The leading factors in the decrease of net income for the three- and nine-month periods ended March 31, 2015 was an increase in merger expenses related to the acquisitions of Jefferson Bancshares, Inc. (“Jefferson”), Bank of Commerce and ten branch banking operations from Bank of America (the “Branch Acquisition”) and the recovery of loan losses that occurred in prior periods. Merger expenses totaled $1.7 million and $5.4 million, for the three and nine-month periods ended March 31, 2015, respectively. In addition, the Company did not have the benefit in the current fiscal year from the recovery of loan losses that totaled $1.8 million and $4.8 million for the three- and nine-month periods ended March 31, 2014, respectively. Therefore, earnings before merger expenses and recovery of loan losses for the three- and nine-month periods ended March 31, 2015 were $2.2 million and $8.7 million compared to $1.8 million and $6.4 million for the comparative periods in 2014.
The recent acquisitions continue to drive increases in net interest income, noninterest income and noninterest expense. For the quarter ended March 31, 2015, net interest income increased $7.0 million, or 53.6% and noninterest income increased $1.3 million, or 63.6% over the comparative period in 2014. Noninterest expense (excluding merger-related expenses) also increased $7.4 million, or 57.1% over the same period last year. On a basic and diluted per share basis, the Company earned $0.06 and $0.14 per share for the three months ended March 31, 2015 and 2014, respectively, and $0.28 and $0.46 per share for the nine months ended March 31, 2015 and 2014, respectively. Excluding merger-related expenses and the recovery for loan losses, the Company’s diluted earnings per share increased 20.0% to $0.12 from $0.10 per share for the three months ended March 31, 2015 and increased 32.4% to $0.45 from $0.34 per share for the nine months ended March 31, 2015 from the comparative periods in 2014.
“As expected, recent merger and acquisition costs have reduced earnings in the short term; however, we have built the infrastructure to support growth in all lines of business while expanding into larger attractive markets. The communities we serve in our expanded geographic footprint are showing signs of economic strength and we are poised and ready for organic growth without additional increases in overhead,” said Dana Stonestreet, Chairman, President, and CEO.
Income Statement Review
Net interest income was $20.2 million for the three months ended March 31, 2015 compared to $13.1 million for the three months ended March 31, 2014. The $7.1 million or 53.6%, increase was a direct result of a $7.1 million increase in interest income as average interest-earning assets increased $882.3 million mainly through recent acquisitions to $2.4 billion for the quarter ended March 31, 2015 compared to the same period in 2014. Loan yields have remained relatively flat as decreases in market rates have been more than offset by accretion of purchase discounts on acquired loans, which totaled $1.4 million for the quarter.
Net interest margin (on a fully taxable-equivalent basis) for the three months ended March 31, 2015 decreased 23 basis points over the same period last year from 3.75% to 3.52% as a result of increasing average short-term Federal Home Loan Bank (“FHLB”) borrowings by $247.8 million. Management made a strategic decision to leverage FHLB borrowings beginning in November 2014 to generate additional net interest income with the proceeds, as well as dividend income from the required purchase of additional FHLB stock. The borrowings with an average cost of 0.21% were invested in various short-term assets (including the additional FHLB stock) with an average yield of 0.59%, which generated approximately $239,000 in net interest income during the quarter. Excluding the effect of these additional borrowings, net interest margin was 3.90%.
Net interest income was $59.0 million for the nine months ended March 31, 2015 compared to $40.3 million for the nine months ended March 31, 2014. The $18.7 million, or 46.3% increase was a direct result of an $18.5 million increase in interest income as average interest-earning assets increased $679.2 million from recent acquisitions to $2.2 billion for the nine months ended March 31, 2015 compared to the same period in 2014. Loan yields have remained relatively flat as decreases in market rates have been more than offset by accretion of purchase discounts on acquired loans, which totaled $3.7 million for the year to date period.
Net interest margin (on a fully taxable-equivalent basis) for the nine months ended March 31, 2015 decreased six basis points over the same period last year from 3.79% to 3.73%. Excluding the effects of the leverage strategy discussed above for the nine months ended March 31, 2015, which generated an additional $278,000 in net interest income, net interest margin was 3.97%.
