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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2020

☐            TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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) (I.R.S. 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)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, par value $.01 per share
HTBI The NASDAQ Stock Market LLC

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 ☒ 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 ☒ 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 ☒
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 ☒
There were 17,020,724 shares of common stock, par value of $.01 per share, issued and outstanding as of November 5, 2020.


HOMETRUST BANCSHARES, INC. AND SUBSIDIARIES
10-Q
TABLE OF CONTENTS
  Page
Number
 
Item 1.   
   
3
   
4
   
5
   
6
   
7
   
9
   
Item 2. 
36
   
Item 3. 
48
   
Item 4. 
48
   
 
   
Item 1. 
48
   
Item 1A. 
48
   
Item 2. 
48
   
Item 3. 
49
   
Item 4. 
49
   
Item 5 
49
   
Item 6. 
49
   
52

1

Glossary of Defined Terms
The following items may be used throughout this Form 10-Q, including the Notes to Consolidated Financial Statements in Item 1 and Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 2 of this Form 10-Q.
Term Definition
ACL Allowance for Credit Losses
AFS Available-For-Sale
ASC Accounting Standard Codification
ASU Accounting Standard Update
BOLI Bank Owned Life Insurance
CARES Act
Coronavirus Aid, Relief, and Economic Security Act of 2020
CD
Certificates of Deposit
CDA Collateral Dependent Asset
CECL Current Expected Credit Loss
CET1
Common Equity Tier 1
COVID-19
Coronavirus Disease 2019
CPI
Consumer Price Index
DCF Discounted Cash Flow
ECL Expected Credit Losses
EPS Earnings Per Share
ESOP Employee Stock Ownership Plan
FASB Financial Accounting Standards Board
FDIC Federal Deposit Insurance Corporation
FHLB Federal Home Loan Bank
FRB Federal Reserve Bank of Richmond
GAAP
Generally Accepted Accounting Principles in the United States
GSE Government-Sponsored Enterprises
HELOC Home Equity Line of Credit
LIBOR London Interbank Offered Rate
MBS
Mortgage-Backed Security
NCCOB
North Carolina Office of the Commissioner of Banks
OTTI Other Than Temporary Impairment
PCD Purchased Credit Deteriorated
PCI Purchase Credit Impaired
PPP Paycheck Protection Program
REO Real Estate Owned
ROU Right of Use
SEC
Securities and Exchange Commission
SBA Small Business Administration
SBIC Small Business Investment Companies
TDR Troubled Debt Restructuring

2

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, 2020
June 30,
2020 (1)
Assets
Cash $ 29,472  $ 31,908 
Interest-bearing deposits 141,672  89,714 
Cash and cash equivalents 171,144  121,622 
Commercial paper, net 204,867  304,967 
Certificates of deposit in other banks 52,361  55,689 
Debt securities available for sale, at fair value (amortized cost of $93,342 and $124,918 at September 30, 2020 and June 30, 2020, respectively)
96,159  127,537 
Other investments, at cost 38,949  38,946 
Loans held for sale 124,985  77,177 
Total loans, net of deferred loan costs 2,769,396  2,769,119 
Allowance for credit losses (43,132) (28,072)
Net loans 2,726,264  2,741,047 
Premises and equipment, net 59,418  58,462 
Accrued interest receivable 10,648  12,312 
REO 144  337 
Deferred income taxes 19,209  16,334 
BOLI 92,775  92,187 
Goodwill 25,638  25,638 
Core deposit intangibles 840  1,078 
Other assets 50,633  49,519 
Total Assets $ 3,674,034  $ 3,722,852 
Liabilities and Stockholders' Equity    
Liabilities    
Deposits $ 2,742,046  $ 2,785,756 
Borrowings 475,000  475,000 
Other liabilities 56,637  53,833 
Total liabilities 3,273,683  3,314,589 
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, 17,020,724 shares
    issued and outstanding at September 30, 2020; 17,021,357 at June 30, 2020
170  170 
Additional paid in capital 170,204  169,648 
Retained earnings 234,023  242,776 
Unearned ESOP shares (6,216) (6,348)
Accumulated other comprehensive income 2,170  2,017 
Total stockholders' equity 400,351  408,263 
Total Liabilities and Stockholders' Equity $ 3,674,034  $ 3,722,852 
(1)    Derived from audited financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
3

HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Income
(Dollars in thousands, except per share data)
(Unaudited)
Three Months Ended
September 30,
2020 2019
Interest and Dividend Income
Loans $ 28,592  $ 32,266 
Commercial paper and interest-bearing deposits 881  2,253 
Securities available for sale 528  896 
Other investments 448  832 
Total interest and dividend income 30,449  36,247 
Interest Expense    
Deposits 3,253  5,853 
Borrowings 1,687  3,321 
Total interest expense 4,940  9,174 
Net Interest Income 25,509  27,073 
Provision for Credit Losses 950  — 
Net Interest Income after Provision for Credit Losses 24,559  27,073 
Noninterest Income    
Service charges and fees on deposit accounts 2,097  2,443 
Loan income and fees 474  882 
Gain on sale of loans held for sale 3,344  2,299 
BOLI income 532  697 
Other, net 2,192  1,339 
Total noninterest income 8,639  7,660 
Noninterest Expense    
Salaries and employee benefits 15,207  13,912 
Net occupancy expense 2,293  2,342 
Computer services 2,307  2,024 
Telephone, postage, and supplies 662  802 
Marketing and advertising 325  679 
Deposit insurance premiums 511  — 
Gain on sale and impairment of REO (35) (19)
REO expense 248  258 
Core deposit intangible amortization 238  411 
Other 4,244  3,124 
Total noninterest expense 26,000  23,533 
Income Before Income Taxes 7,198  11,200 
Income Tax Expense 1,445  2,396 
Net Income $ 5,753  $ 8,804 
Per Share Data:    
Net income per common share:    
Basic $ 0.35  $ 0.51 
Diluted $ 0.35  $ 0.49 
Average shares outstanding:    
Basic 16,230,990  17,097,647 
Diluted 16,469,242  17,753,657 
The accompanying notes are an integral part of these consolidated financial statements.
4

HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
(Dollars in thousands)
(Unaudited)
Three Months Ended
September 30,
  2020 2019
Net Income $ 5,753  $ 8,804 
Other Comprehensive Income    
  Unrealized holding gains on securities available for sale    
Gains arising during the period 199  295 
Deferred income tax expense (46) (68)
Total other comprehensive income $ 153  $ 227 
Comprehensive Income $ 5,906  $ 9,031 
The accompanying notes are an integral part of these consolidated financial statements.
5

HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
(Dollars in thousands)


(Unaudited)
Three Months Ended September 30, 2020
Common Stock Additional
Paid In
Capital 		Retained
Earnings 		Unearned
ESOP
Shares 		Accumulated
Other
Comprehensive
Income 		Total
Stockholders'
Equity
Shares Amount
Balance at June 30, 2020 17,021,357  $ 170  $ 169,648  $ 242,776  $ (6,348) $ 2,017  $ 408,263 
Net income —  —  —  5,753  —  —  5,753 
Cumulative-effect adjustment due to the adoption of ASU 2016-13 —  —  —  (13,358) —  —  (13,358)
Cash dividends declared on common stock, $0.07/common share
—  —  —  (1,148) —  —  (1,148)
Retired stock (633) —  (9) —  —  —  (9)
Stock option expense —  —  164  —  —  —  164 
Restricted stock expense —  —  342  —  —  —  342 
ESOP shares allocated —  —  59  —  132  —  191 
Other comprehensive income —  —  —  —  —  153  153 
Balance at September 30, 2020 17,020,724  $ 170  $ 170,204  $ 234,023  $ (6,216) $ 2,170  $ 400,351 

(Unaudited)
Three Months Ended September 30, 2019
Common Stock Additional
Paid In
Capital 		Retained
Earnings 		Unearned
ESOP
Shares 		Accumulated
Other
Comprehensive
Income (loss) 		Total
Stockholders'
Equity
Shares Amount
Balance at June 30, 2019 17,984,105  $ 180  $ 190,315  $ 224,545  $ (6,877) $ 733  $ 408,896 
Net income —  —  —  8,804  —  —  8,804 
Cash dividends declared on common stock, $0.06/common share
—  —  —  (1,034) —  —  (1,034)
Stock repurchased (189,160) (2) (4,798) —  —  —  (4,800)
Forfeited restricted stock (3,200) —  —  —  —  —  — 
Granted restricted stock 13,000  —  —  —  —  — 
Exercised stock options 13,400  —  194  —  —  —  194 
Stock option expense —  —  198  —  —  —  198 
Restricted stock expense —  —  245  —  —  —  245 
ESOP shares allocated —  —  205  —  133  —  338 
Other comprehensive income —  —  —  —  —  227  227 
Balance at September 30, 2019 17,818,145  $ 178  $ 186,359  $ 232,315  $ (6,744) $ 960  $ 413,068 
The accompanying notes are an integral part of these consolidated financial statements.

6

HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Three Months Ended September 30,
  2020 2019
Operating Activities:
Net income $ 5,753  $ 8,804 
Adjustments to reconcile net income to net cash used in operating activities:    
Provision for credit losses 950  — 
Depreciation 2,392  1,223 
Deferred income tax expense 1,070  2,198 
Net amortization and accretion (442) (1,705)
Gain on sale and impairment of REO (35) (19)
Gain on sale of loans held for sale (3,344) (2,299)
Origination of loans held for sale (221,404) (77,778)
Proceeds from sales of loans held for sale 158,185  62,122 
Increase in deferred loan costs, net (1,753) (250)
Decrease in accrued interest receivable and other assets 1,926  419 
Amortization of core deposit intangibles 238  411 
BOLI income (532) (697)
ESOP compensation expense 191  338 
Restricted stock and stock option expense 506  443 
Increase (decrease) in other liabilities 516  (2,274)
Net cash used in operating activities (55,783) (9,064)
Investing Activities:    
Purchase of securities available for sale (500) (49,375)
Proceeds from maturities of securities available for sale 27,285  1,900 
Net proceeds (purchases) of commercial paper 100,397  (11,159)
Purchase of certificates of deposit in other banks (996) (5,130)
Maturities of certificates of deposit in other banks 4,324  7,018 
Principal repayments of mortgage-backed securities 4,635  3,748 
Net purchases of other investments (3) (522)
Net decrease (increase) in loans 19,583  (56,538)
Purchase of BOLI (56) (25)
Proceeds from redemption of BOLI —  477 
Purchase of premises and equipment (1,807) (383)
Purchase of operating lease equipment (2,918) (1,606)
Proceeds from sale of REO 228  412 
Net cash provided by (used in) investing activities 150,172  (111,183)
Financing Activities:    
Net increase (decrease) in deposits (43,710) 166,937 
Net increase in other borrowings —  5,000 
Common stock repurchased —  (4,800)
Cash dividends paid (1,148) (1,034)
Retired stock (9) — 
Exercised stock options —  194 
Net cash provided by (used in) financing activities (44,867) 166,297 
Net Increase in Cash and Cash Equivalents 49,522  46,050 
Cash and Cash Equivalents at Beginning of Period 121,622  71,043 
Cash and Cash Equivalents at End of Period $ 171,144  $ 117,093 
7

HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows (continued)
(Dollars in thousands)
(Unaudited)
Supplemental Disclosures: Three Months Ended September 30,
  2020 2019
Cash paid during the period for:
Interest $ 5,308  $ 9,011 
Income taxes 1,686  5 
Noncash transactions:    
Unrealized gain in value of securities available for sale, net of income taxes 153  227 
Transfer of loans to REO —  46 
Transfer of loans held for sale to total loans 17,754  3,614 
Transfer of one-to-four family loans to held for sale —  256,803 
Transfer of land from property and equipment to other assets for new finance lease accounting —  2,052 
New ROU asset and lease liabilities for new operating lease accounting 533  5,296 
The accompanying notes are an integral part of these consolidated financial statements.
8

