have been reclassified to conform to the current presentation. Such reclassifications had no effect on previously reported cash flows, stockholders' equity or net income.
2.
Recent Accounting Pronouncements
In August 2015, the Financial Accounting Standards Board ("FASB") issued ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606)”, which defers the effective date of Accounting Standard Update ("ASU") No. 2014-09 one year. ASU No. 2014-09 created Topic 606 and supersedes Topic 605, Revenue Recognition. The core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In general, the new guidance requires companies to use more judgment and make more estimates than under current guidance, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In May 2016, the FASB issued ASU No. 2016-12, "Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients," which provides clarifying guidance in certain narrow areas and adds some practical expedients, but does not change the core revenue recognition principle in Topic 606. For financial reporting purposes, the standard allows for either full retrospective adoption, meaning the standard is applied to all of the periods presented, or modified retrospective adoption, meaning the standard is applied only to the most current period presented in the financial statements with the cumulative effect of initially applying the standard recognized at the date of initial application. A significant amount of the Company’s revenues are derived from net interest income on financial assets and liabilities, which are excluded from the scope of the amended guidance. The Company adopted this ASU on July 1, 2018. The adoption did not have a material effect on the Company's Consolidated Financial Statements. However, additional disclosures required by this ASU have been included in “Note 12 - Revenue” to the Company’s consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, "Financial Instruments (Subtopic 825-10) Recognition and Measurement of Financial Assets and Financial Liabilities." The ASU amends the guidance in GAAP on the classification and measurement of financial instruments. The ASU includes the following changes: i) equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (ii) requires the use of exit price notion when measuring the fair value of financial instruments for disclosure purposes; (iii) require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e. securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; (iv) allows an equity investment that does not have readily determinable fair values, to be measured 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 of the same issuer; (v) eliminates the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, and requires a reporting

8

HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)

organization to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk (also referred to as “own credit”) when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (vi) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e. securities or loans and receivables) on the balance sheet or in the accompanying notes to the financial statements; and (vii) clarifies that a valuation allowance on a deferred tax asset related to available-for-sale securities should be evaluated in combination with the organization’s other deferred tax assets. Exit price is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company adopted this ASU on July 1, 2018. The adoption did not have a material effect on the Company's Consolidated Financial Statements. The disclosures to the Company’s consolidated financial statements have been updated appropriately using the exit price notion in “Note 11 - Fair Value of Financial Instruments.”
In February 2016, the FASB issued ASU 2016-02, "Leases (Accounting Standards Codification ("ASC") 842)." The guidance in this ASU requires most leases to be recognized on the balance sheet as a right-of-use asset and a lease liability. It will be critical to identify leases embedded in a contract to avoid misstating the lessee’s balance sheet. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. In July 2018, the FASB issued ASU 2018-10, "Codification Improvements to Topic 842, Leases" and ASU 2018-11 "Leases (Topic 842): Targeted Improvements." ASU 2018-10 made 16 narrow-scope amendments to ASC 842. The amendments in this ASU 2018-11 are intended to provide entities with relief from the costs of implementing certain aspects of the the new lease accounting standard. Specifically, an entity can elect not to recast the comparative periods presented when transitioning to ASC 842 and provides a lessor with the option to not separate lease and nonlease components when certain conditions are met. This ASU also provides a new transition method in addition to the existing transition method contained in ASU No. 2016-02 to allow entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. These amendments have the same effective date as ASU 2016-02. We are currently evaluating the impact of this guidance on our Consolidated Financial Statements and the timing of adoption. The Company will compile an inventory of all leased assets to determine the impact of ASU 2016-02 on its financial condition and results of operations. The effect of the adoption of these ASUs will depend on leases at time of adoption. Once adopted, we expect to report higher assets and liabilities on our Consolidated Balance Sheets as a result of including right-of-use assets and lease liabilities related to certain banking offices and certain equipment under noncancelable operating lease agreements, which currently are not reflected in our Consolidated Balance Sheets. We do not expect the guidance to have a material impact on the Consolidated Statements of Income or the Consolidated Statements of Changes in Stockholders' Equity.
In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." The ASU significantly changes the impairment model for most financial assets that are measured at amortized cost and certain other instruments from an incurred loss model to an expected loss model. This ASU is effective for interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted for all entities beginning after December 15, 2018, including interim periods within those fiscal years. The Company is evaluating our current expected loss methodology of our loan and investment portfolios to identify the necessary modifications in accordance with this standard and expects a change in the processes and procedures to calculate the allowance for loan losses, including changes in assumptions and estimates to consider expected credit losses over the life of the loan versus the current accounting practice that utilizes the incurred loss model. A valuation adjustment to our allowance for loan losses or investment portfolio that is identified in this process will be reflected as a one-time adjustment in equity rather than earnings. The Company is in the process of compiling historical data that will be used to calculate expected credit losses on its loan portfolio to ensure it is fully compliant with the ASU at the adoption date and is evaluating the potential impact adoption of this ASU will have on its consolidated financial statements. Once adopted, the Company expects its allowance for loan losses to increase, however, until its evaluation is complete the magnitude of the increase will be unknown.
In August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments." The ASU amends the guidance on the classification of certain cash receipts and payments in the statement of cash flows and is intended to reduce the diversity in practice. The Company adopted this ASU on July 1, 2018. The adoption did not have a material effect on the Company's Consolidated Financial Statements.
In March 2017, FASB issued ASU 2017-08, "Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities." The ASU requires entities to amortize the premium on certain purchased callable debt securities to the earliest call date, which more closely aligns the amortization period of premiums and discounts to expectations incorporated in the market prices. Entities will no longer recognize a loss in earnings upon the debtor's exercise of a call on a purchased debt security held at a premium. The ASU does not require any accounting change for debt securities held at a discount, therefore the discount will continue to be amortized as an adjustment of yield over the contractual life of the investment. This ASU is effective for interim and annual reporting periods, beginning after December 15, 2018. Early adoption is permitted for all entities. The adoption of ASU No. 2017-08 is not expected to have a material impact on the Company's Consolidated Financial Statements.
In May 2017, the FASB issued ASU 2017-09, "Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting." This ASU provides clarity on the guidance related to stock compensation when there have been changes to the terms or conditions of a share-based payment award to which an entity would be required to apply modification accounting under ASC 718. The ASU provides the three following criteria must be met in order to not account for the effect of the modification of terms or conditions: the fair value, the vesting conditions and the classification as an equity or liability instrument of the modified award is the same as the original award immediately before the original award is modified. The Company adopted this ASU on July 1, 2018. The adoption did not have a material effect on the Company's Consolidated Financial Statements.

9

HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)

In August 2017, FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities." This ASU improves the transparency and understandability of disclosures in the financial statements regarding the entities risk management activities and reduces the complexity of hedge accounting. The amendments in this ASU permit hedge accounting for hedging relationships involving nonfinancial risk and interest rate risk by removing certain limitations in cash flow and fair value hedging relationships. In addition, the ASU requires an entity to present the earnings effect of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is reported. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018 and early adoption is permitted. The adoption of ASU No. 2017-12 is not expected to have a material impact on the Company's Consolidated Financial Statements.
In February 2018, FASB issued ASU 2018-02, "Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." The ASU allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the revaluation of the Company’s net deferred tax assets (“DTA”) to the new corporate federal income tax rate of 21% as a result of the Tax Cuts and Jobs Act (‘Tax Act”). The Company elected to early adopt this ASU during the year ended June 30, 2018. The affected amount for the Company was immaterial and did not have an effect on the Company's Consolidated Financial Statements.
In March 2018, FASB issued ASU No. 2018-05, "Income Taxes (Topic 740)." This ASU was issued to provide guidance on the income tax accounting implications of the Tax Act and allows for entities to report provisional amounts for specific income tax effects of the Act for which the accounting under Topic 740 was not yet complete, but a reasonable estimate could be determined. A measurement period of one-year is allowed to complete the accounting effects under Topic 740 and revise any previous estimates reported. Any provisional amounts or subsequent adjustments included in an entity’s financial statements during the measurement period should be included in income from continuing operations as an adjustment to tax expense in the reporting period the amounts are determined. The Company adopted this ASU with the provisional adjustments as reported in the Consolidated Financial Statements on Form 10-Q as of December 31, 2017. As of June 30, 2018, the Company did not incur any adjustments to the provisional recognition.
In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement." The amendments in this ASU removes, modifies, and adds certain disclosure requirements related to fair value measurements in ASC 820. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2019 and early adoption is permitted. The adoption of ASU No. 2018-13 is not expected to have a material impact on the Company's Consolidated Financial Statements.
In November 2018, the FASB issued ASU 2018-19, "Codification Improvements to Topic 326, Financial Instruments—Credit Losses." This update clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases. The effective date and transition requirements for this ASU are the same as ASU 2016-13. The adoption of ASU No. 2018-19 is not expected to have a material impact on the Company's Consolidated Financial Statements.
In December 2018, the FASB issued ASU 2018-20, "Leases (Topic 842): Narrow-Scope Improvements for Lessors." The amendments in this update permit lessors, as an accounting policy election, to not evaluate whether certain sales taxes and other similar taxes are lessor costs or lessee costs. Instead, those lessors will account for those costs as if they are lessee costs. A lessor making this election will exclude from the consideration in the contract and from variable payments not included in the consideration in the contract all collections from lessees of taxes within the scope of the election and will provide certain disclosures. For certain lessor costs, the lessor must exclude from variable payments, and therefore revenue, lessor costs paid by lessees directly to third parties from variable payments. In addition, the lessor must account for costs excluded from the consideration of a contract that are paid by the lessor and reimbursed by the lessee as variable payments. A lessor will record those reimbursed costs as revenue. The amendments in this ASU related to recognizing variable payments for contracts with lease and nonlease components require lessors to allocate (rather than recognize as currently required) certain variable payments to the lease and nonlease components when the changes in facts and circumstances on which the variable payment is based occur. After the allocation, the amount of variable payments allocated to the lease components will be recognized as income in profit or loss in accordance with Topic 842, while the amount of variable payments allocated to nonlease components will be recognized in accordance with other Topics, such as Topic 606. The effective date and transition requirements for this ASU are the same as ASU 2016-02. The adoption of ASU No. 2018-20 is not expected to have a material impact on the Company's Consolidated Financial Statements.

10

HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)

3.
Debt Securities
Securities available for sale consist of the following at the dates indicated:
 
December 31, 2018
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
U.S. Government Agencies
$
38,064

 
$
7

 
$
(208
)
 
$
37,863

Residential Mortgage-backed Securities of U.S. Government
 

 
 

 
 

 
 

Agencies and Government-Sponsored Enterprises
77,888

 
106

 
(1,068
)
 
76,926

Municipal Bonds
29,014

 
196

 
(130
)
 
29,080

Corporate Bonds
6,114

 
8

 
(239
)
 
5,883

Total
$
151,080

 
$
317

 
$
(1,645
)
 
$
149,752

 
June 30, 2018
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
U.S. Government Agencies
$
48,025

 
$
1

 
$
(484
)
 
$
47,542

Residential Mortgage-backed Securities of U.S. Government
 

 
 

 
 

 
 

Agencies and Government-Sponsored Enterprises
71,949

 
88

 
(1,438
)
 
70,599

Municipal Bonds
30,865

 
127

 
(226
)
 
30,766

Corporate Bonds
6,166

 
25

 
(168
)
 
6,023

Equity Securities
63

 

 

 
63

Total
$
157,068

 
$
241

 
$
(2,316
)
 
$
154,993

Debt securities available for sale by contractual maturity at the dates indicated are shown below. Mortgage-backed securities are not included in the maturity categories because the borrowers in the underlying pools may prepay without penalty; therefore, it is unlikely that the securities will pay at their stated maturity schedule.
 
Available-For-Sale
 
December 31, 2018
 
Amortized
Cost
 
Estimated
Fair Value
Due within one year
$
18,233

 
$
18,191

Due after one year through five years
41,534

 
41,102

Due after five years through ten years
5,352

 
5,480

Due after ten years
8,073

 
8,053

Mortgage-backed securities
77,888

 
76,926

Total
$
151,080

 
$
149,752

The Company had no sales of securities available for sale during the three and six months ended December 31, 2018 and 2017. There were no gross realized gains or losses for the three and six months ended December 31, 2018 and 2017.

Securities available for sale with costs totaling $126,758 and $136,914 and market values of $125,765 and $135,313 at December 31, 2018 and June 30, 2018, respectively, were pledged as collateral to secure various public deposits and other borrowings.

11

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 securities available for sale aggregated by the length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2018 and June 30, 2018 were as follows:
 
December 31, 2018
 
Less than 12 Months
 
12 Months or More
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
U.S. Government Agencies
$
7,127

 
$
(29
)
 
$
29,804

 
$
(179
)
 
$
36,931

 
$
(208
)
Residential Mortgage-backed Securities of U.S. Government Agencies and Government-Sponsored Enterprises
26,536

 
(192
)
 
38,370

 
(876
)
 
64,906

 
(1,068
)
Municipal Bonds
5,555

 
(20
)
 
10,719

 
(110
)
 
16,274

 
(130
)
Corporate Bonds
1,364

 
(64
)
 
3,514

 
(175
)
 
4,878

 
(239
)
Total
$
40,582

 
$
(305
)
 
$
82,407

 
$
(1,340
)
 
$
122,989

 
$
(1,645
)
 
June 30, 2018
 
Less than 12 Months
 
12 Months or More
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
U.S. Government Agencies
$
10,962

 
$
(93
)
 
$
35,605

 
$
(391
)
 
$
46,567

 
$
(484
)
Residential Mortgage-backed Securities of U.S. Government Agencies and Government-Sponsored Enterprises
39,238

 
(827
)
 
21,297

 
(611
)
 
60,535

 
(1,438
)
Municipal Bonds
19,795

 
(208
)
 
1,446

 
(18
)
 
21,241

 
(226
)
Corporate Bonds

 

 
3,566

 
(168
)
 
3,566

 
(168
)
Total
$
69,995

 
$
(1,128
)
 
$
61,914

 
$
(1,188
)
 
$
131,909

 
$
(2,316
)
The total number of securities with unrealized losses at December 31, 2018, and June 30, 2018 were 201 and 218, respectively. Unrealized losses on securities have not been recognized in income because management has the intent and ability to hold the securities for the foreseeable future, and has determined that it is not more likely than not that the Company will be required to sell the securities prior to a recovery in value. The decline in fair value was largely due to increases in market interest rates. The Company had no other-than-temporary impairment losses during the six months ended December 31, 2018 or the year ended June 30, 2018.
4.
Other Investments
Other investments, at cost consist of the following at the dates indicated:
 
December 31, 2018
 
June 30, 2018
FHLB of Atlanta(1)
$
32,159

 
$
29,907

Federal Reserve Bank of Richmond ("FRB")(1)
7,315

 
7,307

Small Business Investment Companies ("SBIC")(2)(3)
5,384

 
4,717

Total
$
44,858

 
$
41,931

(1)
As a requirement for membership, the Bank invests in the stock of both the FHLB of Atlanta and the Federal Reserve Bank of Richmond ("FRB"). No ready market exists for these securities so carrying value approximates their fair value based on the redemption provisions of the FHLB of Atlanta and the FRB, respectively.
(2)
SBIC investment funds are considered nonmarketable investment securities and are qualified investments under the Community Reinvestment Act.
(3)
Prior to the adoption of ASU 2016-01, SBIC Investments were maintained in other assets.

