HomeTrust Bancshares, Inc. — Form 10-Q Summary
Reporting period: The filing covers the quarter and six months ended December 31, 2018 (the company’s fiscal second quarter and first half of fiscal 2019). Unless stated otherwise, amounts below are in millions of dollars. The filing text contains apparent date inconsistencies: it identifies shares outstanding as of February 7, 2018 and dates the signatures February 8, 2018, although the report covers a period ending December 31, 2018.
Business context and financial performance
HomeTrust is a bank holding company headquartered in Asheville, North Carolina. It gathers deposits and funds lending and investments across North Carolina, South Carolina, Tennessee and Virginia. Its loan portfolio includes residential, commercial real estate, construction and development, commercial and industrial, auto and municipal lease lending.
| Metric | Three months ended Dec. 31, 2018 | Six months ended Dec. 31, 2018 |
|---|---|---|
| Interest and dividend income | $34.4 | $66.7 |
| Net interest income | $27.1 | $53.4 |
| Noninterest income | $5.1 | $10.7 |
| Noninterest expense | $21.9 | $43.7 |
| Net income | $8.0 | $15.8 |
| Diluted earnings per share | $0.43 | $0.84 |
| Net interest margin, fully taxable-equivalent | 3.51% | 3.48% |
For the quarter, net interest income grew 6.9% year over year and noninterest income rose 14.0%; noninterest expense increased 4.2%. Average loan yield was 4.72%, while the average cost of interest-bearing liabilities was 1.13%. The reported effective tax rate was 22.1% for both the quarter and six-month period.
Financial condition, cash flow and liquidity
- At December 31, total assets were $3,413.1, net loans were $2,610.8, deposits were $2,258.1, borrowings were $688.0, and stockholders’ equity was $411.0. Since June 30, assets increased 3.3%, deposits 2.8%, borrowings 8.3%, and loans net of deferred fees 4.2%.
- Six-month cash flows were $6.3 provided by operations, $104.4 used in investing, and $98.6 provided by financing. Cash and cash equivalents ended at $71.3, up $0.6. Loan growth was a major investing cash use; deposit growth and additional borrowings were major funding sources.
- Management reported $63.4 of available FHLB borrowing capacity, a $137.4 Federal Reserve line and $70.0 in lines at other banks; none of the latter lines was drawn. FHLB advances outstanding were $688.0, including $413.0 maturing within 90 days and $275.0 in convertible advances with maturities under one year. Brokered deposits were $139.7, or 6.2% of deposits.
- The Bank was categorized as well capitalized. At December 31, its common equity Tier 1 ratio was 11.86%, total risk-based capital ratio 12.58%, and Tier 1 leverage ratio 10.68%. The holding company’s corresponding ratios were 12.55%, 13.28%, and 11.31%.
- Committed and contingent credit exposure included $197.7 of undisbursed construction loans, $60.2 of loan commitments, $488.1 of unused credit lines and $8.8 of standby letters of credit. These are not all expected to be drawn.
Changes, credit quality and unusual items
- Compared with the prior-year quarter, net income improved from a $10.7 loss to $8.0 income; the prior period included a $17.7 deferred-tax-asset write-down following the Tax Act. Excluding specified tax adjustments and a prior-period premises-sale gain, management reported non-GAAP net income of $8.0 for the quarter versus $7.0 a year earlier. The tax-related comparison is therefore a major driver of the GAAP earnings swing.
- Loan growth was led by commercial lending: commercial and industrial loans rose 50.9% from June 30, partly reflecting a new equipment-finance business; commercial real estate loans rose 5.5%. Retail consumer loans declined 2.1%. Management reported organic loan growth of $134.1 million at an 11.4% annualized rate.
- Net interest margin improved year over year, while funding costs rose materially: quarterly interest expense increased 101.7%, as deposit and borrowing rates increased. Management attributed higher loan yields to rising market rates and growth in average loans.
- Nonperforming assets fell to $12.6, or 0.37% of assets, from $14.6, or 0.44%, at June 30. Nonaccruing loans were $9.6; the allowance for loan losses was $21.4, or 0.81% of loans. There was no loan-loss provision in either six-month comparison period, and the current period recorded net recoveries of $0.36.
- Delinquent loans of 30 days or more increased to $13.2 from $9.8, mainly due to one commercial real estate relationship. Management said $5.8, or 60.0%, of nonaccruing loans were current on payments. The allowance excluding acquired loans was 0.89% of adjusted gross loans.
- The company repurchased 559,755 shares during the six months for approximately $15.6 at an average price of $27.95, declared its first cash dividend of $0.06 per share, and reported a $1.1 dividend obligation. A new authorization permitted repurchase of up to 931,601 shares; 116,600 under that authorization had been purchased by December 31.
Outlook, risks and contingencies
No quantified earnings or growth guidance is provided. Management described a focus on organic growth in existing markets and disciplined expansion, with selective acquisitions as a possibility. It said the allowance was adequate but emphasized that estimates may prove incorrect and regulators could require additional reserves. The filing also identifies exposure to economic and real-estate conditions, interest rates and funding costs, deposit competition, loan demand and credit quality, regulatory actions, cybersecurity and third-party service disruptions, and litigation.
The company expected adoption of the new lease standard to increase reported assets and liabilities, without a material effect on income or equity statements. It was evaluating the expected-credit-loss standard and anticipated that adoption could increase the allowance; the amount was not yet known. Management reported no pending legal proceeding it believed would materially adversely affect financial condition or results. It also reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the filing’s reporting and signature dates: the supplied text gives February 2018 dates that appear inconsistent with the December 2018 quarter.
- Track deposit pricing, funding mix and refinancing needs, particularly the $413.0 of FHLB advances due within 90 days and growth in brokered deposits.
- Monitor credit quality, especially the delinquent commercial real estate relationship, construction exposures, and whether recoveries and the current allowance remain adequate as the loan portfolio grows.
- Assess earnings excluding the prior-year $17.7 tax revaluation, and distinguish recurring operating performance from tax effects and changes in funding costs.
- Review the realized economics and credit performance of the new equipment-finance business and the impact of the repurchases and dividend on capital and liquidity.
- Follow the estimated impact of expected-credit-loss and lease-accounting standards; the filing says the credit-loss allowance impact was not yet quantified.