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 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 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, 2020 ("2020 Form 10-K") filed with the SEC on September 11, 2020. The results of operations for the three months ended September 30, 2020 are not necessarily indicative of results that may be expected for the entire fiscal year ending June 30, 2021.
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 credit losses on loans and (ii) the valuation of goodwill and other intangible assets. These policies and judgments, estimates and assumptions are described in greater detail in notes to the Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations (Critical Accounting Policies) in the Company's 2020 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.
Operating, Accounting and Reporting Considerations related to COVID-19
The COVID-19 pandemic has negatively impacted the global economy. In response to this crisis, the CARES Act was passed by Congress and signed into law on March 27, 2020. The CARES Act provides an estimated $2.2 trillion to fight the COVID-19 pandemic and stimulate the economy by supporting individuals and businesses through loans, grants, tax changes, and other types of relief. Some of the provisions applicable to the Company include, but are not limited to:
• Accounting for Loan Modifications - The CARES Act provides that a financial institution may elect to suspend (1) the requirements under GAAP for certain loan modifications that would otherwise be categorized as a TDR and (2) any determination that such loan modifications would be considered a TDR, including the related impairment for accounting purposes. The Bank has elected this as a policy change.
• PPP - The CARES Act established the PPP, an expansion of the SBA's 7(a) loan program and the Economic Injury Disaster Loan Program, administered directly by the SBA.
Also in response to the COVID-19 pandemic, the Board of Governors of the Federal Reserve System, the FDIC, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the Consumer Financial Protection Bureau, in consultation with the state financial regulators (collectively, the “agencies”) issued a joint interagency statement (issued March 22, 2020; revised statement issued April 7, 2020). Some of the provisions applicable to the Company include, but are not limited to:
• Accounting for Loan Modifications - A loan modification that does not meet the conditions of the CARES Act may still qualify as a modification that does not need to be accounted for as a TDR. The agencies confirmed with FASB staff that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or insignificant delays in payment.
• Past Due Reporting - With regard to loans not otherwise reportable as past due, financial institutions are not expected to designate loans with deferrals granted due to COVID-19 as past due because of the deferral. A loan’s payment date is governed by the due date stipulated in the legal agreement. If a financial institution agrees to a payment deferral, these loans would not be considered past due during the period of the deferral.
• Nonaccrual Status and Charge-offs - While short-term COVID-19 modifications are in effect, these loans generally should not be reported as nonaccrual or as classified.
9
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
See Note 6 Loans for more information on COVID-19 specific loans that have been modified or in deferral.
Adoption of CECL standard
On July 1, 2020, the Company adopted ASU No. 2016-13, "Financial Instruments-Credit Losses ("Topic 326"): Measurement of Credit Losses on Financial Instruments", sometimes referred to herein as ASU 2016-13. Topic 326 was subsequently amended by ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments-Credit Losses; ASU No. 2019-05, Codification Improvements to Topic 326, Financial Instruments-Credit Losses; and ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. This standard applies to all financial assets measured at amortized cost and off balance sheet credit exposures, including loans, investment securities and unfunded commitments. The Company applied the standard’s provisions using the modified retrospective method as a cumulative effect adjustment to retained earnings as of July 1, 2020. With this transition method, the Company did not have to restate comparative prior periods presented in the financial statements related to Topic 326, but will present comparative prior period disclosures using the previous accounting guidance for the allowance for loan losses. This adoption method is considered a change in accounting principle requiring additional disclosure of the nature of and reason for the change, which is solely a result of the adoption of the required standard.
ACL – Investment Securities
Management uses a systematic methodology to determine its ACL for investment securities held to maturity. The ACL is a valuation account that is deducted from the amortized cost basis to present the net amount expected to be collected on the held-to-maturity portfolio. Management considers the effects of past events, current conditions, and reasonable and supportable forecasts on the collectability of the portfolio. The Company’s estimate of its ACL involves a high degree of judgment; therefore, management’s process for determining expected credit losses may result in a range of expected credit losses. Management monitors the held-to-maturity portfolio to determine whether a valuation account would need to be recorded. The Company currently has no investment securities held to maturity.
Management excludes the accrued interest receivable balance from the amortized cost basis in measuring expected credit losses on the investment securities and does not record an allowance for credit losses on accrued interest receivable. As of September 30, 2020, the accrued interest receivable for investment securities available for sale was $453.
The Company’s estimate of expected credit losses includes a measure of the expected risk of credit loss even if that risk is remote. However, the Company does not measure expected credit losses on an investment security in which historical credit loss information adjusted for current conditions and reasonable and supportable forecast results in an expectation that nonpayment of the amortized cost basis is zero. Management does not expect nonpayment of the amortized cost basis to be zero solely on the basis of the current value of collateral securing the security but, instead, also considers the nature of the collateral, potential future changes in collateral values, default rates, delinquency rates, third-party guarantees, credit ratings, interest rate changes since purchase, volatility of the security’s fair value and historical loss information for financial assets secured with similar collateral. The Company performed an analysis that determined that the following securities have a zero expected credit loss: U.S. government agencies, residential MBS of U.S. government agencies and GSEs, and municipal bonds. All of the U.S. government agencies and U.S. government agency backed securities have the full faith and credit backing of the United States Government or one of its agencies. Municipal bonds that do not have a zero expected credit loss will be evaluated quarterly to determine whether there is a credit loss associated with a decline in fair value.
Management no longer evaluates securities for OTTI, as ASC Subtopic 326-30, "Financial Instruments—Credit Losses—Available-for-Sale Debt Securities," changes the accounting for recognizing impairment on available-for-sale debt securities. Each quarter management evaluates impairment where there has been a decline in fair value below the amortized cost basis of a security to determine whether there is a credit loss associated with the decline in fair value. Management considers the nature of the collateral, potential future changes in collateral values, default rates, delinquency rates, third-party guarantees, credit ratings, interest rate changes since purchase, volatility of the security’s fair value and historical loss information for financial assets secured with similar collateral among other factors. Credit losses are calculated individually, rather than collectively, using a DCF method, whereby management compares the present value of expected cash flows with the amortized cost basis of the security. The credit loss component would be recognized through the provision for credit losses in the Consolidated Statements of Income.
ACL - Loans and leases
The ACL reflects management’s estimate of losses that will result from the inability of its borrowers to make required loan payments. The Company established the incremental increase in the ACL at adoption of the CECL standard through the cumulative effect adjustment to equity and subsequent adjustments will be made through a provision for credit losses charged against earnings. Management records loans charged off against the ACL and subsequent recoveries, if any, increase the ACL when they are recognized.
Management uses a systematic methodology to determine its ACL for loans held for investment and certain off-balance-sheet credit exposures. The ACL is a valuation account that is deducted from the amortized cost basis to present the net amount expected to be collected on the loan portfolio. Management considers the effects of past events, current conditions, and reasonable and supportable forecasts on the collectability of the loan portfolio. The Company’s estimate of its ACL involves a high degree of judgment; therefore, management’s process for determining expected credit losses may result in a range of expected credit losses. The Company’s ACL recorded in the balance sheet reflects management’s best estimate within the range of expected credit losses. The Company recognizes in net income the amount needed to adjust the ACL for management’s current estimate of expected credit losses. The Company’s ACL is calculated using collectively evaluated and individually evaluated loans.
10
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The Company collectively evaluates loans that share similar risk characteristics. In general, management has segmented loans by regulatory call code category and collectively evaluates loans within the retail and commercial categories. Loans within the retail consumer category include: 1-4 family, HELOCs - originated, HELOCs - purchased, construction and land/lots, indirect auto finance, and consumer. Loans within the commercial category include: commercial real estate, construction and development, commercial and industrial, equipment finance, and municipal leases.
For collectively evaluated loans, the Company uses a DCF method for each loan in a pool, and the results are aggregated at the pool level. A periodic tendency to default and absolute loss given default are applied to a projective model of the loan’s cash flow while considering prepayment and principal curtailment effects. The analysis produces expected cash flows for each instrument in the pool by pairing loan-level term information (maturity date, payment amount, interest rate, etc.) with top-down pool assumptions (default rates, prepayment speeds). The Company has identified the following portfolio segments for the current calculation: 1-4 family construction, 1-4 family mortgage – jr. lien, 1-4 family mortgage – sr. lien, commercial and industrial, commercial leases, construction – multi-family, construction – non-owner occupied, construction – owner occupied, consumer – auto, consumer – other, consumer – revolving, farmland, land and lot, multifamily, municipal leases, non-owner occupied CRE, owner occupied CRE, and HELOCs. PPP loans are fully guaranteed by the SBA; therefore, management estimates a zero reserve for PPP loans within its allowance for credit losses.
Management has determined that the peer loss experience provides the best basis for its assessment of expected credit losses to determine the ACL. The Company utilized peer call report data to measure historical credit loss experience with similar risk characteristics within the segments over an economic cycle. Management reviewed the historical loss information to appropriately adjust for differences in current asset specific risk characteristics. Management also considered further adjustments to historical loss information for current conditions and reasonable and supportable forecasts that differ from the conditions that existed for the period over which historical information was evaluated. For all segment models for collectively evaluated loans (except for HELOCs), the Company incorporated one macroeconomic driver using a statistical regression modeling methodology. The HELOC segment incorporated two macroeconomic drivers. Due to the low loss rates of municipal leases and the expectation of them remaining low, management has elected to separately pool these loans. Management has elected to use readily available municipal default rates and loss given defaults in order to calculate expected credit losses.
Management considers forward-looking information in estimating expected credit losses. The Company uses the Fannie Mae quarterly economic forecast which is a baseline outlook for the United States economy. Management has evaluated the appropriateness of the reasonable and supportable forecast for the current period along with the inputs used in the estimation of expected credit losses. For the contractual term that extends beyond the reasonable and supportable forecast period, the Company reverts to historical loss information within four quarters using a straight-line approach. Management may apply different reversion techniques depending on the economic environment for the financial asset portfolio and as of the current period has utilized a linear reversion technique. Management has evaluated the appropriateness of a reversion period for the current period and noted that it was reasonable.
Included in its systematic methodology to determine its ACL for loans held for investment and certain off-balance-sheet credit exposures, management considers the need to qualitatively adjust expected credit losses for information not already captured in the loss estimation process. These qualitative adjustments can either increase or decrease the quantitative model estimation (i.e. formulaic model results). Each period the Company considers qualitative factors that are relevant within the qualitative framework that include the following: 1) lending policies and procedures, 2) credit review function, 3) experience and depth of management and staff, 4) external factors, and 5) actual and expected changes in economic and business conditions.
When a loan no longer shares similar risk characteristics with its segment, the asset is assessed to determine whether it should be included in another pool or should be individually evaluated. For these individually evaluated loans, the Company maintains specific book balance thresholds for retail or consumer loans, commercial loans, municipal and equipment leases, and unsecured commercial loans. Management would adjust these thresholds if future analysis suggests a change is needed based on the credit environment at that time. Generally, individually evaluated loans other than TDRs are on nonaccrual status. Based on the thresholds above, financial assets will generally remain in pools unless they meet the dollar threshold or foreclosure is probable. The expected credit losses on individually evaluated loans will be estimated based on DCF analysis unless the loan meets the criteria for use of the fair value of collateral, either by virtue of an expected foreclosure or through meeting the definition of collateral dependent. Financial assets that have been individually evaluated can be returned to a pool for purposes of estimating the expected credit loss insofar as their credit profile improves and that the repayment terms are not considered to be unique to the asset.
Management measures expected credit losses over the contractual term of the loans. When determining the contractual term, the Company considers expected prepayments but is precluded from considering expected extensions, renewals, or modifications, unless the Company reasonably expects it will execute a TDR with a borrower. In the event of a reasonably-expected TDR, the Company factors the reasonably-expected TDR into the current expected credit losses estimate. The effects of a TDR are recorded when an individual asset is specifically identified as a reasonably-expected TDR. The Company identifies the point at which it offers the modification to the borrower as the point at which the TDR is reasonably expected for both commercial and consumer loans. The Company uses a DCF methodology to calculate the effect of the concession provided to the borrower in TDR within the ACL.
PCD assets are defined as acquired individual financial assets (or acquired groups of financial assets with similar risk characteristics) that, as of the date of acquisition, have experienced a more-than-insignificant deterioration in credit quality since origination, as determined by the Company’s assessment. The Company records acquired PCD loans by adding the expected credit losses (i.e., ACL) to the purchase price of the financial assets rather than recording through the provision for credit losses in the income statement. The expected credit loss, as of the acquisition day, of a PCD loan is added to the ACL. The non-credit discount or premium is the difference between the unpaid principal
11
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
balance and the amortized cost basis as of the acquisition date. Subsequent to the acquisition date, the change in the ACL on PCD loans is recognized through the provision for credit losses. The non-credit discount or premium is accreted or amortized, respectively, into interest income over the remaining life of the PCD loan on a level-yield basis. In accordance with the transition requirements within the standard, the Company’s PCI loans were treated as PCD loans.
The Company follows its nonaccrual policy by reversing contractual interest income in the income statement when the Company places a loan on nonaccrual status. Therefore, management excludes the accrued interest receivable balance from the amortized cost basis in measuring expected credit losses on the portfolio and does not record an ACL on accrued interest receivable. As of September 30, 2020, the accrued interest receivable for loans was $9,859.
The Company has a variety of assets that have a component that qualifies as an off-balance sheet exposure. These primarily include undrawn portions of revolving lines of credit and standby letters of credit. The expected losses associated with these exposures within the unfunded portion of the expected credit loss will be recorded as a liability on the balance sheet with an offsetting income statement expense. Management has determined that a majority of the Company’s off-balance-sheet credit exposures are not unconditionally cancellable. See "Note 6 - Loans" for additional details related to the Company's off-balance-sheet credit exposure. The current adjustment to the ACL for unfunded commitments would be recognized through the provision for credit losses in the Statement of Income.
2.    Recent Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." The ASU significantly changes the impairment model for most financial assets that are measured at amortized cost and certain other instruments from an incurred loss model to an expected loss model. The Company adopted this ASU on July 1, 2020, applying the modified-retrospective method. Related to the implementation of this ASU, we recorded additional ACL on financial instruments of $15,059, additional deferred tax assets of $3,989, additional reserve for unfunded commitments of $2,288, and a reduction to retained earnings of $13,358. The adoption of this ASU did not have an effect on AFS debt securities. See "Note 1 - Summary of Significant Accounting Policies" and "Note 6 - Loans" for additional details related to the adoption of this ASU.
See table below for impact of this ASU on the Company's consolidated balance sheet:
July 1, 2020
As Reported Under ASC 326 Pre-ASC 326 Adoption Impact of ASC 326 Adoption
Assets:
ACL on commercial paper $ (250) $ —  $ (250)
ACL on loans:
Retail consumer loans $ (17,692) $ (6,956) $ (10,736)
Commercial loans (25,189) (21,116) (4,073)
Total ACL on loans $ (42,881) $ (28,072) $ (14,809)
Deferred income taxes $ 20,323  $ 16,334  $ 3,989 
Liabilities:
Liability for credit losses on off-balance sheet credit exposures $ 2,288  $ —  $ 2,288 
Equity:
Retained earnings $ 229,418  $ 242,776  $ (13,358)
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 remove, modify, and add certain disclosure requirements related to fair value measurements in ASC 820. The Company adopted this ASU on July 1, 2020. The adoption did not have a material effect 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 Company adopted this ASU on July 1, 2020. The adoption did not have a material effect on the Company's Consolidated Financial Statements.
12
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
In April 2019, the FASB issued ASU 2019-04, "Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments." The amendments in this update are part of the FASB's ongoing project to improve codification and correcting unintended application. The items within this ASU are not expected to have a significant effect on current accounting practice. The Company adopted the amendments to Financial Instruments (ASU 2016-01) on July 1, 2020. The Company adopted the amendments to Financial Instruments-Credit Losses (ASU 2016-13) on July 1, 2020. The Company adopted the amendments to Derivatives and Hedging (ASU 2017-12) on July 1, 2019. The adoption did not have a material effect on the Company's Consolidated Financial Statements.
In May 2019, the FASB issued ASU 2019-05, "Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief." The amendments in this update allow companies to irrevocably elect, upon the adoption of ASU 2016-13, the fair value option for financial instruments that i) were previously recorded at amortized cost and ii) are within the scope of the credit losses guidance in ASC 326-20, iii) are eligible for the fair value option under ASC 825-10, and iv) are not held-to-maturity debt securities. The Company adopted this ASU on July 1, 2020. The adoption did not have a material effect on the Company's Consolidated Financial Statements.
In November 2019, the FASB issued ASU 2019-11, "Codification Improvements to Topic 326, Financial Instruments-Credit Losses." This ASU clarifies certain aspects of the amendments in ASU 2016-13 and is part of the FASB's ongoing project to improve codification and correcting unintended application. The items within this ASU are not expected to have a significant effect on current accounting practice. The Company adopted this ASU on July 1, 2020. The adoption did not have a material effect on the Company's Consolidated Financial Statements.
In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." This ASU is part of the FASB's simplification initiative to reduce complexity in accounting standards. The items within this ASU are not expected to have a significant effect on current accounting practice. The effective date and transition requirements for the first and second items of this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2020 and early adoption is permitted. The adoption of ASU No. 2019-12 is not expected to have a material impact on the Company's Consolidated Financial Statements.
In January 2020, the FASB issued ASU 2020-01, "Investment—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815." This ASU clarified the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2021 and early adoption is permitted. The adoption of ASU No. 2020-01 is not expected to have a material impact on the Company's Consolidated Financial Statements.
In March 2020, the FASB issued ASU 2020-03, "Codification Improvements to Financial Instruments." This ASU makes certain narrow-scope amendments to the following: i) clarified that all entities are required to provide fair value option disclosures; ii) clarified the applicability of the portfolio exception in ASC 820 to nonfinancial items; iii) aligned disclosures for depository and lending institutions (Topic 942) with guidance in Topic 320; iv) added cross-references to guidance in ASC 470-50 on line-of-credit or revolving-debt arrangements; v) added cross-references to net asset value practical expedient in ASC 820-10; vi) clarified the interaction between ASC 842 and ASC 326; and vii) clarified the interaction between ASC 326 and ASC 860-20. The amendments for issues i, ii, iv, and v became effective upon issuance and did not have a material effect on the Company's Consolidated Financial Statements. The Company adopted the amendments related to issue iii, vi, and vii on July 1, 2020. The adoption did not have a material effect on the Company's Consolidated Financial Statements.
In September 2020, the FASB issued ASU 2020-06, "Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40)." This ASU simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity's own equity. Specifically the ASU removes: i) major separation models required under GAAP and ii) certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contract to qualify for the exception. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2021 and early adoption is permitted.The adoption of ASU No. 2020-06 is not expected to have a material impact on the Company's Consolidated Financial Statements.
13
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, 2020
Amortized
Cost 		Gross
Unrealized
Gains 		Gross
Unrealized
Losses 		Estimated
Fair
Value
U.S. Government Agencies $ 3,961  $ 203  $ —  $ 4,164 
Residential MBS of U.S. Government Agencies and GSEs 42,438  1,785  (42) 44,181 
Municipal Bonds 14,252  589  —  14,841 
Corporate Bonds 32,691  284  (2) 32,973 
Total $ 93,342  $ 2,861  $ (44) $ 96,159 
June 30, 2020
Amortized
Cost 		Gross
Unrealized
Gains 		Gross
Unrealized
Losses 		Estimated
Fair
Value
U.S. Government Agencies $ 3,957  $ 216  $ —  $ 4,173 
Residential MBS of U.S. Government Agencies and GSEs 46,629  1,776  (50) 48,355 
Municipal Bonds 16,090  541  —  16,631 
Corporate Bonds 58,242  270  (134) 58,378 
Total $ 124,918  $ 2,803  $ (184) $ 127,537 
Debt securities available for sale by contractual maturity at September 30, 2020 are shown below. MBS are not included in the maturity categories because the borrowers in the underlying pools may prepay without penalty; therefore, it is unlikely that the securities will pay at their stated maturity schedule.
  September 30, 2020
Amortized
Cost 		Estimated
Fair Value
Due within one year $ 28,086  $ 28,188 
Due after one year through five years 18,910  19,640 
Due after five years through ten years 3,176  3,418 
Due after ten years 732  732 
Mortgage-backed securities 42,438  44,181 
Total $ 93,342  $ 96,159 
The Company had no sales of securities available for sale during the three months ended September 30, 2020 and 2019. There were no gross realized gains or losses for the three months ended September 30, 2020 and 2019.

