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HomeTrust Bancshares, Inc. Reports Financial Results For The Second Quarter Of Fiscal 2018

Company Release - 1/29/2018 8:30 AM ET

ASHEVILLE, N.C., Jan. 29, 2018 (GLOBE NEWSWIRE) -- HomeTrust Bancshares, Inc. (NASDAQ:HTBI) ("Company"), the holding company of HomeTrust Bank ("Bank"), today announced a preliminary net loss of $10.7 million for the quarter ended December 31, 2017, driven by an estimated $17.7 million deferred tax revaluation resulting from enactment of the Tax Cuts and Jobs Act (the "Tax Act”), compared to net income of $3.0 million for the same period a year ago. The Company's diluted loss per share was $0.59 for the three months ended December 31, 2017 compared to earnings per share of $0.17 for the same period in fiscal 2017. Loss on assets was 1.31% for the three months ended December 31, 2017 compared to a return on assets of 0.43% for the same period in fiscal 2017. Net loss totaled $5.1 million for the six months ended December 31, 2017, compared to net income of $6.8 million for the same period in fiscal 2017. Diluted loss per share was $0.28 for the six months ended December 31, 2017 compared to earnings per share of $0.39 for the same period last year. Loss on assets was 0.32% for the six months ended December 31, 2017 compared to a return on assets of 0.49% for the same period in fiscal 2017. The Tax Act, which among other things, reduced the federal corporate tax rate to 21% effective January 1, 2018 requiring the Company to revalue net deferred tax assets. The resulting estimated $17.7 million deferred tax revaluation was reflected as an increase to the Company's income tax expense.

For the quarter ended December 31, 2017 compared to the corresponding quarter in the previous year and before the change in the federal tax rate and prior year merger-related expenses:

  • net income increased 134.2% to $7.0 million from $3.0 million;

  • diluted earnings per share increased 123.5% to $0.38 from $0.17; and

  • return on assets increased 100.0% to 0.86% from 0.43%.

For the six months ended December 31, 2017 compared to the same period a year ago and before the change in the federal tax rate, merger-related expenses, certain state income tax expenses, and gains from the sale of premises and equipment:

  • net income increased 72.9% to $12.6 million from $7.3 million;

  • diluted earnings per share increased 58.1% to $0.68 from $0.43; and

  • return on assets increased 47.2% to 0.78% from 0.53%.

"The cumulative impact of our team's work over the past five years continues to position HomeTrust to make fiscal 2018 an inflection point for our financial performance as evidenced by our core results for the quarter end and year-to-date December 2017,” said Dana Stonestreet, Chairman, President, and CEO. "The increase in core earnings continues to reflect the execution of our strategic plan, organic loan growth, and our successful integration of TriSummit Bank ("TriSummit") during 2017. While strategic acquisitions have played a key role in expanding our markets, our continued growth is not dependent on mergers and acquisition activity - we are focused on leveraging our new teams of revenue producers in our expanded footprint to continue our solid growth.  In the past twelve months, we have hired 22 revenue producers and expect to add another 15 in the year ahead.  I could not be more proud of the HomeTrust team that continues to capitalize on the momentum in our new growing urban markets that is transforming HomeTrust from a rural mutual savings bank to a regional commercial bank.”

Income Statement Review

Net interest income was $25.2 million for the quarter ended December 31, 2017 compared to $20.4 million for the comparative quarter in fiscal 2017. The $4.8 million, or 23.6% increase was primarily due to a $6.8 million increase in interest and dividend income driven by an increase in average interest-earning assets. Average interest-earning assets increased $452.9 million, or 18.0% to $3.0 billion for the quarter ended December 31, 2017 compared to $2.5 billion for the corresponding quarter in fiscal 2017. The average balance of loans receivable for the quarter ended December 31, 2017 increased $495.9 million, or 26.0% due to the TriSummit acquisition and organic net loan growth, which was mainly funded by the cumulative decrease of $43.0 million, or 7.0% in average interest-earning deposits with banks, securities available for sale, and other interest-earning assets, an increase in average deposits of $307.9 million, or 17.2%, and an increase in average Federal Home Loan Bank ("FHLB") borrowings of $130.7 million, or 23.9% as compared to the same quarter last year. Net interest margin (on a fully taxable-equivalent basis) for the three months ended December 31, 2017 increased to 3.44% from 3.33% for the same period a year ago. We continue to utilize our leveraging strategy, where designated short-term FHLB borrowings are invested in various short-term liquid assets to generate additional net interest income, as well as the required purchase of additional FHLB stock which generates increased dividend income. During the three months ended December 31, 2017 our leveraging strategy produced an additional $1.1 million in interest and dividend income at an average yield of 1.66%, while the average cost of the borrowings was 1.23%, resulting in approximately $274,000 in net interest income. During the same quarter in the prior fiscal year, our leveraging strategy produced an additional $908,000 in interest and dividend income at an average yield of 1.07%, while the average cost of the borrowings was 0.44%, resulting in approximately $530,000 in net interest income. Excluding the effects of the leveraging strategy, the tax equivalent net interest margin would be 3.73% and 3.75% for the quarters ended December 31, 2017 and 2016, respectively.

Total interest and dividend income increased $6.8 million, or 30.8% for the three months ended December 31, 2017 as compared to the same period last year, which was primarily driven by a $6.3 million, or 31.6% increase in loan interest income, a $364,000, or 38.8% increase in certificates of deposit and other interest-bearing deposits, and a $110,000, or 28.1% increase in other investment income. The additional loan interest income was primarily due to the increase in the average balance of loans receivable as well as an increase in the average loan yields due to increases in the federal funds rate over the past 12 months. Average loan yields increased 13 basis points to 4.41% for the quarter ended December 31, 2017 from 4.28% in the corresponding quarter from last year. In addition, there was a $146,000, or 18.9% increase in the accretion of purchase discounts on acquired loans to $920,000 for the quarter ended December 31, 2017 from $774,000 for the same quarter in fiscal 2017 as a result of prepayments. For the quarters ended December 31, 2017 and 2016, the average loan yields included 15 and 16 basis points, respectively, from the accretion of purchase discounts on acquired loans.