12

HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)

5.
Loans
Loans consist of the following at the dates indicated:
 
December 31, 2018
 
June 30, 2018
Retail consumer loans:
 
 
 
One-to-four family
$
661,374

 
$
664,289

HELOCs - originated
135,430

 
137,564

HELOCs - purchased
138,571

 
166,276

Construction and land/lots
74,507

 
65,601

Indirect auto finance
170,516

 
173,095

Consumer
13,520

 
12,379

Total retail consumer loans
1,193,918

 
1,219,204

Commercial loans:
 
 
 
Commercial real estate
904,357

 
857,315

Construction and development
198,738

 
192,102

Commercial and industrial
224,582

 
148,823

Municipal leases
111,135

 
109,172

Total commercial loans
1,438,812

 
1,307,412

Total loans
2,632,730

 
2,526,616

Deferred loan fees, net
(499
)
 
(764
)
Total loans, net of deferred loan fees
2,632,231

 
2,525,852

Allowance for loan losses
(21,419
)
 
(21,060
)
Loans, net
$
2,610,812

 
$
2,504,792

All qualifying one-to-four family first mortgage loans, HELOCs, commercial real estate loans, and FHLB Stock are pledged as collateral by a blanket pledge to secure any outstanding FHLB advances.
The Company's total non-purchased and purchased performing loans by segment, class, and risk grade at the dates indicated follow:
 
Pass
 
Special
Mention
 
Substandard
 
Doubtful
 
Loss
 
Total
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
Retail consumer loans:
 
 
 
 
 
 
 
 
 
 
 
One-to-four family
$
640,265

 
$
2,425

 
$
11,423

 
$
249

 
$
12

 
$
655,084

HELOCs - originated
133,741

 
111

 
1,149

 

 
6

 
135,205

HELOCs - purchased
138,385

 

 
185

 

 

 
138,571

Construction and land/lots
74,081

 
16

 
485

 

 

 
74,116

Indirect auto finance
169,932

 

 
550

 

 
2

 
170,516

Consumer
12,773

 
16

 
801

 
3

 
9

 
13,520

Commercial loans:
 

 
 

 
 

 
 

 
 

 
 
Commercial real estate
882,901

 
8,513

 
12,476

 

 

 
896,381

Construction and development
194,423

 
888

 
2,649

 
120

 

 
197,367

Commercial and industrial
220,974

 
1,706

 
167

 

 
3

 
222,788

Municipal leases
110,839

 
296

 

 

 

 
111,135

Total loans
$
2,578,314

 
$
13,971

 
$
29,885

 
$
372

 
$
32

 
$
2,614,683


13

HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)

 
Pass
 
Special
Mention
 
Substandard
 
Doubtful
 
Loss
 
Total
June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
Retail consumer loans:
 
 
 
 
 
 
 
 
 
 
 
One-to-four family
$
643,077

 
$
3,576

 
$
10,059

 
$
746

 
$
14

 
$
657,472

HELOCs - originated
135,336

 
113

 
1,735

 
150

 
6

 
137,340

HELOCs - purchased
166,089

 

 
187

 

 

 
166,276

Construction and land/lots
64,823

 
23

 
257

 
54

 

 
65,157

Indirect auto finance
172,675

 

 
420

 

 

 
173,095

Consumer
11,723

 
85

 
558

 
2

 
11

 
12,379

Commercial loans:
 

 
 

 
 

 
 

 
 

 
 

Commercial real estate
835,485

 
5,804

 
6,787

 

 

 
848,076

Construction and development
187,187

 
621

 
2,067

 

 

 
189,875

Commercial and industrial
145,177

 
1,279

 
414

 

 

 
146,870

Municipal leases
108,864

 
308

 

 

 

 
109,172

Total loans
$
2,470,436

 
$
11,809

 
$
22,484

 
$
952

 
$
31

 
$
2,505,712

The Company's total purchased credit impaired ("PCI") loans by segment, class, and risk grade at the dates indicated follow:
 
Pass
 
Special
Mention
 
Substandard
 
Doubtful
 
Loss
 
Total
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
Retail consumer loans:
 
 
 
 
 
 
 
 
 
 
 
One-to-four family
$
4,404

 
$
259

 
$
1,627

 
$

 
$

 
$
6,290

HELOCs - originated
225

 

 

 

 

 
225

Construction and land/lots
155

 

 
236

 

 

 
391

Commercial loans:
 

 
 

 
 

 
 

 
 

 
 

Commercial real estate
4,593

 
1,954

 
1,429

 

 

 
7,976

Construction and development
501

 

 
870

 

 

 
1,371

Commercial and industrial
1,791

 

 

 

 
3

 
1,794

Total loans
$
11,669

 
$
2,213

 
$
4,162

 
$

 
$
3

 
$
18,047

 
Pass
 
Special
Mention
 
Substandard
 
Doubtful
 
Loss
 
Total
June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
Retail consumer loans:
 
 
 
 
 
 
 
 
 
 
 
One-to-four family
$
4,620

 
$
388

 
$
1,809

 
$

 
$

 
$
6,817

HELOCs - originated
224

 

 

 

 

 
224

Construction and land/lots
444

 

 

 

 

 
444

Commercial loans:
 

 
 

 
 

 
 

 
 

 
 

Commercial real estate
4,718

 
2,162

 
2,359

 

 

 
9,239

Construction and development
547

 

 
1,680

 

 

 
2,227

Commercial and industrial
1,894

 

 
59

 

 

 
1,953

Total loans
$
12,447

 
$
2,550

 
$
5,907

 
$

 
$

 
$
20,904


14

HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)

The Company's total loans by segment, class, and delinquency status at the dates indicated follows:
 
Past Due
 
 
 
Total
 
30-89 Days
 
90 Days+
 
Total
 
Current
 
Loans
December 31, 2018
 
 
 
 
 
 
 
 
 
Retail consumer loans:
 
 
 
 
 
 
 
 
 
One-to-four family
$
2,328

 
$
1,747

 
$
4,075

 
$
657,299

 
$
661,374

HELOCs - originated
203

 
333

 
536

 
134,894

 
135,430

HELOCs - purchased
564

 

 
564

 
138,007

 
138,571

Construction and land/lots
37

 

 
37

 
74,470

 
74,507

Indirect auto finance
392

 
130

 
522

 
169,994

 
170,516

Consumer
185

 
40

 
225

 
13,295

 
13,520

Commercial loans:
 
 
 
 
 
 
 
 
 
Commercial real estate
5,165

 
559

 
5,724

 
898,633

 
904,357

Construction and development
1

 
1,396

 
1,397

 
197,341

 
198,738

Commercial and industrial
8

 
53

 
61

 
224,521

 
224,582

Municipal leases
24

 

 
24

 
111,111

 
111,135

Total loans
$
8,907

 
$
4,258

 
$
13,165

 
$
2,619,565

 
$
2,632,730

 
Past Due
 
 
 
Total
 
30-89 Days
 
90 Days+
 
Total
 
Current
 
Loans
June 30, 2018
 
 
 
 
 
 
 
 
 
Retail consumer loans:
 
 
 
 
 
 
 
 
 
One-to-four family
$
3,001

 
$
1,756

 
$
4,757

 
$
659,532

 
$
664,289

HELOCs - originated
98

 
268

 
366

 
137,198

 
137,564

HELOCs - purchased

 

 

 
166,276

 
166,276

Construction and land/lots
44

 
54

 
98

 
65,503

 
65,601

Indirect auto finance
335

 
127

 
462

 
172,633

 
173,095

Consumer
238

 
39

 
277

 
12,102

 
12,379

Commercial loans:
 

 
 

 
 

 
 

 
 

Commercial real estate
169

 
1,412

 
1,581

 
855,734

 
857,315

Construction and development
260

 
1,928

 
2,188

 
189,914

 
192,102

Commercial and industrial
15

 
69

 
84

 
148,739

 
148,823

Municipal leases

 

 

 
109,172

 
109,172

Total loans
$
4,160

 
$
5,653

 
$
9,813

 
$
2,516,803

 
$
2,526,616



15

HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)

The Company's recorded investment in loans, by segment and class, that are not accruing interest or are 90 days or more past due and still accruing interest at the dates indicated follow:
 
December 31, 2018
 
June 30, 2018
 
Nonaccruing
 
90 Days + &
still accruing
 
Nonaccruing
 
90 Days + &
still accruing
Retail consumer loans:
 
 
 
 
 
 
 
One-to-four family
$
4,151

 
$

 
$
4,308

 
$

HELOCs - originated
590

 

 
656

 

HELOCs - purchased
185

 

 
187

 

Construction and land/lots
98

 

 
165

 

Indirect auto finance
243

 

 
255

 

Consumer
515

 

 
321

 

Commercial loans:
 

 
 

 
 

 
 

Commercial real estate
2,104

 

 
2,863

 

Construction and development
1,696

 

 
2,045

 

Commercial and industrial
90

 

 
114

 

Municipal leases

 

 

 

Total loans
$
9,672

 
$

 
$
10,914

 
$

PCI loans totaling $2,071 at December 31, 2018 and $3,353 at June 30, 2018 are excluded from nonaccruing loans due to the accretion of discounts established in accordance with the acquisition method of accounting for business combinations.
Troubled debt restructurings ("TDRs") are loans which have renegotiated loan terms to assist borrowers who are unable to meet the original terms of their loans. Such modifications to loan terms may include a lower interest rate, a reduction in principal, or a longer term to maturity. Additionally, all TDRs are considered impaired. The Company had no commitments to lend additional funds on these TDR loans at December 31, 2018.
The Company's loans that were performing under the payment terms of TDRs that were excluded from nonaccruing loans above at the dates indicated follow:
 
December 31, 2018
 
June 30, 2018
Performing TDRs included in impaired loans
$
19,276

 
$
21,251

An analysis of the allowance for loan losses by segment for the periods shown is as follows:
 
Three Months Ended December 31, 2018
 
Three Months Ended December 31, 2017
 
PCI
 
Retail
Consumer
 
Commercial
 
Total
 
PCI
 
Retail
Consumer
 
Commercial
 
Total
Balance at beginning of period
$
295

 
$
7,252

 
$
13,385

 
$
20,932

 
$
1,197

 
$
8,310

 
$
12,490

 
$
21,997

Provision for (recovery of) loan losses
(96
)
 
(341
)
 
437

 

 
(286
)
 
162

 
124

 

Charge-offs

 
(177
)
 
(78
)
 
(255
)
 
(345
)
 
(378
)
 
(349
)
 
(1,072
)
Recoveries

 
502

 
240

 
742

 

 
97

 
68

 
165

Balance at end of period
$
199

 
$
7,236

 
$
13,984

 
$
21,419

 
$
566

 
$
8,191

 
$
12,333

 
$
21,090

 
Six Months Ended December 31, 2018
 
Six Months Ended December 31, 2017
 
PCI
 
Retail
Consumer
 
Commercial
 
Total
 
PCI
 
Retail
Consumer
 
Commercial
 
Total
Balance at beginning of period
$
483

 
$
7,527

 
$
13,050

 
$
21,060

 
$
727

 
$
8,585

 
$
11,839

 
$
21,151

Provision for (recovery of) loan losses
(284
)
 
(406
)
 
690

 

 
184

 
(250
)
 
66

 

Charge-offs

 
(592
)
 
(81
)
 
(673
)
 
(345
)
 
(528
)
 
(363
)
 
(1,236
)
Recoveries

 
707

 
325

 
1,032

 

 
384

 
791

 
1,175

Balance at end of period
$
199

 
$
7,236

 
$
13,984

 
$
21,419

 
$
566

 
$
8,191

 
$
12,333

 
$
21,090


16

HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)

The Company's ending balances of loans and the related allowance, by segment and class, at the dates indicated follows:
 
Allowance for Loan Losses
 
Total Loans Receivable
 
PCI
 
Loans
individually
evaluated for
impairment
 
Loans
collectively
evaluated
 
Total
 
PCI
 
Loans
individually
evaluated for
impairment
 
Loans
collectively
evaluated
 
Total
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Retail consumer loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family
$
61

 
$
104

 
$
2,926

 
$
3,091

 
$
6,290

 
$
6,126

 
$
648,958

 
$
661,374

HELOCs - originated

 
6

 
1,129

 
1,135

 
225

 
6

 
135,199

 
135,430

HELOCs - purchased

 

 
655

 
655

 

 

 
138,571

 
138,571

Construction and land/lots

 

 
1,178

 
1,178

 
391

 
333

 
73,783

 
74,507

Indirect auto finance

 

 
1,073

 
1,073

 

 
1

 
170,515

 
170,516

Consumer

 
8

 
157

 
165

 

 
8

 
13,512

 
13,520

Commercial loans:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
Commercial real estate
118

 
12

 
8,157

 
8,287

 
7,976

 
2,860

 
893,521

 
904,357

Construction and development
4

 
6

 
3,107

 
3,117

 
1,371

 
1,529

 
195,838

 
198,738

Commercial and industrial
16

 
2

 
2,254

 
2,272

 
1,794

 
2

 
222,786

 
224,582

Municipal leases

 

 
446

 
446

 

 

 
111,135

 
111,135

Total
$
199

 
$
138

 
$
21,082

 
$
21,419

 
$
18,047

 
$
10,865

 
$
2,603,818

 
$
2,632,730

June 30, 2018
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Retail consumer loans:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

One-to-four family
$
98

 
$
125

 
$
3,137

 
$
3,360

 
$
6,817

 
$
7,104

 
$
650,368

 
$
664,289

HELOCs - originated

 
6

 
1,117

 
1,123

 
224

 
452

 
136,888

 
137,564

HELOCs - purchased

 

 
795

 
795

 

 

 
166,276

 
166,276

Construction and land/lots

 
19

 
1,134

 
1,153

 
444

 
583

 
64,574

 
65,601

Indirect auto finance

 

 
1,126

 
1,126

 

 

 
173,095

 
173,095

Consumer

 
11

 
57

 
68

 

 
11

 
12,368

 
12,379

Commercial loans:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Commercial real estate
138

 
28

 
8,029

 
8,195

 
9,239

 
3,511

 
844,565

 
857,315

Construction and development
229

 
8

 
3,109

 
3,346

 
2,227

 
2,223

 
187,652

 
192,102

Commercial and industrial
18

 

 
1,458

 
1,476

 
1,953

 

 
146,870

 
148,823

Municipal leases

 

 
418

 
418

 

 

 
109,172

 
109,172

Total
$
483

 
$
197

 
$
20,380

 
$
21,060

 
$
20,904

 
$
13,884

 
$
2,491,828

 
$
2,526,616

Loans acquired from acquisitions are initially excluded from the allowance for loan losses in accordance with the acquisition method of accounting for business combinations. The Company records these loans at fair value, which includes a credit discount, therefore, no allowance for loan losses is established for these acquired loans at acquisition. A provision for loan losses is recorded for any further deterioration in these acquired loans subsequent to the acquisition.

17

HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)

The Company's impaired loans and the related allowance, by segment and class, excluding PCI loans, at the dates indicated follows:
 
Total Impaired Loans
 
Unpaid
Principal
Balance
 
Recorded
Investment
With a
Recorded
Allowance
 
Recorded
Investment
With No
Recorded
Allowance
 
Total
 
Related
Recorded
Allowance
December 31, 2018
 
 
 
 
 
 
 
 
 
Retail consumer loans:
 
 
 
 
 
 
 
 
 
One-to-four family
$
20,221

 
$
14,855

 
$
2,472

 
$
17,327

 
$
565

HELOCs - originated
1,614

 
845

 
120

 
965

 
9

HELOCs - purchased
185

 

 
185

 
185

 

Construction and land/lots
2,200

 
976

 
432

 
1,408

 
27

Indirect auto finance
407

 
173

 
100

 
273

 
3

Consumer
2,185

 
441

 
1,241

 
1,682

 
57

Commercial loans:
 

 
 

 
 

 
 

 
 

Commercial real estate
4,418

 
1,375

 
2,741

 
4,116

 
22

Construction and development
2,869

 
788

 
908

 
1,696

 
8

Commercial and industrial
3,351

 
187

 
1

 
188

 
3

Municipal leases

 

 

 

 

Total impaired loans
$
37,450

 
$
19,640

 
$
8,200

 
$
27,840

 
$
694

June 30, 2018
 

 
 

 
 

 
 

 
 

Retail consumer loans:
 

 
 

 
 

 
 

 
 

One-to-four family
$
23,295

 
$
16,035

 
$
4,140

 
$
20,175

 
$
554

HELOCs - originated
2,544

 
1,017

 
737

 
1,754

 
9

HELOCs - purchased
187

 

 
187

 
187

 

Construction and land/lots
2,348

 
1,098

 
446

 
1,544

 
53

Indirect auto finance
395

 
122

 
133

 
255

 
1

Consumer
501

 
12

 
46

 
58

 
11

Commercial loans:
 

 
 

 
 

 
 

 
 

Commercial real estate
5,343

 
2,862

 
2,246

 
5,108

 
42

Construction and development
3,166

 
828

 
1,217

 
2,045

 
14

Commercial and industrial
4,898

 
235

 

 
235

 
3

Municipal leases

 

 

 

 

Total impaired loans
$
42,677

 
$
22,209

 
$
9,152

 
$
31,361

 
$
687

The table above includes $16,975 and $19,926, of impaired loans that were not individually evaluated at December 31, 2018 and June 30, 2018, respectively, because these loans did not meet the Company's threshold for individual impairment evaluation. The recorded allowance above includes $556 and $490 related to these loans that were not individually evaluated at December 31, 2018 and June 30, 2018, respectively.


18

HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)

The Company's average recorded investment in impaired loans and interest income recognized on impaired loans for the three and six months ended December 31, 2018 and 2017 follows:
 
Three Months Ended
 
December 31, 2018
 
December 31, 2017
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
Average
Recorded
Investment
 
Interest
Income
Recognized
Retail consumer loans:
 
 
 
 
 
 
 
One-to-four family
$
17,856

 
$
175

 
$
24,519

 
$
287

HELOCs - originated
924

 
13

 
2,750

 
31

HELOC - purchased
186

 
3

 
191

 
3

Construction and land/lots
1,525

 
21

 
1,588

 
27

Indirect auto finance
335

 
2

 
232

 
3

Consumer
1,618

 
16

 
33

 
4

Commercial loans:
 

 
 

 
 

 
 

Commercial real estate
4,257

 
34

 
7,184

 
77

Construction and development
1,766

 
15

 
2,973

 
31

Commercial and industrial
196

 
8

 
1,723

 
23

Municipal leases

 

 
102

 
6

Total loans
$
28,663

 
$
287

 
$
41,295

 
$
492

 
Six Months Ended
 
December 31, 2018
 
December 31, 2017
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
Average
Recorded
Investment
 
Interest
Income
Recognized
Retail consumer loans:
 
 
 
 
 
 
 
One-to-four family
$
18,568

 
$
467

 
$
24,721

 
$
585

HELOCs - originated
1,121

 
35

 
2,767

 
61

HELOCs - purchased
186

 
7

 
191

 
7

Construction and land/lots
1,559

 
55

 
1,651

 
56

Indirect auto finance
331

 
6

 
155

 
9

Consumer
1,212

 
45

 
36

 
8

Commercial loans:
 

 
 

 
 

 
 

Commercial real estate
4,506

 
121

 
7,425

 
152

Construction and development
1,853

 
31

 
2,862

 
52

Commercial and industrial
208

 
25

 
1,841

 
42

Municipal leases

 

 
201

 
6

Total loans
$
29,544

 
$
792

 
$
41,850

 
$
978

A summary of changes in the accretable yield for PCI loans for the three and six months ended December 31, 2018 and 2017 follows:
 
Three Months Ended
 
December 31, 2018
 
December 31, 2017
Accretable yield, beginning of period
$
5,452

 
$
6,698

Reclass from nonaccretable yield (1)
414

 
77

Other changes, net (2)
198

 
80

Interest income
(832
)
 
(634
)
Accretable yield, end of period
$
5,232

 
$
6,221


19

HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)

 
Six Months Ended
 
December 31, 2018
 
December 31, 2017
Accretable yield, beginning of period
$
5,734

 
$
7,080

Reclass from nonaccretable yield (1)
424

 
278

Other changes, net (2)
335

 
107

Interest income
(1,261
)
 
(1,244
)
Accretable yield, end of period
$
5,232

 
$
6,221

______________________________________
(1)
Represents changes attributable to expected losses assumptions.
(2)
Represents changes in cash flows expected to be collected due to the impact of modifications, changes in prepayment assumptions, and changes in interest rates.

