As filed with the Securities and Exchange Commission on April 22, 2014November 2 , 2016
Registration No. 333-194732333- 214185
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1
TO THE
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
HOMETRUST BANCSHARES, INC.INC.
(Exact name of registrant as specified in its charter)
| Maryland | 6021 | 45-5055422 | ||
incorporation |
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Identification No.) |
HomeTrust Bancshares, Inc. 10 Woodfin Street Asheville, North Carolina 28801
| DANA L. STONESTREET Chairman, President and Chief Executive Officer HomeTrust Bancshares, Inc. 10 Woodfin Street Asheville, North Carolina 28801
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(Address, including ZIP code, and telephone number, including area code, of principal executive offices) | (Name, address, including ZIP code, and telephone number, including area code, of agent for service) |
COPIES TO:
DAVE M. MUCHNIKOFF, P.C. Silver, Freedman, Taff & Tiernan LLP 3299 K Street, N.W., Suite 100 Washington, D.C. 20007 Telephone: (202) 295-4500 |
Telephone: |
Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable following the effectiveness of this Registration Statement and upon completion of the merger described in this Registration Statement.
If the securities being registered on this Form are being offered in connection with formation of a holding company and there is compliance with General Instruction G, check the following box.¨
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.¨___________
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.¨___________
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer¨ | Accelerated Filerx | ||||||
| Non-accelerated filer¨ | |||||||
If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:
Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) ¨
Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer ¨
| Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) | ¨ |
| Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer | ¨ |
Calculation of Registration Fee
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| Title of each class of securities to be registered | Amount to be registered(1)(2) | Proposed maximum offering price per share | Proposed maximum aggregate offering price(3) | Amount of registration fee(4) | ||||||||
| Common Stock, $.01 par value | 944,566 shares | N/A | $ | 14,151,886 | $ | 1,641 | ||||||
| (1) | Represents the maximum number of shares of common stock of HomeTrust Bancshares, Inc. (“HomeTrust”) estimated to be issuable upon completion of the merger described herein in exchange for shares of the common stock and Series A preferred stock of |
| (2) | Each share is accompanied by a preferred share purchase right in accordance with the HomeTrust Bancshares, Inc. Tax Benefits Preservation Plan. |
| (3) | Estimated solely for the purpose of calculating the registration | |
| (4) | Previously paid. |
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information contained in this proxy statement/prospectus is not complete and may be changed. A registration statement relating to the shares of HomeTrust stock to be issued in the merger has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This proxy statement/prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale is not permitted or would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.
PRELIMINARY PROXY STATEMENT/PROSPECTUS
DATED , 2014,_________, 2016, SUBJECT TO COMPLETION
| [TRISUMMITT BANCORP, INC. LOGO] | ||
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MERGER PROPOSED - YOUR VOTE IS VERY IMPORTANT
Dear Shareholder:
The boards of directors of HomeTrust Bancshares, Inc., or HomeTrust, and Jefferson Bancshares,TriSummit Bancorp, Inc., or Jefferson,TriSummit, have each approved a merger of our two companies. Under the merger agreement, JeffersonTriSummit will merge with and into HomeTrust, with HomeTrust asbeing the surviving corporation. Immediately following completion of the merger, TriSummit’s wholly owned bank subsidiary, TriSummit Bank, will merge with and into HomeTrust’s wholly owned bank subsidiary, HomeTrust Bank. Each outstanding share of JeffersonTriSummit common stock, other than dissenting shares, will be converted into the right to receive, promptly following the completion of the merger, merger consideration with a value of $8.00 for each Jefferson share,$8.80, consisting of $4.00$4.40 in cash plus a number of shares of HomeTrust common stock having a value of $4.00 per share,$4.40, based on the volume weighted average closing price of HomeTrust common stock on the NASDAQ Global Market, or NASDAQ, for the ten20 trading day period ending on and including the fifth trading day before the day of completion of the merger (the “average HomeTrust common stock price”), subject to adjustment as described in the merger agreement and this document. In connection with the merger, each outstanding share of TriSummit Series A preferred stock, which we refer to as “Series A preferred stock,” will automatically convert to one share of TriSummit common stock at the effective time of the merger and holders thereof will receive the same merger consideration as the other TriSummit common shareholders.
The number of HomeTrust shares Jefferson shareholdersholders of TriSummit common stock and Series A preferred stock will receive in the merger will fluctuate with the market price of HomeTrust common stock and will not be known at the time JeffersonTriSummit shareholders vote on the merger agreement. If the average HomeTrust common stock price is equal to or less than $19.05 per share or equal to or greater than $20.96 per share, then the exchange ratio will be fixed at .2310 shares or .2099 shares, respectively, of HomeTrust common stock per share of TriSummit common stock and TriSummit Series A preferred stock. On January 22, 2014,September 20, 2016, the closing price of HomeTrust’s common stock immediately prior to the public announcement of the merger agreement was $15.85$18.97, and on November , 2014,2016, the most recent trading day practicable before the printing of this proxy statement/prospectus, the closing price of HomeTrust common stock was $ .$____. If $15.85$18.97 were the volume weighted average closing price, youholders of TriSummit common stock and Series A preferred stock would receive per share merger consideration consisting of $4.00$4.40 in cash and .2524.2310 of a share of HomeTrust common stock, and if $$____ were the volume weighted average closing price, youholders of TriSummit common stock and Series A preferred stock would receive per share merger consideration consisting of $4.00$4.40 in cash and .2310 of a share of HomeTrust common stock.We urge youstock , or approximately $31.5 million in aggregate merger consideration . In addition, pursuant to the merger agreement, the stock portion of the merger consideration may be increased and the cash portion of the merger consideration correspondingly decreased to assure that the value of the stock portion of the aggregate merger consideration at the effective time of the merger is equal to 42% of the total value of the consideration being paid to TriSummit shareholders in the transaction, taking into account dissenting shares and the intended redemption of the outstanding TriSummit Series B preferred stock, Series C preferred stock, and Series D preferred stock, in order to ensure the merger qualifies as a tax-deferred reorganization for U.S. federal income tax purposes. Under the terms of the merger agreement, in the event the volume weighted average closing price of HomeTrust common stock is less than $15.24 per share and the volume weighted average closing price of HomeTrust common stock divided by $19.05 is less than 80% of the Nasdaq Bank Index on the fifth trading day before the day of completion of the merger divided by the closing price of the Nasdaq Bank Index on September 20, 2016, the date of entry into the merger agreement, TriSummit has the right to terminate the merger agreement; provided, however, HomeTrust has the option to adjust the exchange ratio to prevent the termination of the merger agreement.
You should obtain current marketstock price quotations for HomeTrust common stock. HomeTrust common stock (NASDAQ: tradingis listed on NASDAQ under the symbol “HTBI”) and JeffersonTriSummit common stock (NASDAQ: trading symbol “JFBI”).is not listed or traded on any established securities exchange or quotation system. Based on the number of shares of TriSummit common and Series A preferred stock currently outstanding, the maximum number of shares of HomeTrust common stock issuable in the merger is expected to be 834,247.
Jefferson
TriSummit will hold a special meeting of its shareholders in connection with the merger. JeffersonTriSummit shareholders will be asked to vote to approve the merger agreement and related matters as described in the attached proxy statement/prospectus. Approval of the merger agreement by JeffersonTriSummit shareholders requires the affirmative vote of the holders of a majority of the votes entitledoutstanding shares of TriSummit common stock and Series A preferred stock voting together as a single class. A failure to be cast.vote will have the same effect as voting against the merger agreement.
The special meeting of Jefferson shareholders will be held on May 27, 2014.
Jefferson’sTriSummit board of directors unanimouslyhas carefully considered the merger and the terms of the merger agreement and believes that the completion of the merger on the terms set forth in the merger agreement is in the best interest of TriSummit and its shareholders.Accordingly, the TriSummit board of directors recommends that Jefferson shareholdersholders of TriSummit common stock and Series A preferred stock vote “FOR” approval of the Jefferson merger proposal and that holders of TriSummit common stock vote “FOR” eachthe adjournment proposal. In considering the recommendations of the other itemsboard of directors of TriSummit, you should be aware that the directors and executive officers of TriSummit have interests in the merger that are different from, or in addition to, be considered at the Jefferson special meeting.interests of TriSummit shareholders generally. See the section entitled “The Merger—Interests of TriSummit’s Directors and Executive Officers in the Merger” beginning on page 52 of this proxy statement/prospectus.
This proxy statement/prospectus describes the special meeting, of Jefferson, the documents related to the merger and other related matters.Please carefully read this entire proxy statement/prospectus, including “Risk“Risk Factors,,” beginning on page 14,17 of this proxy statement/prospectus, for a discussion of the risks relating to the proposed merger. You also can obtain information about HomeTrust and Jefferson from documents that eachit has filed with the Securities and Exchange Commission.
| R. Lynn Shipley, Jr. |
| President and Chief Executive Officer | |
Neither the Securities and Exchange Commission nor any state securities commission or any bank regulatory agency has approved or disapproved the shares of HomeTrust stock to be issued in the merger or passed upon the adequacy or accuracy of this proxy statement/prospectus. Any representation to the contrary is a criminal offense.
The securities to be issued in the merger are not savings or deposit accounts or other obligations of any bank or nonbank subsidiary of HomeTrust or Jefferson,TriSummit, and they are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.
The date of this proxy statement/prospectus is , 2014,November __, 2016, and it is first being mailed or otherwise delivered to the shareholders of JeffersonTriSummit on or about November , 2014.2016.
Jefferson Bancshares,
TriSummit Bancorp, Inc.
120 Evans Avenue422 Broad Street
Morristown,Kingsport, Tennessee 3781437660
(423) 586-8421246-2265
Notice of Special Meeting of Jefferson Bancshares,TriSummit Bancorp, Inc. Shareholders
| Date: | December 13, 2016 | |
| 10:30 a.m., | |
| Place: | MeadowView Conference Resort & Convention Center | |
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To Jefferson Bancshares,TriSummit Bancorp, Inc. Shareholders:
We are pleased to notify you of and invite you to a special meeting of shareholders of TriSummit Bancorp, Inc. (which we refer to as the “Jefferson“TriSummit special meeting”). At the JeffersonTriSummit special meeting, youTriSummit shareholders will be asked to vote on the following matters:
| · | Holders of TriSummit common stock and Series A preferred stock will be asked to vote on a proposal to approve the Agreement and Plan of Merger, dated as of September 20, 2016, by and between HomeTrust Bancshares, Inc. and TriSummit Bancorp, Inc., pursuant to which TriSummitwill merge with and into HomeTrust; and |
| · | Holders of TriSummit common stock will be asked to vote ona proposal to adjourn the TriSummit special meeting, if necessary or appropriate to solicit additional proxies in favor of the TriSummit merger proposal. |
Only holders of record of JeffersonTriSummit common stock and TriSummit Series A preferred stock as of the close of business on April 16, 2014October 31 , 2016 are entitled to vote at the Jefferson special meeting and any adjournments or postponements of the Jeffersonspecial meeting. Holders of TriSummit Series B, C, and D preferred stock are not entitled to, and are not being requested to, vote at the special meeting. Approval of the Jefferson merger proposal requires the affirmative vote of the holders of a majority of the outstanding shares of JeffersonTriSummit common stock.stock and TriSummit Series A preferred stock, voting together as a single class. The Jefferson adjournment proposal and Jefferson compensation proposal will be approved if a majority of the votes cast on those proposals at the Jefferson special meeting are voted in favor of those proposals.the proposal to adjourn exceed the votes cast opposing the proposal to adjourn. Each share of TriSummit common stock entitles its holder to one vote, and each share of TriSummit Series A preferred stock entitles its holder to one vote.
Jefferson’s
TriSummit’s board of directors has unanimously approved the merger agreement, has determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable and in the best interests of JeffersonTriSummit and its shareholders, and unanimously recommends that Jefferson shareholdersholders of TriSummit common stock and Series A preferred stock vote “FOR” approval of the TriSummit merger proposal and that holders of TriSummit common stock vote “FOR” the Jefferson merger proposal, “FOR” the Jefferson adjournment proposal and “FOR” the Jefferson compensation proposal.
Your vote is very important. We cannot complete the merger unless Jefferson’sTriSummit’s shareholders approve the JeffersonTriSummit merger proposal.
To ensure your representation at the JeffersonTriSummit special meeting, please complete and return the enclosed proxy card or submit your proxy by telephone or via the Internet.internet. Whether or not you expect to attend the JeffersonTriSummit special meeting in person, please vote promptly. If you hold your
TriSummit has concluded that, in connection with the merger, holders of TriSummit common stock and Series A preferred stock have the right to exercise dissenters’ rights under Chapter 23 of the Tennessee Business Corporation Act and obtain payment of the “fair value” of their shares of TriSummit common stock and Series A preferred stock, in street name throughlieu of the merger consideration that holders of TriSummit common stock and Series A preferred stock would otherwise receive pursuant to the merger agreement. This right to dissent is summarized in the
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accompanying proxy statement/prospectus on page 54 , and a bank, broker or other nominee and wishcopy of the pertinent state law is reprinted in full as Appendix B to vote your shares in person at the Jefferson special meeting, then you must obtain a legalaccompanying proxy from the holder of record authorizing you to do so by contacting your bank, broker or other nominee.statement/prospectus.
The enclosed proxy statement/prospectus provides a detailed description of the Jefferson TriSummitspecial meeting, the Jefferson TriSummitmerger proposal, the documents related to the Jefferson TriSummitmerger proposal and other related matters. We urge you to read the proxy statement/prospectus, including the documents incorporated in the proxy statement/prospectus by reference, and its appendices carefully and in their entirety.
We look forward to hearing from you.
| By Order of the Board of Directors | |
| Charley Mack Patton, M.D. | |
| Chairman of the Board of Directors | |
November , 2016
Kingsport, Tennessee
YOUR VOTE IS VERY IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE VOTE PROMPTLY BY RETURNING THE ENCLOSED PROXY CARD OR BY VOTING BY TELEPHONE OR VIA THE INTERNET.
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, 2014
Morristown, Tennessee
REFERENCES TO ADDITIONAL INFORMATION
This proxy statement/prospectus incorporates important business and financial information about HomeTrust from documents filed with the Securities and Exchange Commission, or the SEC, that are not included in or delivered with this proxy statement/prospectus.You can obtain any of the documents filed with or furnished to the SEC by HomeTrust at no cost from the SEC’s website at http://www.sec.gov. You may also request copies of these documents, including documents incorporated by reference in this proxy statement/prospectus, at no cost by contacting Teresa White, SeniorExecutive Vice President, Chief Administrative Officer and Corporate Secretary at HomeTrust Bancshares, Inc., 10 Woodfin Street, Asheville, North Carolina, 28801, and by telephone at (828) 350-4808.
You will not be charged for any of these documents that you request. To obtain timely delivery of these documents, you must request them no later than five business days before the date of Jefferson’sTriSummit’s special meeting. This means that JeffersonTriSummit shareholders requesting documents must do so by May 20, 2014,December 6 , 2016, in order to receive them before the JeffersonTriSummit special meeting.
In addition, if you have questions about the merger or the special meeting, need additional copies of this proxy statement/prospectus or need to obtain proxy cards or other information related to the proxy solicitation, you may contact R. Lynn Shipley, Jr., TriSummit’s President and Chief Executive Officer, at the following address and telephone number:
TRISUMMIT BANCORP, INC.
Attention: R. Lynn Shipley, Jr.
President and Chief Executive Officer
Post Office Box 628
Kingsport, Tennessee 37662
(423) 857-2563
TriSummit does not have a class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended, is not subject to the reporting requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and accordingly does not file documents or reports with the SEC.
You should rely only on the information contained in, or incorporated by reference into, this document. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this document. This document is dated November , 2014,2016, and you should assume that the information in this document is accurate only as of such date. You should assume that the information incorporated by reference into this document is accurate as of the date of the document that includes such information. Neither the mailing of this document to JeffersonTriSummit shareholders nor the issuance by HomeTrust of shares of HomeTrust stock in connection with the merger will create any implication to the contrary.
HomeTrust supplied all information contained or incorporated by reference in this proxy statement/prospectus relating to HomeTrust and TriSummit supplied all information contained in this proxy statement/prospectus relating to TriSummit. Information on the websites of HomeTrust or Jefferson,and TriSummit, or any subsidiary of HomeTrust or Jefferson,TriSummit, is not part of this document or incorporated by reference herein. You should not rely on that information in deciding how to vote.
