Hometrust Bancshares, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended June 30, 2021, with comparative results for FY2020 and FY2019. Although the request metadata says “2020 Q4,” this filing is an annual report for FY2021; it also reports a fourth-quarter FY2021 net loss.
Business context and reporting period
HomeTrust Bancshares is the holding company for HomeTrust Bank, a community bank operating primarily in North Carolina, South Carolina, Tennessee and Virginia. Its business centers on gathering deposits and lending across commercial real estate, equipment finance, municipal leases, residential mortgages and consumer products. At June 30, 2021, the Company reported $3.525 billion of assets, $2.956 billion of deposits and $396.5 million of stockholders’ equity.
Key financial metrics
| Metric | FY2021 / June 30, 2021 | FY2020 / June 30, 2020 |
|---|---|---|
| Net income | $15.7 million | $22.8 million |
| Diluted EPS | $0.94 | $1.30 |
| Net interest income | $103.3 million | $104.1 million |
| Net interest margin, tax-equivalent | 3.04% | 3.17% |
| Net interest income after credit provision/benefit | $110.5 million | $95.6 million |
| Noninterest income | $39.8 million | $30.3 million |
| Noninterest expense | $131.2 million | $97.1 million |
| Return on assets / return on equity | 0.42% / 3.88% | 0.63% / 5.54% |
| Total assets | $3.525 billion | $3.723 billion |
| Net loans | $2.698 billion | $2.741 billion |
| Allowance for credit losses | $35.5 million; 1.30% of loans | $28.1 million; 1.01% of loans |
| Nonperforming assets | $12.8 million; 0.36% of assets | $16.3 million; 0.44% of assets |
| Cash and cash equivalents | $51.0 million | $121.6 million |
| Borrowings | $115.0 million | $475.0 million |
| Stockholders’ equity | $396.5 million | $408.3 million |
Net cash provided by operating activities was $2.8 million in FY2021, versus $42.1 million used in FY2020. Investing activities provided $156.3 million, while financing activities used $229.7 million. The Company declared dividends of $0.31 per share and repurchased approximately $16.2 million of stock during the year.
Material changes versus the prior comparable period
- Net income declined 31%, while diluted EPS fell from $1.30 to $0.94. The year included $22.7 million of penalties to prepay FHLB borrowings and $1.5 million of branch-closure and restructuring costs.
- Excluding those two items, management reported an adjusted efficiency ratio of 74.08%, compared with 71.62% in FY2020; the unadjusted ratio rose to 91.64% from 72.25%.
- Net interest income edged down 0.8%, and tax-equivalent net interest margin narrowed 13 basis points to 3.04%. Lower asset yields were substantially offset by lower funding costs.
- Noninterest income rose 31%, mainly as gains on loan sales increased to $17.4 million from $9.9 million. Loan sales included residential mortgages, SBA loans and HELOCs.
- Total loans decreased 1.3%. Commercial loans increased 5.7%, including 38.7% growth in equipment finance and 8.5% growth in commercial real estate; retail consumer loans declined 15.7%.
- Deposits increased 6.1%, with core non-certificate deposits growing 21.3%; certificates of deposit and brokered deposits were actively reduced. Borrowings fell $360 million after repayment of $475 million of long-term FHLB advances, partly replaced with lower-rate, short-term advances.
- Nonperforming assets declined 21.3%; net charge-offs fell to $143,000 from $1.9 million. The credit-loss benefit was $7.1 million, versus an $8.5 million provision in FY2020.
Outlook, commentary, risks and unusual items
- Management priorities: Improve profitability by reducing ongoing costs and increasing revenue from established business lines, with a continued emphasis on organic growth in existing markets. The Bank brought SBA processing, closing and servicing in-house beginning July 2021, expecting additional servicing-fee and loan-sale income.
- Branch restructuring: Nine branches were scheduled to close on September 16, 2021, in response to changing customer preferences and increased digital banking activity. Management expects lower operating expenses and greater efficiencies.
- COVID-19: Management warned that pandemic effects, including the Delta variant, could continue to affect credit quality, operations and net interest income. At June 30, 2021, $78.9 million of commercial loans had interest-only terms; $107,000 remained under full principal-and-interest deferral. The filing says future delinquencies, classifications, charge-offs or allowance increases remain possible.
- Credit concentrations: Commercial real estate represented 41.8% of loans; the Bank’s CRE exposure under regulatory guidance was 280.1% of regulatory capital. Construction and development lending, equipment finance and auto lending also carry collateral, concentration or borrower cash-flow risks.
- Capital and liquidity: The Bank remained “well capitalized,” with CET1 of 10.74%, total risk-based capital of 11.43% and Tier 1 leverage of 9.81%. Available additional borrowing capacity included $289.4 million from the FHLB, a $92.9 million Federal Reserve line and $100 million of bank lines, subject to terms and collateral.
- Interest-rate and benchmark risks: Management identifies interest-rate risk as its principal market risk. The filing cites the low-rate environment, potential margin pressure and the transition away from LIBOR; $239.8 million of loans were LIBOR-linked at year-end. The Company planned to use SOFR for new originations before the end of calendar 2021.
- Other unusual or material matters: The Company adopted CECL on July 1, 2020, increasing the loan allowance by $14.8 million and reducing retained earnings by $13.4 million after related adjustments. The external auditor issued unqualified opinions on the financial statements and internal control over financial reporting, and identified the allowance for credit losses as a critical audit matter. The filing reports litigation in the ordinary course but no pending matter management believed would materially adversely affect the Company.
- Formal guidance: The filing does not provide quantified earnings or margin guidance. Management’s outlook is qualitative and subject to economic, credit, interest-rate and operational uncertainties.
Important facts for investors to verify
- Whether earnings recover after the one-time $22.7 million borrowing-prepayment charge and whether the branch closures and other initiatives deliver expected savings.
- How loan performance and the $35.5 million CECL allowance evolve, particularly in commercial real estate, hospitality-related credits, construction and equipment finance.
- Whether core deposit growth persists and whether the concentration of $392.9 million of CDs maturing within one year creates funding-cost or retention pressure.
- How net interest margin responds to changing rates, loan floors and the transition of LIBOR-linked contracts to replacement benchmarks.
- Whether growth in commercial lending and commitments is matched by appropriate underwriting, capital and liquidity; total off-balance-sheet loan commitments were approximately $940 million.
- The subsequent execution and financial impact of branch closures, the SBA servicing transition, and the announced leadership changes effective September 1, 2021.