For the three and six months ended December 31, 2018 and 2017, the following table presents a breakdown of the types of concessions made on TDRs by loan class:
 
Three Months Ended December 31, 2018
 
Three Months Ended December 31, 2017
 
Number
of
Loans
 
Pre
Modification
Outstanding
Recorded
Investment
 
Post
Modification
Outstanding
Recorded
Investment
 
Number
of
Loans
 
Pre
Modification
Outstanding
Recorded
Investment
 
Post
Modification
Outstanding
Recorded
Investment
Below market interest rate:
 
 
 
 
 
 
 
 
 
 
 
Retail consumer:
 
 
 
 
 
 
 
 
 
 
 
One-to-four family
1

 
$
85

 
$
85

 
3

 
$
398

 
$
395

Home equity lines of credit

 

 

 
1

 
64

 
59

Construction and land/lots

 

 

 
1

 
36

 
36

Total
1

 
$
85

 
$
85

 
5

 
$
498

 
$
490

Other TDRs:
 

 
 

 
 

 
 

 
 

 
 

Retail consumer:
 

 
 

 
 

 
 

 
 

 
 

One-to-four family
5

 
$
354

 
$
353

 
6

 
$
177

 
$
176

Indirect auto finance

 

 

 
1

 
19

 
6

   Consumer
1

 
$
85

 
$
85

 

 
$

 
$

Total
6

 
$
439

 
$
438

 
7

 
$
196

 
$
182

Total
7

 
$
524

 
$
523

 
12

 
$
694

 
$
672


20

HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)

 
Six Months Ended December 31, 2018
 
Six Months Ended December 31, 2017
 
Number
of
Loans
 
Pre
Modification
Outstanding
Recorded
Investment
 
Post
Modification
Outstanding
Recorded
Investment
 
Number
of
Loans
 
Pre
Modification Outstanding Recorded
Investment
 
Post
Modification
Outstanding
Recorded
Investment
Below market interest rate:
 
 
 
 
 
 
 
 
 
 
 
Retail consumer:
 
 
 
 
 
 
 
 
 
 
 
One-to-four family
1

 
$
85

 
$
85

 
3

 
$
398

 
$
395

HELOCs - originated

 

 

 
1

 
64

 
59

Construction and land/lots

 

 

 
1

 
36

 
36

Total
1

 
$
85

 
$
85

 
5

 
$
498

 
$
490

Other TDRs:
 

 
 

 
 

 
 

 
 

 
 

Retail consumer:
 

 
 

 
 

 
 

 
 

 
 

One-to-four family
9

 
$
598

 
$
593

 
15

 
$
1,493

 
$
1,481

Indirect auto finance
1

 
33

 
30

 
1

 
19

 
6

Consumer
2

 
87

 
87

 

 

 

Total
12

 
$
718

 
$
710

 
16

 
$
1,512

 
$
1,487

Total
13

 
$
803

 
$
795

 
21

 
$
2,010

 
$
1,977


21

HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)

The following table presents loans that were modified as TDRs within the previous 12 months and for which there was a payment default during the three and six months ended December 31, 2018 and 2017:
 
Three Months Ended December 31, 2018
 
Three Months Ended December 31, 2017
 
Number of
Loans
 
Recorded
Investment
 
Number of
Loans
 
Recorded
Investment
Below market interest rate:
 
 
 
 
 
 
 
Retail consumer:
 
 
 
 
 
 
 
One-to-four family

 

 
1

 
$
37

Total

 
$

 
1

 
$
37

Other TDRs:
 

 
 

 
 

 
 

Retail consumer:
 

 
 

 
 

 
 

One-to-four family
2

 
$
165

 
3

 
$
493

Indirect auto finance

 

 
1

 
6

Consumer
1

 
2

 

 

Total
3

 
$
167

 
4

 
$
499

Total
3

 
$
167

 
5

 
$
536

 
Six Months Ended December 31, 2018
 
Six Months Ended December 31, 2017
 
Number of
Loans
 
Recorded
Investment
 
Number of
Loans
 
Recorded
Investment
Below market interest rate:
 
 
 
 
 
 
 
Retail consumer:
 
 
 
 
 
 
 
One-to-four family

 
$

 
1

 
$
37

Total

 
$

 
1

 
$
37

Other TDRs:
 

 
 

 
 

 
 

Retail consumer:
 

 
 

 
 

 
 

One-to-four family
2

 
$
165

 
3

 
$
493

Indirect auto finance

 

 
1

 
6

Consumer
1

 
2

 

 

Total
3

 
$
167

 
4

 
$
499

Total
3

 
$
167

 
5

 
$
536

Other TDRs include TDRs that have a below market interest rate and extended payment terms. The Company does not typically forgive principal when restructuring troubled debt.
In the determination of the allowance for loan losses, management considers TDRs for all loan classes, and the subsequent nonperformance in accordance with their modified terms, by measuring impairment 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.

22

HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)

6.
Real Estate Owned
The activity within REO for the periods shown is as follows:
 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
2018
 
2017
 
2018
 
2017
Balance at beginning of period
$
3,286

 
$
5,941

 
$
3,684

 
$
6,318

Transfers from loans
22

 
339

 
96

 
591

Sales, net of gain or loss
(230
)
 
(1,111
)
 
(574
)
 
(1,758
)
Writedowns
(123
)
 
(351
)
 
(251
)
 
(351
)
Capital improvements

 

 

 
18

Balance at end of period
$
2,955

 
$
4,818

 
$
2,955

 
$
4,818

At December 31, 2018 and June 30, 2018, the Bank had $557 and $998 respectively, of foreclosed residential real estate property in REO. The recorded investment in consumer mortgage loans collateralized by residential real estate in the process of foreclosure totaled $980 and $395 at December 31, 2018 and June 30, 2018, respectively.
7. Income Taxes
Income tax expense consists of:
 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
2018
 
2017
 
2018
 
2017
Current:
 
 
 
 
 
 
 
Federal
$
(167
)
 
$
92

 
$
210

 
$
230

State
304

 
(3
)
 
429

 
8

Total current expense
137

 
89

 
639

 
238

Deferred:
 
 
 
 
 
 
 
Federal
2,129

 
1,611

 
3,700

 
3,681

State
21

 
115

 
160

 
406

Adjustment due to the Tax Cuts and Jobs Act

 
17,693

 

 
17,693

Total deferred expense
2,150

 
19,419

 
3,860

 
21,780

Total income tax expense
$
2,287

 
$
19,508

 
$
4,499

 
$
22,018

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:
 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
2018
 
2017
 
2018
 
2017
 
$
 
Rate
 
$
 
Rate
 
$
 
Rate
 
$
 
Rate
Tax at federal income tax rate
$
2,169

 
21
 %
 
$
2,432

 
28
 %
 
$
4,269

 
21
 %
 
$
4,653

 
28
 %
Increase (decrease) resulting from:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tax exempt income
(210
)
 
(2
)%
 
(264
)
 
(3
)%
 
(437
)
 
(2
)%
 
(541
)
 
(3
)%
Nondeductible merger expenses

 
 %
 
1

 
 %
 

 
 %
 
1

 
 %
Change in valuation allowance for deferred tax assets, allocated to income tax expense

 
 %
 
(49
)
 
(1
)%
 

 
 %
 
(184
)
 
(1
)%
State tax, net of federal benefit
256

 
2
 %
 
81

 
1
 %
 
465

 
2
 %
 
204

 
1
 %
Change in deferred tax assets due to North Carolina corporate tax rate decrease

 
 %
 

 
 %
 

 
 %
 
133

 
1
 %
Change in deferred tax assets due to the Tax Cuts and Jobs Act

 
 %
 
17,693

 
200
 %
 

 
 %
 
17,693

 
105
 %
Adjustment for prior quarter expense due to accrual at higher rate

 
 %
 
(418
)
 
(5
)%
 

 
 %
 

 
 %
Other
72

 
1
 %
 
32

 
 %
 
202

 
1
 %
 
59

 
 %
Total
$
2,287

 
22
 %
 
$
19,508

 
220
 %
 
$
4,499

 
22
 %
 
$
22,018

 
131
 %

23

HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)

The decrease in the federal corporate income tax rate was the result of enactment of the Tax Act, which lowered the Company's statutory federal corporate income tax rate to 21% effective July 1, 2018 from a blended federal corporate income tax rate of 27.5% in the previous fiscal year. Our June 30 fiscal year end required the use of a blended rate as prescribed by the Internal Revenue Code. The blended federal rate of 27.5% was retroactively effective July 1, 2017 and was used for the entire fiscal year ending June 30, 2018. As a result of this blended rate, income tax expense for the quarter ended December 31, 2017 included approximately $418,000 in tax benefit from adjusting the federal income tax rate to 27.5% from 34% for the first quarter of the fiscal year. In addition, for the quarter ended December 31, 2017, following a revaluation of net deferred tax assets due to the Tax Act, the Company recorded additional income tax expense of $17.7 million.
The sources and tax effects of temporary differences that give rise to significant portions of the deferred tax assets (liabilities) at December 31, 2018 and June 30, 2018 are presented below:
 
December 31, 2018
 
June 30, 2018
Deferred tax assets:
 
 
 
Alternative minimum tax credit
$
4,920

 
$
4,920

Allowance for loan losses
4,720

 
4,637

Deferred compensation and post-retirement benefits
9,186

 
9,400

Accrued vacation and sick leave
18

 
18

Impairments on real estate owned
498

 
495

Other than temporary impairment on investments
2,253

 
2,254

Net operating loss carryforward
5,538

 
8,635

Discount from business combination
2,500

 
2,605

Unrealized loss on securities held for sale
306

 
477

Stock compensation plans
2,014

 
2,271

Other
1,195

 
1,562

Total gross deferred tax assets
33,148

 
37,274

Less valuation allowance
(325
)
 
(325
)
Deferred tax assets
32,823

 
36,949

Deferred tax (liabilities):
 

 
 

Depreciable basis of fixed assets
(532
)
 
(566
)
Deferred loan fees
(486
)
 
(453
)
FHLB stock, book basis in excess of tax
(89
)
 
(89
)
Other
(3,183
)
 
(3,276
)
Total gross deferred tax liabilities
(4,290
)
 
(4,384
)
Net deferred tax assets
$
28,533

 
$
32,565

We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred tax asset will not be realized. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These judgments require us to make projections of future taxable income. The judgments and estimates we make in determining our deferred tax assets, which are inherently subjective, are reviewed on a continual basis as regulatory and business factors change. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets.
The Company had federal net operating loss ("NOL") carry forwards of $26,805 and $40,780 as of December 31, 2018 and June 30, 2018, respectively, with a recorded tax benefit of $5,538 and $8,635 included in deferred tax assets. The majority of these NOLs will expire for federal tax purposes from 2024 through 2036. The valuation allowance of $325 at December 31, 2018 and June 30, 2018 relates to the potential future sequestration of the Company's alternative minimum tax credit included in deferred tax assets.
Retained earnings at December 31, 2018 and June 30, 2018 include $19,570 representing pre-1988 tax bad debt reserve base year amounts for which no deferred tax liability has been provided since these reserves are not expected to reverse and may never reverse. Circumstances that would require an accrual of a portion or all of this unrecorded tax liability are a failure to meet the definition of a bank, dividend payments in excess of current year or accumulated earnings and profits, or other distributions in dissolution or liquidation of the Bank. The Company is no longer subject to examination for federal and state purposes for tax years prior to 2014.

24

HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)

8.
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:
 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
2018
 
2017
 
2018
 
2017
Numerator:
 
 
 
 
 
 
 
Net income (loss)
$
8,041

 
$
(10,666
)
 
$
15,831

 
$
(5,099
)
Allocation of earnings to participating securities
(57
)
 

 
(112
)
 

Numerator for basic EPS - Net income available (loss attributable) to common stockholders
$
7,984

 
$
(10,666
)
 
$
15,719

 
$
(5,099
)
Effect of dilutive securities:
 
 
 
 
 
 
 
Dilutive effect to participating securities
2

 

 
4

 

Numerator for diluted EPS
$
7,986

 
$
(10,666
)
 
$
15,723

 
$
(5,099
)
Denominator:
 

 
 

 
 

 
 

Weighted-average common shares outstanding - basic
17,797,553

 
17,975,883

 
17,961,465

 
17,971,439

Effect of dilutive shares
699,781

 

 
728,119

 

Weighted-average common shares outstanding - diluted
18,497,334

 
17,975,883

 
18,689,584

 
17,971,439

Net income (loss) per share - basic
$
0.45

 
$
(0.59
)
 
$
0.88

 
$
(0.28
)
Net income (loss) per share - diluted
$
0.43

 
$
(0.59
)
 
$
0.84

 
$
(0.28
)
Potential dilutive shares are excluded from the computation of earnings per share if their effect is anti-dilutive. There were 420,300 stock options that were anti-dilutive for the three and six months ended December 31, 2018.
9.
Equity Incentive Plan
The Company provides stock-based awards through the 2013 Omnibus Incentive Plan, which provides for awards of restricted stock, restricted stock units, stock options, stock appreciation rights and cash awards to directors, emeritus directors, officers, employees and advisory directors. The cost of equity-based awards under the 2013 Omnibus Incentive Plan generally is based on the fair value of the awards on their grant date for current directors, officers, and employees. The fair value of equity-based awards is updated quarterly for certain nonemployee emeritus directors and advisory directors. The maximum number of shares that may be utilized for awards under the plan is 2,962,400, including 2,116,000 for stock options and stock appreciation rights and 846,400 for awards of restricted stock and restricted stock units.
Shares of common stock issued under the 2013 Omnibus Incentive Plan may be authorized but unissued shares or repurchased shares. During fiscal 2013, the Company had repurchased the 846,400 shares available for awards of restricted stock and restricted stock units under the 2013 Omnibus Incentive Plan on the open market, for $13,297, at an average cost of $15.71 per share.
The table below presents share based compensation expense and the estimated related tax benefit for stock options and restricted stock for the three and six months ended December 31, 2018 and 2017:
 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
2018
 
2017
 
2018
 
2017
Share based compensation expense
$
372

 
$
841

 
$
756

 
$
2,014

Tax benefit
$
78

 
$
235

 
$
192

 
$
564


25

HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)

The table below presents stock option activity for the six months ended December 31, 2018 and 2017:
 
Options
 
Weighted-
average
exercise
price
 
Remaining
contractual
life
(years)
 
Aggregate
Intrinsic
Value
Options outstanding at June 30, 2017
1,470,043

 
$
15.22

 
5.8

 
$
13,533

Exercised
3,900

 
14.37

 

 

Forfeited
24,700

 
14.43

 

 

Expired
43,273

 
23.82

 

 

Options outstanding at December 31, 2017
1,398,170

 
$
14.97

 
5.4

 
$
15,077

Exercisable at December 31, 2017
986,670

 
$
14.43

 
5.2

 
$
11,169

Non-vested at December 31, 2017
411,500

 
$
16.25

 
6.0

 
$
3,908

 
 
 
 
 
 
 
 
Options outstanding at June 30, 2018
1,718,270

 
$
17.29

 
5.9

 
$
18,664

Exercised
42,200

 
14.42

 

 

Forfeited
4,700

 
17.11

 

 

Options outstanding at December 31, 2018
1,671,370

 
$
17.37

 
5.4

 
$
14,732

Exercisable at December 31, 2018
1,185,270

 
$
14.51

 
4.2

 
$
13,832

Non-vested at December 31, 2018
486,100

 
$
24.33

 
8.5

 
$
900

 
 
 
 
At December 31, 2018, the Company had $2,385 of unrecognized compensation expense related to 486,100 stock options originally scheduled to vest over five- and seven-year vesting periods. The weighted average period over which compensation cost related to non-vested awards expected to be recognized was 1.8 years at December 31, 2018. At December 31, 2017, the Company had $835 of unrecognized compensation expense related to 411,500 stock options originally scheduled to vest over five- and seven-year vesting periods. The weighted average period over which compensation cost related to non-vested awards expected to be recognized was 0.7 years at December 31, 2017.
The table below presents restricted stock award activity for the six months ended December 31, 2018 and 2017:
 
Restricted
stock awards
 
Weighted-
average grant
date fair value
 
Aggregate
Intrinsic
Value
Non-vested at June 30, 2017
185,630

 
$
17.46

 
$
4,780

Granted
2,000

 
23.05

 

Vested
400

 
19.02

 

Forfeited
6,600

 
14.37

 

Non-vested at December 31, 2017
180,630

 
$
17.57

 
$
4,651

 
 
 
 
 
 
Non-vested at June 30, 2018
133,410

 
$
22.85

 
$
3,755

Vested
2,800

 
16.27

 

Forfeited
2,700

 
16.13

 

Non-vested at December 31, 2018
127,910

 
$
23.14

 
$
3,349

At December 31, 2018, unrecognized compensation expense was $2,129 related to 127,910 shares of restricted stock originally scheduled to vest over five- and seven-year vesting periods. The weighted average period over which compensation cost related to non-vested awards is expected to be recognized was 1.6 years at December 31, 2018. At December 31, 2017, unrecognized compensation expense was $1,671 related to 180,630 shares of restricted stock originally scheduled to vest over five- and seven-year vesting periods. The weighted average period over which compensation cost related to non-vested awards is expected to be recognized was 1.1 years at December 31, 2017.

