HomeTrust Bancshares, Inc.: Form 10-Q for the period ended Mar 31, 2025

Forward-Looking Statements

Certain matters in this Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our financial condition, results of operations, plans, objectives, future performance or business. Forward-looking statements are not statements of historical fact, but instead are based on certain assumptions and are generally identified by use of the words "believes," "expects," "anticipates," "estimates," "forecasts," "intends," "plans," "targets," "potentially," "probably," "projects," "outlook" or similar expressions or future or conditional verbs such as "may," "will," "should," "would" and "could." Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions and statements about future economic performance and projections of financial items. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from the results anticipated or implied by our forward-looking statements.

The factors that could result in material differentiation include, but are not limited to:

• the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write offs and changes in our ACL and provision for credit losses that may be impacted by deterioration in the housing and commercial real estate markets;
• changes in general economic conditions, both nationally and in our market areas;
• the potential imposition of new or increased tariffs or changes to existing trade policies that could affect economic activity or specific industry sectors;
• natural disasters, including the lingering effects of Hurricane Helene;
• changes in the levels of general interest rates, and the relative differences between short- and long-term interest rates, deposit interest rates, our net interest margin and funding sources and the effects of inflation or a potential recession;
• fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values in our market areas;
• decreases in the secondary market for the sale of loans that we originate;
• expected revenues, cost savings, synergies and other benefits from our merger and acquisition activities might not be realized to the extent anticipated, within the anticipated time frames, or at all, costs or difficulties relating to integration matters, including but not limited to customer and employee retention, might be greater than expected, and goodwill impairment charges might be incurred;
• results of examinations of us by the Federal Reserve, the NCCOB or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our ACL, write-down assets, increase our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits, which could adversely affect our liquidity and earnings;
• changes in laws or regulations, changes in regulatory policies and principles or the application or interpretation of laws and regulations by regulatory agencies and tax authorities, including changes in deferred tax asset and liability activity, and the interpretation of regulatory capital or other rules;
• the availability of resources to address changes in laws, rules or regulations, or to respond to regulatory actions;
• our ability to attract and retain deposits;
• our ability to access cost-effective funding and maintain sufficient liquidity;
• management's assumptions in determining the adequacy of the ACL;
• our ability to control operating costs and expenses, especially costs associated with our operation as a public company;
• the use of estimates in determining the fair value of certain assets, which estimates may prove to be incorrect and result in significant declines in valuation;
• difficulties in reducing risks associated with the loans on our balance sheet;
• staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our workforce and potential associated charges;
• disruptions, security breaches or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on the third-party vendors who perform several of our critical processing functions;
• our ability to retain key members of our senior management team;
• costs and effects of litigation, including settlements and judgments;
• the impact of bank failures or adverse developments involving other banks and related negative press about the banking industry in general on investor and depositor sentiment;
• increased competitive pressures among financial services companies;
• changes in consumer spending, borrowing and savings habits;
• adverse changes in the securities markets;
• inability of key third-party providers to perform their obligations to us;
• changes in accounting principles, policies or guidelines and practices, as may be adopted by the financial institution regulatory agencies, the Public Company Accounting Oversight Board or the FASB;
• other economic, competitive, governmental, regulatory and technological factors affecting our operations, pricing, products and services; and
• other risks detailed from time to time in documents we file with or furnish to the SEC, including this Form 10-Q.

Any forward-looking statements are based upon management’s beliefs and assumptions at the time they are made. We undertake no obligation to publicly update or revise any forward-looking statements included in this report or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this report might not occur and you should not put undue reliance on any forward-looking statements.

As used throughout this report, the terms “we,” “our,” “us,” “HomeTrust Bancshares” or the “Company” refer to HomeTrust Bancshares, Inc. and its consolidated subsidiaries, including HomeTrust Bank (“HomeTrust” or "Bank") unless the context indicates otherwise.

