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Section 1: 10-Q (10-Q)

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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 September 30, 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 and post 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 18,659,480 shares of common stock, par value of $.01 per share, issued and outstanding as of November 6, 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)
 
 
 
September 30, 2018
 
June 30,
2018 (1)
Assets
 
 
 
Cash
$
39,872

 
$
45,222

Interest-bearing deposits
18,896

 
25,524

Cash and cash equivalents
58,768

 
70,746

Commercial paper
238,224

 
229,070

Certificates of deposit in other banks
58,384

 
66,937

Debt securities available for sale, at fair value
148,704

 
154,993

Other investments, at cost
43,996

 
41,931

Loans held for sale
10,773

 
5,873

Total loans, net of deferred loan fees
2,587,106

 
2,525,852

Allowance for loan losses
(20,932
)
 
(21,060
)
Net loans
2,566,174

 
2,504,792

Premises and equipment, net
62,681

 
62,537

Accrued interest receivable
10,252

 
9,344

Real estate owned ("REO")
3,286

 
3,684

Deferred income taxes
30,942

 
32,565

Bank owned life insurance ("BOLI")
88,581

 
88,028

Goodwill
25,638

 
25,638

Core deposit intangibles
3,963

 
4,528

Other assets
3,593

 
3,503

Total Assets
$
3,353,959

 
$
3,304,169

Liabilities and Stockholders' Equity
 

 
 

Liabilities
 

 
 

Deposits
$
2,203,044

 
$
2,196,253

Borrowings
675,000

 
635,000

Capital lease obligations
1,905

 
1,914

Other liabilities
59,815

 
61,760

Total liabilities
2,939,764

 
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, 18,939,280 shares
    issued and outstanding at September 30, 2018; 19,041,668 at June 30, 2018
190

 
191

Additional paid in capital
214,803

 
217,480

Retained earnings
208,365

 
200,575

Unearned Employee Stock Ownership Plan ("ESOP") shares
(7,274
)
 
(7,406
)
Accumulated other comprehensive loss
(1,889
)
 
(1,598
)
Total stockholders' equity
414,195

 
409,242

Total Liabilities and Stockholders' Equity
$
3,353,959

 
$
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
(Dollars in thousands, except per share data)
 
(Unaudited)
 
Three Months Ended
 
September 30,
 
2018
 
2017
Interest and Dividend Income
 
 
 
Loans
$
28,728

 
$
25,250

Securities available for sale
856

 
971

Commercial paper and interest-bearing deposits in other banks
1,857

 
1,169

Other investments
839

 
626

Total interest and dividend income
32,280

 
28,016

Interest Expense
 

 
 

Deposits
2,750

 
1,346

Borrowings
3,258

 
1,969

Total interest expense
6,008

 
3,315

Net Interest Income
26,272

 
24,701

Provision for Loan Losses

 

Net Interest Income after Provision for Loan Losses
26,272

 
24,701

Noninterest Income
 

 
 

Service charges and fees on deposit accounts
2,401

 
1,844

Loan income and fees
328

 
398

Gain on sale of loans held for sale
1,670

 
704

BOLI income
536

 
562

Gain from sale of premises and equipment

 
164

Other, net
678

 
590

Total noninterest income
5,613

 
4,262

Noninterest Expense
 

 
 

Salaries and employee benefits
12,685

 
12,352

Net occupancy expense
2,347

 
2,349

Marketing and advertising
417

 
453

Telephone, postage, and supplies
769

 
685

Deposit insurance premiums
304

 
414

Computer services
1,849

 
1,545

Loss (gain) on sale and impairment of REO
179

 
(146
)
REO expense
175

 
241

Core deposit intangible amortization
565

 
719

Other
2,593

 
2,274

Total noninterest expense
21,883

 
20,886

Income Before Income Taxes
10,002

 
8,077

Income Tax Expense
2,212

 
2,510

Net Income
$
7,790

 
$
5,567

Per Share Data:
 

