Business context and reporting period
HomeTrust Bancshares, Inc. (NASDAQ: HTBI) is a bank holding company whose principal business is community banking through HomeTrust Bank, serving markets in North Carolina, South Carolina, Tennessee and Virginia. This Form 10-K covers the fiscal year ended June 30, 2019, not calendar-year 2018 Q4 as indicated in the request. It includes unaudited quarterly results; the quarter ended June 30, 2019 reported net income of $8.0 million and diluted EPS of $0.44.
Financial performance and condition
Amounts are in U.S. dollars; figures are consolidated unless noted.
| Metric | FY2019 / June 30, 2019 | FY2018 / June 30, 2018 |
|---|---|---|
| Total assets | $3.48 billion | $3.30 billion |
| Net loans | $2.68 billion | $2.50 billion |
| Deposits | $2.33 billion | $2.20 billion |
| FHLB borrowings | $680.0 million | $635.0 million |
| Net interest income | $106.9 million | $101.3 million |
| Net interest margin, fully taxable-equivalent | 3.43% | 3.46% |
| Provision for loan losses | $5.7 million | None |
| Net income | $27.1 million | $8.2 million |
| Diluted EPS | $1.46 | $0.44 |
| Stockholders’ equity | $408.9 million | $409.2 million |
- Interest and dividend income increased 16.9% to $137.3 million, while interest expense rose 89.0% to $30.4 million. Higher average loan balances and yields lifted income, but deposit and borrowing costs increased; overall cost of funds rose to 1.16% from 0.65%.
- Net interest margin narrowed three basis points. Return on assets was 0.80% and return on equity 6.62%, versus 0.25% and 2.05%, respectively, in FY2018.
- Operating cash flow was $7.7 million, compared with $31.3 million in FY2018. Investing activities used $150.5 million and financing activities provided $143.1 million; cash and cash equivalents ended at $71.0 million. The filing cites loan growth, securities purchases, repurchases and dividends among cash uses.
- Cash and cash equivalents, commercial paper and certificates of deposit at other banks were $71.0 million, $241.4 million and $52.0 million, respectively. Available-for-sale securities totaled $121.8 million. Management said liquidity was reduced to fund loan growth.
- Core deposits were 69.4% of deposits; brokered deposits were $176.8 million, or 7.6%. Certificates of deposit totaled $712.2 million, including $515.5 million maturing within one year.
- FHLB advances had a 2.10% weighted-average rate. The Bank reported $89.5 million of additional FHLB borrowing capacity, a $130.0 million Federal Reserve line and $70.0 million of available bank lines, subject to collateral and other conditions.
- The Bank’s regulatory capital ratios were 11.59% CET1, 11.59% Tier 1 risk-based, 12.30% total risk-based and 10.34% Tier 1 leverage; it met the “well-capitalized” standard. Tangible book value per share was $21.20, up from $19.96.
Material changes versus the prior comparable period
- Net income rose substantially, but the comparison is distorted by FY2018’s $17.9 million deferred-tax-asset write-down following the Tax Cuts and Jobs Act. FY2019 also included a $5.7 million loan-loss provision; adjusted non-GAAP net income was $26.8 million in FY2019 versus $25.9 million in FY2018.
- Loans grew 7.1% to $2.71 billion gross. Commercial loans rose 18.0% to $1.54 billion, reaching 57.0% of the portfolio. Equipment finance, launched in May 2018, grew to $132.1 million. Retail consumer loans declined 4.7%.
- Deposits grew 6.0%; certificates of deposit increased by $196.0 million, while non-certificate deposits decreased. Borrowings rose $45.0 million.
- Asset quality improved on several measures: nonperforming assets fell to $13.3 million, or 0.38% of assets, from $14.6 million, or 0.44%. However, net charge-offs increased to $5.3 million from $91,000, principally due to a commercial borrower’s business failure.
- The Company repurchased 1.15 million shares for approximately $30.6 million and began paying dividends, declaring $0.18 per share for FY2019. Outstanding shares fell to 17.98 million from 19.04 million.
Outlook, commentary, risks and unusual items
- Management expects to emphasize organic growth in existing markets, commercial lending and newer business lines, while remaining selective about acquisitions. It expects to keep the indirect auto portfolio at approximately its existing share of loans.
- In September 2019, the Company decided to sell $200 million to $300 million of one-to-four-family loans. The sale was expected to close in FY2020’s second quarter at a gain; timing and proceeds remain subject to execution.
- The largest unusual credit event was a $6.0 million commercial lending relationship with a heavy-equipment contractor that unexpectedly ceased operations. The loans were fully charged off during FY2019; the Company said it was pursuing recovery from the borrower, guarantors and collateral. The event drove the increase in provision and net charge-offs.
- Management identified commercial real estate and construction lending as key credit exposures. Commercial real estate was 34.3% of loans; commercial real estate loans under supervisory guidance were 252.6% of regulatory capital. Other stated risks include local economic deterioration, rising funding costs and margin pressure, deposit competition, liquidity access, cyber and vendor disruption, regulatory change and acquisition integration.
- The Company was evaluating CECL, expected to apply beginning in its fiscal year starting July 1, 2020, and anticipated a higher allowance, with the amount not yet determined. It also expected lease-accounting adoption to increase reported assets and liabilities by approximately $4 million to $6 million, without a material income-statement impact.
- The Company reported no pending litigation that management believed would materially adversely affect financial condition or results, and no material off-balance-sheet transactions. Loan commitments and unused lines were significant; total disclosed commitments, including undisbursed construction loans and letters of credit, were $638.0 million.
Most important facts for investors to verify
- Confirm the intended reporting period: the filing is for FY2019, and its June 2019 quarter is not calendar-year 2018 Q4.
- Assess recurring earnings separately from the FY2018 tax revaluation and FY2019’s $5.7 million credit provision; review the assumptions behind management’s non-GAAP adjustments.
- Review subsequent recoveries, if any, from the charged-off $6.0 million borrower relationship and monitor commercial credit quality, construction exposure and allowance adequacy.
- Track deposit pricing, brokered-deposit reliance, near-term certificate maturities, FHLB funding costs and available contingent liquidity.
- Verify completion, gain and portfolio effects of the planned $200 million to $300 million residential-loan sale, and the eventual CECL allowance impact.