Hometrust Bancshares, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended December 31, 2016. This is the company’s fiscal second quarter of fiscal 2017, despite the request metadata identifying “2016 Q2.” Financial statement amounts below are in millions unless noted.
Business context and financial performance
HomeTrust is a regional bank focused on deposits, residential and commercial lending, indirect auto loans, and municipal leases, with operations across North Carolina, South Carolina, Tennessee, and Virginia. The company reported consolidated results for HomeTrust Bancshares and its bank subsidiary.
| Metric | Three months ended Dec. 31 | Six months ended Dec. 31 |
|---|---|---|
| Net interest income | $20.4 in 2016; $20.2 in 2015 | $41.6 in 2016; $40.7 in 2015 |
| Noninterest income | $3.8; $3.0 in 2015 | $7.8; $6.4 in 2015 |
| Noninterest expense | $20.3; $19.8 in 2015 | $39.3; $39.7 in 2015 |
| Net income | $3.0; $2.4 in 2015 | $6.8; $5.0 in 2015 |
| Diluted earnings per share | $0.17; $0.14 in 2015 | $0.39; $0.28 in 2015 |
Quarterly net income rose 21.8%; six-month net income rose 35.8%. Reported net interest margin was 3.24% for the quarter and 3.29% for six months (fully taxable-equivalent: 3.33% and 3.38%, respectively). The six-month efficiency-related expense picture included a $385,000 gain on sale of a closed branch, $334,000 in merger costs, and a $490,000 state deferred-tax adjustment; management’s non-GAAP presentation excludes specified items.
Financial position, cash flow, and asset quality
- At December 31, total assets were $2.77 billion, net loans $1.93 billion, deposits $1.79 billion, borrowings $560 million, and stockholders’ equity $367.8 million. Since June 30, net loans increased $123.1 million (6.8%), deposits declined $16.5 million (0.9%), and borrowings rose $69 million.
- Cash and cash equivalents were $45.1 million, down from $52.6 million at June 30. Commercial paper was $179.9 million and certificates of deposit at other banks were $150.1 million. Management reported available additional borrowing capacity of $9.6 million from the FHLB, $249.8 million from the Federal Reserve, and $60 million under three unaffiliated-bank lines.
- For the six months, operating cash flow was $2.8 million, investing cash outflow $62.7 million, and financing cash inflow $52.5 million; cash and cash equivalents decreased $7.4 million. Loan growth and TriSummit-related outlays were significant uses of funds.
- The allowance for loan losses was $21.0 million, 1.07% of total loans, versus $21.3 million and 1.16% at June 30. There was no loan-loss provision in either comparative period. Six-month net charge-offs were $306,000, down from $397,000.
- Nonperforming assets were $21.7 million, or 0.78% of assets, compared with $24.5 million, or 0.90%, at June 30. Nonaccrual loans were $16.0 million; REO was $5.6 million. Total loans past due 30 days or more were $17.9 million.
- The bank was categorized as well-capitalized. At December 31, its common equity Tier 1 ratio was 12.75%, Tier 1 leverage ratio 10.38%, and total risk-based capital ratio 13.71%. Tangible book value per share was $19.50, up from $19.05 at June 30.
Material changes and transactions
- Loan growth was driven by $93.6 million of organic growth and $29.1 million of purchased HELOCs, net of repayments. Commercial loans rose 12.0% from June 30; construction and development loans rose 49.0% to $129.4 million.
- Management said residential mortgage activity increasingly shifted toward 30-year fixed-rate loans sold to third parties, while the company retained shorter-term and variable-rate loans. Commercial loan originations also increased.
- United Financial of North Carolina, a municipal-lease company, was acquired on December 31 for approximately $425,000, allocated to goodwill. The business began operating as a HomeTrust Bank division on January 1, 2017.
- HomeTrust completed its TriSummit Bancorp acquisition on January 1, 2017, after the balance-sheet date. Disclosed consideration was approximately $36.1 million, including cash and 765,277 HomeTrust shares; TriSummit’s balance sheet listed $360.0 million of assets, $277.3 million of deposits, and $50.2 million of borrowings. Fair-value measurements were incomplete at filing. The filing gives different estimates for further merger expenses: approximately $5.3 million net of tax in the acquisition note and approximately $7.6 million in management’s discussion; verify the basis and scope of these estimates.
- Unrealized losses on available-for-sale securities reduced other comprehensive income by $2.3 million after tax over six months, primarily reflecting higher market interest rates. Management reported no other-than-temporary impairment.
Outlook, risks, and contingencies
Management expressed an expectation of continued organic growth and said construction lending could remain an important portfolio component, while emphasizing disciplined underwriting. No numerical earnings or margin guidance was provided. Management expects the TriSummit integration to generate costs and cautioned that projected savings, synergies, timing, and integration costs are uncertain.
Key risks cited include borrower credit deterioration and real-estate conditions; interest-rate changes and deposit competition; funding and liquidity needs; regulatory examinations and capital requirements; merger integration and execution; operating costs; cybersecurity and third-party service-provider risks; and valuation uncertainty in loans, goodwill, and other assets. Management noted that $569.9 million of loans had interest-rate floors, which may limit near-term benefit from rising rates. The company reported ordinary-course litigation but said it did not believe pending proceedings would materially adversely affect financial condition or results. Loan commitments and unused lines totaled $523.4 million; these are not necessarily future cash requirements. Management assessed disclosure controls as effective and reported no material change in internal control over financial reporting.
Most important facts for investors to verify
- TriSummit purchase accounting, final fair values, integration costs, and whether projected benefits materialize.
- Funding strategy and liquidity after loan growth and acquisition-related cash uses, including reliance on short-term FHLB advances.
- Loan portfolio growth and concentration, especially construction and development lending, and subsequent credit performance.
- Allowance adequacy and trends in nonaccrual, delinquent, impaired, and restructured loans; management’s estimates are subject to regulatory review.
- Net interest margin sensitivity to rates, loan floors, funding costs, and purchase-accounting accretion.
- Reconciliation and comparability of management’s non-GAAP measures and the differing merger-expense estimates in the filing.