 
 

Net income per common share:
 

 
 

Basic
$
0.43

 
$
0.31

Diluted
$
0.41

 
$
0.30

Average shares outstanding:
 

 
 

Basic
18,125,637

 
17,966,994

Diluted
18,880,476

 
18,616,452

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

3



HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
(Dollars in thousands)
 
(Unaudited)
 
Three Months Ended
 
September 30,
 
2018
 
2017
Net Income
$
7,790

 
$
5,567

Other Comprehensive Income (Loss)
 

 
 

  Unrealized holding gains (losses) on securities available for sale
 

 
 

Gains (losses) arising during the period
(378
)
 
158

Deferred income tax benefit (expense)
87

 
(53
)
Total other comprehensive income (loss)
$
(291
)
 
$
105

Comprehensive Income
$
7,499

 
$
5,672

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 income

 

 

 
5,567

 

 

 
5,567

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

 

 

 
680

 

 

 
680

Stock repurchased

 

 

 

 

 

 

Exercised stock options
800

 

 
12

 

 

 

 
12

Stock option expense

 

 
745

 

 

 

 
745

Restricted stock expense

 

 
428

 

 

 

 
428

ESOP shares allocated

 

 
183

 

 
132

 

 
315

Other comprehensive income

 

 

 

 

 
105

 
105

Balance at September 30, 2017
18,968,675

 
$
190

 
$
214,827

 
$
197,907

 
$
(7,803
)
 
$
378

 
$
405,499

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at June 30, 2018
19,041,668

 
$
191

 
$
217,480

 
$
200,575

 
$
(7,406
)
 
$
(1,598
)
 
$
409,242

Net income

 

 

 
7,790

 

 

 
7,790

Stock repurchased
(128,300
)
 
(1
)
 
(3,723
)
 

 

 

 
(3,724
)
Forfeited restricted stock
(2,000
)
 

 

 

 

 

 

Retired stock
(588
)
 

 

 

 

 

 

Exercised stock options
28,500

 

 
410

 

 

 

 
410

Stock option expense

 

 
185

 

 

 

 
185

Restricted stock expense

 

 
199

 

 

 

 
199

ESOP shares allocated

 

 
252

 

 
132

 

 
384

Other comprehensive loss

 

 

 

 

 
(291
)
 
(291
)
Balance at September 30, 2018
18,939,280

 
$
190

 
$
214,803

 
$
208,365

 
$
(7,274
)
 
$
(1,889
)
 
$
414,195

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)
 
Three Months Ended September 30,
 
2018
 
2017
Operating Activities:
 
 
 
Net income
$
7,790

 
$
5,567

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Depreciation
935

 
836

Deferred income tax expense
1,710

 
2,361

Net amortization and accretion
(1,497
)
 
(1,187
)
Gain from sale of premises and equipment

 
(164
)
Loss (gain) on sale and impairment of REO
179

 
(146
)
Gain on sale of loans held for sale
(1,670
)
 
(704
)
Origination of loans held for sale
(43,134
)
 
(32,424
)
Proceeds from sales of loans held for sale
45,698

 
30,942

Increase (decrease) in deferred loan fees, net
(54
)
 
340

Increase in accrued interest receivable and other assets
(935
)
 
(365
)
Amortization of core deposit intangibles
565

 
719

BOLI income
(536
)
 
(562
)
ESOP compensation expense
384

 
315

Restricted stock and stock option expense
384

 
1,173

Decrease (increase) in other liabilities
(1,944
)
 
460

Net cash provided by operating activities
7,875

 
7,161

Investing Activities:
 

 
 

Purchase of securities available for sale

 

Proceeds from maturities of securities available for sale
1,215

 
11,680

Proceeds from sale of securities available for sale

 

Net purchases of commercial paper
(7,712
)
 
(49,278
)
Purchase of certificates of deposit in other banks
(3,237
)
 
