10q10k10q10k.net

What changed in HomeTrust Bancshares, Inc.'s 10-K — 2022 vs 2023

vs

Paragraph-level year-over-year comparison of HomeTrust Bancshares, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+369 added−330 removedSource: 10-K (2023-09-11) vs 10-K (2022-09-12)

Top changes in HomeTrust Bancshares, Inc.'s 2023 10-K

369 paragraphs added · 330 removed · 271 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

77 edited+23 added−7 removed82 unchanged
Biggest changeThe Bank’s relationship with its depositors and borrowers is regulated by federal consumer protection laws. The CFPB issues regulations under those laws that the Bank must comply with. The Bank’s relationship with its depositors and borrowers is also regulated by state laws with respect to certain matters, including the enforceability of loan documents.
Biggest changeThe Bank’s relationship with its depositors and borrowers is also regulated by state laws with respect to certain matters, including the enforceability of loan documents. The following is a brief description of certain laws and regulations applicable to HomeTrust Bancshares, Inc. and the Bank.
During these examinations, the examiners assess compliance with state and federal banking regulations and the safety and soundness standards on such matters as loan underwriting and documentation, asset quality, earnings standards, internal controls and audit systems, interest rate risk exposure, and employee compensation and benefits. Any institution that fails to comply with these standards must submit a compliance plan.
During these examinations, the examiners assess compliance with state and federal banking regulations and the safety and soundness standards on matters such as loan underwriting and documentation, asset quality, earnings standards, internal controls and audit systems, interest rate risk exposure, and employee compensation and benefits. Any institution that fails to comply with these standards must submit a compliance plan.
A bank holding company, except for certain “well-capitalized” and highly rated bank holding companies, is required to give the Federal Reserve prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding twelve months, is equal to 10% or more of its consolidated net worth.
A bank holding company, except for certain “well-capitalized” and highly rated bank holding companies, is required to give the Federal Reserve prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for 11 the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding twelve months, is equal to 10% or more of its consolidated net worth.
Other than an investor’s own Internet access charges, we make available free of charge through our website our Annual Report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after we have electronically filed such material with, or furnished such material to, the SEC.
Other than an investor’s own Internet access charges, we make available free of charge through our website our Annual Report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after we have electronically filed such material with, or furnished such material to, the SEC. 12
We also originate one-to-four family loans, SBA loans, and HELOCs to sell to third parties. In addition, we invest in debt securities issued by United States Government agencies and GSEs, corporate bonds, commercial paper and certificates of deposit insured by the FDIC. We offer a variety of deposit accounts for individuals, businesses, and nonprofit organizations.
We also originate one-to-four family loans, SBA loans, and HELOCs to sell to third parties. In addition, we invest in debt securities issued by United States Government agencies and GSEs, municipal bonds, corporate bonds, commercial paper and certificates of deposit insured by the FDIC. We offer a variety of deposit accounts for individuals, businesses, and nonprofit organizations.
Accordingly, the information set forth in this Annual Report on Form 10-K (“Form 10-K”), including the audited consolidated financial statements and related data, relates primarily to the Bank and its subsidiary. As a North Carolina state-chartered bank, and member of the Federal Reserve, the Bank's primary regulators are the NCCOB and the Federal Reserve.
Accordingly, the information set forth in this Annual Report on Form 10-K (“Form 10-K”), including the audited consolidated financial statements and related data, relates primarily to the Bank and its subsidiary. As a North Carolina state-chartered bank, and member of the FRB, the Bank's primary regulators are the NCCOB and the Federal Reserve.
We believe that a sense of belonging is essential for providing a work environment where everyone can perform their very best. We are committed to fostering an environment that encourages diverse viewpoints, backgrounds and experiences and with the support of our Board of Directors, we continue to explore additional diversity, equity and inclusion efforts.
We believe that a sense of belonging is essential to providing a work environment where everyone can perform their very best. We are committed to fostering an environment that encourages diverse viewpoints, backgrounds and experiences and with the support of our Board of Directors, we continue to explore additional diversity, equity and inclusion efforts.
The Federal Reserve policy statement also indicates that it would be inappropriate for a company experiencing serious financial problems to borrow funds to pay dividends. As described above under "Regulation of HomeTrust Bank - Current Capital Requirements for HomeTrust Bank," the capital conservation buffer requirement can also restrict the ability of HomeTrust Bancshares, Inc. and the Bank to pay dividends.
The Federal Reserve policy statement also indicates that it would be inappropriate for a company experiencing serious financial problems to borrow funds to pay dividends. As described above under "Regulation of HomeTrust Bank – Capital Requirements for HomeTrust Bank," the capital conservation buffer requirement can also restrict the ability of HomeTrust Bancshares, Inc. and the Bank to pay dividends.
Further, we do not invest in securities which are not rated investment grade. HOW WE ARE REGULATED General. HomeTrust Bancshares, Inc. is subject to examination and supervision by, and is required to file certain reports with, the Federal Reserve. HomeTrust Bancshares, Inc. is also subject to the rules and regulations of the SEC under the federal securities laws.
Further, we do not invest in securities which are not rated investment grade. 7 HOW WE ARE REGULATED General. HomeTrust Bancshares, Inc. is subject to examination and supervision by, and is required to file certain reports with, the Federal Reserve. HomeTrust Bancshares, Inc. is also subject to the rules and regulations of the SEC under the federal securities laws.
As a bank holding company, HomeTrust Bancshares, Inc. is subject to the minimum regulatory capital requirements established by the Federal Reserve regulation, which generally are the same as the capital requirements for the Bank. These capital requirements include provisions that might impact the ability of the Company to pay dividends to its stockholders or repurchase its shares.
As a bank holding company, HomeTrust Bancshares, Inc. is subject to the minimum regulatory capital requirements established by Federal Reserve regulation, which generally are the same as capital requirements for the Bank. These capital requirements include provisions that might impact the ability of the Company to pay dividends to stockholders or repurchase shares.
Currently, assessment rates (inclusive of certain possible adjustments) for an institution with total assets of less than $10.0 billion range from 1.5 to 30.0 basis points of each institution’s total average consolidated assets less average tangible equity (subject to upward adjustment for certain debt).
Currently, assessment rates (inclusive of certain possible adjustments) 8 for an institution with total assets of less than $10.0 billion range from 1.5 to 30.0 basis points of each institution’s total average consolidated assets less average tangible equity (subject to upward adjustment for certain debt).
This “culture model” helps to ensure the Bank workplace remains attentive to: 6 • increased collaboration and productivity; • attracting and retaining the best talent; • winning more business in a "look-alike" world; and • establishing clarity when more workers are remote or hybrid.
This “culture model” helps to ensure the Bank workplace remains attentive to: • increased collaboration and productivity; • attracting and retaining the best talent; • winning more business in a "look-alike" world; and • establishing clarity when more workers are remote or hybrid.
The business activities of HomeTrust Bancshares, Inc. are generally limited to those activities permissible for bank holding companies under Section 4(c)(8) of the BHCA, those permitted for a financial holding company under Section 4(f) of the BHCA, and 11 certain additional activities authorized by regulation.
The business activities of HomeTrust Bancshares, Inc. are generally limited to those activities permissible for bank holding companies under Section 4(c)(8) of the BHCA, those permitted for a financial holding company under Section 4(f) of the BHCA, and certain additional activities authorized by regulation.
Community Service Leave ("CSL") is awarded annually to employees in their volunteerism with charitable organizations of their choice throughout the year. All employees are eligible for CSL and may use it throughout the calendar year to participate in eligible community service activities.
Community Service Leave ("CSL") is awarded annually to employees to foster volunteerism with charitable organizations of their choice throughout the year. All employees are eligible for CSL and may use it throughout the calendar year to participate in eligible community service activities.
The Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), is a federal statute that generally imposes strict liability on all prior and present “owners and operators” of sites containing hazardous waste.
The Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), is a federal statute that generally imposes strict liability on all prior and present “owners and operators” of sites containing 10 hazardous waste.
Any such institution must submit a capital restoration plan and, until such plan is approved may not increase its assets, acquire another depository institution, establish a branch or engage in any new activities, or make capital distributions. As of June 30, 2022, HomeTrust Bank met the requirements to be “well capitalized” and met the capital conservation buffer requirement.
Any such institution must submit a capital restoration plan and, until such plan is approved, may not increase its assets, acquire another depository institution, establish a branch or engage in any new activities, or make capital distributions. As of June 30, 2023, HomeTrust Bank met the requirements to be “well capitalized” and met the capital conservation buffer requirement.
These actions resulted in mergers between six established banks and one de novo bank located in Tryon, Shelby, Eden, Lexington, Cherryville and Forest City, North Carolina. Since 2013, we have entered seven attractive markets through various acquisitions and new office openings, as well as expanded our product lines.
These actions resulted in mergers between six established banks and one de novo bank located in Tryon, Shelby, Eden, Lexington, Cherryville and Forest City, North Carolina. Since 2013, we have entered eight attractive markets through various acquisitions and new office openings, as well as expanded our product lines.
The following discussion of federal taxation is intended only to summarize material federal income tax matters and is not a comprehensive description of the tax rules applicable to HomeTrust Bancshares and HomeTrust Bank. See “Note 11 – Income Taxes" in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K for additional information.
The following discussion of federal taxation is intended only to summarize material federal income tax matters and is not a comprehensive description of the tax rules applicable to HomeTrust Bancshares and HomeTrust Bank. See “Note 12 – Income Taxes" in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K for additional information.
As a multi-state bank, we pay taxes on the portion of revenue generated within the state. In 2022 and 2021 the tax rate was 4.5%. Tennessee . The state of Tennessee requires banks to file a franchise and excise tax form for financial institutions.
As a multi-state bank, we pay taxes on the portion of revenue generated within the state. In 2023 and 2022 the tax rate was 4.5%. Tennessee . The state of Tennessee requires banks to file a franchise and excise tax form for financial institutions.
The excise tax is based on the taxable income (as defined by the state), the portion of revenue generated in the state, and the applicable excise tax, which was 6.5% in 2022 and 2021. Virginia . The state of Virginia requires banks to file a bank franchise tax.
The excise tax is based on the taxable income (as defined by the state), the portion of revenue generated in the state, and the applicable excise tax, which was 6.5% in 2023 and 2022. Virginia . The state of Virginia requires banks to file a bank franchise tax.
Commercial loan relationships in excess of $7.5 million in total credit exposure must be approved by our Senior Loan Committee, which is comprised of the Chief Credit Officer (Senior Credit Officer may substitute) and the Commercial Banking Group Executive (Chief Executive Officer may substitute).
Commercial loan relationships in excess of $7.5 million in total credit exposure must be approved by our Senior Loan Committee, which is comprised of the Director of Commercial Credit (Chief Credit Officer or Senior Credit Officer may substitute) and the Commercial Banking Group Executive (Chief Executive Officer may substitute).
Item 1. Business 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. As a bank holding company and financial holding company, HomeTrust Bancshares, Inc. is regulated by the Federal Reserve.
Item 1. Business Overview HomeTrust Bancshares, Inc., a Maryland corporation, was formed for the purpose of becoming the holding company for HomeTrust Bank in connection with the Bank’s conversion from mutual to stock form, which was completed on July 10, 2012. As a bank holding company and financial holding company, we are regulated by the Federal Reserve.
The tax is based on the portion of capital deployed within the state and county level (as defined by the state) and taxed at $1 per $100 of taxable value. The Company is subject to taxation via nexus in several other states where we do not have physical locations.
The tax is based on the portion of capital deployed within the state and county level (as defined by the state) and was taxed at $1 per $100 of taxable value in 2023 and 2022. The Company is subject to taxation via nexus in several other states where we do not have physical locations.
As a reflection of our strategic goal to make the Bank a best place to work, the Company recently made a significant investment in refreshing our culture model to create organizational clarity via a targeted, robust program that focuses on employee behaviors which support our aspirational corporate values.
As a reflection of our strategic goal to make the Bank a best place to work, in the prior year the Company made a significant investment in refreshing our culture model to create organizational clarity via a targeted, robust program that focuses on employee behaviors which support our aspirational corporate values.
These include: • BankGreenville Financial Corporation - one office in Greenville, South Carolina (acquired in July 2013) • Jefferson Bancshares, Inc. - nine offices across East Tennessee (acquired in May 2014) • Commercial LPO in Roanoke, Virginia (opened in July 2014) • Bank of Commerce - one office in Charlotte, North Carolina (acquired in July 2014) • 10 Bank of America Branch Offices - nine in southwest Virginia, one in Eden, North Carolina (acquired in November 2014) • Commercial LPO in Raleigh, North Carolina (opened in November 2014) and later converted into a full service branch (converted in April 2017) 5 • United Financial of North Carolina, Inc. - municipal lease company headquartered in Fletcher, North Carolina (acquired in December 2016) • TriSummit Bancorp, Inc. - six offices in East Tennessee (acquired in January 2017) • Began origination and sales of SBA loans through our new SBA line of business (September 2017) • De novo branch in Cary, North Carolina (opened in March 2018) • Began equipment finance line of business (May 2018) • Began originations of HELOCs to be pooled and sold (March 2019) • De novo branch in Cornelius, North Carolina (opened in April 2022) • Quantum Capital Corp. - three offices in Atlanta, Georgia (anticipated closing in January 2023) By expanding our geographic footprint and hiring local experienced talent, we have built a foundation that allows us to focus on organic growth, while maintaining "Our Commitment to the Customer Experience" that has differentiated our brand and characterized our success to date.
These include: • BankGreenville Financial Corporation - one office in Greenville, South Carolina (acquired in July 2013) • Jefferson Bancshares, Inc. - nine offices across East Tennessee (acquired in May 2014) • Commercial LPO in Roanoke, Virginia (opened in July 2014) • Bank of Commerce - one office in Charlotte, North Carolina (acquired in July 2014) • 10 Bank of America Branch Offices - nine in southwest Virginia, one in Eden, North Carolina (acquired in November 2014) • Commercial LPO in Raleigh, North Carolina (opened in November 2014) and later converted into a full service branch (converted in April 2017) • United Financial of North Carolina, Inc. - municipal lease company headquartered in Fletcher, North Carolina (acquired in December 2016) • TriSummit Bancorp, Inc. - six offices in East Tennessee (acquired in January 2017) • Began origination and sales of SBA loans through our new SBA line of business (September 2017) • De novo branch in Cary, North Carolina (opened in March 2018) • Began equipment finance line of business (May 2018) • Began originations of HELOCs to be pooled and sold (March 2019) • De novo branch in Cornelius, North Carolina (opened in April 2022) • Quantum Capital Corp. - two offices in Atlanta, Georgia (acquired in February 2023) By expanding our geographic footprint and hiring local experienced talent, we have built a foundation focused on organic growth while maintaining "Our Commitment to the Customer Experience" that has differentiated our brand and characterized our success to date.
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 11 regional banks in the Federal Home Loan Bank System. Our headquarters is located in Asheville, North Carolina. The Bank was originally formed in 1926.
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 11 regional banks in the FHLB System. Our headquarters is located in Asheville, North Carolina. The Bank was originally formed in 1926.
The franchise tax is based on the portion of revenue generated in the state, the net worth of the Bank, and the applicable franchise tax, which was $0.25 per $100 in 2022 and 2021.
The franchise tax is based on the portion of revenue generated in the state, the net worth of the Bank, and the applicable franchise tax, which was $0.25 per $100 in 2023 and 2022.
All advances from the FHLB are required to be fully secured by sufficient collateral as determined by the FHLB. In addition, all long-term advances are required to provide funds for residential home financing. At June 30, 2022, the Bank held $1.9 million in FHLB stock that was in compliance with the holding requirements.
All advances from the FHLB are required to be fully secured by sufficient collateral as determined by the FHLB. In addition, all long-term advances are required to provide funds for residential home financing. At June 30, 2023, the Bank held $10.1 million in FHLB stock that was in compliance with the holding requirements.
Loans in excess of $15.0 million in total credit exposure must be approved by the Executive Loan Committee comprised of the Chief Executive Officer, Commercial Banking Group Executive, Chief Credit Officer and a Senior Credit Officer not involved with the credit.
Loans in excess of $15.0 million in total credit exposure must be approved by the Executive Loan Committee comprised of the Chief Executive Officer, Commercial Banking Group Executive, Chief Credit Officer, the Director of Commercial Credit and the Senior Credit Officers not involved with the credit.
Regulation of HomeTrust Bank The Bank is subject to regulation and oversight by the NCCOB and the Federal Reserve extending to all aspects of its operations, including but not limited to requirements concerning an allowance for credit losses, lending and mortgage operations, interest rates received on loans and paid on deposits, the payment of dividends to the Company, loans to officers and directors, mergers and acquisitions, capital, and the opening and closing of branches.
Regulation of HomeTrust Bank The Bank is subject to regulation and oversight by the NCCOB and the Federal Reserve extending to all aspects of its operations, including but not limited to requirements concerning an ACL, lending and mortgage operations, interest rates received on loans and paid on deposits, the payment of dividends to the Company, loans to officers and directors, mergers and acquisitions, capital, and the opening and closing of branches.
In connection with its deposit-taking, lending and other activities, the Bank is subject to a number of federal laws designed to protect consumers and promote lending for various purposes.
In connection with its deposit-taking, lending and other activities, the Bank is subject to federal laws designed to protect consumers and promote lending for various purposes.
The guidance provides that the strength of an institution’s lending and risk management practices with respect to such concentrations will be taken into account in supervisory guidance on evaluation of capital adequacy. As of June 30, 2022, HomeTrust Bank’s aggregate recorded loan balances for construction, land development and land loans were 77.6% of regulatory capital.
The guidance provides that the strength of an institution’s lending and risk management practices with respect to such concentrations will be taken into account in supervisory guidance on evaluation of capital adequacy. As of June 30, 2023, HomeTrust Bank’s aggregate recorded loan balances for construction, land development and land loans were 94.3% of regulatory capital.
For additional information regarding the Bank’s required and actual capital levels at June 30, 2022, see “Note 17 – Regulatory Capital Matters” of the Notes to Consolidated Financial Statements included in Item 8 in this report. Federal Home Loan Bank System.
For additional information regarding the Bank’s required and actual capital levels at June 30, 2023, see “Note 18 – Regulatory Capital Matters” of the Notes to Consolidated Financial Statements included in Item 8 in 9 this report. Federal Home Loan Bank System.
At June 30, 2022, we had $16.0 million of net operating loss carryforwards for federal income tax purposes. Corporate Dividends-Received Deduction. HomeTrust Bancshares, Inc. files a consolidated return with the Bank. As a result, any dividends HomeTrust Bancshares, Inc. receives from the Bank will not be included as income to HomeTrust Bancshares, Inc.
At June 30, 2023, we had $13.2 million of net operating loss carryforwards for federal income tax purposes. Corporate Dividends-Received Deduction. HomeTrust Bancshares, Inc. files a consolidated return with the Bank. As a result, any dividends HomeTrust Bancshares, Inc. receives from the Bank will not be included as income to HomeTrust Bancshares, Inc.
Market Areas The Bank has 34 locations across North Carolina, South Carolina, Tennessee, and Virginia, many of which are located in markets experiencing growth rates above the national average.
Market Areas The Bank has over 30 locations across Georgia, North Carolina, South Carolina, Tennessee, and Virginia, many of which are located in markets experiencing growth rates above the national average.
As of June 30, 2022, the Bank's risk-based capital exceeded the required capital contribution buffer.
As of June 30, 2023, the Bank's risk-based capital exceeded the required capital contribution buffer.
HomeTrust Bank is a member of the FHLB of Atlanta, one of 11 regional Federal Home Loan Banks that administer the home financing credit function of financial institutions. The Federal Home Loan Banks are subject to the oversight of the FHFA and each FHLB serves as a reserve or central bank for its members within its assigned region.
HomeTrust Bank is a member of the FHLB of Atlanta, which is one of the 11 regional banks in the FHLB System that administer the home financing credit function of financial institutions. The FHLBs are subject to the oversight of the FHFA and each FHLB serves as a reserve or central bank for its members within its assigned region.
Our Chief Executive Officer and Chief Financial Officer have the basic responsibility for the management of our investment portfolio, subject to the direction and guidance of the Board of Directors. These officers consider various factors when making decisions, including the marketability, maturity and tax consequences of the proposed investment.
Our Chief Executive Officer and Chief Financial Officer are responsible for the management of our investment portfolio, subject to the direction and guidance of the Board of Directors. These officers consider various factors when making decisions, including the marketability, maturity and tax consequences of the proposed investment.
The Bank is subject to a statutory lending limit on aggregate loans to one person or a group of persons combined because of certain relationships and common interests. That limit is generally equal to 15% of unimpaired capital and surplus, which was $57.3 million as of June 30, 2022.
The Bank is subject to a statutory lending limit on aggregate loans to one person or a group of persons combined because of certain relationships and common interests. That limit is generally equal to 15% of unimpaired capital and surplus, which was $74.9 million as of June 30, 2023.
