HomeTrust's Margin Keeps Climbing as Credit Costs Jump
HomeTrust Bancshares (HTB) pushed its net interest margin to 4.41% in the June quarter even as a swing in off-balance-sheet exposure drove provision expense up 149% and return on assets slipped to 1.46%.
HomeTrust Bancshares (HTB), the Asheville, North Carolina-based community bank, widened its net interest margin for a third straight quarter, reaching 4.41% in the quarter ended June 30, up from 4.31% in the prior quarter and 4.20% two quarters earlier. The expansion came from the funding side rather than the asset side: deposit costs fell 12 basis points to 2.22%, outpacing a 4-basis-point decline in loan yield to 6.12%, with a $1.3 million drop in certificate and brokered deposit interest expense doing much of the work. Net interest income rose $1.0 million to $45.3 million, and the gain was attributed entirely to falling funding costs rather than loan growth, since interest income itself declined $324,000 on the quarter.
That funding tailwind was underpinned by a deposit mix shift rather than balance-sheet growth. Average interest-bearing deposits fell $116.6 million to $2,815.1 million, while noninterest-bearing deposits rose to $806.6 million from $759.5 million, a shift toward free funding that supported the margin gain. Loan balances told a similarly mixed story: average loans actually declined to $3,770.9 million from $3,794.0 million even as management pointed to loan growth of 8.5% annualized, or 14.6% excluding portfolios being intentionally run off — a divergence that suggests the growth figures reference period-end or production trends rather than the average-balance table.
Credit costs moved sharply against the bank this quarter. Provision for credit losses jumped to $920,000 from $370,000, a 149% increase that reversed the prior quarter's steep pullback from $2.1 million. The swing traced to off-balance-sheet credit exposure, which required a $100,000 provision versus a $575,000 benefit in the first quarter, even as net charge-offs held stable at $1.8 million in both periods. Allowance coverage nonetheless slipped to 1.10% of total loans, or $39.8 million, from 1.16% at year-end, even as nonperforming assets rose to 1.23% of total assets from 0.98%. The decline in coverage reflects an acceleration of guaranteed-portion SBA loan repurchases, which now make up 55.4% of nonperforming assets versus 46.5% at year-end.
Underlying credit metrics deteriorated more broadly across the quarter panel. Total nonaccruing loans climbed each period, from $43.8 million in December to $46.7 million in March to $50.6 million in June, with commercial and industrial nonaccruals up nearly 50% year-to-date to $14.6 million. Equipment-finance charge-offs tied to over-the-road truck loans rose to $2.4 million from $2.1 million a year earlier for the six-month period, adding a specific pressure point within an otherwise stable charge-off trend.
Fee income softened on the quarter, falling $784,000, or 7.8%, to $9.2 million. The drop centered on HELOC loan sales, where the bank booked only a $93,000 gain on $17.2 million sold versus a $934,000 gain on $103.0 million sold in the first quarter, alongside lower operating lease income; a $724,000 increase in gain on sale of real estate partially offset the decline. Expenses rose $1.0 million, or 3.0%, to $34.0 million, but the increase was largely a one-time item: a $1.1 million loss on redemption of junior subordinated debt securities tied to the Quantum Capital merger, plus higher marketing spend around the launch of online deposit account opening. Stripped of the debt redemption charge, expenses were roughly flat.
Capital return kept expanding even as buyback pace cooled. The board raised the quarterly dividend 15.4% to $0.15 a share from $0.13, the eighth increase since 2018, while share repurchases slowed to 153,606 shares at an average $46.31 from 533,240 shares at $42.85 in the prior quarter as the stock price climbed.
The combination of the provision swing and the debt redemption charge pulled headline profitability metrics lower even as core operating trends improved. Return on assets fell to 1.46% from 1.55%, and return on equity fell to 10.44% from 11.35%, reversing a multi-quarter climb that had taken ROA/ROE from 1.44%/10.63% in the fourth quarter to 1.55%/11.35% in the first. The reversal is pinned on the elevated provision and the one-time debt charge rather than any deterioration in net interest income or margin, both of which kept improving through the period.
The divergence leaves HomeTrust with a widening margin and a rising dividend set against thinning credit coverage and climbing nonaccruals — a combination that puts the pace of SBA repurchases and the trajectory of commercial and equipment-finance credit at the center of what investors watch next.