Total interest expense increased $2.0 million, or 119.5% for the quarter ended December 31, 2017 compared to the same period last year. This increase was primarily related to the TriSummit acquisition and recent deposit gathering initiatives contributing to a $250.9 million, or 16.3% increase in the average balance of interest-bearing deposits. In addition, average borrowings, consisting primarily of short-term FHLB advances, increased by $130.7 million to $677.0 million due to funding for loan growth along with a 78 basis point increase in the average cost of such borrowings during the quarter as compared to the same quarter last year. The overall average cost of funds increased 27 basis points to 0.58% for the current quarter as compared to the same quarter last year due primarily to the impact of the recent increases in the federal funds rate on our borrowings.

Net interest income increased $8.3 million or 19.9% to $49.8 million for the six months ended December 31, 2017 compared to $41.6 million for the six months ended December 31, 2016. Average interest-earning assets increased $422.2 million, or 16.7% to $2.9 billion for the six months ended December 31, 2017 compared to $2.5 billion in the same period in 2016. The $504.7 million, or 26.9% increase in average balance of loans receivable for the six months ended December 31, 2017 was due to the TriSummit acquisition and increased organic loan growth, which was mainly funded by the cumulative decrease of $82.4 million, or 12.8% in average interest-earning deposits with banks, securities available for sale, and other interest-earning assets and an increase in average deposits of 282.0 million, or 15.7% and an increase in average FHLB borrowings of $132.4 million, or 24.5%. Net interest margin (on a fully taxable-equivalent basis) for the six months ended December 31, 2017 increased five basis points to 3.43% from 3.38% for last year. For the six months ended December 31, 2017, our leveraging strategy produced an additional $2.0 million in interest and dividend income at an average yield of 1.62%, while the average cost of the borrowings was 1.20%, resulting in approximately $519,000 in net interest income. Our leveraging strategy produced an additional $1.9 million in interest and dividend income at an average yield of 1.04% during the corresponding period in fiscal 2017, while the average cost of the borrowings was 0.43%, resulting in approximately $1.1 million in net interest income. Excluding the effects of the leveraging strategy, the tax equivalent net interest margin would be 3.71% and 3.86% for the six months ended December 31, 2017 and 2016, respectively.

Total interest income increased $11.9 million, or 26.5% for the six months ended December 31, 2017 as compared to the same period last year. The increase was primarily driven by an $11.0 million, or 27.4% increase in loan interest income, a $490,000, or 24.7% increase in certificates of deposit and other interest-bearing deposits, and a $229,000, or 29.4% increase in other investment income. The additional loan interest income was primarily due to the increase in the average balance of loans receivable, which was partially offset by a $908,000 decrease in the accretion of purchase discounts on acquired loans to $1.7 million for the six months ended December 31, 2017 from $2.6 million for the same period in fiscal 2017, as a result of full repayments of several loans with large discounts in the previous year. Overall, average loan yields decreased four basis points to 4.38% for the six months ended December 31, 2017 from 4.42% in fiscal 2017. Excluding the effects of the accretion on purchase discounts on acquired loans, loan yields increased nine basis points to 4.23% for the six months ended December 31, 2017 compared to 4.14% in the same period last year.

Total interest expense increased $3.6 million, or 110.0% for the six months ended December 31, 2017 compared to the same period last year. This increase was primarily related to the increase in average borrowings and the corresponding 77 basis point increase in the average cost of those borrowings, resulting in additional interest expense of $2.9 million for the six months ended December 31, 2017 as compared to the same period in the prior year. The overall increase in average interest-bearing deposits and the seven basis point increase in cost of funds resulted in an additional $747,000 in interest expense for the six months ended December 31, 2017 compared to the corresponding period last year.

Noninterest income increased $846,000, or 21.5% to $4.8 million for the three months ended December 31, 2017 from $3.9 million for the same period in the previous year. The leading factors of the increase included a $299,000, or 15.9% increase in service charges on deposit accounts as a result of the increase in deposit accounts as well as a $424,000, or 45.3% increase in loan income from the gain on sale of mortgage loans and various commercial loan-related fees driven by the new SBA loan line of business.

Noninterest income increased $1.2 million, or 14.4% to $9.4 million for the six months ended December 31, 2017 from $8.2 million for the same period, primarily due to a $424,000, or 11.2% increase in service charges on deposit accounts; a $549,000, or 28.7% increase in loan income from the gain on sale of mortgage loans and various commercial loan-related fees; and $414,000, or 40.6% increase in other income. Partially offsetting these increases was a $221,000, or 57.4% decrease in gains from the sale of fixed assets for the six months ended December 31, 2017 compared to the same period last year.

Noninterest expense for the three months ended December 31, 2017 increased $695,000, or 3.4% to $21.2 million compared to $20.5 million for the three months ended December 31, 2016. The TriSummit acquisition led to additional noninterest expenses as shown in the cumulative increase of $973,000, or 17.4% in net occupancy expense; telephone, postage,and supplies; core deposit intangible amortization; and other expenses. Deposit insurance premiums increased $216,000, or 106.4% as the net asset base has increased. These increases in noninterest expense were partially offset by the absence of $27,000 in merger-related expenses, a $140,000, or 30.5% decrease in marketing and advertising expense, and a $408,000, or 56.9% decrease in real estate owned ("REO") related expenses for the quarter ended December 31, 2017 compared to the same period last year. For the three months ended December 31, 2017, there was a $235,000 decrease on writedowns and losses from REO sales compared to the corresponding quarter last year; and a $173,000 decrease in REO expenses as a result of fewer REO properties held.

Noninterest expense for the six months ended December 31, 2017 increased $2.6 million, or 6.7% to $42.3 million compared to $39.6 million for the six months ended December 31, 2016. Salaries and employee benefits increased $1.8 million, or 8.0% primarily as a result of the TriSummit acquisition. The TriSummit acquisition was the leading factor in the $1.5 million, or 13.0% cumulative increase in net occupancy expense; telephone, postage,and supplies; core deposit intangible amortization; and other expenses. Partially offsetting these increases was the absence of $334,000 in merger-related expenses, and a $587,000, or 59.2% decrease in REO related expenses for the six months ended December 31, 2017 compared to the same period last year, which was driven by a $42,000 gain on the sale of REO compared to a $469,000 loss on the sale of REO in the corresponding period in the prior year.

