Business context and reporting period
HomeTrust Bancshares, Inc. is a bank holding company whose principal subsidiary, HomeTrust Bank, operates in North Carolina, South Carolina, Tennessee and Virginia. Its business centers on gathering deposits and making residential and commercial loans. This is the audited Form 10-K for the fiscal year ended June 30, 2016—not a 2015 calendar-year or fourth-quarter filing. Dollar amounts below are in U.S. dollars; financial statement amounts are generally in millions.
Key financial metrics
| Metric | FY2016 / June 30, 2016 | Prior comparable period |
|---|---|---|
| Total assets | $2,717.7 | $2,783.1 at June 30, 2015 |
| Net income | $11.5; diluted EPS $0.65 | $8.0; diluted EPS $0.42 |
| Net interest income | $81.7 | $79.8 |
| Net interest margin, tax-equivalent | 3.37% | 3.64% |
| Noninterest income / expense | $13.5 / $78.9 | $12.5 / $81.6 |
| Loans, net | $1,811.5 | $1,663.3 |
| Deposits | $1,802.7 | $1,872.1 |
| FHLB borrowings | $491.0; 0.42% weighted-average rate | $475.0; 0.20% rate |
| Stockholders’ equity | $360.0; tangible book value per share $19.05 | $371.1; tangible book value per share $18.06 |
| Cash flows | Operating +$28.7; investing −$10.9; financing −$81.4; cash decreased $63.6 | Operating +$2.0; investing −$189.5; financing +$257.9 |
Profitability improved: net income rose 42.8%, while return on assets increased to 0.42% from 0.32% and return on equity to 3.16% from 2.12%. The reported efficiency ratio was 82.82%; management’s adjusted, non-GAAP ratio was 78.42%, versus 78.02% a year earlier.
Asset quality continued to improve. Nonperforming assets fell to $24.5 million, or 0.90% of assets, from $31.9 million, or 1.15%. Nonaccruing loans were $18.5 million; allowance for loan losses was $21.3 million, equal to 1.16% of loans and 115.0% of nonaccruing loans. Net charge-offs were $1.1 million, or 0.06% of average loans, and the company recorded no loan-loss provision for FY2016.
Liquidity included $52.6 million of cash and cash equivalents, $229.9 million of commercial paper, and $161.5 million of insured certificates of deposit at other banks. The bank reported $63.7 million of additional FHLB borrowing capacity, a $186.5 million Federal Reserve line subject to eligible collateral, and $60.0 million of bank credit lines. Regulatory capital ratios remained above well-capitalized thresholds: the bank reported CET1 of 12.80%, total risk-based capital of 13.79%, and Tier 1 leverage of 10.50%.
Material changes versus the prior comparable period
- Loans grew 8.7% to $1.83 billion, with reported organic net growth of $74.8 million. Major increases included purchased home-equity lines of credit (HELOCs), up $72.4 million, and indirect auto loans, up $56.0 million. Commercial real estate and construction-and-development loans also increased.
- Deposits declined 3.7%, principally because management allowed $134.4 million of higher-cost certificates of deposit to run off; checking and money-market balances increased.
- Net interest income rose 2.4%, but the tax-equivalent net interest margin contracted 27 basis points. Management attributed much of the margin pressure to increased short-term FHLB borrowings and the December 2015 federal funds rate increase. Its leverage strategy added about $2.0 million of net interest income, according to the filing.
- Noninterest expense decreased 3.3%, mainly because FY2016 had no merger-related expenses, compared with $5.4 million in FY2015. This was partly offset by higher compensation and occupancy costs.
- Stockholders’ equity declined by $11.1 million. The company repurchased 1.51 million shares for approximately $27.7 million at an average $18.35 per share; FY2016 net income and higher unrealized securities gains partly offset the repurchases.
Outlook, management commentary, risks and unusual items
- Management emphasized organic growth in existing markets, disciplined expansion, commercial lending, and growth in core deposits. It said it may selectively pursue branch acquisitions or loan purchases and, to a lesser degree, whole-bank acquisitions. The filing provides no formal earnings or growth guidance.
- Cost initiatives included consolidating six branches, which management expected to save $1.2 million annually; changing to a state-chartered bank, expected to save $350,000 annually; and a branch-optimization study, expected to save $375,000 annually. A health-care provider change was expected to avoid $700,000 of expense increases in the coming fiscal year. These are management estimates, not reported realized savings.
- The company recorded a $526,000 nonrecurring tax charge in FY2016 related to reductions in North Carolina’s corporate tax rate. It also recorded $400,000 of branch-consolidation impairment charges. No dividend was declared in FY2016 or FY2015.
- Key exposures include sensitivity of funding costs and margins to interest rates; credit risk in real estate, construction-and-development, and indirect auto lending; and possible losses on purchased HELOCs secured by properties primarily outside its markets. Construction-and-development unfunded commitments rose to $97.3 million from $17.0 million. Total loan commitments and unused lines were $505.2 million.
- Management cited risks from economic or real-estate deterioration, deposit competition and runoff, liquidity access, regulatory changes, acquisition integration, cybersecurity and third-party systems. The filing says litigation arises in the ordinary course, mainly around problem-loan collections, but management did not believe pending matters would materially adversely affect financial condition or results.
- The bank changed from a national to a North Carolina state charter on December 31, 2015. Six branches were consolidated in October 2015. Management reported effective disclosure controls and internal control over financial reporting; the external auditor did not attest to internal controls because the company qualified as an emerging growth company.
Important facts for investors to verify
- Confirm the reporting period: the filing covers the fiscal year ended June 30, 2016, despite the request metadata referencing 2015 Q4.
- Track whether the margin decline persists and whether expected branch, charter and other cost savings are achieved.
- Review credit performance, allowance adequacy and charge-offs as commercial construction-and-development, auto and purchased HELOC balances grow; also monitor the sharply higher construction-and-development commitments.
- Assess deposit retention and funding costs, including the short-term maturity of the $491.0 million in FHLB advances and the $325.5 million of certificates of deposit due within one year.
- Evaluate capital and liquidity after substantial share repurchases, and confirm the company’s ability to maintain regulatory capital buffers while funding loan growth.