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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): April 26, 2018

HOMETRUST BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
 
Maryland
 
001-35593
 
45-5055422
(State or other jurisdiction of incorporation)
 
(Commission File No.)
 
(IRS Employer Identification Number)

10 Woodfin Street, Asheville, North Carolina
 
 
 
28801
(Address of principal executive offices)
 
 
 
(Zip Code)

Registrant's telephone number, including area code: (828) 259-3939

 
 
Not Applicable
 
 
 
(Former name or former address, if changed since last report)
 


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[ ]
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ]
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ]
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ]
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))


Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company
[X]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
[ ]





Item 2.02.  Results of Operations and Financial Condition
 
On April 26, 2018, HomeTrust Bancshares, Inc., the holding company for HomeTrust Bank, issued a press release reporting third quarter 2018 financial results.  A copy of the press release, including unaudited financial information released as a part thereof, is attached as Exhibit 99.1 to this Current Report on Form 8-K and incorporated by reference herein.
 
Item 9.01  Financial Statements and Exhibits
 
(d)           Exhibits
 
Press release dated April 26, 2018





SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

HOMETRUST BANCSHARES, INC.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Date: April 26, 2018
 
By:
/s/ Tony J. VunCannon
 
 
 
Tony J. VunCannon
 
 
 
Executive Vice President, Chief Financial Officer, and Treasurer





EXHIBIT INDEX

Exhibit No.
Description
 
 



Exhibit


https://cdn.kscope.io/ad484770aff0b06503609eda8423125e-htbiimagea12.jpg
HomeTrust Bancshares, Inc. Reports Financial Results For The Third Quarter Of Fiscal 2018

ASHEVILLE, N.C., April 26, 2018 – 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

1


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

2


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

3


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.


4


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

5


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 deposits
41,296

 
51,922

 
40,809

 
45,003

 
43,296

Cash and cash equivalents
79,396

 
98,665

 
78,971

 
86,985

 
80,274

Commercial paper
239,435

 
199,722

 
199,774

 
149,863

 
169,918

Certificates of deposit in other banks
84,218

 
100,349

 
110,454

 
132,274

 
138,646

Securities available for sale, at fair value
160,971

 
167,669

 
182,053

 
199,667

 
211,347

Other investments, at cost
36,783

 
38,877

 
38,651

 
39,355

 
35,269

Loans held for sale
6,071

 
7,072

 
7,793

 
5,607

 
4,328

Total loans, net of deferred loan fees
2,445,755

 
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 loans
2,424,283

 
2,396,924

 
2,372,758

 
2,330,319

 
2,260,588

Premises and equipment, net
62,725

 
62,435

 
62,614

 
63,648

 
64,172

Accrued interest receivable
9,216

 
9,371

 
9,340

 
8,758

 
8,849

Real estate owned ("REO")
5,053

 
4,818

 
5,941

 
6,318

 
6,279

Deferred income taxes
34,311

 
36,526

 
55,653

 
57,387

 
59,661

Bank owned life insurance ("BOLI")
87,532

 
86,984

 
86,561

 
85,981

 
85,371

Goodwill
25,638

 
25,638

 
25,638

 
25,638

 
25,638

Core deposit intangibles
5,131

 
5,773

 
6,454

 
7,173

 
7,931

Other assets
10,100

 
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

Borrowings
625,000

 
685,000

 
679,800

 
696,500

 
626,000

Capital lease obligations
1,920

 
1,925

 
1,931

 
1,937

 
1,942

Other liabilities
62,066

 
60,094

 
62,458

 
61,998

 
61,999

Total liabilities
2,869,310

 
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 capital
216,712

 
215,928

 
214,827

 
213,459

 
211,731

Retained earnings
193,368

 
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' equity
401,553

 
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.