We offer a comprehensive benefits package to our employees and have designed our benefits and compensation programs to attract, retain, motivate and reward employees. We promote the health and wellness of our employees by strongly encouraging work-life balance and a healthy lifestyle.
We offer a comprehensive benefits package to our employees and have designed our benefits and compensation programs to attract, retain, motivate and reward employees. We provide access to financial wellness counseling services and promote the health and wellness of our employees by strongly encouraging work-life balance and a healthy lifestyle.
Federal Securities Law. The stock of HomeTrust Bancshares, Inc. is registered with the SEC under the Exchange Act. HomeTrust Bancshares, Inc. is subject to the information, proxy solicitation, insider trading restrictions, and other requirements of the SEC under the Exchange Act.
The common stock of HomeTrust Bancshares, Inc. is registered with the SEC under the Exchange Act. HomeTrust Bancshares, Inc. is subject to the information, proxy solicitation, insider trading restrictions, and other requirements of the SEC under the Exchange Act.
In addition, at June 30, 2022, HomeTrust Bank’s commercial real estate loans, as defined by the guidance, were 292.3% of regulatory capital. See "Risk Factors - The level of our commercial real estate portfolio may subject us to additional regulatory scrutiny." 10 Community Reinvestment and Consumer Protection Laws.
In addition, at June 30, 2023, HomeTrust Bank’s commercial real estate loans, as defined by the guidance, were 297.1% of regulatory capital. See "Risk Factors – The level of our commercial real estate portfolio may subject us to additional regulatory scrutiny." Community Reinvestment and Consumer Protection Laws.
For a description of the capital regulations, see "Regulation of HomeTrust Bank - Current Capital Requirements for HomeTrust Bank" and “Note 17 – Regulatory Capital Matters” of the Notes to Consolidated Financial Statements included in Item 8 in this report. At June 30, 2022, the HomeTrust Bancshares, Inc. exceeded its minimum regulatory capital requirements under Federal Reserve regulations.
For a description of the capital regulations, see "Regulation of HomeTrust Bank – Capital Requirements for HomeTrust Bank" and “Note 18 – Regulatory Capital Matters” of the Notes to Consolidated Financial Statements included in Item 8 in this report. At June 30, 2023, HomeTrust Bancshares, Inc. exceeded its minimum regulatory capital requirements under Federal Reserve regulations. Federal Securities Law.
Any changes in the extensive regulatory scheme to which HomeTrust Bancshares, Inc. or the Bank is and will be subject, whether by any of the federal banking agencies or Congress, or the North Carolina legislature or NCCOB, could have a material effect on the Company or HomeTrust Bank, and HomeTrust Bancshares, Inc. and the Bank cannot predict what, if any, future actions may be taken by legislative or regulatory authorities or what impact such actions may have.
Any changes in the extensive regulatory scheme to which HomeTrust Bancshares, Inc. and the Bank are subject, whether by any of the federal banking agencies or Congress, the North Carolina legislature or NCCOB, or the legislatures or regulatory agencies of other states, could have a material effect on us, and we cannot predict what, if any, future actions may be taken by legislative or regulatory authorities or what impact such actions may have on us.
The corporate dividends-received deduction is 100%, or 65% in the case of dividends received from corporations with which a corporate recipient does not file a consolidated tax return, depending on the level of stock ownership of the payer of the dividend. State Taxation North Carolina.
The corporate dividends-received deduction is 100%, or 65% in the case of dividends received from corporations with which a corporate recipient does not file a consolidated tax return, depending on the level of stock ownership of the payer of the dividend. State Taxation Georgia. The state of Georgia requires banks to file a bank tax return.
The Federal Home Loan Banks are funded primarily from proceeds derived from the sale of consolidated obligations of the Federal Home Loan Bank System and makes loans or advances to members in accordance with policies and procedures established by the Board of Directors of the FHLB, which are subject to the oversight of the FHFA.
The FHLBs are funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB System and make loans or advances to members in accordance with policies and procedures established by the Board of Directors of the FHLB, which are subject to the oversight of the FHFA.
In addition, provisions of the USA PATRIOT Act require the federal financial institution regulatory agencies to consider the effectiveness of a financial institution's anti-money laundering activities when reviewing mergers and acquisitions. The AMLA, which amends the BSA, was enacted in January 2021.
Violations of these requirements can result in substantial civil and criminal sanctions. In addition, provisions of the USA PATRIOT Act require the federal financial institution regulatory agencies to consider the effectiveness of a financial institution's anti-money laundering activities when reviewing mergers and acquisitions. The AMLA, which amends the BSA, was enacted in January 2021.
CET1 generally consists of common stock and retained earnings. Tier 1 capital generally consists of CET1 and noncumulative perpetual preferred stock. Tier 2 capital generally consists of other preferred stock and subordinated debt meeting certain conditions plus an amount of the allowance for credit losses up to 1.25% of assets.
CET1 generally consists of common stock and retained earnings. Tier 1 capital generally consists of CET1 and noncumulative perpetual preferred stock. Tier 2 capital generally consists of other preferred stock and subordinated debt meeting certain conditions plus an amount of the ACL up to 1.25% of assets. Total capital is the sum of Tier 1 and Tier 2 capital.
We support these initiatives through both financial and people resources in our communities. Collectively, our Bank employees volunteer thousands of hours annually in their local communities, such as helping to build homes and teaching grade school youth how to begin establishing healthy money savings habits. Our Bank employees are making a positive difference in the lives of others every day.
We support these initiatives through both financial and people 5 resources in our communities. Collectively, our Bank employees volunteer thousands of hours annually in their local communities, such as helping to build homes and teaching grade school youth how to begin establishing healthy money savings habits.
While the Act maintains most of the regulatory structure established by the Dodd-Frank Act, it amends certain aspects of the regulatory framework for small depository institutions with assets of less than $10 billion and for large banks with assets of more than $50 billion.
While the Regulatory Relief Act maintains most of the regulatory structure established by the Dodd-Frank Act, it amends certain aspects of the regulatory framework for depository institutions, such as the Bank, with assets of less than $10 billion and for those with assets of more than $50 billion.
In addition, we support our communities through a variety of sponsorships and financial contributions to non-profit agencies across our footprint. We sponsor an annual workplace campaign designed to promote volunteerism and monetary contributions by employees to community agencies they choose to support.
In addition, we support our communities through a variety of sponsorships and financial contributions to non-profit agencies across our footprint, and provide employees with the opportunity to contribute to those organizations through voluntary payroll deductions. We sponsor an annual workplace campaign designed to promote volunteerism and monetary contributions by employees to community agencies they choose to support.
In an effort to open alternative origination sources beyond our physical locations, the Bank positioned itself to partner with fintechs, intentionally selecting an open architecture when converting core banking systems in February 2020 to allow the Bank to quickly integrate fintech partners.
Beyond traditional financial institutions, we also face competition from financial technology companies, or fintechs. In an effort to open alternative origination sources beyond our physical locations, the Bank positioned itself to partner with fintechs, intentionally selecting an open architecture when converting core banking systems in February 2020 to allow the Bank to quickly integrate fintech partners.
At June 30, 2022, the Company had consolidated total assets of $3.5 billion, total deposits of $3.1 billion and stockholders’ equity of $388.8 million. The Company has not engaged in any significant activity other than holding the stock of the Bank.
At June 30, 2023, the Company had consolidated total assets of $4.6 billion, total deposits of $3.6 billion and stockholders’ equity of $471.2 million. The Company has not engaged in any significant activity other than holding the stock of the Bank.
Total capital is the sum of Tier 1 and Tier 2 capital. The CET1 capital ratio, the Tier 1 capital ratio and the total capital ratio are sometimes referred to as the risk-based capital ratios and are determined based on risk-weightings of assets and certain off-balance sheet items that range from 0% to 1,250%.
The CET1 capital ratio, the Tier 1 capital ratio and the total capital ratio are sometimes referred to as the risk-based capital ratios and are determined based on risk-weightings of assets and certain off-balance sheet items that range from 0% to 1,250%. Mortgage servicing and deferred tax assets over designated percentages of CET1 are deducted from capital.
Many of these changes could result in meaningful regulatory changes for community banks such as HomeTrust Bank, and their holding companies. 8 The Regulatory Relief Act, among other matters, expands the definition of qualified mortgages which may be held by a financial institution and simplifies the regulatory capital rules for financial institutions and their holding companies with total consolidated assets of less than $10 billion by instructing the federal banking regulators to establish a single CBLR.
The Regulatory Relief Act, among other matters, expands the definition of qualified mortgages that may be held by a financial institution and simplifies the regulatory capital rules for financial institutions and their holding companies with total consolidated assets of less than $10 billion by instructing the federal banking regulators to establish a single CBLR.
Mortgage servicing and deferred tax assets over designated percentages of CET1 are deducted from capital. Because of our asset size, we were eligible to elect and have elected to permanently opt-out of the inclusion of unrealized gains and losses on available for sale debt and equity securities in our capital calculations.
Because of our asset size, we were eligible to elect and have elected to permanently opt-out of the inclusion of unrealized gains and losses on available for sale debt and equity securities in our capital calculations.
Financial Regulatory Reform. The Dodd-Frank Act, which was enacted in July 2010, imposed various restrictions and an expanded framework of regulatory oversight for financial entities, including depository institutions and their holding companies.
Any such legislation or regulatory changes in the future could adversely affect our operations and financial condition. Financial Regulatory Reform. The Dodd-Frank Act, which was enacted in July 2010, imposed various restrictions and an expanded framework of regulatory oversight for financial entities, including depository institutions and their holding companies.
We believe the opportunity to stay close to our customers gives us a unique position in the banking industry as compared to our larger competitors, and we are committed to continuing to build strong relationships with our employees, customers, and communities for generations to come. Human Capital For more than 90 years, HomeTrust Bank has been an employer of choice.
We believe the opportunity to stay close to our customers gives us a unique position in the banking industry as compared to our larger competitors, and we are committed to continuing to build strong relationships with our employees, customers, and communities for generations to come.
Legislation is introduced from time to time in the United States Congress and the North Carolina legislature that may affect the operations of HomeTrust Bancshares and the Bank. In addition, the regulations that govern us may be amended from time to time. Any such legislation or regulatory changes in the future could adversely affect our operations and financial condition.
Legislation is introduced from time to time in the United States Congress, the North Carolina legislature, and the legislatures of other states that may affect the operations of HomeTrust Bancshares and the Bank. In addition, the regulations that govern us may be amended from time to time.
The SEC has adopted regulations and policies applicable to a registered company under the Exchange Act that seek to increase corporate responsibility, provide for enhanced penalties for accounting and auditing improprieties and protect investors by improving the accuracy and reliability of corporate disclosures in SEC filings.
The SEC has adopted regulations and policies under the Exchange Act that seek to increase corporate responsibility, provide for enhanced penalties for accounting and auditing improprieties and protect investors by improving the accuracy and reliability of corporate disclosures in SEC filings. These regulations and policies include very specific additional disclosure requirements and mandate corporate governance practices. Dividends.
The following is a brief description of certain laws and regulations applicable to HomeTrust Bancshares, Inc. and the Bank. Descriptions of laws and regulations here and elsewhere in this report do not purport to be complete and are qualified in their entirety by reference to the actual laws and regulations.
Descriptions of laws and regulations here and elsewhere in this report do not purport to be complete and are qualified in their entirety by reference to the actual laws and regulations.
The state of North Carolina requires all corporations chartered or doing business in the state to pay a corporate tax rate of 2.5%. 12 If a corporation in North Carolina does business in North Carolina and in one or more other states, North Carolina taxes a fraction of the corporation’s income based on the amount of sales, payroll, and property it maintains within North Carolina.
If a corporation in North Carolina does business in North Carolina and in one or more other states, North Carolina taxes a fraction of the corporation’s income based on the amount of sales, payroll, and property it maintains within North Carolina.
We value and promote diversity and inclusion in every aspect of our business and at every level within the company. We recruit, hire, and promote employees based on their individual ability and experience and in accordance with Affirmative Action and Equal Employment Opportunity laws and regulations.
We recruit, hire, and promote employees based on their individual ability and experience and in accordance with Affirmative Action and Equal Employment Opportunity laws and regulations.
These regulations require disclosure of privacy policies and allow consumers to prevent certain personal information from being shared with non-affiliated parties. The CRA requires that the Federal Reserve assess the Bank's record in meeting the credit needs of the communities it serves, especially low and moderate income neighborhoods.
These regulations require disclosure of privacy policies and allow consumers to prevent certain personal information from being shared with non-affiliated parties. The Community Reinvestment Act of 1977 (“CRA”) requires the appropriate federal bank regulatory agency to assess a bank’s performance under the CRA in meeting the credit needs of the community serviced by the bank, including low- and moderate-income neighborhoods.
We also purchase commercial paper to take advantage of higher short-term returns with relatively low credit risk, yet remain highly liquid. We do not currently participate in hedging programs, stand-alone contracts for interest rate caps, floors or swaps or other activities involving the use of off-balance sheet derivative financial instruments and have no present intention to do so.
Specific to our investment portfolio, we do not currently participate in hedging programs, stand-alone contracts for interest rate caps, floors or swaps or other activities involving the use of off-balance sheet derivative financial instruments and have no present intention to do so.
Commercial and industrial loan competition is primarily from local and regional commercial banks. We believe that we compete effectively because we consistently deliver high-quality, personal service to our customers that results in a high level of customer satisfaction. We attract our deposits through our branch office network, supplementing this funding through brokered deposits as necessary.
Other commercial banks, credit unions, and finance companies provide vigorous competition in consumer lending. Commercial and industrial loan competition is primarily from local and regional commercial banks. We believe that we compete effectively because we consistently deliver high-quality, personal service to our customers that results in a high level of customer satisfaction.
In 2022 we conducted a comprehensive employee engagement survey, with a high-level of employee participation, to gain perspective on what we do well and our opportunities for improvement. In addition, HomeTrust launched a behavior-based set of company culture fundamentals, intended to support the Company's core values and increase overall employee engagement.
In 2023, we conducted a comprehensive employee engagement survey, with a high-level of employee participation, to gain perspective on what we do well and our opportunities for improvement. In addition, HomeTrust continued deepening the understanding of our 33 culture fundamentals which we introduced in late 2022.
Competition We face strong competition in originating loans and in attracting deposits. Competition in originating real estate loans comes primarily from other commercial banks, savings institutions, credit unions, life insurance companies, and mortgage bankers. Other commercial banks, credit unions, and finance companies provide vigorous competition in consumer lending.
Our Bank employees are making a positive difference in the lives of others every day. Competition We face strong competition in originating loans and in attracting deposits. Competition in originating real estate loans comes primarily from other commercial banks, savings institutions, credit unions, life insurance companies, and mortgage bankers.
At new employee orientation, newly hired employees are educated on our core values of personal responsibility, ethical behavior, trust and integrity, caring relationships and teamwork. We place an emphasis on providing regular performance feedback and encourage collaboration across the Company through open dialogue and focused execution while seeking diverse perspectives.
At new employee orientation, newly hired employees are educated on the history of the Company, our vision and our 33 culture fundamentals which outline how we work with our customers, partners, and each other. We place an emphasis on providing regular performance feedback and encourage collaboration across the Company through open dialogue and focused execution while seeking diverse perspectives.
Total credit exposure in a single loan or group of loans to related borrowers exceeding 60% of the Bank’s legal lending limit must be approved by the Bank's Board of Directors. Investment Policy and Procedures The Bank invests in various securities based on investment policies that have been approved by our Board of Directors and adhere to bank regulations.
Investment Policy and Procedures The Bank invests in various securities based on investment policies that have been approved by our Board of Directors and adhere to bank regulations.
These laws and regulations require the Bank to implement policies, procedures, and controls to detect, prevent, and report money laundering and terrorist financing and to verify the identity of their customers. Violations of these requirements can result in substantial civil and criminal sanctions.
The Bank is subject to the BSA and other anti-money laundering laws and regulations, including the USA PATRIOT Act of 2001. These laws and regulations require the Bank to implement policies, procedures, and controls to detect, prevent, and report money laundering and terrorist financing and to verify the identity of their customers.
Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by bank regulators that, if undertaken, could have a direct material effect on the Company's financial statements. 9 Under the capital regulations, the minimum required capital ratios for the Company and the Bank are (i) a CETI capital ratio of 4.50%; (ii) a Tier 1 capital ratio of 6.00%; (iii) a total capital ratio of 8.00%; and (iv) a leverage ratio (the ratio of Tier 1 capital to average total consolidated assets) of 4.00% for all financial institutions.
Under the capital regulations, the minimum required capital ratios for the Company and the Bank are (i) a CETI capital ratio of 4.50%; (ii) a Tier 1 capital ratio of 6.00%; (iii) a total capital ratio of 8.00%; and (iv) a leverage ratio (the ratio of Tier 1 capital to average total consolidated assets) of 4.00%.
We also have a highly competitive suite of cash management services, online/mobile banking, and internal support expertise specific to the needs of small to mid-sized commercial business customers. Beyond traditional financial institutions, we also face competition from financial technology companies, or fintechs.
We believe that we compete for deposits by offering superior service and a variety of deposit accounts at competitive rates. We also have a highly competitive suite of cash management services, online/mobile banking, and internal support expertise specific to the needs of small to mid-sized commercial business customers.
Competition for deposits is principally from other commercial banks, savings institutions, and credit unions located in the same communities, as well as mutual funds and other alternative investments. We believe that we compete for deposits by offering superior service and a variety of deposit accounts at competitive rates.
We attract our deposits through our branch office network, supplementing this funding through brokered deposits as necessary. Competition for deposits is principally from other commercial banks, savings institutions, and credit unions located in the same communities, as well as mutual funds and other alternative investments.
As employees exit the organization, we seek their candid feedback in an effort to improve our processes, practices and overall work environment. We are committed to serving and strengthening the communities in which we live, work and play and believe this commitment fosters strong and rewarding relationships with our clients and community partners.
Collectively, these initiatives are designed to have a teammate first work environment to boost employee morale, engagement, and job satisfaction. We are committed to serving and strengthening the communities in which we live, work and play and believe this commitment fosters strong and rewarding relationships with our clients and community partners.
As of June 30, 2022, we employed 493 full-time employees and 22 part-time employees, for a total of 515 employees. Our employees are located primarily in our four-state geographic footprint: North Carolina - 385, Tennessee - 60, Virginia - 38 and South Carolina - 19. 13 employees are located in other states across the U.S and work remotely.
Human Capital As of June 30, 2023, we employed 532 full-time employees and 24 part-time employees, for a total of 556 employees. Our employees are located primarily in our five-state geographic footprint: North Carolina - 372, Tennessee - 62, Virginia - 39, Georgia - 42 and South Carolina - 32.
The Company's competitive paid time off program gives our employees a chance to step back from their professional commitments which employees may use for vacation, personal use and illness. We believe a strong corporate culture and employee engagement is crucial to the success of the Company.
The Company's competitive paid time off program gives our employees a chance to step back from their professional commitments, which employees may use for vacation, personal use and illness. 6 To foster inclusivity and support our employees through various life events, in 2023, we launched a six week, 100% paid parental leave benefit to all eligible employees, regardless of gender, for the birth, adoption, or fostering of a new child.
Removed
We provide a wellness program, which delivers products, services and tools to help employees maintain a healthy life. During the peak of the pandemic, we partnered with a third-party vendor to assist in managing the COVID-19 related cases, ensuring confidentiality and consistency in the process.
Added
In addition, 9 employees are located in other states across the U.S and work remotely. For almost 100 years, HomeTrust Bank has strived to be an employer of choice. We value and promote diversity and inclusion in every aspect of our business and at every level within the company.
Removed
We provide up to four hours of leave for employees who need time away to receive the vaccine and up to three days of COVID-19 PTO for eligible employees who are unable to work due to quarantine or illness related to COVID-19. 7 Lending Policy and Procedures Loan credit authority is granted by position rather than on an individual officer-by-officer basis.

