HOMETRUST BANCSHARES, INC. InNovember 2020 , theSEC adopted amendments to Regulation S-K to eliminate certain disclosure requirements and to revise several others to make the disclosures provided in the management's discussion and analysis section more useful for investors. When providing a discussion and analysis of interim period results, the amendments provide a registrant with the option to discuss its interim results by comparing its most recent quarter to the immediately preceding quarter rather than to the same quarter of the prior year. The Company elected to exercise this option as it believes that the comparison of current quarter results to a linked quarter, rather than the prior year comparable quarter, more accurately reflects management's perspective of the organization and its results. In the first quarter of fiscal year 2023, which is the first period of transition, the Company has provided comparisons to both the immediately preceding quarter and the comparable quarter of the prior year, as required in the amendments.
Forward-Looking Statements
Certain matters in this Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our financial condition, results of operations, plans, objectives, future performance or business. Forward-looking statements are not statements of historical fact, but instead are based on certain assumptions and are generally identified by use of the words "believes," "expects," "anticipates," "estimates," "forecasts," "intends," "plans," "targets," "potentially," "probably," "projects," "outlook" or similar expressions or future or conditional verbs such as "may," "will," "should," "would," and "could." Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions, and statements about future economic performance and projections of financial items. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from the results anticipated or implied by our forward-looking statements.
The factors that could result in material differentiation include, but are not limited to:
•the remaining effect of the COVID-19 pandemic, including on our credit quality and business operations, as well as its impact on general economic and financial market conditions and other uncertainties resulting from the COVID-19 pandemic, such as the extent and remaining duration of the impact on public health, theU.S. and global economies, and consumer and corporate customers, including economic activity, employment levels, labor shortages and market liquidity, both nationally and in our market areas; •expected revenues, cost savings, synergies and other benefits from our merger and acquisition activities, including the proposed acquisition of Quantum Capital Corporation, might not be realized to the extent anticipated, within the anticipated time frames, or at all, and costs or difficulties relating to integration matters, including but not limited to customer and employee retention, might be greater than expected;
•the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write offs and changes in our allowance for credit losses and provision for credit losses that may be impacted by deterioration in the housing and commercial real estate markets;
•changes in general economic conditions, either nationally or in our market areas;
•changes in the levels of general interest rates, and the relative differences between short and long term interest rates, deposit interest rates, our net interest margin and funding sources and the effects of inflation of a potential recession;
•uncertainty regarding the limited future of LIBOR, and the expected transition toward new interest rate benchmarks;
•fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values in our market areas;
•decreases in the secondary market for the sale of loans that we originate;
•results of examinations of us by theFederal Reserve , the NCCOB, or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our allowance for credit losses, write-down assets, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits, which could adversely affect our liquidity and earnings; •legislative or regulatory changes that adversely affect our business including the effect of Dodd-Frank Wall Street Reform and Consumer Protection Act, changes in laws or regulations, changes in regulatory policies and principles or the application or interpretation of laws and regulations by regulatory agencies and tax authorities, including changes in deferred tax asset and liability activity, or the interpretation of regulatory capital or other rules, including as a result of Basel III;
•our ability to attract and retain deposits;
•management's assumptions in determining the adequacy of the allowance for credit losses;
•our ability to control operating costs and expenses, especially costs associated with our operation as a public company;
•the use of estimates in determining fair value of certain assets, which estimates may prove to be incorrect and result in significant declines in valuation;
•difficulties in reducing risks associated with the loans on our balance sheet;
•staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our workforce and potential associated charges;
•disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on the third-party vendors who perform several of our critical processing functions;
•our ability to retain key members of our senior management team;
31
--------------------------------------------------------------------------------•costs and effects of litigation, including settlements and judgments;
•our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we may in the future acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto;
•increased competitive pressures among financial services companies;
•changes in consumer spending, borrowing and savings habits;
•the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions;
•adverse changes in the securities markets;
•inability of key third-party providers to perform their obligations to us;
•changes in accounting principles, policies or guidelines and practices, as may be adopted by the financial institution regulatory agencies, thePublic Company Accounting Oversight Board or the FASB;
•other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services including the CARES Act; and
•other risks detailed from time to time in our filings with the
Many of the forward-looking statements are based upon management's beliefs and assumptions at the time they are made. We undertake no obligation to publicly update or revise any forward-looking statements included in this report or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this report might not occur and you should not put undue reliance on any forward-looking statements.