This document does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. Except where the context otherwise indicates, information contained in this document regarding HomeTrust has been provided by HomeTrust and information contained in this document regarding Jefferson has been provided by Jefferson.
See “Where You Can Find More Information” on page 101 for more details.
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| THE MERGER AGREEMENT | 59 | |||
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| Treatment of TriSummit Preferred Stock | 60 | |||
| Closing and Effective Time of the Merger | 61 | |||
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Shareholder Meeting and Recommendation of | 69 | |||
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| Voting Agreements | 73 | |||
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| INFORMATION ABOUT TRISUMMIT | 79 | |||
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF | 79 | |||
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| General | 82 | |||
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| Preferred Stock | 84 | |||
| Other Anti-Takeover Provisions | ||||
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| EXPERTS | 101 | |||
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| APPENDICES | |||||
| A | Agreement and Plan of Merger, dated as of | ||||
| B |
| Tennessee Statutes for Dissenters’ Rights | |||
| C | Opinion of | ||||
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QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE JEFFERSONTRISUMMIT SPECIAL MEETING
The following are some questions that you may have about the merger and the JeffersonTriSummit special meeting, and brief answers to those questions. We urge you to read carefully the entire proxy statement/prospectus because the information in this section does not provide all of the information that might be important to you with respect to the merger and the special meeting. Additional important information is contained in the documents incorporated by reference into this proxy statement/prospectus. See “Where You Can Find More Information.”
Unless the context otherwise requires, throughout this document, “HomeTrust” refers to HomeTrust Bancshares, Inc., “Jefferson”“TriSummit” refers to Jefferson Bancshares,TriSummit Bancorp, Inc. and “we,” “us” and “our” refers collectively to HomeTrust and Jefferson.TriSummit.
| Q: | What is the merger? |
| A: | HomeTrust and |
| Q: | Why am I receiving this proxy statement/prospectus? |
| A: | We are delivering this document to you because you are a shareholder of |
The merger cannot be completed unless the shareholders of Jefferson approve the merger agreement (which we refer to as the “Jefferson merger proposal”).
| Q: | In addition to the |
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| Q: | What will |
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| common stock price”), subject to adjustment as described in the merger agreement and this document (which we refer to as the “merger consideration”). HomeTrust will not issue any fractional shares of HomeTrust common stock in the merger. |
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| will instead receive an amount in cash equal to the fractional share interest multiplied by the average HomeTrust common stock |
The number of shares of HomeTrust common stock that holders of Jefferson common stock will receive in the merger will fluctuate with the market price of HomeTrust common stock and will not be known at the time Jefferson shareholders vote on the merger agreement. For further information, see “Summary – In the Merger, Holders of Jefferson Common Stock Will Receive Shares of HomeTrust Common Stock and Cash.”
| The number of shares of HomeTrust common stock that holders of TriSummit common stock and Series A Preferred Stock will receive in the merger will fluctuate with the market price of HomeTrust common stock and will not be known at the time TriSummit shareholders vote on the merger agreement. In addition, pursuant to the merger agreement, the stock portion of the merger consideration may be increased and the cash portion of the merger consideration correspondingly decreased to assure that the value of the stock portion of the aggregate merger consideration at the effective time of the merger is equal to 42% of the total value of the consideration being paid to TriSummit shareholders in the transaction, including dissenting shares and the intended redemption of the outstanding TriSummit Series B preferred stock, Series C preferred stock, and Series D preferred stock, in order to ensure the merger qualifies as a tax-deferred reorganization for U.S. federal income tax purposes. For further information, see “Summary – In the Merger, Holders of TriSummit Common Stock Will Receive Shares of HomeTrust Common Stock and Cash” and “Material U.S. Federal Income Tax Consequences of the Merger—Treatment of the Merger as a Reorganization.” | |
| Q: | How will the merger affect outstanding |
| A: | Each |
| Q: | How will the merger affect outstanding TriSummit warrants? |
| To the extent that a warrant to acquire TriSummit common stock is properly exercised prior to the effective time of the merger, the holder will receive the same merger consideration as the other TriSummit common shareholders for each share of TriSummit common stock acquired via exercise of the TriSummit warrant. Each TriSummit warrant that is outstanding immediately prior to the |
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| Q: | How does |
| A: | After careful consideration, |
| The directors and executive officers of TriSummit have entered into voting agreements with HomeTrust, pursuant to which they have agreed to vote their shares of TriSummit common stock and Series A preferred stock “FOR” the |
The directors of Jefferson have entered into voting agreements with HomeTrust, pursuant to which they have agreed to vote their shares “FOR” the Jefferson merger proposal. For more information regarding the voting agreements, please see the section entitled “The Merger Agreement—Voting Agreements” beginning on page .
For a more complete description of Jefferson’s reasons for the merger and the recommendations of the Jefferson board of directors, please see the section entitled “The Merger—Jefferson’s Reasons for the Merger; Recommendation of Jefferson’s Board of Directors” beginning on page .
| For a more complete description of TriSummit’s reasons for the merger and the recommendations of the TriSummit board of directors, please see the section entitled “The Merger—TriSummit’s Reasons for the Merger; Recommendation of TriSummit’s Board of Directors” beginning on page 33 . | |
| Q: | When and where is the special meeting? |
| A: | The |
| Q: | What do I need to do now? |
| A: | After you have carefully read this proxy statement/prospectus and have decided how you wish your shares to be voted, please |
| Q: | Who is entitled to vote? |
| A: | Holders of record of |
| Q: | What constitutes a quorum? |
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| What is the vote required to approve each proposal at the |
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| TriSummit adjournment proposal: The TriSummit adjournment proposal will be approved if the votes cast in favor of such proposal at the TriSummit special meeting exceed the votes cast in opposition of such proposal. |
Jefferson adjournment proposal:The Jefferson adjournment proposal will be approved if the votes cast in favor of such proposal at the JeffersonIf you mark “ABSTAIN” on your proxy or fail to submit a proxy and fail to vote in person at the TriSummit special meeting, exceed the votes cast in opposition. If you mark “ABSTAIN” on your proxy or fail to submit a proxy and fail to vote in person at the Jefferson special meeting or, if your shares are in street name and you fail to instruct your bank or broker how to vote with respect to the Jefferson adjournment proposal, it will have no effect on such proposal.
Jefferson compensation proposal:The Jefferson compensation proposal will be approved if the votes cast in favor of such proposal at the Jefferson special meeting exceed the votes cast in opposition. If you mark “ABSTAIN” on your proxy or fail to submit a proxy and fail to vote in person at the Jefferson special meeting or, if your shares are in street name and you fail to instruct your bank or broker how to vote with respect to the Jefferson compensation proposal, it will have no effect on such proposal.
| Q: | Why is my vote important? |
| A: | If you do not vote by proxy or attend the TriSummit special meeting in person, |
| Q: | Can I attend the |
| A: | Yes. All shareholders of |
| Q: | Can I change my proxy or voting instructions? |
| A: | Yes. If you are a holder of record of |
| Q: | Will |
| A: | Yes. Unless the merger agreement is terminated before the |
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| Q: | What are the U.S. federal income tax consequences of the merger to |
| A: | The merger is intended to qualify as a tax-deferred “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code |
| Q: | Are |
| A: | Yes. Tennessee law permits a holder of TriSummit common stock or |
| Q: | If I am a holder of |
| A: | No. Please do not send in your |
| Q: | What should I do if I hold my shares of |
| A: | You are not required to take any special additional actions if your shares of |
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| Q: | Whom may I contact if I cannot locate my |
| A: | If you are unable to locate your original |
| Q: | What should I do if I receive more than one set of voting materials? |
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| Q: | When do you expect to complete the merger? |
| A: | HomeTrust and |
| Q: | What happens if the merger is not completed? |
| A: | If the merger is not completed, holders of |
| Q: | Whom should I call with questions? |
| A: | If you have any questions concerning the merger or this proxy statement/prospectus, would like additional copies of this proxy statement/prospectus or need help voting your shares of |
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This summary highlights selected information from this proxy statement/prospectus and may not contain all of the information that is important to you. You should carefully read this entire document, including the appendices, and the other documents to which this document refers to fully understand the merger and the related transactions. A list of the documents incorporated by reference appears on page 101 under “Where You Can Find More Information.”
The Merger and the Merger Agreement (page s 31 and 59 )
The terms and conditions of the merger are contained in the merger agreement, which is attached to this proxy statement/prospectus asAppendix A. We encourage you to read the merger agreement carefully, as it is the legal document that governs the merger.
In the merger, JeffersonTriSummit will merge with and into HomeTrust, with HomeTrust asbeing the surviving corporation. Immediately following the merger, Jefferson’sTriSummit’s wholly owned subsidiary bank, Jefferson FederalTriSummit Bank, will merge with HomeTrust’s wholly owned subsidiary bank, HomeTrust Bank, in the bank merger.merger, with HomeTrust Bank being the surviving bank.
In the Merger, Holders of JeffersonTriSummit Common Stock and Series A Preferred Stock Will Receive Shares of HomeTrust Common Stock and Cash (page 31 )
If the merger is completed, each outstanding share of JeffersonTriSummit common stock and TriSummit Series A preferred stock will be converted into the right to receive, promptly following the completion of the merger, the merger consideration consisting of $4.00$4.40 in cash plus a number of shares of HomeTrust common stock equal to $4.00$4.40 divided by the average HomeTrust common stock price (the “exchange ratio”), subject to adjustment. If the average HomeTrust common stock price is equal to or less than $19.05 per share, then the exchange ratio will be fixed at .2310. If the average HomeTrust common stock price is equal to or greater than $20.96 per share, then the exchange ratio will be fixed at .2099. On January 22, 2014,September 20, 2016, the last trading day immediately prior to the public announcement of the merger agreement, the closing price of HomeTrust common stock was $15.85.$18.97. If $15.85$18.97 were the average HomeTrust common stock price, youholders of TriSummit common stock and TriSummit Series A preferred stock would receive .2524merger consideration consisting of $4.40 in cash and .2310 of a share of HomeTrust common stock for each Jefferson share as theof TriSummit common stock portion of the merger consideration.and TriSummit Series A preferred stock held. If the closing price of HomeTrust common stock of $___ per share on AprilNovember , 2014,2016, the most recent trading day practicable before the printing of this proxy statement/prospectus, was the average HomeTrust common stock price, youholders of TriSummit common stock and TriSummit Series A preferred stock would also receive .2310 of a share of HomeTrust common stock for each Jefferson share of TriSummit common stock and TriSummit Series A preferred stock held as the stock portion of the merger consideration. If the average HomeTrust common stock price is equal to or less than $15.00 per share, then the exchange ratio will instead be fixed at .2667 per share. If the average HomeTrust common stock price is equal to or greater than $18.00 per share, then the exchange ratio will be fixed at .2222 per share. HomeTrust will not issue any fractional shares of HomeTrust common stock in the merger. Cash will be paid in lieu of any fractional HomeTrust share in an amount equal to the fraction multiplied by the average HomeTrust common stock price. JeffersonTriSummit shareholders who would otherwise be entitled to a fractional share of HomeTrust common stock upon completion of the merger will instead receive an amount in cash equal to the fractional share interest multiplied by the average HomeTrust common stock price.For example, assuming the average closingHomeTrust common stock price was $15.85,$ ____ , the exchange ratio would then be .2524 ($4.00 divided by $15.85).2 310 , and if you hold 1,000 shares of JeffersonTriSummit common stock, then for the stock portion of the merger consideration, you will receive 252231 shares of HomeTrust common stock (1,000 shares × .2524.2 310 = 2522 31 whole shares) and $6.34 in cash in lieu of a fractional share of HomeTrust common stock (.40 × $15.85 = $6.34), and for the cash portion of the merger consideration, you will receive a cash payment of $4,000$4,400 (1,000 x $4.00)$4.40).
HomeTrust’s
In addition, pursuant to the merger agreement, the stock portion of the merger consideration may be increased and Jefferson’sthe cash portion of the merger consideration correspondingly decreased to assure that the value of the stock portion of the aggregate merger consideration at the effective time of the merger is equal to 42% of the total value of the consideration being paid to TriSummit shareholders in the transaction, taking into account dissenting shares and the intended redemption of the outstanding TriSummit Series B preferred stock, Series C preferred stock, and Series D preferred stock, in order to ensure the merger qualifies as a tax-deferred reorganization for U.S. federal income tax purposes.
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HomeTrust’s common stock areis listed on NASDAQ under the symbolssymbol “HTBI”. Neither TriSummit’s common stock nor its Series A preferred stock is listed on an exchange or quoted on any automated services, and “JFBI,” respectively.there is no established trading market for shares of TriSummit common stock or Series A preferred stock. The following table shows the closing sale prices of HomeTrust common stock and Jefferson common stock as reported on NASDAQ on, January 22, 2014,and the last known sales prices of TriSummit common stock and Series A preferred stock as of, September 20, 2016, immediately prior to the public announcement of the merger agreement, and onNovember , 2014,2016, the last practicable trading day before the printing of this proxy statement/prospectus. This table also shows the implied value of the merger consideration payable for each share of JeffersonTriSummit common stock and Series A preferred stock, calculated by assuming the closing price of HomeTrust common stock on those dates was the average HomeTrust common stock price for the stock portion of the merger consideration and adding to that amount $4.00$4.40 for the cash portion of the merger consideration.
| Date | HomeTrust Closing Price | TriSummit Common Stock Sales Price | TriSummit Series A Preferred Stock Sales Price | Implied Value of Merger Consideration for One Share of TriSummit Common or Series A Preferred Stock | ||||||||||||
| September 20, 2016 | $ | 18.97 | $ | 7.00 | (1) | $ | 7.00 | (2) | $ | 8.78 | ||||||
| November __ , 2016 | $ | $ | 7.00 | (1) | $ | 7.00 | (2) | $ | ||||||||
Date | HomeTrust Closing Price | Jefferson Closing Price | Implied Value of Merger Consideration for One Share of Jefferson Common Stock | |||||||||
January 22, 2014 | $ | 15.85 | $ | 6.53 | $ | 8.00 | ||||||
April , 2014 | $ | $ | $ | 8.00 | ||||||||
Jefferson(1) The last known sale of TriSummit common stock occurred on December 23, 2015.
( 2 ) The last known sale of TriSummit Series A preferred stock occurred on October 17, 2014.
TriSummit Will Hold its Special Meeting on MayDecember 13 , 2016 (page 27 2014 (page )
The JeffersonTriSummit special meeting will be held on May 27, 2014,December 13 , 2016, at 2:00 p.m.10:30 a.m., local time, at Jefferson Federal Bank, 120 Evans Avenue, Morristown, Tennessee.the MeadowView Conference Resort & Convention Center, 1901 Meadowview Parkway, Kingsport, Tennessee 37660. At the JeffersonTriSummit special meeting, holdersTriSummit shareholders will be asked to vote on the following matters:
Only holders of record of JeffersonTriSummit common stock and Series A preferred stock at the close of business on April 16, 2014October 31 , 2016 will be entitled to vote at the JeffersonTriSummit special meeting. Each share of JeffersonTriSummit common stock is entitled to one vote on each of the TriSummit merger proposal and the TriSummit adjournment proposal, and each share of TriSummit Series A preferred stock is entitled to be considered atone vote on the Jefferson special meeting.TriSummit merger proposal. As of the record date, there were 6,595,3013,611,457 shares of JeffersonTriSummit stock, consisting of 3,208,830 shares of TriSummit common stock and 402,627 shares of TriSummit Series A preferred stock, entitled to vote at the JeffersonTriSummit special meeting. As of the record date, the directors and executive officers of JeffersonTriSummit and their affiliates beneficially owned and were entitled to vote approximately 568,544385,834 shares of JeffersonTriSummit common stock and approximately 4,600 shares of TriSummit Series A preferred stock, representing approximately 8.7%12.02 % of the shares of JeffersonTriSummit common stock and approximately 1.14 % of the shares of Series A preferred stock, respectively, outstanding on that date, which shares owned by directors of record or beneficiallyand executive officers are subject to the voting agreements described below.
