Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
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 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 duration of the impact on public health, the U.S. and global economies, and consumer and corporate customers, including economic activity, employment levels and market liquidity;
•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;
•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 the Board of Governors of the Federal Reserve System (“Federal 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;
•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, the Public Company Accounting Oversight Board or the Financial Accounting Standards Board;
•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 SEC, including our 2021 Form 10-K.
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" and the "Company" refer to HomeTrust Bancshares, Inc. and its consolidated subsidiary, HomeTrust Bank (the "Bank"), unless the context indicates otherwise.
Overview
HomeTrust Bancshares, Inc., a Maryland corporation, was formed for the purpose of becoming the holding company for HomeTrust Bank in connection with the Bank’s conversion from mutual to stock form, which was completed on July 10, 2012 (the “Conversion”). As a bank holding company and financial holding company, we are regulated by the Federal Reserve. As a North Carolina state-chartered bank, and member of the FRB, the Bank's primary regulators are the NCCOB and the Federal Reserve. The Bank's deposits are federally insured up to applicable limits by the FDIC. The Bank is a member of the FHLB of Atlanta, which is one of the 12 regional banks in the FHLB System. Our headquarters is located in Asheville, North Carolina.
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 loans, construction and land/lot loans, indirect automobile loans, 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 the FDIC.
We offer a variety of deposit accounts for individuals, businesses, and nonprofit organizations. Deposits and borrowings are our primary source of funds for our lending and investing activities.
We are significantly affected by prevailing economic conditions, as well as government policies and regulations concerning, among other things, monetary and fiscal affairs, housing and financial institutions. Deposit flows are influenced by a number of factors, including interest rates paid on competing time deposits, other investments, account maturities, and the overall level of personal income and savings. Lending activities are influenced by the demand for funds, the number and quality of lenders, and regional economic cycles.
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 is paid on our deposits and borrowings. Changes in levels of interest rates affect our net interest income. Because the length of the COVID-19 pandemic and the efficacy of the extraordinary measures put in place to address its economic consequences are unknown, including the 150 basis point reduction in the targeted federal funds rate during 2020, until the pandemic subsides, we expect our net interest income and net interest margin to be adversely affected throughout fiscal 2022 and possibly longer.
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, lease income, gain on the sale of loans held for sale, and gains and losses from sales of debt securities.
An offset to net interest income is the provision for credit losses which is required to establish and maintain the ACL. All financial assets measured at amortized cost and off balance sheet credit exposures, including loans, investment securities and unfunded commitments are evaluated for credit losses. See "Note 1 – Summary of Significant Accounting Policies" in Item 1 of our 2021 Form 10-K for further discussion.
Our noninterest expenses consist primarily of salaries and employee benefits, occupancy expense, and computer services. 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.
Our geographic footprint includes seven markets obtained through numerous strategic acquisitions as well as two de novo commercial loan offices. Looking forward, we believe opportunities currently exist within our market areas to grow our franchise. While COVID-19 has dampened our growth activities, we believe as the local and global economies return to normalcy the Company remains in a position to create growth. We may also seek to expand our franchise through the selective acquisition of individual branches, loan purchases and, to a lesser degree, whole bank transactions that meet our investment and market objectives. We will continue to be disciplined as it pertains to future expansion focusing primarily on growth in our current market areas.
At December 31, 2021, we had over 30 locations in North Carolina (including the Asheville metropolitan area, the "Piedmont" region, Charlotte, and Raleigh/Cary), Upstate South Carolina (Greenville), East Tennessee (including Kingsport/Johnson City, Knoxville, and Morristown) and Southwest Virginia (including the Roanoke Valley). During the quarter ended September 30, 2021, we closed nine branches located in North Carolina, Tennessee, and Virginia.
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.
Non-GAAP Financial Measures
In addition to results presented in accordance with GAAP, this report contains certain non-GAAP financial measures, which include: tangible book value; tangible book value per share, tangible equity to tangible assets ratio; and the ratio of the ACL to total loans excluding PPP loans. Management has presented the non-GAAP financial measures in this discussion and analysis because it believes including these items provides useful and comparative information to assess trends in our core operations while facilitating the comparison of the quality and composition of our earnings over time and in comparison to our competitors. However, these non-GAAP financial measures are supplemental, are not audited and are not a substitute for operating results or any analysis determined in accordance with GAAP. Where applicable, we have also presented comparable earnings information using GAAP financial measures. Because not all companies use the same calculations, our presentation may not be comparable to other similarly titled measures as calculated by other companies. See “Comparison of Results of Operations" for more detailed information about our financial performance for the three and six months ended December 31, 2021 and 2020.
Set forth below is a reconciliation to GAAP of tangible book value and tangible book value per share:
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|
|
As of
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|
(Dollars in thousands, except per share data)
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|
December 31,
|
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September 30,
|
|
December 31,
|
|
|
|
2021
|
|
2021
|
|
2020
|
|
Total stockholders' equity
|
|
$
|
401,746
|
|
|
$
|
396,511
|
|
|
$
|
404,724
|
|
|
Less: goodwill, core deposit intangibles, net of taxes
|
|
25,780
|
|
|
25,830
|
|
|
26,130
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|
|
Tangible book value
|
|
$
|
375,966
|
|
|
$
|
370,681
|
|
|
$
|
378,594
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|
|
Common shares outstanding
|
|
16,303,461
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|
|
16,307,658
|
|
|
16,791,027
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|
|
Tangible book value per share
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|
$
|
23.06
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|
|
$
|
22.73
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|
|
$
|
22.55
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|
|
Book value per share
|
|
$
|
24.64
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|
|
$
|
24.31
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|
|
$
|
24.10
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|
Set forth below is a reconciliation to GAAP of tangible equity to tangible assets:
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|
|
|
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|
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As of
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(Dollars in thousands)
|
|
December 31,
|
|
|
|
|
|
September 30,
|
|
December 31,
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|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
|
|
|
2021
|
|
2020
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|
|
|
|
|
|
|
|
|
Tangible equity (1)
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|
$
|
375,966
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|
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|
|
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$
|
370,681
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$
|
378,594
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|
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|
|
|
|
|
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|
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Total assets
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3,502,819
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|
|
|
|
|
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3,481,360
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|
|
3,679,971
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|
|
|
|
|
|
|
|
|
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Less: goodwill, core deposit intangibles, net of taxes
|
|
25,780
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|
|
|
|
|
|
25,830
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|
|
26,130
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|
|
|
|
|
|
|
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|
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Total tangible assets
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|
$
|
3,477,039
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|
|
|
|
|
|
$
|
3,455,530
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|
|
$
|
3,653,841
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|
|
|
|
|
|
|
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|
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Tangible equity to tangible assets
|
|
10.81
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%
|
|
|
|
|
|
10.73
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%
|
|
10.36
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%
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_________________________________________________________________
(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.