26

HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)

10.
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 December 31, 2018 and June 30, 2018, respectively, loan commitments (excluding $197,728 and $209,726 of undisbursed portions of construction loans) totaled $60,248 and $49,949 of which $17,989 and $19,812 were variable rate commitments and $42,258 and $30,137 were fixed rate commitments. The fixed rate loans had interest rates ranging from 2.39% to 7.55% at December 31, 2018 and 2.10% to 6.15% at June 30, 2018, and terms ranging from three to 30 years. Pre-approved but unused lines of credit (principally second mortgage home equity loans and overdraft protection loans) totaled $488,071 and $491,649 at December 31, 2018 and June 30, 2018, respectively. These amounts represent the Company's exposure to credit risk, and in the opinion of management have no more than the normal lending risk that the Company commits to its borrowers. The Company has two types of commitments related to loans held for sale: rate lock commitments and forward loan commitments. Rate lock commitments are commitments to extend credit to a customer that has an interest rate lock and are considered derivative instruments. The rate lock commitments do not qualify for hedge accounting. In order to mitigate the risk from interest rate fluctuations, we enter into forward loan sale commitments on a “best efforts” basis, which do not meet the definition of a derivative instrument. The fair value of these commitments was not material at December 31, 2018 or June 30, 2018.
The Company grants construction and permanent loans collateralized primarily by residential and commercial real estate to customers throughout its primary market area. In addition, the Company grants municipal leases to customers throughout North and South Carolina. The Company's loan portfolio can be affected by the general economic conditions within these market areas.
Restrictions on Cash – The Bank is required by regulation to maintain a varying cash reserve balance with the FRB. The daily average calculated cash reserve required as of December 31, 2018 and June 30, 2018 was $1,786, and $2,304, respectively, which was satisfied by vault cash and balances held at 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 December 31, 2018 and June 30, 2018 were $8,826 and $8,227, respectively. There was no liability recorded for these letters of credit at December 31, 2018 or June 30, 2018, 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.
11.
Fair Value of Financial Instruments
The Company utilizes fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. Securities available for sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as impaired loans. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets. The fair value of financial instruments presented in this note, with the exception of loans receivable, are based on the same methodology as presented in Note 20 of the Notes to Consolidated Financial Statements contained in the Company’s 2018 10-K. The Company has adopted ASU 2016-01, and therefore is measuring the fair value of loans receivable under the exit price notion rather than the previous method of entry price notion. Under the previous method, the fair value estimate of loans receivable was based on discounted cash flow. At September 30, 2018, the exit price notion used to estimate the fair value of loans receivable was based on similar techniques, with the addition of liquidity premiums. The fair value of nonperforming loans is based on the underlying value of the collateral for periods prior to and after adoption of ASU 2016-01.
Fair Value Hierarchy
The Company groups assets at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value. These levels are:
Level 1:
Valuation is based upon quoted prices for identical instruments traded in active markets.
Level 2:
Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3:
Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

27

HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)

Following is a description of valuation methodologies used for assets recorded at fair value on both a recurring and non-recurring basis. The Company does not have any liabilities recorded at fair value on both a recurring and non-recurring basis.
Investment Securities Available for Sale
Securities available for sale are valued on a recurring basis at quoted market prices where available. If quoted market prices are not available, fair values are based on quoted prices of comparable securities. Level 2 securities include equity securities, mortgage-backed securities and debentures issued by government sponsored enterprises, municipal bonds, and corporate debt securities. The Company has no Level 3 securities.
Impaired Loans
The Company does not record loans at fair value on a recurring basis. From time to time, however, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, the fair value is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. The Company reviews all impaired loans each quarter to determine if an allowance is necessary. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans.
The fair value of impaired loans is estimated in one of two ways, which include collateral value and discounted cash flows. Loans are considered collateral dependent if repayment is expected solely from the collateral. For these collateral dependent impaired loans, the Company obtains updated appraisals at least annually. These appraisals are reviewed for appropriateness and then discounted for estimated closing costs to determine if an allowance is necessary. As part of the quarterly review of impaired loans, the Company reviews these appraisals to determine if any additional discounts to the fair value are necessary. If a current appraisal is not obtained, the Company determines whether a discount is needed to the value from the original appraisal based on the decline in value of similar properties with recent appraisals. For loans that are not collateral dependent, estimated fair value is based on the present value of expected future cash flows using the interest rate implicit in the original agreement. Impaired loans where a charge-off has occurred or an allowance is established during the period being reported require classification in the fair value hierarchy. The Company records such impaired loans as a nonrecurring Level 3 in the fair value hierarchy. 
Loans Held for Sale
Loans held for sale are adjusted to lower of cost or fair value.  Fair value is based on commitments on hand from investors or, if commitments have not yet been obtained, what investors are currently offering for loans with similar characteristics. The Company considers all loans held for sale carried at fair value as nonrecurring Level 3.
Real Estate Owned
REO is considered held for sale and is adjusted to fair value less estimated selling costs upon transfer of the loan to foreclosed assets.  Fair value is based upon independent market prices, appraised value of the collateral or management's estimation of the value of the collateral. The Company considers all REO that has been charged off or received an allowance during the period as nonrecurring Level 3.
Small Business Investment Company
SBICs are carried at the lower of cost or cost less a valuation allowance, which is based a financial review of the investment. The Company considers SBICs that have been adjusted through an allowance during the period as nonrecurring Level 3.

28

HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)

Financial Assets Recorded at Fair Value on a Recurring Basis
The following table presents financial assets measured at fair value on a recurring basis at the dates indicated:
 
December 31, 2018
Description
Total
 
Level 1
 
Level 2
 
Level 3
U.S Government Agencies
$
37,863

 
$

 
$
37,863

 
$

Residential Mortgage-backed Securities of U.S. Government Agencies and Government Sponsored Enterprises
76,926

 

 
76,926

 

Municipal Bonds
29,080

 

 
29,080

 

Corporate Bonds
5,883

 

 
5,883

 

Total
$
149,752

 
$

 
$
149,752

 
$

 
June 30, 2018
Description
Total
 
Level 1
 
Level 2
 
Level 3
U.S Government Agencies
$
47,542

 
$

 
$
47,542

 
$

Residential Mortgage-backed Securities of U.S. Government Agencies and Government Sponsored Enterprises
70,599

 

 
70,599

 

Municipal Bonds
30,766

 

 
30,766

 

Corporate Bonds
6,023

 

 
6,023

 

Equity Securities
63

 

 
63

 

Total
$
154,993

 
$

 
$
154,993

 
$

There were no transfers between levels during the three months ended December 31, 2018.
The following table presents financial assets measured at fair value on a non-recurring basis at the dates indicated:
 
December 31, 2018
Description
Total
 
Level 1
 
Level 2
 
Level 3
Impaired loans
$
4,155

 
$

 
$

 
$
4,155

REO
1,086

 

 

 
1,086

Total
$
5,241

 
$

 
$

 
$
5,241

 
June 30, 2018
Description
Total
 
Level 1
 
Level 2
 
Level 3
Impaired loans
$
8,423

 
$

 
$

 
$
8,423

REO
2,104

 

 

 
2,104

Total
$
10,527

 
$

 
$

 
$
10,527

Quantitative information about Level 3 fair value measurements during the period ended December 31, 2018 is shown in the table below:
 
Fair Value at December 31, 2018
 
Valuation
Techniques
 
Unobservable
Input
 
Range
 
Weighted
Average
Nonrecurring measurements:
 
 
 
 
 
 
 
 
 
Impaired loans, net
$
4,155

 
Discounted appraisals and discounted cash flows
 
Collateral discounts
and discount spread
 
6% - 25% 1% - 3%
 
2%
REO
$
1,086

 
Discounted appraisals
 
Collateral discounts
 
8% - 15%
 
10%

29

HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)

The stated carrying value and estimated fair value amounts of financial instruments as of December 31, 2018 and June 30, 2018, are summarized below:
 
December 31, 2018
 
Carrying
Value
 
Fair
Value
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
 
Cash and interest-bearing deposits
$
71,306

 
$
71,306

 
$
71,306

 
$

 
$

Commercial paper
239,286

 
239,286

 
239,286

 

 

Certificates of deposit in other banks
51,936

 
51,936

 

 
51,936

 

Securities available for sale
149,752

 
149,752

 

 
149,752

 
$

Loans, net
2,610,812

 
2,524,963

 

 

 
2,524,963

Loans held for sale
13,095

 
13,604

 

 

 
13,604

FHLB stock
32,159

 
32,159

 
32,159

 

 

FRB stock
7,315

 
7,315

 
7,315

 

 

SBIC
5,384

 
5,384

 

 

 
5,384

Accrued interest receivable
10,372

 
10,372

 

 
1,172

 
9,200

Liabilities:
 
 
 
 
 
 
 
 
 
Noninterest-bearing and NOW deposits
774,111

 
774,111

 

 
774,111

 

Money market accounts
703,445

 
703,445

 

 
703,445

 

Savings accounts
192,954

 
192,954

 

 
192,954

 

Certificates of deposit
587,559

 
582,656

 

 
582,656

 

Borrowings
688,000

 
686,307

 

 
686,307

 

Accrued interest payable
1,639

 
1,639

 

 
1,639

 

 
June 30, 2018
 
Carrying
Value
 
Fair
Value
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
 
Cash and interest-bearing deposits
$
70,746

 
$
70,746

 
$
70,746

 
$

 
$

Commercial paper
229,070

 
229,070

 
229,070

 

 

Certificates of deposit in other banks
66,937

 
66,937

 

 
66,937

 

Securities available for sale
154,993

 
154,993

 

 
154,993

 

Loans, net
2,504,792

 
2,414,647

 

 

 
2,414,647

Loans held for sale
5,873

 
5,990

 

 

 
5,990

FHLB stock
29,907

 
29,907

 
29,907

 

 

FRB stock
7,307

 
7,307

 
7,307

 

 

SBIC
4,717

 
4,717

 

 

 
4,717

Accrued interest receivable
9,344

 
9,344

 
297

 
883

 
8,164

Liabilities:
 
 
 
 
 
 
 
 
 
Noninterest-bearing and NOW deposits
789,186

 
789,186

 

 
789,186

 

Money market accounts
677,665

 
677,665

 

 
677,665

 

Savings accounts
213,250

 
213,250

 

 
213,250

 

Certificates of deposit
516,152

 
509,924

 

 
509,924

 

Borrowings
635,000

 
635,187

 

 
635,187

 

Accrued interest payable
805

 
805

 

 
805

 

The Company had off-balance sheet financial commitments, which included approximately $746,047 and $751,324 of commitments to originate loans, undisbursed portions of interim construction loans, and unused lines of credit at December 31, 2018 and June 30, 2018, respectively (see Note 10). Since these commitments are based on current rates, the carrying amount approximates the fair value.
Estimated fair values were determined using the following methods and assumptions:
Cash and interest-bearing deposits – The stated amounts approximate fair values as maturities are less than 90 days.

30

HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)

Commercial paper - The stated amounts approximate fair value due to the short-term nature of these investments.
Certificates of deposit in other banks – The stated amounts approximate fair values.
Securities available for sale – Fair values are based on quoted market prices where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.
Loans held for sale – The fair value of mortgage loans held for sale is determined by outstanding commitments from investors on a "best efforts" basis or current investor yield requirements, calculated on the aggregate loan basis. The fair value of SBA loans held for sale is based on what investors are currently offering for loans with similar characteristics.
Loans, net – Fair values for loans are estimated by segregating the portfolio by type of loan and discounting scheduled cash flows using current market interest rates for loans with similar terms and credit quality. A prepayment assumption is used as an estimate of the portion of loans that will be repaid prior to their scheduled maturity. For the December 31, 2018 fair value, a liquidity premium assumption is used as an estimate for the additional return required by an investor of assets that are potentially considered illiquid.
FHLB and FRB stock– No ready market exists for these stocks and they have no quoted market value. However, redemptions of these securities have historically been at par value. Accordingly, cost is deemed to be a reasonable estimate of fair value.
SBIC– No ready market exists for these investments and they have no quoted market value. SBIC are valued at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions of identical or similar investments. Accordingly, cost is deemed to be a reasonable estimate of fair value.
Deposits Fair values for demand deposits, money market accounts, and savings accounts are the amounts payable on demand. The fair value of certificates of deposit is estimated by discounting the contractual cash flows using current market interest rates for accounts with similar maturities.
Borrowings – The fair value of advances from the FHLB is estimated based on current rates for borrowings with similar terms.
Accrued interest receivable and payable – The stated amounts of accrued interest receivable and payable approximate the fair value.
Limitations – Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on-and-off balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. For example, a significant asset not considered a financial asset is premises and equipment. In addition, tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates.
12.
Revenue
On July 1, 2018, the Company adopted ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” and all subsequent ASUs that modified ASC 606. The adoption of the new standard did not have a material impact on the measurement or recognition of revenue. Results for reporting periods beginning after July 1, 2018 are presented under Topic 606, while prior period amounts reflect an offset of $198 and $393 of interchange costs against interchange income for the three and six months ended December 31, 2018.
ASC 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain noninterest income streams such as fees associated with mortgage servicing rights, financial guarantees, and certain credit card fees are also not in scope of the new guidance. ASC 606 is applicable to noninterest revenue streams such as deposit related fees, interchange fees, merchant income, and various other service fees. However, the recognition of these revenue streams did not change significantly upon adoption of ASC 606. Substantially all of the Company’s revenue is generated from contracts with customers. 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 streams with customers.