Overview

HomeTrust Bancshares, Inc., a Maryland corporation, was formed for the purpose of becoming the holding company for HomeTrust Bank in connection with 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. At March 31, 2025, the Company had consolidated total assets of $4.6 billion, total deposits of $3.7 billion and stockholders' equity of $565.4 million. The Company has not engaged in any significant activity other than holding the stock of the Bank. Accordingly, the information set forth in this Form 10-Q, including the unaudited 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. 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 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. Historically, our branches and facilities have primarily been located in small- to medium-sized communities, but in recent years we have implemented a strategy of expanding into larger, higher growth markets via business banking centers rather than retail-focused branches.

Our principal business consists of attracting deposits from the general public and investing those funds, along with borrowed funds, in commercial real estate loans, construction and development loans, commercial and industrial loans, equipment finance leases, municipal leases, loans secured by first and second mortgages on one-to-four family residences including home equity loans and other consumer loans. 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.

Our primary source of pre-tax income is net interest income. Net interest income is the difference between interest income, which is the income that we earn on our loans and investments, and interest expense, which is the interest that we pay on our deposits and borrowings. Changes in levels of interest rates affect our net interest income. A secondary source of income is noninterest income, which includes revenue we receive from providing products and services including service charges and fees on deposit accounts, loan income and fees, gains on sale of loans held for sale, BOLI income and operating lease income.

An offset to net interest income is the provision for credit losses to establish the ACL at a level that provides for ECLs inherent in our loan portfolio, off balance sheet commitments and available for sale debt securities. See "Note 1 – Summary of Significant Accounting Policies" in Item 1 of our 2024 Form 10-K for further discussion.

Our noninterest expenses consist primarily of salaries and employee benefits, occupancy expenses, computer services, operating lease depreciation, marketing and FDIC deposit insurance premiums. Salaries and benefits consist primarily of the salaries and wages paid to our employees, payroll taxes, expenses for retirement and other employee benefits. Occupancy expenses, which are the fixed and variable costs of buildings and equipment, consist primarily of lease payments, property taxes, depreciation charges, maintenance and costs of utilities.

Critical Accounting Policies and Estimates

Certain of our accounting policies are important to the portrayal of our financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances which 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. The following represents our critical accounting policy:

Allowance for Credit Losses, or ACL, on Loans. The ACL on loans held for investment reflects our estimate of credit losses that will result from the inability of our borrowers to make required loan payments. We charge off loans against the ACL and subsequent recoveries, if any, increase the ACL when they are recognized. We use a systematic methodology to determine our ACL for loans held for investment and certain off-balance-sheet credit exposures. The ACL 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. The estimate of our ACL on loans held for investment involves a high degree of judgment including consideration of the effects of past events, current conditions and reasonable and supportable forecasts on the collectability of the loan portfolio. 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.

Financial Highlights

For the quarter ended March 31, 2025 compared to the quarter ended December 31, 2024:

• net income was $14.5 million compared to $14.2 million;
• diluted EPS was $0.84 compared to $0.83;
• annualized ROA was 1.33% compared to 1.27%;
• annualized ROE was 10.52% compared to 10.32%;
• net interest margin was 4.18% compared to 4.09%;
• provision for credit losses was $1.5 million compared to a benefit of $855,000;
• quarterly cash dividends continued at $0.12 per share totaling $2.1 million for both periods; and
• 14,800 shares of Company common stock were repurchased during the quarter at an average price of $33.64 compared to none in the prior quarter.

(Dollars in thousands)

(1) Basic and diluted net income per common share have been prepared in accordance with the two-class method.

(2) See Non-GAAP reconciliations below for adjustments.

GAAP Reconciliation of Non-GAAP Financial Measures

We believe the non-GAAP financial measures included within this report provide useful information to management and investors that is supplementary to our financial condition, results of operations and cash flows computed in accordance with US GAAP; however, we acknowledge that our non-GAAP financial measures have a number of limitations. The following reconciliation tables provide detailed analyses of these non-GAAP financial measures.

Set forth below is a reconciliation to US GAAP of tangible book value and tangible book value per share:

(Dollars in thousands, except per share data)

Set forth below is a reconciliation to US GAAP of tangible equity to tangible assets:

(Dollars in thousands)

Tangible equity to tangible assets 11.65 % 11.25 % 10.18 %

(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.