Set forth below is a reconciliation to GAAP of the ACL to total loans and the ACL as adjusted to exclude PPP loans:
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|
|
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|
|
|
|
|
|
(Dollars in thousands)
|
December 31,
|
|
|
|
|
|
September 30,
|
|
December 31,
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|
|
2021
|
|
|
|
|
|
2021
|
|
2020
|
|
Total gross loans receivable
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$
|
2,696,072
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|
|
|
|
|
|
$
|
2,719,642
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|
|
$
|
2,678,624
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Less: PPP loans
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19,044
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|
|
|
|
|
|
28,762
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|
|
64,845
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|
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Adjusted loans
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$
|
2,677,028
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|
|
|
|
|
|
$
|
2,690,880
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|
|
$
|
2,613,779
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|
|
|
|
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|
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|
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ACL
|
$
|
30,933
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|
|
|
|
|
|
$
|
34,406
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|
|
$
|
39,844
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ACL / Adjusted loans
|
1.16
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%
|
|
|
|
|
|
1.28
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%
|
|
1.52
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%
|
Comparison of Financial Condition at December 31, 2021 and June 30, 2021
General. Total assets and liabilities decreased by $21.9 million and $27.1 million down to $3.5 billion and $3.1 billion, respectively, at December 31, 2021 as compared to June 30, 2021. The decrease in assets was primarily driven by a combined decrease of $56.9 million, or 23.0%, in cash and cash equivalents, certificates of deposit in other banks, and debt securities available for sale, and a $37.2 million, or 1.4%, decrease in loans receivable as the Company redirected its excess liquidity to continue paying down borrowings during the period. These decreases were partially offset by a $64.6 million, or 34.1%, increase in commercial paper and a $8.5 million, or 9.1%, increase in loans held for sale.
Cash and cash equivalents and commercial paper. Total cash and cash equivalents decreased $16.2 million, or 31.7%, to $34.8 million at December 31, 2021 from $51.0 million at June 30, 2021. Commercial paper increased $64.6 million, or 34.1%, to $254.2 million at December 31, 2021 from $189.6 million at June 30, 2021 which was funded by excess interest-earning deposits and a decrease in debt securities available for sale.
Debt securities available for sale and other investments. Debt securities available for sale decreased $34.6 million, or 22.1%, to $121.9 million at December 31, 2021 from $156.5 million at June 30, 2021. At December 31, 2021, certificates of deposit in other banks decreased $6.1 million, or 15.3%, to $34.0 million compared to $40.1 million at June 30, 2021. The decrease in certificates of deposit in other banks was due to $7.1 million in maturities partially offset by $1.0 million in purchases. All certificates of deposit in other banks are fully insured by the FDIC. Other investments at cost decreased $1.6 million, or 6.7%, to $22.1 million at December 31, 2021 from $23.7 million at June 30, 2021. Other investments at cost included SBIC investments, FRB stock, and FHLB stock totaling $11.7 million, $7.4 million, and $3.0 million, respectively. The overall decrease was driven by a $3.2 million, or 51.8%, reduction in FHLB stock as a result of the paydowns in borrowings during the current period.
Loans held for sale. Loans held for sale increased $8.6 million, or 9.1%, to $102.1 million at December 31, 2021 from $93.5 million at June 30, 2021. The increase was primarily driven by a $17.1 million, or 29.7%, increase in HELOCs originated for sale, a $12.6 million, or 39.6%, decrease in mortgage loans held for sale, and a $4.1 million, or 97.6%, increase in SBA loans held for sale.
Loans, net of deferred loan fees and costs. Total loans decreased $37.2 million, or 1.4%, to $2.7 billion at December 31, 2021 from the balance at June 30, 2021. The decrease was driven by a $88.5 million, or 11.6%, decrease in retail consumer loans resulting from a reduction in one-to-four family loans and indirect auto finance loans, partially as a result of the sale of $11.5 million of these loans in November 2021. This decrease was partially offset by a $78.9 million, or 4.1%, increase in commercial loans (excluding PPP loans) as the Company continues its focus on the growth of this loan segment.
Commercial and retail consumer loans consist of the following at the dates indicated:
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As of
|
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|
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Percent of total
|
|
(Dollars in thousands)
|
December 31,
|
|
June 30,
|
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Change
|
|
December 31,
|
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June 30,
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|
|
2021
|
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2021
|
|
$
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%
|
|
2021
|
|
2021
|
|
Commercial loans:
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|
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Commercial real estate
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$
|
1,113,330
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$
|
1,142,276
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$
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(28,946)
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(2.5)
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%
|
|
41.3
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%
|
|
41.8
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%
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Construction and development
|
226,439
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|
|
179,427
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|
|
47,012
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|
|
26.2
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|
|
8.4
|
|
|
6.6
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|
|
Commercial and industrial
|
162,396
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|
|
141,341
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|
|
21,055
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|
|
14.9
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|
|
6.0
|
|
|
5.2
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|
|
Equipment finance
|
367,008
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|
|
317,920
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|
|
49,088
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|
|
15.4
|
|
|
13.6
|
|
|
11.6
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|
|
Municipal leases
|
131,078
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|
|
140,421
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|
|
(9,343)
|
|
|
(6.7)
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|
|
4.9
|
|
|
5.1
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|
|
PPP loans
|
19,044
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|
|
46,650
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|
|
(27,606)
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|
|
(59.2)
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|
|
0.7
|
|
|
1.7
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|
|
Total commercial loans
|
2,019,295
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|
|
1,968,035
|
|
|
51,260
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|
|
2.6
|
|
|
74.9
|
|
|
72.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail consumer loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family
|
356,850
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|
|
406,549
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|
|
(49,699)
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|
|
(12.2)
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|
|
13.2
|
|
|
14.9
|
|
|
HELOCs - originated
|
128,189
|
|
|
130,225
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|
|
(2,036)
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|
|
(1.6)
|
|
|
4.8
|
|
|
4.8
|
|
|
HELOCs - purchased
|
30,795
|
|
|
38,976
|
|
|
(8,181)
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|
|
(21.0)
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|
|
1.1
|
|
|
1.4
|
|
|
Construction and land/lots
|
69,253
|
|
|
66,027
|
|
|
3,226
|
|
|
4.9
|
|
|
2.6
|
|
|
2.4
|
|
|
Indirect auto finance
|
84,581
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|
|
115,093
|
|
|
(30,512)
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|
|
(26.5)
|
|
|
3.1
|
|
|
4.2
|
|
|
Consumer
|
7,109
|
|
|
8,362
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|
|
(1,253)
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|
|
(15.0)
|
|
|
0.3
|
|
|
0.3
|
|
|
Total retail consumer loans
|
676,777
|
|
|
765,232
|
|
|
(88,455)
|
|
|
(11.6)
|
|
|
25.1
|
|
|
28.0
|
|
|
Total loans
|
$
|
2,696,072
|
|
|
$
|
2,733,267
|
|
|
$
|
(37,195)
|
|
|
(1.4)
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
Asset quality. Nonperforming assets decreased by $6.6 million, or 51.4%, to $6.2 million, or 0.18%, of total assets at December 31, 2021 compared to $12.8 million, or 0.36% of total assets at June 30, 2021. The significant decrease from June 30, 2021 was primarily a result of the payoff of two commercial real estate loan relationships totaling $5.1 million in the prior quarter. Nonperforming assets included $6.2 million in nonaccruing loans and $45,000 in REO at December 31, 2021, compared to $12.6 million and $188,000 in nonaccruing loans and REO, respectively, at June 30, 2021. Nonperforming loans to total loans was 0.23% at December 31, 2021 and 0.46% at June 30, 2021.
