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

Company Release - 4/26/2018 4:15 PM ET

ASHEVILLE, N.C., April 26, 2018 (GLOBE NEWSWIRE) -- HomeTrust Bancshares, Inc. (NASDAQ:HTBI) ("Company"), the holding company of HomeTrust Bank ("Bank"), today announced preliminary net income of $6.1 million, or $0.32 per diluted share for the quarter ended March 31, 2018, compared to $274,000, or $0.01 per diluted share for the same period a year ago. Return on assets was 0.76% for the three months ended March 31, 2018 compared to 0.04% for the same period in fiscal 2017. The current quarter results did not include any merger-related expenses. The results in the quarter ended March 31, 2017 included $7.4 million of acquisition-related expenses related to the acquisition of TriSummit Bancorp, Inc. and its wholly-owned subsidiary TriSummit Bank ("TriSummit"), which net of tax benefit, reduced net income by $0.26 per diluted share. Net income totaled $1.0 million, or $0.06 per diluted share for the nine months ended March 31, 2018, compared to $7.1 million, or $0.40 per diluted share for the same period in fiscal 2017. Return on assets was 0.04% for the nine months ended March 31, 2018, compared to 0.33% for the same period in fiscal 2017. Earnings for the nine months ended March 31, 2018 included an estimated $18.0 million write-down of deferred tax assets following a deferred tax revaluation resulting from enactment of the Tax Cuts and Jobs Act (the "Tax Act”) with no comparable charge in the same 2017 period, which was partially offset by the absence of the previously mentioned merger-related expenses.

For the quarter ended March 31, 2018 compared to the corresponding quarter in the previous year and before the write-down of deferred tax assets from the change in the federal tax rate and prior year merger-related expenses (non-GAAP):

  • net income increased 28.8% to $6.4 million from $5.0 million;
  • diluted earnings per share increased 25.9% to $0.34 from $0.27; and
  • return on assets increased 25.0% to 0.80% from 0.64%.

For the nine months ended March 31, 2018 compared to the same period a year ago and before the write-down of deferred tax assets from the change in the federal tax rate, merger-related expenses, certain state income tax expenses, and gains from the sale of premises and equipment (non-GAAP):

  • net income increased 54.9% to $19.1 million from $12.3 million;
  • diluted earnings per share increased 47.8% to $1.02 from $0.69; and
  • return on assets increased 38.6% to 0.79% from 0.57%.

The reconciliation of non-GAAP measures, which the Company believes facilitates the assessment of its banking operations and peer comparability, is included in tabular form at the end of this release.

"I am pleased to report another strong quarter of continued core earnings growth as we strengthened our newer and legacy lines of business with additional high-performing revenue producers," said Dana Stonestreet, Chairman, President, and CEO. “During the third quarter of fiscal 2018, we added eight more key revenue producers to further enhance our thriving commercial banking group, mortgage banking, and our new SBA loan and equipment finance lines of business. These are in addition to the 22 revenue producers hired during 2017, which has had a dramatic impact on the scale and reach of the company and are providing a great opportunity for revenue growth. I am also excited about the recent opening of our new de novo branch in Cary, North Carolina - a fast growing market that fits well with our existing commercial lending group in Raleigh. We will continue to capitalize on the momentum our team has built and continue executing our strategies to increase revenues, earnings per share, and shareholder value."

Income Statement Review

Net interest income increased to $25.2 million for the quarter ended March 31, 2018 compared to $25.1 million for the comparative quarter in fiscal 2017. The $157,000 or 0.6% increase was primarily due to a $2.0 million increase in interest and dividend income driven by an increase in average interest-earning assets, which was partially offset by a $1.8 million increase in interest expense. Average interest-earning assets increased $143.9 million, or 5.1% to $3.0 billion for the quarter ended March 31, 2018 compared to $2.8 billion for the corresponding quarter in fiscal 2017. For the quarter ended March 31, 2018, the average balance of total loans receivable increased $187.0 million, or 8.3% due to organic loan growth. The average balance of other interest-earning assets increased $59.2 million, or 30.3% primarily due to increases in commercial paper investments. These increases were mainly funded by the cumulative decrease of $102.3 million, or 25.9% in average interest-earning deposits in other financial institutions and investment securities, an increase in average interest-bearing deposits of $42.3 million, or 2.4%, and an increase in average Federal Home Loan Bank ("FHLB") borrowings of $57.3 million, or 9.5% as compared to the same quarter last year. Net interest margin (on a fully taxable-equivalent basis) for the three months ended March 31, 2018 decreased to 3.44% from 3.62% 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; however, we have reduced the amount of assets purchased and liabilities assumed as part of the leveraging strategy during the past year and expect to continue reducing these amounts commensurate with anticipated organic loan growth. During the three months ended March 31, 2018 our leveraging strategy produced an additional $1.0 million in interest and dividend income at an average yield of 2.09%, while the average cost of the borrowings was 1.46%, resulting in approximately $316,000 in net interest income. During the same quarter in the prior fiscal year, our leveraging strategy produced an additional $886,000 in interest and dividend income at an average yield of 1.21%, while the average cost of the borrowings was 0.66%, resulting in approximately $401,000 in net interest income. Excluding the effects of the leveraging strategy, the tax equivalent net interest margin would be 3.65% and 3.98% for the quarters ended March 31, 2018 and 2017, respectively.