For the three months ended December 31, 2017, the Company's income tax expense was $19.5 million compared to $893,000 for the three months ended December 31, 2016, which was a direct result of the Tax Act. As previously mentioned, the reduction in the corporate tax rate required the Company to revalue net deferred tax assets, resulting in a $17.7 million adjustment through income tax expense. In addition, our June 30 fiscal year end required the use of a blended rate as prescribed by the Internal Revenue Code. The blended federal rate of 27.5% was effective retroactively to July 1, 2017 and will be used for the entire fiscal year ended June 30, 2018.  As a result of this blended rate, income tax expense for the quarter ended December 31, 2017 includes approximately $418,000 in tax benefit from adjusting the federal income tax rate to 27.5% from 34% for the first quarter of the fiscal year. Excluding the effect of the revaluation of net deferred tax assets, the additional income tax expense was due to higher taxable income.

For the six months ended December 31, 2017, the Company's income tax expense was $22.0 million compared to $3.3 million for the corresponding period last year as a result of the deferred tax revaluation and to a lesser extent, higher taxable income. In addition, for the six months ended December 31, 2017 and 2016, the Company incurred a charge of $133,000 and $490,000, respectively, related to the decrease in value of our deferred tax assets based on decreases in North Carolina's corporate tax rate.

Balance Sheet Review

Total assets increased $44.0 million, or 1.4% to $3.3 billion at December 31, 2017 from $3.2 billion at June 30, 2017. Total liabilities increased $46.3 million, or 1.6% to $2.9 billion at December 31, 2017 from $2.8 billion at June 30, 2017. Deposit growth of $59.8 million, or 2.9% and the cumulative decrease of $63.9 million, or 19.3% in certificates of deposit in other banks and securities available for sale during the first six months of fiscal 2018 were used to partially fund the $66.5 million, or 2.8% increase in total loans, the $49.9 million, or 33.3% increase in commercial paper, and reduce borrowings by $11.5 million, or 1.7%. The increase in net loans receivable was driven by $66.8 million or 6.1% annualized of organic net loan growth. The $11.7 million, or 13.4% increase in cash and cash equivalents was mainly due to the additional funds held at the Federal Reserve Bank. The $20.9 million, or 36.4% decrease in deferred income taxes was driven by the previously mentioned revaluation as a result of the Tax Act and the use of net operating losses as our taxable income continues to increase.

Total deposits increased $59.8 million, or 2.9%, during the six months ended December 31, 2017 to $2.1 billion. The increase was primarily due to an increase of $79.8 million in our core deposits (which excludes certificates of deposit) as a result of recent deposit gathering initiatives, partially offset by a $20.1 million managed run off in our higher costing certificates of deposit and brokered deposits.

Stockholders' equity at December 31, 2017 decreased $2.3 million, or 0.6% to $395.4 million from $397.6 million at June 30, 2017. The decrease was primarily driven by $5.1 million in net losses, and a $601,000 decrease in other comprehensive income, partially offset by $2.0 million representing stock-based compensation, and $680,000 in a cumulative adjustment for the adoption of Accounting Standard Update 2016-09, "Improvements to Employee Share-Based Payment Accounting." As of December 31, 2017, HomeTrust Bank was considered "well capitalized" in accordance with its regulatory capital guidelines and exceeded all regulatory capital requirements with Common Equity Tier 1, Tier 1 Risk-Based, Total Risk-Based, and Tier 1 Leverage capital ratios of 11.72%, 11.72%, 12.51%, and 9.94%, respectively.  In addition, the Company exceeded all regulatory capital requirements as of that date. The estimated $17.7 million deferred tax revaluation did not have a material impact on the Company's regulatory capital ratios.

Asset Quality

The allowance for loan losses was $21.1 million, or 0.87% of total loans, at December 31, 2017 compared to $21.2 million, or 0.90% of total loans, at June 30, 2017. The allowance for loan losses to total gross loans excluding acquired loans was 0.97% at December 31, 2017, compared to 1.03% at June 30, 2017.

There was no provision for losses on loans for the six months ended December 31, 2017 and 2016. Net loan charge-offs totaled $61,000 and $306,000 for the six months ended December 31, 2017 and 2016, respectively. Net charge-offs as a percentage of average loans decreased to 0.01% for the six months ended December 31, 2017 from 0.03% for the same period last fiscal year.

Nonperforming assets decreased $800,000, or 4.1% to $19.2 million, or 0.59% of total assets, at December 31, 2017 compared to $20.0 million, or 0.62% of total assets at June 30, 2017, and were $21.7 million, or 0.78% of total assets, a year ago. Nonperforming assets included $14.4 million in nonaccruing loans and $4.8 million in REO at December 31, 2017, compared to $13.7 million and $6.3 million, in nonaccruing loans and REO, respectively, at June 30, 2017. Included in nonperforming loans are $4.8 million of loans restructured from their original terms of which $2.1 million were current at December 31, 2017, with respect to their modified payment terms. At December 31, 2017, $4.6 million, or 32.1% of nonaccruing loans were current on their required loan payments. Purchased impaired loans aggregating $4.6 million obtained through prior acquisitions are excluded from nonaccruing loans due to the accretion of discounts established in accordance with the acquisition method of accounting for business combinations. Nonperforming loans to total loans was 0.59% at December 31, 2017 compared to 0.58% at June 30, 2017, and 0.82% at December 31, 2016.

The ratio of classified assets to total assets decreased to 1.39% at December 31, 2017 from 1.57% at June 30, 2017. Classified assets decreased 10.4% to $45.0 million at December 31, 2017 compared to $50.2 million at June 30, 2017 and were $54.8 million at December 31, 2016. Our overall asset quality metrics continue to demonstrate our commitment to growing and maintaining a high quality loan portfolio.

About HomeTrust Bancshares, Inc.

HomeTrust Bancshares, Inc. is the holding company for HomeTrust Bank. As of December 31, 2017, the Company had assets of $3.3 billion. The Bank, founded in 1926, is a North Carolina state chartered, community-focused financial institution committed to providing value added relationship banking through 42 locations as well as online/mobile channels. Locations include: North Carolina (including the Asheville metropolitan area, the "Piedmont" region, Charlotte, and Raleigh), Upstate South Carolina (Greenville), East Tennessee (including Kingsport/Johnson City/Bristol, Knoxville, and Morristown) and Southwest Virginia (including the Roanoke Valley). The Bank is the 2nd largest community bank headquartered in North Carolina.