As of December 31, 2021, we had $652,000 in loans with full principal and interest payment deferrals related to COVID-19 compared to $107,000 at June 30, 2021. Substantially all loans placed on full payment deferral during the pandemic have come out of deferral and borrowers are either making regular loan payments or interest-only payments. As of December 31, 2021, we had $15.6 million in commercial loan deferrals on interest-only payments compared to $78.9 million at June 30, 2021.
We believe the steps we have taken and continue to take are necessary to effectively manage our portfolio and assist our customers through the ongoing uncertainty surrounding the duration, impact and government response to the COVID-19 pandemic. In addition, we will continue to work with our customers to determine the best option for repayment of accrued interest on the deferred payments.
The ratio of classified assets to total assets decreased to 0.65% at December 31, 2021 from 0.76% at June 30, 2021. Classified assets decreased $3.8 million, or 14.2%, to $22.9 million at December 31, 2021 compared to $26.7 million at June 30, 2021 primarily due to the payoff of two commercial real estate loan relationships discussed above. The Company's overall asset quality metrics continue to demonstrate its commitment to growing and maintaining a loan portfolio with a moderate risk profile; however, the Company will remain diligent in its monitoring of the portfolio during these uncertain times.
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 December 31, 2021, there were $5.3 million in loans individually evaluated. For more information on these individually evaluated loans, see "Note 6 - Loans and Allowance for Credit Losses on Loans" in this Quarterly Report on Form 10-Q.
Allowance for credit losses. The ACL on loans was $30.9 million, or 1.15%, of total loans at December 31, 2021 compared to $35.5 million, or 1.30%, of total loans at June 30, 2021. The overall decrease was driven by lower expected credit losses estimated by management based on an improving economic outlook.
There was a net benefit for credit losses of $4.0 million for the six months ended December 31, 2021, compared to a $2.1 million net benefit for the corresponding period in fiscal year 2021. Net loan charge-offs totaled $760,000 for the six months ended December 31, 2021, compared to net charge-offs of $637,000 for the same period last year. Net charge-offs as a percentage of average loans were 0.05% for the six months ended December 31, 2021 compared to net charge-offs of 0.04% for the corresponding period last year.
The allowance as a percentage of nonaccruing loans increased to 500.70% at December 31, 2021 from 281.38% at June 30, 2021.
Deferred income taxes. Deferred income taxes decreased $4.9 million, or 28.9%, to $12.0 million at December 31, 2021 from $16.9 million at June 30, 2021. The decrease was primarily a result of a release and reduction of the ACL, depreciation on new equipment finance leases, and bonus tax depreciation on new premises.
Other assets. Other assets increased $1.4 million, or 2.5%, to $58.9 million at December 31, 2021 from $57.5 million at June 30, 2021. The increase was primarily driven by a reclassification of assets held for sale from premises and equipment related to the nine branch closures, partially offset by lower net operating lease assets and lower current taxes receivable.
Deposits. Deposits increased $43.2 million, or 1.5%, during the six months ended December 31, 2021 to $3.0 billion, driven by our successful efforts to increase core deposits which increased $74.1 million, or 3.0%. Partially offsetting this deposit increase was a decrease of $31.0 million, or 6.5%, in certificates of deposit as part of our managed runoff of the portfolio.
The following table sets forth our deposits by type of deposit account as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
Percent of total
|
|
(Dollars in thousands)
|
December 31,
|
|
June 30,
|
|
Change
|
|
December 31,
|
|
June 30,
|
|
|
2021
|
|
2021
|
|
$
|
|
%
|
|
2021
|
|
2021
|
|
Core deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing accounts
|
$
|
677,159
|
|
|
$
|
636,414
|
|
|
$
|
40,745
|
|
|
6.4
|
%
|
|
22.6
|
%
|
|
21.5
|
%
|
|
NOW accounts
|
644,343
|
|
|
644,958
|
|
|
(615)
|
|
|
(0.1)
|
|
|
21.5
|
|
|
21.8
|
|
|
Money market accounts
|
1,010,901
|
|
|
975,001
|
|
|
35,900
|
|
|
3.7
|
|
|
33.7
|
|
|
33.0
|
|
|
Savings accounts
|
224,474
|
|
|
226,391
|
|
|
(1,917)
|
|
|
(0.8)
|
|
|
7.5
|
|
|
7.7
|
|
|
Core deposits
|
2,556,877
|
|
|
2,482,764
|
|
|
74,113
|
|
|
3.0
|
|
|
85.3
|
|
|
84.0
|
|
|
Certificates of deposit
|
441,814
|
|
|
472,777
|
|
|
(30,963)
|
|
|
(6.5)
|
|
|
14.7
|
|
|
16.0
|
|
|
Total
|
$
|
2,998,691
|
|
|
$
|
2,955,541
|
|
|
$
|
43,150
|
|
|
1.5
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings. Borrowings decreased $67.0 million, or 58.3%, to $48.0 million at December 31, 2021 compared to $115.0 million at June 30, 2021 as excess liquidity was used to pay down borrowings.
Other liabilities. Other liabilities decreased $3.3 million, or 5.7%, to $54.4 million at December 31, 2021 compared to $57.7 million at June 30, 2021. The decrease was primarily a result of a $1.7 million, or 48.3%, reduction in accrued profit sharing expenses and a $902,000, or 99.1% decrease in commercial loan suspense.
Average Balances, Interest and Average Yield/Cost
Our operating results depend primarily on our net interest income, which is the difference between interest income on interest-earning assets, including loans and securities, and interest expense incurred on interest-bearing liabilities, including deposits and other borrowed funds. Interest rate fluctuations, as well as changes in the amount and type of interest-earning assets and interest-bearing liabilities, combine to affect net interest income. Our net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities, referred to as a "volume change". It is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing liabilities, referred to as a "rate change".
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.