Total interest and dividend income increased $2.0 million, or 7.2% for the three months ended March 31, 2018 as compared to the same period last year, which was primarily driven by a $1.6 million, or 6.5% increase in loan interest income and a $630,000, or 72.6% increase in interest income from certificates of deposit and other interest-bearing deposits, partially offset by a $327,000, or 26.3% decrease in interest income from securities available for sale. The additional loan interest income was primarily due to the increase in the average balance of loans receivable and was partially offset by lower loan yields. Average loan yields decreased 12 basis points to 4.40% for the quarter ended March 31, 2018 from 4.52% in the corresponding quarter from last year primarily due to a $1.4 million, or 60.9% decrease in the accretion of purchase discounts on acquired loans as a result of reduced prepayments as compared to the same quarter last year. For the quarters ended March 31, 2018 and 2017, the average loan yields included 14 and 40 basis points, respectively, from the accretion of purchase discounts on acquired loans.

Total interest expense increased $1.8 million, or 81.9% for the quarter ended March 31, 2018 compared to the same period last year, which primarily related to recent deposit gathering initiatives and increases in average borrowings, consisting primarily of short-term FHLB advances along with an 80 basis point increase in the average cost of borrowings. The overall average cost of funds increased 27 basis points to 0.65% 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 $8.4 million or 12.6% to $75.0 million for the nine months ended March 31, 2018 compared to $66.6 million for the nine months ended March 31, 2017. Average interest-earning assets increased $329.5 million, or 12.5% to $3.0 billion for the nine months ended March 31, 2018 compared to $2.6 billion in the same period in 2017. The $398.8 million, or 19.9% increase in average balance of total loans receivable for the nine months ended March 31, 2018 was due to the TriSummit acquisition and increased organic loan growth, which was mainly funded by the cumulative decrease of $69.3 million, or 11.1% in average interest-earning deposits in other financial institutions, investment securities, and other interest-earning assets, an increase in average interest-bearing deposits of $160.9 million, or 9.9% and an increase in average FHLB borrowings of $107.7 million, or 19.2%. Net interest margin (on a fully taxable-equivalent basis) for the nine months ended March 31, 2018 decreased three basis points to 3.44% from 3.47% for last year. For the nine months ended March 31, 2018, our leveraging strategy produced an additional $3.1 million in interest and dividend income at an average yield of 1.75%, while the average cost of the borrowings was 1.28%, resulting in approximately $835,000 in net interest income. Our leveraging strategy produced an additional $2.8 million in interest and dividend income at an average yield of 1.09% during the corresponding period in fiscal 2017, while the average cost of the borrowings was 0.50%, resulting in approximately $1.5 million in net interest income. Excluding the effects of the leveraging strategy, the tax equivalent net interest margin would be 3.69% and 3.90% for the nine months ended March 31, 2018 and 2017, respectively.

Total interest and dividend income increased $13.9 million, or 19.2% for the nine months ended March 31, 2018 as compared to the same period last year. The increase was primarily driven by a $12.6 million, or 19.4% increase in loan interest income and a $1.1 million, or 39.3% increase in certificates of deposit and other interest-bearing deposits. The additional loan interest income was primarily due to the increase in the average balance of loans receivable, which was partially offset by a $2.3 million decrease in the accretion of purchase discounts on acquired loans to $2.6 million for the nine months ended March 31, 2018 from $4.8 million for the same period in fiscal 2017, as a result of full repayments of several loans with large discounts in the previous nine month period. Overall, average loan yields decreased eight basis points to 4.38% for the nine months ended March 31, 2018 from 4.46% in the corresponding period in fiscal 2017. Excluding the effects of the accretion on purchase discounts on acquired loans, loan yields increased 11 basis points to 4.24% for the nine months ended March 31, 2018 compared to 4.13% in the same period last year.

Total interest expense increased $5.4 million, or 98.7% for the nine months ended March 31, 2018 compared to the same period last year. This increase was primarily related to the increase in average interest-bearing deposits and borrowings coupled with the increased cost of six and 78 basis points for the nine months ended March 31, 2018 and 2017, respectively. The overall cost of funds increased 26 basis points to 0.60% for the nine months ended March 31, 2018 compared to 0.34% in the corresponding period last year.

Noninterest income increased $1.2 million, or 33.5% to $4.9 million for the three months ended March 31, 2018 from $3.7 million for the same period in the previous year. The leading factors of the increase included a $333,000, or 17.8% increase in service charges on deposit accounts as a result of the increase in deposit accounts and related fees; a $629,000, or 80.5% increase in loan income from the gain on sale of mortgage loans and various commercial loan-related fees driven by the commencing of originations and sales of the guaranteed portion of U.S Small Business Administration (“SBA”) commercial loans; and a $250,000, 47.3% increase in other noninterest income mainly from investments in small business investment companies ("SBIC").