Forward-Looking Statements

This press release includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements often include words such as "believe," "expect," "anticipate," "estimate," and "intend" or future or conditional verbs such as "will," "would," "should," "could," or "may." Forward-looking statements are not historical facts but instead represent management's current expectations and forecasts regarding future events, many of which are inherently uncertain and outside of our control. Actual results may differ, possibly materially, from those currently expected or projected in these forward-looking statements. Factors that could cause our actual results to differ materially from those described in the forward-looking statements, include expected cost savings, synergies and other financial benefits from our acquisitions  might not be realized within the expected time frames or at all, and costs or difficulties relating to integration matters might be greater than expected; increased competitive pressures; changes in the interest rate environment; changes in general economic conditions and conditions within the securities markets; legislative and regulatory changes; and other factors described in HomeTrust's latest annual Report on Form 10-K and Quarterly Reports on Form 10-Q and other documents filed with or furnished to the Securities and Exchange Commission - which are available on our website at www.hometrustbanking.com  and on the SEC's website at www.sec.gov. Any of the forward-looking statements that we make in this press release or the documents we file with or furnish to the SEC are based upon management's beliefs and assumptions at the time they are made and may turn out to be wrong because of inaccurate assumptions we might make, because of the factors described above or because of other factors that we cannot foresee. We do not undertake and specifically disclaim any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. These risks could cause our actual results for fiscal 2018 and beyond to differ materially from those expressed in any forward-looking statements by, or on behalf of, us and could negatively affect our operating and stock performance.

WEBSITE: WWW.HOMETRUSTBANCSHARES.COM

Contact:
Dana L. Stonestreet – Chairman, President and Chief Executive Officer
Tony J. VunCannon – Executive Vice President, Chief Financial Officer, and Treasurer
828-259-3939



Consolidated Balance Sheets (Unaudited)
 
(Dollars in thousands)December 31,
2017
 September 30, 
2017
 June 30,
 2017
 March 31,
2017
 December 31,
2016
Assets         
Cash$46,743  $38,162  $41,982  $36,978  $40,105 
Interest-bearing deposits51,922  40,809  45,003  43,296  5,044 
Cash and cash equivalents98,665  78,971  86,985  80,274  45,149 
Commercial paper199,722  199,774  149,863  169,918  179,939 
Certificates of deposit in other banks100,349  110,454  132,274  138,646  150,147 
Securities available for sale, at fair value167,669  182,053  199,667  211,347  181,049 
Other investments, at cost38,877  38,651  39,355  35,269  32,341 
Loans held for sale7,072  7,793  5,607  4,328  4,998 
Total loans, net of deferred loan fees2,418,014  2,394,755  2,351,470  2,281,685  1,955,604 
Allowance for loan losses(21,090) (21,997) (21,151) (21,097) (20,986)
Net loans2,396,924  2,372,758  2,330,319  2,260,588  1,934,618 
Premises and equipment, net62,435  62,614  63,648  64,172  54,496 
Accrued interest receivable9,371  9,340  8,758  8,849  7,792 
Real estate owned ("REO")4,818  5,941  6,318  6,279  5,648 
Deferred income taxes36,526  55,653  57,387  59,661  52,259 
Bank owned life insurance ("BOLI")86,984  86,561  85,981  85,371  81,033 
Goodwill25,638  25,638  25,638  25,638  13,098 
Core deposit intangibles5,773  6,454  7,173  7,931  5,868 
Other assets9,765  7,343  7,560  7,175  25,805 
Total Assets$3,250,588  $3,249,998  $3,206,533  $3,165,446  $2,774,240 
Liabilities and Stockholders' Equity         
Liabilities         
Deposits$2,108,208  $2,100,310  $2,048,451  $2,084,759  $1,786,165 
Borrowings685,000  679,800  696,500  626,000  560,000 
Capital lease obligations1,925  1,931  1,937  1,942  1,947 
Other liabilities60,094  62,458  61,998  61,999  58,352 
Total liabilities2,855,227  2,844,499  2,808,886  2,774,700  2,406,464 
Stockholders' Equity         
Preferred stock, $0.01 par value, 10,000,000 shares authorized, none issued or outstanding         
Common stock, $0.01 par value, 60,000,000 shares authorized (1)190  190  190  189  180 
Additional paid in capital215,928  214,827  213,459  211,731  189,169 
Retained earnings187,241  197,907  191,660  186,894  186,620 
Unearned Employee Stock Ownership Plan ("ESOP") shares(7,670) (7,803) (7,935) (8,067) (8,199)
Accumulated other comprehensive income (loss)(328) 378  273  (1) 6 
Total stockholders' equity395,361  405,499  397,647  390,746  367,776 
Total Liabilities and Stockholders' Equity$3,250,588  $3,249,998  $3,206,533  $3,165,446  $2,774,240 
_________________________________
(1)  Shares of common stock issued and outstanding at December 31, 2017 was 18,967,175; at September 30, 2017 was 18,968,675; at June 30, 2017 was 18,967,875; at March 31, 2017 was 18,947,176; and at December 31, 2016 was 18,000,750.


 
Consolidated Statement of Income (Loss) (Unaudited)
 