The following table presents the distribution of average assets, liabilities and equity, as well as interest income and fees on average interest-earning assets and interest expense and interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended December 31,
|
|
|
2021
|
|
2020
|
|
(Dollars in thousands)
|
Average
Balance
Outstanding
|
|
Interest
Earned/
Paid
|
|
Yield/
Rate
|
|
Average
Balance
Outstanding
|
|
Interest
Earned/
Paid
|
|
Yield/
Rate
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable(1)(2)
|
$
|
2,819,262
|
|
|
$
|
27,236
|
|
|
3.83
|
%
|
|
$
|
2,826,133
|
|
|
$
|
28,648
|
|
|
4.02
|
%
|
|
Commercial paper and deposits in other banks
|
313,882
|
|
|
468
|
|
|
0.59
|
|
|
417,401
|
|
|
614
|
|
|
0.58
|
|
|
Debt securities available for sale
|
121,987
|
|
|
411
|
|
|
1.34
|
|
|
133,856
|
|
|
504
|
|
|
1.50
|
|
|
Other interest-earning assets(3)
|
22,327
|
|
|
680
|
|
|
12.09
|
|
|
39,290
|
|
|
696
|
|
|
7.03
|
|
|
Total interest-earning assets
|
3,277,458
|
|
|
28,795
|
|
|
3.49
|
|
|
3,416,680
|
|
|
30,462
|
|
|
3.54
|
|
|
Other assets
|
259,591
|
|
|
|
|
|
|
257,572
|
|
|
|
|
|
|
Total assets
|
$
|
3,537,049
|
|
|
|
|
|
|
$
|
3,674,252
|
|
|
|
|
|
|
Liabilities and equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing checking accounts
|
$
|
635,268
|
|
|
$
|
331
|
|
|
0.21
|
%
|
|
$
|
584,530
|
|
|
$
|
353
|
|
|
0.24
|
%
|
|
Money market accounts
|
998,297
|
|
|
349
|
|
|
0.14
|
|
|
848,760
|
|
|
414
|
|
|
0.19
|
|
|
Savings accounts
|
222,464
|
|
|
40
|
|
|
0.07
|
|
|
206,205
|
|
|
38
|
|
|
0.07
|
|
|
Certificate accounts
|
443,546
|
|
|
585
|
|
|
0.52
|
|
|
576,078
|
|
|
1,542
|
|
|
1.06
|
|
|
Total interest-bearing deposits
|
2,299,575
|
|
|
1,305
|
|
|
0.23
|
|
|
2,215,573
|
|
|
2,347
|
|
|
0.42
|
|
|
Borrowings
|
57,248
|
|
|
15
|
|
|
0.11
|
|
|
475,000
|
|
|
1,688
|
|
|
1.41
|
|
|
Total interest-bearing liabilities
|
2,356,823
|
|
|
1,320
|
|
|
0.22
|
|
|
2,690,573
|
|
|
4,035
|
|
|
0.59
|
|
|
Noninterest-bearing deposits
|
736,271
|
|
|
|
|
|
|
523,488
|
|
|
|
|
|
|
Other liabilities
|
44,974
|
|
|
|
|
|
|
57,813
|
|
|
|
|
|
|
Total liabilities
|
3,138,068
|
|
|
|
|
|
|
3,271,874
|
|
|
|
|
|
|
Stockholders' equity
|
398,981
|
|
|
|
|
|
|
402,378
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
$
|
3,537,049
|
|
|
|
|
|
|
$
|
3,674,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earning assets
|
$
|
920,635
|
|
|
|
|
|
|
$
|
726,107
|
|
|
|
|
|
|
Average interest-earning assets to
|
|
|
|
|
|
|
|
|
|
|
|
|
average interest-bearing liabilities
|
139.06
|
%
|
|
|
|
|
|
126.99
|
%
|
|
|
|
|
|
Tax-equivalent:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
$
|
27,475
|
|
|
|
|
|
|
$
|
26,427
|
|
|
|
|
Interest rate spread
|
|
|
|
|
3.27
|
%
|
|
|
|
|
|
2.95
|
%
|
|
Net interest margin(4)
|
|
|
|
|
3.33
|
%
|
|
|
|
|
|
3.07
|
%
|
|
Non-tax-equivalent:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
$
|
27,168
|
|
|
|
|
|
|
$
|
26,122
|
|
|
|
|
Interest rate spread
|
|
|
|
|
3.23
|
%
|
|
|
|
|
|
2.91
|
%
|
|
Net interest margin(4)
|
|
|
|
|
3.29
|
%
|
|
|
|
|
|
3.03
|
%
|
_________________________________________________________________
(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 $307 and $305 for the three months ended December 31, 2021 and 2020, 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, and SBIC investments.
(4)Net interest income divided by average interest-earning assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended December 31,
|
|
|
2021
|
|
2020
|
|
(Dollars in thousands)
|
Average
Balance
Outstanding
|
|
Interest
Earned/
Paid
|
|
Yield/
Rate
|
|
Average
Balance
Outstanding
|
|
Interest
Earned/
Paid
|
|
Yield/
Rate
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable(1)(2)
|
$
|
2,819,482
|
|
|
$
|
55,441
|
|
|
3.90
|
%
|
|
$
|
2,850,783
|
|
|
$
|
57,550
|
|
|
4.00
|
%
|
|
Commercial paper and deposits in other banks
|
295,746
|
|
|
799
|
|
|
0.54
|
|
|
420,785
|
|
|
1,495
|
|
|
0.70
|
|
|
Debt securities available for sale
|
130,143
|
|
|
935
|
|
|
1.43
|
|
|
120,062
|
|
|
1,032
|
|
|
1.71
|
|
|
Other interest-earning assets(3)
|
22,020
|
|
|
1,235
|
|
|
11.13
|
|
|
39,118
|
|
|
1,144
|
|
|
5.80
|
|
|
Total interest-earning assets
|
3,267,391
|
|
|
58,410
|
|
|
3.55
|
|
|
3,430,748
|
|
|
61,221
|
|
|
3.54
|
|
|
Other assets
|
260,288
|
|
|
|
|
|
|
254,610
|
|
|
|
|
|
|
Total assets
|
$
|
3,527,679
|
|
|
|
|
|
|
$
|
3,685,358
|
|
|
|
|
|
|
Liabilities and equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing checking accounts
|
$
|
635,362
|
|
|
728
|
|
|
0.23
|
%
|
|
$
|
572,505
|
|
|
750
|
|
|
0.26
|
%
|
|
Money market accounts
|
993,643
|
|
|
716
|
|
|
0.14
|
|
|
837,153
|
|
|
964
|
|
|
0.23
|
|
|
Savings accounts
|
223,061
|
|
|
81
|
|
|
0.07
|
|
|
203,374
|
|
|
75
|
|
|
0.07
|
|
|
Certificate accounts
|
450,706
|
|
|
1,352
|
|
|
0.60
|
|
|
632,894
|
|
|
3,811
|
|
|
1.19
|
|
|
Total interest-bearing deposits
|
2,302,772
|
|
|
2,877
|
|
|
0.25
|
|
|
2,245,926
|
|
|
5,600
|
|
|
0.49
|
|
|
Borrowings
|
56,356
|
|
|
41
|
|
|
0.15
|
|
|
475,000
|
|
|
3,375
|
|
|
1.41
|
|
|
Total interest-bearing liabilities
|
2,359,128
|
|
|
2,918
|
|
|
0.25
|
|
|
2,720,926
|
|
|
8,975
|
|
|
0.65
|
|
|
Noninterest-bearing deposits
|
722,432
|
|
|
|
|
|
|
507,087
|
|
|
|
|
|
|
Other liabilities
|
48,393
|
|
|
|
|
|
|
55,699
|
|
|
|
|
|
|
Total liabilities
|
3,129,953
|
|
|
|
|
|
|
3,283,712
|
|
|
|
|
|
|
Stockholders' equity
|
397,726
|
|
|
|
|
|
|
401,646
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
$
|
3,527,679
|
|
|
|
|
|
|
$
|
3,685,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earning assets
|
$
|
908,263
|
|
|
|
|
|
|
$
|
709,822
|
|
|
|
|
|
|
Average interest-earning assets to
|
|
|
|
|
|
|
|
|
|
|
|
|
average interest-bearing liabilities
|
138.50
|
%
|
|
|
|
|
|
126.09
|
%
|
|
|
|
|
|
Tax-equivalent:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
$
|
55,492
|
|
|
|
|
|
|
$
|
52,246
|
|
|
|
|
Interest rate spread
|
|
|
|
|
3.30
|
%
|
|
|
|
|
|
2.89
|
%
|
|
Net interest margin(4)
|
|
|
|
|
3.37
|
%
|
|
|
|
|
|
3.02
|
%
|
|
Non-tax-equivalent:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
$
|
54,875
|
|
|
|
|
|
|
$
|
51,631
|
|
|
|
|
Interest rate spread
|
|
|
|
|
3.26
|
%
|
|
|
|
|
|
2.85
|
%
|
|
Net interest margin(4)
|
|
|
|
|
3.33
|
%
|
|
|
|
|
|
2.99
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
_________________________________________________________________
(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 $617 and $615 for the six months ended December 31, 2021 and 2020, 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, and SBIC investments.
