Business context and reporting period
HomeTrust Bancshares, Inc. is a bank holding company whose principal business is community banking through HomeTrust Bank, serving markets in North Carolina, South Carolina, Tennessee and Virginia. The filing is the audited Form 10-K for the fiscal year ended June 30, 2020, compared primarily with fiscal 2019. Although the request metadata refers to 2019 Q4, the filing covers FY2020; its fourth-quarter results are for the three months ended June 30, 2020.
Financial performance and condition
| Metric | FY2020 / June 30, 2020 | Prior comparable period |
|---|---|---|
| Total assets | $3.72 billion | $3.48 billion at June 30, 2019 |
| Total loans, gross | $2.77 billion | $2.71 billion at June 30, 2019 |
| Deposits | $2.79 billion | $2.33 billion at June 30, 2019 |
| FHLB borrowings | $475.0 million | $680.0 million at June 30, 2019 |
| Stockholders’ equity | $408.3 million | $408.9 million at June 30, 2019 |
| Net interest income | $104.1 million | $106.8 million |
| Provision for loan losses | $8.5 million | $5.7 million |
| Net income / diluted EPS | $22.8 million / $1.30 | $27.1 million / $1.46 |
| Tax-equivalent net interest margin | 3.17% | 3.43% |
| Return on assets / equity | 0.63% / 5.54% | 0.80% / 6.62% |
FY2020 cash flow: operating activities used $42.1 million, investing activities used $124.9 million, and financing activities provided $217.6 million. Cash and cash equivalents rose $50.6 million to $121.6 million. Commercial paper holdings were $305.0 million, and available-for-sale securities totaled $127.5 million.
Liquidity included $186.2 million of additional FHLB borrowing capacity, a $109.2 million Federal Reserve line and $100.0 million of unused lines with other banks. Certificates of deposit totaling $598.8 million matured within one year. Core deposits were 73.5% of deposits; brokered deposits were $143.2 million, or 5.1%.
The Bank remained well capitalized: CET1 and total risk-based capital ratios were 10.91% and 11.77%, respectively; Tier 1 leverage was 9.94%. Nonperforming assets were $16.3 million, or 0.44% of assets, versus $13.3 million, or 0.38%, a year earlier. Nonaccruing loans were $15.9 million. The allowance for loan losses was $28.1 million, 1.01% of gross loans and 176.3% of nonaccruing loans.
Material changes versus FY2019
- Net income declined 16.1%; net interest income fell 2.6%, and tax-equivalent net interest margin contracted 26 basis points. Management attributed pressure to lower interest rates and increased funding costs.
- The loan-loss provision increased 49.1%, reflecting pandemic-related risk adjustments and higher charge-offs. Net charge-offs, however, declined to $1.9 million from $5.3 million.
- Noninterest income rose 32.2% to $30.3 million, including higher gains on loan sales and equipment-finance operating lease income. Noninterest expense rose 7.8% to $97.1 million.
- Deposits increased 19.7%, while borrowings fell $205.0 million. Gross loans rose 2.4%; commercial loans grew 20.7%, led by equipment finance and the new Paycheck Protection Program portfolio, while retail consumer loans declined 21.9%, mainly from residential mortgage loan sales and lower balances.
- Delinquent loans of 30 days or more rose to $16.1 million from $10.1 million. Classified assets and special-mention loans together increased to $67.1 million from $46.0 million.
- Stockholders’ equity was broadly stable despite $24.5 million of share repurchases and $4.6 million of dividends. Tangible book value per share rose to $22.43 from $21.20.
Outlook, risks and unusual items
- Management said COVID-19’s duration and economic effects were highly uncertain, expected adverse impacts to continue into FY2021 and possibly longer, and warned of potential higher delinquencies, classifications, charge-offs and credit provisions. It provided no earnings or revenue guidance.
- At June 30, 2020, COVID-related payment deferrals totaled $551.3 million, or 20.5% of loans; by August 31, 2020, reported deferrals had fallen to $115.2 million, or 4.3%. These modified loans were generally excluded from past-due, classified and nonperforming categories under applicable relief guidance. Lodging was particularly exposed: $108.2 million of $118.7 million in lodging loans had deferrals at June 30.
- The Bank originated $80.7 million of PPP loans for its own portfolio; those loans carried a 1.0% rate and SBA guarantee, subject to program requirements and servicing risks. It also partnered to process and fund an additional $30.4 million for customers.
- CECL adoption was scheduled for July 1, 2020. Management estimated an opening allowance of $42–$48 million, an unfunded-commitments liability of $1.5–$3.0 million, and a $12–$18 million after-tax reduction in equity; actual impacts could differ.
- Commercial real estate represented 38.0% of loans, and CRE exposure was 277.4% of regulatory capital, creating sensitivity to property values, occupancy and local economic conditions. Other material risks include interest-rate and funding pressures, LIBOR transition exposure ($354.8 million of loans tied to LIBOR), cyber and third-party operational risks, and potential COVID-related litigation or PPP guarantee disputes.
- Management reported no goodwill impairment as of its April 1, 2020 annual test or June 30 trigger review. The independent auditor gave unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether pandemic-related deferrals convert to renewed payment performance, and how exposures in lodging, retail, restaurants and equipment finance affect credit costs.
- The final CECL opening allowance, unfunded-commitment reserve and retained-earnings adjustment after adoption.
- Whether net interest margin stabilizes as asset yields and deposit costs reprice, and whether deposit growth remains stable as substantial CDs mature.
- Trends in nonaccruing loans, delinquencies, classified and special-mention assets, and the adequacy of the allowance under deteriorating economic conditions.
- Realized loan-sale income and equipment-finance profitability relative to recurring earnings and operating costs.
- Regulatory capital, CRE concentration and available borrowing capacity, including the timing and terms of callable FHLB advances.