 Three Months Ended Six Months Ended
 December 31, September 30, December 31, December 31, December 31,
(Dollars in thousands)2017 2017 2016 2017 2016
Interest and Dividend Income         
Loans$26,140  $25,250  $19,871  $51,390  $40,352 
Securities available for sale904  971  862  1,875  1,742 
Certificates of deposit and other interest-bearing deposits1,303  1,169  939  2,472  1,982 
Other investments501  506  391  1,007  778 
Total interest and dividend income28,848  27,896  22,063  56,744  44,854 
Interest Expense         
Deposits1,541  1,346  1,041  2,887  2,140 
Borrowings2,077  1,969  607  4,046  1,162 
Total interest expense3,618  3,315  1,648  6,933  3,302 
Net Interest Income25,230  24,581  20,415  49,811  41,552 
Provision for Loan Losses         
Net Interest Income after Provision for Loan Losses25,230  24,581  20,415  49,811  41,552 
Noninterest Income         
Service charges and fees on deposit accounts2,185  2,039  1,886  4,224  3,800 
Loan income and fees1,361  1,102  937  2,463  1,914 
BOLI income518  562  503  1,080  1,065 
Gain from sale of premises and equipment  164    164  385 
Other, net723  710  615  1,433  1,019 
Total noninterest income4,787  4,577  3,941  9,364  8,183 
Noninterest Expense         
Salaries and employee benefits11,973  12,352  11,839  24,325  22,530 
Net occupancy expense2,473  2,349  2,015  4,822  4,076 
Marketing and advertising319  453  459  772  889 
Telephone, postage, and supplies748  685  574  1,433  1,187 
Deposit insurance premiums419  414  203  833  481 
Computer services1,595  1,545  1,648  3,140  3,075 
Loss (gain) on sale and impairment of REO104  (146) 339  (42) 469 
REO expense205  241  378  446  522 
Core deposit intangible amortization681  719  618  1,400  1,268 
Merger-related expenses    27    334 
Other2,658  2,469  2,380  5,127  4,780 
Total noninterest expense21,175  21,081  20,480  42,256  39,611 
Income Before Income Taxes8,842  8,077  3,876  16,919  10,124 
Income Tax Expense19,508  2,510  893  22,018  3,317 
Net Income (Loss)$(10,666) $5,567  $2,983  $(5,099) $6,807 


 
Per Share Data
 
  Three Months Ended Six Months Ended
  December 31, September 30, December 31, December 31, December 31,
  2017 2017 2016 2017 2016
Net income (loss) per common share:          
Basic $(0.59) $0.31  $0.17  $(0.28) $0.39 
Diluted $(0.59) $0.30  $0.17  $(0.28) $0.39 
Adjusted net income per common share: (1)          
Basic $0.39  $0.31  $0.18  $0.70  $0.43 
Diluted $0.38  $0.30  $0.17  $0.68  $0.43 
           
Average shares outstanding:          
Basic 17,975,883  17,966,994  16,900,387  17,971,439  16,893,775 
Diluted 17,975,883  18,616,452  17,444,144  17,971,439  17,391,404 
Book value per share at end of period $20.84  $21.38  $20.43  $20.84  $20.43 
Tangible book value per share at end of period (1) $19.26  $19.81  $19.50  $19.26  $19.50 
Total shares outstanding at end of period 18,967,175  18,968,675  18,000,750  18,967,175  18,000,750 
__________________________________________________
(1) See Non-GAAP reconciliation tables below for adjustments.


 
Selected Financial Ratios and Other Data
 
  Three Months Ended Six Months Ended
  December 31, September 30, December 31, December 31, December 31,
  2017 2017 2016 2017 2016
Performance ratios: (1)      
Return (loss) on assets (ratio of net income to average total assets) (1.31)% 0.70% 0.43% (0.32)% 0.49%
Return on assets - adjusted(4) 0.86  0.70  0.43  0.78  0.53 
Return (loss) on equity (ratio of net income to average equity) (10.51) 5.55  3.26  (2.53) 3.74 
Return on equity - adjusted(4) 6.92  5.58  3.28  6.25  4.01 
Tax equivalent yield on earning assets(2) 3.93  3.90  3.59  3.90  3.65 
Rate paid on interest-bearing liabilities 0.58  0.54  0.31  0.56  0.31 
Tax equivalent average interest rate spread (2) 3.35  3.36  3.28  3.34  3.34 
Tax equivalent net interest margin(2) (3) 3.44  3.44  3.33  3.43  3.38 
Tax equivalent net interest margin - adjusted(4) 3.73  3.72  3.75  3.71  3.86 
Average interest-earning assets to average interest-bearing liabilities 120.42  120.67  120.73  120.54  120.60 
Operating expense to average total assets 2.61  2.64  2.96  2.62  2.84 
Efficiency ratio 70.54  72.30  84.09  71.41  79.50 
Efficiency ratio - adjusted (4) 69.67  71.36  82.05  70.69  77.76 
________________________________
(1) Ratios are annualized where appropriate.
(2) For the three and six months ended December 31, 2017 the weighted average rate for municipal leases is adjusted for a 30% combined federal and state tax rate since the interest from these leases is tax exempt. All other periods were at 37%.
(3) Net interest income divided by average interest-earning assets.
(4) See Non-GAAP reconciliation tables below for adjustments.


  
 At or For the Three Months Ended
 December 31, September 30, June 30, March 31, December 31,
 2017 2017 2017 2017 2016
Asset quality ratios:         
Nonperforming assets to total assets(1)0.59% 0.62% 0.62% 0.63% 0.78%
Nonperforming loans to total loans(1)0.59  0.59  0.58  0.61  0.82 
Total classified assets to total assets1.39  1.50  1.57  1.67  1.97 
Allowance for loan losses to nonperforming loans(1)146.79  156.17  154.77  152.74  131.11 
Allowance for loan losses to total loans0.87  0.92  0.90  0.92  1.07 
Allowance for loan losses to total gross loans excluding acquired loans(2)0.97  1.01  1.03  1.10  1.16 
Net charge-offs (recoveries) to average loans (annualized)0.15  (0.14) (0.01) (0.02) (0.01)
Capital ratios:              
Equity to total assets at end of period12.16% 12.48% 12.40% 12.34% 13.26%
Tangible equity to total tangible assets(2)11.34  11.67  11.57  11.49  12.73 
Average equity to average assets12.49  12.55  12.59  12.36  13.23 
__________________________________________              
(1) Nonperforming assets include nonaccruing loans, consisting of certain restructured loans, and REO. There were no accruing loans more than 90 days past due at the dates indicated. At December 31, 2017, there were $4.8 million of restructured loans included in nonaccruing loans and $4.6 million, or 32.1% of nonaccruing loans were current on their loan payments. Purchased impaired loans acquired through bank acquisitions are excluded from nonaccruing loans due to the accretion of discounts in accordance with the acquisition method of accounting for business combinations.
(2) See Non-GAAP reconciliation tables below for adjustments.