(4)Net interest income divided by average interest-earning assets.
Rate/Volume Analysis
The following table shows the effects that changes in average balances (volume) and average interest rates (rate) had on the interest earned on our interest-earning assets and interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2021
|
|
|
Compared to
|
|
|
Three Months Ended December 31, 2020
|
|
(Dollars in thousands)
|
Increase/
(Decrease)
due to
|
|
Total
Increase/(Decrease)
|
|
|
Volume
|
|
Rate
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
Loans receivable(1)
|
$
|
(70)
|
|
|
$
|
(1,342)
|
|
|
$
|
(1,412)
|
|
|
Commercial paper and deposits in other banks
|
(152)
|
|
|
6
|
|
|
(146)
|
|
|
Debt securities available for sale
|
(45)
|
|
|
(48)
|
|
|
(93)
|
|
|
Other interest-earning assets
|
(300)
|
|
|
284
|
|
|
(16)
|
|
|
Total interest-earning assets
|
(567)
|
|
|
(1,100)
|
|
|
(1,667)
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
Interest-bearing checking accounts
|
31
|
|
|
(53)
|
|
|
(22)
|
|
|
Money market accounts
|
73
|
|
|
(138)
|
|
|
(65)
|
|
|
Savings accounts
|
3
|
|
|
(1)
|
|
|
2
|
|
|
Certificate accounts
|
(355)
|
|
|
(602)
|
|
|
(957)
|
|
|
Total interest-bearing deposits
|
(248)
|
|
|
(794)
|
|
|
(1,042)
|
|
|
Borrowings
|
(1,484)
|
|
|
(189)
|
|
|
(1,673)
|
|
|
Total interest-bearing liabilities
|
(1,732)
|
|
|
(983)
|
|
|
(2,715)
|
|
|
Net increase (decrease) in tax equivalent interest income
|
$
|
1,165
|
|
|
$
|
(117)
|
|
|
$
|
1,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended December 31, 2021
|
|
|
Compared to
|
|
|
Six Months Ended December 31, 2020
|
|
(Dollars in thousands)
|
Increase/
(Decrease)
due to
|
|
Total
Increase/(Decrease)
|
|
|
Volume
|
|
Rate
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
Loans receivable(1)
|
$
|
(632)
|
|
|
$
|
(1,477)
|
|
|
$
|
(2,109)
|
|
|
Commercial paper and deposits in other banks
|
(444)
|
|
|
(252)
|
|
|
(696)
|
|
|
Debt securities available for sale
|
87
|
|
|
(184)
|
|
|
(97)
|
|
|
Other interest-earning assets
|
(500)
|
|
|
591
|
|
|
91
|
|
|
Total interest-earning assets
|
(1,489)
|
|
|
(1,322)
|
|
|
(2,811)
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
Interest-bearing checking accounts
|
82
|
|
|
(104)
|
|
|
(22)
|
|
|
Money market accounts
|
180
|
|
|
(428)
|
|
|
(248)
|
|
|
Savings accounts
|
7
|
|
|
(1)
|
|
|
6
|
|
|
Certificate accounts
|
(1,097)
|
|
|
(1,362)
|
|
|
(2,459)
|
|
|
Total interest-bearing deposits
|
(828)
|
|
|
(1,895)
|
|
|
(2,723)
|
|
|
Borrowings
|
(2,974)
|
|
|
(360)
|
|
|
(3,334)
|
|
|
Total interest-bearing liabilities
|
(3,802)
|
|
|
(2,255)
|
|
|
(6,057)
|
|
|
Net increase (decrease) in tax equivalent interest income
|
$
|
2,313
|
|
|
$
|
933
|
|
|
$
|
3,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
_________________________________________________________________
(1) Interest income used in the average interest earned and yield calculation includes the tax equivalent adjustment of $307 and $305 for the three months ended December 31, 2021 and 2020, respectively, calculated based on a combined federal and state income tax rate of 24%. Interest income used in the average interest earned and yield calculation includes the tax equivalent adjustment of $617 and $615 for the six months ended December 31, 2021 and 2020, respectively, calculated based on a combined federal and state income tax rate of 24%.
Comparison of Results of Operations for the Three Months Ended December 31, 2021 and 2020
General. During the three months ended December 31, 2021, net income increased $1.6 million, or 17.1% to $11.1 million compared to $9.5 million for the three months ended December 31, 2020, while our diluted earnings per share increased to $0.68 compared to $0.57 for the same period in fiscal 2021. Second quarter of fiscal 2022 earnings were positively impacted by a $2.5 million net benefit for credit losses, a $1.0 million increase in net interest income driven by lower borrowing costs, and a $0.8 million increase in noninterest income.
Net Interest Income. Net interest income increased $1.1 million, or 4.0%, to $27.2 million for the quarter ended December 31, 2021, compared to $26.1 million for the comparative quarter in fiscal 2021. Interest and dividend income decreased by $1.7 million, or 5.5%, primarily driven by lower average balances on interest-bearing assets combined with lower loan yields. This decrease was partially offset by a $2.7 million, or 67.3%, decrease in interest expense.