Noninterest income increased $2.4 million, or 20.4% to $14.2 million for the nine months ended March 31, 2018 from $11.9 million for the same period in the prior year, primarily due to a $756,000, or 13.3% increase in service charges on deposit accounts; a $1.2 million, or 43.8% increase in loan income from the gain on sale of mortgage loans and various commercial loan-related fees; and $664,000, or 42.9% increase in other noninterest income. Partially offsetting these increases was a $221,000, or 57.4% decrease in gains from the sale of premises and equipment for the nine months ended March 31, 2018 compared to the same period last year.

Noninterest expense for the three months ended March 31, 2018 decreased $7.5 million, or 26.0% to $21.3 million compared to $28.8 million for the three months ended March 31, 2017, which was driven by the absence of $7.4 million in merger-related expenses for the TriSummit acquisition that occurred during same quarter last year.

Noninterest expense for the nine months ended March 31, 2018 decreased $4.8 million, or 7.1% to $63.6 million compared to $68.4 million for the nine months ended March 31, 2017. The decrease was primarily a result of the absence of the previously mentioned merger-related expenses; a $157,000, or 12.4% decrease in marketing and advertising; and a $348,000, or 27.7% decrease in real estate owned ("REO") related expenses primarily as a result of fewer REO properties held. Partially offsetting these decreases was the additional expenses related to the TriSummit acquisition as shown in the cumulative increase of $3.1 million, or 6.2% in salaries and employee benefits; net occupancy expense; telephone, postage,and supplies; and other expenses for the nine months ended March 31, 2018 compared to the same period last year. Deposit insurance premiums increased $361,000, or 40.8% as the net asset base has increased.

For the three months ended March 31, 2018, the Company's income tax expense was $2.7 million compared to an income tax benefit of $325,000 for the three months ended March 31, 2017. In addition to the normal provision for income taxes related to higher pre-tax income, as a result of the Tax Act, we incurred an additional $318,000 in income tax expense for the quarter ended March 31, 2018 to establish a tax valuation allowance on our alternative minimum tax ("AMT") credits in accordance with recent Internal Revenue Service guidelines. In addition, our fiscal year end requires the use of a blended federal tax rate as prescribed by the Internal Revenue Code, which is 27.5% and will be used through June 30, 2018.

For the nine months ended March 31, 2018, the Company's income tax expense was $24.7 million compared to $3.0 million for the corresponding period last year. The increase was mainly driven by the reduction in the federal corporate tax rate, which required the Company to revalue net deferred tax assets and establish the tax valuation allowance on our AMT credits as discussed above, resulting in a $18.0 million adjustment through income tax expense; and to a lesser extent higher pre-tax income. In addition, for the nine months ended March 31, 2018 and 2017, 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 $64.3 million, or 2.0% to $3.3 billion at March 31, 2018 from $3.2 billion at June 30, 2017. Total liabilities increased $60.4 million, or 2.2% to $2.9 billion at March 31, 2018 from $2.8 billion at June 30, 2017. Deposit growth of $131.9 million, or 6.4% and the cumulative decrease of $94.3 million, or 22.5% in cash and cash equivalents, certificates of deposit in other financial institutions and investment securities during the first nine months of fiscal 2018 were used to partially fund the $94.3 million, or 4.0% increase in total loans receivable, the $89.6 million, or 59.8% increase in commercial paper, and reduce borrowings by $71.5 million, or 10.3%. The increase in net loans receivable was driven by $91.0 million, or 5.5% annualized rate of organic loan growth. The $2.6 million, or 6.5% decrease in other investments was due to a reduction in FHLB stock  requirements as a result of reduced borrowings. The $23.1 million, or 40.2% decrease in deferred income taxes was driven primarily by the previously mentioned write-down of deferred tax assets and to a lesser extent, the use of net operating losses as our taxable income increased.

Total deposits increased $131.9 million, or 6.4%, during the nine months ended March 31, 2018 to $2.2 billion. The increase was primarily due to a $94.8 million increase in our core deposits (which exclude certificates of deposit) from growth initiatives and a $63.5 million increase in brokered deposits, partially offset by a $26.5 million managed run off in our higher costing certificates of deposit.

Stockholders' equity at March 31, 2018 increased $3.9 million, or 1.0% to $401.6 million from $397.6 million at June 30, 2017. The increase was primarily driven by $1.0 million in net income, $2.6 million in 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," partially offset by a $1.5 million decrease in other comprehensive income representing unrealized losses on investment securities, net of tax. As of March 31, 2018, 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 10.23%, respectively.  In addition, the Company exceeded all regulatory capital requirements as of that date. The estimated $18.0 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 $21.5 million, or 0.88% of total loans, at March 31, 2018 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 March 31, 2018, compared to 1.03% at June 30, 2017.

There was no provision for losses on loans for the nine months ended March 31, 2018 and 2017. Net loan recoveries totaled $321,000 for the nine months ended March 31, 2018, compared to net loan charge-offs of $195,000 for the same period in fiscal 2017. Net recoveries as a percentage of average loans increased to (0.02)% for the nine months ended March 31, 2018 from net charge-offs of 0.01% for the same period last fiscal year.