As used throughout this report, the terms "we," "our," "us," "HomeTrust
Bancshares" or the "Company" refer to
Overview
HomeTrust Bancshares, Inc. , aMaryland corporation, was formed for the purpose of becoming the holding company forHomeTrust Bank in connection with the Bank's conversion from mutual to stock form, which was completed onJuly 10, 2012 . As a bank holding company and financial holding company, we are regulated by theFederal Reserve . The Company has not engaged in any significant activity other than holding the stock of the Bank. As aNorth Carolina state-chartered bank, and member of the FRB, the Bank's primary regulators are the NCCOB and theFederal Reserve . The Bank's deposits are federally insured up to applicable limits by theFDIC . The Bank is a member of the FHLB ofAtlanta , which is one of the 11 regional banks in the FHLB System. Our headquarters is located inAsheville, North Carolina . The Bank has more than 30 locations acrossNorth Carolina ,South Carolina ,Tennessee , andVirginia , many of which are located in markets experiencing growth rates above the national average. Historically, our branches and facilities have primarily been located in small- to medium-sized communities, but in recent years we have implemented a strategy of expanding into larger, higher growth markets via business banking centers rather than retail-focused branches. Our principal business consists of attracting deposits from the general public and investing those funds, along with borrowed funds, in commercial real estate loans, construction and development loans, commercial and industrial loans, equipment finance leases, municipal leases, loans secured by first and second mortgages on one-to-four family residences including home equity and other consumer loans. We also originate one-to-four family loans, SBA loans, and HELOCs to sell to third parties. In addition, we invest in debt securities issued by United States Government agencies and GSEs, corporate bonds, commercial paper, and certificates of deposit in other banks insured by theFDIC . We offer a variety of deposit accounts for individuals, businesses, and nonprofit organizations. Our primary source of pre-tax income is net interest income. Net interest income is the difference between interest income, which is the income that we earn on our loans and investments, and interest expense, which is the interest that we pay on our deposits and borrowings. Changes in levels of interest rates affect our net interest income. A secondary source of income is noninterest income, which includes revenue we receive from providing products and services, including service charges and fees on deposit accounts, loan income and fees, gains on the sale of loans held for sale, BOLI income, and operating lease income. An offset to net interest income is the provision for credit losses which is required to establish the ACL at a level that adequately provides for current expected credit losses inherent in our loan portfolio, off balance sheet credit commitments, and available for sale debt securities. See "Note 1 - Summary of Significant Accounting Policies" in Item 1 of our 2022 Form 10-K for further discussion. Our noninterest expenses consist primarily of salaries and employee benefits, expenses for occupancy, marketing and computer services, andFDIC deposit insurance premiums. Salaries and benefits consist primarily of the salaries and wages paid to our employees, payroll taxes, expenses for retirement, and other employee benefits. Occupancy expenses, which are the fixed and variable costs of buildings and equipment, consist primarily of lease payments, property taxes, depreciation charges, maintenance, and costs of utilities. 32 --------------------------------------------------------------------------------
Critical Accounting Policies and Estimates
Certain of our accounting policies are important to the portrayal of our financial condition, since they require management to make difficult, complex, or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances which could include, but are not limited to, changes in interest rates, changes in the performance of the economy, and changes in the financial condition of borrowers.
The following represents our critical accounting policy:
Allowance for Credit Losses, or ACL, on Loans. The ACL reflects our estimate of credit losses that will result from the inability of our borrowers to make required loan payments. We charge off loans against the ACL and subsequent recoveries, if any, increase the ACL when they are recognized. We use a systematic methodology to determine our ACL for loans held for investment and certain off-balance-sheet credit exposures. The ACL is a valuation account that is deducted from the amortized cost basis to present the net amount expected to be collected on the loan portfolio. We consider the effects of past events, current conditions, and reasonable and supportable forecasts on the collectability of the loan portfolio. The estimate of our ACL involves a high degree of judgment; therefore, our process for determining expected credit losses may result in a range of expected credit losses. Our ACL recorded in the balance sheet reflects our best estimate within the range of expected credit losses. We recognize in net income the amount needed to adjust the ACL for management's current estimate of expected credit losses. Our ACL is calculated using collectively evaluated and individually evaluated loans.
GAAP Reconciliation of Non-GAAP Financial Measures
We believe the non-GAAP financial measures included within this report provide useful information to management and investors that is supplementary to our financial condition, results of operations and cash flows computed in accordance with US GAAP; however, we acknowledge that our non-GAAP financial measures have a number of limitations. The following reconciliation tables provide detailed analyses of these non-GAAP financial measures.
Set forth below is a reconciliation to US GAAP of tangible book value and tangible book value per share:
As of
(Dollars in thousands, except per share data) September 30, June 30, September 30,
2022 2022 2021
Total stockholders' equity $ 396,222 $ 388,845 $ 396,511
Less: goodwill, core deposit intangibles, net of taxes 25,683 25,710 25,830
Tangible book value $ 370,539 $ 363,135 $ 370,681
Common shares outstanding 15,632,348 15,591,466 16,307,658
Book value per share $ 25.35 $ 24.94 $ 22.73
Tangible book value per share $ 23.70 $ 23.29 $ 24.31
Set forth below is a reconciliation to US GAAP of tangible equity to tangible
assets:
As of
(Dollars in thousands) September 30, June 30, September 30,
2022 2022 2021
Tangible equity (1) $ 370,539 $ 363,135 $ 370,681
Total assets 3,555,186 3,549,204 3,481,360
Less: goodwill, core deposit intangibles, net of
taxes 25,683 25,710 25,830
Total tangible assets $ 3,529,503 $ 3,523,494 $ 3,455,530
Tangible equity to tangible assets 10.50 % 10.31 % 10.73 %
(1) Tangible equity (or tangible book value) is equal to total stockholders'
equity less goodwill and core deposit intangibles, net of related deferred tax
liabilities.