Securities available for sale with costs totaling $86,804 and $82,888 and market values of $88,134 and $84,456 at September 30, 2020 and June 30, 2020, respectively, were pledged as collateral to secure various public deposits and other borrowings.
The gross unrealized losses and the fair value for securities available for sale aggregated by the length of time that individual securities have been in a continuous unrealized loss position as of September 30, 2020 and June 30, 2020 were as follows:
September 30, 2020
Less than 12 Months 12 Months or More Total
Fair
Value 		Unrealized
Losses 		Fair
Value 		Unrealized
Losses 		Fair
Value 		Unrealized
Losses
Residential MBS of U.S. Government Agencies and GSEs
$ 64  $ (8) $ 2,100  $ (34) $ 2,164  $ (42)
Corporate Bonds 6,453  (2) —  —  6,453  (2)
Total $ 6,517  $ (10) $ 2,100  $ (34) $ 8,617  $ (44)
14
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
June 30, 2020
Less than 12 Months 12 Months or More Total
Fair
Value 		Unrealized
Losses 		Fair
Value 		Unrealized
Losses 		Fair
Value 		Unrealized
Losses
Residential MBS of U.S. Government Agencies and GSEs
227  (10) 2,435  (40) 2,662  (50)
Corporate Bonds 11,779  (134) —  —  11,779  (134)
Total $ 12,006  $ (144) $ 2,435  $ (40) $ 14,441  $ (184)
The total number of securities with unrealized losses at September 30, 2020, and June 30, 2020 were 20 and 24, respectively.
Management evaluates securities for impairment where there has been a decline in fair value below the amortized cost basis of a security to determine whether there is a credit loss associated with the decline in fair value on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. All debt securities available for sale in an unrealized loss position as of September 30, 2020 continue to perform as scheduled and we do not believe that there is a credit loss or that a provision for credit losses is necessary. Also, as part of our evaluation of our intent and ability to hold investments for a period of time sufficient to allow for any anticipated recovery in the market, we consider our investment strategy, cash flow needs, liquidity position, capital adequacy and interest rate risk position. We do not currently intend to sell the securities within the portfolio and it is not more-likely-than-not that we will be required to sell the debt securities. See Note 1 – Summary of Significant Account Policies for further discussion.
Management continues to monitor all of our securities with a high degree of scrutiny. There can be no assurance that we will not conclude in future periods that conditions existing at that time indicate some or all of its securities may be sold or would require a charge to earnings as a provision for credit losses in such periods.
4.    Other Investments
Other investments, at cost consist of the following at the dates indicated:
September 30, 2020 June 30, 2020
FHLB of Atlanta stock $ 23,309  $ 23,309 
FRB stock 7,371  7,368 
SBIC investments 8,269  8,269 
Total $ 38,949  $ 38,946 
As a requirement for membership, the Bank invests in the stock of both the FHLB of Atlanta and the FRB. No ready market exists for these securities so carrying value approximates their fair value based on the redemption provisions of the FHLB of Atlanta and the FRB, respectively. SBIC investments are equity securities without a readily determinable fair value.
5.    Loans Held For Sale
Loans held for sale as of the dates indicated consist of the following:
September 30, 2020 June 30, 2020
One-to-four family $ 42,271  $ 28,152 
SBA 6,289  1,240 
HELOCs 76,425  47,785 
Total $ 124,985  $ 77,177 
15
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
6.    Loans and Allowance for Credit Losses on Loans
Loans consist of the following at the dates indicated:
September 30, 2020 June 30,
2020
Commercial loans:
Commercial real estate $ 1,068,255  $ 1,052,906 
Construction and development 216,757  215,934 
Commercial and industrial 148,413  154,825 
Equipment finance 250,813  229,239 
Municipal finance 130,337  127,987 
Paycheck Protection Program 80,816  80,697 
Total commercial loans 1,895,391  1,861,588 
Retail consumer loans:
One-to-four family 459,285  473,693 
HELOCs - originated 135,885  137,447 
HELOCs - purchased 61,535  71,781 
Construction and land/lots 78,799  81,859 
Indirect auto finance 128,466  132,303 
Consumer 10,035  10,259 
Total retail consumer loans 874,005  907,342 
Total loans 2,769,396  2,768,930 
Deferred loan costs, net —  189 
Total loans, net of deferred loan costs 2,769,396  2,769,119 
Allowance for credit losses (43,132) (28,072)
Loans, net $ 2,726,264  $ 2,741,047 
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.
In accordance with the adoption of ASU 2016-13, the above table reflects the loan portfolio at the amortized cost basis as of September 30, 2020, to include net deferred cost of $1,941 and unamortized discount total related to loans acquired of $5,126. Accrued interest receivable of $9,859 is accounted for separately. The ACL at June 30, 2020 includes the Day 2 valuation allowance on PCI loans of $182.
The June 30, 2020 information in the above table reflects the loan portfolio prior to the adoption of ASU 2016-13. This information was reported as shown in the below tables under "Loans and Allowance for Loan Losses - Pre ASU 2016-13", with the acquired loans being net of earned income and of related discounts, which includes the credit discount on the acquired credit impaired loans.
Loans are monitored for credit quality on a recurring basis and the composition of the loans outstanding by credit quality indicator is provided below. Loan credit quality indicators are developed through review of individual borrowers on an ongoing basis. Generally, loans are monitored for performance on a quarterly basis with the credit quality indicators adjusted as needed. The indicators represent the rating for loans as of the date presented based on the most recent assessment performed. These credit quality indicators are defined as follows:
Pass—A pass rated asset is not adversely classified because it does not display any of the characteristics for adverse classification.
Special Mention—A special mention asset has potential weaknesses that deserve management’s close attention. If left uncorrected, such potential weaknesses may result in deterioration of the repayment prospects or collateral position at some future date. Special mention assets are not adversely classified and do not warrant adverse classification.
Substandard—A substandard asset is inadequately protected by the current net worth and paying capacity of the obligor, or of the collateral pledged, if any. Assets classified as substandard generally have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. These assets are characterized by the distinct possibility of loss if the deficiencies are not corrected.
Doubtful—An asset classified doubtful has all the weaknesses inherent in an asset classified substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable, on the basis of currently existing facts, conditions, and values.
Loss—Assets classified loss are considered uncollectible and of such little value that their continuing to be carried as an asset is not warranted. This classification is not necessarily equivalent to no potential for recovery or salvage value, but rather that it is not appropriate to defer a full write-off even though partial recovery may be effected in the future.
16
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The following table presents the credit risk profile by risk grade for commercial loans by origination year:
Term Loans By Origination Year
September 30, 2020 2021 2020 2019 2018 2017 Prior Revolving Total
Commercial real estate
Risk rating:
Pass $ 39,049  $ 178,905  $ 136,267  $ 205,282  $ 179,598  $ 244,649  $ 65,271  $ 1,049,021 
Special mention —  —  —  1,300  4,419  3,134  149  9,002 
Substandard —  —  —  —  5,368  4,848  —  10,216 
Doubtful
—  —  —  —  —  —  —  — 
Loss —  16  —  —  —  —  —  16 
Total commercial real estate $ 39,049  $ 178,921  $ 136,267  $ 206,582  $ 189,385  $ 252,631  $ 65,420  $ 1,068,255 
Construction and development
Risk rating:
Pass $ 4,304  $ 12,761  $ 19,144  $ 9,042  $ 2,481  $ 9,010  $ 158,838  $ 215,580 
Special mention —  —  —  —  —  624  —  624 
Substandard —  —  —  —  —  553  —  553 
Doubtful —  —  —  —  —  —  —  — 
Loss —  —  —  —  —  —  —  — 
Total construction and development $ 4,304  $ 12,761  $ 19,144  $ 9,042  $ 2,481  $ 10,187  $ 158,838  $ 216,757 
Commercial and industrial
Risk rating:
Pass $ 7,657  $ 14,411  $ 23,496  $ 20,091  $ 19,799  $ 13,747  $ 28,483  $ 127,684 
Special mention —  —  1,116  —  9,624  193  9,494  20,427 
Substandard —  —  —  133  65  104  —  302 
Doubtful —  —  —  —  —  —  —  — 
Loss —  —  —  —  —  —  —  — 
Total commercial and industrial $ 7,657  $ 14,411  $ 24,612  $ 20,224  $ 29,488  $ 14,044  $ 37,977  $ 148,413 
Equipment finance
Risk rating:
Pass $ 34,390  $ 131,227  $ 76,761  $ 7,057  $ —  $ —  $ —  $ 249,435 
Special mention —  131  406  —  —  —  —  537 
Substandard —  174  667  —  —  —  —  841 
Doubtful —  —  —  —  —  —  —  — 
Loss —  —  —  —  —  —  —  — 
Total equipment finance $ 34,390  $ 131,532  $ 77,834  $ 7,057  $ —  $ —  $ —  $ 250,813 
Municipal leases
Risk rating:
Pass $ —  $ 21,521  $ 15,102  $ 20,487  $ 10,731  $ 58,216  $ 4,009  $ 130,066 
Special mention —  —  —  —  —  271  —  271 
Substandard —  —  —  —  —  —  —  — 
Doubtful —  —  —  —  —  —  —  — 
Loss —  —  —  —  —  —  —  — 
Total municipal leases $ —  $ 21,521  $ 15,102  $ 20,487  $ 10,731  $ 58,487  $ 4,009  $ 130,337 
Paycheck protection program
Risk rating:
Pass $ —  $ 80,816  $ —  $ —  $ —  $ —  $ —  $ 80,816 
Special mention —  —  —  —  —  —  —  — 
Substandard —  —  —  —  —  —  —  — 
Doubtful —  —  —  —  —  —  —  — 
Loss —  —  —  —  —  —  —  — 
Total paycheck protection program $ —  $ 80,816  $ —  $ —  $ —  $ —  $ —  $ 80,816 
Total commercial loans
Risk rating:
Pass $ 85,400  $ 439,641  $ 270,770  $ 261,959  $ 212,609  $ 325,622  $ 256,601  $ 1,852,602 
Special mention —  131  1,522  1,300  14,043  4,222  9,643  30,861 
Substandard —  174  667  133  5,433  5,505  —  11,912 
Doubtful —  —  —  —  —  —  —  — 
Loss —  16  —  —  —  —  —  16 
Total commercial loans $ 85,400  $ 439,962  $ 272,959  $ 263,392  $ 232,085  $ 335,349  $ 266,244  $ 1,895,391 
17
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The following table presents the credit risk profile by risk grade for consumer loans by origination year:
Term Loans By Origination Year
September 30, 2020 2021 2020 2019 2018 2017 Prior Revolving Total
One-to-four family
Risk rating:
Pass $ 20,156  $ 49,079  $ 66,389  $ 64,066  $ 51,948  $ 191,398  $ 4,700  $ 447,736 
Special mention —  —  —  —  29  2,017  —  2,046 
Substandard —  1,008  —  219  206  7,868  —  9,301 
Doubtful —  —  —  —  —  202  —  202 
Loss —  —  —  —  —  —  —  — 
Total one-to-four family $ 20,156  $ 50,087  $ 66,389  $ 64,285  $ 52,183  $ 201,485  $ 4,700  $ 459,285 
HELOCs - originated
Risk rating:
Pass $ 1,021  $ 1,565  $ 1,638  $ 691  $ 751  $ 9,656  $ 117,713  $ 133,035 
Special mention —  —  —  —  —  807  —  807 
Substandard —  —  —  —  39  1,800  204  2,043 
Doubtful —  —  —  —  —  —  —  — 
Loss —  —  —  —  —  —  —  — 
Total HELOCs - originated $ 1,021  $ 1,565  $ 1,638  $ 691  $ 790  $ 12,263  $ 117,917  $ 135,885 
HELOCs - purchased
Risk rating:
Pass $ —  $ —  $ —  $ —  $ —  $ —  $ 60,875  $ 60,875 
Special mention —  —  —  —  —  —  —  — 
Substandard —  —  —  —  —  —  660  660 
Doubtful —  —  —  —  —  —  —  — 
Loss —  —  —  —  —  —  —  — 
Total HELOCs - purchased $ —  $ —  $ —  $ —  $ —  $ —  $ 61,535  $ 61,535 
Construction and land/lots
Risk rating:
Pass $ 103  $ 17,279  $ 5,105  $ 2,025  $ —  $ 5,874  $ 47,790  $ 78,176 
Special mention —  —  —  —  —  —  —  — 
Substandard —  —  —  105  —  518  —  623 
Doubtful —  —  —  —  —  —  —  — 
Loss —  —  —  —  —  —  —  — 
Total construction and land/lots $ 103  $ 17,279  $ 5,105  $ 2,130  $ —  $ 6,392  $ 47,790  $ 78,799 
Indirect auto finance
Risk rating:
Pass $ 11,876  $ 38,790  $ 25,030  $ 30,623  $ 14,176  $ 6,446  $ —  $ 126,941 
Special mention —  —  —  —  —  —  —  — 
Substandard —  121  405  565  255  179  —  1,525 
Doubtful —  —  —  —  —  —  —  — 
Loss —  —  —  —  —  —  —  — 
Total indirect auto finance $ 11,876  $ 38,911  $ 25,435  $ 31,188  $ 14,431  $ 6,625  $ —  $ 128,466 
Total consumer loans
Risk rating:
Pass $ 563  $ 1,469  $ 6,432  $ 439  $ 202  $ 246  $ 369  $ 9,720 
Special mention —  —  —  4  —  —  —  4 
Substandard 223  18  11  18  6  25  10  311 
Doubtful —  —  —  —  —  —  —  — 
Loss —  —  —  —  —  —  —  — 
Total consumer loans $ 786  $ 1,487  $ 6,443  $ 461  $ 208  $ 271  $ 379  $ 10,035 
Total retail consumer loans
Risk rating:
Pass $ 33,719  $ 108,182  $ 104,594  $ 97,844  $ 67,077  $ 213,620  $ 231,447  $ 856,483 
Special mention —  —  —  4  29  2,824  —  2,857 
Substandard 223  1,147  416  907  506  10,390  874  14,463 
Doubtful —  —  —  —  —  202  —  202 
Loss —  —  —  —  —  —  —  — 
Total retail consumer loans $ 33,942  $ 109,329  $ 105,010  $ 98,755  $ 67,612  $ 227,036  $ 232,321  $ 874,005 
18
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The following table presents the credit risk profile by risk grade for consumer and commercial loans, prior to the adoption of ASU 2016-13:
Pass Special
Mention 		Substandard Doubtful Loss Total
June 30, 2020
Commercial loans:
Commercial real estate $ 1,028,709  $ 7,580  $ 10,779  $ —  $ 16  $ 1,047,084 
Construction and development 212,370  2,723  250  1  —  215,344 
Commercial and industrial 130,202  20,439  2,622  —  —  153,263 
Equipment finance 228,288  150  801  —  —  229,239 
Municipal finance 127,706  281  —  —  —  127,987 
Paycheck Protection Program 80,697  —  —  —  —  80,697 
Retail consumer loans:
One-to-four family 458,248  1,724  9,042  206  —  469,220 
HELOCs - originated 134,697  902  1,848  —  —  137,447 
HELOCs - purchased 71,119  —  662  —  —  71,781 
Construction and land/lots 81,112  —  402  —  —  81,514 
Indirect auto finance 130,975  —  1,328  —  —  132,303 
Consumer 9,894  4  361  —  —  10,259 
Total loans $ 2,694,017  $ 33,803  $ 28,095  $ 207  $ 16  $ 2,756,138 
The following table presents the credit risk profile by risk grade for PCI consumer and commercial loans, prior to the adoption of ASU 2016-13:
Pass Special
Mention 		Substandard Doubtful Loss Total
June 30, 2020
Commercial loans:
Commercial real estate $ 3,181  $ 1,742  $ 899  $ —  $ —  $ 5,822 
Construction and development 271  —  319  —  —  590 
Commercial and industrial 1,556  —  3  —  3  1,562 
Retail consumer loans:
One-to-four family 2,994  465  1,014  —  —  4,473 
Construction and land/lots 108  —  237  —  —  345 
Total loans $ 8,110  $ 2,207  $ 2,472  $ —  $ 3  $ 12,792 
19
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The following table presents an aging analysis of past due loans (includes nonaccrual loans) by segment and class:
Past Due Total
30-89 Days 90 Days+ Total Current Loans
September 30, 2020
Commercial loans:
Commercial real estate $ —  $ 2,108  $ 2,108  $ 1,066,147  $ 1,068,255 
Construction and development —  361  361  216,396  216,757 
Commercial and industrial 29  90  119  148,294  148,413 
Equipment finance —  580  580  250,233  250,813 
Municipal finance —  —  —  130,337  130,337 
Paycheck Protection Program —  —  —  80,816  80,816 
Retail consumer loans:
One-to-four family 2,248  2,127  4,375  454,910  459,285 
HELOCs - originated 297  384  681  135,204  135,885 
HELOCs - purchased 145  47  192  61,343  61,535 
Construction and land/lots —  249  249  78,550  78,799 
Indirect auto finance 454  482  936  127,530  128,466 
Consumer 227  33  260  9,775  10,035 
Total loans $ 3,400  $ 6,461  $ 9,861  $ 2,759,535  $ 2,769,396 
The following table presents an aging analysis of past due loans by segment and class, prior to the adoption of ASU 2016-13:
Past Due Total
30-89 Days 90 Days+ Total Current Loans
June 30, 2020
Commercial loans:
Commercial real estate $ 4,528  $ 2,892  $ 7,420  $ 1,045,486  $ 1,052,906 
Construction and development 293  341  634  215,300  215,934 
Commercial and industrial —  91  91  154,734  154,825 
Equipment finance 303  498  801  228,438  229,239 
Municipal finance —  —  —  127,987  127,987 
Paycheck Protection Program —  —  —  80,697  80,697 
Retail consumer loans:
One-to-four family 1,679  3,147  4,826  468,867  473,693 
HELOCs - originated 442  310  752  136,695  137,447 
HELOCs - purchased 214  47  261  71,520  71,781 
Construction and land/lots —  252  252  81,607  81,859 
Indirect auto finance 756  285  1,041  131,262  132,303 
Consumer 30  25  55  10,204  10,259 
Total loans $ 8,245  $ 7,888  $ 16,133  $ 2,752,797  $ 2,768,930 