… 27 more changes not shown on this page.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

87 edited+26 added−17 removed148 unchanged
Biggest changeOur nonperforming assets adversely affect our net income in various ways: • we record interest income only on a cash basis for nonaccrual loans and any nonperforming debt securities, and do not record interest income for REO; • we must provide for expected credit losses through a current period charge to the provision for credit losses; • noninterest expense increases when we write down the value of properties in our REO portfolio to reflect changing market values or recognize credit impairment on nonperforming debt securities; • there are legal fees associated with the resolution of problem assets, as well as carrying costs such as taxes, insurance and maintenance fees related to our REO; and • the resolution of nonperforming assets requires the active involvement of management which can distract them from more profitable activity. 17 If additional borrowers become delinquent and do not pay their loans and we are unable to successfully manage our nonperforming assets, our losses and troubled assets could increase significantly, which could have a material adverse effect on our financial condition and results of operations.
Biggest changeOur nonperforming assets adversely affect our net income in various ways: • we record interest income only on a cash basis for nonaccrual loans and any nonperforming debt securities, and do not record interest income for REO; • we must provide for ECLs through a current period charge to the provision for credit losses; • noninterest expense increases when we write down the value of properties in our REO portfolio to reflect changing market values or recognize credit impairment on nonperforming debt securities; • there are legal fees associated with the resolution of problem assets, as well as carrying costs such as taxes, insurance and maintenance fees related to our REO; and • the resolution of nonperforming assets requires the active involvement of management, a distraction from more profitable activity.
If we fail to comply with applicable rules or requirements for the payment methods we accept, or if payment-related data is compromised due to a breach or misuse of data, we may be liable for losses associated with reimbursing our clients for such fraudulent transactions on clients’ card accounts, as well as costs incurred by payment card issuing banks and other third parties or may be subject to fines and higher transaction fees, or our ability to accept or facilitate certain types of payments may be impaired.
If we fail to comply with applicable rules or requirements for the payment methods we accept, or if payment-related data is compromised due to a breach or misuse of data, we may be liable for losses associated with reimbursing our clients for such fraudulent transactions on clients’ card accounts, as well as costs incurred by payment card issuing banks and other third parties, we may be subject to fines and higher transaction fees, or our ability to accept or facilitate certain types of payments may be impaired.
We also could be adversely affected to the extent such an agreement is not renewed by the third-party vendor or is renewed on terms less favorable to us. Additionally, the bank regulatory agencies expect financial institutions to be responsible for all aspects of our vendors’ performance, including aspects which they delegate to third parties.
We also could be adversely affected to the extent such an agreement is not renewed by the third- 22 party vendor or is renewed on terms less favorable to us. Additionally, the bank regulatory agencies expect financial institutions to be responsible for all aspects of our vendors’ performance, including aspects which they delegate to third parties.
Residential loans with high combined loan-to-value ratios will be more sensitive to declining property values than those with lower combined loan-to-value ratios and therefore may experience a higher incidence of default and severity of losses. In addition, if the borrowers sell their homes, they may be unable to repay their loans in full from the sale.
Residential loans with high combined loan-to-value ratios will be more sensitive to declining property values than those with lower combined loan-to-value ratios and therefore may experience a higher incidence of default and severity of losses. In addition, if the borrowers sell their homes, they may be unable to repay their loans in full from the sale proceeds.
In addition, bank regulatory agencies periodically review our allowance and may require an increase in the provision for credit losses or the recognition of further loan charge-offs based on judgments different than those of management. If charge-offs in future periods exceed the allowance, we may need additional provisions to increase the allowance.
In addition, bank regulatory agencies periodically review our allowance and may require an increase in the provision for credit losses or the recognition of further loan charge-offs based on judgments different than those of management. If charge-offs in future periods exceed the ACL, we may need additional provisions to increase the ACL.
Changes in demand for new housing and higher than anticipated building costs, may cause actual results to vary significantly from those estimated. This type of lending also typically involves higher loan principal amounts and is often concentrated with a small number of builders.
Changes in demand for new housing and higher than anticipated building costs, may cause actual results to vary significantly from those estimated. This type of lending also typically involves higher loan principal amounts and is often concentrated with loans to a small number of builders.
Factors that could detrimentally impact our access to liquidity sources include a decrease in the level of our business activity as a result of a downturn in the North Carolina, South Carolina, Virginia, and/or Tennessee markets in which the majority of our loans are concentrated or adverse regulatory action against us.
Factors that could detrimentally impact our access to liquidity sources include a decrease in the level of our business activity as a result of a downturn in the Georgia, North Carolina, South Carolina, Virginia, and/or Tennessee markets in which the majority of our loans are concentrated or adverse regulatory action against us.
Equipment finance loan collections depend on the customer's continuing financial stability, and therefore are more likely to be adversely affected by the cash flows of the business within certain industries. Similarly, automobile loan collections depend on the borrower’s continuing financial stability, and therefore are more likely to be adversely affected by job loss, divorce, illness, or personal bankruptcy.
Equipment finance loan collections depend on the borrower's continuing financial stability, and therefore are more likely to be adversely affected by the cash flows of the borrower's business within certain industries. Similarly, automobile loan collections depend on the borrower’s continuing financial stability, and therefore are more likely to be adversely affected by job loss, divorce, illness, or personal bankruptcy.
Changes in monetary policy, including changes in interest rates, could influence not only the interest we receive on loans and investments and the amount of interest we pay on deposits and borrowings, but these changes could also affect (i) our ability to originate loans and obtain deposits, (ii) the fair value of our financial assets and liabilities, which could negatively impact stockholders' equity and our ability to realize gains from the sale of such assets; (iii) our ability to obtain and retain deposits in competition with other available investment alternatives; (iv) the ability of our borrowers to repay adjustable or variable rate loans; and (v) the average duration of our debt securities portfolio and other interest-earning assets.
Changes in monetary policy, including changes in interest rates, could influence not only the interest we receive on loans and investments and the amount of interest we pay on deposits and borrowings, but also (i) our ability to originate loans and obtain deposits, (ii) the fair value of our financial assets and liabilities, which could negatively impact stockholders' equity and our ability to realize gains from the sale of such assets; (iii) our ability to obtain and retain deposits in competition with other available investment alternatives; (iv) the ability of our borrowers to repay adjustable or variable rate loans; and (v) the average duration of our debt securities portfolio and other interest-earning assets.
Recessionary conditions or declines in the volume of real estate sales and/or the sales prices coupled 14 with elevated unemployment rates may result in higher than expected loan delinquencies or problem assets, and a decline in demand for our products and services.
Recessionary conditions or declines in the volume of real estate sales and/or the sales prices coupled with elevated unemployment rates may result in higher than expected loan delinquencies or problem assets, and a decline in demand for our products and services.
As a result, our ability to effectively compete to retain or acquire new business may be impaired, and our business, financial condition or results of operations may be adversely affected . 23 We rely on other companies to provide key components of our business infrastructure.
As a result, our ability to effectively compete to retain or acquire new business may be impaired, and our business, financial condition or results of operations may be adversely affected . We rely on other companies to provide key components of our business infrastructure.
We obtain updated valuations in the form of appraisals and broker price opinions when a loan has been foreclosed and the property taken in as REO and at certain other times during the asset’s holding period.
We obtain updated valuations in the form of appraisals and broker price opinions when a loan has been foreclosed upon and the property taken in as REO and at certain other times during the asset’s holding period.
The inability of our loans to adjust downward can contribute to increased income in periods of declining interest rates, although this result is subject to the risks that borrowers may refinance these loans during periods of declining interest rates.
The inability of our loans to adjust downward can contribute to increased income in periods of declining interest rates, although this result is subject to the risks that borrowers may refinance these loans during such periods.
Our future success will depend, in part, on our ability to keep pace with the technological changes and to use technology to satisfy and grow customer demand for our products and services and to create additional efficiencies in our operations.
Our future success will depend, in part, on our ability to keep pace with technological changes and to use technology to satisfy and grow customer demand for our products and services and to create additional efficiencies in our operations.
In addition, the physical condition of non-owner occupied properties is often below that of owner occupied properties due to lax property maintenance standards, which has a negative impact on the value of the collateral properties.
In addition, the physical condition of non-owner occupied properties is often below that of owner occupied properties due to lax property maintenance standards, which has a negative impact on the 14 value of the collateral properties.
Although we have relationships with certain automotive dealers, none of our relationships 16 are exclusive and any may be terminated at any time. If our existing dealer base experiences decreased sales we may experience decreased loan volume in the future, which may have an adverse effect on our business, results of operations, and financial condition.
Although we have relationships with certain automotive dealers, none of our relationships are exclusive and any of these relationships may be terminated at any time. If our existing dealer base experiences decreased sales we may experience decreased loan volume in the future, which may have an adverse effect on our business, results of operations, and financial condition.
The purpose of the guidance is to guide banks in developing risk management practices and capital levels commensurate with the level and nature of real estate concentrations. The guidance states that management should employ heightened risk management practices including Board and management oversight and strategic planning, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing.
The purpose of the guidance is to assist banks in developing risk management practices and capital levels commensurate with the level and nature of real estate concentrations. The guidance states that management should employ heightened risk management practices including Board and management oversight and strategic planning, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing.
Management also recognizes that significant new growth in loan portfolios, new loan products and the refinancing of existing loans can result in portfolios comprised of unseasoned loans that may not perform in a historical or projected manner and will increase the risk that our allowance may be insufficient to absorb losses without significant additional provisions.
Management also recognizes that significant new growth in loan portfolios, new loan products and the refinancing of existing loans can result in portfolios comprised of unseasoned loans that may not perform in a historical or projected manner and will increase the risk that our ACL may be insufficient to absorb losses without significant additional provisions.
We believe that these loans satisfy a need in our local market areas. As a result, subject to market conditions, we intend to continue to originate these types of loans. High loan-to-value ratios on a portion of our residential mortgage loan portfolio exposes us to greater risk of loss.
We believe that these loans satisfy a need in our local market areas. As a result, subject to market conditions, we intend to continue to originate these types of loans. High loan-to-value ratios on a portion of our residential mortgage loan portfolio expose us to greater risk of loss.
This could result in higher net interest margins and interest income in current periods and lower net interest rate margins and lower interest income in future periods. We may experience future goodwill impairment, which could reduce our earnings. Our annual goodwill impairment test did not identify any impairment for the year ended June 30, 2022.
This could result in higher net interest margins and interest income in current periods and lower net interest rate margins and lower interest income in future periods. We may experience future goodwill impairment, which could reduce our earnings. Our annual goodwill impairment test did not identify any impairment for the year ended June 30, 2023.
A continued weak economic recovery or a return to recessionary conditions could increase our level of nonperforming assets, lower real estate values in our primary market areas and reduce demand for loans, which would result in increased loan losses and lower earnings.
A continued weak economic recovery or recessionary conditions could increase our level of nonperforming assets, lower real estate values in our primary market areas and reduce demand for loans, which would result in increased loan losses and lower earnings.
Any increases in the allowance will result in a decrease in net income and possibly capital, and may have a material adverse effect on our financial condition and results of operations. If our nonperforming assets increase, our earnings will be adversely affected.
Any increases in the ACL will result in a decrease in net income and possibly capital and may have a material adverse effect on our financial condition and results of operations. If our nonperforming assets increase, our earnings will be adversely affected.
The amount of this allowance is determined by our management through periodic reviews and consideration of several factors, including, but not limited to: • our reserve on loans collectively evaluated, based on peer loss experience, which management believes provides the best basis for its assessment of expected credit losses, and consideration of the effects of past events, current conditions, and reasonable and supportable forecasts on the collectability of the loan portfolio; • a qualitative reserve based on factors that are relevant within the qualitative framework; and • our reserve on loans individually evaluated for loans no longer sharing similar risk characteristics which is based on a DCF analysis unless the loan meets the criteria for use of the fair value of collateral, either by virtue of an expected foreclosure or through meeting the definition of collateral dependent.
The amount of this ACL is determined by our management through periodic reviews and consideration of several factors, including, but not limited to: • our reserve on loans collectively evaluated, based on peer loss experience, which management believes provides the best basis for its assessment of ECLs, and consideration of the effects of past events, current conditions, and reasonable and supportable forecasts on the collectability of the loan portfolio; • a qualitative reserve based on factors that are relevant within the qualitative framework; and • our reserve on loans individually evaluated for loans no longer sharing similar risk characteristics which is based on a DCF analysis unless the loan meets the criteria for use of the fair value of collateral, either by virtue of an expected foreclosure or through meeting the definition of collateral dependent.
A majority of our residential loans are “non-conforming” because they are adjustable rate mortgages which contain interest rate floors or do not satisfy credit or other requirements due to personal and financial reasons (i.e. divorce, bankruptcy, length of time employed, etc.), conforming loan limits (i.e. jumbo mortgages), and other requirements, imposed by secondary market purchasers.
A majority of our residential loans are “non-conforming” because they are adjustable rate mortgages that contain interest rate floors or do not satisfy credit or other requirements due to personal and financial reasons (e.g., divorce, bankruptcy, length of time employed, etc.), conforming loan limits (i.e., jumbo mortgages), and other requirements, imposed by secondary market purchasers.
During periods of reduced loan demand, our results of operations may be adversely affected to the extent that we are unable to reduce expenses 19 commensurate with the decline in loan originations. In addition, although we sell loans into the secondary market without recourse, we are required to give customary representations and warranties about the loans to the buyers.
During periods of reduced loan demand, our results of operations may be adversely affected to the extent that we are unable to reduce expenses commensurate with the decline in loan originations. Also, although we sell loans into the secondary market without recourse, we are required to give customary representations and warranties about the loans to the buyers.
A return of recessionary conditions and/or negative developments in the domestic and international credit markets may significantly affect the markets in which we do business, the value of our loans and investments, and our ongoing operations, costs and profitability.
Recessionary conditions and/or negative developments in the domestic and international credit markets may significantly affect the markets in which we do business, the value of our loans and investments, and our ongoing operations, costs and profitability.
We generate mortgage revenues primarily from gains on the sale of single-family residential loans pursuant to programs currently offered by Fannie Mae, Freddie Mac, Ginnie Mae and other investors on a servicing released basis. These entities account for a substantial portion of the secondary market in residential mortgage loans.
We generate mortgage revenues primarily from gains on the sale of single-family residential loans pursuant to programs currently offered by Fannie Mae, Freddie Mac, Ginnie Mae and other investors. These entities account for a substantial portion of the secondary market in residential mortgage loans.
We may also experience greater than anticipated customer losses even if the integration process is successful; • to finance a future acquisition, we may borrow funds, thereby increasing our leverage and diminishing our liquidity, or raise additional capital, which could dilute the interests of our existing stockholders; • we have completed five acquisitions during the past nine fiscal years that enhanced our rate of growth.
We may also experience greater than anticipated customer losses even if the integration process is successful; • to finance a future acquisition, we may borrow funds, thereby increasing our leverage and diminishing our liquidity, or raise additional capital, which could dilute the interests of our existing stockholders; • we have completed six acquisitions during the past 10 fiscal years that enhanced our rate of growth.
At June 30, 2022, the most significant portion of our loans located outside of our primary market areas were equipment finance, SBA, and purchased HELOCs.
At June 30, 2023, the most significant portion of our loans located outside of our primary market areas were equipment finance, SBA, and purchased HELOCs.
Accordingly, charge-offs on commercial real estate loans may be larger on a per loan basis than those incurred with our residential and consumer loan portfolios. The level of our commercial real estate loan portfolio may subject us to additional regulatory scrutiny.
Additionally, charge-offs on commercial real estate loans may be larger on a per loan basis than those incurred with our residential and consumer loan portfolios. 15 The level of our commercial real estate loan portfolio may subject us to additional regulatory scrutiny.
Our primary market areas are concentrated 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, Knoxville, and Morristown) and Southwest Virginia (including the Roanoke Valley).
Our primary market areas are concentrated in North Carolina (the Asheville metropolitan area, the "Piedmont" region, Charlotte, and Raleigh/Cary), Upstate South Carolina (Greenville), East Tennessee (Kingsport/Johnson City, Knoxville, and Morristown), Southwest Virginia (the Roanoke Valley) and Georgia (Greater Atlanta).
For these reasons, a downturn in housing or the real estate market, could increase loan delinquencies, defaults and foreclosures, and significantly impair the value of our collateral and our ability to sell the collateral upon foreclosure. Some of the builders we deal with have more than one loan outstanding with us.
For these reasons, a downturn in housing or the real estate market, could increase loan delinquencies, defaults and foreclosures, and significantly impair the value of the collateral underlying our construction and land development loans and our ability to sell the collateral upon foreclosure. Some of the builders we deal with have more than one loan outstanding with us.
In addition, our success has been and continues to be highly dependent upon the services of our directors, many of whom are at or nearing retirement age, and we may not be able to identify and attract suitable candidates to replace such directors.
In addition, our success has been and continues to be highly dependent upon the services of our directors, several of whom are nearing retirement age, and we may not be able to identify and attract suitable candidates to replace such directors.
Our determination of the appropriate level of the allowance for credit losses inherently involves a high degree of subjectivity and requires us to make significant estimates of current credit risks and future trends, all of which may undergo material changes.
Our determination of the appropriate level of the ACL inherently involves a high degree of subjectivity and requires us to make significant estimates of current credit risks and future trends, all of which may undergo material changes.
At June 30, 2022, commercial real estate loans were $1.4 billion, or 49.5% of our total loan portfolio, including multifamily loans totaling $81.1 million or 2.9% of our total loan portfolio. These loans typically involve higher principal amounts than other types of loans and some of our commercial borrowers have more than one loan outstanding with us.
At June 30, 2023, commercial real estate loans were $1.9 billion, or 51.5% of our total loan portfolio, including multifamily loans totaling $81.8 million or 2.2% of our total loan portfolio. These loans typically involve higher principal amounts than other types of loans and some of our commercial borrowers have more than one loan outstanding with us.
If our estimates are incorrect, the allowance may not be sufficient to cover the expected losses in our loan portfolio, resulting in the need for increases in our allowance.
If our estimates are incorrect, the ACL may not 16 be sufficient to cover the expected losses in our loan portfolio, resulting in the need for increases in our ACL.
These rules require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts. Failure to comply with these regulations could result in fines or sanctions and limit our ability to get regulatory approval of acquisitions. Recently several banking institutions have received large fines for non-compliance with these laws and regulations.
These rules require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts. Failure to comply with these regulations could result in fines or sanctions and limit our ability to get regulatory approval of acquisitions. Banking institutions continue to receive large fines for non-compliance with these laws and regulations.