Comparison of Results of Operations for the Three Months Ended
Net Income. Net income totaled$9.2 million , or$0.60 per diluted share, for the three months endedSeptember 30, 2022 compared to net income of$6.0 million , or$0.39 per diluted share, for the three months endedJune 30, 2022 , an increase of$3.2 million , or 52.7%. The results for the three months endedSeptember 30, 2022 were positively impacted by a$5.7 million increase in net interest income, partially offset by a$2.3 million decrease in noninterest income. Details of the changes in the various components of net income are further discussed below. 33 -------------------------------------------------------------------------------- Net Interest Income. The following table presents the distribution of average assets, liabilities and equity, as well as interest income on average interest-earning assets and interest expense paid on average interest-bearing liabilities. All average balances are daily average balances. Nonaccruing loans have been included in the table as loans carrying a zero yield. Three Months Ended September 30, 2022 June 30, 2022 Average Interest Average Interest Balance Earned/ Yield/ Balance Earned/ Yield/ (Dollars in thousands) Outstanding Paid(2) Rate(2) Outstanding Paid(2) Rate(2) Assets Interest-earning assets Loans receivable(1)$ 2,880,148 $ 33,522 4.62 %$ 2,807,969 $ 28,457 4.06 % Commercial paper 214,214 1,116 2.07 295,485 852 1.16 Debt securities available for sale 135,015 678 1.99 118,075 483
1.64
Other interest-earning assets(3) 113,821 888 3.10 92,026 628 2.74 Total interest-earning assets 3,343,198 36,204 4.30 3,313,555 30,420 3.68 Other assets 243,113 255,596 Total assets 3,586,311 3,569,151 Liabilities and equity Interest-bearing liabilities Interest-bearing checking accounts $ 654,154$ 268 0.16 % $ 664,966$ 340 0.20 % Money market accounts 968,084 521 0.21 979,816 350 0.14 Savings accounts 238,992 45 0.07 235,848 42 0.07 Certificate accounts 476,761 561 0.47 485,978 500 0.41 Total interest-bearing deposits 2,337,991 1,395 0.24 2,366,608 1,232 0.21 Borrowings 1,526 12 3.12 26,761 35 0.52 Total interest-bearing liabilities 2,339,517 1,407 0.24 2,393,369 1,267 0.21 Noninterest-bearing deposits 800,912 738,734 Other liabilities 51,485 46,928 Total liabilities 3,191,914 3,179,031 Stockholders' equity 394,397 390,120 Total liabilities and stockholders' equity 3,586,311 3,569,151 Net earning assets$ 1,003,681 $ 920,186 Average interest-earning assets to average 142.90 % 138.45 % interest-bearing liabilities Tax-equivalent Net interest income$ 34,797 $ 29,153 Interest rate spread 4.06 % 3.47 % Net interest margin(4) 4.13 % 3.53 % Non-tax-equivalent Net interest income$ 34,520 $ 28,859 Interest rate spread 4.02 % 3.43 % Net interest margin(4) 4.10 % 3.49 % (1)The average loans receivable balances include loans held for sale and nonaccruing loans. (2)Interest income used in the average interest earned and yield calculation includes the tax equivalent adjustment of$277 and$294 for the three months endedSeptember 30, 2022 andJune 30, 2022 , respectively, calculated based on a combined federal and state tax rate of 24%. (3)The average other interest-earning assets consist of FRB stock, FHLB stock, SBIC investments, and deposits in other banks. (4)Net interest income divided by average interest-earning assets. Total interest and dividend income for the three months endedSeptember 30, 2022 increased$5.8 million , or 19.3%, compared to the three months endedJune 30, 2022 , which was driven by a$5.1 million , or 18.0%, increase in interest income on loans. The overall increase in average yield on interest-earning assets was the result of rising interest rates, while the rate paid on interest-bearing liabilities has not increased as rapidly. Specific to the commercial paper and debt securities available for sale, the Company has intentionally maintained relatively short-term duration portfolios which has allowed, and will continue to allow, the Company to take advantage of rising rates when reinvesting the proceeds of maturing instruments. Total interest expense for the three months endedSeptember 30, 2022 increased$140,000 , or 11.0%, compared to the three months endedJune 30, 2022 . The increase was driven by a$163,000 , or 13.2%, increase in interest expense on deposits as a result of a 3 basis point increase in the associated average cost of funds, offset by a$23,000 decrease in interest expense on borrowings. 34 -------------------------------------------------------------------------------- The following table shows the effects that changes in average balances (volume), including differences in the number of days in the periods compared, and average interest rates (rate) had on the interest earned on interest-earning assets and interest paid on interest-bearing liabilities: Increase/ (Decrease) Total (Dollars in thousands) Due to Increase/ Volume Rate (Decrease) Interest-earning assets Loans receivable$ 1,096 $ 3,969 $ 5,065 Commercial paper (222) 486 264 Debt securities available for sale 77 118
195
Other interest-earning assets 158 102
260
Total interest-earning assets 1,109 4,675
5,784
Interest-bearing liabilities Interest-bearing checking accounts (3) (69) (72) Money market accounts 1 170 171 Savings accounts 1 2 3 Certificate accounts (3) 64 61 Borrowings (33) 10 (23) Total interest-bearing liabilities (37) 177
140
Net increase in tax equivalent interest income
Provision for Credit Losses. The provision for credit losses is the amount of expense that, based on our judgment, is required to maintain the ACL at an appropriate level under the CECL model.
The following table presents a breakdown of the components of the provision for
credit losses:
Three Months Ended
September 30, 2022 June 30, 2022 $ Change % Change
Provision for credit losses
Loans $ 3,694 $ 2,942 $ 752 26 %
Off-balance-sheet credit exposure 443 566 (123) (22)
Commercial paper (150) (95) (55) (58)
Total provision for credit losses $ 3,987 $ 3,413 $ 574 17 %
For the quarter ended September 30, 2022 , the "loans" portion of the provision
for credit losses was the result of the following, offset by net charge-offs of
$83,000 during the quarter:
•$1.3 million provision specific to fintech portfolios which have a riskier credit profile than loans originated in-house. The elevated credit risk is offset by the higher yields earned on the portfolios.