Average interest-earning assets decreased $139.2 million, or 4.1%, to $3.3 billion for the quarter ended December 31, 2021. The main drivers of the change were decreases of $103.5 million, or 24.8%, in the average balance of commercial paper and deposits in other banks and $11.9 million, or 8.9%, in debt securities available for sale as the Company continues to use excess liquidity to reduce borrowings, which declined by $417.8 million, or 88.0%, when compared to the prior period. Net interest margin (on a fully taxable-equivalent basis) for the three months ended December 31, 2021 increased to 3.33% from 3.07% for the same period a year ago as all higher rate long-term borrowings were repaid during the quarter ended June 30, 2021.
Total interest and dividend income decreased $1.7 million, or 5.5%, for the quarter ended December 31, 2021 as compared to the same quarter last year, which was primarily a result of a $1.4 million, or 5.0%, decrease in loan interest income, and a $146,000, or 23.8%, decrease in interest income from commercial paper and deposits in other banks. The lower interest income in each category was mainly driven by the overall decrease in average balances as discussed above, in addition to declines in the average yields on loans of 19 basis points, from 4.02% to 3.83%, and debt securities available for sale of 16 basis points, from 1.50% to 1.34%. Loan interest income for the quarter included the amortization of $286,000 of PPP loan origination fees, a decline of $202,000 when compared to the $488,000 recognized in the prior year period. The overall average yield on interest-earning assets decreased 5 basis points to 3.49% for the current quarter compared to 3.54% in the same quarter last year primarily due to the change in mix of interest-earning assets, as excess liquidity was used to repay long-term borrowings and reduce short-term interest-earning assets with lower yields.
Total interest expense decreased $2.7 million, or 67.3%, for the quarter ended December 31, 2021 compared to the same period last year. The decrease was driven by a $1.7 million, or 99.1%, decrease in interest expense on borrowings as discussed above and a $1.0 million, or 44.4%, decrease in interest expense on deposits. The average balance of total deposits increased by $296.8 million, or 10.8%, with noninterest-bearing deposits and interest-bearing deposits increasing $212.8 million and $84.0 million, respectively. The increase in interest-bearing deposits was driven by a $149.5 million, or 17.6% increase in money market accounts, partially offset by a $132.5 million, or 23.0%, decrease in certificates of deposit. As stated above, average borrowings for the quarter ended December 31, 2021 decreased $417.8 million, or 88.0%, along with a 130 basis point decrease in the average cost of borrowings compared to the same period last year. The increase in average deposits (interest and noninterest-bearing) was due to successful deposit gathering campaigns and the effect of government stimulus. The decrease in the average cost of borrowings was primarily driven by the early retirement of long-term borrowings reducing the average balance and partially driven by a shift to short-term borrowings at lower rates. The overall average cost of funds decreased 37 basis points to 0.22% for the current quarter compared to 0.59% in the same quarter last year.
Provision (Benefit) for Credit Losses. During the three months ended December 31, 2021, there was a $2.5 million net benefit for credit losses compared to a $3.0 million net benefit for the corresponding quarter of fiscal 2021. Net loan charge-offs totaled $1.0 million for the three months ended December 31, 2021, compared to net recoveries of $62,000 for the same period last year. Annualized net charge-offs as a percentage of average loans were 0.15% for the quarter ended December 31, 2021 compared to recoveries of 0.01% for the corresponding quarter last year. See "Comparison of Financial Condition - Asset Quality" for additional details.
Noninterest Income. Noninterest income increased $836,000, or 8.9%, to $10.2 million for the quarter ended December 31, 2021 from $9.3 million for the same period in the previous year. This change was primarily due to a $369,000, or 27.3%, increase in operating lease income, a $236,000, or 41.5%, increase in loan income and fees, and a $197,000, or 5.3%, increase in gain on sale of loans. The increase in operating lease income was driven by increases in loan originations and higher outstanding lease balances during the period. The increase in loan income and fees was largely a result of transitioning SBA loan servicing processes in-house, which began July 1, 2021. During the quarter ended December 31, 2021, $86.9 million of residential mortgage loans originated for sale were sold with gains of $2.2 million compared to $108.9 million sold and gains of $2.8 million in the corresponding period in the prior year. There were $12.6 million of sales of the guaranteed portion of SBA commercial loans with gains of $1.3 million in the current quarter compared to $9.3 million sold and gains of $778,000 for the same period last year. The Company sold $24.8 million of home equity lines of credit (HELOC) during the quarter for a gain of $159,000 compared to $23.2 million sold and gains of $158,000 in the corresponding period last year. Lastly, $11.5 million of indirect auto finance loans were sold in the current quarter out of the held for investment portfolio for a gain of $205,000. No such sales occurred in the same period in the prior year.
Noninterest Expense. Noninterest expense decreased $534,000, or 2.0%, for the quarter ended December 31, 2021 as compared to the same period last year, which was primarily a result of a decrease of $828,000, or 5.3%, in salaries and benefits expense due to branch closures and lower mortgage banking incentive pay in the period, partially offset by an increase of $505,000, or 154.4%, in marketing and advertising expense driven by reduced media advertising in the prior period as a result of the pandemic.
Income Taxes. Our income tax expense for the three months ended December 31, 2021 increased $269,000, or 10.4%, to $2.9 million from $2.6 million for the three months ended December 31, 2020 as a result of higher taxable income. The effective tax rates for the quarters ended December 31, 2021 and 2020 were 20.5% and 21.5%, respectively.
Comparison of Results of Operations for the Six Months Ended December 31, 2021 and 2020
General. During the six months ended December 31, 2021, net income increased by $6.4 million, or 42.0%, to $21.6 million from $15.2 million for the six months ended December 31, 2020, while our diluted earnings per share increased to $1.33 for the six months ended December 31, 2021 compared to $0.92 in the same period in fiscal 2021. Year-to-date earnings were positively impacted by a $4.0 million net benefit in the provision for credit losses and a $6.1 million, or 67.5%, decrease in interest expense.
Net Interest Income. Net interest income increased by $3.2 million, or 6.3%, to $54.9 million for the six months ended December 31, 2021, compared to the same period last year. Interest and dividend income decreased by $2.8 million, or 4.6%, primarily driven by lower average balances on interest-bearing assets combined with lower loan yields.
Average interest-earning assets decreased $163.4 million, or 4.8%, to $3.3 billion for the six months ended December 31, 2021. The biggest reason for the change was a decrease of $125.0 million, or 29.7%, in commercial paper and deposits in other banks, as the Company used excess liquidity to reduce borrowings, where the average balance declined from $475.0 million to $56.4 million. Net interest margin (on a fully taxable-equivalent basis) for the six months ended December 31, 2021 increased to 3.37% from 3.02% for the same period a year ago as all higher rate long-term borrowings were repaid during the quarter ended June 30, 2021.