(7,190
)
Maturities of certificates of deposit in other banks
11,790

 
29,010

Principal repayments of mortgage-backed securities
4,404

 
5,822

Net redemptions (purchases) of other investments
(2,065
)
 
704

Net increase in loans
(66,912
)
 
(42,207
)
Purchase of BOLI
(25
)
 
(18
)
Proceeds from redemption of BOLI
7

 

Purchase of premises and equipment
(1,079
)
 
(561
)
Capital improvements to REO

 
(18
)
Proceeds from sale of premises and equipment

 
923

Proceeds from sale of REO
293

 
793

Net cash used in investing activities
(63,321
)
 
(50,340
)
Financing Activities:
 

 
 

Net increase in deposits
6,791

 
51,859

Net increase (decrease) in other borrowings
40,000

 
(16,700
)
Common stock repurchased
(3,724
)
 

Exercised stock options
410

 
12

Decrease in capital lease obligations
(9
)
 
(6
)
Net cash provided by financing activities
43,468

 
35,165

Net Decrease in Cash and Cash Equivalents
(11,978
)
 
(8,014
)
Cash and Cash Equivalents at Beginning of Period
70,746

 
86,985

Cash and Cash Equivalents at End of Period
$
58,768

 
$
78,971


6



HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows (continued)
(Dollars in thousands)
 
(Unaudited)
Supplemental Disclosures:
Three Months Ended September 30,
 
2018
 
2017
Cash paid during the period for:
 
 
 
Interest
$
5,618

 
$
3,379

Income taxes

 
20

Noncash transactions:
 

 
 

Unrealized gain (loss) in value of securities available for sale, net of income taxes
(291
)
 
105

Transfers of loans to REO
74

 
252

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


 
680

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

 

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 months ended September 30, 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 June 2018, the FASB issued ASU No. 2018-07, "Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting." This ASU was issued to expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. Previously, these awards were recorded at the fair value of consideration received or the fair value of the equity instruments issued and was measured at the earlier of the commitment date or the date performance was completed. The amendments in this ASU require nonemployee share-based payment awards to be measured at the grant-date fair value of the equity instrument. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, but no earlier than an entity's adoption of Topic 606. The adoption of ASU No. 2018-07 is not expected to have a material impact on the Company's Consolidated Financial Statements.
In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement." The amendments in this ASU removes, modifies, and adds certain disclosure requirements related to fair value measurements in ASC 820. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2019 and early adoption is permitted. The adoption of ASU No. 2018-13 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:
 
September 30, 2018
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
U.S. Government Agencies
$
48,045

 
$

 
$
(495
)
 
$
47,550

Residential Mortgage-backed Securities of U.S. Government
 

 
 

 
 

 
 

Agencies and Government-Sponsored Enterprises
67,470

 
100

 
(1,691
)
 
65,879

Municipal Bonds
29,502

 
85

 
(284
)
 
29,303

Corporate Bonds
6,140

 
23

 
(191
)
 
5,972

Total
$
151,157

 
$
208

 
$
(2,661
)
 
$
148,704

 
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
 
September 30, 2018
 
Amortized
Cost
 
Estimated
Fair Value
Due within one year
$
28,579

 
$
28,466

Due after one year through five years
41,599

 
40,887

Due after five years through ten years
4,818

 
4,845

Due after ten years
8,691

 
8,627

Mortgage-backed securities
67,470

 
65,879

Total
$
151,157

 
$
148,704

The Company had no sales of securities available for sale during the three months ended September 30, 2018 and 2017. There were no gross realized gains or losses for the three months ended September 30, 2018 and 2017.