•$1.1 million provision driven by a projected worsening of the economic forecast, specifically the national unemployment rate.
•$1.3 million provision driven by loan growth, changes in the loan mix, and qualitative adjustments.
For the quarter ended
•$1.2 million provision specific to fintech portfolios.
•$0.8 million provision driven by a projected worsening of the economic forecast, specifically the national unemployment rate.
•$0.8 million provision driven by loan growth, changes in the loan mix, and qualitative adjustments.
•$0.8 million provision to fully reserve a single individually evaluated commercial loan relationship where the borrower's financial performance deteriorated during the quarter.
For both periods presented, the provision for credit losses for off-balance-sheet credit exposure increased for the same reasons outlined above rather than as a result of significant increases in outstanding commitments.
35
--------------------------------------------------------------------------------
Noninterest Income. Noninterest income for the three months ended September 30,
2022 decreased $2.3 million , or 23.7%, when compared to the quarter ended June
30, 2022 . Changes in selected components of noninterest income are discussed
below:
Three Months Ended
September 30, 2022 June 30, 2022 $ Change % Change
Noninterest income
Service charges and fees on deposit accounts $ 2,338 $ 2,361 $ (23) (1) %
Loan income and fees 570 649 (79) (12)
Gain on sale of loans held for sale 1,586 1,949 (363) (19)
BOLI income 527 500 27 5
Operating lease income 1,585 1,472 113 8
Gain on sale of debt securities available for
sale - 1,895 (1,895) (100)
Other 804 890 (86) (10)
Total noninterest income $ 7,410 $ 9,716 $ (2,306) (24) %
•Gain on sale of loans held for sale: The decrease in the gain on sale of loans
held for sale was primarily driven by a decrease in volume of residential
mortgage loans sold during the period as a result of rising interest rates.
During the quarter ended September 30, 2022 , $20.9 million of residential
mortgage loans originated for sale were sold with gains of $493,000 compared to
$38.3 million sold with gains of $835,000 for the quarter ended June 30, 2022 .
There were $12.1 million of sales of the guaranteed portion of SBA commercial
loans with gains of $891,000 in the current quarter compared to $11.2 million
sold and gains of $904,000 in the prior quarter. Lastly, the Company sold $22.8
million of HELOCs during the current quarter for a gain of $202,000 compared to
$22.8 million sold and gains of $210,000 in the prior quarter.
•Gain on sale of debt securities available for sale: The decrease in the gain
was driven by the sale of seven trust preferred securities during the quarter
ended June 30, 2022 which had previously been written down to zero through
purchase accounting adjustments from a merger in a prior period. No other
securities were sold during either period presented.
Noninterest Expense. Noninterest expense for the three months ended September
30, 2022 decreased $1.4 million , or 4.9%, when compared to the three months
ended June 30, 2022 . Changes in selected components of noninterest expense are
discussed below:
Three Months Ended
September 30, June 30, 2022
2022 $ Change % Change
Noninterest expense
Salaries and employee benefits $ 14,815 $ 14,709 $ 106 1 %
Occupancy expense, net 2,408 2,491 (83) (3)
Computer services 2,763 2,811 (48) (2)
Telephone, postage and supplies 603 599 4 1
Marketing and advertising 590 473 117 25
Deposit insurance premiums 542 432 110 25
Core deposit intangible amortization 34 42 (8) (19)
Merger-related expenses 474 - 474 100
Officer transition agreement expense - 1,795 (1,795) (100)
Other 3,872 4,107 (235) (6)
Total noninterest expense $ 26,101 $ 27,459 $ (1,358) (5) %
•Merger-related expenses: On
•Officer transition agreement expense: InMay 2022 , the Company entered into an amended and restated employment and transition agreement with the Company's Chairman and former CEO. As part of this agreement, the full amount of the estimated separation payment was accrued in the quarter endedJune 30, 2022 . No such expenses were incurred in the quarter endedSeptember 30, 2022 . Income Taxes. The amount of income tax expense is influenced by the amount of pre-tax income, the amount of tax-exempt income, changes in the statutory rate, and the effect of changes in valuation allowances maintained against deferred tax benefits. Income tax expense for the three months endedSeptember 30, 2022 increased$965,000 as a result of higher taxable income in the current quarter and an increase in the effective tax rate which moved from 21.8% to 22.3% quarter-over-quarter. 36 --------------------------------------------------------------------------------
Comparison of Results of Operations for the Three Months Ended
Net Income. Net income totaled$9.2 million , or$0.60 per diluted share, for the three months endedSeptember 30, 2022 compared to net income of$10.5 million , or$0.65 per diluted share, for the three months endedSeptember 30, 2021 , a decrease of$1.3 million , or 12.6%. The results for the three months endedSeptember 30, 2022 were negatively impacted by an increase of$5.4 million in the provision for credit losses and a$2.9 million decrease in noninterest income, partially offset by a$6.8 million increase in net interest income. Details of the changes in the various components of net income are further discussed below. Net Interest Income. The following table presents the distribution of average assets, liabilities and equity, as well as interest income earned on average interest-earning assets and interest expense paid on average interest-bearing liabilities. All average balances are daily average balances. Nonaccruing loans have been included in the table as loans carrying a zero yield. Three Months Ended September 30, 2022 September 30, 2021 Average Interest Average Interest Balance Earned/ Yield/ Balance Earned/ Yield/ (Dollars in thousands) Outstanding Paid(2) Rate(2) Outstanding Paid(2) Rate(2) Assets Interest-earning assets Loans receivable(1)$ 2,880,148 $ 33,522 4.62 %$ 2,819,716 $ 28,205 3.97 % Commercial paper 214,214 1,116 2.07 160,857 155 0.38 Debt securities available for sale 135,015 678 1.99 138,435 524