31

HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)

The table below presents the Company's sources of noninterest income, segregated by in-scope and out-of-scope revenue streams of ASC 606 at the dates indicated:
 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
2018
 
2017
 
2018
 
2017
In-scope of ASC 606:
 
 
 
 
 
 
 
Service charges on deposit accounts
$
1,042

 
$
942

 
$
2,026

 
$
1,831

Fees, interchange, and other service charges
1,697

 
1,144

 
3,300

 
2,213

Other
154

 
267

 
366

 
452

Noninterest income (in-scope of ASC 606)
2,893

 
2,353

 
5,692

 
4,496

Noninterest income (out-of-scope of ASC 606)
2,192

 
2,106

 
5,006

 
4,225

Total noninterest income
$
5,085

 
$
4,459

 
$
10,698

 
$
8,721

The following is a description of revenue streams accounted for under ASC 606:
Service charges on deposit accounts
Service charges on deposit accounts consist of account analysis fees (i.e., net fees earned on analyzed business and public checking accounts), monthly service fees, nonsufficient fund fees, check orders, and other deposit account related fees. The Company’s performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Nonsufficient fund fees, check orders and other deposit account related fees are largely transactional based, and therefore, the Company’s performance obligation is satisfied and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts.
Fees, interchange, and other service charges
Fees, interchange, and other service charges are primarily comprised of debit and credit card income, ATM fees, merchant services income, and other service charges. Debit and credit card income is primarily comprised of interchange fees earned whenever the Company’s debit and credit cards are processed through card payment networks such as Visa. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. Merchant services income mainly represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees. Other service charges include revenue from processing wire transfers, cashier’s checks, and other services. The Company’s performance obligation for fees, interchange, and other service charges are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month.
Other
Other noninterest income consists of safety deposit box rental fees and other miscellaneous revenue streams. Safe deposit box rental fees are charged to the customer on an annual basis and recognized upon receipt of payment. The Company determined that since rentals and renewals occur fairly consistently over time, revenue is recognized on a basis consistent with the duration of the performance obligation.
Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Certain matters in this Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our financial condition, results of operations, plans, objectives, future performance or business. Forward-looking statements are not statements of historical fact, are based on certain assumptions and are generally identified by use of the words "believes," "expects," "anticipates," "estimates," "forecasts," "intends," "plans," "targets," "potentially," "probably," "projects," "outlook" or similar expressions or future or conditional verbs such as "may," "will," "should," "would," and "could." Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions, and statements about future economic performance and projections of financial items. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from the results anticipated or implied by our forward-looking statements, including, but not limited to: the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write offs and changes in our allowance for loan losses and provision for loan losses that may be impacted by deterioration in the housing and commercial real estate markets; changes in general economic conditions, either nationally or in our market areas; changes in the levels of general interest rates, and the relative differences between short and long term interest rates, deposit interest rates, our net interest margin and funding sources; fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values in our market areas; decreases in the secondary market for the sale of loans that we originate; results of examinations of us by the Board of Governors of the Federal Reserve System (“Federal Reserve”), the North Carolina Office of the Commissioner of Banks (“NCCOB”), or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our allowance for loan losses, write-down assets, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits, which could adversely affect our liquidity and earnings; legislative or regulatory changes that adversely affect our business including the effect of Dodd-Frank Wall Street Reform and Consumer

32



Protection Act, changes in laws or regulations, changes in regulatory policies and principles or the application or interpretation of laws and regulations by regulatory agencies and tax authorities, including changes in deferred tax asset and liability activity, or the interpretation of regulatory capital or other rules, including as a result of Basel III; our ability to attract and retain deposits; management's assumptions in determining the adequacy of the allowance for loan losses; our ability to control operating costs and expenses, especially costs associated with our operation as a public company; the use of estimates in determining fair value of certain assets, which estimates may prove to be incorrect and result in significant declines in valuation; difficulties in reducing risks associated with the loans on our balance sheet; staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our workforce and potential associated charges; disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on the third-party vendors who perform several of our critical processing functions; our ability to retain key members of our senior management team; costs and effects of litigation, including settlements and judgments; our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we may in the future acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; increased competitive pressures among financial services companies; changes in consumer spending, borrowing and savings habits; the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions; adverse changes in the securities markets; inability of key third-party providers to perform their obligations to us; changes in accounting principles, policies or guidelines and practices, as may be adopted by the financial institution regulatory agencies, the Public Company Accounting Oversight Board or the Financial Accounting Standards Board; and other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services; and the other risks detailed from time to time in our filings with the Securities and Exchange Commission ("SEC"), including our 2018 Form 10-K.
Any of the forward-looking statements are based upon management's beliefs and assumptions at the time they are made.  We undertake no obligation to publicly update or revise any forward-looking statements included in this report or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this report might not occur and you should not put undue reliance on any forward-looking statements.
As used throughout this report, the terms "we", "our", "us", "HomeTrust Bancshares" or the "Company" refer to HomeTrust Bancshares, Inc. and its consolidated subsidiaries, including HomeTrust Bank (the "Bank") unless the context indicates otherwise.
Overview
HomeTrust Bancshares, Inc., a Maryland corporation, was formed for the purpose of becoming the holding company for HomeTrust Bank in connection with HomeTrust Bank’s conversion from mutual to stock form, which was completed on July 10, 2012 (the “Conversion”). As a bank holding company and financial holding company, HomeTrust Bancshares, Inc. is regulated by the Federal Reserve. As a North Carolina state-chartered bank, and member of the Federal Reserve System, the Bank's primary regulators are the NCCOB and the Federal Reserve. The Bank's deposits are federally insured up to applicable limits by the Federal Deposit Insurance Corporation ("FDIC"). The Bank is a member of the Federal Home Loan Bank of Atlanta (“FHLB” or “FHLB of Atlanta”), which is one of the 12 regional banks in the Federal Home Loan Bank System. Our headquarters is located in Asheville, North Carolina.
Our principal business consists of attracting deposits from the general public and investing those funds, along with borrowed funds, in loans secured by first and second mortgages on one-to-four family residences, including home equity loans and construction and land/lot loans, commercial real estate loans, construction and development loans, commercial and industrial loans, U.S. Small Business Administration ("SBA") loans, indirect automobile loans, and municipal leases. Municipal leases are secured primarily by a ground lease for a firehouse or an equipment lease for fire trucks and firefighting equipment to fire departments located throughout North and South Carolina. We also purchase investment securities consisting primarily of securities issued by United States Government agencies and government-sponsored enterprises, as well as, commercial paper and certificates of deposit insured by the FDIC.
We offer a variety of deposit accounts for individuals, businesses, and nonprofit organizations. Deposits and borrowings are our primary source of funds for our lending and investing activities.
We are significantly affected by prevailing economic conditions, as well as, government policies and regulations concerning, among other things, monetary and fiscal affairs, housing and financial institutions. Deposit flows are influenced by a number of factors, including interest rates paid on competing time deposits, other investments, account maturities, and the overall level of personal income and savings. Lending activities are influenced by the demand for funds, the number and quality of lenders, and regional economic cycles.
Our primary source of pre-tax income is net interest income. Net interest income is the difference between interest income, which is the income that we earn on our loans and investments, and interest expense, which is the interest that we pay on our deposits and borrowings. Changes in levels of interest rates affect our net interest income. A secondary source of income is noninterest income, which includes revenue we receive from providing products and services, including service charges on deposit accounts, loan income and fees, gain on sale of loans, and gains and losses from sales of securities.
An offset to net interest income is the provision for loan losses which is required to establish the allowance for loan losses at a level that adequately provides for probable losses inherent in our loan portfolio. As a loan's risk rating improves, property values increase, or recoveries of amounts previously charged off are received, a recapture of previously recognized provision for loan losses may be added to net interest income.
Our noninterest expenses consist primarily of salaries and employee benefits, expenses for occupancy, marketing and computer services, and FDIC deposit insurance premiums. Salaries and benefits consist primarily of the salaries and wages paid to our employees, payroll taxes, expenses

33



for retirement and other employee benefits. Occupancy expenses, which are the fixed and variable costs of buildings and equipment, consist primarily of lease payments, property taxes, depreciation charges, maintenance and costs of utilities.
In recent years, we have expanded our geographic footprint into seven additional markets through strategic acquisitions as well as three de novo commercial loan offices and one de novo branch office. Looking forward, we believe opportunities currently exist within our market areas to grow our franchise. We anticipate organic growth as the local economy and loan demand strengthens, through our marketing efforts and as a result of the opportunities being created as a result of the consolidation of financial institutions occurring in our market areas. We may also seek to expand our franchise through the selective acquisition of individual branches, loan purchases and, to a lesser degree, whole bank transactions that meet our investment and market objectives. We will continue to be disciplined as it pertains to future expansion focusing primarily on organic growth in our current market areas.
At December 31, 2018, we had 43 locations in North Carolina (including the Asheville metropolitan area, Greensboro/"Piedmont" region, Charlotte, and Raleigh/Cary), Upstate South Carolina (Greenville), East Tennessee (including Kingsport/Johnson City/Bristol, Knoxville, and Morristown) and Southwest Virginia (including the Roanoke Valley).
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. Facts and circumstances which could affect these judgments include, but are not limited to, changes in interest rates, changes in the performance of the economy, and changes in the financial condition of borrowers. These policies relate to (i) the determination of the provision and the allowance for loan losses, (ii) business combinations and acquired loans, (iii) the valuation of REO, (iv) the valuation of goodwill and other intangible assets, and (v) the valuation of or recognition of deferred tax assets and liabilities. These policies and estimates are described in further detail in Part II, Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 1, Summary of Significant Accounting Policies with the 2018 Form 10-K. There have not been any material changes in the Company's critical accounting policies and estimates during the six months ended December 31, 2018 as compared to the disclosure contained in the Company's 2018 Form 10-K.
Reclassifications and corrections. 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, shareholders’ equity, or cash flows as previously reported.
Recent Accounting Pronouncements. Refer to Note 2 of our consolidated financial statements for a description of recent accounting pronouncements including the respective dates of adoption and effects on results of operations and financial condition.
Non-GAAP Financial Measures

In addition to results presented in accordance with GAAP, this report contains certain non-GAAP financial measures, which include: tangible book value; tangible book value per share, tangible equity to tangible assets ratio; net income, earnings per share ("EPS"), return on assets ("ROA"), and return on equity ("ROE") excluding certain state income tax expense, adjustments for the change in federal tax law, and gain from the sale of premises and equipment; and the ratio of the allowance for loan losses to total loans excluding acquired loans. Management has presented the non-GAAP financial measures in this discussion and analysis because it believes including these items is more indicative of and provides useful and comparative information to assess trends in our core operations while facilitating comparison of the quality and composition of the Company’s earnings over time and in comparison to its competitors. However, these non-GAAP financial measures are supplemental, are not audited and are not a substitute for operating results or any analysis determined in accordance with GAAP. Where applicable, we have also presented comparable earnings information using GAAP financial measures. Because not all companies use the same calculations, our presentation may not be comparable to other similarly titled measures as calculated by other companies. See “Comparison of Results of Operations for the Three and Six Months Ended December 31, 2018 and 2017” for more detailed information about our financial performance.


34



Set forth below is a reconciliation to GAAP of tangible book value and tangible book value per share:
 
 
As of
 
 
December 31,
 
June 30,
 
December 31,
(Dollars in thousands, except per share data)
 
2018
 
2018
 
2017
Total stockholders' equity
 
$
410,970

 
$
409,242

 
$
395,361

Less: goodwill, core deposit intangibles, net of taxes
 
28,284

 
29,125

 
30,083

Tangible book value (1)
 
$
382,686

 
$
380,117

 
$
365,278

Common shares outstanding
 
18,520,825

 
19,041,668

 
18,967,175

Tangible book value per share
 
$
20.66

 
$
19.96

 
$
19.26

Book value per share
 
$
22.19

 
$
21.49

 
$
20.84

_________________________________________________________________
(1)
Tangible book value is equal to total stockholders' equity less goodwill and core deposit intangibles, net of related deferred tax liabilities.

Set forth below is a reconciliation to GAAP of tangible equity to tangible assets:
 
 
As of
 
 
December 31,
 
June 30,
 
December 31,
(Dollars in thousands)
 
2018
 
2018
 
2017
Tangible equity (1)
 
$
382,686

 
$
380,117

 
$
365,278

Total assets
 
3,413,099

 
3,304,169

 
3,250,588

Less: goodwill, core deposit intangibles, net of taxes
 
28,284

 
29,125

 
30,083

Total tangible assets(2)
 
$
3,384,815

 
$
3,275,044

 
$
3,220,505

Tangible equity to tangible assets
 
11.31
%
 
11.61
%
 
11.34
%
_________________________________________________________________
(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.
(2)
Total tangible assets is equal to total assets less goodwill and core deposit intangibles, net of related deferred tax liabilities.


35



Set forth below is a reconciliation to GAAP net income, EPS, ROA, and ROE as adjusted to exclude state tax expense rate changes, adjustments for the change in federal tax law rate, and gain from the sale of premises and equipment:
 
 
Three Months Ended
 
Six months ended
(Dollars in thousands, except per share data)
 
December 31,
 
December 31,
 
 
2018
 
2017
 
2018
 
2017
State tax expense adjustment (1)
 

 

 

 
133

Change in federal tax law adjustment (2)
 

 
17,693

 

 
17,693

Gain from sale of premises and equipment
 

 

 

 
(164
)
Total adjustments
 

 
17,693

 

 
17,662

Tax effect
 

 

 

 
49

Total adjustments, net of tax
 

 
17,693

 

 
17,711

 
 


 


 


 


Net income (loss) (GAAP)
 
8,041

 
(10,666
)
 
15,831

 
(5,099
)
 
 
 
 
 
 
 
 
 
Net income (non-GAAP)
 
$
8,041

 
$
7,027

 
$
15,831

 
$
12,612

 
 
 
 
 
 
 
 
 
Per Share Data
 
 
 
 
 
 
 
 
Average shares outstanding - basic
 
17,797,553

 
17,975,883

 
17,961,465

 
17,971,439

Average shares outstanding - diluted
 
18,497,334

 
17,975,883

 
18,689,584

 
17,971,439

Average shares outstanding - diluted (adjusted) (3)
 
18,497,334

 
18,689,894

 
18,689,584

 
18,655,048

 
 
 
 
 
 
 
 
 
Basic EPS
 
 
 
 
 
 
 
 
EPS (GAAP)
 
$
0.45

 
$
(0.59
)
 
$
0.88

 
$
(0.28
)
Non-GAAP adjustment
 

 
0.98

 

 
0.98

EPS (non-GAAP)
 
$
0.45

 
$
0.39

 
$
0.88

 
$
0.70

 
 
 
 
 
 
 
 
 
Diluted EPS
 
 
 
 
 
 
 
 
EPS (GAAP)
 
$
0.43

 
$
(0.59
)
 
$
0.84

 
$
(0.28
)
Non-GAAP adjustment
 

 
0.97

 

 
0.96

EPS (non-GAAP)
 
$
0.43

 
$
0.38

 
$
0.84

 
$
0.68

 
 
 
 
 
 
 
 
 
Average Balances
 
 
 
 
 
 
 
 
Average assets
 
$
3,369,726

 
$
3,249,632

 
$
3,345,769

 
$
3,223,758

Average equity
 
410,943

 
405,993

 
411,905

 
403,708

 
 
 
 
 
 
 
 
 
ROA
 
 
 
 
 
 
 
 
ROA (GAAP)
 
0.95
%
 
(1.31
)%
 
0.95
%
 
(0.32
)%
Non-GAAP adjustment
 
%
 
2.17
 %
 
%
 
1.10
 %
ROA (non-GAAP)
 
0.95
%
 
0.86
 %
 
0.95
%
 
0.78
 %
 
 
 
 
 
 
 
 
 
ROE
 
 
 
 
 
 
 
 
ROE (GAAP)
 
7.83
%
 
(10.51
)%
 
7.69
%
 
(2.53
)%
Non-GAAP adjustment
 
%
 
17.43
 %
 
%
 
8.78
 %
ROE (non-GAAP)
 
7.83
%
 
6.92
 %
 
7.69
%
 
6.25
 %
________________________________________________________________________
(1)
State tax adjustment is a result of various revaluations of state deferred tax assets.
(2)
Revaluation and related adjustments of net deferred tax assets due to the Tax Cuts and Jobs Act.
(3)
Average shares outstanding - diluted were adjusted for the three and six months ended December 31, 2017 to included potentially dilutive shares not considered due to the corresponding net losses under GAAP.





36



Set forth below is a reconciliation to GAAP of the allowance for loan losses to total loans and the allowance for loan losses as adjusted to exclude acquired loans:
 
As of
(Dollars in thousands)
December 31,
 
June 30,
 
December 31,
 
2018
 
2018
 
2017
Total gross loans receivable (GAAP)
$
2,632,819

 
$
2,526,616

 
$
2,419,256

Less: acquired loans
236,389

 
271,801

 
311,508

Adjusted gross loans (non-GAAP)
$
2,396,430

 
$
2,254,815

 
$
2,107,748

 
 
 
 
 
 
Allowance for loan losses (GAAP)
$
21,419

 
$
21,060

 
$
21,090

Less: allowance for loan losses on acquired loans
199

 
483

 
566

Adjusted allowance for loan losses (non-GAAP)
$
21,220

 
$
20,577

 
$
20,524

Adjusted allowance for loan losses / Adjusted gross loans (non-GAAP)
0.89
%
 
0.91
%
 
0.97
%

Comparison of Financial Condition at December 31, 2018 and June 30, 2018
General.  Total assets increased $108.9 million, or 3.3% to $3.4 billion at December 31, 2018 from $3.3 billion at June 30, 2018. Total liabilities increased $107.2 million, or 3.7% to $3.0 billion at December 31, 2018 from $2.9 billion at June 30, 2018. Deposit growth of $61.8 million, or 2.8%; a $53.0 million, or 8.3% increase in borrowings; and the cumulative decrease of $20.2 million, or 9.1% in certificates of deposit in other banks and investment securities were used to fund the $106.4 million, or 4.2% increase in total loans receivable, net of deferred loan fees, the $10.2 million, or 4.5% increase in commercial paper, the $7.2 million, or 123.0% increase in loans held for sale, and the $2.9 million, or 7.0% increase in other investments during the first six months of fiscal 2019.
Cash, cash equivalents, and commercial paper.  Total cash and cash equivalents increased $560,000, or 0.8%, to $71.3 million at December 31, 2018 from $70.7 million at June 30, 2018. Commercial paper increased $10.2 million, or 4.5% to $239.3 million at December 31, 2018 from $229.0 million at June 30, 2018.
Investments.  Securities available for sale decreased $5.2 million, or 3.4%, to $149.8 million at December 31, 2018 from $155.0 million at June 30, 2018. During the six months ended December 31, 2018, $11.6 million of securities matured and $9.7 million of principal payments were received partially offset by $15.8 million in purchases. At December 31, 2018, certificates of deposit in other financial institutions decreased $15.0 million, or 22.4% to $51.9 million compared to $66.9 million at June 30, 2018. The decrease in certificates of deposit in other financial institutions was due to $21.7 million in maturities partially offset by $6.7 million in purchases. All certificates of deposit in other financial institutions are fully insured by the FDIC. We evaluate individual investment securities quarterly for other-than-temporary declines in market value. We did not believe that there were any other-than-temporary impairments at December 31, 2018; therefore, no impairment losses were recorded during the first six months of fiscal 2019. Other investments at cost at December 31, 2018 included SBIC Investments, FRB stock, and FHLB stock totaling $5.4 million, $7.3 million and $32.2 million, respectively. In total, other investments increased $2.9 million, or 7.0% from June 30, 2018 primarily as a result of required purchases of FHLB stock due to an increase in our FHLB borrowings.
Loans held for sale. Loans held for sale increased $7.2 million, or 123.0% at December 31, 2018 to $13.1 million from $5.9 million at June 30, 2018. The increase was driven by SBA loans originated for sale during the quarter.
Loans.  Net loans receivable increased $106.0 million, or 4.2%, at December 31, 2018 to $2.6 billion from June 30, 2018 primarily due to $134.1 million, or 11.4% annualized rate of organic loan growth partially offset by decreases in the outstanding balances of home equity lines of credit purchased. The $75.8 million, or 51.0% increase in commercial and industrial loans was driven by our new equipment finance line of business.