 
Average Balance Sheet Data
 
 For the Three Months Ended December 31,
 2017 2016
 Average
Balance
Outstanding
 Interest
Earned/
Paid(2)
 Yield/
Rate(2)
 Average
Balance
Outstanding
 Interest
Earned/
Paid(2)
 Yield/
Rate(2)
 (Dollars in thousands)
Assets:           
Interest-earning assets:           
Loans receivable(1)$2,406,014  $26,518  4.41% $1,910,134  $20,444  4.28%
Deposits in other financial institutions151,197  517  1.37% 178,119  478  1.07%
Investment securities175,039  903  2.06% 188,023  862  1.83%
Other(3)241,948  1,288  2.13% 245,035  852  1.39%
Total interest-earning assets2,974,198  29,226  3.93% 2,521,311  22,636  3.59%
Other assets275,434      243,736     
Total assets3,249,632      2,765,047     
Liabilities and equity:           
Interest-bearing deposits:           
Interest-bearing checking accounts471,474  236  0.20% 405,340  172  0.17%
Money market accounts644,928  585  0.36% 518,095  351  0.27%
Savings accounts227,933  76  0.13% 210,223  70  0.13%
Certificate accounts448,507  644  0.57% 408,314  448  0.44%
Total interest-bearing deposits1,792,842  1,541  0.33% 1,541,972  1,041  0.28%
Borrowings677,013  2,077  1.22% 546,353  607  0.44%
Total interest-bearing liabilities2,469,855  3,618  0.58% 2,088,325  1,648  0.31%
Noninterest-bearing deposits307,934      250,914     
Other liabilities65,850      60,068     
Total liabilities2,843,639      2,399,307     
Stockholders' equity405,993      365,740     
Total liabilities and stockholders' equity$3,249,632      $2,765,047     
            
Net earning assets$504,343      $432,986     
Average interest-earning assets to average interest-bearing liabilities120.42%     120.73%    
Tax-equivalent:           
Net interest income  $25,608      $20,988   
Interest rate spread    3.35%     3.28%
Net interest margin(4)    3.44%     3.33%
Non-tax-equivalent:           
Net interest income  $25,230      $20,415   
Interest rate spread    3.30%     3.18%
Net interest margin(4)    3.39%     3.24%
______________________________             
(1) The average loans receivable, net balances include loans held for sale and nonaccruing loans.
(2) Interest income used in the average interest earned and yield calculation includes the tax equivalent adjustment of $378,000 and $573,000 for the three months ended December 31, 2017 and 2016, respectively, calculated based on a combined federal and state tax rate of 30% and 37%, respectively.
(3) The average other interest-earning assets consists of FRB stock, FHLB stock, and commercial paper.
(4) Net interest income divided by average interest-earning assets.


 
 For the Six Months Ended December 31,
 2017 2016
 Average
Balance
Outstanding
 Interest
Earned/
Paid(2)
 Yield/
Rate(2)
 Average
Balance
Outstanding
 Interest
Earned/
Paid(2)
 Yield/
Rate(2)
(Dollars in thousands)                     
Assets:           
Interest-earning assets:           
Loans receivable(1)$2,383,768  $52,154  4.38% $1,879,110  $41,515  4.42%
Deposits in other financial institutions155,175  1,053  1.36% 184,918  974  1.05%
Investment securities182,479  1,875  2.06% 192,456  1,742  1.81%
Other interest-earning assets(3)225,185  2,426  2.15% 267,878  1,786  1.33%
Total interest-earning assets2,946,607  57,508  3.90% 2,524,362  46,017  3.65%
Other assets277,151      240,623     
Total assets$3,223,758      $2,764,985     
Liabilities and equity:           
Interest-bearing liabilities:           
Interest-bearing checking accounts467,201  452  0.19% 404,581  345  0.17%
Money market accounts625,095  1,062  0.34% 518,672  698  0.27%
Savings accounts230,436  153  0.13% 210,201  140  0.13%
Certificate accounts449,173  1,220  0.54% 419,552  957  0.46%
Total interest-bearing deposits1,771,905  2,887  0.33% 1,553,006  2,140  0.27%
Borrowings672,552  4,046  1.20% 540,121  1,162  0.43%
Total interest-bearing liabilities2,444,457  6,933  0.56% 2,093,127  3,302  0.31%
Noninterest-bearing deposits309,265      246,212     
Other liabilities66,328      61,628     
Total liabilities2,820,050      2,400,967     
Stockholders' equity403,708      364,018     
Total liabilities and stockholders' equity$3,223,758      $2,764,985     
            
Net earning assets$502,150      $431,235     
Average interest-earning assets to average interest-bearing liabilities120.54%     120.60%    
Tax-equivalent:           
Net interest income  $50,575      $42,715   
Interest rate spread    3.34%     3.34%
Net interest margin(4)    3.43%     3.38%
Non-tax-equivalent:           
Net interest income  $49,811      $41,552   
Interest rate spread    3.29%     3.24%
Net interest margin(4)    3.38%     3.29%
___________________________             
(1) The average loans receivable, net balances include loans held for sale and nonaccruing loans.
(2) Interest income used in the average interest earned and yield calculation includes the tax equivalent adjustment of $764,000 and $1,163,000 for the six months ended December 31, 2017 and 2016, respectively, calculated based on a combined federal and state tax rate of 30% and 37%, respectively.
(3) The average other interest-earning assets consists of FRB stock, FHLB stock, and commercial paper.
(4) Net interest income divided by average interest-earning assets.


 
Loans
 
(Dollars in thousands)December 31, 2017 September 30, 2017 June 30, 2017 March 31, 2017 December 31, 2016
Retail consumer loans:         
One-to-four family$686,229  $684,956  $684,089  $683,383  $608,118 
HELOCs - originated150,084  152,979  157,068  160,083  156,615 
HELOCs - purchased162,181  162,518  162,407  160,829  173,511 
Construction and land/lots60,805  54,969  50,136  46,856  42,628 
Indirect auto finance150,042  142,915  140,879  132,959  129,132 
Consumer9,699  8,814  7,900  7,729  5,852 
Total retail consumer loans1,219,040  1,207,151  1,202,479  1,191,839  1,115,856 
Commercial loans:         
Commercial real estate786,381  753,857  730,408  706,277  531,321 
Construction and development185,921  209,672  197,966  177,087  129,370 
Commercial and industrial127,709  124,722  120,387  105,299  77,352 
Municipal leases100,205  100,638  101,175  101,776  101,730 
Total commercial loans1,200,216  1,188,889  1,149,936  1,090,439  839,773 
Total loans2,419,256  2,396,040  2,352,415  2,282,278  1,955,629 
Deferred loan fees, net(1,242) (1,285) (945) (593) (25)
Total loans, net of deferred loan fees2,418,014  2,394,755  2,351,470  2,281,685  1,955,604 
Allowance for loan losses(21,090) (21,997) (21,151) (21,097) (20,986)
Loans, net$2,396,924  $2,372,758  $2,330,319  $2,260,588  $1,934,618 


