Business context and reporting period
HomeTrust Bancshares, Inc. is a bank holding company whose principal business is community banking through HomeTrust Bank. This Form 10-Q covers the quarter and nine months ended March 31, 2015, in the company’s fiscal year ending June 30, 2015. The request metadata says “2014 Q3,” but the filing itself is for fiscal 2015 Q3. Unless otherwise noted, financial amounts below are in millions of dollars.
Recent expansion materially changed the company’s scale: it acquired Bank of Commerce in July 2014 and ten Bank of America branches in November 2014. Jefferson Bancshares had been acquired in May 2014.
Financial results and position
| Metric | Three months ended March 31, 2015 | Comparable 2014 period | Nine months ended March 31, 2015 | Comparable 2014 period |
|---|---|---|---|---|
| Net interest income | $20.2 | $13.1 | $59.0 | $40.3 |
| Provision for (recovery of) loan losses | $0 | $(1.8) recovery | $(0.25) recovery | $(4.8) recovery |
| Noninterest income | $3.3 | $2.0 | $8.9 | $6.5 |
| Noninterest expense | $22.0 | $13.4 | $60.7 | $38.6 |
| Net income | $1.2 | $2.6 | $5.5 | $8.8 |
| Diluted EPS | $0.06 | $0.14 | $0.28 | $0.46 |
| Tax-equivalent net interest margin | 3.52% | 3.75% | 3.73% | 3.79% |
Management’s non-GAAP results, excluding merger costs and loan-loss recoveries, were net income of $2.2 million and diluted EPS of $0.12 for the quarter, and $8.7 million and $0.45 for the nine months. These adjusted measures are supplemental and not substitutes for GAAP results.
At March 31, 2015, total assets were $2.61 billion, up 25.8% from June 30, 2014; net loans were $1.62 billion; deposits were $1.91 billion; other borrowings were $250 million; and stockholders’ equity was $381.9 million. Cash and cash equivalents were $294.7 million, with a further $204.6 million in certificates of deposit at other banks. The increase in cash was largely related to the branch acquisition.
For the nine months, operating activities provided $0.5 million in cash, investing activities provided $160.5 million, and financing activities provided $87.8 million. Net cash increased $248.8 million. Cash generation should be viewed in light of acquisition-related flows and increased borrowings.
Material changes and management commentary
- Quarterly GAAP net income fell to $1.2 million from $2.6 million. Management attributed the decline principally to $1.2 million more merger-related expense and the prior-year quarter’s $1.8 million loan-loss recovery. For the nine months, merger expense was $5.4 million versus $0.7 million, while the prior-year period had a $4.8 million recovery.
- Net interest income rose substantially as acquisitions expanded average earning assets. Management reported quarterly tax-equivalent margin of 3.52%, down 23 basis points year over year; excluding its additional FHLB borrowing strategy, the margin was 3.90%. The additional borrowings generated about $0.24 million of quarterly net interest income, according to management.
- Acquisition-related costs and operating expenses increased: salaries, occupancy, computer services, core deposit intangible amortization, and merger expenses were notable contributors. Deposit service-charge income also increased, reflecting acquired accounts.
- Loans grew 9.9% from June 30, 2014, supported by acquired Bank of Commerce loans, a $40.9 million purchased home-equity portfolio, and originations. Deposits rose 20.9%, primarily from the acquisitions, partly offset by deposit runoff and managed certificate-of-deposit reductions.
- Asset quality indicators were mixed. Nonperforming assets declined to $39.5 million, or 1.51% of assets, from $53.6 million, or 2.59%. However, loans delinquent 30 days or more increased to $34.3 million from $27.9 million. The allowance was $22.7 million, or 1.38% of loans; acquired loans generally carry purchase-accounting credit discounts rather than an allowance at acquisition.
Liquidity, capital, risks and contingencies
The bank had $250 million in FHLB advances outstanding, all with maturities under 90 days and a weighted-average rate of 0.21%. Available additional borrowing capacity was $152.7 million at the FHLB, plus $114.4 million at the Federal Reserve and $20 million at another bank. Brokered deposits were $14.5 million. Certificates of deposit totaling $438.3 million were scheduled to mature within one year; loan commitments and unused lines totaled approximately $297.4 million.
The company and bank exceeded applicable regulatory capital requirements at March 31, 2015; the bank was categorized as well-capitalized. The bank’s reported CET1 ratio was 14.56%, total risk-based capital ratio 15.79%, and leverage ratio 10.52%. New capital rules took effect in January 2015, with a capital conservation buffer phased in beginning in 2016.
Management cited risks including acquisition integration and whether expected savings will be realized, credit quality and real-estate conditions, interest-rate and funding changes, deposit retention, regulatory requirements, fair-value estimates, operational and cybersecurity risks, and litigation. A lawsuit seeking $12.5 million in compensatory damages plus punitive treble damages received a favorable summary judgment in February 2015, but plaintiffs appealed. Management believes it should not materially affect results or financial position, while noting the outcome is uncertain. Management gave no specific earnings or revenue guidance; it cautioned that interim results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Confirm the reporting-period labeling: this is a quarter ended March 31, 2015, despite the request’s “2014 Q3” metadata.
- Track recurring earnings separately from merger costs, purchase-accounting accretion, and prior-period loan-loss recoveries; the company’s adjusted earnings are non-GAAP.
- Assess whether acquired operations deliver the expected integration benefits and whether expense growth moderates.
- Monitor delinquency trends, nonperforming assets, acquired and purchased-credit-impaired loans, and the adequacy of the allowance for loan losses.
- Review the short maturity of FHLB advances, deposit maturities and retention, and liquidity needs against commitments and unused credit lines.
- Follow the appeal in the disclosed litigation and the effects of the new capital rules and phased-in capital buffer.