Comparison of Results of Operations for the Three Months Ended March 31, 2025 and December 31, 2024

Net Income. Net income totaled $14.5 million, or $0.84 per diluted share, for the three months ended March 31, 2025 compared to $14.2 million, or $0.83 per diluted share, for the three months ended December 31, 2024, an increase of $331,000, or 2.3%. Results for the three months ended March 31, 2025 benefited from a $3.0 million decrease in noninterest expense, partially offset by a $2.4 million increase in the provision for credit losses. Details of the changes in the various components of net income are further discussed below.

Net Interest Income. The following table presents the distribution of average assets, liabilities and equity, as well as interest income earned 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.

(Dollars in thousands)

(1) Average loans receivable balances include loans held for sale and nonaccruing loans.

(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.

(4) Tax-equivalent results include adjustments to interest income of $418 and $389 for the three months ended March 31, 2025 and December 31, 2024, respectively, calculated based on a combined federal and state tax rate of 24%.

Total interest and dividend income for the three months ended March 31, 2025 decreased $2.6 million, or 3.9%, compared to the three months ended December 31, 2024, which was driven by a $3.6 million, or 5.8%, decrease in loan interest income primarily due to a decline in the average balance, a decrease in accretion income on acquired loans of $881,000, or 73.3%, and fewer days in the current quarter. In addition, income on SBIC investments increased $452,000, or 54.0%, due to investment appreciation.

Total interest expense for the three months ended March 31, 2025 decreased $2.3 million, or 9.9%, compared to the three months ended December 31, 2024. The decrease was the result of a decline in the average balance of certificate accounts, specifically brokered deposits, a decline in the average cost of funds across funding categories, and fewer days in the current quarter.

The following table shows the effects that changes in average balances (volume), including the difference in the number of days in the periods compared, and average interest rates (rate) had on the interest earned on interest-earning assets and interest paid on interest-bearing liabilities:

(Dollars in thousands)

Provision for Credit Losses. The provision for credit losses is the amount of expense that, based on our judgment, is required to maintain the ACL at an appropriate level under the current expected credit losses model.

The following table presents a breakdown of the components of the provision for credit losses:

(Dollars in thousands)

For the quarter ended March 31, 2025, the "loans" portion of the provision for credit losses was the result of the following, offset by net charge-offs of $1.3 million during the quarter:

• $0.6 million benefit driven by changes in the loan mix.
• The slight improvement in the projected economic forecast, specifically the national unemployment rate, was offset by changes in qualitative adjustments. Of note, we retained the $2.2 million qualitative allocation for the potential impact of Hurricane Helene upon our loan portfolio established in the quarter ended September 30, 2024.
• $0.1 million increase in specific reserves on individually evaluated loans.

For the quarter ended December 31, 2024, the "loans" portion of the provision for credit losses was the result of the following, offset by net charge-offs of $1.9 million during the quarter:

• $1.3 million benefit driven by changes in the loan mix and a $50.6 million decrease in the loan portfolio.
• $0.7 million benefit due to changes in the projected economic forecast, specifically the national unemployment rate, and changes in qualitative adjustments. Of note, we retained the $2.2 million qualitative allocation for the potential impact of Hurricane Helene upon our loan portfolio established in the prior quarter.
• $0.9 million decrease in specific reserves on individually evaluated credits.

For the quarter ended March 31, 2025, the amount recorded for off-balance-sheet credit exposure was the result of an increase in the balance of loan commitments and changes in the loan mix and projected economic forecast as outlined above. For the quarter ended December 31, 2024, the amount recorded for off-balance-sheet credit exposure was the result of a decrease in the balance of loan commitments and changes in the loan mix and projected economic forecast as outlined above.