Noninterest income increased $1.3 million, or 63.6%, to $3.3 million for the third quarter of fiscal 2015 from $2.0 million for the third quarter of fiscal 2014, primarily due to a $1.1 million, or 179.4%, increase in service charges on core deposit accounts due to the growth in the number of our deposit accounts from recent acquisitions. Noninterest expense for the quarter ended March 31, 2015 increased $8.6 million, or 64.4%, to $22.0 million compared to $13.4 million for the quarter ended March 31, 2014. This increase was primarily related to a $3.1 million increase in salaries and employee benefits, a $1.2 million increase in merger-related expenses, a $1.1 million increase in net occupancy expense, and an $811,000 increase in amortization of core deposit intangibles, all of which were primarily related to our recent acquisitions. These increases in noninterest expense were partially offset by a $443,000 decrease in real estate owned (“REO”) related expenses for the quarter ended March 31, 2015 compared to the same period last year reflecting the reduction in the number of REO properties held by us and improvement in the real estate markets.
Noninterest income increased $2.4 million, or 36.1%, to $8.9 million for the nine months ended March 31, 2015 from $6.5 million for the nine months ended March 31, 2014, primarily due to a $2.2 million, or 110.4%, increase in service charges on core deposit accounts due to the increase in deposit accounts from our recent acquisitions. Noninterest expense for the nine months ended March 31, 2015 increased $22.0 million, or 57.1%, to $60.7 million compared to $38.6 million for the nine months ended March 31, 2014. This increase was primarily related to a $8.3 million increase in salaries and employee benefits, a $4.7 million increase in merger-related expenses, a $2.5 million increase in net occupancy expense, and a $1.6 million increase in amortization of core deposit intangibles, all of which were primarily related to our recent acquisitions. These increases in other expenses were partially offset by a $917,000 decrease in REO related expenses for the nine months ended March 31, 2015 compared to the same period last year.
The Company’s income tax expense was $314,000 for the three months ended March 31, 2015, a decrease of $653,000 compared to $967,000 income tax expense for the three months ended March 31, 2014. The decrease was primarily due to lower taxable income. The Company’s effective income tax rate for the quarter ended March 31, 2015 was 21.3%.
For the nine months ended March 31, 2015, the Company’s income tax expense was $2.0 million, compared to an expense of $4.2 million for the nine months ended March 31, 2014. This decrease was due to lower income before taxes, as well as a nonrecurring $962,000 charge incurred in the first quarter of fiscal 2014 related to the decline in value of our deferred tax assets based on decreases in North Carolina’s state corporate tax rates. Beginning January 1, 2014, North Carolina’s corporate tax rate was reduced from 6.9% to 6.0% and to 5.0% in 2015 with additional reductions to 3.0% in 2017 possible in the event certain state revenue triggers are achieved. The Company’s effective income tax rate for the nine months ended March 31, 2015 was 26.8%.
Balance Sheet Review
Total assets increased $534.2 million, or 25.8%, to $2.6 billion at March 31, 2015 from $2.1 billion at June 30, 2014. This increase was largely due to recent acquisitions this fiscal year as well as proceeds from the additional FHLB borrowings. Net loans receivable increased $145.3 million, or 9.9%, at March 31, 2015 to $1.6 billion from $1.5 billion at June 30, 2014, primarily due to $86.2 million in loans acquired from Bank of Commerce, $40.9 million in home equity lines of credit purchased in December 2014, and $315.2 million portfolio loan originations, that were partially offset by unusually high payoffs for the quarter relating to the assimilation and transition of newly acquired portfolios.
For the three- and nine- month periods ended March 31, 2015, the retail loan segment saw portfolio volume increase from $38.7 million to $54.5 million, or 40.6% and from $108.5 million to $161.5 million, or 48.9%, respectively, compared to the same period in the previous year. For the three- and nine- month periods ended March 31, 2015, the commercial loan segment saw portfolio volume increase from $25.6 million to $48.9 million, or 90.8% and from $60.4 million to $153.7 million, or 154.3%, respectively, compared to the same period in the previous year. For the three- and nine- month periods ended March 31, 2015, our loans held for sale had a volume increase from $10.8 million to $15.2 million, or 40.5% and a decrease from $55.8 million to $47.4 million, or 15.1%, respectively, compared to the same period in the previous year.
Interest-earning deposits increased $227.6 million to $253.7 million at March 31, 2015 from $26.0 million at June 30, 2014, as funds received from the Branch Acquisition and FHLB borrowings were invested in short-term interest-bearing accounts. Certificates of deposit in other banks increased $40.8 million, or 24.9%, to $204.6 million at March 31, 2015 from $163.8 million at June 30, 2014 as a result of additional purchases during the period. Securities available for sale increased $61.8 million, or 36.6%, primarily due to investments acquired in the Bank of Commerce acquisition. We also recorded $4.0 million of goodwill and $640,000 of core deposit intangibles in connection with the Bank of Commerce acquisition and $8.1 million of core deposit intangibles in connection with the Branch Acquisition.
