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HTBI > SEC Filings for HTBI > Form 10-Q on 14-May-2013All Recent SEC Filings

Show all filings for HOMETRUST BANCSHARES, INC. | Request a Trial to NEW EDGAR Online Pro



Quarterly Report

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Certain matters in this Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our financial condition, results of operations, plans, objectives, future performance or business. Forward-looking statements are not statements of historical fact, are based on certain assumptions and are generally identified by use of the words "believes," "expects," "anticipates," "estimates," "forecasts," "intends," "plans," "targets," "potentially," "probably," "projects," "outlook" or similar expressions or future or conditional verbs such as "may," "will," "should," "would" and "could." Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions and statements about future economic performance and projections of financial items. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from the results anticipated or implied by our forward-looking statements, including, but not limited to: the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write offs and changes in our allowance for loan losses and provision for loan losses that may be impacted by deterioration in the housing and commercial real estate markets; changes in general economic conditions, either nationally or in our market areas; changes in the levels of general interest rates, and the relative differences between short and long term interest rates, deposit interest rates, our net interest margin and funding sources; fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values in our market areas; decreases in the secondary market for the sale of loans that we originate; results of examinations of us by the Office of the Comptroller of the Currency ("OCC") or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our allowance for loan losses, write-down assets, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits, which could adversely affect our liquidity and earnings; legislative or regulatory changes that adversely affect our business including the effect of Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), changes in regulatory policies and principles, or the interpretation of regulatory capital or other rules, including as a result of Basel III; our ability to attract and retain deposits; increases in premiums for deposit insurance; management's assumptions in determining the adequacy of the allowance for loan losses; our ability to control operating costs and expenses, especially new costs associated with our operation as a public company; the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation; difficulties in reducing risks associated with the loans on our balance sheet; staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our workforce and potential associated charges; computer systems on which we depend could fail or experience a security breach; our ability to retain key members of our senior management team; costs and effects of litigation, including settlements and judgments; our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we may in the future acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; increased competitive pressures among financial services companies; changes in consumer spending, borrowing and savings habits; the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions; adverse changes in the securities markets; inability of key third-party providers to perform their obligations to us; statements with respect to our intentions regarding disclosure and other changes resulting from the Jumpstart Our Business Startups Act of 2012 ("JOBS Act"); changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies, the Public Company Accounting Oversight Board or the Financial Accounting Standards Board; and other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services; and the other risks detailed from time to time in our filings with the Securities and Exchange Commission, including our 2012 Form 10-K.

Any of the forward-looking statements are based upon management's beliefs and assumptions at the time they are made. We undertake no obligation to publicly update or revise any forward-looking statements included in this report or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this report might not occur and you should not put undue reliance on any forward-looking statements.

As used throughout this report, the terms "we", "our", "us", "HomeTrust Bancshares" or the "Company" refer to HomeTrust Bancshares, Inc. and its consolidated subsidiaries, including HomeTrust Bank ("HomeTrust") unless the context indicates otherwise.


Our principal business consists of attracting deposits from the general public and investing those funds, along with borrowed funds in loans secured primarily by first and second mortgages on one- to four-family residences, including home equity loans and construction and land/lot loans, commercial real estate loans, construction and development loans, and municipal leases.

Municipal leases are secured primarily by a ground lease for a firehouse or an equipment lease for fire trucks and firefighting equipment to fire departments located throughout North and South Carolina. We also purchase investment securities consisting primarily of mortgage-backed securities issued by United States Government agencies and government-sponsored enterprises, as well as, certificates of deposit insured by the Federal Deposit Insurance Corporation ("FDIC").

We offer a variety of deposit accounts for individuals, businesses and nonprofit organizations. Deposits are our primary source of funds for our lending and investing activities. We adopted a plan of conversion, primarily to increase our capital to grow our loan portfolio organically and through acquisitions and to continue to build our franchise.

We are significantly affected by prevailing economic conditions as well as government policies and regulations concerning, among other things, monetary and fiscal affairs, housing and financial institutions. Deposit flows are influenced by a number of factors, including interest rates paid on competing time deposits, other investments, account maturities, and the overall level of personal income and savings. Lending activities are influenced by the demand for funds, the number and quality of lenders, and regional economic cycles. Our primary source of pre-tax income is net interest income. Net interest income is the difference between interest income, which is the income that we earn on our loans and investments, and interest expense, which is the interest that we pay on our deposits and borrowings. Changes in levels of interest rates affect our net interest income. A secondary source of income is noninterest income, which includes revenue we receive from providing products and services, including service charges on deposit accounts, mortgage banking income and gains and losses from sales of securities.