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Concurrent with the execution of the merger agreement, each of Jefferson’sTriSummit’s directors and executive officers entered into a voting agreement with HomeTrust under which he or she generally has agreed (1) to vote or cause to be voted in favor of the JeffersonTriSummit merger proposal all shares of JeffersonTriSummit common stock and Series A preferred stock of which he or she is the record or beneficial owner as the date of the voting agreement and (2) subject to limited exceptions, not to sell or otherwise dispose any of these shares of JeffersonTriSummit common stock or Series A preferred stock until after the approval of the JeffersonTriSummit merger proposal by the shareholders of Jefferson.TriSummit. For additional information regarding the voting agreements, see “The Merger Agreement—Voting Agreements.”
To approve the JeffersonTriSummit merger proposal,a majority of the shares of JeffersonTriSummit common stock outstanding and TriSummit Series A preferred stock entitled to vote thereon (voting together as a single class) must be voted in favor of such proposal. The JeffersonTriSummit adjournment proposal and the Jefferson compensation proposal will each be approved if a majority of the votes cast at the Jefferson special meeting are votedby holders of TriSummit common stock in favor of such proposal at the TriSummit special meeting exceed the votes cast by holders of TriSummit common stock in opposition of such proposal.If you mark “ABSTAIN” on your proxy, or fail to submit a proxy and fail to vote in person at the TriSummit special meeting, it will have the same effect as a vote “AGAINST” the TriSummit merger proposal. If you mark “ABSTAIN” on your proxy, or fail to submit a proxy and fail to vote in person at the JeffersonTriSummit special meeting, or if your shares are held in street name and you fail to instruct your bank or broker how to vote with respect to the Jefferson merger proposal, it will have the same effect as a vote “AGAINST” the proposal. If you mark “ABSTAIN” on your proxy, or fail to submit a proxy and fail to vote in person at the Jefferson special meeting or if your shares are in street name and you fail to instruct your bank or broker how to vote with respect to the Jefferson adjournment proposal or the Jefferson compensation proposal, it will have no effect on suchthe TriSummit adjournment proposal.
Jefferson’sTriSummit’s Board of Directors Unanimously Recommends that JeffersonTriSummit Shareholders Vote “FOR” the Approval of the JeffersonTriSummit Merger Proposal and the Other ProposalsTriSummit Adjournment Proposal Presented at the JeffersonTriSummit Special Meeting (page 27 )
After careful consideration, Jefferson’sTriSummit’s board of directors has determined that the merger, the merger agreement and the transactions contemplated by the merger agreement, including the merger, are advisable and in the best interests of JeffersonTriSummit and its common and Series A preferred shareholders and has unanimously approved the merger agreement. Jefferson’sTriSummit’s board of directors unanimously recommends that Jefferson shareholdersholders of TriSummit common stock and Series A preferred stock vote “FOR” the approval of the JeffersonTriSummit merger proposal and that holders of TriSummit common stock vote “FOR” the other proposals presented at the Jefferson special meeting.TriSummit adjournment proposal. For the factors considered by Jefferson’sTriSummit’s board of directors in reaching its decision to approve the merger agreement, see “The Merger—Jefferson’sTriSummit’s Reasons for the Merger; Recommendation of Jefferson’sTriSummit’s Board of Directors”.
Opinions
Opinion of Jefferson’sTriSummit’s Financial AdvisorsAdvisor (page 38 and Appendix B and C)
In connection with its consideration of the merger agreement, on January 21, 2014,September 16, 2016, the JeffersonTriSummit board of directors received financial advice and presentations regarding the financial aspects of the merger from Keefe, Bruyette & WoodsBSP Securities, LLC (which we refer to as “KBW”“BSP Securities”), and received KBW’sBSP Securities’ oral opinion, which opinion was confirmed by delivery of a written opinion, dated January 21, 2014,September 16, 2016, to the effect that, as of such date and based upon and subject to the various factors, assumptions and limitations set forth in its opinion, the merger consideration was fair, from a financial point of view, to the holders of JeffersonTriSummit common stock. The Jefferson board of directors also received, in connection with its consideration of the merger, on January 21, 2014, the financial advice and presentations regarding the financial aspects of the merger from Professional Bank Services (which we refer to as “PBS”), and received PBS’ oral opinion, which opinion was confirmed by delivery of a written opinion, dated January 21, 2014, to the effect that, as of such date and based upon and subject to the various factors, assumptions and limitations set forth in its opinion, the merger consideration was fair, from a financial point of view, to the holders of Jefferson commonSeries A preferred stock. The full text of KBW’s and PBS’BSP Securities’ written opinions areopinion is attached asAppendices B andAppendix C, respectfully, to this proxy statement/prospectus. You should read eachthe opinion in its entirety for a discussion of, among other things, the assumptions made, procedures followed, matters considered and limitations on the review undertaken by KBW and PBSBSP Securities in rendering their opinions.its opinion.TheseThis written opinions areopinion is addressed to the JeffersonTriSummit board of directors, areis directed only to the merger consideration and dodoes not constitute a recommendation to any JeffersonTriSummit shareholder as to how such shareholder should vote with respect to the merger proposal or any other matter.
How TriSummit Preferred Stock Will Be Treated (page 60 )
Upon a change of control of TriSummit, each share of TriSummit Series A preferred stock converts to TriSummit common stock on a one-to-one basis. The merger will constitute a change of control of TriSummit for this purpose, and in connection with the merger, each share of TriSummit Series A preferred stock will automatically convert into one share of TriSummit common stock and each holder of Series A preferred stock will receive the same merger consideration as other TriSummit common shareholders. In connection with the merger, each share of the outstanding TriSummit Series B preferred stock, Series C preferred stock and Series D preferred
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stock will be redeemed by TriSummit in accordance with the terms thereof, subject to regulatory approval, or, if not so redeemed, will at the effective time of the merger be automatically converted into one share of capital stock of HomeTrust having rights, preferences, privileges, and voting powers, and limitations and restrictions thereof, that are the same as the rights, preferences, privileges and voting powers, and limitations and restrictions thereof, of the TriSummit Series B preferred stock, Series C preferred stock and Series D preferred stock, respectively, immediately prior to the merger.
What Holders of JeffersonTriSummit Stock Options Will Receive (page 60 )
Each JeffersonAdjusted Option that is outstanding immediately prior to the effective time of the merger will be assumed by HomeTrust and converted into the right to receive an option to purchase that number of shares of HomeTrust common stock equal to the product obtained by multiplying (i) the number of shares of TriSummit common stock and TriSummit Series A preferred stock subject to the Adjusted Option immediately prior to the effective time of the merger by (ii) the Adjusted Option Exchange Ratio, rounded to the nearest whole number of shares of HomeTrust common stock. Each option withto purchase HomeTrust common stock will have an exercise price per share that is less than $8.00of HomeTrust common stock equal to (x) $10.00 (the per share exercise price under each TriSummit option award) divided by (y) the Adjusted Option Exchange Ratio, rounded to the nearest whole cent. Each option to purchase HomeTrust common stock will otherwise be subject to the same terms and conditions applicable to the corresponding TriSummit option award, including vesting terms.
What Holders of TriSummit Warrants Will Receive (page 60 )
To the extent that a TriSummit warrant is properly exercised prior to the effective time of the merger, the holder will receive the same merger consideration as the other TriSummit common shareholders for each share of TriSummit common stock acquired via exercise of the TriSummit warrant. Each TriSummit warrant that is outstanding immediately prior to completionthe effective time of the merger will be cancelled by Jefferson at the effective time of the merger or immediately prior to the merger and entitle its holder to receiveeither be (i) cashed out by TriSummit for a cash payment from Jefferson equal to: (i)to $0.80 (the total per share merger consideration of $8.80 less the excesswarrant exercise price of (A) $8.00 per share over (B) the exercise price per share of the Jefferson stock option,share) multiplied by (ii) the number of shares subject to the TriSummit warrant, subject to any withholding requirements, or (ii) assumed by HomeTrust for the sole purpose of Jeffersonpaying the merger consideration in respect of the shares of TriSummit common stock subject to such Jefferson stock option. All Jefferson stock options with anthe TriSummit warrant upon the proper exercise price per share equal to or greater than $8.00 per share will, atthereof after the effective time of the merger or immediately priormerger. In the event of the cash-out of any TriSummit warrant, TriSummit will obtain a written cancellation agreement from the holder of the TriSummit warrant as a condition to the merger,payment, which must be cancelledin form and terminated.substance reasonably satisfactory to HomeTrust.
Material U.S. Federal Income Tax Consequences of the Merger (page 73 )
The merger is intended to qualify as a reorganizationtax-deferred “reorganization” within the meaning of Section 368(a) of the Code. Assuming the merger qualifies as a reorganization, a U.S. holder of JeffersonTriSummit common stock or Series A preferred stock generally will not recognize any gain or loss upon receipt of HomeTrust common stock in exchange for JeffersonTriSummit common stock or Series A preferred stock in the merger, and will recognize gain (but not loss) in an amount notwith respect to exceed any cash received as part of the merger consideration (except gain or loss is separately recognized with respect to any cash received in lieu of a fractional share of HomeTrust common stock, as discussed under “Material U.S. Federal Income Tax Consequences of the Merger—Cash Received Instead of a Fractional Share of HomeTrust Common Stock”). It is a condition to the completion of the merger that HomeTrust and JeffersonTriSummit receive written opinions from their respective legal counsel to the effect that the merger will qualify as a reorganization within the meaning of Section 368(a) of the Code.
For further information, see “Material U.S. Federal Income Tax Consequences of the Merger.”
The U.S. federal income tax consequences described above may not apply to all holders of Jefferson commonTriSummit stock. Your tax consequences will depend on your individual situation. Accordingly, we strongly urge you to consult your independent tax advisor for a full understanding of the particular tax consequences of the merger to you.
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Holders of JeffersonTriSummit Common Stock and Series A Preferred Stock Have No Dissenters’ Rights in Connection with the Merger (page 54 )
Jefferson shareholders are not
Under the TBCA, holders of TriSummit common stock and Series A preferred stock will be entitled to dissent from the merger and obtain payment in cash for the fair value of their shares of TriSummit common stock and Series A preferred stock. Set forth below is a summary of the procedures that must be followed by the holders of TriSummit common stock and Series A preferred stock in order to exercise their dissenters’ rights. This summary is qualified in its entirety by reference to the text of the applicable Tennessee statute, a copy of which is attached to this proxy statement/prospectus asAppendix B.
A record holder of TriSummit common stock or appraisalSeries A preferred stock who wishes to assert dissenters’ rights (i) must deliver to TriSummit, before the vote on the merger agreement is taken, written notice of his or her intent to demand payment for his or her shares if the merger is effectuated and (ii) must not vote his or her shares in favor of the merger agreement.
If the merger agreement is approved by TriSummit’s shareholders at the TriSummit special meeting, HomeTrust (as the surviving corporation of the merger) will deliver, no later than 10 days after the date that the merger is completed, a written dissenters’ notice to all TriSummit shareholders who satisfied the two requirements set forth above. The written dissenters’ notice will state where a shareholder’s payment demand must be sent and where and when stock certificates must be deposited, will set a date by which HomeTrust (as the surviving corporation of the merger) must receive the payment demand, which date will not be less than 40 days nor more than 60 days after the written dissenters’ notice is sent, and will contain an estimate of the fair value of the shareholder’s shares. A dissenting shareholder who does not demand payment or deposit his or her stock certificates as required by the dissenters’ notice will not be entitled to payment for his or her shares, and such shareholder’s shares of TriSummit common stock or Series A preferred stock will be converted into the right to receive the merger consideration in connection with the merger.
Jefferson’s
Within 10 days of the later of the date of the merger or receipt of a payment demand, HomeTrust (as the surviving corporation of the merger) will pay to each dissenting shareholder who properly demanded payment the amount HomeTrust (as the surviving corporation of the merger) estimates to be the fair value of his or her shares, plus accrued interest. If the shareholder believes that the amount paid is less than the fair value of his or her shares or that the interest is incorrectly calculated, the shareholder may notify HomeTrust (as the surviving corporation of the merger) in writing of his or her own estimate of the fair value of his or her shares and the amount of interest due and demand payment of this estimate. If a demand for payment remains unsettled, HomeTrust (as the surviving corporation of the merger) will commence a court proceeding to determine the fair value of the shares and the accrued interest.
The exercise of dissenters’ rights by holders of TriSummit common stock or Series A preferred stock will result in the recognition of gain or loss, as the case may be, for federal income tax purposes.
TriSummit’s Executive Officers and Directors Have Interests in the Merger that Differ from Your Interests (page 52 )
Jefferson
TriSummit shareholders should be aware that some of Jefferson’sTriSummit’s directors and executive officers have interests in the merger and have arrangements that are different from, or in addition to, those of JeffersonTriSummit shareholders generally. Jefferson’sTriSummit’s board of directors was aware of these interests and considered these interests, among other matters, when making its decision to approve the merger agreement, and in recommending that JeffersonTriSummit shareholders vote in favor of approving the merger agreement.
These interests include the following:
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For a more complete description of these interests, see “The Merger—Interests of Jefferson’sTriSummit’s Directors and Executive Officers in the Merger.”
Regulatory Approvals
Under applicable law,
Each of HomeTrust and TriSummit has agreed to cooperate with the other and use commercially reasonable efforts to obtain all regulatory approvals required to complete the transactions contemplated by the merger must be approved byagreement, including the merger and the bank merger. These approvals include approval from the Board of Governors of the Federal Reserve System, orwhich we refer to as the Federal Reserve Board, and the bank merger must be approved byNorth Carolina Commissioner of Banks, which we refer to as the Officer of the Comptroller of the Currency, or the OCC.Commissioner. The U.S. Department of Justice may also review the impact of the merger and the bank merger on competition.
We have requested a waiver from the Federal Reserve Board of its application requirements that would apply to the merger. Assuming this waiver is granted by the Federal Reserve Board and the OCC approves the bank merger, we must wait for up to 30 days before we can complete the merger. If, however, there are no adverse comments from the U.S. Department of Justice and we receive permission from the OCC to do so, the merger may be completed on or after the 15th day after approval from the OCC.
As of the date of this proxy statement/prospectus, all of theapplications and notices necessary to obtain all required applicationsregulatory approvals have been filed. There can be no assurance as to whether all required regulatory approvals will be obtained or as to the dates of the approvals. There also can be no assurance that the regulatory approvals received will not contain a condition or requirement that results in a failure to satisfy the conditions to closing set forth in the merger agreement. See “The Merger Agreement—Conditions to Complete the Merger.”
Conditions that Must be Satisfied or Waived for the Merger to Occur (page 70 )
As more fully described in this proxy statement/prospectus and in the merger agreement, the completion of the merger depends onis subject to a number of conditions being satisfied or, where legally permitted, waived. These conditions include:
| · | approval of the TriSummit merger proposal by TriSummit’s shareholders; |
| · | the authorization for listing on NASDAQ of the shares of HomeTrust common stock to be issued in the merger; |
| · | the receipt of all required regulatory approvals without the imposition of any unduly burdensome condition upon HomeTrust; |
| · | the effectiveness of the registration statement on Form S-4 of which this proxy statement/prospectus is a part; |
| · | the absence of any order, injunction, decree or law, rule or regulation preventing or making illegal the completion of the merger or the bank merger; |
| · | subject to the standards set forth in the closing conditions in the merger agreement, the accuracy of the representations and warranties of HomeTrust and TriSummit on the date of the merger agreement and the closing date of the merger; |
| · | performance in all material respects by each of HomeTrust and TriSummit of its obligations under the merger agreement; |
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| · | receipt by TriSummit of certain third party consents to the merger; |
| · | the number of shares of TriSummit common stock and Series A preferred stock the holders of which have perfected dissenters’ rights under Tennessee law shall be less than 7.5% of the total number of outstanding shares of TriSummit common stock and Series A preferred stock; and |
| · | receipt by each of HomeTrust and TriSummit of an opinion from its legal counsel as to certain U.S. federal income tax matters. |
We expect to complete the merger in the first halfquarter of 2014.2017. No assurance can be given, however, as to when or if the conditions to the merger will be satisfied or waived, or that the merger will be completed.
Non-Solicitation (page 69 )
Jefferson
TriSummit has agreed that it generally will not solicit or encourage any inquiries or proposals regarding anyother acquisition proposals by third parties. JeffersonTriSummit may respond to an unsolicited proposal if the board of directors of JeffersonTriSummit determines that the proposal constitutes or is reasonably likely to result in a transaction that is more favorable from a financial point of view to Jefferson’sTriSummit’s shareholders than the merger and that the board’s failure to respond would reasonably likely result in a violation of its fiduciary duties. JeffersonTriSummit must promptly notify HomeTrust if it receives any other acquisition proposals.