Nonperforming assets decreased $2.3 million, or 11.5% to $17.7 million, or 0.54% of total assets, at March 31, 2018 compared to $20.0 million, or 0.62% of total assets at June 30, 2017. Nonperforming assets included $12.6 million in nonaccruing loans and $5.1 million in REO at March 31, 2018, compared to $13.7 million and $6.3 million, in nonaccruing loans and REO, respectively, at June 30, 2017. Included in nonperforming loans are $3.4 million of loans restructured from their original terms of which $1.5 million were current at March 31, 2018, with respect to their modified payment terms. At March 31, 2018, $4.6 million, or 36.4% of nonaccruing loans were current on their required loan payments. Purchased impaired loans aggregating $3.8 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 0.52% at March 31, 2018 compared to 0.58% at June 30, 2017.

The ratio of classified assets to total assets decreased to 1.29% at March 31, 2018 from 1.57% at June 30, 2017. Classified assets decreased 16.1% to $42.1 million at March 31, 2018 compared to $50.2 million at June 30, 2017. Our overall asset quality metrics continue to demonstrate our commitment to growing and maintaining a high quality loan portfolio with moderate risk profile.

About HomeTrust Bancshares, Inc.

HomeTrust Bancshares, Inc. is the holding company for HomeTrust Bank. As of March 31, 2018, 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 43 locations as well as online/mobile channels. Locations include: North Carolina (including the Asheville metropolitan area, the "Piedmont" region, Charlotte, Cary, 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)March 31,
2018
 December 31,
2017
 September 30,
 2017
 June 30,
2017
 March 31,
2017
Assets         
Cash$38,100  $46,743  $38,162  $41,982  $36,978 
Interest-bearing deposits41,296  51,922  40,809  45,003  43,296 
Cash and cash equivalents79,396  98,665  78,971  86,985  80,274 
Commercial paper239,435  199,722  199,774  149,863  169,918 
Certificates of deposit in other banks84,218  100,349  110,454  132,274  138,646 
Securities available for sale, at fair value160,971  167,669  182,053  199,667  211,347 
Other investments, at cost36,783  38,877  38,651  39,355  35,269 
Loans held for sale6,071  7,072  7,793  5,607  4,328 
Total loans, net of deferred loan fees2,445,755  2,418,014  2,394,755  2,351,470  2,281,685 
Allowance for loan losses(21,472) (21,090) (21,997) (21,151) (21,097)
Net loans2,424,283  2,396,924  2,372,758  2,330,319  2,260,588 
Premises and equipment, net62,725  62,435  62,614  63,648  64,172 
Accrued interest receivable9,216  9,371  9,340  8,758  8,849 
Real estate owned ("REO")5,053  4,818  5,941  6,318  6,279 
Deferred income taxes34,311  36,526  55,653  57,387  59,661 
Bank owned life insurance ("BOLI")87,532  86,984  86,561  85,981  85,371 
Goodwill25,638  25,638  25,638  25,638  25,638 
Core deposit intangibles5,131  5,773  6,454  7,173  7,931 
Other assets10,100  9,765  7,343  7,560  7,175 
Total Assets$3,270,863  $3,250,588  $3,249,998  $3,206,533  $3,165,446 
Liabilities and Stockholders' Equity         
Liabilities         
Deposits$2,180,324  $2,108,208  $2,100,310  $2,048,451  $2,084,759 
Borrowings625,000  685,000  679,800  696,500  626,000 
Capital lease obligations1,920  1,925  1,931  1,937  1,942 
Other liabilities62,066  60,094  62,458  61,998  61,999 
Total liabilities2,869,310  2,855,227  2,844,499  2,808,886  2,774,700 
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  190  189 
Additional paid in capital216,712  215,928  214,827  213,459  211,731 
Retained earnings193,368  187,241  197,907  191,660  186,894 
Unearned Employee Stock Ownership Plan ("ESOP") shares(7,538) (7,670) (7,803) (7,935) (8,067)
Accumulated other comprehensive income (loss)(1,179) (328) 378  273  (1)
Total stockholders' equity401,553  395,361  405,499  397,647  390,746 
Total Liabilities and Stockholders' Equity$3,270,863  $3,250,588  $3,249,998  $3,206,533  $3,165,446 

_________________________________
(1) Shares of common stock issued and outstanding at March 31, 2018 was 19,034,868; December 31, 2017 was 18,967,175; at September 30, 2017 was 18,968,675; at June 30, 2017 was 18,967,875; and at March 31, 2017 was 18,947,176.