While real estate values and unemployment rates have improved, deterioration in economic conditions, particularly within our primary market areas, could result in the following consequences among others, any of which could materially hurt our business: • loan delinquencies, problem assets and foreclosures may increase; • we may need to increase our allowance for credit losses; • the slowing of sales and/or the reduction in value of foreclosed assets; • demand for our products and services may decline, possibly resulting in a decrease in our total loans or assets; • collateral for loans made may decline further in value, exposing us to increased risk of loss on existing loans and reducing customers’ borrowing power; • the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; and • the amount of our deposits may decrease and the composition of our deposits may be adversely affected.
A deterioration in economic conditions, particularly within our primary market areas, could result in the following consequences among others, any of which could materially hurt our business: • loan delinquencies, problem assets and foreclosures may increase; • we may need to increase our ACL; • the slowing of sales and/or the reduction in value of foreclosed assets; • demand for our products and services may decline, possibly resulting in a decrease in our total loans or assets; • collateral for loans made may decline further in value, exposing us to increased risk of loss on existing loans and reducing customers’ borrowing power; • the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; and • the amount of our deposits may decrease and the composition of our deposits may be adversely affected.
In some cases, repossessed collateral for transportation, construction, and manufacturing equipment for equipment finance loans and a defaulted automobile loan for indirect auto finance loans may not provide an adequate source of repayment for the outstanding loan and the remaining deficiency may not warrant further substantial collection efforts against the borrower.
In some cases, repossessed collateral for transportation and construction loans, and manufacturing equipment for equipment finance loans may not provide an adequate source of repayment for the outstanding loan and the remaining deficiency may not warrant further substantial collection efforts against the borrower.
In the event the Bank is unable to pay dividends to us, we may not be able to pay dividends on our common stock or continue stock repurchases. Also, our right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors. Item 1B. Unresolved Staff Comments None.
In the event the Bank is unable to pay dividends to us, we may not be able to pay dividends on our common stock or continue stock repurchases. Also, our right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors.
Further, the majority of our home equity lines of credit consist of second mortgage loans.
Further, a majority of our home equity lines of credit consist of second mortgage loans.
Our nonperforming assets (which consist of nonaccruing loans and REO) were $6.3 million, or 0.18% of total assets, at June 30, 2022, compared to $12.8 million, or 0.36% of total assets, at June 30, 2021, respectively. We also had $9.8 million in loans classified as performing TDRs at June 30, 2022.
Our nonperforming assets (which consist of nonaccruing loans and REO) were $8.3 million, or 0.18% of total assets, at June 30, 2023, compared to $6.3 million, or 0.18% of total assets, at June 30, 2022, respectively. We also had $8.2 million in loans classified as performing TDRs at June 30, 2023.
We began to use SOFR as a substitute for LIBOR for new originations in calendar year 2021. As of June 30, 2022, there were $192.6 million loans in our portfolio tied to LIBOR. Ineffective liquidity management could adversely affect our financial results and condition. Liquidity is essential to our business.
We began to use SOFR as a substitute for USD LIBOR for new originations in calendar year 2021. As of June 30, 2023, there were no loans in our portfolio tied to USD LIBOR. Ineffective liquidity management could adversely affect our financial results and condition. Liquidity is essential to our business.
If economic conditions or the real estate market declines in the areas in which these properties are located, we may suffer decreased net income or losses associated with higher default rates and decreased collateral values on our existing portfolio.
If economic conditions or the real estate markets decline in the areas where these properties are located, we may suffer decreased net income or losses associated with higher default rates and decreased collateral values on our existing portfolio.
Furthermore, in the case of speculative 15 construction loans, there is the added risk associated with identifying an end-purchaser for the finished project. At June 30, 2022, $60.4 million of our construction and land development loans were for speculative construction loans and none were classified as nonaccruing.
Furthermore, in the case of speculative construction loans, there is the added risk associated with identifying an end-purchaser for the finished project. At June 30, 2023, $80.1 million of our construction and land development loans were for speculative construction loans and none were classified as nonaccruing.
Such balloon payments may require the borrower to either sell or refinance the underlying property in order to make the payment, which may increase the risk of default or non-payment. At June 30, 2022, commercial real estate loans that were nonperforming totaled $881,000, or 36.3% of our total nonperforming loans.
Such balloon payments may require the borrower to either sell or refinance the underlying property in order to make the payment, which may increase the risk of default or non-payment. At June 30, 2023, commercial real estate loans that were nonperforming totaled $624,000, or 7.5% of our total nonperforming loans.
At June 30, 2022, construction and land development loans in our residential real estate loan portfolio were $81.8 million, or 3.0% of our total loan portfolio, and consist primarily of construction to permanent loans to homeowners building a residence or developing lots in residential subdivisions intending to construct a residence within one year.
At June 30, 2023, construction and land development loans in our residential real estate loan portfolio were $110.1 million, or 3.0% of our total loan portfolio, and consisted primarily of construction to permanent loans to homeowners building a residence or developing lots in residential subdivisions intending to construct a residence within one year.
In anticipation of a rising-rate environment, our assets tend to be shorter in duration than our liabilities, so they may adjust faster in response to changes in interest rates.
When we anticipate a rising-rate environment, our assets tend to be shorter in duration than our liabilities, so they may adjust faster in response to changes in interest rates.
In anticipation of a declining-rate environment, our liabilities tend to be shorter in duration than our assets, so they may adjust faster in response to changes in interest rates.
When we anticipate a declining-rate environment, our liabilities tend to be shorter in duration than our assets, so they may adjust faster in response to changes in interest rates.
The implementation of a substitute index or indices for the calculation of interest rates under our loan agreements with our borrowers or our existing borrowings may result in our incurring significant expenses in effecting the transition, may result in reduced loan balances if borrowers do not accept the 22 substitute index or indices, and may result in disputes or litigation with customers and creditors over the appropriateness or comparability to LIBOR of the substitute index or indices, which could have an adverse effect on our results of operations.
The implementation of a substitute index or indices for the calculation of interest rates under our loan agreements with our borrowers or under our existing borrowings may result in our incurring significant expenses in effecting the transition, may result in reduced loan balances if borrowers do not accept the 21 substitute index or indices, and may result in disputes or litigation with customers and creditors over the appropriateness or comparability to LIBOR of the substitute index or indices, which could adversely affect our results of operations and financial condition.
At June 30, 2022, $22.9 million of our municipal leases contained a non-appropriation clause. Our allowance for credit losses may prove to be insufficient to absorb losses in our loan portfolio.
At June 30, 2023, $10.7 million of our municipal leases contained a non-appropriation clause. Our allowance for credit losses may prove to be insufficient to absorb losses in our loan portfolio.
We maintain an allowance for credit losses. This is a reserve established through a provision for expected losses charged against income, which we believe is appropriate to provide for lifetime expected credit losses in our loan portfolio.
We maintain an ACL, established through a provision for expected losses charged against income, which we believe is appropriate to provide for lifetime ECLs in our loan portfolio.
For these reasons, we may experience higher rates of delinquency, default and loss. Our non-owner occupied real estate loans may expose us to increased credit risk. At June 30, 2022, $82.3 million, or 23.2% of our one-to-four family loans and 3.0% of our total loan portfolio, consisted of loans secured by non-owner occupied residential properties.
For these reasons, we may experience higher rates of delinquency, default and loss. Our non-owner occupied real estate loans may expose us to increased credit risk. At June 30, 2023, $151.8 million, or 30.4% of our one-to-four family loans and 4.1% of our total loan portfolio, consisted of loans secured by non-owner occupied residential properties.
Disruptions or failures in the physical infrastructure or operating systems that support our business and clients, or cyber-attacks or security breaches of the networks, systems or devices that our clients use to access our products and services could result in client attrition, regulatory fines, penalties or intervention, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs, any of which could materially adversely affect our results of operations or financial condition.
Disruptions or failures in the physical infrastructure or operating systems that support our business and clients could result in client attrition, regulatory fines, penalties or intervention, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs, any of which could materially adversely affect our results of operations or financial condition.
Risks Related to Lending Activities Our business may be adversely affected by credit risk associated with residential property. At June 30, 2022, $354.2 million, or 12.8% of our total loan portfolio, was secured by liens on one-to-four family residential loans.
Risks Related to Lending Activities Our business may be adversely affected by credit risk associated with residential property. At June 30, 2023, $529.7 million, or 14.5% of our total loan portfolio, was secured by liens on one-to-four family residential loans.
Although the yield we earn on our assets and our funding costs tend to move in the same direction in response to changes in interest rates, one can rise or fall faster than the other, causing our net interest margin to expand or contract.
Changes in interest rates, up or down, could adversely affect our net interest margin and, as a result, our net interest income. 17 Although the yield we earn on our assets and our funding costs tend to move in the same direction in response to changes in interest rates, one can rise or fall faster than the other, causing our net interest margin to expand or contract.
Construction and development loans in our commercial real estate loan portfolio at June 30, 2022, totaled $291.2 million, or 10.5% of our total loan portfolio, and consist of loans to contractors and builders primarily to finance the construction of single and multi-family homes, subdivisions, as well as commercial properties.
Construction and development loans in our commercial real estate loan portfolio at June 30, 2023, totaled $356.7 million, or 9.7% of our total loan portfolio, and consisted of loans to contractors and builders primarily to finance the construction of single and multi-family homes, subdivisions, as well as commercial properties.
Any future changes in these programs, significant impairment of our eligibility to participate in such programs, the criteria for loans to be accepted or laws that significantly affect the activity of such entities could, in turn, result in a lower volume of corresponding loan originations or increase other administrative costs which may materially adversely affect our results of operations.
Any future changes in these programs, significant impairment of our eligibility to participate in such programs, the criteria for loans to be accepted or laws that significantly affect the activity of such entities could, in turn, result in a lower volume of corresponding loan originations or increase other administrative costs which may materially adversely affect our results of operations. 18 Mortgage production, especially refinancing, generally declines in rising interest rate environments resulting in fewer loans that are available to be sold to investors.
Ultimately, we would expect our efficiency ratio to improve; however, if we are not successful in our integration process, this may not occur, and our acquisitions or branching activities may not be accretive to earnings in the short or long-term.
Ultimately, we would expect our efficiency ratio to improve; however, if we are not successful in our integration process, this may not occur, and our acquisitions or branching activities may not be accretive to earnings in the short or long-term. We have faced many of these risks in connection with our recently completed merger with Quantum.
If our judgment was incorrect, or if events or circumstances change, and an impairment of goodwill was deemed to exist, we would be required to write down our goodwill resulting in a charge to earnings, which would adversely affect our results of operations, perhaps materially; however, it would have no impact on our liquidity, operations, or regulatory capital.
If our judgment was incorrect, or if events or circumstances change, and an impairment of goodwill is deemed to exist, we would be required to write down our goodwill resulting in a charge to earnings, which would adversely affect our results of operations, perhaps materially; however, it would have no impact on our liquidity, operations, or regulatory capital. 19 Risks Related to Regulation We operate in a highly regulated environment and may be adversely affected by changes in federal and state laws and regulations.
Our equipment finance and auto finance lending increases our exposure to lending risks. At June 30, 2022, $394.5 million and $79.1 million, or 14.2% and 2.9% of our total loan portfolio, consisted of equipment finance and indirect auto finance loans, respectively. Equipment finance and indirect auto finance loans are inherently risky as they are secured by assets that depreciate rapidly.
Our equipment finance and auto finance lending increases our exposure to lending risks. At June 30, 2023, $462.2 million and $105.0 million, or 12.6% and 2.8% of our total loan portfolio, consisted of equipment finance and indirect auto finance loans, respectively. Equipment finance and indirect auto finance loans are inherently risky as they are secured by assets that depreciate rapidly.
Repayment of our municipal leases is dependent on the fire department receiving tax revenues from the county/municipality. At June 30, 2022, municipal leases were $129.8 million, or 4.7% of our total loan portfolio. We offer ground and equipment lease financing to fire departments located throughout North Carolina and, to a lesser extent, South Carolina.
Repayment of our municipal leases is dependent on fire departments receiving tax revenues from counties/municipalities. At June 30, 2023, municipal leases were $142.2 million, or 3.9% of our total loan portfolio. We offer ground and equipment lease financing to fire departments located throughout North Carolina and, to a lesser extent, South Carolina.
There can be no assurance that the declines in market value will not result in other-than-temporary impairments of these assets and would lead to accounting charges that could have a material adverse effect on our net income and capital levels. For the year ended June 30, 2022, we did not incur any other-than-temporary impairments on our securities portfolio.
Furthermore, there can be no assurance that the declines in market value will not result in other-than-temporary impairments of these assets and lead to accounting charges that could have a material adverse effect on our net income and capital levels. As of June 30, 2023, an ACL was not necessary for credit-related impairment on our securities portfolio.
Our net interest income could be adversely affected if the rates we pay on deposits and borrowings increase more rapidly than the rates we earn on loans and other investments. In addition, a substantial amount of our loans have adjustable interest rates. As a result, these loans may experience a higher rate of default in a rising interest rate environment.
Our net interest income has been and could continue to be adversely affected if the rates we pay on deposits and borrowings increase more rapidly than the rates we earn on loans and other investments. In addition, a substantial amount of our loans have adjustable interest rates.
Our security measures may not protect us from system failures or interruptions . While we have established policies and procedures to prevent or limit the impact of systems failures and interruptions, there can be no assurance that such events will not occur or that they will be adequately addressed if they do.
While we have established policies and procedures to prevent or limit the impact of systems failures and interruptions, there can be no assurance that such events will not occur or that they will be adequately addressed if they do. In addition, we outsource certain aspects of our data processing and other operational functions to certain third-party providers.
Our net interest margin is the difference between the yield we earn on our assets and the interest rate we pay for deposits and our other sources of funding. Changes in interest rates, up or down, could adversely affect our net interest margin and, as a result, our net interest income.
Our net interest margin is the difference between the yield we earn on our assets and the interest rate we pay for deposits and our other sources of funding.
Bank regulators also have the ability to impose conditions in the approval of merger and acquisition transactions. 20 The significant federal and state banking regulations that affect us are described under the heading "Business - How We Are Regulated” in Item I of this Form 10-K.
The significant federal and state banking regulations that affect us are described under the heading "Business – How We Are Regulated” in Item 1 of this Form 10-K.
While we have policies and procedures designed to prevent such losses, there can be no assurance that such losses will not occur. Risks Related to Our Business and Industry Generally We will be required to transition from the use of the London Interbank Offered Rate ("LIBOR") in the future.
While we have policies and procedures designed to prevent or reduce the severity of such losses, there can be no assurance that such losses will not occur. Risks Related to Our Business and Industry Generally The replacement of LIBOR as a benchmark interest rate may adversely impact us.
There are risks associated with this strategy; however, including the following: • we may be exposed to potential asset quality issues or unknown or contingent liabilities of the banks, businesses, assets, and liabilities we acquire.
We have implemented a strategy of supplementing organic growth by acquiring other financial institutions or other businesses that we believe will help us fulfill our strategic objectives and enhance our earnings; however, there are risks associated with this strategy, including the following: • we may be exposed to potential asset quality issues or unknown or contingent liabilities of the banks, businesses, assets, and liabilities we acquire.
Declines in real estate values and sales volumes and higher unemployment levels may result in higher than expected loan delinquencies and a decline in demand for our products and services. These negative events may cause us to incur reduced earnings or even losses , and may adversely affect our capital, liquidity, and financial condition.
Declines in real estate values and sales volumes and higher unemployment levels may result in higher than expected loan delinquencies and a decline in demand for our products and services.
Based on this criteria, the Bank has a concentration in commercial real estate lending as total loans for multifamily, non-farm/non-residential, construction, land development and other land represented 292.3% of total risk-based capital at June 30, 2022.
Our total loans for multifamily, non-farm/non-residential, construction, land development and other land represented 292.3% of total risk-based capital at June 30, 2023.
Risks Related to Regulation We operate in a highly regulated environment and may be adversely affected by changes in federal and state laws and regulations. The financial services industry is extensively regulated. Federal and state banking regulations are designed primarily to protect the deposit insurance funds and consumers, not to benefit a company’s stockholders.
The financial services industry is extensively regulated. Federal and state banking regulations are designed primarily to protect the deposit insurance funds and consumers, not to benefit a company’s stockholders. These regulations may sometimes impose significant limitations on operations.
These regulations may sometimes impose significant limitations on operations. Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on the operation of an institution, the classification of assets by the institution and the adequacy of an institution’s allowance for credit losses.
Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on the operation of an institution, the classification of assets by the institution and the adequacy of an institution’s ACL. Bank regulators also have the ability to impose conditions in the approval of merger and acquisition transactions.
The Company is continuously working to install new and upgrade its existing information technology systems and provide employee awareness training around phishing, malware, and other cyber risks to further protect the Company against cyber risks and security breaches. 21 There continues to be a rise in electronic fraudulent activity, security breaches, and cyber-attacks within the financial services industry, especially in the commercial banking sector due to cyber criminals targeting commercial bank accounts.
The Company is continuously working to install new and upgrade its existing information technology systems and provide employee awareness training around phishing, malware, and other cyber risks to further protect the Company against cyber risks and security breaches.
The profitability of our mortgage banking operations depends in large part upon our ability to aggregate a high volume of loans and sell them in the secondary market at a gain.
When interest rates rise, or even if they do not, there can be no assurance that our mortgage production will continue at current levels. The profitability of our mortgage banking operations depends in large part upon our ability to aggregate a high volume of loans and sell them in the secondary market at a gain.
Our ability to retain and grow our loans, deposits, and fee income depends upon the business generation capabilities, reputation, and relationship management skills of our lenders.
Our success depends to a significant degree upon our ability to attract and retain qualified management, loan origination, finance, administrative, marketing, and technical personnel and upon the continued contributions of our management and personnel. Our ability to retain and grow our loans, deposits, and fee income depends upon the business generation capabilities, reputation, and relationship management skills of our bankers.
The uncertain future development of this crisis could materially and adversely affect our business, operations, operating results, financial condition, liquidity or capital levels. Adverse economic conditions in the market areas we serve could adversely impact our earnings and could increase the credit risk associated with our loan portfolio.
Adverse economic conditions in the market areas we serve could adversely impact our earnings and could increase the credit risk associated with our loan portfolio.
Breaches of information security also may occur through intentional or unintentional acts by those having access to our systems or our clients’ or counterparties’ confidential information, including employees.
In addition, our customers could lose confidence in certain payment types, which may result in a shift to other payment types or potential changes to our payment systems that may result in higher costs. 20 Breaches of information security also may occur through intentional or unintentional acts by those having access to our systems or our clients’ or counterparties’ confidential information, including employees.
The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining the need to perform the test for goodwill impairment (the qualitative method).
In testing goodwill for impairment, the Company has the option to assess either qualitative or quantitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the estimated fair value of a reporting unit is less than its carrying amount.
The value or market price of our common stock could decline due to any of these identified or other risks, and you could lose all or part of your investment. Risks Related to Macroeconomic Conditions COVID-19 Pandemic The COVID-19 pandemic continues to negatively impact economic and commercial activity and financial markets, both globally and within the United States.
The value or market price of our common stock could decline due to any of these identified or other risks, and you could lose all or part of your investment. Risks Related to Macroeconomic Conditions Recent events in the financial services industry may have a material adverse effect on us.