20
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The following table presents recorded investment in loans on nonaccrual status, by segment and class, including restructured loans. It also includes interest income recognized on nonaccrual loans for the three months ended September 30, 2020.
September 30, 2020 June 30, 2020 90 Days + &
still accruing as of September 30, 2020 		Nonaccrual with no allowance as of September 30, 2020 Interest income recognized
Commercial loans:
Commercial real estate $ 7,841  $ 8,869  $ —  $ 4,665  $ 232 
Construction and development 554  465  —  78  29 
Commercial and industrial 250  259  —  26  38 
Equipment finance 668  801  —  516  — 
Retail consumer loans:
One-to-four family 2,746  3,582  —  784  99 
HELOCs - originated 619  531  —  —  34 
HELOCs - purchased 660  662  —  —  7 
Construction and land/lots 249  37  —  —  6 
Indirect auto finance 797  668  —  —  32 
Consumer 36  49  —  —  6 
Total loans $ 14,420  $ 15,923  $ —  $ 6,069  $ 483 
The decrease in the nonaccrual balance in the above schedule, compared to June 30, 2020, is mainly due to one large commercial nonaccrual loan paying off partially offset by the addition of nonaccrual loans of $965 of PCI loans, formerly accounted for as credit impaired loans, prior to the adoption of ASU 2016-13. These loans were previously excluded from nonaccrual loans. The adoption of CECL resulted in the discontinuation of the pool-level accounting for acquired credit impaired loans and replaced it with loan-level evaluation for nonaccrual status.
The following table presents an analysis of the ACL by segment:
Three Months Ended September 30, 2020
Commercial Retail
Consumer 		Total
Balance at beginning of period $ 21,116  $ 6,956  $ 28,072 
Impact of adoption ASU 2016-13 4,073  10,736  14,809 
Provision for credit losses 292  658  950 
Charge-offs (1,095) (682) (1,777)
Recoveries 813  265  1,078 
Net charge-offs (282) (417) (699)
Balance at end of period $ 25,199  $ 17,933  $ 43,132 
The following table presents an analysis of the allowance for loan losses by segment, prior to the adoption of ASU 2016-13:
Three Months Ended September 30, 2019
PCI Commercial Retail
Consumer 		Total
Balance at beginning of period $ 201  $ 14,809  $ 6,419  $ 21,429 
Provision for (recovery of) loan losses (7) 455  (448) — 
Charge-offs —  (35) (395) (430)
Recoveries —  163  152  315 
Balance at end of period $ 194  $ 15,392  $ 5,728  $ 21,314 
21
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The following table presents ending balances of loans and the related ACL, by segment and class:
Allowance for Credit Losses Total Loans Receivable
Loans
individually
evaluated 		Loans
collectively
evaluated 		Total Loans
individually
evaluated 		Loans
collectively
evaluated 		Total
September 30, 2020
Commercial loans:
Commercial real estate $ 90  $ 11,915  $ 12,005  $ 6,552  $ 1,061,703  $ 1,068,255 
Construction and development —  2,736  2,736  80  216,677  216,757 
Commercial and industrial 16  3,564  3,580  839  147,574  148,413 
Equipment finance 84  6,355  6,439  606  250,207  250,813 
Municipal finance —  438  438  —  130,337  130,337 
Paycheck Protection Program —  —  —  —  80,816  80,816 
Retail consumer loans:
One-to-four family 16  9,953  9,969  3,269  456,016  459,285 
HELOCs - originated —  2,016  2,016  —  135,885  135,885 
HELOCs - purchased —  932  932  —  61,535  61,535 
Construction and land/lots —  1,599  1,599  32  78,767  78,799 
Indirect auto finance —  3,139  3,139  —  128,466  128,466 
Consumer —  279  279  —  10,035  10,035 
Total $ 206  $ 42,926  $ 43,132  $ 11,378  $ 2,758,018  $ 2,769,396 
The following table presents ending balances of loans and the related allowance, by segment and class, prior to the adoption of ASU 2016-13:
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
June 30, 2020
Commercial loans:
Commercial real estate $ 113  $ 961  $ 10,731  $ 11,805  $ 5,822  $ 7,924  $ 1,039,160  $ 1,052,906 
Construction and development 4  5  3,599  3,608  590  299  215,045  215,934 
Commercial and industrial 15  31  2,153  2,199  1,562  852  152,411  154,825 
Equipment finance —  209  2,598  2,807  —  801  228,438  229,239 
Municipal finance —  —  697  697  —  —  127,987  127,987 
Paycheck Protection Program —  —  —  —  —  —  80,697  80,697 
Retail consumer loans:
One-to-four family 17  52  2,400  2,469  4,473  4,304  464,916  473,693 
HELOCs - originated —  —  1,344  1,344  —  —  137,447  137,447 
HELOCs - purchased —  —  430  430  —  —  71,781  71,781 
Construction and land/lots 33  —  1,409  1,442  345  296  81,218  81,859 
Indirect auto finance —  —  1,136  1,136  —  10  132,293  132,303 
Consumer —  —  135  135  —  —  10,259  10,259 
Total $ 182  $ 1,258  $ 26,632  $ 28,072  $ 12,792  $ 14,486  $ 2,741,652  $ 2,768,930 
Prior to the adoption of ASU 2016-13, loans acquired through acquisitions were initially excluded from the allowance for loan losses in accordance with the acquisition method of accounting for business combinations. The Company recorded these loans at fair value, which includes a credit discount, therefore, no allowance for loan losses was established for these acquired loans at acquisition. A provision for loan losses was recorded for any further deterioration in these acquired loans subsequent to the acquisition.
22
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The following table presents impaired loans and the related allowance, by segment and class, excluding PCI loans, prior to the adoption of ASU 2016-13:
  Total Impaired Loans
Unpaid
Principal
Balance 		Recorded
Investment
With a
Recorded
Allowance 		Recorded
Investment
With No
Recorded
Allowance 		Total Related
Recorded
Allowance
June 30, 2020          
Commercial loans:
Commercial real estate $ 10,401  $ 8,062  $ 1,068  $ 9,130  $ 976 
Construction and development 1,785  818  80  898  11 
Commercial and industrial 9,782  1,058  26  1,084  34 
Equipment finance 2,631  303  498  801  209 
Retail consumer loans:          
One-to-four family 16,560  10,805  3,374  14,179  412 
HELOCs - originated 2,087  1,585  53  1,638  43 
HELOCs - purchased 662  662  —  662  3 
Construction and land/lots 1,585  749  296  1,045  13 
Indirect auto finance 1,075  486  241  727  5 
Consumer 297  38  27  65  2 
Total impaired loans $ 46,865  $ 24,566  $ 5,663  $ 30,229  $ 1,708 
The table above includes $15,743, of impaired loans that were not individually evaluated because these loans did not meet the Company's threshold for individual impairment evaluation. The recorded allowance above includes $450 related to these loans that were not individually evaluated.
The following table present average recorded investments in impaired loans and interest income recognized on impaired loans, prior to the adoption of ASU 2016-13:
Three Months Ended
September 30, 2019
Average
Recorded
Investment 		Interest
Income
Recognized
Commercial loans:
Commercial real estate $ 9,614  $ 77 
Construction and development 1,686  14 
Commercial and industrial 734  10 
Equipment finance 703  8 
Retail consumer loans:
One-to-four family 15,338  206 
HELOCs - originated 1,873  29 
HELOCs - purchased 571  3 
Construction and land/lots 1,195  24 
Indirect auto finance 448  5 
Consumer 47  3 
Total loans $ 32,209  $ 379 
23
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The following table presents a summary of changes in the accretable yield for PCI loans, prior to the adoption of ASU 2016-13:
  Three Months Ended
September 30, 2019
Accretable yield, beginning of period $ 5,259 
Reclass from nonaccretable yield (1)
115 
Other changes, net (2)
(14)
Interest income (444)
Accretable yield, end of period $ 4,916 
______________________________________
(1)    Represents changes attributable to expected loss assumptions.
(2)    Represents changes in cash flows expected to be collected due to the impact of modifications, changes in prepayment assumptions, and changes in interest rates.
In estimating ECL, ASC 326 prescribes that if foreclosure is probable, a CDA is required to be measured at the fair value of collateral, but as a practical expedient, if foreclosure is not probable, fair value measurement is optional. For those CDA loans measured at the fair value of collateral, a credit loss expense is recorded for loan amounts in excess of fair value. The following table provides a breakdown between loans identified as CDAs and non-CDAs, by segment and class, and securing collateral, as well as collateral coverage for those loans at September 30, 2020:
Type of Collateral and Extent to Which Collateral Secures Financial Assets
Residential Property Investment Property Commercial Property Business Assets Other Financial Assets Not Considered Collateral Dependent Total
Commercial loans:
Commercial real estate $ —  $ 3,798  $ 2,468  $ —  $ —  $ 1,061,989  1,068,255 
Construction and development —  78  —  —  —  216,679  216,757 
Commercial and industrial —  —  —  25  —  148,388  148,413 
Equipment finance —  —  —  516  —  250,297  250,813 
Municipal finance —  —  —  —  —  130,337  130,337 
Paycheck Protection Program —  —  —  —  —  80,816  80,816 
Retail consumer loans:
One-to-four family 1,085  —  —  —  —  458,200  459,285 
HELOCs - originated —  —  —  —  —  135,885  135,885 
HELOCs - purchased —  —  —  —  —  61,535  61,535 
Construction and land/lots —  —  —  —  —  78,799  78,799 
Indirect auto finance —  —  —  —  —  128,466  128,466 
Consumer —  —  —  —  —  10,035  10,035 
Total $ 1,085  $ 3,876  $ 2,468  $ 541  $ —  $ 2,761,426  $ 2,769,396 
Total Collateral Value $ 1,205  $ 3,924  $ 2,732  $ 565  $ — 
24
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
For the three months ended September 30, 2020 and 2019, the following table presents a breakdown of the types of concessions made on TDRs by loan class:
Three Months Ended September 30, 2020 Three Months Ended September 30, 2019
Number
of
Loans 		Pre
Modification
Outstanding
Recorded
Investment 		Post
Modification
Outstanding
Recorded
Investment 		Number
of
Loans 		Pre
Modification Outstanding Recorded
Investment 		Post
Modification
Outstanding
Recorded
Investment
Extended payment terms:            
Retail consumer:            
One-to-four family —  $ —  $ —  1  $ 14  $ 14 
Other TDRs:            
Commercial:
Commercial and industrial 1  4,407  3,800  —  —  — 
Retail consumer:            
One-to-four family —  —  —  3  35  34 
Indirect auto finance 6  105  78  4  68  65 
Total 7  $ 4,512  $ 3,878  8  $ 117  $ 113 
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.
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 months ended September 30, 2020 and 2019:
Three Months Ended September 30, 2020 Three Months Ended September 30, 2019
Number of
Loans 		Recorded
Investment 		Number of
Loans 		Recorded
Investment
Other TDRs:        
Retail consumer:        
One-to-four family —  $ —  2  $ 122 
Indirect auto finance 1  11  —  — 
Consumer —  —  1  2 
Total
1  $ 11  3  $ 124 
In the determination of the ACL, management considers TDRs for all loan classes, and the subsequent nonperformance in accordance with their modified terms, by measuring impairment on a loan-by-loan basis based on either the value of the loan's expected future cash flows discounted at the loan's original effective interest rate or on the collateral value, net of the estimated costs of disposal, if the loan is collateral dependent.
25
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Off-Balance-Sheet Credit Exposure
The Company maintains a separate reserve for credit losses from off-balance-sheet credit exposures, including unfunded loan commitments, which is included in other liabilities on the consolidated balance sheets. The reserve for credit losses on off-balance-sheet credit exposures is adjusted as a provision for credit losses in the consolidated statements of income. The estimate includes consideration of the likelihood that funding will occur and an estimate of ECLs on commitments expected to be funded over its estimated life, utilizing the same models and approaches for the Company's other loan portfolio segments described above, as these unfunded commitments share similar risk characteristics as our loan portfolio segments. The Company has identified the unfunded portion of certain lines of credit as unconditionally cancellable credit exposures, meaning the Company can cancel the unfunded commitment at any time. No credit loss estimate is reported for off-balance-sheet credit exposures that are unconditionally cancellable by the Company or for undrawn amounts under such arrangements that may be drawn prior to the cancellation of the arrangement. At September 30, 2020, the liability for credit losses on off-balance-sheet credit exposures included in other liabilities was $2,288.
Modifications in response to COVID-19
Beginning in March 2020, the Company began offering short-term loan modifications to assist borrowers during the COVID-19 pandemic. The CARES Act along with a joint agency statement issued by banking agencies and confirmed by FASB staff that short-term modifications made in response to COVID-19 are not TDRs. Accordingly, the Company does not account for such loan modifications as TDRs. As of September 30, 2020, modifications totaling $1,106 and $90,138 had been granted in retail consumer loans and commercial loans, respectively.
The Bank is offering payment and financial relief programs for borrowers impacted by COVID-19. These programs include loan payment deferrals for up to 90 days (which can be renewed for another 90 days under certain circumstances) waived late fees, and suspension of foreclosure proceedings and repossessions. Since March, we have received numerous requests from borrowers for some type of payment relief; however, the majority of these payment deferrals have ended and borrowers are again making regular loan payments. The breakout of loans deferred by loan type as of the dates indicated is as follows:
Payment Deferrals by Loan Types (1)
September 30, 2020 August 31, 2020 June 30, 2020
Deferral Percent of Total Loan Portfolio Deferral Percent of Total Loan Portfolio Deferral Percent of Total Loan Portfolio
Lodging $ 60,782  2.2  % $ 64,686  2.4  % $ 108,171  4.0  %
Other commercial real estate, construction and development, and commercial and industrial 27,169  1.0  43,056  1.6  367,443  13.7 
Equipment finance 2,187  0.1  4,547  0.2  33,693  1.3 
One-to-four family 684  —  2,360  0.1  36,821  1.4 
Other consumer loans 422  —  589  —  5,203  0.2 
     Total $ 91,244  3.3  % $ 115,238  4.3  % $ 551,331  20.6  %
__________________________
(1)    Modified loans are not included in classified assets or nonperforming assets.
26
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
7.    Real Estate Owned
The activity within REO for the periods shown is as follows:
Three Months Ended September 30,
2020 2019
Balance at beginning of period $ 337  $ 2,929 
Transfers from loans —  46 
Sales, net of gain or loss (193) (381)
Writedowns —  (12)
Balance at end of period $ 144  $ 2,582 
At September 30, 2020 and June 30, 2020, the Bank had $0 and $97, 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 $555 and $1,318 at September 30, 2020 and June 30, 2020, respectively.
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 as of the dates indicated:
Three Months Ended September 30,
2020 2019
Numerator:
Net income
$ 5,753  $ 8,804 
Allocation of earnings to participating securities
(50) (68)
Numerator for basic EPS - Net income available to common stockholders
$ 5,703  $ 8,736 
Effect of dilutive securities:
Dilutive effect to participating securities
6  8 
Numerator for diluted EPS
$ 5,709  $ 8,744 
Denominator:    
Weighted-average common shares outstanding - basic 16,230,990  17,097,647 
Effect of dilutive shares 238,252  656,010 
Weighted-average common shares outstanding - diluted 16,469,242  17,753,657 
Net income per share - basic $ 0.35  $ 0.51 
Net income per share - diluted $ 0.35  $ 0.49 
Potential dilutive shares are excluded from the computation of earnings per share if their effect is anti-dilutive. There were 573,900 stock options that were anti-dilutive for the three months ended September 30, 2020. There were 470,800 stock options that were anti-dilutive for the three months ended September 30, 2019, respectively.
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, directors emeritus, officers, employees and advisory directors. The cost of equity-based awards under the 2013 Omnibus Incentive Plan generally is based on the fair value of the awards on their grant date. The maximum number of shares that may be utilized for awards under the plan is 2,962,400, including 2,116,000 for stock options and stock appreciation rights and 846,400 for awards of restricted stock and restricted stock units.
Shares of common stock issued under the 2013 Omnibus Incentive Plan may be authorized but unissued shares or, in the case of restricted stock awards, may be repurchased shares.
The table below presents share-based compensation expense and the estimated related tax benefit for stock options and restricted stock for the three months ended September 30, 2020 and 2019, respectively:
Three Months Ended September 30,
2020 2019
Share-based compensation expense $ 506  $ 443 
Tax benefit $ 119  $ 104 
27
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 three months ended September 30, 2020 and 2019:
Options Weighted-
average
exercise
price 		Remaining
contractual
life
(years) 		Aggregate
Intrinsic
Value
Options outstanding at June 30, 2019 1,657,214  $ 17.59  5.0 $ 12,909 
Granted 25,000  25.37  —  — 
Exercised 13,400  14.50  —  — 
Forfeited 800  17.35  —  — 
Options outstanding at September 30, 2019 1,668,014  $ 17.73  4.9 $ 13,969 
Exercisable at September 30, 2019 1,266,214  $ 15.40  3.8 $ 13,509 
Non-vested at September 30, 2019 401,800  $ 25.07  8.1 $ 460 
Options outstanding at June 30, 2020 1,615,500  $ 18.12  4.4 $ 1,711 
Forfeited 200  24.95  —  — 
Options outstanding at September 30, 2020 1,615,300  $ 18.12  4.1 $ — 
Exercisable at September 30, 2020 1,303,000  $ 16.31  3.3 $ — 
Non-vested at September 30, 2020 312,300  $ 25.68  7.6 $ — 
There were no options granted during the three months ended September 30, 2020. Assumptions used in estimating the fair value of options granted during the three months ended September 30, 2019 are presented below:
September 30,
2019
Weighted-average volatility 17.84  %
Expected dividend yield 0.95  %
Risk-free interest rate 1.55  %
Expected life (years) 6.5
Weighted-average fair value of options granted $ 4.67 
At September 30, 2020, the Company had $1,535 of unrecognized compensation expense related to 312,300 stock options originally scheduled to vest over a five-year vesting period. The weighted average period over which compensation cost related to non-vested awards expected to be recognized was 1.5 years at September 30, 2020. At September 30, 2019, the Company had $2,052 of unrecognized compensation expense related to 401,800 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 1.7 years at September 30, 2019.
The table below presents restricted stock award activity for the three months ended September 30, 2020 and 2019:
Restricted
stock awards 		Weighted-
average grant
date fair value 		Aggregate
Intrinsic
Value
Non-vested at June 30, 2019 123,800  $ 24.65  $ 2,258 
Granted 13,000  25.37  — 
Vested 400  19.02  — 
Forfeited 3,200  20.62  — 
Non-vested at September 30, 2019 133,200  $ 24.83  $ 2,256 
Non-vested at June 30, 2020 144,046  $ 25.89  $ 2,305 
Vested 2,600  25.37  — 
Forfeited 200  24.95  — 
Non-vested at September 30, 2020 141,246  $ 25.90  $ 1,918 
The table above includes nonvested performance-based restrictive stock units totaling 16,440 and 10,375 at September 30, 2020 and 2019, respectively. Each issuance of these stock units are scheduled to vest over 3.0 years assuming certain performance metrics are met.
At September 30, 2020, unrecognized compensation expense was $2,715 related to 141,246 shares of restricted stock originally scheduled to vest over three- and five-year vesting periods. The weighted average period over which compensation cost related to non-vested awards is
28
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
expected to be recognized was 1.6 years at September 30, 2020. At September 30, 2019, unrecognized compensation expense was $2,579 related to 133,200 shares of restricted stock originally scheduled to vest over three-, 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 1.7 years at September 30, 2019.
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 September 30, 2020 and June 30, 2020, respectively, loan commitments (excluding $130,561 and $141,557 of undisbursed portions of construction loans) totaled $104,441 and $57,798 of which $31,266 and $10,678 were variable rate commitments and $73,175 and $47,120 were fixed rate commitments. The fixed rate loans had interest rates ranging from 1.09% to 8.28% at September 30, 2020 and 1.74% to 8.54% at June 30, 2020, 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 $396,467 and $398,781 at September 30, 2020 and June 30, 2020, respectively. These amounts represent the Company's exposure to credit risk, and in the opinion of management have no more than the normal lending risk that the Company commits to its borrowers. The Company has two types of commitments related to certain one-to-four family loans held for sale: rate lock commitments and forward loan commitments. Rate lock commitments are commitments to extend credit to a customer that has an interest rate lock and are considered derivative instruments. The rate lock commitments do not qualify for hedge accounting. In order to mitigate the risk from interest rate fluctuations, 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 interest rate lock commitments was not material at September 30, 2020 or June 30, 2020.
The Company grants construction and permanent loans collateralized primarily by residential and commercial real estate to customers throughout its primary market areas. In addition, the Company grants equipment financing throughout the eastern United States and municipal financing to customers throughout North and South Carolina. The Company’s loan portfolio can be affected by the general economic conditions within these market areas. Management believes that the Company has no significant concentration of credit in the loan portfolio.
Restrictions on Cash – In response to COVID-19, the FRB reduced the reserve requirements to zero on March 15, 2020. Prior to this change the Bank was required by regulation to maintain a varying cash reserve balance with the FRB. 
Guarantees – Standby letters of credit obligate the Company to meet certain financial obligations of its customers, if, under the contractual terms of the agreement, the customers are unable to do so. The financial standby letters of credit issued by the Company are irrevocable and payment is only guaranteed upon the borrower's failure to perform its obligations to the beneficiary. Total commitments under standby letters of credit as of September 30, 2020 and June 30, 2020 were $7,768 and $7,766, respectively. There was no liability recorded for these letters of credit at September 30, 2020 or June 30, 2020, 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 are based on the same methodology as presented in Note 21 of the Notes to Consolidated Financial Statements contained in the Company’s 2020 Form 10-K.
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.
29
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. The Company does not have any liabilities recorded at fair value.
Investment Securities Available for Sale
Securities available for sale are valued on a recurring basis at quoted market prices where available. If quoted market prices are not available, fair values are based on quoted prices of comparable securities. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange or U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities and debentures issued by government sponsored enterprises, municipal bonds, and corporate debt securities. The Company has no Level 3 securities.
Individually Evaluated Loans
The Company does not record loans at fair value on a recurring basis. From time to time, however, a loan is individually evaluated and an allowance for credit loss 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 individually evaluated. Once a loan is identified, the fair value is estimated using one of two ways, which include collateral value and discounted cash flows. The Company reviews all individually evaluated loans each quarter to determine if an allowance is necessary. Those individually evaluated 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.
Loans are considered collateral dependent if repayment is expected solely from the collateral. For these collateral dependent 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 individually evaluated 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 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.
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:
September 30, 2020
Description Total Level 1 Level 2 Level 3
U.S Government Agencies $ 4,164  $ —  $ 4,164  $ — 
Residential MBS of U.S. Government Agencies and GSEs
44,181  —  44,181  — 
Municipal Bonds 14,841  —  14,841  — 
Corporate Bonds 32,973  —  32,973  — 
Total $ 96,159  $ —  $ 96,159  $ — 
June 30, 2020
Description Total Level 1 Level 2 Level 3
U.S Government Agencies $ 4,173  $ —  $ 4,173  $ — 
Residential MBS of U.S. Government Agencies and GSEs 48,335  —  48,335  — 
Municipal Bonds 16,631  —  16,631  — 
Corporate Bonds 58,378  —  58,378  — 
Total $ 127,517  $ —  $ 127,517  $ — 
There were no transfers between levels during the three months ended September 30, 2020.
30
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The following table presents financial assets measured at fair value on a non-recurring basis at the dates indicated:
September 30, 2020
Description Total Level 1 Level 2 Level 3
Individually evaluated loans $ 5,150  $ —  $ —  $ 5,150 
June 30, 2020
Description Total Level 1 Level 2 Level 3
Individually evaluated loans $ 9,168  $ —  $ —  $ 9,168 
REO 97  —  —  97 
Total $ 9,265  $ —  $ —  $ 9,265 
Quantitative information about Level 3 fair value measurements during the period ended September 30, 2020 is shown in the table below:
Nonrecurring measurements: Fair Value at September 30, 2020 Valuation
Techniques 		Unobservable
Input 		Range Weighted
Average
Individually evaluated loans $ 5,150  Discounted appraisals and discounted cash flows Collateral discounts
and discount spread
      0% - 63%