    
Consolidated Statement of Income (Loss) (Unaudited)   
 Three Months Ended Nine Months Ended
 March 31, December 31, March 31, March 31, March 31,
(Dollars in thousands)2018 2017 2017 2018 2017
Interest and Dividend Income         
Loans$26,355  $26,140  $24,747  $77,745  $65,098 
Securities available for sale916  904  1,243  2,791  2,986 
Certificates of deposit and other interest-bearing deposits1,498  1,303  868  3,970  2,850 
Other investments496  501  433  1,503  1,211 
Total interest and dividend income29,265  28,848  27,291  86,009  72,145 
Interest Expense         
Deposits1,622  1,541  1,215  4,509  3,355 
Borrowings2,414  2,077  1,004  6,460  2,166 
Total interest expense4,036  3,618  2,219  10,969  5,521 
Net Interest Income25,229  25,230  25,072  75,040  66,624 
Provision for Loan Losses         
Net Interest Income after Provision for Loan Losses25,229  25,230  25,072  75,040  66,624 
Noninterest Income         
Service charges and fees on deposit accounts2,202  2,185  1,869  6,426  5,670 
Loan income and fees1,410  1,361  781  3,873  2,694 
BOLI income536  518  511  1,616  1,576 
Gain from sale of premises and equipment      164  385 
Other, net778  723  528  2,211  1,547 
Total noninterest income4,926  4,787  3,689  14,290  11,872 
Noninterest Expense         
Salaries and employee benefits11,927  11,973  12,191  36,252  34,721 
Net occupancy expense2,389  2,473  2,463  7,211  6,538 
Marketing and advertising334  319  374  1,106  1,263 
Telephone, postage, and supplies748  748  728  2,181  1,914 
Deposit insurance premiums413  419  404  1,246  885 
Computer services1,600  1,595  1,721  4,740  4,796 
Loss (gain) on sale and impairment of REO194  104  (181) 152  288 
REO expense311  205  447  757  969 
Core deposit intangible amortization642  681  797  2,042  2,065 
Merger-related expenses    7,401    7,736 
Other2,763  2,658  2,467  7,890  7,248 
Total noninterest expense21,321  21,175  28,812  63,577  68,423 
Income (Loss) Before Income Taxes8,834  8,842  (51) 25,753  10,073 
Income Tax Expense (Benefit)2,707  19,508  (325) 24,725  2,992 
Net Income$6,127  $(10,666) $274  $1,028  $7,081 


     
Per Share Data    
  Three Months Ended Nine Months Ended
  March 31, December 31, March 31, March 31, March 31,
  2018 2017 2017 2018 2017
Net income (loss) per common share:          
Basic $0.34  $(0.59) $0.01  $0.06  $0.40 
Diluted $0.32  $(0.59) $0.01  $0.06  $0.40 
Adjusted net income per common share:(1)          
Basic $0.36  $0.39  $0.27  $1.06  $0.69 
Diluted $0.34  $0.38  $0.27  $1.02  $0.69 
           
Average shares outstanding:          
Basic 18,052,000  17,975,883  17,808,920  17,997,997  17,194,466 
Diluted 18,761,586  17,975,883  18,396,154  18,688,486  17,728,783 
Book value per share at end of period $21.10  $20.84  $20.62  $21.10  $20.62 
Tangible book value per share at end of period (1) $19.54  $19.26  $19.01  $19.54  $19.01 
Total shares outstanding at end of period 19,034,868  18,967,175  18,947,176  19,034,868  18,947,176 

_________________________________
(1) See Non-GAAP reconciliation tables below for adjustments.

     
Selected Financial Ratios and Other Data    
  Three Months Ended Nine Months Ended
  March 31, December 31, March 31, March 31, March 31,
  2018 2017 2017 2018 2017
Performance ratios: (1)      
Return (loss) on assets (ratio of net income to average total assets) 0.76% (1.31)% 0.04% 0.04% 0.33%
Return on assets - adjusted(4) 0.80  0.86  0.64  0.79  0.57 
Return (loss) on equity (ratio of net income to average equity) 6.16  (10.51) 0.28  0.34  2.54 
Return on equity - adjusted(4) 6.47  6.92  5.20  6.32  4.42 
Tax equivalent yield on earning assets(2) 3.99  3.93  3.94  3.93  3.75 
Rate paid on interest-bearing liabilities 0.65  0.58  0.38  0.60  0.34 
Tax equivalent average interest rate spread (2) 3.34  3.35  3.56  3.33  3.41 
Tax equivalent net interest margin(2) (3) 3.44  3.44  3.62  3.44  3.47 
Tax equivalent net interest margin - adjusted(4) 3.65  3.73  3.98  3.69  3.90 
Average interest-earning assets to average interest-bearing liabilities 120.71  120.42  119.70  120.60  120.35 
Operating expense to average total assets 2.63  2.61  3.70  2.63  3.16 
Efficiency ratio 70.70  70.54  100.18  71.17  87.17 
Efficiency ratio - adjusted (4) 69.77  69.67  72.90  70.38  75.97 

