Hometrust Bancshares, Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2023. Although the request labels this “2023 Q1,” the filing covers the quarter ended September 30, 2023; the company also says it is changing its fiscal year-end and expects a six-month transition period ending December 31, 2023. HomeTrust is a regional bank holding company operating across North Carolina, South Carolina, Tennessee, Virginia, and Georgia.
Financial performance and position
- Profit: Net income was $14.8 million, or $0.88 per diluted share, versus $9.2 million and $0.60 per diluted share in the year-earlier quarter. Sequentially, net income declined from $15.0 million and diluted EPS of $0.90 in the June 2023 quarter.
- Interest income and margins: Interest and dividend income was $61.9 million; net interest income was $42.2 million. Net interest margin was 4.02%, down from 4.32% in the prior quarter. The filing does not provide a comparable year-over-year NIM in the supplied text.
- Credit costs and expenses: Provision for credit losses was $2.6 million, compared with $4.0 million in the year-earlier quarter and $0.4 million in the prior quarter. Noninterest income was $8.6 million and noninterest expense was $29.6 million. The filing does not report a net interest or operating margin beyond NIM.
- Cash flow: Operating activities used $33.0 million, investing activities provided $21.5 million, and financing activities provided $33.0 million. Cash and cash equivalents increased $21.5 million to $325.0 million.
- Balance sheet and funding: Total assets were $4.65 billion; loans, net, were $3.61 billion; deposits were $3.64 billion; borrowings were $452.3 million, plus $10.0 million of junior subordinated debt. Stockholders’ equity was $484.4 million.
- Liquidity and capital: The company reported $325.0 million of cash and cash equivalents, $67.7 million of additional FHLB borrowing capacity, $62.1 million of unused FRB capacity, and $144.7 million of unused lines with unaffiliated banks. The Bank was categorized as well-capitalized; its CET1 ratio was 11.42% and total risk-based capital ratio was 12.47%.
Changes versus prior periods
- Year over year, net income increased about 61%; interest expense rose to $19.7 million from $1.4 million, while net interest income increased to $42.2 million from $34.5 million. Noninterest expense rose to $29.6 million from $26.1 million.
- Sequentially, net interest income fell $1.7 million and interest expense increased $4.5 million, reflecting higher funding costs and higher average deposits and borrowings. Provision expense increased $2.2 million from the prior quarter, while noninterest income increased $1.7 million and expense declined $1.3 million.
- Deposits rose $39.8 million from June 30, but core deposits fell $62.0 million as certificates of deposit increased $101.8 million. Loans held for sale increased $36.8 million, primarily from HELOCs; held-for-investment loans were nearly flat.
Management commentary, risks and unusual items
- Noninterest income included a $1.1 million tax-free BOLI death-benefit gain, the main reason for its sequential increase. The effective tax rate was 20.5%, compared with 22.9% in the prior quarter.
- Nonperforming assets, consisting entirely of nonaccrual loans, increased to $11.8 million, or 0.25% of assets; nonperforming loans were 0.32% of loans. Classified assets increased to $35.2 million, primarily due to one approximately $9.0 million commercial real estate relationship.
- The loan allowance was $47.4 million, or 1.30% of loans. Quarterly net charge-offs were $2.6 million, concentrated in equipment finance and SBA, with the quarter-over-quarter increase driven by SBA.
- Uninsured deposits were $962.7 million, or 26.4% of deposits, including $294.8 million of collateralized municipal deposits. Brokered deposits were $328.0 million, or 9.0% of deposits. Certificates of deposit totaling $791.2 million were due within one year.
- Available-for-sale securities had $6.0 million of gross unrealized losses at quarter-end. Management said it did not intend, and did not consider it more likely than not that it would be required, to sell these securities; it reported no credit loss requiring an allowance.
- Management cited risks including deposit retention and funding costs, interest-rate changes, loan and commercial real estate credit deterioration, liquidity, regulatory actions, cybersecurity and third-party disruptions, and integration of the February 2023 Quantum merger. It provided no specific earnings or operating guidance and cautioned that the quarter is not necessarily indicative of the transition period.
- The filing says there were no pending legal proceedings management believed would materially adversely affect the company, no material changes to previously disclosed risk factors, and no stock repurchases during the quarter.
Important facts for investors to verify
- Whether deposit pricing, certificate maturities, uninsured balances, and reliance on brokered deposits affect funding costs and liquidity.
- Whether nonperforming and classified loans, SBA and equipment-finance charge-offs, and commercial real estate exposures continue to rise.
- Whether the 4.02% net interest margin stabilizes as asset yields and deposit and borrowing costs change.
- How much of reported income was attributable to the one-time BOLI death-benefit gain, and whether Quantum integration delivers expected benefits.
- How the fiscal-year change and six-month transition period affect period-to-period comparability.