1.50
Other interest-earning assets(3) 113,821 888 3.10 138,438 731 2.09 Total interest-earning assets 3,343,198 36,204 4.30 3,257,446 29,615 3.61 Other assets 243,113 260,976 Total assets 3,586,311 3,518,422 Liabilities and equity Interest-bearing liabilities Interest-bearing checking accounts $ 654,154$ 268 0.16 % $ 635,456$ 397 0.25 % Money market accounts 968,084 521 0.21 988,990 367 0.15 Savings accounts 238,992 45 0.07 223,658 41 0.07 Certificate accounts 476,761 561 0.47 457,865 767 0.67 Total interest-bearing deposits 2,337,991 1,395 0.24 2,305,969 1,572 0.27 Borrowings 1,526 12 3.12 55,464 26 0.18 Total interest-bearing liabilities 2,339,517 1,407 0.24 2,361,433 1,598 0.27 Noninterest-bearing deposits 800,912 708,219 Other liabilities 51,485 52,305 Total liabilities 3,191,914 3,121,957 Stockholders' equity 394,397 396,465 Total liabilities and stockholders' equity 3,586,311 3,518,422 Net earning assets$ 1,003,681 $ 896,013 Average interest-earning assets to average 142.90 % 137.94 % interest-bearing liabilities Tax-equivalent Net interest income$ 34,797 $ 28,017 Interest rate spread 4.06 % 3.34 % Net interest margin(4) 4.13 % 3.41 % Non-tax-equivalent Net interest income$ 34,520 $ 27,707 Interest rate spread 4.02 % 3.30 % Net interest margin(4) 4.10 % 3.37 % (1)The average loans receivable balances include loans held for sale and nonaccruing loans. (2)Interest income used in the average interest earned and yield calculation includes the tax equivalent adjustment of$277 and$310 for the three months endedSeptember 30, 2022 andSeptember 30, 2021 , respectively, calculated based on a combined federal and state tax rate of 24%. (3)The average other interest-earning assets consist of FRB stock, FHLB stock, SBIC investments, and deposits in other banks. (4)Net interest income divided by average interest-earning assets. Total interest and dividend income for the three months endedSeptember 30, 2022 increased$6.6 million , or 22.6%, compared to the three months endedSeptember 30, 2021 , which was driven by a$5.4 million , or 19.2%, increase in interest income on loans, and a$961,000 , or 620.0%, increase in interest income on commercial paper. The overall increase in average yield on interest-earning assets was the result of 37 -------------------------------------------------------------------------------- rising interest rates, while the rate paid on interest-bearing liabilities has not increased as rapidly. Specific to the commercial paper and debt securities available for sale, the Company has intentionally maintained relatively short-term duration portfolios which has allowed, and will continue to allow, the Company to take advantage of rising rates when reinvesting the proceeds of maturing instruments. Total interest expense for the three months endedSeptember 30, 2022 decreased$191,000 , or 12.0%, compared to the three months endedSeptember 30, 2021 . The decrease was driven by a$177,000 , or 11.3%, decrease in interest expense on deposits as a result of a 3 basis point decrease in the associated average cost of funds. The following table shows the effects that changes in average balances (volume), including differences in the number of days in the periods compared, and average interest rates (rate) had on the interest earned on interest-earning assets and interest paid on interest-bearing liabilities: Increase/ (Decrease) Total (Dollars in thousands) Due to Increase/ Volume Rate (Decrease) Interest-earning assets Loans receivable$ 604 $ 4,713 $ 5,317 Commercial paper 51 910 961 Debt securities available for sale (13) 167
154
Other interest-earning assets (130) 287
157
Total interest-earning assets 512 6,077
6,589
Interest-bearing liabilities Interest-bearing checking accounts 12 (141) (129) Money market accounts (8) 162 154 Savings accounts 3 1 4 Certificate accounts 32 (238) (206) Borrowings (25) 11 (14) Total interest-bearing liabilities 14 (205)
(191)
Net increase in tax equivalent interest income
Provision (Benefit) for Credit Losses. The following table presents a breakdown of the components of the provision (benefit) for credit losses:
Three Months Ended
September 30, September 30,
2022 2021 $ Change % Change
Provision (benefit) for credit losses
Loans $ 3,694 $ (1,335) $ 5,029 (377) %
Off-balance-sheet credit exposure 443 (125) 568 (454)
Commercial paper (150) - (150) (100)
Total provision (benefit) for credit losses
(1,460)$ 5,447 (373) %
For the quarter ended
•$1.3 million provision specific to fintech portfolios which have a riskier credit profile than loans originated in-house. The elevated credit risk is offset by the higher yields earned on the portfolios.
•$1.1 million provision driven by a projected worsening of the economic forecast, specifically the national unemployment rate.
•$1.3 million provision driven by loan growth, changes in the loan mix, and qualitative adjustments.