 
Deposits
 
(Dollars in thousands)December 31, 2017 September 30, 2017 June 30, 2017 March 31, 2017 December 31, 2016
Core deposits:         
Noninterest-bearing accounts$313,493  $304,144  $310,172  $301,654  $244,148 
NOW accounts489,668  464,992  469,377  480,405  413,867 
Money market accounts638,259  642,351  569,607  564,195  520,138 
Savings accounts224,732  230,944  237,149  249,330  210,283 
Total core deposits1,666,152  1,642,431  1,586,305  1,595,584  1,388,436 
Certificates of deposit442,056  457,879  462,146  489,175  397,729 
Total$2,108,208  $2,100,310  $2,048,451  $2,084,759  $1,786,165 
 

Non-GAAP Reconciliations

In addition to results presented in accordance with generally accepted accounting principles utilized in the United States ("GAAP"), this earnings release contains certain non-GAAP financial measures, which include: the efficiency ratio; tangible book value; tangible book value per share; tangible equity to tangible assets ratio; net income excluding merger-related expenses, certain state income tax expense, adjustments for the change in federal tax law, and gain from the sale of premises and equipment; earnings per share ("EPS"), return on assets ("ROA"), and return on equity ("ROE") excluding merger-related expenses, certain state income tax expense, adjustments for the change in federal tax law, and gain from the sale of premises and equipment; and the ratio of the allowance for loan losses to total loans excluding acquired loans. The Company believes these non-GAAP financial measures and ratios as presented are useful for both investors and management to understand the effects of certain items and provides an alternative view of the Company's performance over time and in comparison to the Company's competitors.

Management elected to utilize short-term FHLB borrowings beginning in November 2014 as part of a leverage strategy to increase net interest income. The Company believes that showing the effects of these borrowings on net interest income and net interest margin is useful to both management and investors as these measures are commonly used to measure financial institution's performance and against peers.

The Company believes these measures facilitate comparison of the quality and composition of the Company's capital and earnings ability over time and in comparison to its competitors. These non-GAAP measures have inherent limitations, are not required to be uniformly applied and are not audited. They should not be considered in isolation or as a substitute for total stockholders' equity or operating results determined in accordance with GAAP.  These non-GAAP measures may not be comparable to similarly titled measures reported by other companies.

Set forth below is a reconciliation to GAAP of our efficiency ratio:

     
  Three Months Ended Six Months Ended
(Dollars in thousands) December 31, September 30, December 31, December 31, December 31,
  2017 2017 2016 2017 2016
Noninterest expense $21,175  $21,081  $20,480  $42,256  $39,611 
Less merger-related expenses     27    334 
Noninterest expense – as adjusted $21,175  $21,081  $20,453  $42,256  $39,277 
           
Net interest income $25,230  $24,581  $20,415  $49,811  $41,552 
Plus noninterest income 4,787  4,577  3,941  9,364  8,183 
Plus tax equivalent adjustment 378  548  573  764  1,163 
Less realized gain on securities          
Less gain on sale of premises and equipment   164    164  385 
Net interest income plus noninterest income – as adjusted $30,395  $29,542  $24,929  $59,775  $50,513 
Efficiency ratio 69.67% 71.36% 82.05% 70.69% 77.76%
Efficiency ratio (without adjustments) 70.54% 72.30% 84.09% 71.41% 79.64%
                

Set forth below is a reconciliation to GAAP of tangible book value and tangible book value per share:

   
  As of
(Dollars in thousands, except per share data) December 31, September 30, June 30, March 31, December 31,
  2017 2017 2017 2017 2016
Total stockholders' equity $395,361  $405,499  $397,647  $390,746  $367,776 
Less: goodwill, core deposit intangibles, net of deferred taxes 30,083  29,704  30,157  30,635  16,795 
Tangible book value $365,278  $375,795  $367,490  $360,111  $350,981 
Common shares outstanding 18,967,175  18,968,675  18,967,875  18,947,176  18,000,750 
Tangible book value per share $19.26  $19.81  $19.37  $19.01  $19.50 
Book value per share $20.84  $21.38  $20.96  $20.62  $20.43 
                     

Set forth below is a reconciliation to GAAP of tangible equity to tangible assets:

   
  At or For the Three Months Ended
  December 31, September 30, June 30, March 31, December 31,
  2017 2017 2017 2017 2016
                     
  (Dollars in thousands)
Tangible equity(1) $365,278  $375,795  $367,490  $360,111  $350,981 
Total assets 3,250,588  3,249,998  3,206,533  3,165,446  2,774,240 
Less: goodwill, core deposit intangibles, net of deferred taxes 30,083  29,704  30,157  30,635  16,795 
Total tangible assets(2) $3,220,505  $3,220,294  $3,176,376  $3,134,811  $2,757,445 
Tangible equity to tangible assets 11.34% 11.67% 11.57% 11.49% 12.73%
_________________________________________________________________
(1) Tangible equity (or tangible book value) is equal to total stockholders' equity less goodwill and core deposit intangibles, net of related deferred tax liabilities.
(2) Total tangible assets is equal to total assets less goodwill and core deposit intangibles, net of related deferred tax liabilities.
 