Termination of the Merger Agreement (page 71 )
The merger agreement can be terminated at any time prior to completion of the merger in the following circumstances:
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adverse manner to HomeTrust, or JeffersonTriSummit materially breaches any of its obligations relating to third party acquisition proposals;
(i) the average HomeTrust common stock price is less than $15.24; and
(ii) the average HomeTrust common stock price divided by $19.05 is less than 80% of the closing price of the NASDAQ Bank Index on the fifth trading day before the day of completion of the merger divided by the closing price of the NASDAQ Bank Index on September 20, 2016 (the date of entry into the merger agreement), unless HomeTrust makes a compensating adjustment to the exchange ratio;
Termination Fee (page 72 )
Set forth below are the termination events that would result in JeffersonTriSummit being obligated to pay HomeTrust a $1,950,000$1.5 million termination fee.fee:
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In the event HomeTrust terminates the merger agreement as a result of a willful and material breach by TriSummit of the provisions of the merger agreement by Jefferson that would entitle HomeTrustrelating to the termination fee,third party acquisition proposals, HomeTrust is not required to accept the termination fee from JeffersonTriSummit and may pursue alternate relief against Jefferson.TriSummit.
The Rights of JeffersonTriSummit Shareholders Will Change as a Result of the Merger (page 85 )
The rights of Jefferson shareholdersholders of TriSummit common stock and Series A preferred stock will change as a result of the merger due to differences in HomeTrust’s and Jefferson’sTriSummit’s governing documents. The rights of Jefferson shareholdersholders of TriSummit common stock and Series A preferred stock are governed by Tennessee law and TriSummit’s charter and bylaws as amended to date, and those of HomeTrust’s shareholders are governed by Maryland law and by Jefferson’s and HomeTrust’s respective articles of incorporation and bylaws each as amended to date. Upon completion of the merger, Jefferson shareholdersholders of TriSummit common stock and Series A preferred stock will become shareholders of HomeTrust, as the continuing legal entity in the merger, and thetheir rights of Jefferson shareholders will therefore be governed by Maryland law and by HomeTrust’s articles of incorporation and bylaws.
See “Comparison of Shareholders’ Rights” for a description of the material differences in shareholder rights under each of the HomeTrust and JeffersonTriSummit governing documents.
HomeTrust’s Board of Directors Following the Merger
Pursuant to the merger agreement, HomeTrust will increase the size of each of the HomeTrust and HomeTrust Bank board of directors from twelve members to thirteen members and will appoint Anderson L. Smith to serve on each board until the annual meeting of shareholders in 2016.
Information About the Companies (pages 78 and 79 )
HomeTrust
HomeTrust, headquartered in Asheville, North Carolina, is a savings and loanbank holding company for HomeTrust Bank, including its banking divisions –Bank. HomeTrust Bank, Tryon Federal Bank, Shelby Savings Bank, Home Savings Bank, Industrial Federal Bank, Cherryville Federal Bank and Rutherford County Bank. HomeTrust offers traditional financial services within its local communities through its 21 full service officesfounded in Western1926, is a North Carolina includingstate chartered, community-focused financial institution committed to providing value added relationship banking through 39 locations as well as online/mobile channels. Locations include: North Carolina (including the Asheville metropolitan area, the “Piedmont” region, of NorthCharlotte, and a loan production office in Raleigh), Upstate South Carolina (Greenville), East Tennessee (including Kingsport/Johnson City, Knoxville, and Greenville, South Carolina.Morristown) and Southwest Virginia (including the Roanoke Valley). HomeTrust is the 13th6th largest community bank based on asset size headquartered in North Carolina. As of December 31, 2013, on a consolidated basis,June 30, 2016, HomeTrust had total assets of $1.63$2.7 billion, deposits of $1.21$1.8 billion, and stockholders’ equity of $358.1$360.0 million.
HomeTrust regularly evaluates opportunities to expand through acquisitions and conducts due diligence activities in connection with such opportunities. As a result, acquisition discussions and, in some cases, negotiations may take place at any time, and acquisitions involving cash or our debt or equity securities may occur. In this regard, on March 2, 2014, HomeTrust entered into a definitive agreement to acquire Bank of Commerce, which operates a full service banking facility headquartered in Charlotte, North Carolina in a cash transaction valued at approximately $10.1 million. In addition, all $3.2 million of Bank of Commerce’s preferred stock will be redeemed.
The boards of directors of HomeTrust and Bank of Commerce unanimously approved the transaction, which is subject to regulatory approval and other customary closing conditions. Upon closing of the transaction, Bank of Commerce will be merged into HomeTrust Bank. At December 31, 2013, Bank of Commerce had $129.3 million in assets and deposits of $93.8 million.
HomeTrust’s principal office is located at 10 Woodfin Street, Asheville, North Carolina 28801, and its telephone number is (828) 259-3939. HomeTrust’s common stock is listed on NASDAQ under the symbol “HTBI.”
Additional information about HomeTrust and its subsidiaries is included in documents incorporated by reference in this proxy statement/prospectus. See “Where You Can Find More Information.”
Jefferson
Jefferson, headquarteredTriSummit
Headquartered in Morristown,Kingsport, Tennessee, TriSummit is a Tennessee corporation and the bank holding company for Jefferson Federal Bank, including its banking division – State of FranklinTriSummit Bank. Jefferson FederalTriSummit Bank is a community oriented financial institution offering traditional financial services with offices in Hamblen, Knox, WashingtonKingsport and Sullivan Counties,Johnson City, Tennessee, Bristol, Virginia, and Morristown and Jefferson City, Tennessee. Jefferson FederalTriSummit Bank attracts deposits from the general public and uses those funds to originate loans, most of which it holds for investment. At December 31, 2013,June 30, 2016, on a consolidated basis, JeffersonTriSummit had assets of $497.8$353.8 million, deposits of $388.0$288.4 million and stockholders’shareholders’ equity of $53.5$34.2 million.
Jefferson’s
TriSummit’s principal office is located at 120 Evans Avenue, Morristown,422 Broad Street, Kingsport, Tennessee 37814,37660, and its telephone number is (423) 586-8421. Jefferson’s246-2265. TriSummit’s common stock is not listed or traded on NASDAQ under the symbol “JFBI.”any established securities exchange or quotation system.
For additional information about JeffersonTriSummit see “Information About Jefferson.TriSummit.”
Jefferson
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TriSummit Shareholders Should Wait to Surrender Their Stock Certificates Until After the Merger
To receive your merger consideration, you will need to surrender your JeffersonTriSummit stock certificates. If the merger is completed, the exchange agent appointed by HomeTrust will send you written instructions for exchanging your stock certificates. The exchange agent will be Registrar and TransferComputershare Trust Company, N.A. (“Computershare”), HomeTrust’s stock transfer agent, or an unrelated bank or trust company reasonably acceptable to Jefferson.TriSummit.
Please do not send in your stock certificates until you receive these instructions.
Litigation Relating to the Merger (page )
In connection with the merger, a Jefferson shareholder has filed a putative shareholder class action lawsuit against Jefferson, the members of the Jefferson board of directors, Jefferson Federal Bank, HomeTrust and HomeTrust Bank. Among other remedies, the plaintiff seeks to enjoin the merger. The outcome of any such litigation is uncertain. If the case is not resolved, the lawsuit could prevent or delay completion of the merger and result in substantial costs to HomeTrust and Jefferson, including any costs associated with the indemnification of directors and officers. Additional lawsuits may be filed against HomeTrust, Jefferson and/or the directors and officers of either company in connection with the merger. The defense or settlement of any lawsuit or claim that remains unresolved at the time the merger is completed may adversely affect HomeTrust’s and Jefferson’s business, financial condition, results of operations and cash flows. See “The Merger—Litigation Relating to the Merger.”
Risk Factors (page 17 )
You should consider all the information contained in or incorporated by reference into this proxy statement/prospectus in deciding how to vote foron the proposals presented in this proxy statement/prospectus. In particular, you should consider the factors under “Risk Factors.”
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In addition to general investment risks and the other information contained in or incorporated by reference into this proxy statement/prospectus, including the matters addressed under the section “Cautionary Statement Regarding Forward-Looking Statements,” you should carefully consider the following risk factors in deciding how to vote for the proposals presented in this proxy statement/prospectus. You should also consider the other documents incorporated by reference into this proxy statement/prospectus. See “Where You Can Find More Information.”
Because the market price
Holders of HomeTrustTriSummit common stock will fluctuate, holders of Jefferson commonand Series A preferred stock cannot be certain of the market value of the stock portion of the merger consideration they will receive.
Upon completion of the merger, each outstanding share of JeffersonTriSummit common stock and Series A preferred stock will be converted into the right to receive $4.00$4.40 in cash plus a number of shares of HomeTrust common stock having a value of $4.00 per share,$4.40 based on the average HomeTrust common stock price, subject to a minimum and maximum exchange ratio. Because the market value price of HomeTrust common stock at the time of completion of the merger may be higher or lower than the average HomeTrust common stock price, the actual value of the HomeTrust common stock youthat holders of TriSummit common stock and Series A preferred stock receive for your Jeffersontheir shares may be more or less than $4.00$4.40 per share. On January 22, 2014,September 20, 2016, the last trading day immediately prior to the public announcement of the merger agreement, the closing price of HomeTrust common stock was $15.85.$18.97. If, for example, $15.85$18.97 were the average HomeTrust common stock price, the exchange ratio would be .2524fixed at .2310 for the stock portion of the merger consideration. Ifconsideration, which would equate to $4.38 of value ($18.97 x .2310) per share of TriSummit common stock and Series A preferred stock, but if the actual price of HomeTrust common stock at the time of completion of the merger were $15.00,$19.96, the per share stock consideration would be worth $3.79$4.61 ($15.0019.96 x .2524).2310) at such time. Iftime, and if the actual price of HomeTrust common stock at the time of completion of the merger were $17.00,$20.96, the per share stock consideration would be worth $4.29$4.84 ($17.0020.96 x .2524).2310) at such time.
Stock price changes may result from a variety of factors that are beyond the control of HomeTrust and Jefferson,TriSummit, including, but not limited to, general market and economic conditions, changes in our respective businesses, operations and prospects and regulatory considerations. In addition, pursuant to the merger agreement, the stock portion of the merger consideration may be increased and the cash portion of the merger consideration correspondingly decreased to assure that the value of the stock portion of the aggregate merger consideration at the effective time of the merger is equal to 42% of the total value of the consideration being paid to TriSummit shareholders in the transaction, taking into account dissenting shares and the intended redemption of the outstanding TriSummit Series B preferred stock, Series C preferred stock, and Series D preferred stock, in order to ensure the merger qualifies as a tax-deferred reorganization for U.S. federal income tax purposes. Therefore, if you are a holder of JeffersonTriSummit common stock or Series A preferred stock, you will not know at the time of the JeffersonTriSummit special meeting the precise market value of the stock portion of the merger consideration you will receive upon completion of the merger. TriSummit is not generally permitted to terminate the merger agreement or re-solicit the vote of TriSummit shareholders solely because of changes in the market prices of HomeTrust’s stock. However, TriSummit may terminate the merger agreement in certain limited circumstances involving a decrease in the trading price of HomeTrust’s common stock, if (i) the average HomeTrust common stock price is less than $15.24 per share and (ii) the HomeTrust common stock during a specified period underperforms the NASDAQ Bank Index during a specified period by more than 20%, unless HomeTrust elects to make a compensating adjustment to the exchange ratio. Other than a possible compensating adjustment by HomeTrust to the exchange ratio under these circumstances, the parties do not expect that any adjustment will be made to the exchange ratio based on changes in the stock price of either company. You should obtain current market quotations for shares of HomeTrust common stock and current sale price data for shares of JeffersonTriSummit common stock and Series A preferred stock.
The market price of HomeTrust common stock after the merger may be affected by factors different from those currently affecting the sharesprice of Jefferson currently.TriSummit stock.
Upon completion of the merger, holders of JeffersonTriSummit common stock and Series A preferred stock will become holders of HomeTrust common stock. HomeTrust’s business differs in important respects from that of Jefferson,TriSummit, and, accordingly, the results of operations of the HomeTrust and the market price of HomeTrust common stock after the completion of the merger may be affected by factors different from those currently affecting the
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independent results of operations of Jefferson.TriSummit. HomeTrust is, and will continue to be, subject to the risks described in HomeTrust’s Annual Report on Form 10-K for the fiscal year ended June 30, 2013,2016, as updated by subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, all of which are filed with the SEC and incorporated by reference into this proxy statement/prospectus. See “Where You Can Find More Information” included elsewhere in this proxy statement/prospectus.
Jefferson’s
TriSummit’s shareholders will have less influence as shareholders of HomeTrust than as shareholders of Jefferson.TriSummit.
Jefferson’s shareholders
Holders of TriSummit common stock currently have the right to vote in the election of the board of directors of JeffersonTriSummit and on other matters affecting Jefferson.TriSummit. Following the merger, the current shareholders of JeffersonTriSummit as a group will hold a maximum ownership interest of %5% of HomeTrust.the outstanding HomeTrust common stock. When the merger occurs, each Jefferson shareholderholder of TriSummit common stock and Series A preferred stock will become a shareholder of HomeTrust with a percentage ownership of the combined organization much smaller than such shareholder’s percentage ownership of Jefferson.TriSummit. Because of this, Jefferson’sTriSummit’s shareholders will have less influence on the management and policies of HomeTrust than they now have on the management and policies of Jefferson.
The shares of HomeTrust common stock to be received by holders of JeffersonTriSummit common stock and Series A preferred stock for the stock portion of the merger consideration will have rights different rights from the shares of JeffersonTriSummit common stock and Series A preferred stock.
Upon completion of the merger, Jefferson shareholdersholders of TriSummit common stock and Series A preferred stock will become HomeTrust shareholders and their rights as HomeTrust shareholders will be governed by the Maryland General Corporation Law and will also be governed by HomeTrust’s articles of incorporation and bylaws. The rights associated with JeffersonTriSummit common stock and TriSummit Series A preferred stock are different from the rights associated with HomeTrust common stock. See “Comparison of Shareholders’ Rights” for a discussion of the different rights associated with HomeTrust common stock.
Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or that could have an adverse effect on HomeTrust following the merger.
Before the merger and the bank merger may be completed, HomeTrust and JeffersonTriSummit must obtain approvals from the Federal Reserve Board (or a waiver) and the OCC.Commissioner. Other approvals, waivers or consents from regulators may also be required. An adverse development in either party’s regulatory standing or other factors could result in an inability to obtain regulatory approvals or delay their receipt. These regulators may impose conditions on the completion of the merger or the bank merger or require changes to the terms of the merger or the bank merger. While HomeTrust and JeffersonTriSummit do not currently expect that any such conditions or changes will be imposed or required, there can be no assurance that they will not be, and such conditions or changes could have the effect of delaying completion of the merger or imposing additional costs on or limiting the revenues of HomeTrust following the merger, any of which might have an adverse effect on HomeTrust following the merger. HomeTrust is not obligated to complete the merger if the regulatory approvals received in connection with the completion of the merger impose any unduly burdensome condition upon HomeTrust following the merger or HomeTrust Bank following the bank merger.HomeTrust. See “The Merger—Regulatory Approvals.”
Combining the two companies may be more difficult, costly or time consuming than expected, and the anticipated benefits and cost savings of the merger may not be realized.
HomeTrust and JeffersonTriSummit have operated and, until the completion of the merger, will continue to operate independently. The success of the merger, including anticipated benefits and cost savings, will depend, in part, on our ability to successfully combine the businesses of HomeTrust and Jefferson.TriSummit. To realize these anticipated benefits and cost savings, after the completion of the merger, HomeTrust expects to integrate Jefferson’sTriSummit’s business into its own. It is possible that the integration process could result in the loss of key employees, the disruption of each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect HomeTrust’s ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits and cost savings of the merger. If HomeTrust experiences difficulties with the integration process, the anticipated benefits of the merger may not be realized fully or at all or may take longer to realize than expected. As with any merger of financial institutions, there also may be business disruptions that cause HomeTrust
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and/or JeffersonTriSummit to lose customers or cause customers to remove their accounts from HomeTrust and/or JeffersonTriSummit and move their business to competing financial institutions. Integration efforts between the two companies will also divert management attention and resources. These integration matters could have an adverse effect on each of JeffersonTriSummit and HomeTrust during this transition period and on HomeTrust for an undetermined period after completion of the merger on HomeTrust.merger. In addition, the actual cost savings of the merger could be less than anticipated.