_________________________________
(1) Ratios are annualized where appropriate.
(2) For the three and nine months ended March 31, 2017 the weighted average rate for municipal leases is adjusted for a 37% combined federal and state tax rate since the interest from these leases is tax exempt. All other periods were at 30%.
(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
 March 31, December 31, September 30, June 30, March 31,
 2018 2017 2017 2017 2017
Asset quality ratios:         
Nonperforming assets to total assets(1)0.54% 0.59% 0.62% 0.62% 0.63%
Nonperforming loans to total loans(1)0.52  0.59  0.59  0.58  0.61 
Total classified assets to total assets1.29  1.39  1.50  1.57  1.67 
Allowance for loan losses to nonperforming loans(1)169.71  146.79  156.17  154.77  152.74 
Allowance for loan losses to total loans0.88  0.87  0.92  0.90  0.92 
Allowance for loan losses to total gross loans excluding acquired loans(2)0.97  0.97  1.01  1.03  1.10 
Net charge-offs (recoveries) to average loans (annualized)(0.06) 0.15  (0.14) (0.01) (0.02)
Capital ratios:         
Equity to total assets at end of period12.28% 12.16% 12.48% 12.40% 12.34%
Tangible equity to total tangible assets(2)11.48  11.34  11.67  11.57  11.49 
Average equity to average assets12.30  12.49  12.55  12.59  12.36 

___________________________
(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 March 31, 2018, there were $3.4 million of restructured loans included in nonaccruing loans and $4.6 million, or 36.4% 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 March 31,
 2018 2017
 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)$2,431,723  $26,761  4.40% $2,244,677  $25,358  4.52%
Deposits in other financial institutions126,933  441  1.39% 175,475  454  1.04%
Investment securities165,219  916  2.22% 218,990  1,244  2.27%
Other interest-earning assets(3)254,424  1,552  2.44% 195,220  846  1.73%
Total interest-earning assets2,978,299  29,671  3.99% 2,834,362  27,902  3.94%
Other assets259,390      283,128     
Total assets3,237,689      3,117,490     
Liabilities and equity:           
Interest-bearing deposits:           
Interest-bearing checking accounts480,650  236  0.20% 447,426  216  0.19%
Money market accounts657,214  633  0.39% 562,286  336  0.24%
Savings accounts221,214  72  0.13% 251,448  87  0.14%
Certificate accounts445,328  681  0.61% 501,016  576  0.46%
Total interest-bearing deposits1,804,406  1,622  0.36% 1,762,176  1,215  0.28%
Borrowings662,977  2,414  1.46% 605,721  1,004  0.66%
 Total interest-bearing liabilities2,467,383  4,036  0.65% 2,367,897  2,219  0.38%
Noninterest-bearing deposits308,955      297,719     
Other liabilities63,177      66,557     
Total liabilities2,839,515      2,732,173     
Stockholders' equity398,174      385,317     
Total liabilities and stockholders' equity$3,237,689      $3,117,490     
            
Net earning assets$510,916      $466,465     
Average interest-earning assets to average interest-bearing liabilities 120.71%      119.70%    
Tax-equivalent:           
Net interest income  $25,635      $25,683   
Interest rate spread    3.34%     3.56%
Net interest margin(4)    3.44%     3.62%
Non-tax-equivalent:           
Net interest income  $25,229      $25,072   
Interest rate spread    3.28%     3.48%
Net interest margin(4)    3.39%     3.54%

_________________________________
(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 $406 and $611 for the three months ended March 31, 2018 and 2017, 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 Nine Months Ended March 31,
 2018 2017
 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)$2,399,753  $78,914  4.38% $2,000,966  $66,873  4.46%
Deposits in other financial institutions145,761  1,494  1.37% 181,770  1,429  1.05%
Investment securities176,726  2,791  2.11% 201,301  2,986  1.98%
Other interest-earning assets(3)234,931  3,979  2.26% 243,659  2,632  1.44%
Total interest-earning assets2,957,171  87,178  3.93% 2,627,696  73,920  3.75%
Other assets271,231      254,791     
Total assets$3,228,402      $2,882,487     
Liabilities and equity:           
Interest-bearing liabilities:           
Interest-bearing checking accounts471,618  688  0.19% 418,654  561  0.18%
Money market accounts635,645  1,695  0.36% 532,998  1,034  0.26%
Savings accounts227,413  225  0.13% 223,749  227  0.14%
Certificate accounts447,950  1,901  0.57% 446,315  1,533  0.46%
Total interest-bearing deposits1,782,626  4,509  0.34% 1,621,716  3,355  0.28%
Borrowings669,371  6,460  1.29% 561,647  2,166  0.51%
 Total interest-bearing liabilities2,451,997  10,969  0.60% 2,183,363  5,521  0.34%
Noninterest-bearing deposits309,162      263,382     
Other liabilities65,380      64,624     
Total liabilities2,826,539      2,511,369     
Stockholders' equity401,863      371,118     
Total liabilities and stockholders' equity$3,228,402      $2,882,487     
            
Net earning assets$505,174      $444,333     
Average interest-earning assets to average interest-bearing liabilities 120.60%      120.35%    
Tax-equivalent:           
Net interest income  $76,209      $68,399   
Interest rate spread    3.33%     3.41%
Net interest margin(4)    3.44%     3.47%
Non-tax-equivalent:           
Net interest income  $75,040      $66,624   
Interest rate spread    3.28%     3.32%
Net interest margin(4)    3.38%     3.38%