     2% - 3%
12%
The stated carrying value and estimated fair value amounts of financial instruments as of September 30, 2020 and June 30, 2020, are summarized below:
  September 30, 2020
Carrying
Value 		Fair
Value 		Level 1 Level 2 Level 3
Assets:
Cash and interest-bearing deposits
$ 171,144  $ 171,144  $ 171,144  $ —  $ — 
Commercial paper
204,867  204,867  204,867  —  — 
Certificates of deposit in other banks
52,361  52,361  —  52,361  — 
Securities available for sale
96,159  96,159  —  96,159  — 
Loans, net
2,726,264  2,688,377  —  —  2,688,377 
Loans held for sale
124,985  126,670  —  —  126,670 
FHLB stock
23,309  23,309  23,309  —  — 
FRB stock
7,371  7,371  7,371  —  — 
SBIC investments
8,269  8,269  —  —  8,269 
Accrued interest receivable
10,648  10,648  —  789  9,859 
Liabilities:
Noninterest-bearing and NOW deposits
1,067,125  1,067,125  —  1,067,125  — 
Money market accounts
826,970  826,970  —  826,970  — 
Savings accounts
202,787  202,787  —  202,787  — 
Certificates of deposit
645,164  649,685  —  649,685  — 
Borrowings
475,000  490,822  —  490,822  — 
Accrued interest payable
719  719  —  719  — 
31
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
  June 30, 2020
Carrying
Value 		Fair
Value 		Level 1 Level 2 Level 3
Assets:
Cash and interest-bearing deposits
$ 121,622  $ 121,622  $ 121,622  $ —  $ — 
Commercial paper
304,967  304,967  304,967  —  — 
Certificates of deposit in other banks
55,689  55,689  —  55,689  — 
Securities available for sale
127,537  127,537  —  127,537  — 
Loans, net
2,741,047  2,692,265  —  —  2,692,265 
Loans held for sale
77,177  78,129  —  —  78,129 
FHLB stock
23,309  23,309  23,309  —  — 
FRB stock
7,368  7,368  7,368  —  — 
SBIC investments
8,269  8,269  —  —  8,269 
Accrued interest receivable
12,312  12,312  208  744  11,360 
Liabilities:
Noninterest-bearing and NOW deposits
1,012,200  1,012,200  —  1,012,200  — 
Money market accounts
836,738  836,738  —  836,738  — 
Savings accounts
197,676  197,676  —  197,676  — 
Certificates of deposit
739,142  745,078  —  745,078  — 
Borrowings
475,000  511,529  —  511,529  — 
Accrued interest payable
1,087  1,087  —  1,087  — 
The Company had off-balance sheet financial commitments, which included approximately $631,469 and $598,136 of commitments to originate loans, undisbursed portions of interim construction loans, and unused lines of credit at September 30, 2020 and June 30, 2020, 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.
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 and HELOCs 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. 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 investments – No ready market exists for these investments and they have no quoted market value. SBIC investments are valued at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions of identical or similar investments. Accordingly, cost is deemed to be a reasonable estimate of fair value.
Deposits – Fair values for demand deposits, money market accounts, and savings accounts are the amounts payable on demand. 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.
32
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
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.    Leases
As Lessee - Operating Leases
Company operating leases primarily include office space and bank branches. Certain leases include one or more options to renew, with renewal terms that can extend the lease term up to 15 additional years. The exercise of lease renewal options is at our sole discretion. When it is reasonably certain that we will exercise our option to renew or extend the lease term, that option is included in estimating the value of the ROU and lease liability. At September 30, 2020, we did not have any leases that had not yet commenced for which we had created a ROU asset and a lease liability. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. Most of our lease agreements include periodic rate adjustments for inflation. The depreciable life of ROU assets and leasehold improvements are limited to the shorter of the useful life or the expected lease term. Leases with an initial term of 12 months or less are not recorded on our Consolidated Balance Sheets; we recognize lease expenses for these leases over the lease term.
The following table presents supplemental balance sheet information related to operating leases. ROU assets are included in other assets and lease liabilities are included in other liabilities.
Supplemental Balance Sheet Information:
September 30, 2020 June 30, 2020
ROU assets $ 4,827 $ 4,601
Lease liabilities 4,824 4,590
Weighted-average remaining lease terms 4.79 5.02
Weighted-average discount rate 2.81  % 2.97  %
The following schedule summarizes aggregate future minimum lease payments under these operating leases at September 30, 2020:
Fiscal year ending June 30:
Remaining 2021 $ 987 
2022 1,248 
2023 1,200 
2024 735 
2025 349 
Thereafter 676 
Total of future minimum payments $ 5,195 
The following table presents components of operating lease expense for the three months ended September 30, 2020 and 2019:
2020 2019
Operating lease cost (included in occupancy expense) $ 439  $ 473 
Sublease income (included in other, net noninterest income) (61) (64)
Total operating lease expense, net 378  409 
As Lessee - Finance Lease
The Company currently leases land for one of its branch office locations under a finance lease. The ROU asset for the finance lease totaled $2,052 at September 30, 2020 and June 30, 2020 and is included in other assets. The corresponding lease liability totaled $1,833 and $1,843 at September 30, 2020 and June 30, 2020, respectively, and is included in other liabilities. For the three months ended September 30, 2020 and 2019, interest expense on the lease liability totaled $24 and $24, respectively. The finance lease has a maturity date of July 2028 and a discount rate of 5.18%.
33
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The following schedule summarizes aggregate future minimum lease payments under this finance lease obligation at September 30, 2020:
Fiscal year ending June 30:
Remaining 2021 $ 100 
2022 134 
2023 134 
2024 145 
2025 146 
Thereafter 1,848 
Total minimum lease payments 2,507 
Less: amount representing interest (674)
Present value of net minimum lease payments $ 1,833 
Supplemental lease cash flow information for the three months ended September 30, 2020 and 2019:
2020 2019
ROU assets - noncash additions (operating leases) $ 533  $ 5,296 
ROU assets - noncash addition (finance lease) —  2,052 
Cash paid for amounts included in the measurement of lease liabilities (operating leases) 524  558 
Cash paid for amounts included in the measurement of lease liabilities (finance leases) 33  33 
As Lessor - General
The Company leases equipment to commercial end users under operating and finance lease arrangements. Our equipment finance leases consist mainly of transportation, medical, and agricultural equipment. Many of our operating and finance leases offer the lessee the option to purchase the equipment at fair value or for a nominal fixed purchase option; and most of the leases that do not have a nominal purchase option include renewal provisions resulting in some leases continuing beyond initial contractual terms. Our leases do not include early termination options, and continued rent payments are due if leased equipment is not returned at the end of the lease.
As Lessor - Operating Leases
Operating lease income is recognized as a component of noninterest income on a straight-line basis over the lease term. Lease terms range from 1 to 5 years. Assets related to operating leases are included in other assets and the corresponding depreciation expense is recorded on a straight-line basis as a component of other noninterest expense. The net book value of leased assets totaled $22,540 and $21,595 with a residual value of $10,971 and $12,370 as of September 30, 2020 and June 30, 2020, respectively. For the three months ended September 30, 2020 and 2019, total equipment finance operating lease income totaled $1,325 and $568, respectively. For the three months ended September 30, 2020 and 2019, depreciation expense totaled $1,541 and $350, respectively.
34
HOMETRUST BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The following schedule summarizes aggregate future minimum operating lease payments to be received at September 30, 2020:
Fiscal year ending June 30:
Remaining 2021 $ 5,295 
2022 4,002 
2023 2,366 
2024 709 
2025 180 
Thereafter 13 
Total of future minimum payments $ 12,565 
As Lessor - Finance Leases
Finance lease income is recognized as a component of loan interest income over the lease term. The finance leases are included as a component of the equipment finance class of financing receivables under the commercial loan segment. For the three months ended September 30, 2020 and 2019, total interest income on equipment finance leases totaled $530 and $319, respectively.
The following table presents components of finance lease net investment included within equipment finance class of financing receivables:
September 30, 2020 June 30, 2020
Lease receivables $ 48,358  $ 44,927 
The following schedule summarizes aggregate future minimum finance lease payments to be received at September 30, 2020:
Fiscal year ending June 30:
Remaining 2021 $ 9,457 
2022 12,324 
2023 12,084 
2024 10,385 
2025 7,195 
Thereafter 1,676 
Total minimum payments 53,121 
Less: amount representing interest (4,763)
Total $ 48,358 

