HomeTrust Bancshares, Inc. — Form 10-Q Summary
Reporting period: Fiscal quarter ended December 31, 2022, and six months ended December 31, 2022. The filing compares quarterly results with the immediately preceding quarter and six-month results with the prior-year period. Amounts are in U.S. dollars; financial statement amounts are generally in thousands unless noted.
Business context
HomeTrust is a bank holding company headquartered in Asheville, North Carolina, operating through HomeTrust Bank. It gathers deposits and lends across commercial real estate, commercial and industrial, equipment finance, residential real estate, municipal lease, and consumer categories. It also originates certain residential, SBA, and HELOC loans for sale. Its primary earnings source is net interest income.
Key financial metrics
| Metric | Quarter ended Dec. 31, 2022 | Six months ended Dec. 31, 2022 |
|---|---|---|
| Net interest income | $37.5 million; up from $34.5 million in the prior quarter | $72.1 million; versus $54.9 million in prior-year period |
| Net income | $13.7 million; versus $9.2 million in prior quarter and $11.1 million a year earlier | $22.9 million; versus $21.6 million |
| Diluted EPS | $0.90; versus $0.60 in prior quarter | $1.50; versus $1.33 |
| Net interest margin | 4.56% tax-equivalent; 4.53% not tax-equivalent | 4.35% tax-equivalent; 4.31% not tax-equivalent |
| Provision for credit losses | $2.2 million; down from $4.0 million in prior quarter | $6.2 million; versus a $4.0 million benefit in prior-year period |
| Noninterest income / expense | $8.5 million / $26.1 million | $15.9 million / $52.2 million |
| Operating cash flow | Not separately reported for the quarter | $20.4 million; versus $17.4 million |
| Return measures | Annualized ROA 1.54%; ROE 13.37% | Annualized ROA 1.28%; ROE 11.32% |
- At December 31, total assets were $3.65 billion, deposits $3.05 billion, borrowings $130.0 million, and stockholders’ equity $410.2 million. Borrowings were zero at June 30, 2022.
- Cash and cash equivalents were $165.0 million, up from $105.1 million at June 30. Six-month cash flow was $20.4 million from operations, $(36.9) million from investing, and $76.4 million from financing, resulting in a $59.9 million increase in cash.
- Total loans, before allowance, grew $216.3 million, or 7.8%, from June 30 to $3.0 billion. Net loans were $2.95 billion. The allowance for loan losses was $38.9 million, or 1.30% of loans, versus $34.7 million, or 1.25%, at June 30.
- Deposits declined $51.7 million, or 1.7%, from June 30. Core deposits declined $20.3 million, while certificates of deposit declined $31.4 million. Brokered deposits were $50.4 million, or 1.7% of deposits.
- Regulatory capital remained above minimums: the Bank reported CET1 of 10.98% and total risk-based capital of 11.89% and was categorized as well-capitalized. Tangible equity to tangible assets was 10.62%.
Material changes versus comparable periods
- Quarterly net income rose 48.5% from the September quarter, mainly reflecting a $3.0 million increase in net interest income and $1.1 million more noninterest income. Net interest margin increased from 4.13% to 4.56% tax-equivalent.
- For the six-month comparison, net income increased 5.8%. Higher net interest income more than offset a $10.2 million year-over-year swing in credit-loss provision and a $4.6 million decline in noninterest income.
- Higher market rates lifted loan yields and interest income, but also raised deposit costs. Quarterly deposit interest expense increased $2.2 million from the prior quarter; the average cost of interest-bearing deposits rose to 0.63% from 0.24%.
- Six-month loan growth was concentrated in residential real estate (+$98.7 million), commercial real estate (+$58.4 million), and commercial loans (+$39.5 million). Nonperforming assets were $6.4 million, or 0.17% of assets; nonperforming loans were 0.21% of total loans.
- Available-for-sale securities had a $4.9 million gross unrealized loss at December 31; accumulated other comprehensive loss was $3.7 million. Management stated it did not intend, and did not consider it more likely than not, that it would need to sell the securities, and reported no credit-loss provision for them.
Outlook, commentary, risks, and unusual items
- The filing provides no quantified earnings, margin, or growth guidance. Management said results for the six months are not necessarily indicative of the full fiscal year.
- Management cited the short duration of its securities portfolio as a way to reinvest maturities at higher rates. It also identified higher rates, deposit competition and retention, economic conditions, recession and inflation, real estate values, loan demand, and credit quality as risks to future results.
- HomeTrust entered into a merger agreement with Quantum Capital Corp. on July 24, 2022. Six-month merger-related expenses were $724,000; completion, timing, integration, and expected benefits remain subject to the risks described in the filing.
- Quarterly noninterest income included a $1.1 million net gain on sale of premises and equipment; two property sales generated $1.6 million in gains, partly offset by $420,000 of impairment on assets associated with prior branch closures. Other income included a $721,000 gain from selling closely held equity securities received in a prior acquisition.
- The Company wrote off $350,000 of previously capitalized technology-project costs after deciding not to pursue the project. Six-month mortgage and SBA loan-sale gains declined amid lower origination and sale volumes as rates rose.
- Credit risk includes portfolio growth, changes in loan mix and economic assumptions, and riskier fintech portfolios. Six-month net charge-offs were $1.95 million; two relationships were fully charged off during the quarter. Management’s allowance estimate depends on judgments and economic forecasts.
- Liquidity sources included $111.4 million of available FHLB capacity, $92.0 million from the Federal Reserve, and $120.0 million of lines with unaffiliated banks. Commitments and unused credit lines are substantial; the filing reports approximately $922.8 million of total off-balance-sheet financial commitments at December 31.
- Management reported no pending legal proceeding it believed would materially adversely affect financial condition or results. It reported no material changes to previously disclosed risk factors or market-risk disclosures. Disclosure controls were concluded to be effective.
Important facts for investors to verify
- Whether the rising-rate benefit to net interest income persists as deposit pricing adjusts, deposits move, and funding needs change.
- Loan-growth quality and concentration, including the performance of fintech exposures, commercial real estate, equipment finance, and consumer loans; monitor delinquencies, charge-offs, and allowance adequacy.
- Liquidity and funding capacity against deposit maturities, deposit outflows, and approximately $922.8 million of commitments and unused credit arrangements.
- The status and terms of the proposed Quantum Capital transaction, including integration plans, costs, approvals, and expected benefits.
- Whether securities’ unrealized losses recover or require sale or an earnings charge, and the future impact of property-sale gains and other nonrecurring items on reported earnings.