For the quarter endedSeptember 30, 2021 , the "loans" portion of the benefit for credit losses was driven by a slight improvement in the economic forecast, as more clarity was gained regarding the impact of COVID-19 upon the loan portfolio. 38 -------------------------------------------------------------------------------- Noninterest Income. Noninterest income for the three months endedSeptember 30, 2022 decreased$2.9 million , or 28.4%, when compared to the quarter endedSeptember 30, 2021 . Changes in selected components of noninterest income are discussed below: Three Months Ended September 30, September 30, 2022 2021 $ Change % Change
Noninterest income
Service charges and fees on deposit accounts
(1) %
Loan income and fees 570 979 (409) (42)
Gain on sale of loans held for sale 1,586 4,057 (2,471) (61)
BOLI income 527 518 9 2
Operating lease income 1,585 1,540 45 3
Gain on sale of debt securities available for
sale - - - -
Other 804 886 (82) (9)
Total noninterest income $ 7,410 $ 10,352 $ (2,942) (28) %
•Loan income and fees: The decrease in loan income and fees during the quarter
ended September 30, 2022 was the result of lower prepayment and underwriting
fees recognized during the period compared to the same period last year.
•Gain on sale of loans held for sale: The decrease in the gain on sale of loans
held for sale was primarily driven by a decrease in the volume of residential
mortgage loans, SBA commercial loans, and HELOCs sold during the period as a
result of rising interest rates. During the quarter ended September 30, 2022 ,
$20.9 million of residential mortgage loans originated for sale were sold with
gains of $493,000 compared to $63.8 million sold with gains of $2.1 million for
the quarter ended September 30, 2021 . There were $12.1 million of sales of the
guaranteed portion of SBA commercial loans with gains of $891,000 in the current
quarter compared to $14.4 million sold and gains of $1.7 million for the same
period in the prior year. Lastly, the Company sold $22.8 million of HELOCs
during the quarter for a gain of $202,000 compared to $47.4 million sold and
gains of $267,000 in the same period last year.
Noninterest Expense. Noninterest expense for the three months ended September
30, 2022 increased $85,000 , or 0.3%, when compared to the three months ended
September 30, 2021 . Changes in selected components of noninterest expense are
discussed below:
Three Months Ended
September 30, September 30,
2022 2021 $ Change % Change
Noninterest expense
Salaries and employee benefits $ 14,815 $ 15,280 $ (465) (3) %
Occupancy expense, net 2,408 2,317 91 4
Computer services 2,763 2,521 242 10
Telephone, postage and supplies 603 650 (47) (7)
Marketing and advertising 590 705 (115) (16)
Deposit insurance premiums 542 566 (24) (4)
Core deposit intangible amortization 34 93 (59) (63)
Merger-related expenses 474 - 474 100
Officer transition agreement expense - - - -
Other 3,872 3,884 (12) -
Total noninterest expense $ 26,101 $ 26,016 $ 85 - %
•Salaries and employee benefits: The decrease in salaries and employee benefits
expense is primarily the result of branch closures and lower mortgage banking
incentive pay as a result of the reduction in the volume of originations, due to
rising interest rates.
•Merger-related expenses: On
Income Taxes. The amount of income tax expense is influenced by the amount of pre-tax income, the amount of tax-exempt income, changes in the statutory rate, and the effect of changes in valuation allowances maintained against deferred tax benefits. Income tax expense for the three months endedSeptember 30, 2022 decreased$333,000 as a result of lower taxable income in the current quarter compared to the corresponding period in the prior year, partially offset by an increase in the effective tax rate from 22.0% to 22.3% between periods.
Comparison of Financial Condition at
General. Total assets increased by
39
--------------------------------------------------------------------------------
Cash and cash equivalents and commercial paper. Total cash and cash equivalents
decreased $11.0 million , or 10.4%, to $94.2 million at September 30, 2022 from
$105.1 million at June 30, 2022 . Commercial paper decreased $109.1 million , or
56.1%, to $85.3 million at September 30, 2022 from $194.4 million at June 30,
2022 .
Debt securities available for sale and other investments. Debt securities
available for sale increased
Loans held for sale. Loans held for sale decreased$3.0 million , or 3.9%, to$76.3 million atSeptember 30, 2022 from$79.3 million atJune 30, 2022 . This was primarily driven by a combined decrease of$6.1 million , or 9.5%, in mortgage loans held for sale and HELOCs originated for sale, partially offset by a$3.1 million , or 20.7%, increase in SBA loans held for sale.