… 50 more changes not shown on this page.

Item 2. Properties

Properties — owned and leased real estate

3 edited+0 added−0 removed2 unchanged
Biggest changeIn total, as of June 30, 2022, we have 34 locations, which include: North Carolina (including the Asheville metropolitan area, the "Piedmont" region, Charlotte, and Raleigh/Cary), Upstate South Carolina (Greenville), East Tennessee (including Kingsport/Johnson City, Knoxville, and Morristown) and Southwest Virginia (including the Roanoke Valley). Of those offices, 10 are leased facilities.
Biggest changeIn total, as of June 30, 2023, we have 34 locations in five states, which include: North Carolina (including the Asheville metropolitan area, the "Piedmont" region, Charlotte, and Raleigh/Cary), Upstate South Carolina (Greenville), East Tennessee (including Kingsport/Johnson City, Knoxville, and Morristown), Southwest Virginia (including the Roanoke Valley) and Georgia (Greater Atlanta). Of those offices, 9 are leased facilities.
In the opinion of management, all properties are adequately covered by insurance, are in a good state of repair and are appropriately designed for their present and future use. See "Note 6 – Premises and Equipment" and "Note 10 – Leases" of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K for additional information.
In the opinion of management, all properties are adequately covered by insurance, are in a good state of repair and are appropriately designed for their present and future use. See "Note 7 – Premises and Equipment" and "Note 11 – Leases" of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K for additional information.
We also own an operations center located in Asheville, North Carolina. We lease additional space, which is adjacent to the facility we own, for administrative and operations personnel. The lease terms for our branch offices, operations center, and other offices are not individually material. Lease expirations range from five to 25 years.
We also own an operations center located in Asheville, North Carolina. We lease additional space, which is adjacent to the facility we own in Asheville, for administrative and operations personnel. The lease terms for our branch offices, operations center, and other offices are not individually material. Lease expirations range from two to 18 years.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

5 edited+2 added−3 removed3 unchanged
Biggest changePurchases of Equity Securities by the Issuer The following table provides information about repurchases of common stock by the Company during the quarter ended June 30, 2022: Period Total Number Of Shares Purchased Average Price Paid per Share Total Number Of Shares Purchased as Part of Publicly Announced Plans Maximum Number of Shares that May Yet Be Purchased Under Publicly Announced Plans April 1 - April 30, 2022 257,759 $ 29.49 257,759 396,076 May 1 - May 31, 2022 129,437 26.49 129,437 266,639 June 1 - June 30, 2022 — — — 266,639 Total 387,196 $ 28.49 387,196 266,639 On April 2, 2020, the Company's Board of Directors authorized the repurchase of up to 851,004 shares of the Company's common stock, representing 5% of its outstanding shares at the time of the announcement.
Biggest changeSee Item 1, “How We Are Regulated,” for more information regarding the restrictions on the Company’s and the Bank’s abilities to pay dividends. 23 Purchases of Equity Securities by the Issuer The following table provides information about repurchases of common stock by the Company during the quarter ended June 30, 2023: Period Total # of Shares Purchased Average Price Paid per Share Total # of Shares Purchased as Part of Publicly Announced Plans Maximum # of Shares that May Yet Be Purchased Under Publicly Announced Plans April 1 - April 30, 2023 — $ — — 266,639 May 1 - May 31, 2023 — — — 266,639 June 1 - June 30, 2023 — — — 266,639 Total — $ — — 266,639 On April 2, 2020, the Company's Board of Directors authorized the repurchase of up to 851,004 shares of the Company's common stock, representing 5% of its outstanding shares at the time of the announcement.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. The Company’s common stock is listed on the Nasdaq Global Market under the symbol “HTBI.” As of the close of business on September 6, 2022, there were 15,618,066 shares of common stock outstanding held by 1,071 holders of record.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. The Company’s common stock is listed on the Nasdaq Global Market under the symbol “HTBI.” As of the close of business on September 4, 2023, there were 17,367,173 shares of common stock outstanding held by 1,029 holders of record.
The information presented below assumes $100 was invested on June 30, 2017, in the Company’s common stock and in each of the indices and assumes the reinvestment of all dividends. Historical stock price performance is not necessarily indicative of future stock price performance.
The information presented below assumes the reinvestment of all dividends and that the value of common stock and each index was $100 on June 30, 2018. Historical stock price performance is not necessarily indicative of future stock price performance.
Also on February 28, 2022, an additional 806,000 shares of common stock were authorized for repurchase representing approximately 5% of the Company's outstanding shares at the time of the announcement. For the year ended June 30, 2022, 1,482,959 shares were repurchased at an average price of $29.23 per share.
On February 28, 2022, an additional 806,000 shares of common stock were authorized for repurchase representing approximately 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. 25 Stockholder Return Performance Graph Presentation The performance graph below compares the Company’s cumulative stockholder return on its common stock since June 30, 2017 to the cumulative total return of the S&P US BMI Bank Index and the Nasdaq Composite for the periods indicated.
Stockholder Return Performance Graph Presentation The performance graph below compares the Company’s cumulative stockholder return on its common stock since June 30, 2018 to the cumulative total return of the S&P US BMI Bank Index and the Nasdaq Composite for the periods indicated.
Removed
See Item 1, “How We Are Regulated,” for more information regarding the restrictions on the Company’s and the Bank’s abilities to pay dividends.
Added
As of June 30, 2023, 539,361 of these shares had been purchased at an average price of $28.93 per share, although no shares were repurchased during the year ended June 30, 2023. 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.
Removed
Total return assumes the reinvestment of all dividends and that the value of common stock and each index was $100 on June 30, 2017.
Added
Year Ended June 30, 2018 2019 2020 2021 2022 2023 HomeTrust Bancshares, Inc. 100.00 88.37 56.72 101.24 90.56 75.67 S&P US BMI Bank Index 100.00 97.17 74.17 124.88 100.77 93.08 NASDAQ Composite 100.00 107.88 137.61 203.61 155.66 196.35
Removed
Year Ended June 30, 2017 2018 2019 2020 2021 2022 HomeTrust Bancshares, Inc. 100.00 112.83 99.71 63.99 114.23 102.18 S&P US BMI Bank Index 100.00 108.14 105.08 80.21 135.05 108.97 NASDAQ Composite 100.00 123.53 133.26 169.99 251.52 192.29