Noninterest Income. Noninterest income for the three months ended March 31, 2025 decreased $216,000, or 2.6%, when compared to the quarter ended December 31, 2024. Changes in the components of noninterest income are discussed below:

(Dollars in thousands)

• Gain on sale of loans held for sale: The increase was primarily driven by HELOCs sold during the period. There were $89.4 million of HELOCs originated for sale which were sold during the current quarter with gains of $1.1 million compared to no sales in the prior quarter. There were $18.8 million of residential mortgage loans sold for a gain of $473,000 during the current quarter compared to $23.8 million sold with gains of $269,000 in the prior quarter. There were $4.6 million in sales of the guaranteed portion of SBA commercial loans with gains of $366,000 for the current quarter compared to $10.2 million sold and gains of $733,000 for the prior quarter. Our hedging of mandatory commitments on the residential mortgage loan pipeline resulted in a gain of $13,000 for the current quarter compared to a gain of $66,000 for the prior quarter.
• Operating lease income: The decrease was primarily the result of a $306,000 increase in losses incurred on the sale of, and a $529,000 increase in the valuation allowance against, previously leased equipment.

Noninterest Expense. Noninterest expense for the three months ended March 31, 2025 decreased $3.0 million, or 9.0%, when compared to the three months ended December 31, 2024. Changes in the components of noninterest expense are discussed below:

(Dollars in thousands)

• Computer services: As noted below, in the prior quarter we finalized the multiyear renewal of our largest core processing contract. The decrease in expense quarter-over-quarter is a reflection of the improved vendor pricing negotiated through this effort.
• Marketing and advertising: The increase in expense was the result of a reduction in advertising in the prior quarter due to the election and holiday season.
• Contract renewal consulting fee: In the prior quarter we paid a fee to a consultant to negotiate the multiyear renewal of our largest core processing contract, with no similar fee in the current quarter.

Income Taxes. 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 rates for the three months ended March 31, 2025 and December 31, 2024 were 21.1% and 22.3%, respectively.

Comparison of Financial Condition at March 31, 2025 and December 31, 2024

General. Total assets decreased by $37.4 million to $4.6 billion and total liabilities decreased by $51.1 million to $4.0 billion, respectively, at March 31, 2025 as compared to December 31, 2024. These changes can be traced to the use of loan sale proceeds and a $61.5 million increase in customer deposits to pay down brokered deposits by $104.3 million and borrowings by $11.0 million.

Cash and Cash Equivalents. Total cash and cash equivalents increased $20.6 million, or 7.4%, to $299.8 million at March 31, 2025 from $279.2 million at December 31, 2024.

Debt Securities Available for Sale. Debt securities available for sale decreased $1.4 million, or 0.9%, to $150.6 million at March 31, 2025 from $152.0 million at December 31, 2024.

Loans Held for Sale. Loans held for sale decreased $52.8 million, or 25.6%, to $153.3 million at March 31, 2025 from $206.2 million at December 31, 2024. This was driven by a decrease of $57.3 million, or 32.1%, in HELOCs held for sale, partially offset by a $4.1 million, or 17.8%, increase in SBA loans held for sale; primarily due to the sale of HELOCs during the current quarter, as discussed above.

Loans, Net of Deferred Loan Fees and Costs. Total loans increased $310,000, to $3.6 billion at March 31, 2025 as compared to the balance at December 31, 2024. The following table illustrates the changes within the portfolio:

(Dollars in thousands)

Asset Quality. Nonperforming assets, made up of nonaccrual loans and repossessed assets, decreased by $753,000, or 2.6%, to $28.0 million, or 0.61% of total assets, at March 31, 2025 compared to $28.8 million, or 0.63% of total assets, at December 31, 2024. Owner occupied commercial real estate ("CRE") made up the largest portion of nonperforming assets at $8.6 million and $8.5 million, respectively, at these same dates. One relationship made up $5.0 million of the totals at both dates but no loss is anticipated. In addition, equipment finance loans made up $5.1 million and $4.7 million, respectively, at these same dates, concentrated in the transportation sector. The ratio of nonperforming loans to total loans was 0.74% at March 31, 2025 compared to 0.76% at December 31, 2024.