Loans, net of deferred loan fees and costs. Total loans increased
The following table illustrates the changes within the portfolio:
As of Percent of Total
(Dollars in thousands) September 30, June 30, Change September 30, June 30,
2022 2022 $ % 2022 2022
Commercial real estate loans
Construction and land
development $ 310,985 $ 291,202 $ 19,783 7 % 11 % 11 %
Commercial real estate - owner occupied 336,456 335,658 798 - 12 12 Commercial real estate - non-owner occupied 661,644 662,159 (515) - 23 24 Multifamily 79,082 81,086 (2,004) (2) 3 3 Total commercial real estate loans 1,388,167 1,370,105 18,062 1 49 50 Commercial loans Commercial and industrial 205,606 192,652 12,954 7 7 7 Equipment finance 411,012 394,541 16,471 4 14 14 Municipal leases 130,777 129,766 1,011 1 5 5 PPP loans 238 661 (423) (64) - - Total commercial loans 747,633 717,620 30,013 4 26 26 Residential real estate loans Construction and land development 91,488 81,847 9,641 12 2 3 One-to-four family 374,849 354,203 20,646 6 13 13 HELOCs 164,701 160,137 4,564 3 6 6 Total residential real estate loans 631,038 596,187 34,851 6 21 22 Consumer loans 100,945 85,383 15,562 18 4 2 Loans, net of deferred loan fees and costs$ 2,867,783 $ 2,769,295 $ 98,488 4 % 100 % 100 % Asset quality. Nonperforming assets increased by$706,000 , or 11.2%, to$7.0 million , or 0.20% of total assets, atSeptember 30, 2022 compared to$6.3 million , or 0.18% of total assets, atJune 30, 2022 . Nonperforming assets included$6.8 million in nonaccruing loans and$200,000 of REO atSeptember 30, 2022 , compared to$6.1 million and$200,000 in nonaccruing loans and REO, respectively, atJune 30, 2022 . Nonperforming loans to total loans was 0.24% atSeptember 30, 2022 and 0.22% atJune 30, 2022 . The ratio of classified assets to total assets decreased to 0.54% atSeptember 30, 2022 from 0.61% atJune 30, 2022 . Classified assets decreased$2.2 million , or 10.2%, to$19.3 million atSeptember 30, 2022 compared to$21.5 million atJune 30, 2022 , due to loan paydowns.
Our individually evaluated loans include loans on nonaccrual status and all
TDRs, whether performing or on nonaccrual status under their restructured
terms. Individually evaluated loans may be evaluated for reserve purposes using
either the discounted cash flow or the collateral valuation method. As of
Allowance for credit losses. The ACL on loans was$38.3 million , or 1.34% of total loans, atSeptember 30, 2022 compared to$34.7 million , or 1.25% of total loans, as ofJune 30, 2022 . Net charge-offs as a percentage of average loans was 0.01% for the three months endedSeptember 30, 2022 compared to net recoveries of (0.10)% for the three months endedJune 30, 2022 . The drivers of these quarter-over-quarter changes are discussed in the "Three Months EndedSeptember 30, 2022 andJune 30, 2022 " section above. Other assets. Other assets decreased$5.7 million , or 10.6%, to$47.3 million atSeptember 30, 2022 from$53.0 million atJune 30, 2022 . The decrease was primarily driven by lower current taxes receivable and the sale of properties held for sale during the period. Other liabilities. Other liabilities decreased$4.3 million , or 7.1%, during the three months endedSeptember 30, 2022 to$56.3 million , as a result of the payout of annual short-term incentives for the prior fiscal year. 40 --------------------------------------------------------------------------------
Deposits. The following table summarizes the composition of our deposit portfolio as of the dates indicated:
As of
(Dollars in thousands) September 30, June 30, Change
2022 2022 $ %
Core deposits
Noninterest-bearing accounts $ 794,242 $ 745,746 $ 48,496 7 %
NOW accounts 636,859 654,981 (18,122) (3)
Money market accounts 960,150 969,661 (9,511) (1)
Savings accounts 240,412 238,197 2,215 1
Core deposits 2,631,663 2,608,585 23,078 1
Certificates of deposit 471,005 491,176 (20,171) (4)
Total $ 3,102,668 $ 3,099,761 $ 2,907 - %
Liquidity
Management maintains a liquidity position that it believes will adequately
provide funding for loan demand and deposit run-off that may occur in the normal
course of business. We rely on a number of different sources in order to meet
our potential liquidity demands. The primary sources are increases in deposit
accounts and cash flows from loan payments and the securities portfolio.
In addition to these primary sources of funds, management has several secondary
sources available to meet potential funding requirements. As of September 30,
2022 , the Bank had an available borrowing capacity of $211.2 million with the
FHLB of Atlanta , a $68.9 million line of credit with the FRB and a line of
credit with three unaffiliated banks totaling $120.0 million . Additionally, we
classify our securities portfolio as available for sale, providing an additional
source of liquidity. Management believes that our securities portfolio is of
high quality and the securities would therefore be marketable. In addition, we
have historically sold fixed-rate mortgage loans in the secondary market to
reduce interest rate risk and to create still another source of liquidity. From
time to time we also utilize brokered time deposits to supplement our other
sources of funds. Brokered time deposits are obtained by utilizing an outside
broker that is paid a fee. This funding requires advance notification to
structure the type of deposit desired by us. Brokered deposits can vary in term
from one month to several years and have the benefit of being a source of
longer-term funding. We also utilize brokered deposits to help manage interest
rate risk by extending the term to repricing of our liabilities, enhance our
liquidity, and fund asset growth. Brokered deposits are typically from outside
our primary market areas, and our brokered deposit levels may vary from time to
time depending on competitive interest rate conditions and other factors. At
September 30, 2022 brokered deposits totaled $24.0 million , or 0.8%, of total
deposits.
Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments,
such as overnight deposits and federal funds. On a longer term basis, we
maintain a strategy of investing in various lending products and debt
securities, including MBS. On a stand-alone level we are a separate legal entity
from the Bank and must provide for our own liquidity and pay our own operating
expenses. Our primary source of funds consists of dividends or capital
distributions from the Bank, although there are regulatory restrictions on the
ability of the Bank to pay dividends. At September 30, 2022 , we (on an
unconsolidated basis) had liquid assets of $6.1 million .