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

99 edited+47 added−32 removed57 unchanged
Biggest changeChanges in selected components of noninterest expense are discussed below: Year Ended June 30, 2022 vs 2021 2021 vs 2020 (Dollars in thousands) 2022 2021 2020 $ % $ % Noninterest expense Salaries and employee benefits $ 59,591 $ 62,956 $ 56,709 $ (3,365) (5) % $ 6,247 11 % Occupancy expense, net 9,692 9,521 9,228 171 2 293 3 Computer services 9,761 9,607 8,153 154 2 1,454 18 Telephone, postage and supplies 2,754 3,122 3,275 (368) (12) (153) (5) Marketing and advertising 2,583 1,626 1,872 957 59 (246) (13) Deposit insurance premiums 1,712 1,799 900 (87) (5) 899 100 REO related expense, net 588 582 1,475 6 1 (893) (61) Core deposit intangible amortization 250 735 1,421 (485) (66) (686) (48) Branch closure and restructuring expenses — 1,513 — (1,513) (100) 1,513 100 Officer transition agreement expense 1,795 — — 1,795 100 — — Prepayment penalties on borrowings — 22,690 — (22,690) (100) 22,690 100 Other 16,458 17,031 14,096 (573) (3) 2,935 21 Total noninterest expense $ 105,184 $ 131,182 $ 97,129 $ (25,998) (20) % $ 34,053 35 % 32 • Salaries and employee benefits: As indicated in the "Fiscal 2021 Items of Note" section above, the decrease in salaries and employee benefits was primarily the result of branch closures and lower mortgage banking incentive pay as a result of the reduction of the volume of originations. • Marketing and advertising: The increase in marketing and advertising was primarily the result of less media advertising in the prior period during the pandemic. • Branch closure and restructuring expenses: See explanation in the "Fiscal 2021 Items of Note" section above.
Biggest changeChanges in selected components of noninterest expense are discussed below: Year Ended June 30, 2023 vs 2022 2022 vs 2021 (Dollars in thousands) 2023 2022 2021 $ % $ % Salaries and employee benefits $ 62,221 $ 59,591 $ 62,956 $ 2,630 4 % $ (3,365) (5) % Occupancy expense, net 9,891 9,692 9,521 199 2 171 2 Computer services 11,772 10,629 9,607 1,143 11 1,022 11 Telephone, postage and supplies 2,468 2,545 3,122 (77) (3) (577) (18) Marketing and advertising 2,139 2,583 1,626 (444) (17) 957 59 Deposit insurance premiums 2,249 1,712 1,799 537 31 (87) (5) Core deposit intangible amortization 1,525 250 735 1,275 510 (485) (66) Branch closure and restructuring expenses — — 1,513 — — (1,513) (100) Officer transition agreement expense — 1,795 — (1,795) (100) 1,795 100 Merger-related expense 5,465 — — 5,465 100 — — Prepayment penalties on borrowings — — 22,690 — — (22,690) (100) Other 18,179 16,300 17,613 1,879 12 (1,313) (7) Total noninterest expense $ 115,909 $ 105,097 $ 131,182 $ 10,812 10 % $ (26,085) (20) % • Computer services: The increase can be traced to additional recurring expenses associated with incorporating Quantum's operations, continued investments in technology and the cost of services provided by third parties. • Marketing and advertising: The decrease was due to a reduction in traditional media advertising (print, billboards, etc.) in favor of digital platforms at lower costs. • Deposit insurance premium: The increase in expense was due to increases in the rates the Company is charged for deposit insurance as well as growth in the assessment base due to the Quantum merger. • Core deposit intangible amortization: The increase was the result of the Quantum merger core deposit intangible amortization 31 recognized during the last two quarters of the current year. • Officer transition agreement expense : In May 2022, the Company entered into an amended and restated employment and transition agreement with the Company's then Chairman and CEO, Dana Stonestreet.
See "Note 1 – Summary of Significant Accounting Policies” of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K for further discussion. Our noninterest expenses consist primarily of salaries and employee benefits, expenses for occupancy, marketing and computer services, and FDIC deposit insurance premiums.
See "Note 1 – Summary of Significant Accounting Policies” of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K for further discussion. Our noninterest expenses consist primarily of salaries and employee benefits, occupancy expenses, marketing and computer services, and FDIC deposit insurance premiums.
Land acquisition and development loans are included in the construction and development loan portfolio and include completed residential lots where the borrower was not the developer, commercial improved and raw land for future development, and residential development loans.
Land acquisition and development loans are included in the construction and land development loan portfolio and include completed residential lots where the borrower was not the developer, commercial improved and raw land for future development, and residential development loans.
Liquidity Management Management maintains a liquidity position that it believes will adequately provide funding for loan demand and deposit run-off that may occur in the normal course of business. We rely on a number of different sources in order to meet our potential liquidity demands.
Liquidity Management Management maintains a liquidity position that it believes will adequately provide for funding of 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.
Adjustable rate-based loans typically include a floor and ceiling interest rate and are indexed to The Wall Street Journal prime rate, the one-month LIBOR, or the one-month term SOFR, plus or minus an interest rate margin and rates generally adjust daily. The maximum loan-to-value ratio for commercial real estate loans is generally up to 80% on purchases and refinances.
Adjustable rate-based loans typically include a floor and ceiling interest rate and are indexed to The Wall Street Journal prime rate or the one-month term SOFR, plus or minus an interest rate margin and rates generally adjust daily. The maximum loan-to-value ratio for commercial real estate loans is generally up to 80% on purchases and refinances.
HomeTrust Bank may manage its interest rate risk by originating and retaining adjustable rate loans in its portfolio, by borrowing from the FHLB to match the duration of our funding to the duration of originated fixed rate one-to-four family and commercial loans held in portfolio and by selling on an ongoing basis certain currently originated longer term fixed rate one-to-four family real estate loans. 42
HomeTrust Bank may manage its interest rate risk by originating and retaining adjustable rate loans in its portfolio, by borrowing from the FHLB to match the duration of our funding to the duration of originated fixed rate one-to-four family and commercial loans held in portfolio and by selling on an ongoing basis certain currently originated longer term fixed rate one-to-four family real estate loans.
Included in our construction and land/lot loan portfolio are land/lot loans, which are typically loans secured by developed lots in residential subdivisions located in our market areas. We originate these loans to individuals intending to construct their primary or secondary residence on the lot within one year from the date of origination.
Included in our construction and land/lot loan portfolio are land/lot loans, which are typically loans secured by developed lots in residential subdivisions located in our market areas. We originate these loans to individuals intending to construct their primary or secondary residence on the lot within one year of the origination date.
We originate both fixed-rate loans and adjustable-rate loans; however, the majority of our one-to-four family residential loans are originated with fixed rates and have terms of 10 to 30 years. We generally originate fixed rate mortgage loans with terms greater than 10 years for sale to various secondary market investors on a servicing released basis.
We originate both fixed-rate loans and adjustable-rate loans; however, the majority of our one-to-four family residential loans are originated with fixed rates and have terms of 10 to 30 years. We generally originate fixed rate mortgage loans with terms greater than 10 years for sale to various 34 secondary market investors on a servicing released basis.
SBA 7(a) and USDA B&I loans will normally be adjustable rate loans based upon The Wall Street Journal prime lending rate. Under the loan programs, we will typically sell in the 35 secondary market the guaranteed portion of these loans to generate noninterest income and retain the related unguaranteed portion of these loans.
SBA 7(a) and USDA B&I loans will normally be adjustable rate loans based upon The Wall Street Journal prime lending rate. Under the loan programs, we will typically sell in the secondary market the guaranteed portion of these loans to generate noninterest income and retain the related unguaranteed portion of these loans.
In addition, we have historically demonstrated an ability to maintain retail deposits through various interest rate cycles. If local retail deposit rates increase dramatically, we also have access to wholesale funding through our lines of credit with the FHLB and FRB, as well as through the brokered deposit market to replace retail deposits, as needed.
In addition, we have historically demonstrated an ability to maintain retail deposits through various interest rate cycles. If local retail deposit rates increase dramatically, we also have access to wholesale funding through our lines of credit with the FHLB and FRB and the brokered deposit market to replace retail deposits, as needed.
During the construction phase, which typically lasts for six to 12 months, we make periodic inspections of the construction site and loan proceeds are disbursed directly to the contractors or borrowers as construction progresses. Typically, disbursements are made in monthly draws during the construction period. Loan proceeds are disbursed based on a percentage of completion.
During the construction phase, which typically lasts six to 12 months, we make periodic inspections of the construction site and loan proceeds are disbursed directly to the contractors or borrowers as construction progresses. Typically, disbursements are made in monthly draws during the construction period. Loan proceeds are disbursed based on a percentage of completion.
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.
It is management's policy to manage deposit rates that are competitive with other local financial institutions. Based on this strategy, we believe that a majority of maturing deposits will remain with us.
We charge losses on loans against the ACL when we believe the collection of loan principal is unlikely. Recoveries on loans previously charged off are added back to the allowance.
We charge losses on loans against the ACL when we believe the collection of loan principal is unlikely. Recoveries on loans previously charged off are added back to the ACL.
For further information, see “Note 16 – Commitments and Contingencies” of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K. Asset/Liability Management and Interest Rate Risk Our Risk When Interest Rates Change. The rates of interest we earn on assets and pay on liabilities generally are established contractually for a period of time.
For further information, see “Note 17 – Commitments and Contingencies” of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K. Asset/Liability Management and Interest Rate Risk Our Risk When Interest Rates Change. The rates of interest we earn on assets and pay on liabilities generally are established contractually for a period of time.
The following table details the contractual maturity ranges of our loan portfolio without factoring in scheduled payments or potential prepayments. Loan balances do not include undisbursed loan proceeds, unearned discounts, unearned income and ACL. In addition, we have disclosed those loans with predetermined (fixed) and floating interest rates at June 30, 2022.
The following table details the contractual maturity ranges of our loan portfolio without factoring in scheduled payments or potential prepayments. Loan balances do not include undisbursed loan proceeds, unearned discounts, unearned income or the ACL. In addition, we have disclosed those loans with predetermined (fixed) and floating interest rates at June 30, 2023.
This portfolio may also include loans for the purchase or refinance of unimproved land that is generally less than or equal to five acres, and for which the purpose is to commence the improvement of the land and construction of an owner occupied primary or secondary residence within one year from the date of loan origination.
This portfolio may also include loans for the purchase or refinance of unimproved land that is generally less than or equal to five acres and for which the purpose is to commence the improvement of the land and construction of an owner occupied primary or secondary residence within one year of the origination date.
The loans have terms ranging from 24 to 84 months, with an average of five years and are secured by the financed equipment. Typical transaction sizes range from $25,000 to $1.0 million, with an average outstanding loan size of $130,000. Commercial – Municipal Leases .
The loans have terms ranging from 24 to 84 months, with an average of five years and are secured by the financed equipment. Typical transaction sizes range from $25,000 to $1.0 million, with an average outstanding loan size of $138,000. Commercial – Municipal Leases .
See “Business – How We are Regulated” included in Item 1 and “Note 17 – Regulatory Capital Matters” of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K for additional details on our capital requirements.
See “Business – How We are Regulated” included in Item 1 and “Note 18 – Regulatory Capital Matters” of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K for additional details on our capital requirements.
Our expansion into larger metro markets combined with experienced commercial real estate relationship managers, credit officers, and a construction risk management group to better manage construction risk, has resulted in the purposeful growth of this portfolio. Unfunded commitments at June 30, 2022 totaled $143.4 million compared to $131.8 million at June 30, 2021.
Our expansion into larger metro markets combined with experienced commercial real estate relationship managers, credit officers, and a construction risk management group to better manage construction risk, has resulted in the purposeful growth of this portfolio. Unfunded commitments at June 30, 2023 totaled $59.8 million compared to $143.4 million at June 30, 2022.
Residential Real Estate – Construction and Land Development . We are an active originator of construction-to-permanent loans to homeowners building a residence. In addition, we originate land/lot loans predominately for the purchase or refinance of an improved lot for the construction of a residence to be occupied by the borrower.
Residential Real Estate – Construction and Land Development . We originate construction-to-permanent loans to homeowners building a residence. In addition, we originate land/lot loans predominately for the purchase or refinance of an improved lot for the construction of a residence to be occupied by the borrower.
How We Measure Our Risk of Interest Rate Changes. As part of our process to manage our exposure to changes in interest rates and comply with applicable regulations, we monitor our interest rate risk.
As part of our process to manage our exposure to changes in interest rates and comply with applicable regulations, we monitor our interest rate risk.
See "Note 1 – Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K for discussion of our ACL methodology on loans. 38 The following table summarizes the distribution of the allowance for credit losses by loan category at the dates indicated.
See "Note 1 – Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K for discussion of our ACL methodology on loans. The following table summarizes the distribution of the ACL by loan category at the dates indicated.
The credit risk characteristics of these loans are different from the remainder of the portfolio as they were not originated by the Company and the collateral may be located outside the Company's market area. The Company will continue to monitor the performance of these loans and adjust the allowance for credit losses as necessary. Commercial – Equipment Finance .
The credit risk characteristics of these loans are different from the remainder of the portfolio as they were not originated by the Company and the collateral may be located outside the Company's market area. The Company will continue to monitor the performance of these loans and adjust the ACL as necessary. Commercial – Equipment Finance .
For more information on income taxes and deferred taxes, see "Note 11 – Income Taxes" of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K. Comparison of Financial Condition at June 30, 2022 and June 30, 2021 Assets.
For more information on income taxes and deferred taxes, see "Note 12 – Income Taxes" of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K. Comparison of Financial Condition at June 30, 2023 and June 30, 2022 Assets.
We originate commercial real estate loans, including loans secured by office buildings, retail/wholesale facilities, hotels, industrial facilities, medical and professional buildings, churches, and multifamily residential properties located primarily in our market areas. The average outstanding loan size in our commercial real estate portfolio was $796,000 as of June 30, 2022. We offer both fixed- and adjustable-rate commercial real estate loans.
We originate commercial real estate loans, including loans secured by office buildings, retail/wholesale facilities, hotels, industrial facilities, medical and professional buildings, churches, and multifamily residential properties located primarily in our market areas. The average outstanding loan size was $817,000 as of June 30, 2023. 33 We offer both fixed- and adjustable-rate commercial real estate loans.
This portfolio includes indirect auto finance installment contracts sourced through our relationships with automobile dealerships, both manufacturer franchised dealerships and independent dealerships, who utilize our origination platform to provide automotive financing through installment contracts on new and used vehicles. At June 30, 2022, the outstanding balance of indirect auto finance loans was $79.1 million.
This portfolio includes indirect auto finance installment contracts sourced through our relationships with automobile dealerships, both manufacturer franchised dealerships and independent dealerships, who utilize our origination platform to provide automotive financing through installment contracts on new and used vehicles. At June 30, 2023, the outstanding balance of indirect auto finance loans was $105.0 million.
The ACL is a valuation account that reflects our estimation of the credit losses that will result from the inability of our borrowers to make required loan payments. The allowance is maintained through provisions for credit losses that are charged to earnings in the period they are established.
The ACL on loans held for investment is a valuation account that reflects our estimation of the credit losses that will result from the inability of our borrowers to make required loan payments. The ACL is maintained through provisions for credit losses that are charged to earnings in the period they are established.
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.
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.
Typical maturities for this type of loan vary up to twenty-five years and can be thirty years in some circumstances. Under the SBA 7(a) and USDA B&I loan program the loans carry a government guaranty up to 90% of the loan in some cases.
Typical maturities for this type of loan vary up to 25 years and can be 30 years in some circumstances. Under the SBA 7(a) and USDA B&I loan program the loans carry a government guaranty up to 90% of the loan in some cases.
The primary sources are increases in deposit accounts and cash flows from loan payments and the securities portfolio. In addition to these primary sources of funds, management has several secondary sources available to meet potential funding requirements as outlined in the "Comparison of Financial Condition – Borrowings" section above.
The primary sources are increases in deposit accounts, wholesale borrowings, and cash flows from loan payments and the securities portfolio. In addition to these primary sources of funds, management has several secondary sources available to meet potential funding requirements as outlined in the "Comparison of Financial Condition at June 30, 2023 and June 30, 2022 – Borrowings" section above.
HELOCs generally have up to a 10-year draw period and amounts may be reborrowed after payment at 36 any time during the draw period. Once the draw period has lapsed, the payment is amortized over a 15-year period based on the loan balance at that time. At June 30, 2022, unfunded commitments on these lines of credit totaled $313.0 million.
HELOCs generally have up to a 10-year draw period and amounts may be reborrowed after payment at any time during the draw period. Once the draw period has lapsed, the payment is amortized over a 15-year period based on the loan balance at that time. At June 30, 2023, unfunded commitments on these lines of credit totaled $393.5 million.
In March 2022, the Company began purchasing commercial small business loans originated by a fintech partner. At June 30, 2022, the outstanding balance of these loans totaled $17.5 million, or 0.6% of our loan portfolio.
In March 2022, the Company began purchasing commercial small business loans originated by a fintech partner. At June 30, 2023, the outstanding balance of these loans totaled $25.1 million, or 0.6% of our loan portfolio.
The risk associated with changes in interest rates and our ability to adapt to these changes is known as interest rate risk and is our most significant market risk.
The risk associated with changes in interest rates and our ability to adapt to these changes is known as interest rate risk and is our most significant market risk. How We Measure Our Risk of Interest Rate Changes.
Overview The following discussion and analysis presents the more significant factors that affected our financial condition as of June 30, 2022 and 2021 and results of operations for each of the years in the three-year period then ended.
Overview The following discussion and analysis presents the more significant factors that affected our financial condition as of June 30, 2023 and 2022 and results of operations for each of the years in the three-year period then ended. Refer to "Item 7.
(2) Net interest income divided by average interest-earning assets. (3) See "GAAP Reconciliation of Non-GAAP Financial Measures" section below for additional details. (4) Nonperforming assets and loans include nonaccruing loans, consisting of certain restructured loans, and REO. There were no accruing loans more than 90 days past due at the dates indicated.
