Is HomeTrust Bancshares Inc (NASDAQ:HTBI) Over-Exposed To Risk?

The banking sector has been experiencing growth as a result of improving credit quality from post-GFC recovery. As a small-cap bank with a market capitalisation of US$504m, HomeTrust Bancshares Inc’s (NASDAQ:HTBI) profit and value are directly affected by economic growth. This is because borrowers’ demand for, and ability to repay, their loans depend on the stability of their salaries and interest rates. Risk associated with repayment is measured by bad debt which is written off as an expense, impacting HomeTrust Bancshares’s bottom line. Since the level of risky assets held by the bank impacts the attractiveness of it as an investment, I will take you through three metrics that are insightful proxies for risk.

See our latest analysis for HomeTrust Bancshares

How Good Is HomeTrust Bancshares At Forecasting Its Risks?

HomeTrust Bancshares’s forecasting and provisioning accuracy for its bad loans indicates it has a strong understanding of its own risk levels. If the level of provisioning covers 100% or more of the actual bad debt expense the bank writes off, then it is relatively accurate and prudent in its bad debt provisioning. With a bad loan to bad debt ratio of 160.46%, the bank has cautiously over-provisioned by 60.46%, which illustrates a safe and prudent forecasting methodology, and its ability to anticipate the factors contributing to its bad loan levels.

How Much Risk Is Too Much?

If HomeTrust Bancshares does not engage in overly risky lending practices, it is considered to be in good financial shape. Typically, loans that are “bad” and cannot be recuperated by the bank should comprise less than 3% of its total loans. When these loans are not repaid, they are written off as expenses which comes directly out of the bank’s profit. A ratio of 0.50% indicates the bank faces relatively low chance of default and exhibits strong bad debt management.

Is There Enough Safe Form Of Borrowing?

HomeTrust Bancshares makes money by lending out its various forms of borrowings. Deposits from customers tend to bear the lowest risk given the relatively stable amount available and interest rate. The general rule is the higher level of deposits a bank holds, the less risky it is considered to be. Since HomeTrust Bancshares’s total deposit to total liabilities is within the sensible margin at 75% compared to other banks' level of 50%, it shows a prudent level of the bank's safer form of borrowing and an appropriate level of risk.

Next Steps:

How will HTBI’s recent acquisition impact the business going forward? Should you be concerned about the future of HTBI and the sustainability of its financial health? Below, I've listed three fundamental areas on Simply Wall St's dashboard for a quick visualization on current trends for HTBI. I've also used this site as a source of data for my article.

1. Future Outlook: What are well-informed industry analysts predicting for HTBI’s future growth? Take a look at our free research report of analyst consensus for HTBI’s outlook.
2. Historical Performance: What has HTBI's returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.