Hometrust Bancshares, Inc. — Form 10-Q Summary
Period clarification: The request metadata says “2019 Q3,” but the filing is for the quarter ended March 31, 2020 (fiscal 2020 third quarter), with comparisons to March 31, 2019. Balance-sheet comparisons are to June 30, 2019. Amounts below are in U.S. dollars.
Business context and reporting period
HomeTrust Bancshares is a bank holding company headquartered in Asheville, North Carolina. Its business is primarily deposit-taking and lending across consumer, commercial real estate, commercial and industrial, equipment finance, and municipal finance markets. The unaudited filing covers the three and nine months ended March 31, 2020, and was signed May 8, 2020.
Financial performance and condition
- Quarterly results: Net interest income was $25.3 million, down 4.7% year over year; provision for loan losses was $5.4 million. Noninterest income rose to $6.4 million from $5.4 million, while noninterest expense increased to $24.9 million from $23.0 million. Net income fell to $1.2 million from $3.3 million; diluted EPS was $0.07 versus $0.18.
- Nine-month results: Net income was $19.2 million, approximately level with $19.1 million a year earlier; diluted EPS increased to $1.08 from $1.02. Net interest income was $79.4 million versus $79.9 million; noninterest income rose to $23.1 million from $16.1 million, and noninterest expense rose to $72.5 million from $66.7 million. Loan-loss provision was $5.8 million versus $5.5 million.
- Margins and interest rates: Tax-equivalent net interest margin declined to 3.16% from 3.39% for the quarter and to 3.25% from 3.45% for the nine-month period. Quarterly loan yield fell to 4.51% from 4.69%. Lower market rates reduced asset yields, while deposit costs had risen over the nine-month comparison.
- Balance sheet: Total assets were $3.55 billion, compared with $3.48 billion at June 30, 2019. Deposits increased 9.8% to $2.55 billion; borrowings declined to $535 million from $680 million. Net loans were $2.64 billion, down 1.8%. Commercial loans grew 11.5%, while retail consumer loans declined 18.9%, including the effect of residential loan sales and portfolio transfers.
- Credit quality: The allowance for loan losses was $26.9 million, or 1.01% of gross loans, up from $21.4 million, or 0.79%, at June 30. Nonperforming assets increased to $16.7 million, or 0.47% of assets, from $13.3 million, or 0.38%; management attributed much of the increase to a large commercial real estate relationship. Nine-month net charge-offs were $379,000 versus $2.1 million.
- Cash flow and liquidity: For nine months, operating cash flow was negative $16.7 million, investing cash flow was negative $29.6 million, and financing cash flow was positive $57.2 million. Cash and cash equivalents ended at $82.1 million, up $11.0 million. The company also held $282.0 million of commercial paper and $57.5 million of certificates of deposit at other banks. Available borrowing capacity included $109.9 million with the FHLB, $112.3 million with the Federal Reserve, and $70 million in lines with other banks; none of the latter lines was drawn.
- Capital and shareholder returns: Stockholders’ equity was $405.4 million. The Bank was categorized as well-capitalized; its CET1 ratio was 11.10% and total risk-based capital ratio 11.94%. The company repurchased 1.03 million shares for $23.2 million during the nine months and declared $3.4 million in dividends.
Material changes, outlook, risks, and unusual items
- COVID-19 materially increased economic and credit uncertainty. The company recorded a $5.4 million quarterly provision, citing revised risk assessments for vulnerable sectors including lodging, restaurants, retail, and equipment finance.
- As of March 31, 2020, the company reported COVID-related modifications on 362 loans totaling $176.7 million. By May 5, approved or processed deferrals covered approximately $526.9 million, or 19.8% of the loan portfolio. These short-term modifications were not classified as troubled debt restructurings under applicable relief guidance.
- After quarter-end, the company had submitted PPP applications totaling $93.3 million and reported SBA allocation for 284 applications totaling $86.7 million as of May 5. It expected to use the Federal Reserve’s PPPLF for liquidity. The filing warns that SBA guarantee disputes, forgiveness issues, or PPP-related litigation could create financial or reputational exposure.
- Management expected lower interest rates and pandemic effects to adversely affect net interest income and margin in 2020 and possibly longer. It stated the duration and total financial impact of the pandemic were unknown; worsening conditions could materially increase credit losses and affect asset values.
- There is no quantified earnings or margin guidance in the filing. Management described a potential increase in the allowance under the forthcoming expected-credit-loss accounting standard, but said the amount was not yet known.
- Nine-month noninterest income benefited from increased loan-sale gains, including a nonrecurring gain associated with residential loan sales, and income from the newer equipment finance business. Expenses also rose with staffing, equipment finance depreciation, and core-system conversion costs.
- Operating cash flow was negative despite positive net income, partly reflecting growth in loans held for sale and changes in other liabilities. The filing also reports substantial lending commitments and unused credit lines.
- The company adopted lease accounting on July 1, 2019, recognizing operating-lease right-of-use assets and liabilities. Adoption did not require a retained-earnings adjustment.
Important facts for investors to verify
- Confirm the intended period: the supplied metadata says 2019 Q3, while the filing reports fiscal Q3 2020, ended March 31, 2020.
- Track deferral balances, borrower payment performance after relief expires, criticized and nonaccrual loans, and whether COVID-related losses require further reserve increases.
- Assess the effect of lower rates on net interest margin, deposit costs, and earnings, and compare subsequent results with management’s stated outlook.
- Review PPP loan funding, fees, forgiveness, PPPLF usage, and any SBA guarantee or litigation developments.
- Monitor liquidity against deposit maturities, lending commitments, and available borrowing capacity; also assess capital after repurchases and any future credit deterioration.