37



Retail consumer and commercial loans consist of the following at the dates indicated:
 
As of
 
 
 
 
 
Percent of total
 
December 31,
 
June 30,
 
Change
 
December 31,
 
June 30,
(Dollars in thousands)
2018
 
2018
 
$
 
%
 
2018
 
2018
Retail consumer loans:
 
 
 
 
 
 
 
 
 
 
 
One-to-four family
$
661,374

 
$
664,289

 
$
(2,915
)
 
(0.4
)%
 
25.1
%
 
26.3
%
HELOCs - originated
135,430

 
137,564

 
(2,134
)
 
(1.6
)
 
5.1

 
5.4

HELOCs - purchased
138,571

 
166,276

 
(27,705
)
 
(16.7
)
 
5.3

 
6.6

Construction and land/lots
74,507

 
65,601

 
8,906

 
13.6

 
2.8

 
2.6

Indirect auto finance
170,516

 
173,095

 
(2,579
)
 
(1.5
)
 
6.5

 
6.9

Consumer
13,520

 
12,379

 
1,141

 
9.2

 
0.5

 
0.5

Total retail consumer loans
1,193,918

 
1,219,204

 
(25,286
)
 
(2.1
)
 
45.3

 
48.3

Commercial loans:
 

 
 

 
 
 
 
 
 
 
 
Commercial real estate
904,357

 
857,315

 
47,042

 
5.5

 
34.4

 
33.9

Construction and development
198,738

 
192,102

 
6,636

 
3.5

 
7.5

 
7.6

Commercial and industrial
224,582

 
148,823

 
75,759

 
50.9

 
8.5

 
5.9

Municipal leases
111,135

 
109,172

 
1,963

 
1.8

 
4.2

 
4.3

Total commercial loans
1,438,812

 
1,307,412

 
131,400

 
10.1

 
54.7

 
51.7

Total loans
$
2,632,730

 
$
2,526,616

 
$
106,114

 
4.2
 %
 
100.0
%
 
100.0
%
Our expansion into larger metro markets as well as in-market acquisitions combined with improvements in the economy, employment rates, stronger real estate prices, and a general lack of new housing inventory in certain markets have led to us significantly increasing originations of construction loans for properties located in our market areas. We have hired experienced commercial real estate relationship managers, credit officers, and developed a construction risk management group to better manage construction risk, as part of our efforts to grow the construction portfolio. We will continue to take a disciplined approach in our construction and land development lending by concentrating our efforts on smaller one-to-four residential loans to builders known to us and developers of commercial real estate and multifamily properties with proven success in this type of construction. At December 31, 2018, construction and land/lots totaled $74.5 million including $62.7 million of one-to-four family construction loans that will roll over to permanent loans upon completion of the construction period. Undisbursed construction and land/lots loan commitments at December 31, 2018 totaled $59.2 million. Total construction and development loans at December 31, 2018, were $198.8 million, excluding unfunded loan commitments of $152.7 million, of which $80.8 million was for non-residential commercial real estate construction, $67.3 million was for land development, $46.3 million was for speculative construction of single family properties, and $4.4 million was for multi-family construction. Undisbursed construction and development loan commitments at December 31, 2018 included $87.9 million of commercial real estate projects, multi-family residential projects of $38.3 million and $26.5 million for the speculative construction of one- to four-family residential properties. The increase in commercial and industrial loans was driven by growth from our new equipment finance line of business. At December 31, 2018, commercial and industrial loans totaled $224.6 million, which included $81.0 million in equipment finance loans and capital leases.
Asset Quality. Our overall asset quality metrics continue to demonstrate our commitment to growing and maintaining a loan portfolio with a moderate risk profile. Nonperforming assets decreased $2.0 million or 13.5% to $12.6 million, or 0.37% of total assets, at December 31, 2018 from $14.6 million, or 0.44% of total assets at June 30, 2018. Nonperforming assets included $9.6 million in nonaccruing loans and $3.0 million in REO at December 31, 2018, compared to $10.9 million and $3.7 million, in nonaccruing loans and REO respectively, at June 30, 2018. Included in nonperforming loans are $3.9 million of TDR loans of which $2.2 million were current with respect to their modified payment terms. The decrease in nonaccruing loans was primarily due to loans returning to performing status as payment history and the borrower's financial status improved. At December 31, 2018, $5.8 million, or 60.0%, of nonaccruing loans were current on their loan payments. PCI loans aggregating $2.1 million obtained through prior acquisitions were excluded from nonaccruing loans due to the accretion of discounts established in accordance with the acquisition method of accounting for business combinations. Nonperforming loans to total loans was 0.37% at December 31, 2018 compared to 0.43% at June 30, 2018.
The ratio of classified assets to total assets decreased to 0.97% at December 31, 2018 from 1.00% at June 30, 2018. Classified assets remained consistent at $33.2 million at December 31, 2018 compared to $33.1 million at June 30, 2018. Delinquent loans (loans delinquent 30 days or more) increased to $13.2 million at December 31, 2018, from $9.8 million at June 30, 2018 primarily due to one commercial real estate loan relationship.
As of December 31, 2018, we had identified $27.8 million of impaired loans compared to $31.4 million at June 30, 2018. Our impaired loans are comprised of loans on non-accrual status and all TDRs, whether performing or on non-accrual status under their restructured terms. Impaired loans may be evaluated for reserve purposes using either a specific impairment analysis or on a collective basis as part of homogeneous pools. As of December 31, 2018, there were $10.9 million loans individually evaluated for impairment and $16.9 million were collectively evaluated. For more information on these impaired loans, see Note 5 of the Notes to Consolidated Financial Statements under Item 1 of this report.

38



Allowance for loan losses.  We establish an allowance for loan losses by charging amounts to the loan loss provision at a level required to reflect estimated credit losses in the loan portfolio. In evaluating the level of the allowance for loan losses, management considers, among other factors, historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect borrowers' ability to repay, estimated value of any underlying collateral, prevailing economic conditions and current risk factors specifically related to each loan type.
The allowance for loan losses was $21.4 million, or 0.81% of total loans, at December 31, 2018 compared to $21.1 million, or 0.83% of total loans, at June 30, 2018. The allowance for loan losses to gross loans excluding acquired loans was 0.89% at December 31, 2018, compared to 0.91% at June 30, 2018. Loans acquired from acquisitions are recorded at fair value, which includes a credit discount, therefore, no allowance for loan losses is established for these acquired loans unless the credit quality deteriorates further subsequent to the acquisition. The allowance for our acquired loans at December 31, 2018 was $199,000 compared to $483,000 at June 30, 2018.
There was no provision for loan loss during the six months ended December 31, 2018 and 2017 as the allowance for loan losses required by our loan growth was offset by continued improvements in our asset quality. Net loan recoveries totaled $359,000 for the six months ended December 31, 2018 compared to net loan charge-offs of $61,000 for the same period during the prior fiscal year. Net recoveries as a percentage of average loans increased to (0.03)% for the six months ended December 31, 2018 from charge-offs of 0.01% for the same period last fiscal year.
The allowance as a percentage of nonaccruing loans increased to 221.45% at December 31, 2018 from 192.96% at June 30, 2018.
We believe that the allowance for loan losses as of December 31, 2018 was adequate to absorb the known and inherent risks of loss in the loan portfolio at that date. While we believe the estimates and assumptions used in our determination of the adequacy of the allowance are reasonable, there can be no assurance that such estimates and assumptions will not be proven incorrect in the future, or that the actual amount of future provisions will not exceed the amount of past provisions or that any increased provisions that may be required will not adversely impact our financial condition and results of operations. In addition, the determination of the amount of the allowance for loan losses is subject to review by bank regulators as part of the routine examination process, which may result in the establishment of additional reserves based upon their judgment of information available to them at the time of their examination.
Real estate owned. REO decreased $729,000, or 19.8% to $3.0 million at December 31, 2018 primarily due to $571,000 in REO sales during the six months ended December 31, 2018. The total balance of REO at December 31, 2018 included $943,000 in land, $1.5 million in commercial real estate, and $557,000 in single-family homes.
Deferred income taxes. Deferred income taxes decreased $4.0 million, or 12.4%, to $28.5 million at December 31, 2018 from $32.6 million at June 30, 2018. The decrease was primarily driven by the realization of net operating losses through increases in taxable income.
Goodwill. Goodwill remained unchanged at $25.6 million at both December 31, 2018 and June 30, 2018.
Deposits.  Deposits increased $61.8 million during the six months ended December 31, 2018 to $2.3 billion from $2.2 billion at June 30, 2018. Increases in NOW accounts, money market accounts and certificates of deposit were partially offset by decreases in other types of deposit accounts.
The following table sets forth our deposits by type of deposit account as of the dates indicated:
 
As of
 
 
 
Percent of total
 
December 31,
 
June 30,
 
Change
 
December 31,
 
June 30,
(Dollars in thousands)
2018
 
2018
 
$
 
%
 
2018
 
2018
Core deposits:
 
 
 
 
 
 
 
 
 
 
 
     Noninterest-bearing accounts
$
300,031

 
$
317,822

 
$
(17,791
)
 
(5.6
)%
 
13.3
%
 
14.5
%
     NOW accounts
474,080

 
471,364

 
2,716

 
0.6
 %
 
21.0
%
 
21.5
%
     Money market accounts
703,445

 
677,665

 
25,780

 
3.8
 %
 
31.2
%
 
30.9
%
     Savings accounts
192,954

 
213,250

 
(20,296
)
 
(9.5
)%
 
8.5
%
 
9.7
%
Core deposits
1,670,510

 
1,680,101

 
(9,591
)
 
(0.6
)%
 
74.0
%
 
76.5
%
Certificates of deposit
587,559

 
516,152

 
71,407

 
13.8
 %
 
26.0
%
 
23.5
%
Total
$
2,258,069

 
$
2,196,253

 
$
61,816

 
2.8
 %
 
100.0
%
 
100.0
%
Borrowings.  Borrowings increased to $688.0 million at December 31, 2018 from $635.0 million at June 30, 2018. A total of $413.0 million of these FHLB advances have maturities of less than 90 days and $275.0 million consist of convertible FHLB advances with maturities less than one year; together with a weighted average interest rate of 2.23% at December 31, 2018.
Equity.  Stockholders' equity at December 31, 2018 increased $1.7 million to $411.0 million from $409.2 million at June 30, 2018. The increase was due to $15.8 million in net income, $1.5 million in stock-based compensation, and a $576,000 increase in other comprehensive income representing a reduction in unrealized losses on investment securities, net of tax, partially offset by 559,755 shares of common stock repurchased at an average cost of $27.95, or approximately $15.6 million in total, and $1.1 million related to our first cash dividend.

39



Average Balances, Interest and Average Yields/Cost
The following table sets forth for the periods indicated, information regarding average balances of assets and liabilities as well as the total dollar amounts of interest income from average interest-earning assets and interest expense on average interest-bearing liabilities, resultant yields, interest rate spread, net interest margin (otherwise known as net yield on interest-earning assets), and the ratio of average interest-earning assets to 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.
 
For the Three Months Ended December 31,
 
2018
 
2017
 
Average
Balance
Outstanding
 
Interest
Earned/
Paid
(2)
 
Yield/
Rate
(2)
 
Average
Balance
Outstanding
 
Interest
Earned/
Paid
(2)
 
Yield/
Rate
(2)
 
(Dollars in thousands)
Assets:
 
 
 
 
 
 
 
 
 
 
 
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
Loans receivable(1)
$
2,610,117

 
$
30,826

 
4.72
%
 
$
2,406,014

 
$
26,518

 
4.41
%
Deposits in other financial institutions
82,700

 
395

 
1.91
%
 
151,197

 
517

 
1.37
%
Investment securities
151,788

 
876

 
2.31
%
 
175,039

 
903

 
2.06
%
Other interest-earning assets(3)
274,605

 
2,585

 
3.77
%
 
241,948

 
1,418

 
2.34
%
Total interest-earning assets
3,119,210

 
34,682

 
4.45
%
 
2,974,198

 
29,356

 
3.95
%
Other assets
250,516

 
 
 
 
 
275,434

 
 
 
 
Total assets
3,369,726

 
 
 
 
 
3,249,632

 
 
 
 
Liabilities and equity:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing checking accounts
465,418

 
302

 
0.26
%
 
471,474

 
236

 
0.20
%
Money market accounts
689,335

 
1,265

 
0.73
%
 
644,928

 
585

 
0.36
%
Savings accounts
196,434

 
63

 
0.13
%
 
227,933

 
76

 
0.13
%
Certificate accounts
564,112

 
1,977

 
1.40
%
 
448,507

 
644

 
0.57
%
Total interest-bearing deposits
1,915,299

 
3,607

 
0.75
%
 
1,792,842

 
1,541

 
0.33
%
Borrowings
673,783

 
3,692

 
2.19
%
 
677,013

 
2,077

 
1.22
%
  Total interest-bearing liabilities
2,589,082

 
7,299

 
1.13
%
 
2,469,855

 
3,618

 
0.58
%
Noninterest-bearing deposits
309,012

 
 
 
 
 
307,934

 
 
 
 
Other liabilities
60,689

 
 
 
 
 
65,850

 
 
 
 
Total liabilities
2,958,783

 
 
 
 
 
2,843,639

 
 
 
 
Stockholders' equity
410,943

 
 
 
 
 
405,993

 
 
 
 
Total liabilities and stockholders' equity
$
3,369,726

 
 
 
 
 
$
3,249,632

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net earning assets
$
530,128

 
 

 
 
 
$
504,343

 
 
 
 
Average interest-earning assets to
 
 
 
 
 
 
 
 
 
 
 
average interest-bearing liabilities
120.48
%
 
 
 
 
 
120.42
%
 
 
 
 
Tax-equivalent:
 
 
 
 
 
 
 
 
 
 
 
Net interest income
 
 
$
27,383

 
 
 
 
 
$
25,738

 
 
Interest rate spread
 
 
 
 
3.32
%
 
 
 
 
 
3.37
%
Net interest margin(4)
 
 
 
 
3.51
%
 
 
 
 
 
3.46
%
Non-tax-equivalent:
 
 
 
 
 
 
 
 
 
 
 
Net interest income
 
 
$
27,101

 
 
 
 
 
$
25,360

 
 
Interest rate spread
 
 
 
 
3.28
%
 
 
 
 
 
3.32
%
Net interest margin(4)
 
 
 
 
3.48
%
 
 
 
 
 
3.41
%
(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 $282,000 and $378,000 for the three months ended December 31, 2018 and 2017, respectively, calculated based on a combined federal and state income tax rate of 24% and 30%, respectively.
(3) The average other interest-earning assets consists of FRB stock, FHLB stock, SBIC investments, and commercial paper.
(4) Net interest income divided by average interest-earning assets.

