Business context and reporting period
HomeTrust Bancshares, Inc. is a bank holding company whose principal subsidiary, HomeTrust Bank, provides retail and commercial banking services across North Carolina, South Carolina, Tennessee and Virginia. This Form 10-K covers the fiscal year ended June 30, 2017; the filing’s reporting period does not match the request metadata of “2016 Q4.” The June 2017 quarter is shown separately below.
During the year, the Company completed its acquisition of TriSummit Bancorp and acquired United Financial, a municipal-lease business. TriSummit added approximately $258.1 million in loans and $280.2 million in deposits.
Financial performance and condition
| Metric | FY 2017 / June 30, 2017 | FY 2016 / June 30, 2016 |
|---|---|---|
| Total assets | $3.207 billion | $2.718 billion |
| Net loans | $2.330 billion | $1.812 billion |
| Deposits | $2.048 billion | $1.803 billion |
| FHLB borrowings | $696.5 million | $491.0 million |
| Stockholders’ equity | $397.6 million | $360.0 million |
| Net interest income | $91.2 million | $81.7 million |
| Noninterest income | $15.4 million | $13.5 million |
| Net income | $11.8 million | $11.5 million |
| Diluted EPS | $0.65 | $0.65 |
| Tax-equivalent net interest margin | 3.49% | 3.37% |
| Return on assets / equity | 0.40% / 3.14% | 0.42% / 3.16% |
| Allowance for loan losses / gross loans | 0.90% | 1.16% |
- Net interest income plus noninterest income was $106.6 million. Net interest income after provision for loan losses was also $91.2 million; there was no loan-loss provision in either FY 2017 or FY 2016.
- Net cash provided by operating activities was $15.1 million; investing activities used $106.8 million and financing activities provided $126.0 million. Cash and cash equivalents increased $34.4 million to $87.0 million.
- The Bank’s regulatory capital ratios at June 30, 2017 were 11.68% CET1, 11.68% Tier 1 risk-based, 12.50% total risk-based and 9.97% Tier 1 leverage. It met the “well-capitalized” standards.
- June 2017 quarter net income was $4.8 million, versus $3.3 million in the June 2016 quarter; diluted EPS was $0.25 versus $0.19.
Material changes versus the prior comparable period
- Total assets rose 18.0% and net loans increased 28.6%, reflecting TriSummit, $242.5 million of organic net loan growth and purchased home-equity lines. Commercial real estate loans grew 50.1% and construction and development loans 128.0% year over year.
- Deposits increased 13.6%, primarily due to TriSummit, partly offset by the managed runoff of higher-cost certificates of deposit. Core deposits were 77.4% of total deposits.
- Net interest income increased 11.6%; the reported tax-equivalent margin improved 12 basis points. Management noted that excluding its FHLB borrowing-and-investment strategy, margin was 3.88%, compared with 3.94% in FY 2016.
- Net income increased 3.4%, but diluted EPS was unchanged. Noninterest expense rose 13.6%, mainly reflecting $7.8 million in TriSummit-related merger costs, higher compensation and technology costs.
- Credit indicators improved: nonperforming assets fell to $20.0 million, or 0.62% of assets, from $24.5 million, or 0.90%; net charge-offs declined to $141,000 from $1.1 million.
Outlook, management commentary, risks and unusual items
- Management emphasized organic growth in existing markets, commercial real estate, construction and development, and commercial and industrial lending; it also described selective acquisitions as a possible, secondary growth channel. No quantitative earnings or revenue guidance was provided.
- The Company plans to expand business lines, including SBA and USDA lending and equipment finance, and reported plans for a Cary, North Carolina branch. It also described expense-management initiatives, including branch consolidation and cost savings.
- Key risks include credit deterioration, particularly in commercial real estate and construction lending; interest-rate and funding-cost changes; deposit retention and liquidity; acquisition integration; and operational, cybersecurity, regulatory and litigation risks. Commercial real estate loans under the cited supervisory definition were 233.5% of regulatory capital; construction, land-development and land loans were 75.2%.
- Interest-rate exposure is material: $633.8 million of loans had rate floors, and $192.6 million of those loans were at their floors. Management cautioned that funding costs could rise faster than asset yields. The reported sensitivity model showed present-value equity down 2% under an immediate 400-basis-point rate increase and down 6% under a 100-basis-point decrease.
- FHLB advances totaled $696.5 million, all with maturities of 90 days or less. The Company also had $333.8 million of certificates of deposit maturing within one year and $577.9 million in loan commitments, undisbursed construction loans, unused lines and letters of credit.
- FY 2017 included $7.8 million of merger-related expenses and a $385,000 gain on sale of a branch building. Purchase-accounting discount accretion on acquired loans contributed $6.1 million to interest income and may vary with prepayments and other assumptions.
- The Company reported no common dividends in FY 2017 or FY 2016. Management reported effective disclosure controls and internal control over financial reporting; the independent auditor did not provide an internal-control attestation because the Company was an emerging growth company.
- The filing says no pending litigation was believed by management to have a material adverse effect. The CECL standard was expected to increase the allowance for credit losses, but the amount was not yet estimable.
Important facts for investors to verify
- Whether TriSummit integration delivers the anticipated cost savings and whether merger-related costs recede after FY 2017.
- Credit performance and concentration exposure in commercial real estate and construction lending, including the effect of rapid portfolio growth on loss reserves.
- Margin and earnings sensitivity to rising rates, loan floors, short-term FHLB refinancing and deposit repricing.
- Liquidity and funding plans for near-term certificate maturities and substantial undrawn lending commitments.
- The expected timing and balance-sheet impact of CECL adoption, and the potential effect of deferred-tax assets and net operating loss carryforwards.