Our noninterest expenses consist primarily of salaries and employee benefits, expenses for occupancy, marketing and computer services and FDIC deposit insurance premiums. Salaries and benefits consist primarily of the salaries and wages paid to our employees, payroll taxes, expenses for retirement and other employee benefits. Occupancy expenses, which are the fixed and variable costs of buildings and equipment, consist primarily of lease payments, property taxes, depreciation charges, maintenance and costs of utilities.

Weak economic conditions and ongoing strains in the financial and housing markets which accelerated in 2008 and have generally continued through the present have created an unusually challenging environment for banks and their holding companies, including us. This has been particularly evident in our need to provide for credit losses during these periods at significantly higher levels than our historical experience and has also adversely affected our net interest income and other operating revenues and expenses. Our provision for loan losses reflects material levels of delinquencies, non-performing loans and net charge-offs, particularly for loans for the construction of one- to four-family homes and for the acquisition and development of land for residential properties. For most of the past four years, housing markets remained weak in many of our primary market areas, resulting in elevated levels of delinquencies and non-performing assets, deterioration in property values, particularly for residential land and building lots, and the need to provide for realized and anticipated losses. Recently, however, during the nine months ended March 31, 2013, our provision for loan losses has decreased due to lower net loan charge-offs, decreasing net loans receivable, and stabilizing real estate values. As a result of these factors, for the three and nine months ended March 31, 2013 we had net income of $2.6 and $6.0 million, respectively, as compared to net income of $2.0 million and $3.1 million for the three and nine months ended March 31, 2012, respectively.

We currently have 20 banking offices serving nine counties in Western North Carolina, including the Asheville metropolitan area, and the "Piedmont" region of North Carolina. Although we intend to expand primarily through organic growth, we will continue to explore opportunities to expand our unique "HomeTrust Banking Partnership" through the acquisition of other financial institutions and/or bank branches such as our pending acquisition of BankGreenville. Our goal is to continue to enhance our franchise value and earnings through strategic, planned growth in our banking operations, while maintaining the community-focused, relationship style of exceptional customer service that has differentiated our brand and characterized our success to date.

Critical Accounting Policies and Estimates

Certain of our accounting policies are important to the portrayal of our financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances. Facts and circumstances which could affect these judgments include, but are not limited to, changes in interest rates, changes in the performance of the economy and changes in the financial condition of borrowers.

On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an "emerging growth company" we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We intend to take advantage of the benefits of this extended transition period, although we have not done so to date.

Accordingly, our financial statements may not be comparable to companies that comply with such new or revised accounting standards.

The following represent our critical accounting policies:

Allowance for Loan Losses. The allowance for loan losses is the amount estimated by management as necessary to cover losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses, which is charged to income. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Among the material estimates required to establish the allowance are:
loss exposure at default; the amount and timing of future cash flows on impaired loans; value of collateral; and determination of loss factors to be applied to the various elements of the portfolio. All of these estimates are susceptible to significant change. Management reviews the level of the allowance quarterly and establishes the provision for loan losses based upon an evaluation of the portfolio, past loss experience, current economic conditions and other factors related to the collectability of the loan portfolio. Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if economic or other conditions differ substantially from the assumptions used in making the evaluation. In addition, bank regulators, as an integral part of their examination process, periodically review our allowance for loan losses and may require us to recognize adjustments to the allowance based on their judgments about information available to them at the time of their examination. A large loss could deplete the allowance and require increased provisions to replenish the allowance, which would adversely affect earnings.

Business Combinations. We use the acquisition method of accounting for all business combinations. The acquisition method of accounting requires us as acquirer to recognize the fair value of assets acquired and liabilities assumed at the acquisition date as well as recognize goodwill or a gain from a bargain purchase, if appropriate. In addition, prior to our Conversion, we recognized the fair value of the acquired institution's equity as a separate component to equity capital on the balance sheet as required for business combinations of mutual institutions. Any acquisition-related costs and restructuring costs are recognized as period expenses as incurred.

Real Estate Owned ("REO"). REO represents real estate acquired as a result of customers' loan defaults. At the time of foreclosure, REO is recorded at the fair value less costs to sell, which becomes the property's new basis. Any write-downs based on the asset's fair value at the date of acquisition are charged to the allowance for loan and lease losses. After foreclosure, management periodically performs valuations such that the real estate is carried at the lower of its new cost basis or fair value, net of estimated costs to sell. Revenue and expenses from operations and subsequent valuation adjustments to the carrying amount of the property are included in non-interest expense in the consolidated statements of income. In some instances, we may make loans to facilitate the sales of other real estate owned. Management reviews all sales for which it is the lending institution for compliance with sales treatment under provisions established by ASC Topic 360, "Accounting for Sales of Real Estate". Any gains related to sales of REO may be deferred until the buyer has a sufficient initial and continuing investment in the property.

