Hometrust Bancshares, Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2019, the company’s fiscal first quarter of 2020 (not calendar-year Q1). Comparisons of income and cash flows are against the three months ended September 30, 2018; balance-sheet comparisons are generally against June 30, 2019. Amounts are in U.S. dollars.
Business context and financial performance
HomeTrust Bancshares is a bank holding company headquartered in Asheville, North Carolina. HomeTrust Bank gathers deposits and invests in consumer and commercial loans, equipment finance, and securities. It reported 42 locations across North Carolina, South Carolina, Tennessee, and Virginia.
- Earnings: Net income was $8.8 million, up 13.0% year over year. Diluted EPS was $0.49 versus $0.41; basic EPS was $0.51 versus $0.43.
- Interest and other income: Interest and dividend income was $36.2 million, up 12.3%. Net interest income rose 3.0% to $27.1 million. Noninterest income increased 36.5% to $7.7 million, including $2.3 million in gains on sales of loans held for sale.
- Margins and funding costs: Net interest margin was 3.28% on a GAAP basis, down from 3.42%; the tax-equivalent margin was 3.32% versus 3.45%. Average cost of interest-bearing deposits increased to 1.13% from 0.59%; overall average cost of funds rose to 1.33% from 0.95%.
- Expenses and credit costs: Noninterest expense rose 7.5% to $23.5 million, led by salaries and benefits, equipment-finance-related costs, marketing, and computer services. There was no loan-loss provision in either comparison quarter. Net charge-offs were $115,000, or 0.02% of average loans, versus $128,000 and 0.02% a year earlier.
- Assets and lending: Total assets were $3.66 billion, up 5.2% from June 30. Deposits grew $166.9 million to $2.49 billion, while borrowings rose $5.0 million to $685.0 million. Gross loans were $2.51 billion, down $196.7 million, but loans plus loans held for sale increased $74.7 million. A $256.8 million group of one-to-four-family loans was transferred to held for sale, substantially affecting reported loan balances. Commercial real estate and equipment finance loans grew 6.9% and 17.0%, respectively, from June 30.
- Credit quality: Nonperforming assets were $13.5 million, or 0.37% of assets, versus $13.3 million, or 0.40%, at June 30. Nonperforming loans were 0.43% of total loans, up from 0.38%. Delinquent loans of 30 days or more increased to $12.8 million from $10.1 million. The allowance was $21.3 million, 0.85% of gross loans; the company’s adjusted ratio excluding acquired loans was 0.92%.
- Capital: Stockholders’ equity was $413.1 million. The Bank reported regulatory capital ratios above minimums and was categorized as well-capitalized. Its CET1 ratio was 11.14%; total risk-based capital was 11.82%.
Cash flow, liquidity, and debt
- Cash and cash equivalents rose $46.1 million to $117.1 million. Operating activities used $9.1 million; investing activities used $111.2 million; financing activities provided $166.3 million. Deposit growth was the main financing source. Investment and loan funding included $49.4 million of securities purchases and $56.5 million of net loan growth.
- At September 30, the company had $685.0 million of FHLB advances: $285.0 million maturing within 30 days and $400.0 million in convertible advances with maturities exceeding nine years. Their weighted-average rate was 1.79%. The filing also disclosed $254.3 million of commercial paper holdings.
- Management reported available borrowing capacity of $75.8 million at the FHLB, $122.8 million at the Federal Reserve, and $70.0 million in lines with three unaffiliated banks; none of the latter lines was drawn. Brokered deposits were $179.2 million, or 7.2% of deposits.
- Outstanding off-balance-sheet commitments totaled $635.5 million, including $165.4 million of undisbursed construction loans, $89.7 million of commitments to make loans, $372.3 million of unused credit lines, and $8.2 million of standby letters of credit.
Material changes, outlook, and risks
- The company said it expected the sale of the $256.8 million one-to-four-family loan portfolio to close in November 2019 and produce a gain; the gain amount was not specified. Management described the sale as a way to reduce the loan-to-deposit ratio and improve net interest margin over time.
- Management cited organic growth opportunities in its existing markets and a disciplined approach to expansion. The filing provides no numerical earnings or growth guidance.
- Adoption of the new lease standard on July 1, 2019 added approximately $5.3 million of operating-lease right-of-use assets and corresponding liabilities; it did not affect income or retained earnings. The company also reclassified a finance-lease asset and liability.
- The company was preparing to adopt the expected-credit-loss standard (CECL). It expected the allowance for loan losses to increase, but said the amount was not yet known; any adoption adjustment was expected to be recorded in equity.
- Key risks identified include borrower and real-estate credit deterioration, interest-rate and deposit-cost changes, competition for deposits, changes in loan demand and secondary-market activity, regulatory actions, operating-cost control, and information-technology or third-party disruptions. Management reported no pending litigation it believed would materially adversely affect the company and no material changes to previously disclosed risk factors.
- The company repurchased 189,160 shares during the quarter for approximately $4.8 million at an average $25.38 per share; 35,811 shares remained authorized under the cited repurchase plan at quarter-end. It declared a $0.06-per-share dividend.
Important facts for investors to verify
- Whether the planned mortgage-loan sale closed as expected, the realized gain, and the resulting effects on loan mix, liquidity, and net interest margin.
- Whether deposit pricing and funding costs continue to rise faster than asset yields, given the year-over-year margin decline.
- Subsequent trends in delinquencies, nonperforming loans, commercial real estate and equipment-finance exposures, and allowance adequacy.
- The eventual CECL adoption impact, including the size of any increase in reserves and the related equity adjustment.
- Near-term FHLB maturities, deposit retention and maturities, and the company’s capacity to fund commitments and loan growth.