Securities available for sale with costs totaling $141,913 and $136,914 and market values of $139,957 and $135,313 at September 30, 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 September 30, 2018 and June 30, 2018 were as follows:
 
September 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
$
11,905

 
$
(142
)
 
$
35,645

 
$
(353
)
 
$
47,550

 
$
(495
)
Residential Mortgage-backed Securities of U.S. Government Agencies and Government-Sponsored Enterprises
30,596

 
(768
)
 
27,242

 
(923
)
 
57,838

 
(1,691
)
Municipal Bonds
18,129

 
(197
)
 
4,765

 
(87
)
 
22,894

 
(284
)
Corporate Bonds

 

 
3,521

 
(191
)
 
3,521

 
(191
)
Total
$
60,630

 
$
(1,107
)
 
$
71,173

 
$
(1,554
)
 
$
131,803

 
$
(2,661
)
 
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 September 30, 2018, and June 30, 2018 were 228 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 three months ended September 30, 2018 or the year ended June 30, 2018.
4.
Other Investments
Other investments, at cost consist of the following at the dates indicated:
 
September 30, 2018
 
June 30, 2018
FHLB of Atlanta(1)
$
31,607

 
$
29,907

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

 
7,307

Small Business Investment Companies ("SBIC")(2)(3)
5,074

 
4,717

Total
$
43,996

 
$
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:
 
September 30, 2018
 
June 30, 2018
Retail consumer loans:
 
 
 
One-to-four family
$
656,011

 
$
664,289

HELOCs - originated
135,512

 
137,564

HELOCs - purchased
150,733

 
166,276

Construction and land/lots
75,433

 
65,601

Indirect auto finance
173,305

 
173,095

Consumer
13,139

 
12,379

Total retail consumer loans
1,204,133

 
1,219,204

Commercial loans:
 
 
 
Commercial real estate
879,184

 
857,315

Construction and development
198,809

 
192,102

Commercial and industrial
193,739

 
148,823

Municipal leases
111,951

 
109,172

Total commercial loans
1,383,683

 
1,307,412

Total loans
2,587,816

 
2,526,616

Deferred loan fees, net
(710
)
 
(764
)
Total loans, net of deferred loan fees
2,587,106

 
2,525,852

Allowance for loan losses
(20,932
)
 
(21,060
)
Loans, net
$
2,566,174

 
$
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
September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
Retail consumer loans:
 
 
 
 
 
 
 
 
 
 
 
One-to-four family
$
634,877

 
$
3,571

 
$
10,583

 
$
512

 
$
9

 
$
649,552

HELOCs - originated
133,824

 
112

 
1,346

 

 
6

 
135,288

HELOCs - purchased
150,547

 

 
186

 

 

 
150,733

Construction and land/lots
74,758

 
21

 
250

 

 

 
75,029

Indirect auto finance
172,721

 

 
582

 

 
2

 
173,305

Consumer
12,392

 
17

 
722

 

 
8

 
13,139

Commercial loans:
 

 
 

 
 

 
 

 
 

 
 
Commercial real estate
857,652

 
6,551

 
6,036

 

 

 
870,239

Construction and development
194,470

 
710

 
1,660

 
171

 

 
197,011

Commercial and industrial
189,975

 
1,446

 
368

 

 

 
191,789

Municipal leases
111,655

 
296

 

 

 

 
111,951

Total loans
$
2,532,871

 
$
12,724

 
$
21,733

 
$
683

 
$
25

 
$
2,568,036


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 PCI loans by segment, class, and risk grade at the dates indicated follow:
 
Pass
 
Special
Mention
 
Substandard
 
Doubtful
 
Loss
 
Total
September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
Retail consumer loans:
 
 
 
 
 
 
 
 
 
 
 
One-to-four family
$
4,429

 
$
262

 
$
1,768

 
$

 
$

 
$
6,459

HELOCs - originated
224

 

 

 

 

 
224

Construction and land/lots
404

 

 

 

 

 
404

Commercial loans:
 

 
 

 
 

 
 

 
 

 
 

Commercial real estate
4,669

 
2,017

 
2,259

 

 

 
8,945

Construction and development
525

 

 
1,273

 

 

 
1,798

Commercial and industrial
1,947

 

 

 