Post Retirement Plan Assumptions. We have various post retirement plans for the benefit of our directors, executive officers and employees. For some of these plans, the computations include assumptions with regard to discount rates and expected rates of return, which are used to calculate benefit expense and the accrued benefit plan obligation. Changes in management's assumptions can materially affect amounts recognized in our Consolidated Financial Statements.

Deferred Tax Assets. We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred tax asset will not be realized. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These judgments require us to make projections of future taxable income. The judgments and estimates we make in determining our deferred tax assets, which are inherently subjective, are reviewed on a continual basis as regulatory and business factors change. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets.

Comparison of Financial Condition at March 31, 2013 and June 30, 2012

Assets. Total assets decreased $123.9 million or 7.2% to $1.60 billion at March 31, 2013 from $1.72 billion at June 30, 2012 primarily due to the refunding of $76.0 million in funds held on deposit for orders to purchase shares of the Company's common stock in the Conversion and a $55.3 million decrease in net loans.

Cash and cash equivalents. Total cash and cash equivalents, primarily excess cash deposited with the Federal Reserve Bank of Richmond, decreased $93.0 million, or 41.4%, to $131.8 million at March 31, 2013 from $224.8 million at June 30, 2012. The decrease was primarily attributable to the refunding of excess orders to purchase shares of the Company's common stock upon completion of the Conversion and an increase in certificates of deposit in other banks. As a part of the Company's liquidity strategy, the Company invests a portion of its excess cash in certificates of deposit in other banks which have a higher yield than cash held in interest-earning accounts in order to maximize earnings. All of the certificates of deposit in other banks are fully insured under the FDIC. At March 31, 2013, certificates of deposits in other banks totaled $132.3 million compared to $108.0 million at June 30, 2012. The Company has been maintaining a higher liquidity position consistent with the Company's strategy of managing credit and liquidity risk.

Loans. Net loans decreased $55.3 million, or 4.6%, to $1.14 billion at March 31, 2013 compared to $1.19 billion at June 30, 2012 as new loan originations during the quarter were offset by normal loan repayments, charge-offs and foreclosures. The decrease in net loans was primarily due to a $12.2 million decrease in one-to four-family loans, a $10.3 million decrease in commercial construction and development loans, and a $9.9 million decrease in commercial real estate loans since June 30, 2012. We also continued to reduce our exposure to weaker credits as we aggressively managed problem assets. All other categories of loans also decreased during the last nine months, as demand for new loans from creditworthy borrowers was relatively weak and utilization of existing credit lines was low despite the modest recovery in the general economy. Total loan originations increased $29.1 million, or 9.1%, to $348.8 million during the nine months ended March 31, 2013 compared to $319.7 million during the nine months ended March 31, 2012.

Allowance for loan losses. Our allowance for loan losses at March 31, 2013 was $33.0 million or 2.81% of total loans, compared to $35.1 million or 2.85% of total loans at June 30, 2012. We recorded net loan charge-offs of $1.8 million and $4.4 million for the three and nine months ended March 31, 2013, respectively, as compared to $5.2 million and $27.6 million, respectively, for the same periods last year. Net loan charge-offs as a percentage of average loans also decreased significantly to 0.60% and 0.49% for the three and nine months ended March 31, 2013, respectively, from 1.60% and 2.82%, respectively, for the three and nine months ended March 31, 2012. Non-performing loans increased to $71.7 million at March 31, 2013 from $64.2 million at June 30, 2012 due primarily to two commercial real estate loans totaling $6.0 million, including a previously classified $3.4 million commercial real estate loan, and one commercial and industrial loan totaling $2.1 million which became non-performing during the nine months ended March 31, 2013. Non-performing loans to total loans increased to 6.11% at March 31, 2013 from 5.21% at June 30, 2012. At March 31, 2013, $39.1 million or 54.5% of total non-accruing loans were current on their loan payments.

The ratio of classified assets to total assets increased to 7.86% at March 31, 2013 from 7.75% at June 30, 2012. Classified assets decreased to $125.5 million at March 31, 2013, compared to $133.4 million at June 30, 2012. Delinquent loans (loans delinquent 30 days or more) declined to $38.9 million at March 31, 2013, from $44.5 million at June 30, 2012.

Investments. Securities available for sale decreased $3.5 million, to $27.8 million at March 31, 2013 compared to $31.3 million at June 30, 2012. FHLB stock decreased $4.4 million due to redemptions by the FHLB of Atlanta during the period.