The ratio of classified assets to total assets decreased to 0.89% at March 31, 2025 from 1.06% at December 31, 2024 as classified assets decreased $8.1 million, or 16.6%, to $40.7 million at March 31, 2025 compared to $48.8 million at December 31, 2024. The largest portfolios of classified assets at March 31, 2025 included $12.9 million of owner-occupied CRE loans, $6.6 million of 1-4 family residential real estate loans, $5.4 million of equipment finance loans, $4.2 million of commercial and industrial loans, $4.2 million of HELOCs, and $3.8 million of non-owner occupied CRE loans.

Lastly, in an effort to assist customers in their post-Hurricane Helene recovery and clean-up efforts, in the prior quarter we granted payment deferrals of up to six months to provide short-term relief to impacted customers. The outstanding balance of these deferrals declined from $136.0 million at December 31, 2024 to $109.9 million at March 31, 2025 and $36.6 million at May 5, 2025. The Company retained the prior quarter $2.2 million ACL allocation for the potential impact of the storm on this portion of our loan portfolio. To date, no charge-offs have been recognized which were directly related to Hurricane Helene.

Allowance for Credit Losses on Loans. The ACL on loans was $44.7 million, or 1.23% of total loans, at March 31, 2025 compared to $45.3 million, or 1.24% of total loans, at December 31, 2024. The drivers of this change are discussed in the "Comparison of Results of Operations for the Three Months Ended March 31, 2025 and December 31, 2024 – Provision for Credit Losses" section above.

Net loan charge-offs totaled $1.3 million for the three months ended March 31, 2025 compared to $1.9 million and $2.3 million for the three months ended December 31, 2024 and March 31, 2024, respectively. Annualized net charge-offs as a percentage of average loans were 0.14% for the three months ended March 31, 2025 as compared to 0.19% and 0.24% for the three months ended December 31, 2024 and March 31, 2024, respectively.

Premises and Equipment Held for Sale. Premises and equipment held for sale increased by $7.6 million to $8.2 million at March 31, 2025 from $616,000 at December 31, 2024. The majority of the change can be traced to the reclassification of the $6.3 million of premises and equipment associated with our two Knoxville, Tennessee branches, consistent with the announced sale of those locations expected to close in the second quarter of 2025.

Deposits. The following table summarizes the composition of our deposit portfolio as of the dates indicated:

(Dollars in thousands)

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. 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. All qualifying one-to-four family loans, HELOCs, commercial real estate loans, multifamily loans and FHLB of Atlanta stock are pledged as collateral to secure outstanding FHLB advances while commercial construction, indirect auto, and equipment and municipal leases are pledged as collateral to secure outstanding FRB advances. At March 31, 2025, the Company had the ability to borrow $295.3 million through additional FHLB advances and $98.0 million through the unused portion of a line of credit with the FRB. At this same date, the Company maintained revolving lines of credit with three unaffiliated banks, the unused portion of which totaled $165.0 million.

We also 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. In addition, we have historically sold fixed-rate mortgage loans in the secondary market to reduce interest rate risk and to create still another source of liquidity. From time to time we also utilize brokered time deposits to supplement our other sources of funds. Brokered time deposits are obtained by utilizing an outside broker that is paid a fee. This funding requires advance notification to structure the type of deposit desired by us. Brokered deposits can vary in term from one month to several years and have the benefit of being a source of longer-term funding. We also utilize brokered deposits to help manage interest rate risk by extending the term to repricing of our liabilities, enhance our liquidity and fund asset growth. Brokered deposits are typically from outside our primary market areas, and our brokered deposit levels may vary from time to time depending on competitive interest rate conditions and other factors. At March 31, 2025, brokered deposits totaled $282.8 million, or 7.6% of total deposits.