The fairness opinionsopinion obtained by JeffersonTriSummit’s board of directors from its financial advisorsadvisor will not reflect changes in circumstances between signing the merger agreement and completion of the merger.
Jefferson
TriSummit’s board of directors has not obtained an updated opinionsopinion as of the date of this proxy statement/prospectus from either KBW or PBS, Jefferson’sBSP Securities, TriSummit’s financial advisors.advisor. Changes in the operations and prospects of HomeTrust or Jefferson,TriSummit, general market and economic conditions and other factors which may be beyond the control of HomeTrust and Jefferson,TriSummit, and on which theBSP Securities’ fairness opinions wereopinion was based, may alter the value of HomeTrust or JeffersonTriSummit or the prices of shares of HomeTrust common stock or Jefferson commonTriSummit stock by the time the merger is completed. The opinions doBSP Securities’ opinion does not speak as of the time the merger will be completed or as of any date other than the datesdate of such opinions.opinion. Because JeffersonTriSummit currently does not anticipate asking its financial advisorsadvisor to update their opinions,its opinion, the opinions doopinion does not address the fairness of the merger consideration, from a financial point of view, at the time the merger is completed. For a description of the opinionsopinion that JeffersonTriSummit’s board of directors received from its financial advisors,advisor, please
refer to “The Merger—Opinion of Keefe Bruyette & Woods–FinancialBSP Securities, LLC –Financial Advisor to Jefferson” and “The Merger—Opinion of Professional Bank Services–Financial Advisor to Jefferson.TriSummit.” For a description of the other factors considered by the boards of directors of HomeTrust and JeffersonTriSummit in determining to approve the merger agreement, please refer to “The Merger—HomeTrust’s Reasons for the Merger” and “The Merger—Jefferson’sTriSummit’s Reasons for the Merger; Recommendation of Jefferson’sTriSummit’s Board of Directors.”
Certain of Jefferson’sTriSummit’s directors and executive officers have interests in the merger that may differ from the interests of Jefferson’sTriSummit’s shareholders.
Jefferson’s
TriSummit’s shareholders should be aware that some of Jefferson’sTriSummit’s directors and executive officers have interests in the merger and have arrangements that are different from, or in addition to, those of Jefferson’sTriSummit’s shareholders generally. These interests and arrangements may create potential conflicts of interest. Jefferson’sTriSummit’s board of directors was aware of these interests and considered these interests, among other matters, when making its decision to approve the merger agreement, and in recommending that Jefferson’sTriSummit’s shareholders vote in favor of approving the merger agreement.
These interests include the following:
For a more complete description of these interests, see “The Merger—Interests of Jefferson’sTriSummit’s Directors and Executive Officers in the Merger.”
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Termination of the merger agreement could negatively impact JeffersonTriSummit or HomeTrust.HomeTrust.
If the merger agreement is terminated, there may be various consequences. For example, Jefferson’sTriSummit’s or HomeTrust’s businesses may have beenbe impacted adversely by the failure to pursue other beneficial opportunities due to the focus of management on the merger, without realizing any of the anticipated benefits of completing the merger. Additionally, if the merger agreement is terminated, the market price of Jefferson’sHomeTrust’s common stock or HomeTrust’sof TriSummit’s common stock or Series A preferred stock could decline to the extent that the current market prices reflect a market assumption that the merger will be completed. If the merger agreement is terminated under certain circumstances, JeffersonTriSummit is required to pay to HomeTrust a termination fee of $1.95 million.$1.5 million, and this termination fee may be characterized as a capital loss not deductible by TriSummit.
Jefferson
TriSummit will be subject to business uncertainties and contractual restrictions while the merger is pending.
HomeTrust and JeffersonTriSummit have operated and, until the completion of the merger, will continue to operate independently. Uncertainty about the effect of the merger on employees and customers may have an adverse effect on JeffersonTriSummit and consequently on HomeTrust. These uncertainties may impair Jefferson’sTriSummit’s ability to attract, retain or
motivate key personnel until the merger is consummated, and could cause customers and others that deal with JeffersonTriSummit to seek to change existing business relationships with Jefferson.TriSummit. Retention of certain employees may be challenging during the pendency of the merger, as certain employees may experience uncertainty about their future roles with HomeTrust. If key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with HomeTrust, HomeTrust’s business following the merger could be harmed. In addition, the merger agreement restricts JeffersonTriSummit from making certain acquisitions and taking other specified actions until the merger occurs without the consent of HomeTrust. These restrictions may prevent JeffersonTriSummit from pursuing attractive business opportunities that may arise prior to the completion of the merger. See “The Merger Agreement—Covenants and Agreements-Conduct of Businesses Prior to Completion of the Merger.”
If the merger is not completed, JeffersonTriSummit will have incurred substantial expenses without realizing the expected benefits of the merger.
The merger is subject to closing conditions, including the receipt of regulatory approvals and the approval of Jefferson’sTriSummit’s shareholders, that, if not satisfied, will prevent the merger from being completed. All directors and executive officers of JeffersonTriSummit and TriSummit Bank have agreed to vote their shares of JeffersonTriSummit common stock and TriSummit Series A preferred stock in favor of the merger. If Jefferson’sTriSummit’s shareholders do not approve the TriSummit merger proposal and the merger is not completed, the resulting failure of the mergerit could have a material adverse impact on Jefferson’sTriSummit’s business and operations. In addition to the required approvals and consents from governmental entities and the approval of JeffersonTriSummit’s shareholders, the merger is subject to other conditions beyond HomeTrust’s and Jefferson’sTriSummit’s control that may prevent, delay or otherwise materially adversely affect its completion.the completion of the merger. Neither HomeTrust nor JeffersonTriSummit can predict whether and when these other conditions will be satisfied. JeffersonTriSummit has incurred andor will incur substantial expenses in connection with the due diligence surrounding and the negotiation and completion of the transactions contemplated by the merger agreement, as well as the costs and expenses of preparing, printing and mailing this proxy statement/prospectus. If the merger is not completed, JeffersonTriSummit would have to recognize these expenses without realizing the expected benefits of the merger.
The merger agreement limits Jefferson’sTriSummit’s ability to pursue alternative acquisition proposals and requires JeffersonTriSummit to pay a termination fee of $1.95$1.5 million under certain circumstances, including circumstances relating to alternative acquisition proposals.
The merger agreement generally prohibits JeffersonTriSummit from initiating, soliciting, encouraging or knowingly facilitating certain third-party acquisition proposals. See “The Merger Agreement—Agreement Not to Solicit Other Offers.” The merger agreement also provides that JeffersonTriSummit must pay a termination fee in the amount of $1.95$1.5 million in the event that the merger agreement is terminated under certain circumstances, including certain circumstances involving Jefferson’sTriSummit’s failure to abide by certain obligations not to solicit alternative acquisition proposals. See “The Merger Agreement—Termination Fee.” These provisions might discourage a potential competing acquirer from considering or proposing an acquisition forof all or a significant part of JeffersonTriSummit or TriSummit Bank at a greater value to Jefferson’sTriSummit’s shareholders than HomeTrust has offered in the merger. The payment of the termination fee could also have an adverse effect on Jefferson’sTriSummit’s financial condition.
Pending litigation against Jefferson and HomeTrust could result in an injunction preventing
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The dissenters’ rights appraisal process is uncertain.
TriSummit shareholders may or may not be entitled to receive more than the completion of the merger or a judgment resulting in the payment of damages.
In connection with the merger, a Jefferson shareholder has filed a putative shareholder class action lawsuit against Jefferson, the members of the Jefferson board of directors, Jefferson Federal Bank, HomeTrust and HomeTrust Bank. Among other remedies, the plaintiff seeks to enjoin the merger. The outcome of any such litigation is uncertain. If the case is not resolved, the lawsuit could prevent or delay completion of the merger and result in substantial costs to HomeTrust and Jefferson, including any costs associated with the indemnification of directors and officers. Additional lawsuits may be filed against HomeTrust, Jefferson and/or the directors and officers of either company in connection with the merger. The defense or settlement of any lawsuit or claim that remains unresolved at the time the merger is completed may adversely affect HomeTrust’s and Jefferson’s business, financial condition, results of operations and cash flows. See “The Merger—Litigation Relating to the Merger.”
Sales of substantial amounts of HomeTrust’s common stock in the open market by former Jefferson shareholders could depress HomeTrust’s stock price.
Shares of HomeTrust common stock that are issued to shareholders of Jeffersonamount provided for in the merger will be freely tradable without restrictions or further registration under the Securities Act of 1933. As of the record date, HomeTrust had approximately [ ]agreement for their shares of common stock outstanding, and [ ] shares of HomeTrust common stock were reserved for issuance under HomeTrust equity plans. Based on the shares of JeffersonTriSummit common stock and Series A preferred stock if they elect to exercise their right to dissent from the maximum exchange ratio, the maximum number of shares of common stock HomeTrust will issue in theproposed merger, is approximately [ ] shares.
If the merger is completed and if Jefferson’s former shareholders sell substantial amounts of HomeTrust common stock in the public market following completion of the merger, the market price of HomeTrust common stock may decrease. These sales might also make it more difficult for HomeTrust to sell equity or equity-related securities at a time and price that it otherwise would deem appropriate.
The unaudited pro forma combined condensed consolidated financial information included in this document is illustrative only and the actual financial condition and results of operations after the merger may differ materially.
The unaudited pro forma combined condensed consolidated financial information in this document is presented for illustrative purposes only and is not necessarily indicative of what HomeTrust’s actual financial condition or results of operations would have been had the merger been completeddepending on the dates indicated. The unaudited pro forma combined condensed consolidated financial information reflects adjustments, which are based upon preliminary estimates, to record the Jefferson identifiable tangible and intangible assets to be acquired and liabilities to be assumed at fair value and the resulting goodwill to be recognized. The purchase price allocation reflected in this document is preliminary and final allocationappraisal of the purchase price will be based upon the actual purchase price and the fair value of the consolidated assetsTriSummit common stock and liabilities of Jefferson as ofSeries A preferred stock pursuant to the date ofdissenting shareholder procedures under the completion of the merger. Accordingly, the final acquisition accounting adjustments may differ materially from the pro forma adjustments reflected in this document. For more information, please see the section entitled “Unaudited Pro Forma Combined Condensed Consolidated Financial Information”TBCA. See “The Merger— TriSummit Shareholder Dissenters’ Rights ” beginning on page 54 and Appendix B. For this reason, the amount of cash that you might be entitled to receive should you elect to exercise your right to dissent from the merger may be more or less than the value of the merger consideration to be paid pursuant to the merger agreement. In addition, it is a condition to closing of the merger that the holders of not more than 7.5% of the outstanding shares of TriSummit common stock and Series A preferred stock shall have exercised their statutory dissenters’ rights under the TBCA. The number of shares of TriSummit common stock and Series A preferred stock as to which dissenters’ rights will be exercised under the TBCA is not known and, therefore, there is no assurance that this closing condition will be satisfied.
Risk factors relating to HomeTrust and HomeTrust’s business.
HomeTrust is, and will continue to be, subject to the risks described in HomeTrust’s Annual Report on Form 10-K for the fiscal year ended June 30, 2016, as updated by subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, all of which are filed with the SEC and incorporated by reference into this proxy statement/prospectus. See “Where You Can Find More Information” on page 101 .
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus contains or incorporates by reference a number of forward-looking statements regarding the financial condition, results of operations, earnings outlook and business prospects of HomeTrust, JeffersonTriSummit and the potential combined company and may include statements for the period following the completion of the merger. You can find many of these statements by looking for words such as “expects,” “projects,” “anticipates,” “believes,” “intends,” “estimates,” “strategy,” “plan,” “potential,” “possible” and other similar expressions. Statements about the expected timing, completion and effects of the merger and all other statements in this proxy statement/prospectus or in the documents incorporated by reference in this proxy statement/prospectus other than historical facts constitute forward-looking statements.
Forward-looking statements involve certain risks and uncertainties. The ability of either HomeTrust or JeffersonTriSummit to predict results or actual effects of its plans and strategies, or those of the combined company, is inherently uncertain. Accordingly, actual results may differ materially from those expressed in, or implied by, the forward-looking statements. Some of the factors that may cause actual results or earnings to differ materially from those contemplated by the forward-looking statements include, but are not limited to, those discussed under “Risk Factors” and those discussed in the filings of HomeTrust that are incorporated into this proxy statement/prospectus by reference, as well as the following:
| · | the expected cost savings, synergies and other financial benefits from the merger |
| · | the required regulatory approvals for the merger and bank merger and/or the approval of the TriSummit merger proposal by the shareholders of TriSummit might not be obtained or other conditions to the completion of the merger set forth in the merger agreement might not be satisfied or waived; |
| · | 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, and 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; |
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| · | fluctuations in the demand for loans, the number or amount of unsold homes, land and other properties and fluctuations in real estate values in our market areas; |
| · | declines in the secondary market for the sale of loans that we originate; |
| · | results of examinations of us by bank regulators 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, or change our regulatory capital position, or other actions by regulatory authorities that 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 effects of Dodd-Frank Wall Street Reform and Consumer Protection 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 our allowance for loan losses; |
| · | our ability to control operating costs and expenses, especially 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 have acquired or may in the future acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames or at all 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; |
| · | the inability of key third-party providers to perform their obligations; |
| · | statements with respect to our intentions regarding disclosure and other changes resulting from the Jumpstart Our Business Startups Act of 2012; |
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| · | 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. |
For any forward-looking statements made in this proxy statement/prospectus or in any documents incorporated by reference into this proxy statement/prospectus, HomeTrust and JeffersonTriSummit claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on these statements, which speak only as of the date of this proxy statement/prospectus or the date of the applicable document incorporated by reference in this proxy statement/prospectus. HomeTrust and JeffersonTriSummit do not undertake to update forward-looking statements to reflect facts, circumstances, assumptions or events that occur after the date the forward-looking statements are made. All subsequent written and oral forward-looking statements concerning the merger or other matters addressed in this proxy statement/prospectus and attributable to HomeTrust, JeffersonTriSummit or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this proxy statement/prospectus.
SELECTED HISTORICAL FINANCIAL AND COMPARATIVE UNAUDITED PRO FORMA FINANCIAL INFORMATIONPER SHARE DATA
Selected Historical Financial Data of HomeTrust and Jefferson
The following tables set forth selected historical financial and other data of HomeTrust and Jefferson for the periods and at the dates indicated. The information at June 30, 20132016 and 20122015 and for the years ended June 30, 2013, 20122016, 2015 and 20112014 is derived in part from and should be read together with the audited consolidated financial statements and notes thereto of HomeTrust incorporated by reference ininto this proxy statement/prospectus from HomeTrust Annual Reports on Form 10-K for the year ended June 30, 2013.2016. The Jefferson information atas of June 30, 2014, 2013 and 2012 and for the years ended June 30, 2013 2012 and 2011 is derived in part from and should be read together with the audited consolidated financial statements and notes thereto of Jefferson, which are included in this proxy statement/prospectus. The information as of June 30, 2011, 2010 and 2009 and for the years ended June 30, 2010 and 20092012 is derived in part from audited consolidated financial statements and notes thereto of HomeTrust and Jefferson that are not incorporated by reference ininto or attached to this proxy statement/prospectus. The information at and for the six months ended December 31, 2013 and 2012 is derived in part from and should be read together with HomeTrust’s unaudited consolidated financial statements and notes thereto incorporated by reference in this document from HomeTrust’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2013. The Jefferson information at and for the six months ended December 31, 2013 and 2012 is derived in part from and should be read together with Jefferson’s unaudited financial statements and notes thereto, which are included in this proxy statement/prospectus. In the opinion
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Certain of the selected financial data of HomeTrust in the tables below contain information determined by methods other than in accordance with accounting principles generally accepted in the United States of America (referred to as “GAAP”). This information consists of tangible book value per common share, and the efficiency ratio on a fully tax equivalent basis and net interest margin on a fully tax equivalent basis. HomeTrust management believes that it is standard practice in the banking industry to present these values as stated herein, and accordingly believes that providing these measures may be useful for peer comparison purposes. These disclosures should not be viewed as substitutes for the results determined to be in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. See “-Reconciliation of Non-GAAP Historical Financial Data of HomeTrust” on page for reconciliations of non-GAAP measures to GAAP measures immediately following HomeTrust’s selected financial data table.
