Hometrust Bancshares, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2019, three months ended September 30, 2018. The filing compares results with the three months ended September 30, 2017; balance-sheet changes are generally compared with June 30, 2018. Amounts below are in U.S. dollars.
Financial performance and position
| Metric | September 30, 2018 quarter/end | Comparable period or prior quarter |
|---|---|---|
| Net interest income | $26.3 million | $24.7 million, up 6.4% year over year |
| Noninterest income | $5.6 million | $4.3 million, up 31.7% |
| Net income | $7.8 million; diluted EPS $0.41 | $5.6 million; diluted EPS $0.30 |
| Net interest margin | 3.42% GAAP; 3.45% tax-equivalent | 3.37% GAAP; 3.44% tax-equivalent |
| Total assets | $3.354 billion | $3.304 billion at June 30, up 1.5% |
| Total loans | $2.588 billion gross | $2.527 billion at June 30, up 2.4% |
| Deposits / borrowings | $2.203 billion / $675 million | $2.196 billion / $635 million at June 30 |
| Stockholders’ equity | $414.2 million | $409.2 million at June 30 |
| Cash and cash equivalents | $58.8 million | $70.7 million at June 30 |
Net income increased 39.9% year over year. Interest and dividend income rose 15.2%, while interest expense rose 81.2%, reflecting higher deposit and borrowing costs. The effective tax rate fell to 22.1% from 31.1%, principally following the federal corporate tax rate reduction to 21%.
Cash from operating activities was $7.9 million; investing activities used $63.3 million, mainly reflecting $66.9 million of net loan growth; financing activities provided $43.5 million, including $40.0 million of additional borrowings. The resulting cash and cash-equivalent balance declined $12.0 million during the quarter. Separately, commercial paper was $238.2 million at quarter-end.
Material changes and credit quality
- Gross loans grew $61.2 million; commercial loans increased $76.3 million, led by a $44.9 million increase in commercial and industrial loans, while retail consumer loans declined $15.1 million. Management attributed C&I growth partly to a new equipment-finance business.
- Net interest margin was broadly stable year over year on a tax-equivalent basis. Average loan yield increased to 4.54% from 4.37%, but the average cost of interest-bearing liabilities increased to 0.95% from 0.55%.
- Nonperforming assets declined to $13.4 million, or 0.40% of assets, from $14.6 million, or 0.44%, at June 30. Nonaccruing loans were $10.1 million; REO was $3.3 million.
- The allowance for loan losses was $20.9 million, or 0.81% of gross loans, versus $21.1 million, or 0.83%, at June 30. There was no loan-loss provision in either comparison quarter; current-quarter net charge-offs were $128,000, versus net recoveries of $846,000 a year earlier.
- Available-for-sale securities fell to $148.7 million from $155.0 million, with $2.7 million of gross unrealized losses at quarter-end. Management attributed the decline in fair value largely to higher market interest rates and reported no other-than-temporary impairment.
Outlook, risks and notable items
- Management described opportunities for organic growth in its existing markets and said it would remain disciplined about expansion, with emphasis on organic growth. The filing provides no specific earnings or financial guidance.
- Management said liquidity was adequate. The Bank reported $41.3 million of available FHLB borrowing capacity, a $138.8 million Federal Reserve line, and $70.0 million in lines with unaffiliated banks; none of the latter lines was drawn. FHLB advances totaled $675.0 million, including $450.0 million maturing within 90 days.
- Key stated risks include credit and real-estate conditions, interest-rate and funding-cost changes, deposit retention, competition, regulatory actions, fair-value and allowance estimates, and technology or third-party service disruptions. Management cautioned that actual credit losses could exceed estimates and that regulators may require additional reserves.
- The company repurchased 128,300 shares for approximately $3.7 million at an average $29.03 per share during the quarter. On November 1, 2018, the board declared a $0.06-per-share dividend, payable December 6 to shareholders of record November 21.
- Adoption of the revenue-recognition, financial-instrument measurement, cash-flow classification, and stock-compensation guidance described in the filing did not materially affect the financial statements. The company was still assessing lease accounting and the expected-credit-loss standard; it expected the latter could increase the allowance, but said the amount was not yet known.
- The Bank was categorized as well-capitalized and exceeded applicable regulatory capital requirements. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The filing says pending ordinary-course litigation was not expected to have a material adverse effect.
Important facts for investors to verify
- Whether loan growth, particularly commercial real estate, construction and the new equipment-finance business, is maintaining underwriting quality.
- Whether the allowance remains adequate as loans grow and the company prepares to adopt expected-credit-loss accounting.
- How rising deposit and borrowing costs affect net interest margin, earnings and reliance on FHLB funding, including near-term maturities.
- Whether loan-sale gains, especially SBA-related gains, and lower tax expense are sustainable contributors to reported earnings.
- How the company’s available liquidity and capital position compare with future loan commitments, unused credit lines and deposit maturities.