Liquidity management is both a daily and long-term function of business management. Excess liquidity is generally invested in short-term investments, such as overnight deposits and federal funds. On a longer term basis, we maintain a strategy of investing in various lending products and debt securities, including MBS. On a stand-alone level we are a separate legal entity from the Bank and must provide for our own liquidity and pay our own operating expenses. Our primary source of funds consists of dividends or capital distributions from the Bank, although there are regulatory restrictions on the ability of the Bank to pay dividends. At March 31, 2025, we (on an unconsolidated basis) had liquid assets of $4.2 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 March 31, 2025, the total approved loan commitments and unused lines of credit outstanding amounted to $266.5 million and $855.6 million, respectively, as compared to $230.5 million and $712.3 million as of December 31, 2024. Certificates of deposit scheduled to mature in one year or less at March 31, 2025 totaled $874.7 million. 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 be retained.

Off-Balance Sheet Activities

In the normal course of operations, we engage in a variety of financial transactions that are not recorded in our financial statements, mainly to manage customers' requests for funding. These transactions primarily take the form of loan commitments and lines of credit and involve varying degrees of off-balance sheet credit, interest rate and liquidity risks. For further information, see "Note 12 – Commitments and Contingencies" in this Quarterly Report on Form 10-Q.

Capital Resources

HomeTrust Bancshares, Inc. is a bank holding company subject to regulation by the Federal Reserve. As a bank holding company, we are subject to capital adequacy requirements of the Federal Reserve under the Bank Holding Company Act of 1956, as amended and the regulations of the Federal Reserve. The Company's subsidiary, the Bank, an FDIC-insured, North Carolina state-chartered bank and a member of the Federal Reserve System, is supervised and regulated by the Federal Reserve and the NCCOB and is subject to minimum capital requirements applicable to state member banks established by the Federal Reserve that are calculated in a manner similar to those applicable to bank holding companies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by bank regulators that, if undertaken, could have a direct material effect on the Company's financial statements.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

At March 31, 2025, HomeTrust Bancshares, Inc. and the Bank each exceeded all regulatory capital requirements. Consistent with the Company's goals to operate a sound and profitable organization, its policy is for the Bank to maintain a “well-capitalized” status under the regulatory capital categories of the Federal Reserve. The Bank was categorized as "well-capitalized" at March 31, 2025 under applicable regulatory requirements.

HomeTrust Bancshares, Inc. and the Bank's actual and required minimum capital amounts and ratios are as follows:

(Dollars in thousands)

As permitted by the interim final rule issued on March 27, 2020 by the federal banking regulatory agencies, the Company elected the option to delay the estimated impact on regulatory capital of ASU 2016-13, which was adopted on July 1, 2020. The initial adoption of ASU 2016-13 as well as 25% of the quarterly increases in the ACL subsequent to adoption (collectively the “transition adjustments”) was delayed for two years. After two years, the cumulative amount of the transition adjustments became fixed and were phased out of the regulatory capital calculations evenly over a three-year period, with 75% recognized in year three, 50% recognized in year four, and 25% recognized in year five. Starting with the quarter ended March 31, 2025, the temporary regulatory capital benefits have been fully reversed.

In addition to the minimum CET1, Tier 1 and total risk-based capital ratios, both HomeTrust Bancshares, Inc. and the Bank have to maintain a capital conservation buffer consisting of additional CET1 capital of more than 2.50% above the required minimum levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses based on percentages of eligible retained income that could be utilized for such actions. As of March 31, 2025, the Company's and Bank's risk-based capital exceeded the required capital contribution buffer.

Dividends paid by HomeTrust Bank are limited, without prior regulatory approval, to current year earnings and earnings less dividends paid during the preceding two years.

Evaluation of Disclosure Controls and Procedures: An evaluation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the "Act")) as of March 31, 2025, was carried out under the supervision and with the participation of the Company's Chief Executive Officer, Chief Financial Officer and several other members of the Company's senior management. The Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures in effect as of March 31, 2025, were effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Act is: (i) accumulated and communicated to the Company's management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.

The Company does not expect that its disclosure controls and procedures and internal control over financial reporting will prevent all errors and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls may be circumvented by the individual acts of some persons, by collusion of two or more people, or by override of the control. The design of any control procedure also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.

Changes in Internal Controls: There have been no changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2025 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.