Selected Historical Financial Data of HomeTrust
| As of or for the Six Months Ended December 31, | At June 30, | At June 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2013 | 2012 | 2013 | 2012 | 2011 | 2010 | 2009 | 2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||||||||||||||||||||||||
| (In thousands) | (In thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
Selected Financial Condition Data: | ||||||||||||||||||||||||||||||||||||||||||||||||
Total assets | $ | 1,629,325 | $ | 1,586,860 | $ | 1,583,323 | $ | 1,720,056 | $ | 1,637,643 | $ | 1,641,145 | $ | 1,470,368 | $ | 2,717,677 | $ | 2,783,114 | $ | 2,074,454 | $ | 1,583,323 | $ | 1,720,056 | ||||||||||||||||||||||||
Loans receivable, net(1) | 1,142,933 | 1,147,121 | 1,132,110 | 1,193,945 | 1,276,377 | 1,243,610 | 1,194,454 | 1,811,539 | 1,663,333 | 1,473,529 | 1,132,110 | 1,193,945 | ||||||||||||||||||||||||||||||||||||
Allowance for loan losses | (27,125 | ) | (34,249 | ) | (32,073 | ) | (35,100 | ) | (50,140 | ) | (41,713 | ) | (24,996 | ) | 21,292 | 22,374 | 23,429 | 32,073 | 35,100 | |||||||||||||||||||||||||||||
Certificates of deposit in other banks | 152,027 | 124,914 | 136,617 | 108,010 | 118,846 | 99,140 | 106,317 | 161,512 | 210,629 | 163,780 | 136,617 | 108,010 | ||||||||||||||||||||||||||||||||||||
Securities available for sale, at fair value | 82,661 | 28,977 | 24,750 | 31,335 | 59,016 | 36,483 | 20,508 | 200,652 | 257,606 | 168,774 | 24,750 | 31,335 | ||||||||||||||||||||||||||||||||||||
Federal Home Loan Bank stock | 2,089 | 2,368 | 1,854 | 6,300 | 9,630 | 10,790 | 10,390 | |||||||||||||||||||||||||||||||||||||||||
| Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) stock(2) | 29,486 | 28,711 | 3,697 | 1,854 | 6,300 | |||||||||||||||||||||||||||||||||||||||||||
Deposits | 1,211,447 | 1,149,247 | 1,154,750 | 1,466,175 | 1,264,585 | 1,289,549 | 1,012,926 | 1,802,696 | 1,872,126 | 1,583,047 | 1,154,750 | 1,466,175 | ||||||||||||||||||||||||||||||||||||
Other borrowings | 2,217 | 7,167 | — | 22,265 | 145,278 | 122,199 | 267,696 | |||||||||||||||||||||||||||||||||||||||||
| Borrowings | 491,000 | 475,000 | 50,000 | — | 22,265 | |||||||||||||||||||||||||||||||||||||||||||
Stockholders’ equity | 358,106 | 373,901 | 367,515 | 172,485 | 167,769 | 174,815 | 144,532 | 359,976 | 371,050 | 377,151 | 367,515 | 172,485 | ||||||||||||||||||||||||||||||||||||
| As of or for the Six Months Ended December 31, | Years Ended June 30, | |||||||||||||||||||||||||||
| 2013 | 2012 | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||
Selected Operations Data: | ||||||||||||||||||||||||||||
Total interest and dividend income | $ | 30,108 | $ | 31,209 | $ | 60,389 | $ | 67,491 | $ | 72,087 | $ | 71,300 | $ | 75,818 | ||||||||||||||
Total interest expense | 2,929 | 4,113 | 7,255 | 11,778 | 20,529 | 25,617 | 33,637 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net interest income | 27,179 | 27,096 | 53,134 | 55,713 | 51,558 | 45,683 | 42,181 | |||||||||||||||||||||
Provision for loan losses | (3,000 | ) | 1,800 | 1,100 | 15,600 | 42,800 | 38,600 | 15,000 | ||||||||||||||||||||
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| |||||||||||||||
Net interest income after provision for loan losses | 30,179 | 25,296 | 52,034 | 40,113 | 8,758 | 7,083 | 27,181 | |||||||||||||||||||||
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| |||||||||||||||
Fees and service charges | 1,333 | 1,303 | 2,589 | 2,679 | 2,929 | 2,986 | 3,064 | |||||||||||||||||||||
Mortgage banking income and fees | 1,786 | 2,685 | 5,107 | 3,846 | 3,211 | 2,692 | 4,249 | |||||||||||||||||||||
Gain (loss) on sale of securities | — | — | — | — | 430 | 191 | (2,006 | ) | ||||||||||||||||||||
Gain from business combination | — | — | — | — | 5,844 | 17,391 | — | |||||||||||||||||||||
Gain (loss) on sale of fixed assets | — | — | — | 1,503 | — | — | (30 | ) | ||||||||||||||||||||
Other non-interest income | 1,398 | 1,208 | 2,691 | 2,400 | 4,382 | 1,292 | 1,444 | |||||||||||||||||||||
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|
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| |||||||||||||||
Total non-interest income | 4,517 | 5,196 | 10,387 | 10,428 | 16,796 | 24,552 | 6,721 | |||||||||||||||||||||
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|
|
|
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|
|
|
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|
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|
| |||||||||||||||
Total non-interest expense | 25,221 | 26,774 | 51,393 | 46,661 | 53,554 | 42,171 | 31,680 | |||||||||||||||||||||
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|
|
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|
|
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|
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| |||||||||||||||
Income (loss) before provision (benefit) for income taxes | 9,475 | 3,718 | 11,028 | 3,880 | (28,000 | ) | (10,536 | ) | 2,222 | |||||||||||||||||||
Income tax expense (benefit) | 3,272 | 298 | 1,975 | (647 | ) | (13,263 | ) | (17,577 | ) | (1,224 | ) | |||||||||||||||||
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| |||||||||||||||
Net income (loss) | $ | 6,203 | $ | 3,420 | $ | 9,053 | $ | 4,527 | $ | (14,737 | ) | $ | 7,041 | $ | 3,446 | |||||||||||||
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Per Share Data: | ||||||||||||||||||||||||||||
Net income per common share: | ||||||||||||||||||||||||||||
Basic | $ | 0.32 | $ | 0.17 | $ | 0.45 | n/a | n/a | n/a | n/a | ||||||||||||||||||
Diluted | $ | 0.32 | $ | 0.17 | $ | 0.45 | n/a | n/a | n/a | n/a | ||||||||||||||||||
Average shares outstanding | ||||||||||||||||||||||||||||
Basic | 18,930,301 | 20,115,225 | 19,922,283 | n/a | n/a | n/a | n/a | |||||||||||||||||||||
Diluted | 19,029,109 | 20,115,225 | 19,941,687 | n/a | n/a | n/a | n/a | |||||||||||||||||||||
Book value per share at end of period | $ | 18.10 | $ | 17.67 | $ | 17.65 | n/a | n/a | n/a | n/a | ||||||||||||||||||
Tangible book value per share at end of period(2) | $ | 17.94 | $ | 17.67 | $ | 17.64 | n/a | n/a | n/a | n/a | ||||||||||||||||||
Total shares outstanding at end of period | 19,783,655 | 21,160,000 | 20,824,900 | n/a | n/a | n/a | n/a | |||||||||||||||||||||
| Years Ended June 30, | ||||||||||||||||||||
| 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Selected Operations Data: | ||||||||||||||||||||
| Total interest and dividend income | $ | 87,747 | $ | 85,156 | $ | 60,281 | $ | 60,389 | $ | 67,491 | ||||||||||
| Total interest expense | 6,040 | 5,390 | 5,432 | 7,255 | 11,778 | |||||||||||||||
| Net interest income | 81,707 | 79,766 | 54,849 | 53,134 | 55,713 | |||||||||||||||
| Provision for (recovery of ) loan losses | — | 150 | (6,300 | ) | 1,100 | 15,600 | ||||||||||||||
| Net interest income after provision for (recovery of) loan losses | 81,707 | 79,616 | 61,149 | 52,034 | 40,113 | |||||||||||||||
| Service charges and fees on deposit accounts | 6,680 | 5,930 | 2,783 | 2,589 | 2,679 | |||||||||||||||
| Mortgage banking income and fees | 3,069 | 2,989 | 3,218 | 5,107 | 3,846 | |||||||||||||||
| Gain on sale of securities | — | 61 | 10 | — | — | |||||||||||||||
| Gain on sale of fixed assets | — | — | — | — | 1,503 | |||||||||||||||
| Other noninterest income | 3,754 | 3,539 | 2,727 | 2,691 | 2,400 | |||||||||||||||
| Total noninterest income | 13,503 | 12,519 | 8,738 | 10,387 | 10,428 | |||||||||||||||
| Total noninterest expense | 78,853 | 81,552 | 55,032 | 51,393 | 46,661 | |||||||||||||||
| Income before provision (benefit) for income taxes | 16,357 | 10,583 | 14,855 | 11,028 | 3,880 | |||||||||||||||
| Income tax expense (benefit) | 4,901 | 2,558 | 4,513 | 1,975 | (647 | ) | ||||||||||||||
| Net income | $ | 11,456 | $ | 8,025 | $ | 10,342 | $ | 9,053 | $ | 4,527 | ||||||||||
| Per Share Data: | ||||||||||||||||||||
| Net income per common share: | ||||||||||||||||||||
| Basic | $ | 0.65 | $ | 0.42 | $ | 0.54 | $ | 0.45 | n/a | |||||||||||
| Diluted | $ | 0.65 | $ | 0.42 | $ | 0.54 | $ | 0.45 | n/a | |||||||||||
| 24 |
Selected Historical Financial DataTable of HomeTrust (continued)Contents
| As of or for the Six Months Ended December 31, | At or For the Years Ended June 30, | |||||||||||||||||||||||||||||||||||||||||||||||
| 2013 | 2012 | 2013 | 2012 | 2011 | 2010 | 2009 | At or For the Years Ended June 30, | |||||||||||||||||||||||||||||||||||||||||
| (annualized) | 2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||||||||||||||||||||||||||||||
Selected Financial Ratios and Other Data: | ||||||||||||||||||||||||||||||||||||||||||||||||
Performance ratios: | ||||||||||||||||||||||||||||||||||||||||||||||||
Return on assets (ratio of net income to average total assets) | 0.75 | % | 0.42 | % | 0.56 | % | 0.29 | % | (0.88 | )% | 0.46 | % | 0.24 | % | 0.42 | % | 0.32 | % | 0.62 | % | 0.56 | % | 0.29 | % | ||||||||||||||||||||||||
Return on equity (ratio of net income to average equity) | 3.40 | 1.90 | 2.48 | 2.67 | (8.15 | ) | 4.50 | 2.39 | 3.16 | 2.12 | 2.86 | 2.48 | 2.67 | |||||||||||||||||||||||||||||||||||
Tax equivalent yield on earning assets(3) | 4.20 | 4.40 | 4.30 | 4.82 | 4.83 | 5.06 | 5.78 | 3.62 | 3.88 | 4.15 | 4.30 | 4.82 | ||||||||||||||||||||||||||||||||||||
Rate paid on interest-bearing liabilities | 0.50 | 0.72 | 0.65 | 0.91 | 1.48 | 1.99 | 2.79 | 0.29 | 0.29 | 0.46 | 0.65 | 0.91 | ||||||||||||||||||||||||||||||||||||
Tax equivalent average interest rate spread(3) | 3.70 | 3.68 | 3.65 | 3.91 | 3.35 | 3.07 | 2.99 | 3.33 | 3.59 | 3.69 | 3.65 | 3.91 | ||||||||||||||||||||||||||||||||||||
Tax equivalent net interest margin(3)(4)(5) | 3.82 | 3.85 | 3.81 | 4.02 | 3.52 | 3.33 | 3.32 | |||||||||||||||||||||||||||||||||||||||||
| Tax equivalent net interest margin(3)(4) | 3.37 | 3.64 | 3.79 | 3.81 | 4.02 | |||||||||||||||||||||||||||||||||||||||||||
Operating expense to average total assets | 3.07 | 3.31 | 3.21 | 2.95 | 3.21 | 2.75 | 2.21 | 2.88 | 3.25 | 3.29 | 3.21 | 2.95 | ||||||||||||||||||||||||||||||||||||
Average interest-earning assets to average interest-bearing liabilities | 130.66 | 131.41 | 132.54 | 113.61 | 113.01 | 115.06 | 113.59 | 119.25 | 120.61 | 130.20 | 132.54 | 113.61 | ||||||||||||||||||||||||||||||||||||
Efficiency ratio(6) | 72.79 | 64.27 | 67.63 | 56.77 | 61.94 | 55.59 | 54.97 | |||||||||||||||||||||||||||||||||||||||||
| Efficiency ratio | 82.82 | 88.37 | 86.55 | 80.91 | 70.55 | |||||||||||||||||||||||||||||||||||||||||||
Asset quality ratios: | ||||||||||||||||||||||||||||||||||||||||||||||||
Non-performing assets to total assets(7) | 4.09 | % | 5.36 | % | 5.07 | % | 4.67 | % | 3.81 | % | 3.87 | % | 2.10 | % | ||||||||||||||||||||||||||||||||||
Non-accruing loans to total loans(7) | 4.84 | 6.11 | 5.88 | 5.21 | 3.64 | 3.59 | 2.25 | |||||||||||||||||||||||||||||||||||||||||
| Nonperforming assets to total assets(5) | 0.90 | % | 1.15 | % | 2.53 | % | 5.07 | % | 4.67 | % | ||||||||||||||||||||||||||||||||||||||
| Nonaccruing loans to total loans(5) | 1.01 | 1.47 | 2.53 | 5.88 | 5.21 | |||||||||||||||||||||||||||||||||||||||||||
Total classified assets to total assets | 6.33 | 8.04 | 7.43 | 7.75 | 9.83 | 9.20 | 4.00 | 2.17 | 2.92 | 4.51 | 7.43 | 7.75 | ||||||||||||||||||||||||||||||||||||
Allowance for loan losses to non-accruing loans(7)(8) | 47.87 | 47.31 | 46.78 | 54.69 | 103.43 | 90.09 | 91.04 | |||||||||||||||||||||||||||||||||||||||||
| Allowance for loan losses to nonaccruing loans(5) | 114.98 | 90.02 | 61.79 | 46.78 | 54.69 | |||||||||||||||||||||||||||||||||||||||||||
Allowance for loan losses to total loans | 2.32 | 2.89 | 2.75 | 2.85 | 3.77 | 3.23 | 2.04 | 1.16 | 1.33 | 1.56 | 2.75 | 2.85 | ||||||||||||||||||||||||||||||||||||
Net charge-offs to average loans | 0.33 | 0.43 | 0.34 | 2.34 | 2.59 | 1.71 | 0.29 | 0.06 | 0.07 | 0.19 | 0.34 | 2.34 | ||||||||||||||||||||||||||||||||||||
Capital ratios: | ||||||||||||||||||||||||||||||||||||||||||||||||
Equity to total assets at end of period(9) | 21.98 | 23.56 | 23.21 | % | 10.03 | % | 10.24 | % | 10.65 | % | 9.83 | % | ||||||||||||||||||||||||||||||||||||
| Equity to total assets at end of period(6) | 13.25 | % | 13.33 | % | 18.18 | % | 23.21 | % | 10.03 | % | ||||||||||||||||||||||||||||||||||||||
Average equity to average assets | 22.20 | 22.31 | 23.09 | 10.71 | 10.82 | 10.21 | 10.06 | 13.24 | 15.11 | 21.62 | 23.09 | 10.71 | ||||||||||||||||||||||||||||||||||||
Dividend payout to common shareholders | — | — | — | n/a | n/a | n/a | n/a | — | — | — | — | n/a | ||||||||||||||||||||||||||||||||||||
| (1) | Net of allowances for loan losses, loans in process and deferred loan fees. |
| (2) |
| (3) | The weighted average rate for municipal leases is adjusted for a 34% federal income tax rate since the interest from these leases is tax exempt. |
| (4) | Net interest income divided by average interest earning assets. |
| (5) |
| Does not include proceeds from HomeTrust’s initial public stock offering consummated on July 10, 2012 for years ended prior to June 30, 2013. |
Reconciliation of Non-GAAP Historical Financial Data of HomeTrust
Set forth below is a reconciliation to GAAP of net interest margin (fully taxable equivalent) as shown in the table above.