6


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 sale
916

 
904

 
1,243

 
2,791

 
2,986

Certificates of deposit and other interest-bearing deposits
1,498

 
1,303

 
868

 
3,970

 
2,850

Other investments
496

 
501

 
433

 
1,503

 
1,211

Total interest and dividend income
29,265

 
28,848

 
27,291

 
86,009

 
72,145

Interest Expense
 
 
 
 
 
 
 

 
 

Deposits
1,622

 
1,541

 
1,215

 
4,509

 
3,355

Borrowings
2,414

 
2,077

 
1,004

 
6,460

 
2,166

Total interest expense
4,036

 
3,618

 
2,219

 
10,969

 
5,521

Net Interest Income
25,229

 
25,230

 
25,072

 
75,040

 
66,624

Provision for Loan Losses
—

 
—

 
—

 
—

 
—

Net Interest Income after Provision for Loan Losses
25,229

 
25,230

 
25,072

 
75,040

 
66,624

Noninterest Income
 
 
 
 
 
 
 

 
 

Service charges and fees on deposit accounts
2,202

 
2,185

 
1,869

 
6,426

 
5,670

Loan income and fees
1,410

 
1,361

 
781

 
3,873

 
2,694

BOLI income
536

 
518

 
511

 
1,616

 
1,576

Gain from sale of premises and equipment
—

 
—

 
—

 
164

 
385

Other, net
778

 
723

 
528

 
2,211

 
1,547

Total noninterest income
4,926

 
4,787

 
3,689

 
14,290

 
11,872

Noninterest Expense
 
 
 
 
 
 
 

 
 

Salaries and employee benefits
11,927

 
11,973

 
12,191

 
36,252

 
34,721

Net occupancy expense
2,389

 
2,473

 
2,463

 
7,211

 
6,538

Marketing and advertising
334

 
319

 
374

 
1,106

 
1,263

Telephone, postage, and supplies
748

 
748

 
728

 
2,181

 
1,914

Deposit insurance premiums
413

 
419

 
404

 
1,246

 
885

Computer services
1,600

 
1,595

 
1,721

 
4,740

 
4,796

Loss (gain) on sale and impairment of REO
194

 
104

 
(181
)
 
152

 
288

REO expense
311

 
205

 
447

 
757

 
969

Core deposit intangible amortization
642

 
681

 
797

 
2,042

 
2,065

Merger-related expenses
—

 
—

 
7,401

 
—

 
7,736

Other
2,763

 
2,658

 
2,467

 
7,890

 
7,248

Total noninterest expense
21,321

 
21,175

 
28,812

 
63,577

 
68,423

Income (Loss) Before Income Taxes
8,834

 
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

 
 
 
 
 


7


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.

8


 
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 assets
1.29

 
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 loans
0.88

 
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 period
12.28
 %
 
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 assets
12.30

 
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.


9


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 institutions
126,933

 
441

 
1.39
%
 
175,475

 
454

 
1.04
%
Investment securities
165,219

 
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 assets
2,978,299

 
29,671

 
3.99
%
 
2,834,362

 
27,902

 
3.94
%
Other assets
259,390

 
 
 
 
 
283,128

 
 
 
 
Total assets
3,237,689

 
 
 
 
 
3,117,490

 
 
 
 
Liabilities and equity:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing checking accounts
480,650

 
236

 
0.20
%
 
447,426

 
216

 
0.19
%
Money market accounts
657,214

 
633

 
0.39
%
 
562,286

 
336

 
0.24
%
Savings accounts
221,214

 
72

 
0.13
%
 
251,448

 
87

 
0.14
%
Certificate accounts
445,328

 
681

 
0.61
%
 
501,016

 
576

 
0.46
%
Total interest-bearing deposits
1,804,406

 
1,622

 
0.36
%
 
1,762,176

 
1,215

 
0.28
%
Borrowings
662,977

 
2,414

 
1.46
%
 
605,721

 
1,004

 
0.66
%
  Total interest-bearing liabilities
2,467,383

 
4,036

 
0.65
%
 
2,367,897

 
2,219

 
0.38
%
Noninterest-bearing deposits
308,955

 
 
 
 
 
297,719

 
 
 
 
Other liabilities
63,177

 
 
 
 
 
66,557

 
 
 
 
Total liabilities
2,839,515

 
 
 
 
 
2,732,173

 
 
 
 
Stockholders' equity
398,174

 
 
 
 
 
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.