35

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 effect of the COVID-19 pandemic, including on the Company’ credit quality and business operations, as well as its impact on general economic and financial market conditions and other uncertainties resulting from the COVID-19 pandemic, such as the extent and duration of the impact on public health, the U.S. and global economies, and consumer and corporate customers, including economic activity, employment levels and market liquidity; the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write offs and changes in our allowance for credit losses and provision for credit losses that may be impacted by deterioration in the housing and commercial real estate markets; changes in general economic conditions, either nationally or in our market areas; changes in the levels of general interest rates, and the relative differences between short and long term interest rates, deposit interest rates, our net interest margin and funding sources; uncertainty regarding the future of LIBOR, and the potential transition away from LIBOR toward new interest rate benchmarks; fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values in our market areas; decreases in the secondary market for the sale of loans that we originate; results of examinations of us by the Board of Governors of the Federal Reserve System (“Federal Reserve”), the NCCOB, or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our allowance for credit losses, write-down assets, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits, which could adversely affect our liquidity and earnings; legislative or regulatory changes that adversely affect our business including the effect of Dodd-Frank Wall Street Reform and Consumer Protection Act, 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 credit 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 including the CARES Act; and the other risks detailed from time to time in our filings with the SEC, including our 2020 Form 10-K.
Many 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 subsidiary, 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 FRB, 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 FDIC. The Bank is a member of the FHLB of Atlanta, which is one of the 12 regional banks in the FHLB System. Our headquarters is located in Asheville, North Carolina.
36

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, SBA loans, equipment finance leases, indirect automobile loans, and municipal finance agreements. We also work with a third party to originate HELOCs which are pooled and sold. In addition, we purchase investment securities consisting primarily of securities issued by United States Government agencies and GSEs, as well as corporate bonds, commercial paper and FDIC insured certificates of deposit.
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. Because the length of the COVID-19 pandemic and the efficacy of the extraordinary measures being put in place to address its economic consequences are unknown, including the recent 150 basis point reduction in the targeted federal funds rate, until the pandemic subsides, the Company expects its net interest income and net interest margin will be adversely affected in fiscal 2021 and possibly longer.
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, lease income, gain on sale of loans, and gains and losses from sales of securities.
An offset to net interest income is the provision for credit losses which is required to establish the ACL. Under the new CECL standard all financial assets measured at amortized cost and off balance sheet credit exposures, including loans, investment securities and unfunded commitments are evaluated for credit losses. See Note 1 – Summary of Significant Account Policies for further discussion.
Our noninterest expenses consist primarily of salaries and employee benefits, expenses for occupancy, marketing and computer services, and FDIC deposit insurance premiums. Salaries and benefits consist primarily of the salaries and wages paid to our employees, payroll taxes, expenses for retirement and other employee benefits. Occupancy expenses, which are the fixed and variable costs of buildings and equipment, consist primarily of lease payments, property taxes, depreciation charges, maintenance and costs of utilities.
Our geographic footprint includes seven markets accessed through numerous strategic acquisitions as well as two de novo commercial loan offices. Looking forward, we believe opportunities currently exist within our market areas to grow our franchise. While COVID-19 has dampened our growth activities, we believe as the local and global economy returns to normalcy we remain in a position to create organic growth through marketing efforts. We may also seek to expand our franchise through the selective acquisition of individual branches, loan purchases and, to a lesser degree, whole bank transactions that meet our investment and market objectives. We will continue to be disciplined as it pertains to future expansion focusing primarily on organic growth in our current market areas.
At September 30, 2020, we had 41 locations in North Carolina (including the Asheville metropolitan area, the "Piedmont" region, Charlotte, and Raleigh/Cary), Upstate South Carolina (Greenville), East Tennessee (including Kingsport/Johnson City/Bristol, Knoxville, and Morristown) and Southwest Virginia (including the Roanoke Valley).
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 ACL, and (ii) the valuation of goodwill and other intangible assets. The ACL reflects management’s estimate of losses that will result from the inability of our borrowers to make required loan payments. Management uses a systematic methodology to determine its ACL for loans held for investment and certain off-balance-sheet credit exposures. Management considers the effects of past events, current conditions, and reasonable and supportable forecasts on the collectability of the loan portfolio. The Company’s estimate of its ACL involves a high degree of judgment; therefore, management’s process for determining expected credit losses may result in a range of expected credit losses. It is possible that others, given the same information, may at any point in time reach a different reasonable conclusion. The Company’s ACL recorded in the balance sheet reflects management’s best estimate within the range of expected credit losses. The Company recognizes in net income the amount needed to adjust the ACL for management’s current estimate of expected credit losses. See Note 1 — Summary of Significant Accounting Policies and Note 6 — Loans and Allowance for Credit Losses on Loans in this Quarterly Report on Form 10-Q for further detailed descriptions of our estimation process and methodology related to the ACL. The valuation of goodwill and other intangible assets policy is 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 in the Company's 2020 Form 10-K.
37

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. See Note 2 of Notes to Consolidated Financial Statements under Item 1 of this report 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; and the ratio of the ACL to total loans excluding PPP 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 Months Ended September 30, 2020 and 2019” for more detailed information about our financial performance.

Set forth below is a reconciliation to GAAP of tangible book value and tangible book value per share:
As of
September 30, June 30, September 30,
(Dollars in thousands, except per share data) 2020 2020 2019
Total stockholders' equity $ 400,351  $ 408,263  $ 413,068 
Less: goodwill, core deposit intangibles, net of taxes 26,285  26,468  27,246 
Tangible book value (1)
$ 374,066  $ 381,795  $ 385,822 
Common shares outstanding 17,020,724  17,016,372  17,818,145 
Tangible book value per share $ 21.98  $ 22.44  $ 21.65 
Book value per share $ 23.52  $ 23.99  $ 23.18 

Set forth below is a reconciliation to GAAP of tangible equity to tangible assets:
As of
September 30, June 30, September 30,
(Dollars in thousands) 2020 2020 2019
Tangible book value (1)
$ 374,066  $ 381,795  $ 385,822 
Total assets 3,674,034  3,722,852  3,655,609 
Less: goodwill, core deposit intangibles, net of taxes 26,285  26,468  27,246 
Total tangible assets(2)
$ 3,647,749  $ 3,696,384  $ 3,628,363 
Tangible equity to tangible assets 10.25  % 10.33  % 10.63  %
_________________________________________________________________
(1)    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.

Set forth below is a reconciliation to GAAP of the ACL to total loans (excluding net deferred loan costs) and the allowance for credit losses as adjusted to exclude PPP loans:
As of
(Dollars in thousands) September 30, June 30, September 30,
2020 2019 2019
Total gross loans receivable (GAAP) $ 2,767,454  $ 2,768,930  $ 2,508,477 
Less: PPP loans (1)
80,816  80,697  — 
Adjusted gross loans (non-GAAP) $ 2,686,638  $ 2,688,233  $ 2,508,477 
ACL $ 43,132  $ 28,072  $ 21,314 
ACL / Adjusted gross loans (non-GAAP) 1.61  % 1.04  % 0.85  %
_________________________________________________________________
(1)    PPP loans are fully guaranteed loans by the U.S, government and became available with the CARES Act.
38