_________________________________
(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 $1,169 and $1,775 for the nine months ended March 31, 2018 and 2017, 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)March 31,
2018
 December 31,
2017
 September 30,
2017
 June 30,
2017
 March 31,
2017
Retail consumer loans:         
One-to-four family$670,036  $686,229  $684,956  $684,089  $683,383 
HELOCs - originated143,049  150,084  152,979  157,068  160,083 
HELOCs - purchased165,680  162,181  162,518  162,407  160,829 
Construction and land/lots68,121  60,805  54,969  50,136  46,856 
Indirect auto finance160,664  150,042  142,915  140,879  132,959 
Consumer11,317  9,699  8,814  7,900  7,729 
Total retail consumer loans1,218,867  1,219,040  1,207,151  1,202,479  1,191,839 
Commercial loans:         
Commercial real estate810,332  786,381  753,857  730,408  706,277 
Construction and development184,179  185,921  209,672  197,966  177,087 
Commercial and industrial132,337  127,709  124,722  120,387  105,299 
Municipal leases101,108  100,205  100,638  101,175  101,776 
Total commercial loans1,227,956  1,200,216  1,188,889  1,149,936  1,090,439 
Total loans2,446,823  2,419,256  2,396,040  2,352,415  2,282,278 
Deferred loan fees, net(1,068) (1,242) (1,285) (945) (593)
Total loans, net of deferred loan fees2,445,755  2,418,014  2,394,755  2,351,470  2,281,685 
Allowance for loan losses(21,472) (21,090) (21,997) (21,151) (21,097)
Loans, net$2,424,283  $2,396,924  $2,372,758  $2,330,319  $2,260,588 


          
Deposits         
          
(Dollars in thousands)March 31,
2018
 December 31,
2017
 September 30,
2017
 June 30,
2017
 March 31,
2017
Core deposits:         
Noninterest-bearing accounts$303,875  $313,493  $304,144  $310,172  $301,654 
NOW accounts496,934  489,668  464,992  469,377  480,405 
Money market accounts659,791  638,259  642,351  569,607  564,195 
Savings accounts220,497  224,732  230,944  237,149  249,330 
Total core deposits1,681,097  1,666,152  1,642,431  1,586,305  1,595,584 
Certificates of deposit499,227  442,056  457,879  462,146  489,175 
Total$2,180,324  $2,108,208  $2,100,310  $2,048,451  $2,084,759 

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 Nine Months Ended
(Dollars in thousands) March 31, December 31, March 31, March 31, March 31,
  2018 2017 2017 2018 2017
Noninterest expense $21,321  $21,175  $28,812  $63,577  $68,423 
Less merger-related expenses     7,401    7,736 
Noninterest expense – as adjusted $21,321  $21,175  $21,411  $63,577  $60,687 
           
Net interest income $25,229  $25,230  $25,072  $75,040  $66,624 
Plus noninterest income 4,926  4,787  3,689  14,290  11,872 
Plus tax equivalent adjustment 406  378  611  1,169  1,775 
Less gain on sale of premises and equipment       164  385 
Net interest income plus noninterest income – as adjusted $30,561  $30,395  $29,372  $90,335  $79,886 
Efficiency ratio 69.77% 69.67% 72.90% 70.38% 75.97%
Efficiency ratio (without adjustments) 70.70% 70.54% 100.18% 71.17% 87.17%

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) March 31, December 31, September 30, June 30, March 31,
  2018 2017 2017 2017 2017
Total stockholders' equity $401,553  $395,361  $405,499  $397,647  $390,746 
Less: goodwill, core deposit intangibles, net of deferred taxes 29,589  30,083  29,704  30,157  30,635 
Tangible book value $371,964  $365,278  $375,795  $367,490  $360,111 
Common shares outstanding 19,034,868  18,967,175  18,968,675  18,967,875  18,947,176 
Tangible book value per share $19.54  $19.26  $19.81  $19.37  $19.01 
Book value per share $21.10  $20.84  $21.38  $20.96  $20.62 

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

   
  At or For the Three Months Ended
  March 31, December 31, September 30, June 30, March 31,
  2018 2017 2017 2017 2017
  (Dollars in thousands)
Tangible equity(1) $371,964  $365,278  $375,795  $367,490  $360,111 
Total assets 3,270,863  3,250,588  3,249,998  3,206,533  3,165,446 
Less: goodwill, core deposit intangibles, net of deferred taxes 29,589  30,083  29,704  30,157  30,635 
Total tangible assets(2) $3,241,274  $3,220,505  $3,220,294  $3,176,376  $3,134,811 
Tangible equity to tangible assets 11.48% 11.34% 11.67% 11.57% 11.49%

_________________________________
(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 March 31,
 2018 2017
 Average
Balance
Outstanding
 Interest
Earned /
Paid
 Yield/ Rate Average
Balance
Outstanding
 Interest
Earned/
Paid
 Yield/ Rate
Interest-earning assets$2,978,299  $29,671  3.99% $2,834,362  $27,902  3.94%
Less: Interest-earning assets funded by additional FHLB borrowings (1)200,000  1,044  2.09% 292,000  886  1.21%
Interest-earning assets - adjusted$2,778,299  $28,627  4.12% $2,542,362  $27,016  4.25%
            