40



 
For the Six Months Ended December 31,
 
2018
 
2017
 
Average
Balance
Outstanding
 
Interest
Earned/
Paid(2)
 
Yield/
Rate(2)
 
Average
Balance
Outstanding
 
Interest
Earned/
Paid(2)
 
Yield/
Rate(2)
(Dollars in thousands)
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
Loans receivable(1)
$
2,584,145

 
$
59,837

 
4.63
%
 
$
2,383,768

 
$
52,154

 
4.38
%
Deposits in other financial institutions
87,607

 
811

 
1.85
%
 
155,175

 
1,053

 
1.36
%
Investment securities
153,019

 
1,732

 
2.26
%
 
182,479

 
1,875

 
2.06
%
Other interest-earning assets(3)
272,914

 
4,865

 
3.57
%
 
225,185

 
2,676

 
2.38
%
Total interest-earning assets
3,097,685

 
67,245

 
4.34
%
 
2,946,607

 
57,758

 
3.92
%
Other assets
248,084

 
 
 
 
 
277,151

 
 
 
 
Total assets
$
3,345,769

 
 
 
 
 
$
3,223,758

 
 
 
 
Liabilities and equity:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing checking accounts
462,657

 
571

 
0.25
%
 
467,201

 
452

 
0.19
%
Money market accounts
683,332

 
2,222

 
0.65
%
 
625,095

 
1,062

 
0.34
%
Savings accounts
202,362

 
131

 
0.13
%
 
230,436

 
153

 
0.13
%
Certificate accounts
547,310

 
3,433

 
1.25
%
 
449,173

 
1,220

 
0.54
%
Total interest-bearing deposits
1,895,661

 
6,357

 
0.75
%
 
1,771,905

 
2,887

 
0.33
%
Borrowings
659,821

 
6,950

 
2.11
%
 
672,552

 
4,046

 
1.20
%
Total interest-bearing liabilities
2,555,482

 
13,307

 
1.04
%
 
2,444,457

 
6,933

 
0.56
%
Noninterest-bearing deposits
316,397

 
 
 
 
 
309,265

 
 
 
 
Other liabilities
61,985

 
 
 
 
 
66,328

 
 
 
 
Total liabilities
2,933,864

 
 
 
 
 
2,820,050

 
 
 
 
Stockholders' equity
411,905

 
 
 
 
 
403,708

 
 
 
 
Total liabilities and stockholders' equity
$
3,345,769

 
 
 
 
 
$
3,223,758

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net earning assets
$
542,203

 
 
 
 
 
$
502,150

 
 
 
 
Average interest-earning assets to
 
 
 
 
 
 
 
 
 
 
 
average interest-bearing liabilities
121.22
%
 
 
 
 
 
120.54
%
 
 
 
 
Tax-equivalent:
 
 
 
 
 
 
 
 
 
 
 
Net interest income
 
 
$
53,938

 
 
 
 
 
$
50,825

 
 
Interest rate spread
 
 
 
 
3.30
%
 
 
 
 
 
3.36
%
Net interest margin(4)
 
 
 
 
3.48
%
 
 
 
 
 
3.45
%
Non-tax-equivalent:
 
 
 
 
 
 
 
 
 
 
 
Net interest income
 
 
$
53,373

 
 
 
 
 
$
50,061

 
 
Interest rate spread
 
 
 

 
3.26
%
 
 
 
 
 
3.30
%
Net interest margin(4)
 
 
 
 
3.45
%
 
 
 
 
 
3.40
%
(1) The average loans receivable, net balances include loans held for sale and nonaccruing loans.
(2) Interest income used in the average interest earned and yield calculation includes the tax equivalent adjustment of $565,000 and $764,000 for the six months ended December 31, 2018 and 2017, respectively, calculated based on a combined federal and state tax rate of 24% and 30%, respectively.
(3) The average other interest-earning assets consists of FRB stock, FHLB stock, SBIC investments, and commercial paper.
(4) Net interest income divided by average interest-earning assets.

41



Rate/Volume Analysis
The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. It distinguishes between the changes related to outstanding balances and that due to the changes in interest rates. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (i.e., changes in volume multiplied by old rate) and (ii) changes in rate (i.e., changes in rate multiplied by old volume). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate.
 
Three Months Ended December 31, 2018
 
Compared to
 
Three Months Ended December 31, 2017
 
Increase/
(decrease)
due to
 
Total
increase/(decrease)
(Dollars in thousands)
Volume
 
Rate
 
Interest-earning assets:
 
 
 
 
 
 Loans receivable(1)
$
2,248

 
$
2,060

 
$
4,308

Deposits in other financial institutions
(235
)
 
113

 
(122
)
 Investment securities
(119
)
 
92

 
(27
)
 Other interest-earning assets
191

 
976

 
1,167

    Total interest-earning assets
$
2,085

 
$
3,241

 
$
5,326

Interest-bearing liabilities:
 
 
 
 
 
 Interest-bearing checking accounts
$
(3
)
 
$
69

 
$
66

 Money market accounts
41

 
639

 
680

 Savings accounts 
(11
)
 
(2
)
 
(13
)
 Certificate accounts
167

 
1,166

 
1,333

 Borrowings
(10
)
 
1,625

 
1,615

    Total interest-bearing liabilities
184

 
3,497

 
3,681

Net increase (decrease) in tax equivalent interest income
$
1,901

 
$
(256
)
 
$
1,645

 
Six Months Ended December 31, 2018
 
Compared to
 
Six Months Ended December 31, 2017
 
Increase/
(decrease)
due to
 
Total
increase/(decrease)
(Dollars in thousands)
Volume
 
Rate
 
Interest-earning assets:
 
 
 
 
 
 Loans receivable(1)
$
4,384

 
$
3,299

 
$
7,683

Deposits in other financial institutions
(458
)
 
216

 
(242
)
 Investment securities
(302
)
 
159

 
(143
)
 Other interest-earning assets
567

 
1,622

 
2,189

    Total interest-earning assets
4,191

 
5,296

 
9,487

Interest-bearing liabilities:
 
 
 
 
 
 Interest-bearing checking accounts 
$
(5
)
 
$
124

 
$
119

 Money market accounts
99

 
1,061

 
1,160

 Savings accounts
(18
)
 
(4
)
 
(22
)
 Certificate accounts
266

 
1,947

 
2,213

 Borrowings
(77
)
 
2,981

 
2,904

    Total interest-bearing liabilities
265

 
6,109

 
6,374

Net increase (decrease) in tax equivalent interest income
$
3,926

 
$
(813
)
 
$
3,113

_____________
(1) Interest income used in the average interest/earned and yield calculation includes the tax equivalent adjustment of $282,000 and $378,000 for the three months ended December 31, 2018 and 2017, respectively, calculated based on a combined federal and state income tax rate of 24% and 30%. Interest income used in the average interest/earned and yield calculation includes the tax equivalent adjustment of $565,000 and $764,000 for the six months ended December 31, 2018 and 2017, respectively, calculated based on a combined federal and state tax rate of 24% and 30%.

42



Comparison of Results of Operation for the Three Months Ended December 31, 2018 and 2017
General.  During the three months ended December 31, 2018, we had net income of $8.0 million compared to a net loss of $10.7 million for the three months ended December 31, 2017. The Company's diluted earnings per share was $0.43 for the three months ended December 31, 2018 compared to a diluted loss per share of $0.59 for the same period in fiscal 2018. Earnings for the three months ended December 31, 2017 included an approximately $17.7 million write-down of deferred tax assets ("DTA") as a result of the enactment of the Tax Act with no comparable charge in the same 2018 period. Net income and diluted earnings per share excluding state tax expense rate changes, adjustments for the change in federal tax law rate, and gain from the sale of premises and equipment for the quarter ended December 31, 2018 and 2017 was $8.0 million and $0.43, compared to $7.0 million and $0.38, respectively.
Net Interest Income. Net interest income increased $1.7 million, or 6.9% to $27.1 million for the quarter ended December 31, 2018 compared to $25.4 million for the corresponding period in 2017. The increase in net interest income for the quarter ended December 31, 2018 was primarily due to a $5.4 million increase in interest and dividend income driven by an increase in average interest-earning assets, which was partially offset by a $3.7 million increase in interest expense.
Average interest-earning assets increased $145.0 million, or 4.9% to $3.1 billion for the quarter ended December 31, 2018 compared to $3.0 billion for the corresponding quarter in fiscal 2018. For the quarter ended December 31, 2018, the average balance of total loans receivable increased $204.1 million, or 8.5% primarily due to organic loan growth. The average balance of other interest-earning assets increased $32.7 million, or 13.5% primarily due to increases in commercial paper investments. These increases were mainly funded by the cumulative decrease of $91.8 million, or 28.1% in average interest-earning deposits in other banks and securities available for sale, and an increase in average interest-bearing deposits of $122.5 million, or 6.8% as compared to the same quarter last year. Net interest margin (on a fully taxable-equivalent basis) for the three months ended December 31, 2018 increased to 3.51% from 3.46% for the same period a year ago.

Total interest and dividend income increased $5.4 million, or 18.7% for the three months ended December 31, 2018 as compared to the same period last year, which was primarily driven by a $4.4 million, or 16.8% increase in loan interest income and a $663,000, or 50.9% increase in interest income from commercial paper and interest-bearing deposits in other banks. The additional loan interest income was driven by the increase in both the average balance of loans receivable and loan yields compared to the prior year quarter. Average loan yields increased 31 basis points to 4.72% for the quarter ended December 31, 2018 from 4.41% in the corresponding quarter from last year primarily due to the impact of the increases in the targeted federal funds rate over the past year. Partially offsetting the increase in loan interest income was a $96,000, or 10.4% decrease in the accretion of purchase discounts on acquired loans as a result of reduced prepayments as compared to the same quarter last year. Accretable income on acquired loans stems from the discount established at the time these loan portfolios were acquired and the related impact of prepayments on purchased loans. Each quarter, the Company analyzes the cash flow assumptions on the PCI loan pools and, at least semi-annually, the Company updates loss estimates, prepayment speeds and other variables when analyzing cash flows. In addition to this accretion income, which is recognized over the estimated life of the loan pools, if a loan is removed from a pool due to payoff or foreclosure, the unaccreted discount in excess of losses is recognized as an accretion gain in interest income. As a result, income from loan pools can be volatile from quarter to quarter. For the quarters ended December 31, 2018 and 2017, the average loan yield included 13 and 15 basis points, respectively, from the accretion of purchase discounts on acquired loans.
Total interest expense increased $3.7 million, or 101.7% for the quarter ended December 31, 2018 compared to the same period last year. The increase was primarily driven by a $2.1 million, or 134.1% increase in deposit interest expense and a $1.6 million, or 77.8% increase in interest expense on borrowings. The additional deposit interest expense was a result of our focus on increasing deposits as the average balance of interest-bearing deposits increased $122.5 million along with a 42 basis point increase in the average cost of interest-bearing deposits for the quarter ended December 31, 2018 compared to the same quarter last year. Average borrowings decreased $3.2 million or 0.5% for the quarter ended December 31, 2018 compared to the same period last year, however, interest expense from borrowings increased $1.6 million due to the 97 basis point increase in the average cost of borrowings between the periods. The overall average cost of funds increased 55 basis points to 1.13% for the current quarter compared to 0.58% in the same quarter last year due primarily to the impact of higher interest rates on our interest-bearing liabilities.
Provision for Loan Losses. During the three months ended December 31, 2018 and 2017, there was no provision for loan losses as the provision required by our loan growth was offset by continued improvements in our asset quality. Net loan recoveries totaled $487,000 for the three months ended December 31, 2018 compared to net loan charge-offs of $907,000 for the same period last year. Net recoveries as a percentage of average loans increased to (0.07)% for the three months ended December 31, 2018 from net charge-offs of 0.15% for the same period last fiscal year.
See Comparison of Financial Condition - Asset Quality for additional details.
Noninterest Income.  Noninterest income increased $626,000, or 14.0% to $5.1 million for the three months ended December 31, 2018 from $4.5 million for the same period in the previous year. The leading factors of the increase included a $590,000, or 29.7% increase in service charges on deposit accounts as a result of an increase in deposit accounts and related fees; and an $156,000, or 26.3% increase in other noninterest income primarily related to operating lease income from the new equipment finance line of business. Partially offsetting these increases was a $220,000, decline in gain from the sale of loans for the three months ended December 31, 2018 compared to the same period last year primarily related to decreasing residential mortgage banking activity.
Noninterest Expense.  Noninterest expense for the three months ended December 31, 2018 increased $881,000, or 4.2% to $21.9 million compared to $21.0 million for the three months ended December 31, 2017. The increase was primarily due to a $884,000, or 7.4% increase in salaries and employee benefits; a $300,000, or 18.8% increase in computer services; a $83,000, or 26.0% increase in marketing and advertising, and a $78,000, or 3.2% increase in net occupancy expense, mainly driven by the expansion of our SBA and equipment finance lines of business. Partially offsetting these increases was the cumulative decrease of $464,000 or 10.1% in telephone, postage, and supplies expense; deposit insurance

43



premiums, REO related expenses; core deposit intangibles amortization; and other expenses for the three months ended December 31, 2018 compared to the same period last year.
Income Taxes. The Company's income tax expense for the three months ended December 31, 2018 was $2.3 million compared to $19.5 million for the three months ended December 31, 2017. The Company’s federal income tax provision for the three months ended December 31, 2018 benefited from the impact of the Tax Act that lowered the corporate federal income tax rate from 34% to 21%. In the fourth quarter of 2017, following a revaluation of net deferred tax assets due to the Tax Act, the Company recorded additional income tax expense of $17.7 million. The Company's effective tax rate for the quarter ended December 31, 2018 was 22.1%.
Comparison of Results of Operation for the Six Months Ended December 31, 2018 and 2017
General.  During the six months ended December 31, 2018, we had net income of $15.8 million compared to a net loss of $5.1 million for the six months ended December 31, 2017. Diluted earnings per share was $0.84 for the first six months of fiscal year 2019, compared to a diluted loss per share of $0.28 in the same period in fiscal 2018. Earnings for the six months ended December 31, 2017 included an approximately $17.7 million write-down of deferred tax assets following a deferred tax revaluation of our DTA resulting from the Tax Act with no comparable charge in the same 2018 period. Net income and diluted earnings per share excluding state tax expense rate changes, adjustments for the change in federal tax law rate, and gain from the sale of premises and equipment for the six months ended December 31, 2018 was $15.8 million and $0.84, compared to $12.6 million and $0.68, respectively.
Net Interest Income. Net interest income increased $3.3 million, or 6.6% to $53.4 million for the six months ended December 31, 2018 compared to $50.1 million for the six months ended December 31, 2017. This increase in net interest income was driven by a $9.7 million, or 17.0% increase in interest and dividend income partially offset by a $6.4 million, or 91.9% increase in interest expense.
Average interest-earning assets increased $151.1 million, or 5.1% to $3.1 billion for the six months ended December 31, 2018 compared to $2.9 billion in the same period in fiscal 2018. The $200.4 million, or 8.4% increase in average balance of total loans receivable for the six months ended December 31, 2018 was primarily due to organic loan growth, which was mainly funded by the cumulative decrease of $97.0 million, or 28.7% in average interest-earning deposits in other financial institutions, securities available for sale and an increase in average interest-bearing deposits of $123.8 million, or 7.0%. Net interest margin (on a fully taxable-equivalent basis) for the six months ended December 31, 2018 increased three basis points to 3.48% from 3.45% for the period last year.
Total interest and dividend income increased $9.7 million, or 17.0% for the six months ended December 31, 2018 as compared to the same period last year. The increase was primarily driven by a $7.9 million, or 15.3% increase in loan interest income, a $1.4 million, or 54.7% increase in interest income from commercial paper and interest-bearing deposits in other banks, and a $596,000, or 47.4% increase in other investment income. The additional loan interest income was primarily due to the increase in the average balance of loans receivable, which was partially offset by a $500,000, or 29.5% decrease in the accretion of purchase discounts on acquired loans to $1.2 million for the six months ended December 31, 2018 from $1.7 million for the same period in fiscal 2018, as a result of reduced repayments as compared to the same period in the previous year. Overall, average loan yields increased 25 basis points to 4.63% for the six months ended December 31, 2018 from 4.38% in the fiscal 2018 period. For the six months ended December 31, 2018 and 2017, the average loan yield included nine and 15 basis points, respectively, from the accretion of purchase discounts on acquired loans.
Total interest expense increased $6.4 million, or 91.9% to $13.3 million for the six months ended December 31, 2018 from $6.9 million for the same period last year. This increase was primarily related to the increase in average interest-bearing deposits and the corresponding 34 basis point increase in the average cost of those deposits, resulting in additional deposit interest expense of $3.5 million for the six months ended December 31, 2018 as compared to the same period in the prior year. The average cost of borrowings increased 91 basis points, more than offsetting a $12.7 million decline in average borrowings resulting in an additional $2.9 million in interest expense from borrowings for the six months ended December 31, 2018 as compared to the same period in the prior year. The overall cost of funds increased 48 basis points to 1.04% for the six months ended December 31, 2018 compared to 0.56% in the corresponding period last year.
Provision for Loan Losses.  There was no provision for loan losses during the six months ended December 31, 2018 or 2017. Net recoveries for the six months ended December 31, 2018 were $359,000 compared to net charge-offs of $61,000 for the same period in fiscal 2017. Net recoveries as a percentage of average loans was (0.03)% for the six months ended December 31, 2018 compared to net charge-offs of 0.01% for the same period last fiscal year.
See "Comparison of Financial Condition - Asset Quality" for additional details.
Noninterest Income.  Noninterest income increased $2.0 million, or 22.7%, to $10.7 million for the six months ended December 31, 2018 from $8.7 million for the six months ended December 31, 2017. The increase was primarily the result of a $1.1 million, or 29.9% increase in service charges on deposit accounts; a $731,000, or 38.8% increase on the gain on sale of loans primarily due to originations and sales of the guaranteed portion of SBA commercial loans; and $244,000, or 20.6% increase in other noninterest income. Partially offsetting these increases was a $164,000 decrease in gain from the sale of premises and equipment for the six months ended December 31, 2018 compared to the same period last year as there were no sales occurring during the current period.
Noninterest Expense.  Noninterest expense for the six months ended December 31, 2018 increased $1.9 million, or 4.5%, to $43.7 million compared to $41.9 million for the six months ended December 31, 2017. The increase was primarily due to a $1.2 million, or 5.0% increase in salaries and employee benefits; a $604,000, or 19.2% increase in computer services; a $198,000, or 49.0% increase in REO related expenses; and a cumulative increase of $202,000, or 2.9% in net occupancy, marketing and advertising, and telephone, postage, and supplies expense. Partially offsetting these increases was a $309,000, or 22.1% decrease in core deposit intangible amortization and a $194,000, or 23.3% decrease