Recent Developments: COVID-19, the CARES Act, and Our Response
The COVID-19 pandemic has caused economic and social disruption on an unprecedented scale. While some industries have been impacted more severely than others, all businesses have been impacted to some degree. This disruption has resulted in business closures across the country, significant job loss, and aggressive measures by the federal government.
Congress, the President, and the Federal Reserve have taken several actions designed to cushion the economic fallout. Most notably, the CARES Act was signed into law on March 27, 2020 as a $2.2 trillion legislative package. The goal of the CARES Act is to prevent a severe economic downturn through various measures, including direct financial aid to families and economic stimulus to significantly impacted industry sectors. The package also includes extensive emergency funding for hospitals and healthcare providers. In addition to the general impact of COVID-19, certain provisions of the CARES Act as well as other recent legislative and regulatory relief efforts are expected to have a material impact on our operations. While it is not possible to know the full extent of these impacts as of the date of this filing, we are disclosing potentially material items of which we are aware.
In response to the COVID-19 pandemic, the Company is offering a variety of relief options designed to support our customers and communities we serve.
Paycheck Protection Program Participation. The CARES Act authorized the SBA to temporarily guarantee loans under the new PPP loan program. The goal of the PPP is to avoid as many layoffs as possible, and to encourage small businesses to maintain payrolls. As a qualified SBA lender, the Company was automatically authorized to originate PPP loans upon commencement of the program in April 2020. PPP loans have: (a) an interest rate of 1.0%, (b) a two-year loan term to maturity; and (c) principal and interest payments deferred for six months from the date of disbursement. The SBA guarantees 100% of the PPP loans made to eligible borrowers. The entire principal amount of the borrower’s PPP loan, including any accrued interest, is eligible to be forgiven and repaid by the SBA so long as employee and compensation levels of the business are maintained and 60% of the loan proceeds are used for payroll expenses, with the remaining 40% of the loan proceeds used for other qualifying expenses.
As of September 30, 2020, we had originated $80.8 million of PPP loans for 290 customers. Net origination fees on these loans are approximately $2.1 million which were deferred and are being accreted into interest income as the loans are repaid or forgiven. Due to demand exceeding our capacity, we partnered with a third party to process and fund additional PPP loans, which to date total $32.1 million for almost 1,000 customers. We are also continuing to work with our clients to assist them with accessing other borrowing options, including the Main Street Lending Program and other government sponsored lending programs, as appropriate.
Loan Modifications. The Company is closely monitoring the effects of COVID-19 on our loan portfolio and will continue to monitor all the associated risks to minimize any potential losses. HomeTrust Bank is offering payment and financial relief programs for borrowers impacted by COVID-19. These programs include loan payment deferrals for up to 90 days, waived late fees, and suspension of foreclosure proceedings and repossessions. Since March, we have received numerous requests from borrowers for some type of payment relief; however, the majority of these payment deferrals have ended and borrowers are again making regular loan payments. The breakout of loans deferred by loan type as of the dates indicated is as follows:
Payment Deferrals by Loan Types
September 30, 2020 August 31, 2020 June 30, 2020
Deferral Percent of Total Loan Portfolio Deferral Percent of Total Loan Portfolio Deferral Percent of Total Loan Portfolio
Lodging $ 60,782  2.2  % $ 64,686  2.4  % $ 108,171  4.0  %
Other commercial real estate, construction and development, and commercial and industrial 27,169  1.0  43,056  1.6  367,443  13.7 
Equipment finance 2,187  0.1  4,547  0.2  33,693  1.3 
One-to-four family 684  —  2,360  0.1  36,821  1.4 
Other consumer loans 422  —  589  —  5,203  0.2 
     Total $ 91,244  3.3  % $ 115,238  4.3  % $ 551,331  20.6  %
All loans modified due to COVID-19 are separately monitored and any request for continuation of relief beyond the initial modification will be reassessed at that time to determine if a further modification should be granted and if a downgrade in risk rating is appropriate. The deferrals are short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current as of December 31, 2019 and are not considered TDRs.
We believe the steps we are taking are necessary to effectively manage our portfolio and assist our customers through the ongoing uncertainty surrounding the duration, impact and government response to the COVID-19 pandemic. In addition, we will continue to work with our customers to determine the best option for repayment of accrued interest on the deferred payments.
Branch Operations. Since the beginning of the pandemic, we have taken various steps to ensure the safety of our customers and our team members by limiting branch activities to appointment only and use of our drive-up facilities, and by encouraging the use of our digital and
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electronic banking channels, all the while adjusting for evolving State and Federal guidelines. On October 13, 2020, we reopened the lobbies of all our branches across our four state footprint with appropriate protective measures to help ensure the safety of our customers and retail banking employees.
Comparison of Financial Condition at September 30, 2020 and June 30, 2020
General.  Total assets and liabilities remained at $3.7 billion and $3.3 billion, at September 30, 2020 compared June 30, 2020, respectively. The cumulative decrease of $82.0 million, or 14.8% in cash and cash equivalents, commercial paper, and securities available for sale was mainly used to fund the $47.8 million, or 61.9% increase in loans held for sale and the $43.7 million, or 1.6% decrease in deposits. The increase in loans held for sale primarily relates to home equity loans originated for sale during the period.
On July 1, 2020, the Company adopted the CECL accounting standard in accordance with ASU 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." The cumulative effect adjustment from this change in accounting standard resulted in an increase in our ACL for loans of $14.8 million, additional deferred tax assets of $3.9 million, additional reserve for unfunded loan commitments of $2.3 million, and a reduction to retained earnings of $13.2 million. In addition, an ACL for commercial paper was established for $250,000 with a deferred tax asset of $58,000. The adoption of this ASU did not have an effect on available for sale debt securities for the three months ended September 30, 2020.
Cash, cash equivalents, and commercial paper.  Total cash and cash equivalents increased $49.5 million, or 40.7%, to $171.1 million at September 30, 2020 from $121.6 million at June 30, 2020. Commercial paper decreased $100.1 million, or 32.8% to $204.9 million at September 30, 2020 from $305.0 million at June 30, 2020 as a result of the lower interest rate environment. Our investments in commercial paper have short-term maturities and limited exposure of $15.0 million or less per each highly-rated company.
Investments.  Debt securities available for sale decreased $31.4 million, or 24.6%, to $96.2 million at September 30, 2020 from $127.5 million at June 30, 2020. During the three months ended September 30, 2020, $27.3 million of securities matured and $4.6 million of MBS principal payments were received. At September 30, 2020, certificates of deposit in other banks decreased $3.3 million, or 6.0% to $52.4 million compared to $55.7 million at June 30, 2020. The decrease in certificates of deposit in other banks was due to $1.0 million in CD purchases offset by $4.3 million in maturities. All certificates of deposit in other banks are fully insured by the FDIC. We evaluate securities for impairment where there has been a decline in fair value below the amortized cost basis of a security to determine whether there is a credit loss associated with the decline in fair value on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. We do not believe that there were any credit losses at September 30, 2020; therefore, no impairment losses were recorded during the first three months of fiscal 2021. Other investments at cost remained at $39.0 million at September 30, 2020 compared to June 30, 2020. Other investments at cost included FHLB stock, FRB stock, and SBIC investments totaling $23.3 million, $7.4 million, and $8.3 million, respectively.
Loans held for sale. Loans held for sale increased to $125.0 million at September 30, 2020 from $77.2 million at June 30, 2020. The increase was primarily driven by a $28.6 million, or 59.9% increase in HELOCs originated for sale, as well a 50.2% increase in mortgage loans originated for sale of $14.1 million and an increase in SBA loans held for sale of $5.0 million.
Loans.  Total loans receivable remained at $2.8 billion for September 30, 2020 compared to June 30, 2020.
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Commercial and retail consumer loans consist of the following at the dates indicated:
As of Percent of total
September 30, June 30, Change September 30, June 30,
(Dollars in thousands) 2020 2020 $ % 2020 2020
Commercial loans:
Commercial real estate $ 1,068,255  $ 1,052,906  $ 15,349  1.5  % 38.6  % 38.0  %
Construction and development 216,757  215,934  823  0.4  7.8  7.8 
Commercial and industrial 148,413  154,825  (6,412) (4.1) 5.4  5.6 
Equipment finance 250,813  229,239  21,574  9.4  9.1  8.3 
Municipal leases 130,337  127,987  2,350  1.8  4.7  4.6 
PPP loans 80,816  80,697  119  0.1  2.9  2.9 
Total commercial loans 1,895,391  1,861,588  33,803  1.8  68.5  67.2 
Retail consumer loans:
One-to-four family 459,285  473,693  (14,408) (3.0) 16.6  17.1 
HELOCs - originated 135,885  137,447  (1,562) (1.1) 4.9  5.0 
HELOCs - purchased 61,535  71,781  (10,246) (14.3) 2.2  2.6 
Construction and land/lots 78,799  81,859  (3,060) (3.7) 2.8  3.0 
Indirect auto finance 128,466  132,303  (3,837) (2.9) 4.6  4.8 
Consumer 10,035  10,259  (224) (2.2) 0.4  0.4 
Total retail consumer loans 874,005  907,342  (33,337) (3.7) 31.5  32.8 
Total loans $ 2,769,396  $ 2,768,930  $ 466  —  % 100.0  % 100.0  %
Asset Quality. Our overall asset quality metrics continue to demonstrate our commitment to growing and maintaining a loan portfolio with a moderate risk profile; however, we will remain diligent in our review of the portfolio and overall economy as we continue to maneuver through the uncertainty surrounding COVID-19.
Nonperforming assets decreased by $1.7 million, or 10.7% to $14.5 million, or 0.40% of total assets, at September 30, 2020 from $16.3 million, or 0.44% of total assets at June 30, 2020. Nonperforming assets included $14.4 million in nonaccruing loans and $144,000 in REO at September 30, 2020, compared to $15.9 million and $337,000, in nonaccruing loans and REO, respectively, at June 30, 2020. Included in nonperforming loans at September 30, 2020 are $5.3 million of TDR loans of which $4.2 million were current with respect to their modified payment terms. At September 30, 2020, $7.2 million, or 50.3%, of nonaccruing loans were current on their loan payments. Nonperforming loans to total loans was 0.52% at September 30, 2020 and 0.58% at June 30, 2020.
The ratio of classified assets to total assets decreased to 0.73% at September 30, 2020 from 0.84% at June 30, 2020. Classified assets decreased to $26.9 million at September 30, 2020 compared to $31.1 million at June 30, 2020 primarily due to $2.1 million in payoffs and $1.8 million in charge-offs during the quarter.
Our individually evaluated loans are comprised of loans meeting certain thresholds, on nonaccrual status, and all TDRs, whether performing or on nonaccrual status under their restructured terms. Individually evaluated loans may be evaluated for reserve purposes using either the cash flow or the collateral valuation method. As of September 30, 2020, there were $11.4 million loans individually evaluated. For more information on these individually evaluated loans, see Note 6 of the Notes to Consolidated Financial Statements under Item 1 of this report.
Allowance for credit losses.  On July 1, 2020, the Company adopted the CECL accounting standard in accordance with ASU 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." The cumulative effect adjustment from this change in accounting standard resulted in an increase in our ACL for loans of $14.8 million, additional deferred tax assets of $3.9 million, additional reserve for unfunded loan commitments of $2.3 million, and a reduction to retained earnings of $13.2 million. See "Note 1 - Summary of Significant Accounting Policies" and "Note 6 - Loans" for additional details related to the adoption of CECL.
The allowance for credit losses was $43.1 million, or 1.56% of total loans, at September 30, 2020 compared to $28.1 million, or 1.01% of total loans, at June 30, 2020. The allowance for credit losses to gross loans excluding PPP loans was 1.61% at September 30, 2020, compared to 1.04% at June 30, 2020. The overall increase was driven by additional allowance stemming from the Company's adoption of the new CECL accounting standard.
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There was a $950,000 provision for credit losses for the three months ended September 30, 2020, compared to no provision for the corresponding period in fiscal year 2020. The increase in the current quarter provision was primarily driven by changes in the mix of loans. Net loan charge offs totaled $699,000 for the three months ended September 30, 2020, compared to $115,000 for the same period in fiscal year 2020. Net charge offs as a percentage of average loans were 0.10% and 0.02% for the three months ended September 30, 2020 and 2019, respectively.
The allowance as a percentage of nonaccruing loans increased to 299.11% at September 30, 2020 from 176.30% at June 30, 2020.
We believe that the ACL as of September 30, 2020 was adequate to absorb the estimated losses 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 ACL 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. Lastly, a further decline in national and local economic conditions, as a result of the COVID-19 pandemic or other factors, could result in a material increase in the ACL and may adversely affect the Company’s financial condition and results of operations.
Real estate owned. REO decreased $193,000, or 57.3% to $144,000 at September 30, 2020 due to $193,000 in REO sales during the three months ended September 30, 2020.
Deferred income taxes. Deferred income taxes increased $2.9 million, or 17.6%, to $19.2 million at September 30, 2020 from $16.3 million at June 30, 2020. The increase was primarily driven by the the adoption of the CECL standard which resulted in an increase of $4.0 million, which was partially offset by the realization of net operating losses.
Goodwill. Goodwill remained unchanged at $25.6 million at both September 30, 2020 and June 30, 2020.
Other assets. Other assets increased $1.1 million, or 2.2%, to $50.6 million at September 30, 2020 from $49.5 million at June 30, 2020. The increase was primarily driven by operating leases from our equipment finance line of business.
Deposits.  Deposits decreased $43.7 million, or 1.6% during the three months ended September 30, 2020 to $2.7 billion from $2.8 billion at June 30, 2020 primarily due to the planned runoff of $63.7 million brokered deposits partially offset by increases in checking accounts.
The following table sets forth our deposits by type of deposit account as of the dates indicated:
As of Percent of total
September 30, June 30, Change September 30, June 30,
(Dollars in thousands) 2020 2019 $ % 2020 2019
Core deposits:
     Noninterest-bearing accounts $ 458,157  $ 429,901  $ 28,256  6.6  % 16.7  % 15.4  %
     NOW accounts 608,968  582,299  26,669  4.6  % 22.2  % 20.9  %
     Money market accounts 826,970  836,738  (9,768) (1.2) % 30.2  % 30.0  %
     Savings accounts 202,787  197,676  5,111  2.6  % 7.5  % 7.1  %
Core deposits 2,096,882  2,046,614  50,268  2.5  % 76.5  % 73.5  %
Certificates of deposit 645,164  739,142  (93,978) (12.7) % 23.5  % 26.5  %
Total $ 2,742,046  $ 2,785,756  $ (43,710) (1.6) % 100.0  % 100.0  %
Borrowings.  Borrowings remained at $475.0 million at September 30, 2020 compared to June 30, 2020. At September 30, 2020 all FHLB advances had maturities of seven years or more (but were callable in less than two years) with a weighted average interest rate of 1.39%.
Equity.  Stockholders' equity at September 30, 2020 decreased $7.9 million, or 1.9% to $400.4 million from $408.3 million at June 30, 2020. Changes within stockholders' equity included $5.8 million in net income and $506,000 in stock-based compensation, offset by $13.4 million related to the adoption of the new CECL accounting standard and $1.1 million related to cash dividends declared. As of September 30, 2020, HomeTrust Bank and the Company were considered "well capitalized" in accordance with their regulatory capital guidelines and exceeded all regulatory capital requirements.
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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 September 30,
2020 2019
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)
$ 2,875,432  $ 28,902  4.02  % $ 2,749,635  $ 32,551  4.74  %
Commercial paper and deposits in other banks 424,170  881  0.83  % 363,123  2,253  2.48  %
Securities available for sale 106,268  528  1.99  % 138,709  896  2.58  %
Other interest-earning assets(3)
38,946  448  4.61  % 45,710  832  7.28  %
Total interest-earning assets 3,444,816  30,759  3.57  % 3,297,177  36,532  4.43  %
Other assets 251,648  264,375 
Total assets 3,696,464  3,561,552 
Liabilities and equity:
Interest-bearing deposits:
Interest-bearing checking accounts 560,481  397  0.28  % 441,524  319  0.29  %
Money market accounts 825,545  550  0.27  % 718,981  1,761  0.98  %
Savings accounts 200,543  37  0.07  % 172,393  52  0.12  %
Certificate accounts 689,709  2,269  1.32  % 744,956  3,721  2.00  %
Total interest-bearing deposits 2,276,278  3,253  0.57  % 2,077,854  5,853  1.13  %
Borrowings 475,000  1,687  1.42  % 683,413  3,321  1.94  %
  Total interest-bearing liabilities 2,751,278  4,940  0.72  % 2,761,267  9,174  1.33  %
Noninterest-bearing deposits 484,336  326,105 
Other liabilities 59,935  63,101 
Total liabilities 3,295,549  3,150,473 
Stockholders' equity 400,915  411,079 
Total liabilities and stockholders' equity $ 3,696,464  $ 3,561,552 
Net earning assets $ 693,538    $ 535,910 
Average interest-earning assets to
average interest-bearing liabilities 125.21  % 119.41  %
Tax-equivalent:
Net interest income $ 25,819  $ 27,358 
Interest rate spread 2.85  % 3.10  %
Net interest margin(4)
3.00  % 3.32  %
Non-tax-equivalent:
Net interest income $ 25,509  $ 27,073 
Interest rate spread 2.82  % 3.07  %
Net interest margin(4)
2.96  % 3.28  %
(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 $310 and $285 for the three months ended September 30, 2020
and 2019, respectively, calculated based on a combined federal and state tax rate of 24%.
(3) The average other interest-earning assets consist of FRB stock, FHLB stock, and SBIC investments.
(4) Net interest income divided by average interest-earning assets.
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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 September 30, 2020
Compared to
Three Months Ended September 30, 2019
Increase/
(decrease)
due to 		Total
increase/(decrease)
(Dollars in thousands) Volume Rate
Interest-earning assets:
 Loans receivable(1)
$ 1,488  $ (5,137) $ (3,649)
Commercial paper and deposits in other banks 379  (1,751) (1,372)
Securities available for sale (209) (159) (368)
 Other interest-earning assets (123) (261) (384)
    Total interest-earning assets $ 1,535  $ (7,308) $ (5,773)
Interest-bearing liabilities:
 Interest-bearing checking accounts $ 85  $ (7) $ 78 
 Money market accounts 261  (1,472) (1,211)
 Savings accounts 
9  (24) (15)
 Certificate accounts (276) (1,176) (1,452)
 Borrowings (1,013) (621) (1,634)
    Total interest-bearing liabilities (934) (3,300) (4,234)
Net increase (decrease) in tax equivalent interest income $ 2,469  $ (4,008) $ (1,539)
__________
(1) Interest income used in the average interest earned and yield calculation includes the tax equivalent adjustment of $310 and $285 for the three months ended September 30, 2020 and 2019, respectively, calculated based on a combined federal and state income tax rate of 24%.
Comparison of Results of Operation for the Three Months Ended September 30, 2020 and 2019
General.  During the three months ended September 30, 2020, net income decreased 34.7% to $5.8 million compared to $8.8 million for the three months ended September 30, 2019. The Company's diluted earnings per share decreased to $0.35 for the three months ended September 30, 2020 compared to $0.49 for the same period in fiscal 2020. First quarter earnings continue to be negatively impacted by an economy weakened by COVID-19 as well as a lower interest rate margin due to the decrease in interest rates over the past year.
Net Interest Income. Net interest income decreased to $25.5 million for the three months ended September 30, 2020, compared to $27.1 million for the comparative period in fiscal 2020. The $1.6 million, or 5.8% decrease was due to a $5.8 million decrease in interest and dividend income primarily driven by lower rates on loans and commercial paper as a result of lower federal funds and other market interest rates, which was partially offset by a $4.2 million decrease in interest expense.
Average interest-earning assets increased $147.6 million, or 4.5% to $3.4 billion for the three months ended September 30, 2020. The average balance of total loans receivable increased by $125.8 million, or 4.6% compared to the same quarter last year due to organic loan growth and PPP loan originations. The average balance of commercial paper and deposits in other banks increased $61.0 million, or 16.8% driven by increases in commercial paper investments as a result of the Company's increased liquidity between the periods. Our investments in commercial paper have short-term maturities and limited exposure of $15.0 million or less per each highly-rated company. The overall increase in interest-earning assets was partially funded by a $158.2 million, or 48.5% increase in average noninterest-bearing deposits partially offset by a $10.0 million, or 0.4% decrease in total interest-bearing liabilities as compared to the same period last year. Net interest margin (on a fully taxable-equivalent basis) for the three months ended September 30, 2020 decreased to 3.00% from 3.32% for the same period a year ago.
Total interest and dividend income decreased $5.8 million, or 16.0% for the three months ended September 30, 2020 as compared to the same period last year, which was primarily driven by a $3.7 million, or 11.4% decrease in loan interest income, a $1.4 million, or 60.9% decrease in interest income from commercial paper and deposits in other banks, a $384,000, or 46.2% decrease in interest income on other interest-
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earning assets, and a $368,000, or 41.1% decrease in interest income on securities available for sale. The lower interest income in each category was primarily driven by the decrease in yields caused by the significant reduction in current market rates. Average loan yields decreased 72 basis points to 4.02% for the three months ended September 30, 2020 from 4.74% in the corresponding period last year. Average yields on commercial paper and deposits in other banks decreased 165 basis points to 0.83% for the three months ended September 30, 2020 from 2.48% in the corresponding quarter last year.
Total interest expense decreased $4.2 million, or 46.2% for the three months ended September 30, 2020 compared to the same period last year. The decrease was driven by a $2.6 million, or 44.4% decrease in interest expense on deposits and a $1.6 million, or 49.2% decrease in interest expense on borrowings. Average interest-bearing deposits for the three months ended September 30, 2020 increased $198.4 million, or 9.6%, but was more than offset by the corresponding cost of funds decrease of 56 basis points down to 0.57% compared to 1.13%. Average borrowings for the three months ended September 30, 2020 decreased $208.4 million, or 30.5% along with a 52 basis point decrease in the average cost of borrowings compared to the same period last year. The increase in average deposits (interest and noninterest-bearing) was due to successful deposit gathering campaigns and funds from PPP loans and other government stimuli. The decrease in the average cost of borrowing was driven by the lower federal funds rate during the current quarter compared to the prior year. The overall average cost of funds decreased 61 basis points to 0.72% for the current quarter compared to 1.33% in the same quarter last year due primarily to the impact of the lower amount of borrowings and rates.
Provision for Credit Losses. During the three months ended September 30, 2020 there was a $950,000 provision for credit losses compared to no provision for the corresponding quarter of fiscal 2020. The increase in the current quarter provision was primarily driven by changes in the mix of loans. Net loan charge offs totaled $699,000 for the three months ended September 30, 2020, compared to $115,000 for the same period in fiscal year 2020. Net charge offs as a percentage of average loans were 0.10% and 0.02% for the three months ended September 30, 2020 and 2019, respectively.
See "Comparison of Financial Condition - Asset Quality" for additional details.
Noninterest Income.  Noninterest income increased $979,000, or 12.8% to $8.6 million for the three months ended September 30, 2020 from $7.7 million for the same period in the previous year primarily due to a $1.0 million, or 45.5% increase in gain on the sale of loans, a $853,000, or 63.7% increase in other noninterest income, partially offset by a $408,000, or 46.3% decrease in loan income and fees and a $346,000, or 14.2% decrease in service charges and fees on deposit accounts. The increase in gain on the sale of loans was driven by an increase in sales of mortgage loans, home equity loans, and SBA loans. There were $96.0 million of residential mortgage loans originated for sale which were sold with gains of $2.2 million compared to $55.2 million sold and gains of $1.3 million in the corresponding quarter in the prior year. During the three months ended September 30, 2020, $15.1 million of the guaranteed portion of SBA commercial loans were sold with gains of $1.0 million compared to $12.7 million sold and gains of $1.0 million in the corresponding quarter in the prior year. In addition, $20.0 million of home equity loans were sold during the quarter for a gain of $100,000 compared to no sales in the corresponding quarter in the prior year. The increase in other noninterest income primarily related to operating lease income from the equipment finance line of business. The decrease in loan income and fees is primarily a result of lower fees from our adjustable rate conversion program and prepayment fees on equipment finance loans. The decrease in service charges on deposit accounts was a result of fewer transactions as customers have decreased spending during the pandemic.
Noninterest Expense.  Noninterest expense for the three months ended September 30, 2020 increased $2.5 million, or 10.5% to $26.0 million compared to $23.5 million for the three months ended September 30, 2019. The increase was primarily due to a $1.3 million, or 9.3% increase in salaries and employee benefits as a result of new positions, mortgage loan origination incentives, and annual salary increases; a $1.1 million, or 35.9% increase in other expenses, mainly driven by depreciation from our equipment finance line of business; a $511,000, or 100% increase in deposit insurance premiums as a result of credits being issued by the FDIC in the prior year period, and a $283,000, or 14.0% increase in computer services. Partially offsetting these increases was a cumulative decrease of $716,000, or 16.9% in net occupancy expense; marketing and advertising expense; telephone, postage, and supplies expense; and core deposit intangible amortization for the three months ended September 30, 2020 compared to the same period last year.
Income Taxes. The Company's income tax expense for the three months ended September 30, 2020 decreased $951,000, or 39.7% to $1.4 million from $2.4 million. The effective tax rate for the three months ended September 30, 2020 and 2019 was 20.1% and 21.4%, respectively.
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 September 30, 2020, the Bank had an available borrowing capacity of $110.6 million with the FHLB of Atlanta, a $108.5 million line of credit with the FRB and a line of credit with each of three unaffiliated banks totaling $100.0 million. At September 30, 2020, we had $475.0 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
45

