Business context and reporting period
HomeTrust Bancshares, Inc. is a regional bank holding company headquartered in Asheville, North Carolina. Its business centers on retail and commercial lending funded by deposits and borrowings. The supplied filing is a Form 10-Q for the quarter ended March 31, 2018, covering the third quarter and first nine months of fiscal 2018; this differs from the request metadata of “2017 Q3.” Financial amounts below are in U.S. dollars.
Key financial metrics
| Metric | Three months ended March 31, 2018 | Nine months ended March 31, 2018 / March 31, 2018 balance |
|---|---|---|
| Net interest income | $25.2 million | $75.0 million |
| Net income (loss) | $6.1 million | $1.0 million |
| Diluted earnings per share | $0.32 | $0.06 |
| Total assets | $3.27 billion | |
| Total loans, before allowance | $2.45 billion | |
| Deposits | $2.18 billion | |
| Borrowings | $625.0 million | |
| Stockholders’ equity | $401.6 million | |
| Cash and cash equivalents | $79.4 million |
- Net interest margin was 3.39% on a nontax-equivalent basis for the quarter and 3.38% for the nine months. Fully taxable-equivalent margin was 3.44% for both periods.
- For the nine months, operating cash flow was $24.9 million; investing activities used $92.9 million and financing activities provided $60.4 million. Cash and cash equivalents declined $7.6 million.
- The allowance for loan losses was $21.5 million, or 0.88% of loans. Nonperforming assets were $17.7 million, or 0.54% of assets; nonaccruing loans were $12.7 million.
- The Bank’s March 31 regulatory ratios included 11.67% common equity Tier 1 and 12.45% total risk-based capital; it was categorized as well-capitalized.
Material changes versus comparable periods
- Quarterly net income increased to $6.1 million from $274,000 a year earlier. The prior-year quarter included $7.4 million of TriSummit merger-related expenses; the current quarter had none. Current-quarter earnings also included $318,000 of tax expense related to an allowance on alternative minimum tax credits.
- Nine-month net income fell to $1.0 million from $7.1 million, primarily reflecting an approximately $18.0 million deferred-tax-asset revaluation following the Tax Cuts and Jobs Act. Management’s non-GAAP adjusted net income was $19.1 million, compared with $12.3 million in the prior-year period; this measure excludes specified tax, merger and other items.
- Quarterly net interest income rose 0.6% year over year, while quarterly fully taxable-equivalent margin declined from 3.62% to 3.44%. For nine months, net interest income rose 12.6%, while fully taxable-equivalent margin edged down from 3.47% to 3.44%.
- At March 31, 2018, loans had grown 4.0% and deposits 6.4% from June 30, 2017. Commercial real estate loans increased 10.9%; total construction and development loans declined 7.0%.
- Borrowings declined 10.3% from June 30, 2017, while commercial paper increased 59.8%. Securities available for sale decreased 19.4%, and unrealized losses on those securities contributed to a $1.5 million nine-month other comprehensive loss.
- Asset quality improved from June 30, 2017: nonperforming assets decreased 11.5%, and classified assets declined to $42.1 million from $50.2 million. The allowance-to-loans ratio excluding acquired loans fell to 0.97% from 1.03%.
Outlook, commentary, risks and unusual items
- Management described a focus on organic growth in existing markets, with selective acquisitions or loan purchases considered where they meet investment and market objectives. It cited opportunities from stronger local economies and loan demand, and emphasized disciplined construction and development lending. No quantitative earnings or growth guidance was provided.
- Management said it expects to continue reducing assets and liabilities associated with its short-term FHLB borrowing leverage strategy in line with anticipated organic loan growth. The strategy added approximately $316,000 to quarterly net interest income and $835,000 for the nine-month period.
- The Tax Act’s deferred-tax revaluation is a major unusual item. Management characterized related tax amounts as provisional, said no further adjustment to the provisional recognition was incurred in the quarter, and expected to finalize the accounting by fiscal year-end.
- Liquidity sources include deposits, loan and securities cash flows, $65.9 million of available FHLB borrowing capacity, a $126.1 million Federal Reserve line and $60.0 million of bank lines; none of the latter lines was drawn. Brokered deposits were $83.1 million, or 3.8% of deposits. Management reported $290.2 million of certificates of deposit due within one year and $663.2 million of off-balance-sheet commitments to extend credit.
- Key stated risks include credit deterioration, economic and real estate market changes, rising interest rates and funding costs, competition for deposits, regulatory actions, valuation estimates, litigation, and information-technology or third-party service disruptions. The company reported ordinary-course litigation but said it did not believe pending proceedings would materially adversely affect financial condition or results.
- The filing states disclosure controls were effective as of March 31, 2018, with no material change in internal control over financial reporting during the quarter. Management cautioned that controls provide reasonable, not absolute, assurance.
Important facts for investors to verify
- Confirm the reporting period: the filing is for fiscal Q3 ended March 31, 2018, not 2017 Q3.
- Review the Tax Act-related deferred tax adjustment, including the reported approximately $18.0 million nine-month charge and the remaining provisional accounting.
- Compare GAAP results with management’s non-GAAP adjusted earnings, noting the excluded items and that the measures are unaudited and may not be comparable across companies.
- Track net interest margin and funding costs: quarterly interest expense rose 81.9% year over year, and the average cost of funds increased to 0.65% from 0.38%.
- Monitor commercial real estate and construction exposures, loan commitments, delinquencies, nonaccruals and the allowance, particularly as the loan portfolio grows.
- Assess reliance on short-term FHLB advances and brokered deposits alongside available liquidity and upcoming certificate maturities.