HomeTrust Bancshares, Inc. — Form 10-K Summary
Business context and reporting period
This is the company’s annual report for the fiscal year ended June 30, 2022—not a report for calendar 2021 Q4. HomeTrust is a bank holding company operating through HomeTrust Bank, serving North Carolina, South Carolina, Tennessee and Virginia. It focuses on commercial and consumer banking, with 34 locations at fiscal year-end.
Financial performance and condition
- Profit: Net income was $35.7 million, or $2.23 per diluted share, compared with $15.7 million, or $0.94, in fiscal 2021. Return on assets was 1.01% and return on equity was 9.00%.
- Income and margins: Net interest income increased 7.2% to $110.8 million. Tax-equivalent net interest margin rose to 3.42% from 3.04%. Total noninterest income was $39.2 million, down 1.6%; total noninterest expense was $105.2 million.
- Credit costs and asset quality: The company recorded a $592,000 net benefit for credit losses, versus a $7.1 million benefit in fiscal 2021. Nonperforming assets declined to $6.3 million, or 0.18% of assets, from $12.8 million, or 0.36%. The allowance for credit losses on loans was $34.7 million, 1.25% of loans.
- Balance sheet and funding: Assets were $3.55 billion; loans, net, were $2.73 billion; deposits were $3.10 billion; and stockholders’ equity was $388.8 million. Deposits increased 4.9% and net loans increased 1.4% year over year. The company had no borrowings outstanding at June 30, 2022, compared with $115 million a year earlier.
- Liquidity and cash flow: Cash and cash equivalents were $105.1 million. Fiscal-year operating cash flow was $34.8 million, investing cash flow was $33.2 million, and financing cash flow was negative $13.8 million. Available borrowing capacity included $277.6 million through the FHLB, $68.2 million through the Federal Reserve line, and $120 million through bank lines, subject to applicable conditions and collateral.
- Capital and shareholder returns: The Bank was categorized as well-capitalized; its CET1 and total risk-based capital ratios were 10.35% and 11.02%. The company repurchased 1.48 million shares for $43.3 million and declared $0.35 per share in dividends.
Material changes versus fiscal 2021
- Net income rose 127.5%, supported by higher net interest income and the absence of fiscal 2021’s $22.7 million penalty for prepaying long-term borrowings. Fiscal 2021 also included branch-closure and restructuring costs.
- Interest expense fell 65.3%, largely reflecting the prior-year debt payoff and lower deposit costs. Interest and dividend income declined 2.2%.
- Gains on loan sales fell 25.8%, principally as rising rates reduced residential mortgage and SBA loan sales. Bringing SBA servicing in-house generated approximately $1.3 million of servicing income.
- Fiscal 2022 included a $1.8 million accrual under the CEO’s transition agreement and a $1.9 million gain from selling trust preferred securities previously written down to zero.
- Unrealized losses on available-for-sale securities reduced other comprehensive income by $3.9 million after tax. The company attributed the securities’ unrealized losses to noncredit factors and reported no related credit-loss allowance.
Outlook, risks and contingencies
- The filing gives no numerical earnings or growth guidance. Management cited rising interest rates as a potential support for net interest income, while also noting possible pressure on borrowers, housing activity, funding costs and margins. The Federal Reserve had raised its target rate by 150 basis points from March through June 2022.
- Commercial real estate represented about 49.5% of loans. The Bank’s CRE exposure under supervisory concentration criteria was 292.3% of regulatory capital, close to the 300% screening level; construction, land development and land loans were 77.6% of capital.
- Other identified risks include inflation and economic uncertainty, real-estate and borrower credit quality, deposit competition and uninsured deposits, interest-rate sensitivity, cybersecurity and third-party service disruptions, and the LIBOR transition. LIBOR-linked loans totaled $192.6 million at year-end.
- Uninsured deposits were estimated at $640.4 million. The company reported $417.6 million in approved loan commitments and $485.2 million in unused lines of credit, as well as $428.7 million of certificates of deposit maturing within one year.
- On July 24, 2022, the company agreed to acquire Quantum Capital Corp.; closing was anticipated in the first quarter of calendar 2023, subject to completion of the transaction. Management reported no pending litigation expected to have a material adverse effect. The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Track deposit retention and repricing, including the uninsured deposit base and near-term certificate maturities.
- Review CRE and construction loan performance, criticized/classified assets, and whether the allowance remains adequate as economic conditions change.
- Assess the effect of rate changes on net interest margin, deposit costs, securities values and capital; year-end securities had $3.2 million of gross unrealized losses.
- Verify the timing, approvals, integration costs and expected benefits of the Quantum acquisition, and monitor capital allocation through repurchases and dividends.