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 September 30, 2020 brokered deposits totaled $79.5 million, or 2.9% of total deposits compared to $143.2 million, or 5.1% of total deposits at June 30, 2020.
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 September 30, 2020, the Company (on an unconsolidated basis) had liquid assets of $2.7 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 September 30, 2020, the total approved loan commitments and unused lines of credit outstanding amounted to $235.0 million and $396.5 million, respectively, as compared to $199.4 million and $398.8 million, respectively, as of June 30, 2020. Certificates of deposit scheduled to mature in one year or less at September 30, 2020, totaled $588.2 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 three months of fiscal 2021, cash and cash equivalents increased $49.5 million, or 40.7%, to $171.1 million as of September 30, 2020 from $121.6 million as of June 30, 2020. Cash provided by investing activities was $150.2 million while cash used in operating activities and financing activities was $55.8 million and $44.9 million, respectively. Primary sources of cash for the three months ended September 30, 2020 included a $100.4 million in net principal repayments of commercial paper, $27.3 million in maturing securities available for sale, a decrease in loans of $19.6 million, $4.6 million in principal repayments from mortgage-backed securities, and $3.3 million in maturities of certificates of deposit in other banks, net of purchases. Primary uses of cash during the period included a $47.8 million increase in loans held for sale, $43.7 million decrease in deposits, $2.9 million in purchases of operating lease equipment, $1.8 million in purchases of premises and equipment, and $1.1 million in cash dividends. 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 three months ended September 30, 2020, we engaged in no off-balance sheet transactions likely to have a material effect on our financial condition, results of operations or cash flows.
A summary of our off-balance sheet commitments to extend credit at September 30, 2020, is as follows (in thousands):
Undisbursed portion of construction loans $ 130,561 
Commitments to make loans 104,441 
Unused lines of credit 396,467 
Unused letters of credit 7,768 
Total loan commitments $ 639,237 
Capital Resources
At September 30, 2020, stockholders' equity totaled $400.4 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, 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.
46

HomeTrust Bancshares, Inc. and the Bank each exceeded all regulatory capital requirements as of September 30, 2020. 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 September 30, 2020 under applicable regulatory requirements.
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 September 30, 2020
Common Equity Tier I Capital to Risk-Weighted Assets $ 380,470  11.71  % $ 146,201  4.50  % $ 211,180  6.50  %
Tier I Capital (to Total Adjusted Assets) $ 380,470  10.35  % $ 147,038  4.00  % $ 183,798  5.00  %
Tier I Capital (to Risk-weighted Assets) $ 380,470  11.71  % $ 194,935  6.00  % $ 259,914  8.00  %
Total Risk-based Capital (to Risk-weighted Assets)
$ 409,184  12.59  % $ 259,914  8.00  % $ 324,892  10.00  %
As of June 30, 2020            
Common Equity Tier I Capital to Risk-Weighted Assets $ 374,437  11.26  % $ 149,614  4.50  % $ 216,109  6.50  %
Tier I Capital (to Total Adjusted Assets) $ 374,437  10.26  % $ 146,047  4.00  % $ 182,559  5.00  %
Tier I Capital (to Risk-weighted Assets) $ 374,437  11.26  % $ 199,485  6.00  % $ 265,980  8.00  %
Total Risk-based Capital (to Risk-weighted Assets)
$ 402,964  12.12  % $ 265,980  8.00  % $ 332,476  10.00  %
HomeTrust Bank:            
As of September 30, 2020            
Common Equity Tier I Capital to Risk-Weighted Assets $ 369,672  11.39  % $ 146,073  4.50  % $ 210,995  6.50  %
Tier I Capital (to Total Adjusted Assets) $ 369,672  10.06  % $ 147,042  4.00  % $ 183,803  5.00  %
Tier I Capital (to Risk-weighted Assets) $ 369,672  11.39  % $ 194,764  6.00  % $ 259,686  8.00  %
Total Risk-based Capital (to Risk-weighted Assets)
$ 398,386  12.27  % $ 259,686  8.00  % $ 324,607  10.00  %
As of June 30, 2020            
Common Equity Tier I Capital to Risk-Weighted Assets $ 362,841  10.91  % $ 149,608  4.50  % $ 216,100  6.50  %
Tier I Capital (to Total Adjusted Assets) $ 362,841  9.94  % $ 146,010  4.00  % $ 182,512  5.00  %
Tier I Capital (to Risk-weighted Assets) $ 362,841  10.91  % $ 199,477  6.00  % $ 265,969  8.00  %
Total Risk-based Capital (to Risk-weighted Assets)
$ 391,368  11.77  % $ 265,969  8.00  % $ 332,461  10.00  %
In addition to the minimum CET1, Tier 1 and total risk-based capital ratios, both HomeTrust Bancshares, Inc. and the Bank have to maintain a capital conservation buffer consisting of additional CET1 capital of more than 2.5% 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. At September 30, 2020, the conservation buffer was 4.59% and 4.27% for HomeTrust Bancshares, Inc. and the Bank, respectively.
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 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 2020 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 September 30, 2020, 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 September 30, 2020, 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, on July 1, 2020, the Company adopted the CECL accounting standard. In connection with the adoption of CECL, the Company implemented relevant changes and enhancements to its internal control environment and processes related to estimating credit losses in accordance with the standard. There were no other changes in the Company's internal control over financial reporting that occurred during the quarter ended September 30, 2020 that materially affected, or are reasonably likely to materially affect, the Company’s 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 9 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 2020 Form 10-K.
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds
(a) Not applicable
(b) Not applicable
(c) Not applicable
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
July 1 - July 31, 2020 —  $ —  —  851,004 
August 1 - August 31, 2020 —  —  —  851,004 
September 1 - September 30, 2020 —  —  —  851,004 
Total —  $ —  —  851,004 
On April 2, 2020, the Company announced that its Board of Directors had authorized the repurchase of up to 851,004 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.
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 (a)
3.2 (b)
3.3 (c)
4.1 (b)
4.2 (d)
4.3

(e)
10.1 (f)
10.2 (g)
10.3 (g)
10.3A (h)
10.3B (i)
10.4

(g)
10.5 (g)
10.6 (a)
10.7 (a)
10.7A (a)
10.7B (a)
10.7C (a)
10.7D (a)
10.7E

(a)
10.7F (a)
10.7G (a)
10.7H (a)
10.7I (j)
10.8 (a)
10.8A (a)
49

10.8B (a)
10.8C (a)
10.8D (a)
10.8E (a)
10.8F (a)
10.8G (a)
10.9 (a)
10.10 (a)
10.11 (a)
10.12 (k)
10.13 (l)
10.14 (l)
10.15 (l)
10.16 (l)
10.17 (l)
10.18 Reserved
10.19 Reserved
10.20 (m)
10.21 (m)
10.22 (m)
10.23 (m)
10.24 (m)
10.25 (m)
10.26

(n)
10.27 (o)
10.28 (g)
10.29 (p)
10.30 (q)
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 September 30, 2020, formatted in Extensible Business Reporting Language (XBRL): (a) Consolidated Balance Sheets; (b) Consolidated Statements of Income; (c) Consolidated Statements of Comprehensive Income; (d) Consolidated Statements of Changes in Stockholders' Equity; (e) Consolidated Statements of Cash Flows; and (f) Notes to Consolidated Financial Statements. 101
(a)Filed as an exhibit to HomeTrust Bancshares's Registration Statement on Form S-1 (File No. 333-178817) filed on December 29, 2011.
(b)Filed as an exhibit to HomeTrust Bancshares's Current Report on Form 8-K filed on September 25, 2012 (File No. 001-35593).
(c)Filed as an exhibit to HomeTrust Bancshares's Current Report on Form 8-K filed on May 1, 2018 (File No. 001-35593).
(d)Filed as an exhibit to HomeTrust Bancshares's Current Report on Form 8-K filed on August 31, 2015 (File No. 001-35593).
(e)Filed as an exhibit to HomeTrust Bancshares’s Current Report on Form 8-K filed on August 21, 2018 (File No. 001-35593).
50

(f)Filed as an exhibit to HomeTrust Bancshares's Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 (File No. 001-35593).
(g)Filed as an exhibit to HomeTrust Bancshares's Current Report on Form 8-K filed on September 11, 2018 (File No. 001-35593).
(h)Filed as an exhibit to HomeTrust Bancshares’s Current Report on Form 8-K filed on September 25, 2018 (File No. 001-35593.
(i)Filed as an exhibit to HomeTrust Bancshares's Current Report on Form 8-K filed on October 28, 2020 (File No. 001-35593).
(j)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.
(k)Attached as Appendix A to HomeTrust Bancshares's definitive proxy statement filed on December 5, 2012 (File No. 001-35593).
(l)Filed as an exhibit to HomeTrust Bancshares's Registration Statement on Form S-8 (File No. 333-186666) filed on February 13, 2013.
(m)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).
(n)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).
(o)Filed as an exhibit to HomeTrust Bancshares's Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 (File No. 001-35593).
(p)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).
(q)Filed as an exhibit to HomeTrust Bancshares's Quarterly Report on Form 10-Q for the quarter ended December 31, 2018 (File No. 001-35593).

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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: November 6, 2020 By: /s/ Dana L. Stonestreet
Dana L. Stonestreet
Chairman, President and CEO
(Duly Authorized Officer)
Date: November 6, 2020 By: /s/ Tony J. VunCannon
Tony J. VunCannon
Executive Vice President, CFO, Corporate Secretary and Treasurer
(Principal Financial and Accounting Officer)

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