(2) See "GAAP Reconciliation of Non-GAAP Financial Measures" section below for additional details. (3) Nonperforming assets and loans include nonaccruing loans, consisting of certain restructured loans, and REO. There were no accruing loans more than 90 days past due at the dates indicated.
The committee is responsible for reviewing and reporting on the effects of the policy implementations and strategies to the Board of Directors at least quarterly. 41 Among the techniques we have used at various times to manage interest rate risk are: (i) increasing our portfolio of hybrid and adjustable-rate one-to-four family residential loans and commercial loans; (ii) maintaining a strong capital position, which provides for a favorable level of interest-earning assets relative to interest-bearing liabilities; and (iii) emphasizing less interest rate sensitive and lower-costing “core deposits.” We also maintain a portfolio of short-term or adjustable-rate assets and use fixed-rate FHLB advances and brokered deposits to extend the term to repricing of our liabilities.
Among the techniques we have used at various times to manage interest rate risk are: (i) increasing our portfolio of hybrid and adjustable-rate one-to-four family residential loans and commercial loans; (ii) maintaining a strong capital position, which provides for a favorable level of interest-earning assets relative to interest-bearing liabilities; and (iii) emphasizing less interest rate sensitive and lower-costing “core deposits.” We also maintain a portfolio of short-term or adjustable-rate assets and use fixed-rate FHLB advances and brokered deposits to extend the term to repricing of our liabilities.
Loans to finance the construction of speculative single-family homes are generally offered to experienced builders with a proven track record of performance. These loans require payment of interest-only during the construction phase. Unfunded commitments were $74.6 million at June 30, 2022 and $70.1 million at June 30, 2021.
Loans to finance the construction of speculative single-family homes are generally offered to experienced builders with a proven track record of performance. These loans require payment of interest-only during the construction phase. Unfunded commitments were $68.1 million at June 30, 2023 and $74.6 million at June 30, 2022. Both adjustable and fixed rates are offered on commercial construction loans.
Total liabilities were $3.2 billion at June 30, 2022, compared to $3.1 billion at June 30, 2021, an increase of $32.2 million, the components of which are discussed below. Deposits. The following table summarizes the composition of our deposit portfolio as of the dates indicated.
Total liabilities were $4.1 billion at June 30, 2023, compared to $3.2 billion at June 30, 2022, an increase of $975.9 million, or 30.9%, year-over-year, the components of which are discussed below. Deposits. The following table summarizes the composition of our deposit portfolio as of the dates indicated.
There were $54.7 million of sales of the guaranteed portion of SBA commercial loans with recorded gains of $5.4 million in the current year compared to $66.1 million sold with gains of $6.1 million in the prior year.
There were $49.0 million of sales of the guaranteed portion of SBA commercial loans with gains of $3.4 million in the current year compared to $54.7 million sold with gains of $5.4 million in the prior year.
The Company sold $120.0 million of HELOCs during the current year for a gain of $791,000 compared to $110.8 million sold and gains of $724,000 in the prior year. Lastly, $11.5 million of indirect auto finance loans were sold out of the held for investment portfolio during the current year for a gain of $205,000.
There were $99.4 million of HELOCs sold during the current year with gains of $897,000 compared to $120.0 million sold with gains of $791,000 in the prior year. Lastly, $11.5 million of indirect auto finance loans were sold out of the held for investment portfolio during the prior year for a gain of $205,000.
Commercial vertical construction loans are offered on an adjustable or fixed interest rate basis. Adjustable interest rate loans typically include a floor and ceiling interest rate and are indexed to The Wall Street Journal prime rate, plus or minus an interest rate margin.
Adjustable interest rate loans typically include a floor and ceiling interest rate and are indexed to The Wall Street Journal prime rate, plus or minus an interest rate margin.
At June 30, 2022, the total approved loan commitments and unused lines of credit outstanding amounted to $417.6 million and $485.2 million, respectively, as compared to $401.1 million and $530.5 million, respectively, as of June 30, 2021. Certificates of deposit scheduled to mature in one year or less at June 30, 2022, totaled $428.7 million.
At June 30, 2023, the total approved loan commitments and unused lines of credit outstanding amounted to $307.2 million and $608.2 million, respectively, as compared to $417.6 million and $485.2 million as of June 30, 2022. Certificates of deposit scheduled to mature in one year or less at June 30, 2023 totaled $642.8 million.
The table presented here, as of June 30, 2022, is forward-looking information about our sensitivity to changes in interest rates. The table incorporates data from an independent service, as it relates to maturity repricing and repayment/withdrawal of interest-earning assets and interest-bearing liabilities.
Our asset/liability management strategy sets limits on the change in PVE given certain changes in interest rates. The table presented here, as of June 30, 2023, is forward-looking information about our sensitivity to changes in interest rates. The table incorporates data from an independent service, as it relates to maturity repricing and repayment/withdrawal of interest-earning assets and interest-bearing liabilities.
Refer to "Management’s Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K filed with the SEC on September 10, 2021 (the “2021 Form 10-K”) for a discussion and analysis of the more significant factors that affected periods prior to fiscal year 2021.
Management’s Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K filed with the SEC on September 12, 2022 (the “2022 Form 10-K”) for a discussion and analysis of the more significant factors that affected periods prior to fiscal year 2022. Our primary source of pre-tax income is net interest income.
Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur. Weighted average yields were calculated using amortized cost on a fully-taxable equivalent basis. The Company did not hold any tax-exempt debt securities as of June 30, 2022.
The composition and contractual maturities of our debt securities portfolio as of June 30, 2023 is indicated in the following table. Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur. Weighted average yields were calculated using amortized cost on a fully-taxable equivalent basis.
Conversely, in a falling interest rate environment these interest rate floors will assist in maintaining our net interest income. As of June 30, 2022, our loans with interest rate floors totaled approximately $511.4 million, or 18.5% of our total loan portfolio, and had a weighted average floor rate of 3.70%.
Conversely, in a falling interest rate environment these interest rate floors will assist in maintaining our net interest income. As of June 30, 2023, our loans with interest rate floors totaled approximately $640.1 million, or 17.5% of our total loan portfolio, and had a weighted average floor rate of 4.80%, of which $26.5 million were at their floor rate.
The amount of income tax expense is influenced by the amount of pre-tax income, the amount of tax-exempt income, changes in the statutory rate and the effect of changes in valuation allowances maintained against deferred tax benefits.
The amount of income tax expense is influenced by the amount of pre-tax income, tax-exempt income, changes in the statutory rate and the effect of changes in valuation allowances maintained against deferred tax benefits. The effective tax rate for 2023 and 2022 was 22.0% and 21.4%, respectively.
Total assets were $3.5 billion at both June 30, 2022 and 2021, an increase of $24.5 million, or 0.7%, year-over-year, the components of which are discussed below. Debt Securities Available for Sale. Debt securities available for sale decreased $29.5 million, or 18.8%, to $127.0 million at June 30, 2022.
Total assets were $4.6 billion and $3.5 billion at June 30, 2023 and 2022, an increase of $1.1 billion, or 29.8%, year-over-year, the components of which are discussed below. Debt Securities Available for Sale. Debt securities available for sale increased $24.9 million, or 19.6%, to $151.9 million at June 30, 2023.
The net benefit on loans for the year ended June 30, 2022 was primarily the result of a slight improvement in the economic forecast, as more clarity was gained regarding the impact of COVID-19 upon the loan portfolio.
For the year ended June 30, 2022 , the "loans" portion of the benefit for credit losses was driven by an improvement in the economic forecast, as more clarity was gained regarding the impact of COVID-19 upon the loan portfolio.
Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances which include, but are not limited to, changes in interest rates, changes in the performance of the economy, and changes in the financial condition of borrowers. The following represents our critical accounting policy: Allowance for Credit Losses, or ACL, on Loans.
Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances which could 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.
June 30, 2022 2021 (Dollars in thousands) Allocated Allowance % of Loan Portfolio ACL to Loans Allocated Allowance % of Loan Portfolio ACL to Loans Commercial real estate loans Construction and land development $ 4,402 11 % 0.16 % $ 1,801 7 % 0.07 % Commercial real estate - owner occupied 3,038 12 0.11 3,295 12 0.12 Commercial real estate - non-owner occupied 5,589 24 0.20 9,296 27 0.34 Multifamily 385 3 0.01 692 3 0.03 Total commercial real estate loans 13,414 50 0.48 15,084 49 0.56 Commercial loans Commercial and industrial 5,083 7 0.18 2,592 5 0.09 Equipment finance 6,651 14 0.24 6,537 12 0.24 Municipal leases 302 5 0.01 534 5 0.02 PPP loans — — — — 2 — Total commercial loans 12,036 26 0.43 9,663 24 0.35 Residential real estate loans Construction and land development 1,052 2 0.04 812 2 0.03 One-to-four family 4,673 13 0.17 5,409 15 0.20 HELOCs 1,886 6 0.07 1,964 6 0.07 Total residential real estate loans 7,611 21 0.28 8,185 23 0.30 Consumer loans 1,629 3 0.06 2,536 4 0.09 Total loans $ 34,690 100 % 1.25 % $ 35,468 100 % 1.30 % At or For the Year Ended June 30, 2022 2021 Asset quality ratios Nonaccruing loans to total loans (1) 0.22 % 0.46 % ACL to nonaccruing loans (1) 566.83 281.38 Net charge-offs (recoveries) to average loans (0.02) 0.01 (1) At June 30, 2022, $2.8 million of restructured loans were included in nonaccruing loans and $3.8 million, or 62.5%, of nonaccruing loans were current on their loan payments.
June 30, 2023 June 30, 2022 (Dollars in thousands) Allocated Allowance % of Loan Portfolio ACL to Loans Allocated Allowance % of Loan Portfolio ACL to Loans Commercial real estate loans Construction and land development $ 5,866 10 % 0.16 % $ 4,402 11 % 0.16 % Commercial real estate - owner occupied 4,837 15 0.13 3,038 12 0.11 Commercial real estate - non-owner occupied 9,230 25 0.26 5,589 24 0.20 Multifamily 757 2 0.02 385 3 0.01 Total commercial real estate loans 20,690 52 0.57 13,414 50 0.48 Commercial loans Commercial and industrial 4,738 7 0.13 5,083 7 0.18 Equipment finance 10,299 13 0.28 6,651 14 0.24 Municipal leases 179 4 0.01 302 5 0.01 Total commercial loans 15,216 24 0.42 12,036 26 0.43 Residential real estate loans Construction and land development 1,689 3 0.05 1,052 2 0.04 One-to-four family 5,612 14 0.15 4,673 13 0.17 HELOCs 1,983 5 0.05 1,886 6 0.07 Total residential real estate loans 9,284 22 0.25 7,611 21 0.28 Consumer loans 2,003 2 0.05 1,629 3 0.06 Total loans $ 47,193 100 % 1.29 % $ 34,690 100 % 1.25 % 36 At or For the Year Ended June 30, 2023 2022 Asset quality ratios Nonaccruing loans to total loans (1) 0.23 % 0.22 % ACL to nonaccruing loans (1) 567.56 566.83 Net charge-offs (recoveries) to average loans 0.10 (0.02) (1) At June 30, 2023, there were $1.9 million of restructured loans included in nonaccruing loans and $3.3 million, or 40.0%, of nonaccruing loans were current on their loan payments as of that date.
(3) The average other interest-earning assets consists of FRB stock, FHLB stock, SBIC investments, and deposits in other banks.
(2) Average other interest-earning assets consist of FRB stock, FHLB stock, SBIC investments, and deposits in other banks. (3) Net interest income divided by average interest-earning assets.
As a result of this philosophy, our results of operations and the economic value of our equity will remain vulnerable to increases in interest rates and to declines due to differences between long- and short-term interest rates. The committee regularly reviews interest rate risk by forecasting the impact of alternative interest rate environments on net interest income and our PVE.
As a result of this philosophy, our results of operations and the 39 economic value of our equity will remain vulnerable to increases in interest rates and to declines due to differences between long- and short-term interest rates.
Financial Highlights (Dollars in thousands) June 30, 2022 2021 2020 Selected financial condition data Total assets $ 3,549,204 $ 3,524,723 $ 3,722,852 Cash and cash equivalents 105,119 50,990 121,622 Commercial paper, net 194,427 189,596 304,967 Certificates of deposit in other banks 23,551 40,122 55,689 Debt securities available for sale, at fair value 126,978 156,459 127,537 Loans, net of ACL and deferred loan costs 2,734,605 2,697,799 2,741,047 Deposits 3,099,761 2,955,541 2,785,756 Borrowings — 115,000 475,000 Stockholders’ equity 388,845 396,519 408,263 26 (Dollars in thousands, except per share data) Year Ended June 30, 2022 2021 2020 Selected operations data Total interest and dividend income $ 116,114 $ 118,733 $ 136,254 Total interest expense 5,340 15,411 32,150 Net interest income 110,774 103,322 104,104 Provision (benefit) for credit losses (592) (7,135) 8,500 Net interest income after provision (benefit) for credit losses 111,366 110,457 95,604 Service charges and fees on deposit accounts 9,462 9,083 9,382 Loan income and fees 3,185 2,208 2,494 Gain on sale of loans held for sale 12,876 17,352 9,946 BOLI income 2,000 2,156 2,246 Operating lease income 6,392 5,601 3,356 Gain on sale of debt securities 1,895 — — Other 3,386 3,421 2,908 Total noninterest income 39,196 39,821 30,332 Total noninterest expense 105,184 131,182 97,129 Income before income taxes 45,378 19,096 28,807 Income tax expense 9,725 3,421 6,024 Net income $ 35,653 $ 15,675 $ 22,783 Net income per common share Basic $ 2.27 $ 0.96 $ 1.34 Diluted $ 2.23 $ 0.94 $ 1.30 At or For the Year Ended June 30, 2022 2021 2020 Performance ratios Return on assets (ratio of net income to average total assets) 1.01 % 0.42 % 0.63 % Return on equity (ratio of net income to average equity) 9.00 3.88 5.54 Tax equivalent yield on earning assets (1) 3.58 3.49 4.13 Rate paid on interest-bearing liabilities 0.23 0.57 1.18 Tax equivalent average interest rate spread (1) 3.35 2.92 2.95 Tax equivalent net interest margin (1)(2) 3.42 3.04 3.17 Average interest-earning assets to average interest-bearing liabilities 138.30 128.01 122.10 Noninterest expense to average total assets 2.97 3.55 2.70 Efficiency ratio 70.14 91.64 72.25 Efficiency ratio - adjusted (3) 69.25 74.08 71.62 Asset quality ratios Nonperforming assets to total assets (4) 0.18 % 0.36 % 0.44 % Nonperforming loans to total loans (4) 0.22 0.46 0.58 Total classified assets to total assets 0.61 0.64 0.84 Allowance for credit losses to nonperforming loans (4) 566.83 281.38 176.30 Allowance for credit losses to total loans 1.25 1.30 1.01 Net charge-offs to average loans (0.02) 0.01 0.07 Capital ratios Equity to total assets at end of period 10.96 % 11.25 % 10.97 % Tangible equity to total tangible assets (3) 10.31 10.59 10.33 Average equity to average assets 11.20 10.91 11.46 Dividend payout ratio 15.30 32.01 19.98 Dividends declared per common share $ 0.35 $ 0.31 $ 0.27 (1) The weighted average rate for municipal leases is adjusted for a 24% combined federal and state tax rate since the interest from these leases is tax exempt.
Financial Highlights (Dollars in thousands) June 30, 2023 June 30, 2022 June 30, 2021 Selected financial condition data Total assets $ 4,607,487 $ 3,549,204 $ 3,524,723 Cash and cash equivalents 303,497 105,119 50,990 Commercial paper, net — 194,427 189,596 Certificates of deposit in other banks 33,152 23,551 40,122 Debt securities available for sale, at fair value 151,926 126,978 156,459 Loans, net of ACL and deferred loan fees and costs 3,611,630 2,734,605 2,697,799 Deposits 3,601,168 3,099,761 2,955,541 Junior subordinated debt 9,971 — — Borrowings 457,263 — 115,000 Stockholders’ equity 471,186 388,845 396,519 Year Ended June 30, (Dollars in thousands, except per share data) 2023 2022 2021 Selected operations data Total interest and dividend income $ 187,126 $ 116,114 $ 118,733 Total interest expense 29,711 5,340 15,411 Net interest income 157,415 110,774 103,322 Provision (benefit) for credit losses 15,392 (592) (7,135) Net interest income after provision (benefit) for credit losses 142,023 111,366 110,457 Service charges and fees on deposit accounts 9,510 9,462 9,083 Loan income and fees 2,571 3,185 2,208 Gain on sale of loans held for sale 5,608 12,876 17,352 BOLI income 2,116 2,000 2,156 Operating lease income 5,471 6,392 5,601 Gain on sale of debt securities available for sale — 1,895 — Gain (loss) on sale of premises and equipment 2,097 (87) (1,311) Other 3,677 3,386 4,732 Total noninterest income 31,050 39,109 39,821 Total noninterest expense 115,909 105,097 131,182 Income before income taxes 57,164 45,378 19,096 Income tax expense 12,560 9,725 3,421 Net income $ 44,604 $ 35,653 $ 15,675 Net income per common share Basic $ 2.82 $ 2.27 $ 0.96 Diluted $ 2.80 $ 2.23 $ 0.94 At or For the Year Ended June 30, 2023 2022 2021 Performance ratios Return on assets (ratio of net income to average total assets) 1.16 % 1.01 % 0.42 % Return on equity (ratio of net income to average equity) 10.43 9.00 3.88 Yield on earning assets 5.20 3.54 3.45 Rate paid on interest-bearing liabilities 1.17 0.23 0.57 Average interest rate spread 4.03 3.31 2.88 Net interest margin (1) 4.38 3.38 3.00 Average interest-earning assets to average interest-bearing liabilities 141.23 138.30 128.01 Noninterest expense to average total assets 3.01 2.97 3.55 Efficiency ratio 61.50 70.12 91.64 Efficiency ratio - adjusted (2) 59.12 69.19 73.41 25 At or For the Year Ended June 30, 2023 2022 2021 Asset quality ratios Nonperforming assets to total assets (3) 0.18 % 0.18 % 0.36 % Nonperforming loans to total loans (3) 0.23 0.22 0.46 Total classified assets to total assets 0.53 0.61 0.64 Allowance for credit losses to nonperforming loans (3) 567.56 566.83 281.38 Allowance for credit losses to total loans 1.29 1.25 1.30 Net charge-offs to average loans 0.10 (0.02) 0.01 Capital ratios Equity to total assets at end of period 10.23 % 10.96 % 11.25 % Tangible equity to total tangible assets (2) 9.39 10.31 10.59 Average equity to average assets 11.11 11.20 10.91 Dividend payout ratio 13.97 15.30 32.01 Dividends declared per common share $ 0.39 $ 0.35 $ 0.31 (1) Net interest income divided by average interest-earning assets.
The committee also evaluates these impacts against the potential changes in net interest income and market value of our portfolio equity that are monitored by the Board of Directors of HomeTrust Bank generally on a quarterly basis. Our asset/liability management strategy sets limits on the change in PVE given certain changes in interest rates.
The committee regularly reviews interest rate risk by forecasting the impact of alternative interest rate environments on net interest income and our PVE. The committee also evaluates these impacts against the potential changes in net interest income and market value of our portfolio equity that are monitored by the Board of Directors of HomeTrust Bank generally on a quarterly basis.
The uninsured amount is an estimate consistent with the methodology used for the Company's regulatory reporting disclosures. The following table indicates the amount of our CDs, both within and in excess of the $250,000 FDIC insurance limit, by time remaining until maturity as of June 30, 2022.
The following table indicates the amount of our CDs, both within and in excess of the $250,000 FDIC insurance limit, by time remaining until maturity as of June 30, 2023.
At June 30, 2022, there were $2.8 million of restructured loans included in nonperforming loans and $3.8 million, or 62.5%, of nonperforming loans were current on their loan payments. 27 GAAP Reconciliation of Non-GAAP Financial Measures We believe the non-GAAP financial measures included above provide useful information to management and investors that is supplementary to our financial condition, results of operations and cash flows computed in accordance with US GAAP; however, we acknowledge that our non-GAAP financial measures have a number of limitations.
GAAP Reconciliation of Non-GAAP Financial Measures We believe the non-GAAP financial measures included above provide useful information to management and investors that is supplementary to our financial condition, results of operations and cash flows computed in accordance with US GAAP; however, we acknowledge that our non-GAAP financial measures have a number of limitations.
These advances may be made pursuant to several different credit programs, each of which has its own interest rate, range of maturities and call features. The following tables set forth information regarding our borrowings at the end of and during the periods indicated.
These advances may be made pursuant to several different credit programs, each of which has its own interest rate, range of maturities and call features.
At June 30, 2022, we (on an unconsolidated basis) had liquid assets of $6.9 million. At the Bank level, we use our sources of funds primarily to meet our ongoing commitments, pay maturing deposits and fund withdrawals, and to fund loan commitments.
At the Bank level, we use our sources of funds primarily to meet our ongoing commitments, pay maturing deposits and fund withdrawals, and to fund loan commitments.
At June 30, 2022, $44.4 million, or 34.2%, of our municipal leases were secured by fire trucks, $48.8 million, or 37.6%, were secured by fire stations, $31.7 million, or 24.5%, were secured by both, with the remaining $4.9 million, or 3.7%, secured by miscellaneous firefighting equipment and land. At June 30, 2022, the average outstanding municipal lease size was $423,000.