Total interest and dividend income decreased $2.8 million, or 4.6%, for the six months ended December 31, 2021 as compared to the same period last year, which was primarily a result of a $2.1 million, or 3.7%, decrease in loan interest income and a $696,000, or 46.6%, decrease in interest income from commercial paper and deposits in other banks. The lower interest income in each category was mainly driven by the decrease in average balances as discussed above. In addition, average loan yields decreased 10 basis points to 3.90% for the quarter ended December 31, 2021 from 4.00% in the corresponding quarter last year, average yields on debt securities available for sale decreased 28 basis points to 1.43% from 1.71%, and average yields on commercial paper and deposits in other banks decreased 16 basis points to 0.54% from 0.70%. Loan interest income for the six months included the amortization of $710,000 of PPP loan origination fees, a decline of $32,000 when compared to the $742,000 recognized in the prior year period. Despite the decrease in yield on loans and other assets discussed above, the overall average yield on interest-earning assets increased one basis point to 3.55% for the six months compared to 3.54% in the same period last year primarily due to the use of low yielding excess liquidity to repay long-term borrowings.
Total interest expense decreased $6.1 million, or 67.5%, for the six months ended December 31, 2021 compared to the same period last year. The decrease was driven by a $3.3 million, or 98.8%, decrease in interest expense on borrowings as discussed above and a $2.7 million, or 48.6%, decrease in interest expense on deposits. The average balance of total deposits increased by $272.2 million, or 9.9%, with noninterest-bearing deposits and interest-bearing deposits increasing $215.4 million and $56.8 million, respectively. The increase in interest-bearing deposits was driven by a $62.9 million, or 11.0%, increase in interest-bearing checking accounts and a $156.5 million, or 18.7%, increase in money market accounts, partially offset by a $182.2 million, or 28.8%, decrease in certificates of deposit. The increase in average deposits (interest and noninterest-bearing) was due to successful deposit gathering campaigns and the effect of government stimulus. As stated above, average borrowings for the six months ended December 31, 2021 decreased $418.6 million, or 88.1%, along with a 126 basis point decrease in the average cost of borrowings compared to the same period last year. The decrease in the average cost of borrowings was primarily driven by the early retirement of long-term borrowings reducing the average balance and partially driven by a shift to short-term borrowings at lower rates. The overall average cost of funds decreased 40 basis points to 0.25% for the six months compared to 0.65% in the same period last year.
Provision (Benefit) for Loan Losses. During the six months ended December 31, 2021 there was a $4.0 million net benefit for credit losses compared to a $2.1 million net benefit for credit losses for the corresponding period of fiscal 2021. Net loan charge-offs totaled $760,000 for the six months ended December 31, 2021, compared to net loan charge-offs of $637,000 for the same period last year. Annualized net charge-offs as a percentage of average loans were 0.05% for the six months ended December 31, 2021 compared to 0.04% for the prior year period. See "Comparison of Financial Condition - Asset Quality" for additional details.
Noninterest Income. Noninterest income increased $2.5 million, or 14.2%, to $20.5 million for the six months ended December 31, 2021 from $18.0 million for the same period in the previous year. This change was due to a $910,000, or 12.9%, increase in the gain on sale of loans, a $741,000, or 71.0%, increase in loan income and fees, a $583,000, or 21.8%, increase in operating lease income, and a $372,000, or 8.2%, increase in service charges and fees on deposit accounts. During the six months ended December 31, 2021, $150.7 million of residential mortgage loans originated for sale were sold with gains of $4.3 million compared to $190.7 million sold and gains of $5.0 million in the corresponding period in the prior year. There were $27.0 million of sales of the guaranteed portion of SBA commercial loans with gains of $3.1 million in the six months compared to $24.5 million sold and gains of $1.8 million for the same period last year. The Company sold $72.2 million of HELOCs during the six months ended December 31, 2021 for a gain of $426,000 compared to $42.1 million sold and gains of $258,000 in the corresponding period last year. Lastly, $11.5 million of indirect auto finance loans were sold out of the held for investment portfolio during the current period for a gain of $205,000. No such sales occurred in the same period in the prior year. The $741,000, or 71.0%, increase in loan income and fees was primarily a result of $536,000 in additional loan servicing fees as a result of bringing the Company's SBA loan servicing process in-house, which began July 1, 2021, and $279,000 in additional prepayment fee income from our equipment finance line of business. The increase in operating lease income was primarily driven by increases in loan originations and higher outstanding lease balances during the period. Lastly, the increase in service charges on deposit accounts was the result of a $290,000 increase in interchange income driven by higher debit card usage.
Noninterest Expense. Noninterest expense decreased $518,000, or 1.0%, for the six months ended December 31, 2021 as compared to the same period last year, which was primarily a result of a decrease of $755,000, or 2.4%, in salaries and benefits expense due to branch closures and lower incentive pay in the period and a reduction of core deposit amortization expense of $282,000, or 64.1%, partially offset by an increase of $885,000, or 135.7%, in marketing and advertising expense driven by reduced media advertising in the prior year period as a result of the pandemic.
Income Taxes. For the six months ended December 31, 2021, the Company's income tax expense increased $1.8 million, or 44.6%, to $5.8 million from $4.0 million as a result of higher taxable income. The effective tax rates for the six months ended December 31, 2021 and 2020 were 21.3% and 21.0%, respectively.
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, cash flows from loan payments, commercial paper, 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 December 31, 2021, the Bank had an available borrowing capacity of $285.1 million with the FHLB of Atlanta, a $59.4 million line of credit with the FRB and a line of credit with three unaffiliated banks totaling $100.0 million. At December 31, 2021, we had $30.0 million in FHLB advances outstanding, $18.0 million in FRB borrowings outstanding, and nothing outstanding under our other lines of credit. 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. We have historically sold longer term 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 may 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 December 31, 2021 brokered deposits totaled $2.3 million, or 0.1%, of total deposits, compared to $4.3 million, or 0.2%, of total deposits, at June 30, 2021.
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, federal funds, and commercial paper. On a longer term basis, we maintain a strategy of investing in various lending products and investment securities, including MBS. HomeTrust Bancshares on a stand-alone level is a separate legal entity from the Bank and we must provide for our own liquidity and pay our own operating expenses. We have the ability to receive dividends or capital distributions from the Bank, although there are regulatory restrictions on the ability of the Bank to pay dividends. At December 31, 2021, HomeTrust Bancshares on a stand-alone basis had liquid assets of $4.4 million.
We use our sources of funds primarily to meet our ongoing commitments, pay maturing deposits and fund withdrawals, and to fund loan commitments. At December 31, 2021, the total approved loan commitments and unused lines of credit outstanding amounted to $279.9 million and $539.8 million, respectively, as compared to $401.1 million and $530.5 million, respectively, as of June 30, 2021. Certificates of deposit scheduled to mature in one year or less at December 31, 2021, totaled $381.3 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 continue to remain with us.
