Exclusive: Hometrust Bancshares Inc Execs On Acquisition Spree
Hometrust Bancshares Inc (NASDAQ: HTBI) has grown at an astonishing rate as it takes advantage of current conditions with acquisitions. According to community bank stock-picking expert, Tim Melvin, Hometrust is one of the best banks to invest in.
To better grasp Hometrust’s growth and plans to push forward, Melvin spoke with CEO Dana Stonestreet (primary speaker) and CFO Tony VunCannon on everything from financials to community involvement.
Hometrust converted to a thrift from a mutual savings bank in 2012. I have never seen a newly converted thrift grow as quickly with acquisitions as you have. Can you describe that growth?
We made it through the '80s [which was a difficult time for thrifts], joined the bank in ’89 and then in the early '90s we really started planning where we’re going in the future. We set up this idea for mutual banks merging together in order to create some size and some scale and increase our capital together to create a platform for growth.
So, we spent the '90s coming up with that plan, crafting it and executing it. Between ’96 and 2010, we actually did a total of five mutual combinations. When we converted the stock, we had a history of combining banks, consolidating the back offices, bringing the cultures together and integrating the cultures in a positive way.
So, we had a lot of experience with that, which most mutuals did not have the experience with; which set us up with an opportunity to leverage our capital by executing a growth strategy.
By doing mutual mergers we grew from $300 million in organic growth to $1.5 billion… We really had already focused on building the infrastructure for continued growth so that we could participate in consolidation of community banking that we saw coming.
Since 2008, you guys have been pretty aggressive in making acquisitions. You doubled your asset bases since 2008, making you one of a handful of banks that has actually been able to do that.
Yes, and most of that occurred in the last 24 months.
At the time of conversion, we were a $1.6 billion company and had 20 offices, and when the Bank of America branch purchase becomes effective, we will be at $2.7 billion. So, we’ve had a billion dollars of growth in 24 months.
[Tony: All of those are in markets that were attractive to us. We could have grown even faster had we chosen to.]
It’s strategic growth, it isn’t just growth for the sake of growing. We do believe that you know larger is better, if that larger is in the right market where other growth can occur.
You still have pretty healthy capital ratio, so is expansion still something you are looking to do?
Are there any specific geographic regions, or just wherever you can find the attractive banks that fit well?
I think there’s good expansion opportunities both in Greenville, Charlotte, East Tennessee, Southwest Virginia and Piedmont, North Carolina. We’re not planning on going to Florida, or Ohio, or Pennsylvania, or outside of this four state market growth.
In addition to using your capital to grow, you brought back 1.8 million shares over the last year. Are there more buy backs in the future or are we just going to concentrate on expansions?
We think that’s an important capital management tool and it will always be on the table.
The stock’s currently trading around 85 percent of book value, and you’re not really attracting a lot of Wall Street analyst coverage. Do you have any plans to reach out to them to try to increase exposure, or you just going to try to keep your head down and be bankers?
Well, we’re probably going to attend a few more of the investment conferences as time moves forward. When you look at what we’ve being doing the last 24 months, we’ve been sort of busy.
I think it’s more important to build infrastructure and get into the right markets to create growth and then for that to translate in organic and portfolio growth, revenue growth and impacting the bottom-line.
So that’s our number one focus. We feel like execution is more important than talking about what you’re going to do, but we are wanting to get our story out. We plan to allocate some more time to that as we go forward.
In your region, how would you describe the economic conditions in the housing market and the outlook? I mean, I know that Carolina did better than most in the recent credit crisis; are conditions still getting better down there?
The regions of North Carolina we are in have firmed up by and large. About three years ago they were talking about green shoots and we’re actually starting to see some of them now.
[Tony: Like the Charlotte market which we’ve just entered, Greenville, South Carolina as well. Whereas in West and North Carolina and Piedmont, a little less so. We entered that race a little late, at the end of the recession, and maybe it will be a little later to recover… But, we’re not where real estate values were in ‘06.]
Non-performing assets have declined over the past two years by almost 50 percent. How did you achieve that, and how are you going to keep working that number down going forward?
We approached it more patiently than some banks because we had the capital to be able to do that. Our goal has been to have the highest realization as we move the non-performing number down. You can sell them out and take another hit, just to get the ratio down, but then you turn around and invest that money at 0.25 percent.
If we can work with customers and work through some of the assets, the people we would sell to are looking for a 20 percent plus in their last returns and we thought that we could so some of that discipline work ourselves and beat the heck out of 0.25 percent.
[Tony: By working through it loan by loan, we can get 70 cents on the dollar versus 40 cents on the dollar. By having the luxury of capital, the regulators weren’t breathing down our necks, saying, “Thou shalt get rid of these assets."]
Right now you guys are about 43 percent single family homes and 23 percent commercial real estate. Are you content with the mixture, or are you doing some things to change the loan mix?
Through the acquisitions growth we have had a significant more in the commercial real estate areas. In the last 24 months, commercial real estate has grown 96 percent, other commercial loans have grown for about 57 percent, and the one to four family loans have grown nine percent in the portfolios. In acquiring more commercial focused community banks, we’re seeing the portfolio change.
On the origination side we have gone from six commercial relationship managers to 26 commercial relationship managers. Nineteen of those have joined us since May 2014.
The regulatory environment has changed drastically and quickly over the last three or four years. Is that a problem for you guys?
[Tony: The pendulum has definitely swung… and yes, it’s definitely affected us. We have a good relationship with the regulator, but it has definitely added overhead for us in the compliance and technology areas. The Dodd-Frank Act was huge to us because of our family mortgages.]
The volume of regulatory change has been unreasonable and somewhat unproductive. At a time when banks still need to be taking care of customers, it makes it harder to take care of customers.
They call it consumer protection, but it has made it more difficult to meet more consumer needs because of the regulatory structure. The way we look at it is that everyone has to get over this hurdle. If we can get over the hurdle better and in a more constructive way, then it can become a competitive advantage… that’s how we twisted it and turned it. Let’s not sit down and complain about it.
[Tony: That will be a driver for continued consolidation as well. You’ve got many factors there, but that’s another huge factor for smaller banks, because how in the world can they keep up with it?]
You guys are doing some interesting stuff with municipalities and fire departments in the Carolinas. Can you describe that program a little bit?
We began building that business in about ’91 and just continue to grow it over time. It’s $110 million in the portfolio. It’s fire trucks, fire houses, fire equipment… we finance the purchase of trucks, equipment and buildings. It’s the only loan portfolio that has had zero losses in the last 20 years.
We have a lot of passion around it… its small, intimate communities all over North and South Carolina. We are able to get the word out about the bank and our about our ability to meet credit needs and also it lowers the cost of housing, because as they gain new equipment, they get a higher ISO rating which lowers the cost of homeowners insurance in their districts. So, it really fits extremely well with our financing of homes and lowering the cost of home ownership.
You’ve been with the bank I think since 1989, CEO since 2007. To say that you’ve seen a lot of cycles in the economy in the banking industry would be an understatement. What do you see going forward both for banking in general and home trust in particular?
We think consolidation is just going to be continuing to ramp up. It is so challenging to be a small bank in this current environment with the expense of being in the banking business. The government won’t admit to the fact they’ve raised the bar significantly on the size you need to be to be in this market. We would want to be on the path of continuing to put together really value creating partnerships with other like-minded community banks that share common values with us.
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