Total deposits increased $330.7 million, or 20.9%, to $1.9 billion at March 31, 2015 from $1.6 billion at June 30, 2014. This increase was primarily due to the Branch Acquisition which increased total deposits by $328.9 million. Other borrowings increased to $250.0 million at March 31, 2015 from $50.0 million at June 30, 2014 primarily as a result of a $200.0 million increase in short-term FHLB advances with an average rate of 0.21% in connection with the leverage strategy discussed above.
Stockholders’ equity at March 31, 2015 increased to $381.9 million from $377.2 million at June 30, 2014. The increase in stockholders’ equity primarily reflected a $5.5 million increase in retained earnings as a result of the net income from the nine months ended March 31, 2015 partially offset by the repurchase of 302,195 shares of common stock at an average cost of $15.64 per share, or approximately $4.7 million in total. As of March 31, 2015, HomeTrust Bank, N.A. 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 14.56%, 14.56%, 15.77%, and 10.52%, respectively. As of June 30, 2014, Tier 1 Risk-Based, Total Risk-Based, and Tier 1 Leverage capital ratios were 20.87%, 22.12%, and 18.03%, respectively. In addition, the Company was categorized as “well capitalized” at March 31, 2015 under applicable regulatory guidelines.
Asset Quality
The allowance for loan losses was $22.7 million, or 1.38% of total loans, at March 31, 2015 compared to $23.4 million, or 1.56% of total loans, at June 30, 2014. The allowance for loan losses was 1.72% of total loans at March 31, 2015, excluding acquired loans.
There was no provision for losses on loans for the three months ended March 31, 2015 compared to a $1.8 million recovery for loan losses for the comparative period in 2014. Net loan charge-offs totaled $675,000 for the three months ended March 31, 2015 in comparison to $56,000 in net charge-off for the same period during the prior fiscal year. Net charge-offs as a percentage of average loans increased to 0.16% for the quarter ended March 31, 2015 from 0.02% for the same period last fiscal year.
The recovery for loan losses was $250,000 for the nine months ended March 31, 2015 compared to a $4.8 million recovery for loan losses for the same period in 2014. Net loan charge-offs decreased to $498,000 for the nine months ended March 31, 2015 from $2.0 million for the same period during the prior fiscal year. Net charge-offs as a percentage of average loans decreased to 0.04% for the nine months ended March 31, 2015 from 0.22% for the same period last fiscal year.
Nonperforming assets decreased 26.5% to $39.5 million, or 1.51% of total assets, at March 31, 2015, compared to $53.6 million, or 2.59% of total assets, at June 30, 2014. Nonperforming assets included $30.9 million in nonaccruing loans and $8.6 million in REO at March 31, 2015, compared to $37.9 million and $15.7 million, in nonaccruing loans and REO, respectively, at June 30, 2014. Included in nonperforming loans are $10.4 million of loans restructured from their original terms of which $6.2 million were current with respect to their modified payment terms. The decrease in nonaccruing loans was primarily due to loans returning to performing status as payment history and the borrower’s financial status improved. At March 31, 2015, $14.9 million, or 48.1%, of nonaccruing loans were current on their required loan payments. Purchased impaired loans aggregating $10.4 million acquired from BankGreenville, Jefferson, and Bank of Commerce are excluded from nonaccruing loans due to the accretion of discounts established in accordance with the acquisition method of accounting for business combinations.
The ratio of classified assets to total assets decreased to 3.51% at March 31, 2015 from 4.56% at June 30, 2014. Classified assets decreased 3.5% to $91.7 million at March 31, 2015 compared to $94.7 million at June 30, 2014.
About HomeTrust Bancshares, Inc.
HomeTrust Bancshares, Inc. is the holding company for HomeTrust Bank, N.A. As of March 31, 2015, the Company had assets of $2.6 billion. The Bank, founded in 1926, is a nationally chartered, community-focused financial institution committed to providing value added community banking through its 45 locations in North Carolina (including the Asheville metropolitan area, the “Piedmont” region, Charlotte, and a loan production office in Raleigh), Upstate South Carolina (Greenville), East Tennessee (including Kingsport/Johnson City, Knoxville, and Morristown) and Southwest Virginia (including the Roanoke Valley). The Bank is the 5th 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 recent 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 filings with 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 presentation or our SEC filings 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 illustrated 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 2015 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