At June 30, 2023, $86.1 million, or 60.5%, of our municipal leases were secured by fire trucks, $47.9 million, or 33.7%, were secured by fire stations, $104,000, or 0.1%, were secured by both, with the remaining $8.1 million, or 5.7%, secured by miscellaneous firefighting equipment and land. At June 30, 2023, the average outstanding municipal lease size was $430,000.
Net income totaled $35.7 million, or $2.23 per diluted share, for the year ended June 30, 2022 compared to $15.7 million, or $0.94 per diluted share, for the year ended June 30, 2021, an increase of $20.0 million, or 127.5%.
Net income totaled $44.6 million, or $2.80 per diluted share, for the year ended June 30, 2023 compared to $35.7 million, or $2.23 per diluted share, for the year ended June 30, 2022, an increase of $8.9 million, or 25.1%.
Year Ended June 30, 2022 2021 2020 (Dollars in thousands) Average Balance Outstanding Interest Earned/ Paid (2) Yield/ Rate (2) Average Balance Outstanding Interest Earned/ Paid (2) Yield/ Rate (2) Average Balance Outstanding Interest Earned/ Paid (2) Yield/ Rate (2) Assets: Interest-earning assets: Loans receivable (1) $ 2,809,673 $ 110,834 3.94 % $ 2,819,180 $ 113,065 4.01 % $ 2,748,124 $ 123,364 4.49 % Commercial paper 232,676 1,721 0.74 % 217,457 1,206 0.55 % 276,343 5,986 2.17 % Debt securities available for sale 122,558 1,802 1.47 % 137,863 2,024 1.47 % 150,249 3,687 2.45 % Other interest-earning assets (3) 114,458 2,988 2.61 % 266,783 3,705 1.39 % 150,984 4,407 2.92 % Total interest-earning assets 3,279,365 117,345 3.58 % 3,441,283 120,000 3.49 % 3,325,700 137,444 4.13 % Other assets 258,550 257,111 265,376 Total assets $ 3,537,915 $ 3,698,394 $ 3,591,076 Liabilities and equity: Interest-bearing liabilities: Interest-bearing checking accounts $ 646,370 $ 1,378 0.21 % $ 609,754 $ 1,552 0.25 % $ 457,455 $ 1,627 0.36 % Money market accounts 996,876 1,406 0.14 % 882,252 1,699 0.19 % 767,315 6,910 0.90 % Savings accounts 227,452 163 0.07 % 211,192 155 0.07 % 166,588 195 0.12 % Certificate accounts 457,186 2,313 0.51 % 568,284 5,964 1.05 % 764,013 14,105 1.85 % Total interest-bearing deposits 2,327,884 5,260 0.23 % 2,271,482 9,370 0.41 % 2,155,371 22,837 1.06 % Borrowings 43,376 80 0.18 % 416,822 6,041 1.45 % 568,377 9,313 1.64 % Total interest-bearing liabilities 2,371,260 5,340 0.23 % 2,688,304 15,411 0.57 % 2,723,748 32,150 1.18 % Noninterest-bearing deposits 724,588 550,265 365,634 Other liabilities 45,834 56,315 90,247 Total liabilities 3,141,682 3,294,884 3,179,629 Stockholders' equity 396,233 403,510 411,447 Total liabilities and stockholders' equity $ 3,537,915 $ 3,698,394 $ 3,591,076 Net earning assets $ 908,105 $ 752,979 $ 601,952 Average interest-earning assets to average interest-bearing liabilities 138.30 % 128.01 % 122.10 % Tax-equivalent: Net interest income $ 112,005 $ 104,589 $ 105,294 Interest rate spread 3.35 % 2.92 % 2.95 % Net interest margin (4) 3.42 % 3.04 % 3.17 % Non-tax-equivalent: Net interest income $ 110,774 $ 103,322 $ 104,104 Interest rate spread 3.32 % 2.88 % 2.92 % Net interest margin (4) 3.38 % 3.00 % 3.13 % (1) The average loans receivable, net balances include loans held for sale and nonaccruing loans.
Year Ended June 30, 2023 2022 2021 (Dollars in thousands) Average Balance Outstanding Interest Earned/ Paid Yield/ Rate Average Balance Outstanding Interest Earned/ Paid Yield/ Rate Average Balance Outstanding Interest Earned/ Paid Yield/ Rate Assets Interest-earning assets Loans receivable (1) $ 3,263,420 $ 176,270 5.40 % $ 2,809,673 $ 109,603 3.90 % $ 2,819,180 $ 111,798 3.97 % Commercial paper 62,686 1,300 2.07 232,676 1,721 0.74 217,457 1,206 0.55 Debt securities available for sale 155,902 4,350 2.79 122,558 1,802 1.47 137,863 2,024 1.47 Other interest-earning assets (2) 115,589 5,206 4.50 114,458 2,988 2.61 266,783 3,705 1.39 Total interest-earning assets 3,597,597 187,126 5.20 3,279,365 116,114 3.54 3,441,283 118,733 3.45 Other assets 250,788 258,550 257,111 Total assets $ 3,848,385 $ 3,537,915 $ 3,698,394 Liabilities and equity Interest-bearing liabilities Interest-bearing checking accounts $ 641,477 $ 2,962 0.46 % $ 646,370 $ 1,378 0.21 % $ 609,754 $ 1,552 0.25 % Money market accounts 1,078,478 13,333 1.24 996,876 1,406 0.14 882,252 1,699 0.19 Savings accounts 230,995 186 0.08 227,452 163 0.07 211,192 155 0.07 Certificate accounts 519,237 9,043 1.74 457,186 2,313 0.51 568,284 5,964 1.05 Total interest-bearing deposits 2,470,187 25,524 1.03 2,327,884 5,260 0.23 2,271,482 9,370 0.41 Junior subordinated debt 3,788 327 8.63 — — — — — — Borrowings 73,385 3,860 5.26 43,376 80 0.18 416,822 6,041 1.45 Total interest-bearing liabilities 2,547,360 29,711 1.17 2,371,260 5,340 0.23 2,688,304 15,411 0.57 Noninterest-bearing deposits 823,942 724,588 550,265 Other liabilities 49,469 45,834 56,315 Total liabilities 3,420,771 3,141,682 3,294,884 Stockholders' equity 427,614 396,233 403,510 Total liabilities and stockholders' equity $ 3,848,385 $ 3,537,915 $ 3,698,394 Net earning assets $ 1,050,237 $ 908,105 $ 752,979 Average interest-earning assets to average interest-bearing liabilities 141.23 % 138.30 % 128.01 % Non-tax-equivalent Net interest income $ 157,415 $ 110,774 $ 103,322 Interest rate spread 4.03 % 3.31 % 2.88 % Net interest margin (3) 4.38 % 3.38 % 3.00 % Tax-equivalent (4) Net interest income $ 158,578 $ 112,005 $ 104,589 Interest rate spread 4.06 % 3.35 % 2.92 % Net interest margin (3) 4.41 % 3.42 % 3.04 % (1) Average loans receivable balances include loans held for sale and nonaccruing loans.
At June 30, 2021, $5.5 million of restructured loans were included in nonaccruing loans and $6.6 million, or 52.6%, of nonaccruing loans were current on their loan payments.
At June 30, 2022, there were $2.8 million of restructured loans included in nonaccruing loans and $3.8 million, or 62.5%, of nonaccruing loans were current on their loan payments as of that date.
The ratio of nonperforming loans to total loans was 0.22% at June 30, 2022 and 0.46% at June 30, 2021. Performing TDRs that were excluded from nonaccruing loans totaled $9.8 million and $11.1 million at June 30, 2022 and June 30, 2021, respectively. Allowance for Credit Losses on Loans .
Performing TDRs that were excluded from nonaccruing loans totaled $8.2 million and $9.8 million at June 30, 2023 and June 30, 2022, respectively. Allowance for Credit Losses on Loans .
Our ACL recorded on the balance sheet reflects our best estimate within the range of expected credit losses. We recognize in net income the amount needed to adjust the ACL for management’s current estimate of expected credit losses. Our ACL is calculated using collectively evaluated and individually evaluated loans.
We recognize in net income the amount needed to adjust the ACL on loans held for investment and certain off-balance-sheet credit exposures for management’s current estimate of ECLs. Our ACL on loans held for investment is calculated using collectively evaluated and individually evaluated loans. Business Combinations, Core Deposit Intangible and Acquired Loans.
Set forth below is a reconciliation to US GAAP of our efficiency ratio: (Dollars in thousands) Year Ended June 30, 2022 2021 2020 Noninterest expense $ 105,184 $ 131,182 $ 97,129 Less: branch closure and restructuring expenses — 1,513 — Less: officer transition agreement expense 1,795 — — Less: prepayment penalties on borrowings — 22,690 — Noninterest expense – adjusted $ 103,389 $ 106,979 $ 97,129 Net interest income $ 110,774 $ 103,322 $ 104,104 Plus: tax equivalent adjustment 1,231 1,267 1,190 Plus: noninterest income 39,196 39,821 30,332 Less: gain on sale of securities available for sale 1,895 — — Net interest income plus noninterest income – adjusted $ 149,306 $ 144,410 $ 135,626 Efficiency ratio 70.14 % 91.64 % 72.25 % Efficiency ratio – adjusted 69.25 % 74.08 % 71.62 % Set forth below is a reconciliation to US GAAP of tangible book value and tangible book value per share: (Dollars in thousands, except per share data) June 30, 2022 2021 2020 Total stockholders' equity $ 388,845 $ 396,519 $ 408,263 Less: goodwill, core deposit intangibles, net of taxes 25,710 25,902 26,468 Tangible book value (1) $ 363,135 $ 370,617 $ 381,795 Common shares outstanding 15,591,466 16,636,483 17,021,357 Book value per share $ 24.94 $ 23.83 $ 23.99 Tangible book value per share $ 23.29 $ 22.28 $ 22.43 (1) Tangible book value is equal to total stockholders' equity less goodwill and core deposit intangibles, net of related deferred tax liabilities.
Set forth below is a reconciliation to US GAAP of our efficiency ratio: Year Ended June 30, (Dollars in thousands) 2023 2022 2021 Noninterest expense $ 115,909 $ 105,097 $ 131,182 Less: branch closure and restructuring expenses — — 1,513 Less: officer transition agreement expense — 1,795 — Less: merger-related expenses 5,465 — — Less: prepayment penalties on borrowings — — 22,690 Noninterest expense – adjusted $ 110,444 $ 103,302 $ 106,979 Net interest income $ 157,415 $ 110,774 $ 103,322 Plus: tax equivalent adjustment 1,163 1,231 1,267 Plus: noninterest income 31,050 39,109 39,821 Less: gain on sale of available for sale and equity securities 721 1,895 — Less: gain (loss) on sale of premises and equipment 2,097 (87) (1,311) Net interest income plus noninterest income – adjusted $ 186,810 $ 149,306 $ 145,721 Efficiency ratio 61.50 % 70.12 % 91.64 % Efficiency ratio – adjusted 59.12 % 69.19 % 73.41 % Set forth below is a reconciliation to US GAAP of tangible book value and tangible book value per share: (Dollars in thousands, except per share data) June 30, 2023 June 30, 2022 June 30, 2021 Total stockholders' equity $ 471,186 $ 388,845 $ 396,519 Less: goodwill, core deposit intangibles, net of taxes 42,410 25,710 25,902 Tangible book value $ 428,776 $ 363,135 $ 370,617 Common shares outstanding 17,366,673 15,591,466 16,636,483 Book value per share $ 27.13 $ 24.94 $ 23.83 Tangible book value per share $ 24.69 $ 23.29 $ 22.28 26 Set forth below is a reconciliation to US GAAP of tangible equity to tangible assets: (Dollars in thousands) June 30, 2023 June 30, 2022 June 30, 2021 Tangible equity (1) $ 428,776 $ 363,135 $ 370,617 Total assets 4,607,487 3,549,204 3,524,723 Less: goodwill, core deposit intangibles, net of taxes 42,410 25,710 25,902 Total tangible assets $ 4,565,077 $ 3,523,494 $ 3,498,821 Tangible equity to tangible assets 9.39 % 10.31 % 10.59 % (1) Tangible equity (or tangible book value) is equal to total stockholders' equity less goodwill and core deposit intangibles, net of related deferred tax liabilities.
Loans held for investment totaled $2.8 billion at June 30, 2022 compared to $2.7 billion at June 30, 2021, an increase of $36,028 or 1.3%. The following table illustrates the changes within the portfolio.
Loans held for investment totaled $3.7 billion at June 30, 2023 compared to $2.8 billion at June 30, 2022, an increase of $889,528 or 32.1%. The increase was mainly the result of $561.9 million of loans acquired through the Company's merger with Quantum. The following table illustrates the changes within the portfolio.
Interest rate risk is measured by changes in PVE for instantaneous parallel shifts in the yield curve up and down 400 basis points.
Interest rate risk is measured by changes in PVE for instantaneous parallel shifts in the yield curve up and down 400 basis points. An increase in rates would increase our PVE because the repricing of nonmaturing deposits tend to lag behind the increase in market rates.
Once a nonaccruing TDR has performed according to its modified terms for six months and the collection of principal and interest under the revised terms is deemed probable, the TDR is removed from nonaccrual status. 37 Total nonperforming assets were $6.3 million, or 0.18% of total assets, at June 30, 2022, compared to $12.8 milion, or 0.36% of total assets, at June 30, 2021.
Once a nonaccruing TDR has performed according to its modified terms for six months and the 35 collection of principal and interest under the revised terms is deemed probable, the TDR is removed from nonaccrual status.
The following table presents the distribution of average assets, liabilities and equity, as well as interest income on average interest-earning assets and interest expense paid on average interest-bearing liabilities. All average balances are daily average balances. Nonaccruing loans have been included in the table as loans carrying a zero yield.
Details of the changes in the various components of net income are further discussed below. 28 Net Interest Income. The following table presents the Company's distribution of average assets, liabilities and equity, as well as interest income on average interest-earning assets and interest expense paid on average interest-bearing liabilities. All average balances are daily average balances.
We use a systematic methodology to determine our ACL for loans held for investment and certain off-balance sheet credit exposures. The ACL is a valuation account that is deducted from the amortized cost basis to present the net amount expected to be collected on the loan portfolio.
The ACL on loans held for investment is a valuation account that is deducted from the amortized cost basis to present the net amount expected to be collected on the loan portfolio. We consider the effects of past events, current conditions, and reasonable and supportable forecasts on the collectability of the loan portfolio.
The ACL on loans decreased $778,000, or 2.2%, between June 30, 2022 and 2021 and there was a net benefit for credit losses on loans of $1.5 million for the year ended June 30, 2022, compared to a net benefit of $7.3 million for fiscal year 2021.
The ACL on loans increased $12.5 million, or 36.0%, between June 30, 2023 and 2022 mainly as a result of a provision for credit losses on loans of $15.4 million for the year ended June 30, 2023, compared to a net benefit of $1.5 million for fiscal year 2022.
June 30, (Dollars in thousands) 2022 2021 Nonaccruing loans Commercial real estate loans Construction and land development $ 67 $ 482 Commercial real estate - owner occupied 706 3,265 Commercial real estate - non-owner occupied 5 208 Multifamily 103 3,542 Total commercial real estate loans 881 7,497 Commercial loans Commercial and industrial 1,951 49 Equipment finance 270 630 Municipal leases — — PPP loans — — Total commercial loans 2,221 679 Residential real estate loans Construction and land development 137 22 One-to-four family 1,773 2,625 HELOCs 724 929 Total residential real estate loans 2,634 3,576 Consumer 384 854 Total nonaccruing loans $ 6,120 $ 12,606 Total foreclosed assets $ 200 188 Total nonperforming assets $ 6,320 $ 12,794 Total nonperforming assets as a percentage of total assets 0.18 % 0.36 % The significant decrease from June 30, 2021 was primarily a result of the payoff of two commercial real estate loan relationships totaling $5.1 million during the period.
(Dollars in thousands) June 30, 2023 June 30, 2022 Nonaccruing loans Commercial real estate loans Construction and land development $ 23 $ 67 Commercial real estate - owner occupied 517 706 Commercial real estate - non-owner occupied — 5 Multifamily 84 103 Total commercial real estate loans 624 881 Commercial loans Commercial and industrial 1,222 1,951 Equipment finance 2,862 270 Municipal leases 106 — Total commercial loans 4,190 2,221 Residential real estate loans Construction and land development 132 137 One-to-four family 1,935 1,773 HELOCs 957 724 Total residential real estate loans 3,024 2,634 Consumer 477 384 Total nonaccruing loans $ 8,315 $ 6,120 Total foreclosed assets — 200 Total nonperforming assets $ 8,315 $ 6,320 Total nonperforming assets as a percentage of total assets 0.18 % 0.18 % The ratio of nonperforming loans to total loans was 0.23% at June 30, 2023 and 0.22% at June 30, 2022.
Additionally, we classify our securities portfolio as available for sale, providing an additional source of liquidity. Management believes that our security portfolio is of high quality and the securities would therefore be marketable. In addition, we have historically sold fixed-rate mortgage loans in the secondary market to reduce interest rate risk and to create still another source of liquidity.
Additionally, we 38 classify our securities portfolio as available for sale, providing an additional source of liquidity. Management believes that our securities portfolio is of high quality, of short duration, and the securities would therefore be readily marketable.
Year Ended June 30, 2022 2021 (Dollars in thousands) Net Charge-Offs (Recoveries) Average Loans Outstanding Net Charge-Off (Recovery) Ratio Net Charge-Offs (Recoveries) Average Loans Outstanding Net Charge-Off (Recovery) Ratio Commercial real estate loans $ (603) $ 1,389,895 (0.04) % $ 851 $ 1,319,309 0.06 % Commercial loans 737 707,959 0.10 (1,166) 647,363 (0.18) Residential real estate loans (849) 613,270 (0.14) (121) 716,998 (0.02) Consumer loans 21 98,549 0.02 579 135,510 0.43 Total $ (694) $ 2,809,673 (0.02) % $ 143 $ 2,819,180 0.01 % 39 Liabilities.
Year Ended June 30, 2023 Year Ended June 30, 2022 (Dollars in thousands) Net Charge-Offs (Recoveries) Average Loans Outstanding Net Charge-Off (Recovery) Ratio Net Charge-Offs (Recoveries) Average Loans Outstanding Net Charge-Off (Recovery) Ratio Commercial real estate loans $ (3) $ 1,634,449 — % $ (603) $ 1,389,895 (0.04) % Commercial loans 3,289 784,321 0.42 737 707,959 0.10 Residential real estate loans (275) 736,372 (0.04) (849) 613,270 (0.14) Consumer loans 244 108,278 0.23 21 98,549 0.02 Total $ 3,255 $ 3,263,420 0.10 % $ (694) $ 2,809,673 (0.02) % Liabilities.
The following table summarizes net charge-offs (recoveries) to average loans outstanding by loan category as of the dates indicated.
As of June 30, 2023, there were $6.8 million in loans individually evaluated compared to $5.3 million at June 30, 2022. The following table summarizes net charge-offs (recoveries) to average loans outstanding by loan category as of the dates indicated.
Fiscal 2022 Items of Note Beginning July 1, 2021, the Bank brought its back-office SBA loan servicing process in-house to provide additional servicing fee and gain on sale income. In aggregate, our approach is designated to lead to increased profitability and franchise value over time.
These distributions reduced Quantum's stockholders' equity by an equal amount prior to the transaction closing date. Fiscal 2022 Items of Note Beginning July 1, 2021, the Bank brought its back-office SBA loan servicing process in-house to provide additional servicing fee and gain on sale income.
A secondary source of income is noninterest income, which includes revenue we receive from providing products and services, including service charges and fees on deposit accounts, loan income and fees, gains on the sale of loans held for sale, BOLI income, and operating lease income. 28 An offset to net interest income is the provision for credit losses which is required to establish the ACL at a level that adequately provides for current expected credit losses inherent in our loan portfolio, off balance sheet commitments, and available for sale debt securities.
A secondary source of income is noninterest income, which includes revenue we receive from providing products and services including service charges and fees on deposit accounts, loan income and fees, gains on sale of loans held for sale, BOLI income, and operating lease income.
Changes in selected components of noninterest income are discussed below: Year Ended June 30, 2022 vs 2021 2021 vs 2020 (Dollars in thousands) 2022 2021 2020 $ % $ % Noninterest income Service charges and fees on deposit accounts $ 9,462 $ 9,083 $ 9,382 $ 379 4 % $ (299) (3) % Loan income and fees 3,185 2,208 2,494 977 44 (286) (11) Gain on sale of loans held for sale 12,876 17,352 9,946 (4,476) (26) 7,406 74 BOLI income 2,000 2,156 2,246 (156) (7) (90) (4) Operating lease income 6,392 5,601 3,356 791 14 2,245 67 Gain on sale of debt securities available for sale 1,895 — — 1,895 100 — — Other 3,386 3,421 2,908 (35) (1) 513 18 Total noninterest income $ 39,196 $ 39,821 $ 30,332 $ (625) (2) % $ 9,489 31 % • Loan income and fees: The increase in loan income and fees was primarily due to approximately $1.3 million in SBA servicing income, the result of bringing the servicing of these loans in-house effective July 1, 2021 as indicated in the "Fiscal 2022 Items of Note" section above. • Gain on sale of loans held for sale: The decrease in the gain on sale of loans held for sale was primarily driven by decreases in the volume of residential mortgage loans and SBA commercial loans sold during the period as a result of rising interest rates.
Changes in selected components of noninterest income are discussed below: Year Ended June 30, 2023 vs 2022 2022 vs 2021 (Dollars in thousands) 2023 2022 2021 $ % $ % Service charges and fees on deposit accounts $ 9,510 $ 9,462 $ 9,083 $ 48 1 % $ 379 4 % Loan income and fees 2,571 3,185 2,208 (614) (19) 977 44 Gain on sale of loans held for sale 5,608 12,876 17,352 (7,268) (56) (4,476) (26) BOLI income 2,116 2,000 2,156 116 6 (156) (7) Operating lease income 5,471 6,392 5,601 (921) (14) 791 14 Gain on sale of debt securities available for sale — 1,895 — (1,895) (100) 1,895 100 Gain (loss) on sale of premises and equipment 2,097 (87) (1,311) 2,184 2,510 1,224 93 Other 3,677 3,386 4,732 291 9 (1,346) (28) Total noninterest income $ 31,050 $ 39,109 $ 39,821 $ (8,059) (21) % $ (712) (2) % • Loan income and fees: The decrease was driven by lower underwriting fees, interest rate swap fees and prepayment penalties in the current year compared to last year, all of which were impacted by rising interest rates. • Gain on sale of loans held for sale: The decrease was primarily driven by a decrease in the volume of SBA loans and residential mortgages sold during the period as a result of rising interest rates.
No such sales occurred in the prior year. • Operating lease income: The increase in operating lease income year-over-year is a result of increases in lease originations and higher outstanding balances in the current year. • Gain on sale of debt securities available for sale: The increase in the gain was driven by the sale of seven trust preferred securities during the quarter ended June 30, 2022 which had previously been written down to zero through purchase accounting adjustments from a merger in a prior period.
No such sales occurred in the current year. • Operating lease income: The decrease was the result of lower contractual earnings due to a decline in the average balance of assets being leased as well as gains or losses incurred upon disposal of previously leased equipment, where we recognized a net loss of $451,000 for the current year versus a net loss of $12,000 in the prior year. • Gain on sale of debt securities available for sale: The decrease was driven by the sale of seven trust preferred securities during the prior year which had previously been written down to zero through purchase accounting adjustments from a merger in a prior period.

… 98 more changes not shown on this page.

Other HTB 10-K year-over-year comparisons