At the Bank level, we use our sources of funds primarily to meet our ongoing
commitments, pay maturing deposits and fund withdrawals, and fund loan
commitments. At September 30, 2022 , the total approved loan commitments and
unused lines of credit outstanding amounted to $431.8 million and $511.4
million , respectively, as compared to $417.6 million and $485.2 million as of
June 30, 2022 . Certificates of deposit scheduled to mature in one year or less
at September 30, 2022 , totaled $389.8 million . It is management's policy to
manage deposit rates that are competitive with other local financial
institutions. Based on this management strategy, we believe a majority of our
maturing deposits will remain with us.
Off-Balance Sheet Activities
In the normal course of operations, we engage in a variety of financial transactions that are not recorded in our financial statements, mainly to manage customers' requests for funding. These transactions primarily take the form of loan commitments and lines of credit and involve varying degrees of off-balance sheet credit, interest rate, and liquidity risks. For further information, see "Note 9 - Commitments and Contingencies" in this Quarterly Report on Form 10-Q.
Capital Resources
AtSeptember 30, 2022 , stockholders' equity totaled$396.2 million , compared to$388.8 million atJune 30, 2022 , an increase of$7.4 million which was mainly the result of net income for the quarter.HomeTrust Bancshares, Inc. is a bank holding company subject to regulation by theFederal Reserve . As a bank holding company, we are subject to capital adequacy requirements of theFederal Reserve under the Bank Holding Company Act of 1956, as amended and the regulations of theFederal Reserve . Our subsidiary, the Bank, anFDIC -insured,North Carolina state-chartered bank and a member of theFederal Reserve System , is supervised and regulated by theFederal Reserve and the NCCOB and is subject to minimum capital requirements applicable to state member banks established by theFederal Reserve that are calculated in a manner similar to those applicable to bank holding companies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by bank regulators that, if undertaken, could have a direct material effect on the Company's financial statements. 41 -------------------------------------------------------------------------------- Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. AtSeptember 30, 2022 ,HomeTrust Bancshares, Inc. and the Bank each exceeded all regulatory capital requirements. Consistent with our goals to operate a sound and profitable organization, our policy is for the Bank to maintain a "well-capitalized" status under the regulatory capital categories of theFederal Reserve . The Bank was categorized as "well-capitalized" atSeptember 30, 2022 under applicable regulatory requirements.
Regulatory Requirements
Minimum for Capital Minimum to Be
(Dollars in thousands) Actual Adequacy Purposes Well Capitalized
Amount Ratio Amount Ratio Amount Ratio
HomeTrust Bancshares, Inc.
September 30, 2022
CET1 Capital (to risk-weighted assets) $ 379,461 11.01 % $ 155,026 4.50 % $ 223,927 6.50 %
Tier I Capital (to total adjusted assets) 379,461 10.64 142,626 4.00 178,283 5.00
Tier I Capital (to risk-weighted assets) 379,461 11.01 206,701 6.00 275,602
8.00
Total Risk-based Capital (to risk-weighted assets) 410,419 11.91 275,602 8.00 344,502 10.00 June 30, 2022 CET1 Capital (to risk-weighted assets)$ 372,797 10.76 %$ 155,844 4.50 %$ 225,108 6.50 % Tier I Capital (to total adjusted assets) 372,797 10.50 142,028 4.00 177,535
5.00
Tier I Capital (to risk-weighted assets) 372,797 10.76 207,792 6.00 277,057
8.00
Total Risk-based Capital (to risk-weighted assets) 395,962 11.43 277,057 8.00 346,321 10.00 HomeTrust Bank September 30, 2022 CET1 Capital (to risk-weighted assets)$ 365,963 10.62 %$ 155,026 4.50 %$ 223,927 6.50 % Tier I Capital (to total adjusted assets) 365,963 10.26 142,619 4.00 178,273
5.00
Tier I Capital (to risk-weighted assets) 365,963 10.62 206,701 6.00 275,602
8.00
Total Risk-based Capital (to risk-weighted assets) 396,921 11.52 275,602 8.00 344,502 10.00 June 30, 2022 CET1 Capital (to risk-weighted assets)$ 358,600 10.35 %$ 155,844 4.50 %$ 225,108 6.50 % Tier I Capital (to total adjusted assets) 358,600 10.11 141,814 4.00 177,267
5.00
Tier I Capital (to risk-weighted assets) 358,600 10.35 207,792 6.00 277,057
8.00
Total Risk-based Capital (to risk-weighted assets) 381,765 11.02 277,057 8.00 346,321 10.00 As permitted by the interim final rule issued onMarch 27, 2020 by the federal banking regulatory agencies, the Company elected the option to delay the estimated impact on regulatory capital of ASU 2016-13, which was adopted onJuly 1, 2020 . The initial adoption of ASU 2016-13 as well as 25% of the quarterly increases in the ACL subsequent to adoption (collectively the "transition adjustments") was delayed for two years. StartingJuly 1, 2022 , the cumulative amount of the transition adjustments became fixed and will be phased out of the regulatory capital calculations evenly over a three-year period, with 75% recognized in year three, 50% recognized in year four, and 25% recognized in year five. After five years, the temporary regulatory capital benefits will be fully reversed. In addition to the minimum CET1, Tier 1 and total risk-based capital ratios, bothHomeTrust Bancshares, Inc. and the Bank have to maintain a capital conservation buffer consisting of additional CET1 capital of more than 2.50% above the required minimum levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses based on percentages of eligible retained income that could be utilized for such actions. As ofSeptember 30, 2022 , the Company's and Bank's risk-based capital exceeded the required capital contribution buffer.
Dividends paid by
© Edgar Online, source