10


 
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 institutions
145,761

 
1,494

 
1.37
%
 
181,770

 
1,429

 
1.05
%
Investment securities
176,726

 
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 assets
2,957,171

 
87,178

 
3.93
%
 
2,627,696

 
73,920

 
3.75
%
Other assets
271,231

 
 
 
 
 
254,791

 
 
 
 
Total assets
$
3,228,402

 
 
 
 
 
$
2,882,487

 
 
 
 
Liabilities and equity:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing checking accounts
471,618

 
688

 
0.19
%
 
418,654

 
561

 
0.18
%
Money market accounts
635,645

 
1,695

 
0.36
%
 
532,998

 
1,034

 
0.26
%
Savings accounts
227,413

 
225

 
0.13
%
 
223,749

 
227

 
0.14
%
Certificate accounts
447,950

 
1,901

 
0.57
%
 
446,315

 
1,533

 
0.46
%
Total interest-bearing deposits
1,782,626

 
4,509

 
0.34
%
 
1,621,716

 
3,355

 
0.28
%
Borrowings
669,371

 
6,460

 
1.29
%
 
561,647

 
2,166

 
0.51
%
  Total interest-bearing liabilities
2,451,997

 
10,969

 
0.60
%
 
2,183,363

 
5,521

 
0.34
%
Noninterest-bearing deposits
309,162

 
 
 
 
 
263,382

 
 
 
 
Other liabilities
65,380

 
 
 
 
 
64,624

 
 
 
 
Total liabilities
2,826,539

 
 
 
 
 
2,511,369

 
 
 
 
Stockholders' equity
401,863

 
 
 
 
 
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.


11


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 - originated
143,049

 
150,084

 
152,979

 
157,068

 
160,083

     HELOCs - purchased
165,680

 
162,181

 
162,518

 
162,407

 
160,829

     Construction and land/lots
68,121

 
60,805

 
54,969

 
50,136

 
46,856

     Indirect auto finance
160,664

 
150,042

 
142,915

 
140,879

 
132,959

     Consumer
11,317

 
9,699

 
8,814

 
7,900

 
7,729

Total retail consumer loans
1,218,867

 
1,219,040

 
1,207,151

 
1,202,479

 
1,191,839

Commercial loans:
 
 
 
 
 
 
 
 
 
     Commercial real estate
810,332

 
786,381

 
753,857

 
730,408

 
706,277

     Construction and development
184,179

 
185,921

 
209,672

 
197,966

 
177,087

     Commercial and industrial
132,337

 
127,709

 
124,722

 
120,387

 
105,299

     Municipal leases
101,108

 
100,205

 
100,638

 
101,175

 
101,776

Total commercial loans
1,227,956

 
1,200,216

 
1,188,889

 
1,149,936

 
1,090,439

Total loans
2,446,823

 
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 fees
2,445,755

 
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 accounts
496,934

 
489,668

 
464,992

 
469,377

 
480,405

    Money market accounts
659,791

 
638,259

 
642,351

 
569,607

 
564,195

    Savings accounts
220,497

 
224,732

 
230,944

 
237,149

 
249,330

Total core deposits
1,681,097

 
1,666,152

 
1,642,431

 
1,586,305

 
1,595,584

Certificates of deposit
499,227

 
442,056

 
457,879

 
462,146

 
489,175

Total
$
2,180,324

 
$
2,108,208

 
$
2,100,310

 
$
2,048,451

 
$
2,084,759


12


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



13


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.


14


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 borrowings
200,000

 
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 borrowings
233,333

 
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.

15


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.

16


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
%

17