During the first six months of fiscal 2022, cash and cash equivalents decreased $16.2 million, or 31.7%, to $34.8 million as of December 31, 2021 from $51.0 million as of June 30, 2021 as excess liquidity was used to pay down borrowings.
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. These transactions involve varying degrees of off-balance sheet credit, interest rate and liquidity risks. These transactions are used primarily to manage customers' requests for funding and take the form of loan commitments and lines of credit. For the six months ended December 31, 2021, we did not engage in any off-balance sheet transactions likely to have a material effect on our financial condition, results of operations or cash flows.
A summary of our off-balance sheet commitments to extend credit at December 31, 2021, is as follows:
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Undisbursed portion of construction loans
|
$
|
201,032
|
|
|
Commitments to make loans
|
78,875
|
|
|
Unused lines of credit
|
539,778
|
|
|
Standby letters of credit
|
9,496
|
|
|
Total loan commitments
|
$
|
829,181
|
|
Capital Resources
At December 31, 2021, stockholders' equity totaled $401.7 million. HomeTrust Bancshares, Inc. is a bank holding company and a financial holding company subject to regulation by the Federal Reserve. As a bank holding company, we are subject to capital adequacy requirements of the Federal Reserve under the Bank Holding Company Act of 1956, as amended and the regulations of the Federal Reserve. Our subsidiary, the Bank, an FDIC-insured, North Carolina state-chartered bank and a member of the Federal Reserve, is supervised and regulated by the Federal Reserve and the NCCOB and is subject to minimum capital requirements applicable to state member banks established by the Federal Reserve that are calculated in a manner similar to those applicable to bank holding companies.
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.
HomeTrust Bancshares, Inc. and the Bank each exceeded all regulatory capital requirements as of December 31, 2021. 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 the Federal Reserve. The Bank was categorized as "well-capitalized" at December 31, 2021 under applicable regulatory requirements.
HomeTrust Bancshares, Inc. and the Bank's actual and required minimum capital amounts and ratios are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory Requirements
|
|
(Dollars in thousands)
|
Actual
|
|
Minimum for Capital
Adequacy Purposes
|
|
Minimum to Be
Well Capitalized
|
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
HomeTrust Bancshares, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
CTE1 Capital (to risk-weighted assets)
|
$
|
380,835
|
|
|
11.16
|
%
|
|
$
|
153,538
|
|
|
4.50
|
%
|
|
$
|
221,777
|
|
|
6.50
|
%
|
|
Tier I Capital (to total adjusted assets)
|
380,835
|
|
|
10.83
|
%
|
|
140,618
|
|
|
4.00
|
%
|
|
175,773
|
|
|
5.00
|
%
|
|
Tier I Capital (to risk-weighted assets)
|
380,835
|
|
|
11.16
|
%
|
|
204,718
|
|
|
6.00
|
%
|
|
272,957
|
|
|
8.00
|
%
|
|
Total Risk-based Capital (to risk-weighted assets)
|
402,633
|
|
|
11.80
|
%
|
|
272,957
|
|
|
8.00
|
%
|
|
341,196
|
|
|
10.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
CTE1 Capital (to risk-weighted assets)
|
$
|
375,320
|
|
|
11.26
|
%
|
|
$
|
149,943
|
|
|
4.50
|
%
|
|
$
|
216,584
|
|
|
6.50
|
%
|
|
Tier I Capital (to total adjusted assets)
|
375,320
|
|
|
10.29
|
%
|
|
145,915
|
|
|
4.00
|
%
|
|
182,393
|
|
|
5.00
|
%
|
|
Tier I Capital (to risk-weighted assets)
|
375,320
|
|
|
11.26
|
%
|
|
199,924
|
|
|
6.00
|
%
|
|
266,565
|
|
|
8.00
|
%
|
|
Total Risk-based Capital (to risk-weighted assets)
|
398,408
|
|
|
11.96
|
%
|
|
266,565
|
|
|
8.00
|
%
|
|
333,206
|
|
|
10.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HomeTrust Bank:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
CTE1 Capital (to risk-weighted assets)
|
$
|
368,790
|
|
|
10.81
|
%
|
|
$
|
153,535
|
|
|
4.50
|
%
|
|
$
|
221,772
|
|
|
6.50
|
%
|
|
Tier I Capital (to total adjusted assets)
|
368,790
|
|
|
10.49
|
%
|
|
140,589
|
|
|
4.00
|
%
|
|
175,737
|
|
|
5.00
|
%
|
|
Tier I Capital (to risk-weighted assets)
|
368,790
|
|
|
10.81
|
%
|
|
204,713
|
|
|
6.00
|
%
|
|
272,951
|
|
|
8.00
|
%
|
|
Total Risk-based Capital (to risk-weighted assets)
|
390,588
|
|
|
11.45
|
%
|
|
272,951
|
|
|
8.00
|
%
|
|
341,188
|
|
|
10.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
CTE1 capital (to risk-weighted assets)
|
$
|
357,767
|
|
|
10.74
|
%
|
|
$
|
149,936
|
|
|
4.50
|
%
|
|
$
|
216,575
|
|
|
6.50
|
%
|
|
Tier I Capital (to total adjusted assets)
|
357,767
|
|
|
9.81
|
%
|
|
145,933
|
|
|
4.00
|
%
|
|
182,417
|
|
|
5.00
|
%
|
|
Tier I Capital (to risk-weighted assets)
|
357,767
|
|
|
10.74
|
%
|
|
199,915
|
|
|
6.00
|
%
|
|
266,553
|
|
|
8.00
|
%
|
|
Total Risk-based Capital (to risk-weighted assets)
|
380,855
|
|
|
11.43
|
%
|
|
266,553
|
|
|
8.00
|
%
|
|
333,192
|
|
|
10.00
|
%
|
In addition to the minimum CET1, Tier 1 and total risk-based capital ratios, both HomeTrust Bancshares, Inc. and the Bank have to maintain a capital conservation buffer consisting of additional CET1 capital of more than 2.5% 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. At December 31, 2021, the conservation buffer was 3.80% and 3.45% for HomeTrust Bancshares, Inc. and the Bank, respectively.
Impact of Inflation
The effects of price changes and inflation can vary substantially for most financial institutions. While management believes that inflation affects the growth of total assets, it believes that it is difficult to assess the overall impact. Management believes this to be the case due to the fact that generally neither the timing nor the magnitude of the inflationary changes in the CPI coincides with changes in interest rates. The price of one or more of the components of the CPI may fluctuate considerably and thereby influence the overall CPI without having a corresponding effect on interest rates or upon the cost of those goods and services normally purchased by us. In years of high inflation and high interest rates, intermediate and long-term interest rates tend to increase, thereby adversely impacting the market values of investment securities, mortgage loans and other long-term fixed rate loans. In addition, higher short-term interest rates caused by inflation tend to increase the cost of funds. In other years, the opposite may occur.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
There has not been any material change in the market risk disclosures contained in our 2021 Form 10-K.