Real estate owned. REO decreased $2.7 million, to $13.4 million at March 31, 2013. The total balance of REO included $5.5 million in land, construction and development projects (both residential and commercial), $2.1 million in commercial real estate and $5.8 million in single-family homes at March 31, 2013. During the nine months ended March 31, 2013, we transferred $6.2 million of loans into REO, disposed of $8.4 million of properties and recognized a net loss of $930,000 on sales and impairment adjustments.

Deposits. Deposits decreased $299.8 million or 20.4% to $1.17 billion at March 31, 2013 from $1.47 billion at June 30, 2012, primarily due to the withdrawal of $264.2 million in funds held on deposit at June 30, 2012 for orders to purchase shares of the Company's common stock. In addition, certificates of deposit decreased $66.0 million during the nine month period as a result of the managed decline of higher rate certificates of deposit, consistent with the Company's strategy to decrease the percentage of time deposits in its deposit base and to increase the percentage of lower cost checking and savings accounts.

Borrowings. Borrowings, including FHLB advances and retail repurchase agreements, decreased from $22.3 million at June 30, 2012 to none at March 31, 2013. FHLB advances decreased $15.0 million, to none at March 31, 2013 as all outstanding FHLB advances were repaid. We recognized a $3.1 million prepayment penalty, included in noninterest expense, during the nine months ended March 31, 2013, as a result of these prepayments. All other borrowings, consisting of retail repurchase agreements related to customer cash management accounts, were also repaid during the nine months ended March 31, 2013, and were retained as deposits at March 31, 2013.

Equity. Stockholders' equity at March 31, 2013 increased to $372.4 million from $172.5 million at June 30, 2012. The increase in stockholders' equity primarily reflected a $208.2 million increase in common stock and additional paid in capital due to the Company's initial stock offering consummated on July 10, 2012, and net income of $6.0 million. This increase was partially offset by $4.8 million of shares repurchased for the Company's 2013 Omnibus Incentive Plan.

Average Balances, Interest and Average Yields/Cost

The following table sets forth for the periods indicated, information regarding average balances of assets and liabilities as well as the total dollar amounts of interest income from average interest-earning assets and interest expense on average interest-bearing liabilities, resultant yields, interest rate spread, net interest margin (otherwise known as net yield on interest-earning assets), and the ratio of average interest-earning assets to average interest-bearing liabilities. All average balances are daily average balances. Non-accruing loans have been included in the table as loans carrying a zero yield.

                                                        For the Three Months Ended March 31,
                                                 2013                                          2012
                                 Average        Interest                       Average        Interest
                                 Balance         Earned/        Yield/         Balance         Earned/        Yield/
                               Outstanding       Paid(2)       Rate(2)       Outstanding       Paid(2)       Rate(2)
                                                               (Dollars in thousands)
Interest-earning assets:
 Loans receivable (1)          $  1,198,623     $  15,057           5.02 %   $  1,284,775     $  17,098           5.32 %
 Deposits in other financial
  institutions                      213,136           353           0.66 %        122,180           336           1.10 %
 Investment securities               28,219            82           1.16 %         34,036           123           1.45 %
 Other                               27,825            40           0.58 %          8,934            25           1.12 %
 Total interest-earning
assets                            1,467,803        15,532           4.23 %      1,449,925        17,582           4.85 %

 Interest-bearing checking
accounts                            185,270            50           0.11 %        159,620            78           0.20 %
 Money market accounts              265,502           216           0.33 %        258,755           330           0.51 %
 Savings accounts                    80,021            42           0.21 %         74,739            67           0.36 %
 Certificate accounts               561,160         1,335           0.95 %        682,537         1,878           1.10 %
 Borrowings                           6,811             4           0.23 %        102,418           388           1.52 %
 Total interest-bearing
liabilities                       1,098,764         1,647           0.60 %      1,278,069         2,741           0.86 %

Net earning assets             $    369,039                                  $    171,856

Average interest-earning
assets to
average interest-bearing
liabilities                          133.59 %                                      113.45 %

  Net interest income                           $  13,885                                     $  14,841
  Interest rate spread                                              3.63 %                                        3.99 %
  Net interest margin(3)                                            3.78 %                                        4.09 %

  Net interest income                           $  13,036                                     $  13,907
  Interest rate spread                                              3.40 %                                        3.73 %
  Net interest margin(3)                                            3.55 %                                        3.84 %

(1) The average loans receivable, net balances include loans held for sale and non-accruing loans.
(2) Interest income used in the average interest/earned and yield calculation includes the tax equivalent adjustment of $849,000 and $934,000 for the three months ended March 31, 2013 and 2012, respectively, calculated based on a federal tax rate of 34%.
(3) Net interest income divided by average interest-earning assets.

                                                         For the Nine Months Ended March 31,
                                                 2013                                          2012
. . .
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