Business context and reporting period
HomeTrust Bancshares, Inc. is a bank holding company headquartered in Asheville, North Carolina. It reported the quarter and six months ended December 31, 2017, the second quarter and first half of fiscal 2018. The filing’s comparative income and cash-flow periods ended December 31, 2016. Amounts below are in U.S. dollars; financial statement amounts are generally in millions unless stated otherwise.
HomeTrust attracts deposits and uses deposits and borrowings to fund residential, commercial real estate, commercial and industrial, auto, and municipal lease lending. The January 2017 TriSummit acquisition contributed to year-over-year balance and earnings growth, alongside organic loan growth.
Financial performance and position
| Metric | Three months ended Dec. 31, 2017 | Three months ended Dec. 31, 2016 | Six months ended Dec. 31, 2017 | Six months ended Dec. 31, 2016 |
|---|---|---|---|---|
| Net interest income | $25.2 | $20.4 | $49.8 | $41.6 |
| Noninterest income | $4.8 | $3.9 | $9.4 | $8.2 |
| Noninterest expense | $21.2 | $20.5 | $42.3 | $39.6 |
| Income before taxes | $8.8 | $3.9 | $16.9 | $10.1 |
| Income tax expense | $19.5 | $0.9 | $22.0 | $3.3 |
| Net income (loss) | $(10.7) | $3.0 | $(5.1) | $6.8 |
| Diluted EPS | $(0.59) | $0.17 | $(0.28) | $0.39 |
- Tax-driven reported loss: The Tax Cuts and Jobs Act led to a $17.7 million deferred-tax-asset revaluation charge. Excluding that charge and other specified items, management reported non-GAAP net income of $7.0 million for the quarter and $12.6 million for the six-month period; these adjusted measures are not GAAP results.
- Interest income and margins: Quarterly net interest income rose 23.6% year over year, while interest expense increased 119.5%, mainly reflecting higher average deposits and borrowings and increased borrowing costs. Tax-equivalent net interest margin was 3.44% for the quarter versus 3.33% a year earlier; excluding the borrowing-based leverage strategy, it was 3.73% versus 3.75%. For the six months, those margins were 3.43% versus 3.38%, and 3.71% versus 3.86% excluding the strategy.
- Balance sheet at Dec. 31, 2017: Total assets were $3.25 billion, up 1.4% from June 30, 2017. Loans, net of allowance, were $2.40 billion; deposits were $2.11 billion; borrowings were $685.0 million; and stockholders’ equity was $395.4 million. Gross loans increased $66.8 million, or 2.8%, during the six months.
- Credit quality: Nonperforming assets were $19.2 million, or 0.59% of assets, down from $20.0 million at June 30. Nonaccruing loans were $14.4 million; loans 30 or more days delinquent totaled $17.3 million, up from $15.2 million. The allowance for loan losses was $21.1 million, 0.87% of total loans; there was no loan-loss provision in either comparative period. Six-month net charge-offs were $61,000.
- Liquidity and cash flow: Cash and cash equivalents were $98.7 million, and commercial paper was $199.7 million. For the six months, operating cash flow was $13.0 million, investing cash flow was negative $49.6 million, and financing cash flow was positive $48.3 million; cash and cash equivalents increased $11.7 million. The Bank reported $56.3 million of available FHLB borrowing capacity, a $115.4 million Federal Reserve line, and $60.0 million of lines with other banks, with no amounts drawn on those non-FHLB lines.
- Capital: The Bank’s common equity Tier 1 ratio was 11.73%, Tier 1 leverage ratio 9.95%, and total risk-based capital ratio 12.52%. The filing states that the Bank exceeded regulatory requirements and was well capitalized.
Material changes versus comparable periods
- Compared with the prior-year quarter, net interest income, noninterest income, and pretax income increased, but the $17.7 million tax revaluation turned reported quarterly and six-month profit into losses.
- Loan growth, higher average earning assets, and the TriSummit acquisition supported interest income. Higher deposit and borrowing balances and costs substantially increased interest expense.
- Year-over-year comparisons include the effect of the TriSummit acquisition, completed January 1, 2017; therefore, growth does not represent organic performance alone.
- Since June 30, deposits rose $59.8 million and borrowings fell $11.5 million. Certificates of deposit and securities available for sale declined, while loans and commercial paper increased.
- Tangible book value per share was $19.26 at December 31, down from $19.37 at June 30. Tangible equity to tangible assets was 11.34%, versus 11.57%.
Outlook, risks and unusual items
- Outlook: Management described opportunities for organic growth as local economies and loan demand strengthen, with selective acquisitions possible but an emphasis on disciplined expansion in existing markets. The filing provides no quantified earnings or revenue guidance.
- Tax uncertainty: The $17.7 million deferred-tax revaluation was provisional; management said estimates could be updated as more information became available and expected adjustments to be finalized by the end of fiscal 2018. The company also noted possible future volatility in tax expense from share-based compensation accounting.
- Credit and concentration risks: Management cited exposure to economic conditions, real estate values, borrower performance, and loan-loss estimates. Construction and development lending and a rise in delinquencies warrant monitoring. Management considered the allowance adequate but noted estimates could prove incorrect and regulators could require additional reserves.
- Funding and rate risks: Most FHLB advances—$585 million—matured in less than 90 days at quarter-end. Management identified interest-rate movements, funding costs, deposit retention, and liquidity as risks. Unused lines of credit and loan commitments create off-balance-sheet exposure; total commitments reported in the liquidity discussion were $635.7 million.
- Other matters: The company reported ordinary-course litigation but said it did not believe pending proceedings would materially adversely affect its financial condition or results. It reported no material change in previously disclosed risk factors or market-risk disclosures. Disclosure controls were concluded effective as of December 31, 2017.
Important facts for investors to verify
- Reconcile the GAAP net losses and tax expense with management’s non-GAAP adjusted earnings; assess the final deferred-tax revaluation and any later adjustments.
- Track whether loan and deposit growth persists without disproportionate increases in funding costs, and evaluate net interest margin with and without the leverage strategy.
- Review delinquency trends, construction and commercial real estate exposures, nonaccrual loans, charge-offs, and allowance coverage, including acquired-loan accounting.
- Assess liquidity and refinancing exposure, particularly the short maturities of FHLB advances, deposit maturities, and outstanding loan commitments and unused credit lines.
- Confirm regulatory capital remains above required levels and monitor tangible book value and tangible equity measures.