| As of or for the Six Months Ended December 31, | At or for the years ended June 30, | |||||||||||||||||||||||||||
| 2013 | 2012 | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||||
GAAP net interest income | 27,179 | 27,096 | 53,134 | 55,713 | 51,558 | 45,683 | 42,181 | |||||||||||||||||||||
Tax-equivalent adjustment(1) | 1,544 | 1,685 | 3,371 | 3,539 | 3,527 | 3,598 | 3,266 | |||||||||||||||||||||
Tax-equivalent net interest income | 28,723 | 28,781 | 56,505 | 59,252 | 55,085 | 49,281 | 45,447 | |||||||||||||||||||||
Average interest earning assets | 1,505,782 | 1,495,610 | 1,481,727 | 1,473,560 | 1,565,407 | 1,478,583 | 1,368,148 | |||||||||||||||||||||
Net interest margin | 3.61 | % | 3.62 | % | 3.59 | % | 3.78 | % | 3.29 | % | 3.09 | % | 3.08 | % | ||||||||||||||
Net interest margin (fully tax-equivalent) | 3.82 | % | 3.85 | % | 3.81 | % | 4.02 | % | 3.52 | % | 3.33 | % | 3.32 | % | ||||||||||||||
Set forth below is a reconciliation to GAAP of the non-GAAP efficiency shown in the table above:
| As of or for the Six Months Ended December 31, | At or for the years ended June 30, | |||||||||||||||||||||||||||
| 2013 | 2012 | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||||
Non-interest expense | $ | 25,221 | $ | 26,774 | $ | 51,393 | $ | 46,661 | $ | 53,554 | $ | 42,171 | $ | 31,680 | ||||||||||||||
Less FHLB advance prepayment expense | — | 3,069 | 3,069 | 2,111 | 3,988 | — | 1,630 | |||||||||||||||||||||
Less REO-related expenses | 1,026 | 1,869 | 3,086 | 4,991 | 5,306 | 1,231 | 273 | |||||||||||||||||||||
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Non-interest expense – as adjusted | 24,195 | 21,836 | 45,238 | 39,559 | 44,260 | 40,940 | 29,777 | |||||||||||||||||||||
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Net interest income | 27,179 | 27,096 | 53,134 | 55,713 | 51,558 | 45,683 | 42,181 | |||||||||||||||||||||
Plus non-interest income | 4,517 | 5,196 | 10,387 | 10,428 | 16,796 | 24,552 | 6,721 | |||||||||||||||||||||
Plus tax equivalent adjustment | 1,544 | 1,685 | 3,371 | 3,539 | 3,527 | 3,598 | 3,266 | |||||||||||||||||||||
Less realized gain/loss on securities | — | — | — | — | 430 | 191 | (2,006 | ) | ||||||||||||||||||||
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Net interest income plus non-interest income – as adjusted | 33,240 | 33,977 | 66,892 | 69,680 | 71,451 | 73,642 | 54,174 | |||||||||||||||||||||
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Efficiency ratio | 72.79 | % | 64.27 | % | 67.63 | % | 56.77 | % | 61.94 | % | 55.59 | % | 54.97 | % | ||||||||||||||
Efficiency ratio (without adjustments) | 79.57 | % | 82.91 | % | 80.91 | % | 70.55 | % | 78.35 | % | 60.04 | % | 64.78 | % | ||||||||||||||
Set forth below is a reconciliation to GAAP of tangible book value and tangible book value per share shown in the table above.
| As of or for the Six Months Ended December 31, | At or for the years ended June 30, | |||||||||||||||||||||||||||
| 2013 | 2012 | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||||
Total stockholders’ equity | $ | 358,106 | $ | 373,901 | $ | 367,515 | $ | 172,485 | $ | 167,769 | $ | 174,815 | $ | 144,532 | ||||||||||||||
Less: goodwill, core deposits intangibles, net of taxes | (3,171 | ) | (98 | ) | (120 | ) | (206 | ) | (336 | ) | (484 | ) | — | |||||||||||||||
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Tangible book value | $ | 354,935 | $ | 373,803 | $ | 367,395 | $ | 172,279 | $ | 167,433 | $ | 174,331 | $ | 144,532 | ||||||||||||||
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Common shares outstanding | 19,783,655 | 21,160,000 | 20,824,900 | — | — | — | — | |||||||||||||||||||||
Tangible book value per share | $ | 17.94 | $ | 17.67 | $ | 17.64 | — | — | — | — | ||||||||||||||||||
Selected Historical Financial Data of Jefferson
| As of or for the Six Months Ended December 31, | At or For the Year Ended June 30, | |||||||||||||||||||||||||||
| 2013 | 2012 | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||||
Financial Condition Data: | ||||||||||||||||||||||||||||
Total assets | $ | 497,812 | $ | 519,615 | $ | 503,028 | $ | 522,930 | $ | 561,189 | $ | 630,770 | $ | 662,655 | ||||||||||||||
Loans receivable, net | 330,207 | 315,828 | 321,299 | 322,499 | 378,587 | 434,378 | 498,107 | |||||||||||||||||||||
Cash and cash equivalents, interest-bearing deposits | 16,701 | 47,265 | 24,514 | 56,693 | 40,548 | 69,303 | 44,108 | |||||||||||||||||||||
Investment securities | 93,472 | 95,976 | 96,024 | 83,483 | 74,780 | 62,989 | 36,544 | |||||||||||||||||||||
Borrowings | 55,160 | 45,808 | 45,535 | 45,506 | 38,887 | 85,778 | 91,098 | |||||||||||||||||||||
Deposits | 388,020 | 419,220 | 399,642 | 423,882 | 454,262 | 479,183 | 482,167 | |||||||||||||||||||||
Stockholders’ equity | 53,544 | 53,446 | 53,025 | 52,629 | 55,919 | 56,523 | 79,505 | |||||||||||||||||||||
Operating Data: | ||||||||||||||||||||||||||||
Interest income | $ | 9,338 | $ | 9,900 | $ | 19,501 | $ | 22,432 | $ | 26,334 | $ | 30,043 | $ | 28,175 | ||||||||||||||
Interest expense | 1,310 | 1,635 | 3,130 | 4,570 | 8,030 | 11,593 | 11,619 | |||||||||||||||||||||
Net interest income | 8,028 | 8,265 | 16,371 | 17,862 | 18,304 | 18,450 | 16,556 | |||||||||||||||||||||
Provision for loan losses | — | 600 | 800 | 9,873 | 4,447 | 8,809 | 910 | |||||||||||||||||||||
Net interest income after provision for loan losses | 8,028 | 7,665 | 15,571 | 7,989 | 13,857 | 9,641 | 15,646 | |||||||||||||||||||||
Noninterest income | 977 | 1,037 | 2,113 | 2,180 | 3,233 | 4,034 | 3,185 | |||||||||||||||||||||
Noninterest expense | 7,640 | 7,867 | 15,546 | 16,693 | 17,411 | 39,657 | 14,683 | |||||||||||||||||||||
Earnings before income taxes | 1,365 | 835 | 2,138 | (6,524 | ) | (321 | ) | (25,982 | ) | 4,148 | ||||||||||||||||||
Total income taxes | 423 | 192 | 544 | (2,524 | ) | (351 | ) | (1,982 | ) | 1,518 | ||||||||||||||||||
Net earnings | $ | 942 | $ | 643 | $ | 1,594 | $ | (4,000 | ) | $ | 30 | $ | (24,000 | ) | $ | 2,630 | ||||||||||||
Per Share Data: | ||||||||||||||||||||||||||||
Earnings per share, basic | $ | 0.15 | $ | 0.10 | $ | 0.25 | $ | (0.64 | ) | $ | 0.00 | $ | (3.85 | ) | $ | 0.43 | ||||||||||||
Earnings per share, diluted | $ | 0.15 | $ | 0.10 | $ | 0.25 | $ | (0.64 | ) | $ | 0.00 | $ | (3.85 | ) | $ | 0.43 | ||||||||||||
Dividends per share | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.03 | $ | 0.24 | ||||||||||||||
Selected Historical Financial Data of Jefferson(continued)
| As of or for the Six Months Ended December 31, | At or For the Year Ended June 30, | |||||||||||||||||||||||||||
| 2013 | 2012 | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||||
Performance Ratios: | ||||||||||||||||||||||||||||
Return on average assets | 0.38 | % | 0.25 | % | 0.31 | % | (0.74 | %) | 0.00 | % | (3.65 | )% | 0.48 | % | ||||||||||||||
Return on average equity | 3.52 | 2.41 | 2.97 | (7.37 | ) | 0.05 | (29.65 | ) | 3.40 | |||||||||||||||||||
Interest rate spread (1) | 3.54 | 3.54 | 3.55 | 3.60 | 3.21 | 3.04 | 3.23 | |||||||||||||||||||||
Net interest margin (2) | 3.62 | 3.63 | 3.64 | 3.72 | 3.35 | 3.22 | 3.46 | |||||||||||||||||||||
Noninterest expense to average assets (5) | 3.07 | 3.08 | 3.06 | 3.10 | 2.86 | 2.72 | 2.67 | |||||||||||||||||||||
Efficiency ratio (3) (5) | 84.85 | 84.69 | 84.16 | 83.38 | 85.71 | 83.93 | 76.57 | |||||||||||||||||||||
Average interest-earning assets to average interest-bearing liabilities | 113.18 | 112.52 | 112.76 | 111.99 | 109.61 | 108.76 | 110.52 | |||||||||||||||||||||
Dividend payout ratio (4) | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | N/M | 55.81 | |||||||||||||||||||||
Capital Ratios: | ||||||||||||||||||||||||||||
Tangible capital | 9.65 | % | 9.01 | % | 9.21 | % | 8.23 | % | 8.50 | % | 7.29 | % | 7.85 | % | ||||||||||||||
Core capital | 13.30 | 12.85 | 12.93 | 12.17 | 11.74 | 10.35 | 9.57 | |||||||||||||||||||||
Risk-based capital | 14.42 | 14.10 | 14.18 | 13.42 | 13.00 | 11.61 | 10.49 | |||||||||||||||||||||
Average equity to average assets | 10.75 | 10.46 | 10.55 | 10.07 | 9.35 | 12.33 | 14.09 | |||||||||||||||||||||
Asset Quality Ratios: | ||||||||||||||||||||||||||||
Allowance for loan losses as a percent of total gross loans | 1.19 | % | 1.77 | % | 1.73 | % | 1.78 | % | 2.11 | % | 2.17 | % | 0.94 | % | ||||||||||||||
Allowance for loan losses as a percent of nonperforming loans | 59.40 | 39.55 | 44.23 | 31.53 | 99.19 | 51.38 | 78.30 | |||||||||||||||||||||
Net charge-offs to average outstanding loans during the period | 1.04 | 0.46 | 0.31 | 3.36 | 1.42 | 0.83 | 0.14 | |||||||||||||||||||||
Nonperforming loans as a percent of total loans | 2.00 | 4.48 | 3.91 | 5.65 | 2.13 | 4.22 | 1.20 | |||||||||||||||||||||
Nonperforming assets as a percent of total assets | 2.61 | 4.26 | 3.81 | 4.82 | 3.25 | 4.18 | 1.43 | |||||||||||||||||||||
Selected Unaudited Consolidated Pro Forma Financial Data of HomeTrust and Jefferson
The following table shows selected unaudited consolidated pro forma financial data reflecting the merger of Jefferson with HomeTrust, assuming the companies had been combined at the dates and for the periods shown. The pro forma amounts reflect certain purchase accounting adjustments, which are based on estimates that are subject to change depending on fair values as of the merger completion date. These adjustments are described in the notes to unaudited pro forma combined condensed consolidated financial information contained elsewhere in this document under the heading “Unaudited Pro Forma Combined Condensed Consolidated Financial Information,” beginning on page . The pro forma financial data in the table below does not include any projected cost savings, revenue enhancements or other possible financial benefits of the merger to the combined company and does not attempt to suggest or predict future results and does not reflect the pro forma financial impact of the pending Bank of Commerce acquisition on HomeTrust. This information also does not necessarily reflect what the historical financial condition or results of operations of the combined company would have been had HomeTrust and Jefferson been combined as of the dates and for the periods shown.
| At or for the Six Months Ended December 31, 2013 | For the Year Ended June 30, 2013 | |||||||
| (In thousands) | ||||||||
Statement of Operations Data: | ||||||||
Interest income | $ | 39,692 | $ | 80,506 | ||||
Interest expense | 4,239 | 10,385 | ||||||
|
|
|
| |||||
Net interest income | 35,453 | 70,121 | ||||||
Provision for loan losses | (3,000 | ) | 1,900 | |||||
|
|
|
| |||||
Net interest income after provision for loan losses | 38,453 | 68,221 | ||||||
Noninterest income | 5,494 | 12,500 | ||||||
Noninterest expense | 32,841 | 67,082 | ||||||
|
|
|
| |||||
Income before income taxes | 11,106 | 13,639 | ||||||
Income tax expense | 3,785 | 2,680 | ||||||
|
|
|
| |||||
Net income | $ | 7,321 | $ | 10,959 | ||||
|
|
|
| |||||
| At December 31, 2013 | ||||
| (In thousands) | ||||
Financial Condition Data: | ||||
Total assets | $ | 2,102,798 | ||
Investment securities available for sale and held to maturity | 176,133 | |||
Loans, net of allowance of $27,127 | 1,466,756 | |||
Total deposits | 1,599,967 | |||
Other borrowed money | 50,565 | |||
Subordinated debentures | 10,000 | |||
Accrued expenses and other liabilities | 58,643 | |||
Total shareholders’ equity | 383,623 | |||
Comparative Unaudited Pro Forma Per Share Data
The table below sets forth the book value per common share, cash dividends per common share, and basic and diluted earnings per common share data for each of HomeTrust and JeffersonTriSummit on a historical basis, for HomeTrust on a pro forma combined basis and on a pro forma combined basis per Jeffersonfor TriSummit equivalent share. The pro forma combined and pro forma combined per equivalent share information gives effect to the merger as if the merger occurred on December 31, 2013 or June 30, 2013, in the case of the book value data, and as if the merger occurred on July 1, 2012, in the case of the cash dividends and earnings per common share data.shares. The Pro Forma Combined Amounts for HomeTrust data reflect certain purchase accounting adjustments, which are based on estimates that are subject to change depending on fair values as of the merger completion date. These adjustments are described in the notes to unaudited pro forma combined condensed consolidated financial information contained elsewhere in this document under the heading “Unaudited Pro Forma Combined Condensed Consolidated Financial Information,” beginning on page . The Pro Forma Combined Per JeffersonTriSummit Equivalent ShareShares data shows the effect of the merger from the perspective of an owner of Jefferson commonTriSummit stock. The pro forma combined and pro forma combined equivalent shares information give effect to the merger as if the merger had been effective on the date presented in the case of the book value per common share data, and as if the merger had been effective as of July 1, 201 5 , in the case of the cash dividends paid per common share and earnings (loss) per common share data. The pro forma data combine the historical results of TriSummit
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into HomeTrust’s consolidated statement of income and, while certain adjustments were made for the estimated impact of certain fair value adjustments and other merger-related activity, they are not indicative of what could have occurred had the merger taken place on July 1, 201 5 .