 
3

 
1,950

Total loans
$
12,198

 
$
2,279

 
$
5,300

 
$

 
$
3

 
$
19,780

 
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
September 30, 2018
 
 
 
 
 
 
 
 
 
Retail consumer loans:
 
 
 
 
 
 
 
 
 
One-to-four family
$
2,406

 
$
1,861

 
$
4,267

 
$
651,744

 
$
656,011

HELOCs - originated
278

 
117

 
395

 
135,117

 
135,512

HELOCs - purchased

 

 

 
150,733

 
150,733

Construction and land/lots
86

 

 
86

 
75,347

 
75,433

Indirect auto finance
356

 
114

 
470

 
172,835

 
173,305

Consumer
316

 
42

 
358

 
12,781

 
13,139

Commercial loans:
 
 
 
 
 
 
 
 
 
Commercial real estate
1,029

 
826

 
1,855

 
877,329

 
879,184

Construction and development
18

 
1,615

 
1,633

 
197,176

 
198,809

Commercial and industrial
20

 
53

 
73

 
193,666

 
193,739

Municipal leases

 

 

 
111,951

 
111,951

Total loans
$
4,509

 
$
4,628

 
$
9,137

 
$
2,578,679

 
$
2,587,816

 
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:
 
September 30, 2018
 
June 30, 2018
 
Nonaccruing
 
90 Days + &
still accruing
 
Nonaccruing
 
90 Days + &
still accruing
Retail consumer loans:
 
 
 
 
 
 
 
One-to-four family
$
4,198

 
$

 
$
4,308

 
$

HELOCs - originated
436

 

 
656

 

HELOCs - purchased
186

 

 
187

 

Construction and land/lots
110

 

 
165

 

Indirect auto finance
367

 

 
255

 

Consumer
520

 

 
321

 

Commercial loans:
 

 
 

 
 

 
 

Commercial real estate
2,362

 

 
2,863

 

Construction and development
1,835

 

 
2,045

 

Commercial and industrial
95

 

 
114

 

Municipal leases

 

 

 

Total loans
$
10,109

 
$

 
$
10,914

 
$

PCI loans totaling $2,936 at September 30, 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 September 30, 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:
 
September 30, 2018
 
June 30, 2018
Performing TDRs included in impaired loans
$
20,563

 
$
21,251

An analysis of the allowance for loan losses by segment for the periods shown is as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2018
 
Three Months Ended September 30, 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
(188
)
 
(64
)
 
252

 

 
470

 
(412
)
 
(58
)
 

Charge-offs

 
(416
)
 
(2
)
 
(418
)
 

 
(149
)
 
(14
)
 
(163
)
Recoveries

 
205

 
85

 
290

 

 
286

 
723

 
1,009

Balance at end of period
$
295

 
$
7,252

 
$
13,385

 
$
20,932

 
$
1,197

 
$
8,310

 
$
12,490

 
$
21,997


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
September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Retail consumer loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family
$
90

 
$
105

 
$
2,901

 
$
3,096

 
$
6,459

 
$
7,000

 
$
642,552

 
$
656,011

HELOCs - originated

 
6

 
1,114

 
1,120

 
224

 
6

 
135,282

 
135,512

HELOCs - purchased

 

 
713

 
713

 

 

 
150,733

 
150,733

Construction and land/lots

 

 
1,262

 
1,262

 
404

 
341

 
74,688

 
75,433

Indirect auto finance

 
1

 
977

 
978

 

 
1

 
173,304

 
173,305

Consumer

 
8

 
165

 
173

 

 
8

 
13,131

 
13,139

Commercial loans:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
Commercial real estate
118

 
19

 
7,869

 
8,006

 
8,945

 
3,082

 
867,157

 
879,184

Construction and development
71

 
4

 
3,176

 
3,251

 
1,798

 
2,211

 
194,800

 
198,809

Commercial and industrial
16

 
3

 
1,864

 
1,883

 
1,950

 
3

 
191,786

 
193,739

Municipal leases

 

 
450