Business context and reporting period
HomeTrust Bancshares, Inc. is a bank holding company whose subsidiary, HomeTrust Bank, gathers deposits and makes residential and commercial loans, equipment-finance leases, and other loans. This Form 10-Q covers the quarter ended December 31, 2020 (the company’s fiscal second quarter) and the six months ended December 31, 2020. Comparisons are with the corresponding 2019 periods unless stated otherwise. Dollar amounts below are in millions except per-share data and ratios.
Financial performance and condition
- Quarterly earnings: Net income was $9.5 million, up 2.9%; diluted EPS was $0.57 versus $0.52. Net interest income fell 3.4% to $26.1 million, while noninterest income increased 3.0% to $9.3 million and noninterest expense rose 10.0% to $26.4 million. A $3.0 million provision benefit, versus a $0.4 million provision expense a year earlier, supported earnings.
- First-half earnings: Net income was $15.2 million, down 15.5%, and diluted EPS was $0.92 versus $1.01. Net interest income declined 4.6% to $51.6 million; noninterest income rose 7.5% to $18.0 million, while noninterest expense increased 10.2% to $52.4 million. The $2.1 million provision benefit nearly offset lower net interest income.
- Margins and funding costs: Tax-equivalent net interest margin was 3.09% for the quarter versus 3.27%, and 3.05% for the six months versus 3.30%. Lower market rates reduced asset yields; lower deposit and borrowing costs partly cushioned the effect.
- Balance sheet at December 31: Total assets were $3,680 million; net loans were $2,639 million; deposits were $2,743 million; borrowings were $475 million; and stockholders’ equity was $405 million. Cash and cash equivalents were $226 million, and loans held for sale were $118 million.
- Credit quality: Allowance for credit losses (ACL) was $39.8 million, or 1.49% of gross loans; excluding PPP loans, the company reported an ACL ratio of 1.52%. Nonperforming assets were $14.8 million, or 0.40% of assets, versus $16.3 million, or 0.44%, at June 30, 2020. Net charge-offs were $0.6 million for the first half.
- Cash flow and liquidity: For the six months, operating activities used $31.5 million, investing activities provided $185.6 million, and financing activities used $49.3 million; cash and cash equivalents increased $104.7 million. The Bank reported $66.1 million of available FHLB borrowing capacity, a $99.7 million Federal Reserve line, and $100 million of lines with three unaffiliated banks, with none drawn on those lines. FHLB advances outstanding were $475 million.
- Capital: The Bank was classified as well capitalized. Its CET1 ratio was 11.45% and total risk-based capital ratio was 12.27% at December 31, 2020. The company reported a 10.36% tangible-equity-to-tangible-assets ratio.
Material changes versus comparable periods
- Net interest income and margin declined as lower market rates reduced loan and investment yields. The six-month average loan yield fell to 4.04% from 4.70%.
- Expenses increased, notably salaries and benefits, equipment-finance-related depreciation and other costs, computer services, and FDIC deposit insurance premiums.
- Loans declined 3.3% from June 30 to $2,679 million, mainly due to large commercial loan payoffs, PPP forgiveness, and runoff of purchased HELOCs. Equipment-finance loans increased 19.0% to $273 million.
- Deposits declined 1.5% to $2,743 million as certificates of deposit fell 28.8%; core deposits increased 8.3% and made up 80.8% of deposits, versus 73.5% at June 30.
- On July 1, 2020, the company adopted CECL. The adoption increased the loan ACL by $14.8 million, established a $2.3 million reserve for unfunded commitments, and reduced retained earnings by $13.4 million after tax. This accounting change affects comparisons with prior periods.
- The company repurchased 277,122 shares for approximately $5.2 million during the first half and declared $2.5 million of dividends.
Outlook, commentary, and risks
- Management said the lower-rate environment and COVID-19 were expected to adversely affect net interest income and margin throughout fiscal 2021 and possibly longer. No specific earnings or revenue guidance was provided.
- Management said it sees opportunities for organic growth as local and global economies normalize, while emphasizing disciplined expansion. It expects fewer customers to seek additional PPP loans under the renewed program.
- COVID-19 payment deferrals fell to $7.9 million, or 0.3% of loans, at December 31 from $551.3 million, or 20.6%, at June 30. Separately, $75.8 million of commercial loans were on temporary interest-only payments, generally for no more than 12 months. Management said most borrowers previously granted full deferrals had resumed regular payments.
- The company originated $80.8 million of PPP loans for 290 customers; $64.8 million remained on balance sheet at quarter-end. It also reported $32.1 million of PPP loans processed and funded through a third-party provider, and $12.5 million originated under the Main Street Lending Program before that program ended on January 8, 2021.
- Key risks include the duration and economic effects of COVID-19, borrower deterioration and higher credit losses, interest-rate and funding changes, deposit retention, real-estate and loan-market conditions, regulatory actions, and valuation uncertainty. Management cautioned that ACL estimates depend on judgments and forecasts and could prove inadequate if conditions worsen.
- The filing reported no pending litigation that management believed would materially adversely affect financial condition or results. Disclosure controls were assessed as effective; the filing reported no other material change in internal control over financial reporting beyond CECL-related enhancements.
Important facts for investors to verify
- Track net interest margin and funding costs as low rates continue to affect asset yields.
- Monitor credit performance, especially the commercial interest-only loans, remaining COVID-related relief, nonaccrual balances, and ACL assumptions under CECL.
- Assess whether core-deposit growth can offset certificate-of-deposit runoff and fund loan commitments; certificates of deposit of $460.6 million were due within one year.
- Review the expense trajectory and whether equipment-finance growth generates adequate income after depreciation and operating costs.
- Distinguish the CECL adoption impact from subsequent credit-loss changes when comparing reported allowance, earnings, and retained earnings with prior periods.
- Confirm the filing period: despite the request metadata’s “2020 Q2” label, this report is for the quarter ended December 31, 2020, HomeTrust’s fiscal second quarter.