44



in deposit insurance premiums for the six months ended December 31, 2018 compared to the same period last year. Deposit insurance premiums decreased due to reduced premiums as a result of higher levels of capital and lower nonperforming loans.
Income Taxes.  For the six months ended December 31, 2018, the Company's income tax expense was $4.5 million compared to $22.0 million for the six months ended December 31, 2017. The decrease was primarily driven by the absence of the deferred tax revaluation that occurred during the six months ended December 31, 2017 compared to the same period in fiscal 2019. The Company’s corporate federal income tax rate for the six months ended December 31, 2018 and 2017 was 21% and 27.5%, respectively. The Company's effective tax rate for the six months ended December 31, 2018 was 22.1%.
Liquidity
Management maintains a liquidity position that it believes will adequately provide funding for loan demand and deposit run-off that may occur in the normal course of business. We rely on a number of different sources in order to meet our potential liquidity demands. The primary sources are increases in deposit accounts, cash flows from loan payments, commercial paper, and the securities portfolio.
In addition to these primary sources of funds, management has several secondary sources available to meet potential funding requirements. As of December 31, 2018, the Bank had an available borrowing capacity of $63.4 million with the FHLB of Atlanta, a $137.4 million line of credit with the FRB and three lines of credit with three unaffiliated banks totaling $70.0 million. At December 31, 2018, we had $688.0 million in FHLB advances outstanding and nothing outstanding under our other lines of credit. Additionally, the Company classifies its securities portfolio as available for sale, providing an additional source of liquidity. Management believes that our security portfolio is of high quality and the securities would therefore be marketable. In addition, we have historically sold longer term 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 December 31, 2018 brokered deposits totaled $139.7 million, or 6.2% of total deposits compared to $108.9 million, or 4.9% of total deposits at June 30, 2018.
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, federal funds, and commercial paper. On a longer term basis, we maintain a strategy of investing in various lending products and investment securities, including mortgage-backed securities. HomeTrust Bancshares on a stand-alone level is a separate legal entity from the Bank and must provide for its own liquidity and pay its own operating expenses. The Company's primary source of funds consists of the net proceeds retained from the Conversion. The Company also has the ability to receive dividends or capital distributions from the Bank, although there are regulatory restrictions on the ability of the Bank to pay dividends. At December 31, 2018, the Company (on an unconsolidated basis) had liquid assets of $8.7 million.
We use our sources of funds primarily to meet our ongoing commitments, pay maturing deposits and fund withdrawals, and to fund loan commitments. At December 31, 2018, the total approved loan commitments and unused lines of credit outstanding amounted to $258.0 million and $488.1 million, respectively, as compared to $259.7 million and $491.6 million, respectively, as of June 30, 2018. Certificates of deposit scheduled to mature in one year or less at December 31, 2018, totaled $289.5 million. It is management's policy to manage deposit rates that are competitive with other local financial institutions. Based on this management strategy, we believe that a majority of maturing deposits will remain with us.
During the first six months of fiscal 2019, cash and cash equivalents increased $560,000, or 0.8%, to $71.3 million as of December 31, 2018 from $70.7 million as of June 30, 2018. Cash provided by operating and financing activities was $6.3 million and $98.6 million, respectively; while cash used in investing activities was $104.4 million. Primary sources of cash for the six months ended December 31, 2018 included $15.0 million in maturing certificates of deposit in other financial institutions, net of purchases, $11.6 million in maturing securities available for sale, $9.7 million in principal repayments from mortgage-backed securities, a $61.8 million increase in deposits, and a $53.0 million net increase in borrowings. Primary uses of cash during the period included a net increase in commercial paper of $7.2 million, an increase in loans of $109.0 million, $15.8 million of purchases of securities available for sale, $5.5 million in purchases of operating lease equipment and $15.6 million in common stock repurchases. All sources and uses of cash reflect our cash management strategy to increase our higher yielding investments and loans by increasing lower costing borrowings and reducing our holdings of lower yielding investments.
Off-Balance Sheet Activities
In the normal course of operations, we engage in a variety of financial transactions that are not recorded in our financial statements. These transactions involve varying degrees of off-balance sheet credit, interest rate and liquidity risks. These transactions are used primarily to manage customers' requests for funding and take the form of loan commitments and lines of credit. For the six months ended December 31, 2018, we engaged in no off-balance sheet transactions likely to have a material effect on our financial condition, results of operations or cash flows.

45



A summary of our off-balance sheet commitments to extend credit at December 31, 2018, is as follows (in thousands):
Undisbursed portion of construction loans
$
197,728

Commitments to make loans
60,248

Unused lines of credit
488,071

Unused letters of credit
8,826

Total loan commitments
$
754,873

Capital Resources
At December 31, 2018, stockholder's equity totaled $411.0 million. HomeTrust Bancshares, Inc. is a bank holding company and a financial holding company subject to regulation by the Federal Reserve. As a bank holding company, we are subject to capital adequacy requirements of the Federal Reserve under the Bank Holding Company Act of 1956, as amended and the regulations of the Federal Reserve. Our subsidiary, the Bank, an FDIC-insured, North Carolina state-chartered bank and a member of the Federal Reserve System, is supervised and regulated by the Federal Reserve and the 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.
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 December 31, 2018, HomeTrust Bancshares, Inc. and the Bank each exceeded all regulatory capital requirements as of that date. Consistent with our goals to operate a sound and profitable organization, our policy is for the Bank to maintain a “well-capitalized” status under the regulatory capital categories of the Federal Reserve. The Bank was categorized as "well-capitalized" at December 31, 2018 under applicable regulatory requirements.

46



HomeTrust Bancshares, Inc. and the Bank's actual and required minimum capital amounts and ratios are as follows (dollars in thousands):
 
 
 
Regulatory Requirements
 
Actual
 
Minimum for Capital
Adequacy Purposes
 
Minimum to Be
Well Capitalized
 
Amount
 
Ratio
 
Amount
 
Ratio
 
Amount
 
Ratio
HomeTrust Bancshares, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
Common Equity Tier I Capital to Risk-Weighted Assets
$
377,144

 
12.55
%
 
$
135,186

 
4.50
%
 
$
195,269

 
6.50
%
Tier I Capital (to Total Adjusted Assets)
$
377,144

 
11.31
%
 
$
133,395

 
4.00
%
 
$
166,744

 
5.00
%
Tier I Capital (to Risk-weighted Assets)
$
377,144

 
12.55
%
 
$
180,248

 
6.00
%
 
$
240,331

 
8.00
%
Total Risk-based Capital (to Risk-weighted Assets)
$
399,018

 
13.28
%
 
$
240,331

 
8.00
%
 
$
300,414

 
10.00
%
 
 
 
 
 
 
 
 
 
 
 
 
As of June 30, 2018
 

 
 

 
 

 
 

 
 

 
 

Common Equity Tier I Capital to Risk-Weighted Assets
$
372,188

 
12.97
%
 
$
129,109

 
4.50
%
 
$
186,491

 
6.50
%
Tier I Capital (to Total Adjusted Assets)
$
372,188

 
11.45
%
 
$
130,032

 
4.00
%
 
$
162,539

 
5.00
%
Tier I Capital (to Risk-weighted Assets)
$
372,188

 
12.97
%
 
$
172,145

 
6.00
%
 
$
229,527

 
8.00
%
Total Risk-based Capital (to Risk-weighted Assets)
$
393,703

 
13.72
%
 
$
229,527

 
8.00
%
 
$
286,909

 
10.00
%
 
 
 
 
 
 
 
 
 
 
 
 
HomeTrust Bank:
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2018
 

 
 

 
 

 
 

 
 

 
 

Common Equity Tier I Capital to Risk-Weighted Assets
$
355,765

 
11.86
%
 
$
135,038

 
4.50
%
 
$
195,054

 
6.50
%
Tier I Capital (to Total Adjusted Assets)
$
355,765

 
10.68
%
 
$
133,294

 
4.00
%
 
$
166,618

 
5.00
%
Tier I Capital (to Risk-weighted Assets)
$
355,765

 
11.86
%
 
$
180,050

 
6.00
%
 
$
240,067

 
8.00
%
Total Risk-based Capital (to Risk-weighted Assets)
$
377,574

 
12.58
%
 
$
240,067

 
8.00
%
 
$
300,084

 
10.00
%
 
 
 
 
 
 
 
 
 
 
 
 
As of June 30, 2018
 

 
 

 
 

 
 

 
 

 
 

Common Equity Tier I Capital to Risk-Weighted Assets
$
335,152

 
11.70
%
 
$
128,889

 
4.50
%
 
$
186,173

 
6.50
%
Tier I Capital (to Total Adjusted Assets)
$
335,152

 
10.33
%
 
$
129,769

 
4.00
%
 
$
162,211

 
5.00
%
Tier I Capital (to Risk-weighted Assets)
$
335,152

 
11.70
%
 
$
171,852

 
6.00
%
 
$
229,136

 
8.00
%
Total Risk-based Capital (to Risk-weighted Assets)
$
356,603

 
12.45
%
 
$
229,136

 
8.00
%
 
$
286,421

 
10.00
%
In addition to the minimum common equity Tier 1 ("CET1"), Tier 1 and total risk-based capital ratios, HomeTrust Bancshares, Inc. and the Bank now have to maintain a capital conservation buffer consisting of additional CET1 capital 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. The new capital conservation buffer requirement was phased in beginning in January 2016 when a buffer more than 0.625% of risk-weighted assets was required, which amount increased each year by 0.625% to an amount more than 2.5% of risk weighted assets on January 1, 2019. At December 31, 2018, the conservation buffer was an amount more than 1.875%
Impact of Inflation
The effects of price changes and inflation can vary substantially for most financial institutions. While management believes that inflation affects the growth of total assets, it believes that it is difficult to assess the overall impact. Management believes this to be the case due to the fact that generally neither the timing nor the magnitude of the inflationary changes in the consumer price index ("CPI") coincides with changes in interest rates. The price of one or more of the components of the CPI may fluctuate considerably and thereby influence the overall CPI without having a corresponding effect on interest rates or upon the cost of those goods and services normally purchased by the Company. In years of high inflation and high interest rates, intermediate and long-term interest rates tend to increase, thereby adversely impacting the market values of investment securities, mortgage loans and other long-term fixed rate loans. In addition, higher short-term interest rates caused by inflation tend to increase the cost of funds. In other years, the opposite may occur.

47



Item 3.      Quantitative and Qualitative Disclosure About Market Risk
There has not been any material change in the market risk disclosures contained in our 2018 Form 10-K.
Item 4.      Controls and Procedures
An evaluation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the "Act")) as of December 31, 2018, was carried out under the supervision and with the participation of the Company's Chief Executive Officer, Chief Financial Officer and several other members of the Company's senior management. The Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures in effect as of December 31, 2018, were effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Act is: (i) accumulated and communicated to the Company's management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. In addition, there have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Act) that occurred during the quarter ended December 31, 2018, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
The Company does not expect that its disclosure controls and procedures and internal control over financial reporting will prevent all errors and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls may be circumvented by the individual acts of some persons, by collusion of two or more people, or by override of the control. The design of any control procedure also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.
PART II.  OTHER INFORMATION
Item 1.    Legal Proceedings
The "Litigation" section of Note 10 to the Consolidated Financial Statements included in Part I, Item 1 is incorporated herein by reference.
Item 1A.
Risk Factors
There have been no material changes in the Risk Factors previously disclosed in Item 1A of the Company's 2018 Form 10-K.
Item 2.
Unregistered Sales of Equity Securities and use of Proceeds
(a) Not applicable
(b) Not applicable
(c) The following table provides information about repurchases of common stock by the Company during the quarter ended December 31, 2018:
Period
Total Number
Of Shares Purchased
 
Average
Price Paid per Share
 
Total Number Of Shares Purchased as Part of Publicly Announced Plans
 
Maximum
Number of
Shares that May
Yet Be Purchased Under Publicly Announced Plans
October 1 - October 31, 2018
227,000

 
$
27.93

 
227,000

 
298,855

November 1 - November 30, 2018
87,855

 
27.48

 
87,855

 

December 1 - December 31, 2018
116,600

 
25.17

 
116,600

 
815,001

Total
431,455

 
$
27.61

 
431,455

 
815,001

On December 6, 2018, the Company announced that its Board of Directors had authorized the repurchase of up to 931,601 shares of the Company's common stock, representing 5% of the Company's outstanding shares at the time of the announcement. The shares may be purchased in the open market or in privately negotiated transactions, from time to time depending upon market conditions and other factors. As of December 31, 2018, 116,600 of the shares approved on December 6, 2018 had been purchased at an average price of $25.17.

48



Item 3.
Defaults Upon Senior Securities
Nothing to report.
Item 4.
Mine Safety Disclosures
Not applicable.
Item 5.
Other Information
Nothing to report.
Item 6.
Exhibits
Regulation S-K Exhibit Number
Document
Reference to Prior Filing or Exhibit Number Attached Hereto
 
 
 
3.1
(b)
3.2
(c)
3.3
(p)
4.1
(c)
4.2
(l)
4.3

(o)
10.1
(t)
10.2
(q)
10.3

(q)
10.3A
(s)
10.4

(q)
10.5
(q)
10.6
(b)
10.7
(b)
10.7A
(b)
10.7B
(b)
10.7C
(b)
10.7D
(b)
10.7E

(b)
10.7F
(b)
10.7G
(b)
10.7H
(b)
10.7I
(f)
10.8
(b)
10.8A
(b)
10.8B
(b)
10.8C
(b)

49



10.8D
(b)
10.8E
(b)
10.8F
(b)
10.8G
(b)
10.9
(b)
10.10
(b)
10.11
(b)
10.12
(g)
10.13
(h)
10.14
(h)
10.15
(h)
10.16
(h)
10.17
(h)
10.18
Reserved
 
10.19
Reserved
 
10.20
(k)
10.21
(k)
10.22
(k)
10.23
(k)
10.24
(k)
10.25
(k)
10.26

(m)
10.27
Reserved
 
10.28
(q)
10.29
(r)
10.30
10.30
31.1
31.1
31.2
31.2
32
32.0
101
The following materials from HomeTrust Bancshares' Quarterly Report on Form 10-Q for the quarter ended December 31, 2018, formatted in Extensible Business Reporting Language (XBRL): (a) Consolidated Balance Sheets; (b) Consolidated Statements of Income; (c) Consolidated Statements of Comprehensive Income; (d) Consolidated Statements of Changes in Stockholders' Equity; (e) Consolidated Statements of Cash Flows; and (f) Notes to Consolidated Financial Statements.
101
(a)
Reserved
(b)
Filed as an exhibit to HomeTrust Bancshares's Registration Statement on Form S-1 (File No. 333-178817) filed on December 29, 2011.
(c)
Filed as an exhibit to HomeTrust Bancshares's Current Report on Form 8-K filed on September 25, 2012 (File No. 001-35593).
(d)
Filed as an exhibit to HomeTrust Bancshares's Current Report on Form 8-K filed on November 27, 2013 (File No. 001-35593).
(e)
Filed as an exhibit to HomeTrust Bancshares's Annual Report on Form 10-K for the fiscal year ended June 30, 2012 (File No. 001-35593).
(f)
Filed as an exhibit to Amendment No. One to HomeTrust Bancshares's Registration Statement on Form S-1 (File No. 333-178817) filed on March 9, 2012.
(g)
Attached as Appendix A to HomeTrust Bancshares's definitive proxy statement filed on December 5, 2012 (File No. 001-35593).
(h)
Filed as an exhibit to HomeTrust Bancshares's Registration Statement on Form S-8 (File No. 333-186666) filed on February 13, 2013.
(i)
Reserved.

50



(j)
Filed as an exhibit to Jefferson Bancshares, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2008 (File No. 000-50347).
(k)
Filed as an exhibit to HomeTrust Bancshares's Annual Report on Form 10-K for the fiscal year ended June 30, 2014 (File No. 001-35593).
(l)
Reserved.
(m)
Filed as an exhibit to HomeTrust Bancshares's Annual Report on Form 10-K for the fiscal year ended June 30, 2015 (File No. 001-35593).
(n)
Filed as an exhibit to HomeTrust Bancshares's Current Report on Form 8-K filed on January 29, 2016 (File No. 001-35593).
(o)
Filed as an exhibit to HomeTrust Bancshares’s Current Report on Form 8-K filed on August 21, 2018 (File No. 001-35593).
(p)
Filed as an exhibit to HomeTrust Bancshares's Current Report on Form 8-K filed on May 1, 2018 (File No. 001-35593).
(q)
Filed as an exhibit to HomeTrust Bancshares’s Current Report on Form 8-K filed on September 11, 2018 (File No. 001-35593).
(r)
Filed as an exhibit to HomeTrust Bancshares's Annual Report on Form 10-K for the fiscal year ended June 30, 2018 (File No. 001-35593).
(s)
Filed as an exhibit to HomeTrust Bancshares’s Current Report on Form 8-K filed on September 25, 2018 (File No. 001-35593.
(t)
Filed as an exhibit to HomeTrust Bancshares's Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 (File No. 001-35593).


51



SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
HomeTrust Bancshares, Inc.
 
 
 
 
 
 
Date: February 8, 2018
By:
/s/ Dana L. Stonestreet
 
 
Dana L. Stonestreet
 
 
Chairman, President and CEO
 
 
(Duly Authorized Officer)
 
 
 
Date: February 8, 2018
By:
/s/ Tony J. VunCannon
 
 
Tony J. VunCannon
 
 
Executive Vice President, CFO, Corporate Secretary and Treasurer
 
 
(Principal Financial and Accounting Officer)
 
 
 
 
 
 

52