Set forth below is a reconciliation to GAAP of net interest income and net interest margin as adjusted to exclude FHLB borrowings utilized in the leverage strategy and proceeds from such borrowings:

 
 Three Months Ended December 31,
 2017 2016
 Average Balance Outstanding Interest Earned / Paid Yield/ Rate Average Balance Outstanding Interest Earned / Paid Yield/ Rate
Interest-earning assets$2,974,198  $29,226  3.93% $2,521,311  $22,636  3.59%
Less: Interest-earning assets funded by additional FHLB borrowings (1)255,000  1,056  1.66% 340,000  908  1.07%
Interest-earning assets - adjusted$2,719,198  $28,170  4.14% $2,181,311  $21,728  3.98%
              
Interest-bearing liabilities$2,469,855  $3,618  0.58% $2,088,325  $1,648  0.31%
Additional FHLB borrowings255,000  782  1.23% 340,000  378  0.44%
Interest-bearing liabilities - adjusted$2,214,855  $2,836  0.51% $1,748,325  $1,270  0.29%
              
Tax equivalent net interest income and net interest margin  $25,608  3.44%   $20,988  3.33%
Tax equivalent net interest income and net interest margin - adjusted  25,334  3.73%   20,458  3.75%
Difference  $274  (0.29)%   $530  (0.42)%


  
 Six Months Ended December 31,
 2017 2016
 Average Balance Outstanding Interest Earned / Paid Yield/ Rate Average Balance Outstanding Interest Earned / Paid Yield/ Rate
Interest-earning assets$2,946,607  $57,508  3.90% $2,524,362  $46,017  3.65%
Less: Interest-earning assets funded by additional FHLB borrowings (1)250,000  2,024  1.62% 367,500  1,907  1.04%
Interest-earning assets - adjusted$2,696,607  $55,484  4.12% $2,156,862  $44,110  4.20%
                  
Interest-bearing liabilities$2,444,457  $6,933  0.56% $2,093,127  $3,302  0.31%
Less: Additional FHLB borrowings250,000  1,505  1.20%  367,500   788  0.43%
Interest-bearing liabilities - adjusted$2,194,457  $5,428  0.49% $1,725,627  $2,514  0.29%
                  
Tax equivalent net interest income and net interest margin  $50,575  3.43%     $42,715  3.38%
Tax equivalent net interest income and net interest margin - adjusted  50,056  3.71%   41,596  3.86%
Difference  $519  (0.28)%   $1,119  (0.48)%
_________________________________________________________________________________
(1) Proceeds from these borrowings were invested in various interest-earning assets, including: deposits with the Federal Reserve Bank, FHLB stock, certificates of deposit in other banks, and commercial paper.
 

Set forth below is a reconciliation to GAAP of net income and earnings per share (EPS) as adjusted to exclude merger-related expenses, state tax expense rate change, federal tax law rate change, and gain from sale of premises and equipment:

     
  Three Months Ended Six Months Ended
(Dollars in thousands, except per share data) December 31, September 30, December 31, December 31, December 31,
  2017 2017 2016 2017 2016
Merger-related expenses $  $  $27  $  $334 
State tax expense adjustment (1)   133    133  490 
Change in federal tax law adjustment (2) 17,693      17,693   
Gain from sale of premises and equipment   (164)   (164) (385)
Total adjustments 17,693  (31) 27  17,662  439 
Tax effect (3)   59  (10) 49  49 
Total adjustments, net of tax 17,693  28  17  17,711  488 
           
Net income (loss) (GAAP) (10,666) 5,567  2,983  (5,099) 6,807 
           
Net income (non-GAAP) $7,027  $5,595  $3,000  $12,612  $7,295 
           
Per Share Data          
Average shares outstanding - basic 17,975,883  17,966,994  16,900,387  17,971,439  16,893,775 
Average shares outstanding - diluted 17,975,883  18,616,452  17,444,144  17,971,439  17,391,404 
Average shares outstanding - diluted (adjusted) (4) 18,689,894  18,616,452  17,444,144  18,655,048  17,391,404 
           
Basic EPS          
EPS (GAAP) $(0.59) $0.31  $0.17  $(0.28) $0.39 
Non-GAAP adjustment 0.98    0.01  0.98  0.04 
EPS (non-GAAP) $0.39  $0.31  $0.18  $0.70  $0.43 
           
Diluted EPS          
EPS (GAAP) $(0.59) $0.30  $0.17  $(0.28) $0.39 
Non-GAAP adjustment 0.97      0.96  0.04 
EPS (non-GAAP) $0.38  $0.30  $0.17  $0.68  $0.43 
           
Average Balances          
Average assets $3,249,632  $3,197,885  $2,765,047  $3,223,758  $2,764,985 
Average equity 405,993  401,422  365,740  403,708  364,018 
           
ROA          
ROA (GAAP) (1.31)% 0.70% 0.43% (0.32)% 0.49%
Non-GAAP adjustment 2.17% % % 1.10% 0.04%
ROA (non-GAAP) 0.86% 0.70% 0.43% 0.78% 0.53%
                     
ROE                    
ROE (GAAP) (10.51)% 5.55% 3.26% (2.53)% 3.74%
Non-GAAP adjustment 17.43% 0.03% 0.02% 8.78% 0.27%
ROE (non-GAAP) 6.92% 5.58% 3.28% 6.25% 4.01%
____________________________________________
(1) State tax adjustment is a result of a decrease in value of our deferred tax assets stemming from recent decreases in North Carolina's corporate tax rate.
(2) Revaluation of net deferred tax assets due to the Tax Cuts and Jobs Act.
(3) Tax amounts have been adjusted for certain nondeductible merger-related expenses.
(4) Average shares outstanding - diluted were adjusted for the three and six months ended December 31, 2017 to include potentially dilutive shares not considered due to the corresponding net losses under GAAP.
 

Set forth below is a reconciliation to GAAP of the allowance for loan losses to total loans and the allowance for loan losses as adjusted to exclude acquired loans:

   
  As of
(Dollars in thousands) December 31, September 30, June 30, March 31, December 31,
  2017 2017 2017 2017 2016
Total gross loans receivable (GAAP) $2,419,256  $2,396,040  $2,352,415  $2,282,278  $1,955,629 
Less: acquired loans 311,508  338,933  374,538  403,971  169,234 
Adjusted loans (non-GAAP) $2,107,748  $2,057,107  $1,977,877  $1,878,307  $1,786,395 
           
Allowance for loan losses (GAAP) $21,090  $21,997  $21,151  $21,097  $20,986 
Less: allowance for loan losses on acquired loans 566  1,197  727  474  336 
Adjusted allowance for loan losses $20,524  $20,800  $20,424  $20,623  $20,650 
Adjusted allowance for loan losses / Adjusted loans (non-GAAP) 0.97% 1.01% 1.03% 1.10% 1.16%

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Source: HomeTrust Bancshares, Inc.