Interest-bearing liabilities$2,467,383  $4,036  0.65% $2,367,897  $2,219  0.38%
Additional FHLB borrowings200,000  728  1.46% 292,000  485  0.66%
Interest-bearing liabilities - adjusted$2,267,383  $3,308  0.58% $2,075,897  $1,734  0.33%
            
Tax equivalent net interest income and net interest margin  $25,635  3.44%   $25,683  3.62%
Tax equivalent net interest income and net interest margin - adjusted  25,319  3.65%   25,282  3.98%
Difference  $316  (0.21)%   $401  (0.36)%


  
 Nine Months Ended March 31,
 2018 2017
 Average
Balance
Outstanding
 Interest
Earned /
Paid
 Yield/ Rate Average
Balance
Outstanding
 Interest
Earned /
Paid
 Yield/ Rate
Interest-earning assets$2,957,171  $87,178  3.93% $2,627,696  $73,920  3.75%
Less: Interest-earning assets funded by additional FHLB borrowings (1)233,333  3,068  1.75% 342,333  2,793  1.09%
Interest-earning assets - adjusted$2,723,838  $84,110  4.12% $2,285,363  $71,127  4.15%
            
Interest-bearing liabilities$2,451,997  $10,969  0.60% $2,183,363  $5,521  0.34%
Less: Additional FHLB borrowings233,333  2,233  1.28% 342,333  1,273  0.50%
Interest-bearing liabilities - adjusted$2,218,664  $8,736  0.53% $1,841,030  $4,248  0.31%
            
Tax equivalent net interest income and net interest margin  $76,209  3.44%   $68,399  3.47%
Tax equivalent net interest income and net interest margin - adjusted  75,374  3.69%   66,879  3.90%
Difference  $835  (0.25)%   $1,520  (0.43)%

_________________________________
(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 Nine Months Ended
(Dollars in thousands, except per share data) March 31, December 31, March 31, March 31, March 31,
  2018 2017 2017 2018 2017
Merger-related expenses $  $  $7,401  $  $7,736 
State tax expense adjustment (1)       133  490 
Change in federal tax law adjustment (2) 318  17,693    18,011   
Gain from sale of premises and equipment       (164) (385)
Total adjustments 318  17,693  7,401  17,980  7,841 
Tax effect (3)     (2,670) 49  (2,621)
Total adjustments, net of tax 318  17,693  4,731  18,029  5,220 
           
Net income (loss) (GAAP) 6,127  (10,666) 274  1,028  7,081 
           
Net income (non-GAAP) $6,445  $7,027  $5,005  $19,057  $12,301 
           
Per Share Data          
Average shares outstanding - basic 18,052,000  17,975,883  17,808,920  17,997,997  17,194,466 
Average shares outstanding - diluted 18,761,586  17,975,883  18,396,154  18,688,486  17,728,783 
Average shares outstanding - diluted (adjusted) (4) 18,761,586  18,689,894  18,396,154  18,688,486  17,728,783 
           
Basic EPS          
EPS (GAAP) $0.34  $(0.59) $0.01  $0.06  $0.40 
Non-GAAP adjustment 0.02  0.98  0.26  1.00  0.29 
EPS (non-GAAP) $0.36  $0.39  $0.27  $1.06  $0.69 
           
Diluted EPS          
EPS (GAAP) $0.32  $(0.59) $0.01  $0.06  $0.40 
Non-GAAP adjustment 0.02  0.97  0.26  0.96  0.29 
EPS (non-GAAP) $0.34  $0.38  $0.27  $1.02  $0.69 
           
Average Balances          
Average assets $3,237,689  $3,249,632  $3,117,490  $3,228,402  $2,882,487 
Average equity 398,174  405,993  385,317  401,863  371,118 
           
ROA          
ROA (GAAP) 0.76% (1.31)% 0.04% 0.04% 0.33%
Non-GAAP adjustment 0.04% 2.17% 0.60% 0.75% 0.24%
ROA (non-GAAP) 0.80% 0.86% 0.64% 0.79% 0.57%
           
ROE          
ROE (GAAP) 6.16% (10.51)% 0.28% 0.34% 2.54%
Non-GAAP adjustment 0.31% 17.43% 4.92% 5.98% 1.88%
ROE (non-GAAP) 6.47% 6.92% 5.20% 6.32% 4.42%

_________________________________
(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 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) March 31, December 31, September 30, June 30, March 31,
  2018 2017 2017 2017 2017
Total gross loans receivable (GAAP) $2,446,823  $2,419,256  $2,396,040  $2,352,415  $2,282,278 
Less: acquired loans 288,847  311,508  338,933  374,538  403,971 
Adjusted loans (non-GAAP) $2,157,976  $2,107,748  $2,057,107  $1,977,877  $1,878,307 
           
Allowance for loan losses (GAAP) $21,472  $21,090  $21,997  $21,151  $21,097 
Less: allowance for loan losses on acquired loans 459  566  1,197  727  474 
Adjusted allowance for loan losses $21,013  $20,524  $20,800  $20,424  $20,623 
Adjusted allowance for loan losses / Adjusted loans (non-GAAP) 0.97% 0.97% 1.01% 1.03% 1.10%

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Source: HomeTrust Bancshares, Inc.