The pro forma financial datainformation in the table below is provided for illustrative purposes, does not include any projected cost savings, revenue enhancements or other possible financial benefits of the merger to the combined company and does not attempt to suggest or predict future results and does not reflect the pro forma financial impact of the pending Bank of Commerce acquisition on HomeTrust.results. This information also does not necessarily reflect what the historical financial condition or results of operations of the combined company would have been had HomeTrust and JeffersonTriSummit been combined as of the dates and for the periods shown.
| HomeTrust Historical | Jefferson Historical | Pro Forma Combined Amounts for HomeTrust | Pro Forma Combined Per Jefferson Equivalent Share(1) | |||||||||||||
Book value per common share at December 31, 2013 | $ | 18.10 | $ | 8.12 | $ | 17.93 | $ | 8.53 | ||||||||
Book value per common share at June 30, 2013 | 17.65 | 8.03 | 17.50 | 8.42 | ||||||||||||
Cash dividends per common share for the six months ended December 31, 2013(2) | — | — | — | — | ||||||||||||
Cash dividends per common share for the year ended June 30, 2013(2) | — | — | — | — | ||||||||||||
Basic earnings per common share for the six months ended December 31, 2013 | 0.32 | 0.15 | 0.36 | 0.09 | ||||||||||||
Basic earnings per common share for the year ended June 30, 2013 | 0.45 | 0.25 | 0.51 | 0.13 | ||||||||||||
Diluted earnings per common share for the six months ended December 31, 2013 | 0.32 | 0.15 | 0.35 | 0.09 | ||||||||||||
Diluted earnings per common share for the year ended June 30, 2013 | 0.45 | 0.25 | 0.51 | 0.13 | ||||||||||||
| HomeTrust Historical | TriSummit Historical | Pro Forma Combined Amounts for HomeTrust | Pro Forma TriSummit Common and Series A preferred Shares(1) | |||||||||||||
| Book value per common and Series A preferred share:(2) | ||||||||||||||||
| June 30, 2016 | $ | 20.00 | $ | 7.50 | $ | 19.64 | $ | 8.94 | ||||||||
| Cash dividends paid per common share: | ||||||||||||||||
| Year ended June 30, 2016(3) | - | - | - | - | ||||||||||||
| Basic and diluted earnings per common share: | ||||||||||||||||
| Year ended June 30, 2016(4) | $ | 0.65 | N/A | $ | 0.72 | $ | 0.17 | |||||||||
| (1) | Calculated by multiplying the Pro Forma Combined Amounts for HomeTrust by |
| (2) |
| (3) | Represents the |
| (4) | Pro forma earnings per common share are based on pro forma combined net income and pro forma combined weighted average shares outstanding during the period. |
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THE JEFFERSONTRISUMMIT SPECIAL MEETING
This section contains information about the JeffersonTriSummit special meeting that JeffersonTriSummit has called to allow its shareholders to consider and vote on the JeffersonTriSummit merger proposal and the other Jefferson proposals. JeffersonTriSummit adjournment proposal. TriSummit commenced the mailing of this proxy statement/prospectus to holders of Jefferson commonits capital stock on or about November , 2014.2016. This proxy statement/prospectus is accompanied by a notice of the JeffersonTriSummit special meeting and a form of proxy card that Jefferson’sTriSummit’s board of directors is soliciting for use at the JeffersonTriSummit special meeting and at any adjournments or postponements of the JeffersonTriSummit special meeting.
Date, Time and Place of Meeting
The JeffersonTriSummit special meeting will be held on May 27, 2014December 13 , 2016 at 2:00 p.m.10:30 a.m. , local time, at Jefferson Federal Bank, 120 Evans Avenue, Morristown, Tennessee.the MeadowView Conference Resort & Convention Center, 1901 Meadowview Parkway, Kingsport, Tennessee 37660.
At the JeffersonTriSummit special meeting, holders of Jefferson common stockTriSummit shareholders will be asked to consider and vote on the following matters:
RecommendationRecommendations of Jefferson’sTriSummit’s Board of Directors
After careful consideration, Jefferson’sTriSummit’s board of directors has determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable and in the best interests of JeffersonTriSummit and its common and Series A preferred shareholders, has unanimously approved the merger agreement and unanimously recommends that Jefferson shareholdersholders of TriSummit common stock and Series A preferred stock vote “FOR” the JeffersonTriSummit merger proposal and that holders of TriSummit common stock vote “FOR” the JeffersonTriSummit adjournment proposal and “FOR” the Jefferson compensation proposal. See “The Merger—Jefferson’sTriSummit’s Reasons for the Merger; Recommendation of Jefferson’sTriSummit’s Board of Directors” for a more detailed discussion of Jefferson’sTriSummit’s board of directors’ recommendation.recommendations.
The JeffersonTriSummit board of directors has fixed the close of business on April 16, 2014October 31 , 2016 as the record date for determining the holders of shares of Jefferson commonTriSummit stock entitled to receive notice of andand/or to vote at the JeffersonTriSummit special meeting. Only holders of record of shares of JeffersonTriSummit common and Series A preferred stock as of the close of business on that date will be entitled to vote at the JeffersonTriSummit special meeting and at any adjournment or postponement of thatthe TriSummit special meeting. At the close of business on the record date, there were 6,595,3013,208,830 shares of JeffersonTriSummit common stock outstanding, held by approximately 578316 holders of record, and 402,627 shares of TriSummit Series A preferred stock outstanding, held by approximately 315 holders of record.
Each holder of shares of JeffersonTriSummit common stock outstanding as of the close of business on the record date will be entitled to one vote on each of the TriSummit merger proposal and the TriSummit adjournment proposal for each share held of record. Each holder of shares of TriSummit Series A preferred stock outstanding as of the close of business on the record upondate will be entitled to one vote on the TriSummit merger proposal for each matter properly submitted atshare held of record. With regard to the Jefferson special meeting and at any adjournment or postponement of that meeting. TheTriSummit merger proposal, the presence at the JeffersonTriSummit special meeting, in person or by proxy, of holders of at least a majority of the outstanding shares of JeffersonTriSummit common stock and TriSummit Series A preferred stock entitled to vote (voting together as a single class) at the Jefferson special meeting on the TriSummit merger proposal will constitute a quorum for the transaction of business. business on the TriSummit merger proposal. With regard to the TriSummit adjournment proposal, the presence at the TriSummit special meeting, in person or by proxy, of holders of at least a majority of the shares of TriSummit common stock entitled to vote at the special meeting on the TriSummit adjournment proposal will constitute a quorum for the transaction of business on the
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TriSummit adjournment proposal.All shares of JeffersonTriSummit common stock and Series A preferred stock present in person or represented by proxy at the TriSummit special meeting, including abstentions and broker non-votes, will be treated as present for purposes of determining the presence or absence of a quorum for all matters voted on at the JeffersonTriSummit special meeting.
Vote Required; Treatment of Abstentions and Failure to Vote
To approve
For the JeffersonTriSummit merger proposal the affirmative vote ofto be approved by TriSummit’s shareholders, a majority of the shares of JeffersonTriSummit common stock outstanding and TriSummit Series A preferred stock entitled to vote thereonon the TriSummit merger proposal (voting together as a single class) must be voted in favor of such proposal. The JeffersonFor the TriSummit adjournment proposal and the Jefferson compensation proposal will eachto be approved if a majority ofby TriSummit’s shareholders, the votes cast at the Jefferson special meeting are votedby holders of TriSummit common stock in favor of such proposal. If you mark “ABSTAIN” on your proxy or fail
to submit a proxy and fail to vote in personproposal at the JeffersonTriSummit special meeting with respect tomust exceed the Jefferson merger proposal, it will have the same effect as a vote “AGAINST”votes cast by holders of TriSummit common stock in opposition of such proposal. If you mark “ABSTAIN” on your proxy or fail to submit a proxy and fail to vote in person at the JeffersonTriSummit special meeting with respect to the JeffersonTriSummit merger proposal, it will have the same effect as a vote “AGAINST” the TriSummit merger proposal. If you mark “ABSTAIN” on your proxy or fail to submit a proxy and fail to vote in person at the TriSummit special meeting with respect to the TriSummit adjournment proposal or the Jefferson compensation plan proposal, it will have no effect on suchthe TriSummit adjournment proposal.
Shares Held by Directors and Executive Officers; Voting Agreements
As of the record date for the JeffersonTriSummit special meeting, JeffersonTriSummit’s directors and executive officers and their affiliates owned and were entitled to vote approximately 568,544385,834 shares of JeffersonTriSummit common stock representing(representing approximately 8.7%12.02 % of the outstanding shares of JeffersonTriSummit common stock.stock on that date) and approximately 4,600 shares of TriSummit Series A preferred stock (representing approximately 1.14 % of the outstanding shares of TriSummit Series A preferred stock on that date). Neither HomeTrust nor its directors, executive officers andor their affiliates own any shares of Jefferson commonTriSummit capital stock.
Concurrent with the execution of the merger agreement, the directors and executive officers of JeffersonTriSummit entered into voting agreements with HomeTrust under which they have agreed (1) to vote or cause to be voted in favor of the JeffersonTriSummit merger proposal all shares of JeffersonTriSummit common stock overand TriSummit Series A preferred stock of which they are the record or beneficial owner consisting of approximately 395,263 shares of Jefferson common stock and representing approximately 6.0%as the date of the outstanding shares of Jefferson common stock,voting agreement and (2) subject to limited exceptions, not to sell or otherwise dispose any of their shares of JeffersonTriSummit common stock or TriSummit Series A preferred stock until after the approval of the JeffersonTriSummit merger proposal by the shareholders of Jefferson.TriSummit. For additional information regarding the voting agreements, see “The Merger Agreement—Voting Agreements.”
Voting of Proxies; Incomplete Proxies
Each copy of this proxy statement/prospectus mailed to holders of JeffersonTriSummit common stock or TriSummit Series A preferred stock is accompanied by a form of proxy card with instructions for voting. If you hold shares of JeffersonTriSummit common stock or TriSummit Series A preferred stock in your name as a shareholder of record, you should complete and return the proxy card accompanying this proxy statement/prospectus, regardless of whether you plan to attend the special meeting. You may also vote your shares through the Internetinternet or by telephone. Information and applicable deadlines for voting through the Internetinternet or by telephone are set forth in the enclosed proxy card instructions.
If you hold
All shares of JeffersonTriSummit common stock in “street name” through a bank, broker or other nominee, you must direct your bank, broker or other nominee how to vote in accordance with the instructions you have received from your bank, broker or other nominee. See “—Shares Held in Street Name; Broker Non-Votes.”
All sharesand TriSummit Series A preferred stock represented by valid proxies that JeffersonTriSummit receives through this solicitation and that are not revoked will be voted at the JeffersonTriSummit special meeting in accordance with your instructions on the proxy card. If you make no specification on your proxy card as to how you want your shares voted before signing and returning it, your proxyshares of TriSummit common stock, if any, and your shares of TriSummit Series A preferred stock, if any, will be voted “FOR” the JeffersonTriSummit merger proposal, and your shares of TriSummit common stock, if any, will be voted “FOR” the JeffersonTriSummit adjournment proposal and “FOR” the Jefferson compensation proposal. No matters other than the matters described in this proxy statement/prospectus are anticipated to be presented for action at the JeffersonTriSummit special meeting or at any adjournment or postponement of the JeffersonTriSummit special meeting. However, if other business properly comes before the JeffersonTriSummit special meeting or any adjournment or postponement thereof, the proxy agents will, in their discretion, vote upon such matters in their best judgment.
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Shares Held in Street Name; Broker Non-Votes
If you are a Jefferson shareholder and your shares are held in “street name” through a bank, broker or other nominee, you must provide the record holderTable of your shares with instructions on how to vote the shares. Please follow the voting instructions provided by the bank, broker or other nominee. You may not vote shares held in street name by returning a proxy card directly to Jefferson or by voting in person at the Jefferson special meeting unless you provide a “legal proxy,” which you must obtain from your bank, broker or other nominee. Further, because each of the proposals to be considered at the Jefferson special meeting is a “non-routine” matter, under stock exchange rules, banks, brokers or other nominees who hold shares of Jefferson common stock on behalf of their customers may not give a proxy to Jefferson to vote those shares with respect to any of these proposals without specific voting instructions from their customers. Therefore, if you do not instruct your bank, broker or other nominee on how to vote your street name shares:Contents
Broker non-votes are shares held by a broker, bank or other nominee that are represented at the Jefferson special meeting, but with respect to which the broker, bank or nominee is not instructed by the beneficial owner of such shares to vote on the particular proposal and the broker, bank or nominee does not have discretionary voting power on such proposal.
Revocability of Proxies and Changes to a JeffersonTriSummit Shareholder’s Vote
If you hold shares of JeffersonTriSummit common stock or TriSummit Series A preferred stock in your name as a shareholder of record, you may revoke any proxy at any time before it is voted at the JeffersonTriSummit special meeting by (1) signing and returning a proxy card with a later date, (2) delivering a written revocation to Jefferson’s Corporate Secretary,TriSummit’s President and Chief Executive Officer, (3) attending the JeffersonTriSummit special meeting in person notifying the Corporate Secretary and voting by ballot at the JeffersonTriSummit special meeting, or(4) voting by telephone or the Internetinternet at a later time but prior to the Jefferson special meeting.deadline for telephone and internet voting specified in the enclosed proxy card instructions.
Any TriSummit shareholder entitled to vote in person at the JeffersonTriSummit special meeting may vote in person regardless of whether a proxy has been previously given, but the mere presence (without notifying Jefferson’s Corporate SecretaryTriSummit’s President and Chief Executive Officer of revocation) of a shareholder at the JeffersonTriSummit special meeting will not constitute revocation of a previously given proxy.
Written notices of revocation and other communications about revoking your proxy card should be addressed to: Jefferson Bancshares,TriSummit Bancorp, Inc., Attn: Corporate Secretary, 120 Evans Avenue, Morristown,Attention: President and Chief Executive Officer, Post Office Box 628, Kingsport, Tennessee 37814.37662.
If your shares are held in “street name” by a bank, broker or other nominee, you must follow the instructions of your bank, broker or other nominee regarding changes in voting instructions.
Jefferson
TriSummit will bear the entire cost of soliciting proxies from JeffersonTriSummit shareholders. In addition to solicitation of proxies by mail, Jefferson will request that banks, brokers and other record holders send proxies and proxy material to the beneficial owners of Jefferson common stock and secure their voting instructions. Jefferson will reimburse the record holders for their reasonable expenses in taking those actions. If necessary, JeffersonTriSummit may use its directors and several of its regular employees, who will not be specially compensated, to solicit proxies from the JeffersonTriSummit shareholders, either personally or by telephone, facsimile, letter, or electronic means. JeffersonAdditionally, TriSummit has also made arrangements with AST Phoenix Advisorsengaged Georgeson to assist itwith the solicitation of proxies. TriSummit will pay approximately $6,000, plus $5.50 for each call made to or received from holders of TriSummit common stock or Series A preferred stock, in addition to other fees, including the reimbursement of routine out-of-pocket expenses in connection with this proxy solicitation. In addition, TriSummit will indemnify Georgeson against any losses arising out of the firm’s proxy soliciting services on behalf of TriSummit. Georgeson may solicit proxies and has agreed to pay AST Phoenix Advisors approximately $5,500 plus reasonable expenses for these services.by telephone or other electronic means or in person.
Attending the JeffersonTriSummit Special Meeting
All holders of Jefferson commonTriSummit capital stock, including shareholders of record and shareholders who hold their shares through banks, brokers, nomineeswhether or any other holder of record,not entitled to vote at the TriSummit special meeting, are invited to attend the JeffersonTriSummit special meeting. If you hold your Jefferson shares in an account at a brokerage firm or bank, your name will not appear on Jefferson’s shareholder list. Please bring an account statement or a letter from your broker showing your holdings
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JeffersonTriSummit Merger Proposal
As discussed elsewhere in this proxy statement/prospectus, JeffersonTriSummit is asking holders of its shareholderscommon stock and Series A preferred stock to approve the JeffersonTriSummit merger proposal. Holders of JeffersonTriSummit common stock and Series A preferred stock should read carefully this proxy statement/prospectus in its entirety, including the appendices, for more detailed information concerning the merger agreement and the merger. In particular, holders of JeffersonTriSummit common stock and Series A preferred stock are directed to the merger agreement, a copy of which is attached asAppendix A to this proxy statement/prospectus.
The affirmative vote of the holders of a majority of the outstanding shares of JeffersonTriSummit common stock and TriSummit Series A preferred stock entitled to vote on the TriSummit merger proposal (voting together as a single class) is required to approvefor the Jeffersonapproval of the TriSummit merger proposal.
The JeffersonTriSummit board of directors unanimously recommends that Jefferson shareholdersholders of TriSummit common stock and TriSummit Series A preferred stock vote “FOR” the JeffersonTriSummit merger proposal.
Each of the directors and executive officers of JeffersonTriSummit and TriSummit Bank has entered into a voting agreement with HomeTrust, pursuant to which eachthe director or executive officer has agreed to vote “FOR” the JeffersonTriSummit merger proposal. For more information regarding thethese voting agreements, see “The Merger Agreement—Voting Agreements.”
Under Tennessee law, shareholders are not entitled to bring any other proposals before the JeffersonTriSummit special meeting.
JeffersonTriSummit Adjournment Proposal
The JeffersonTriSummit special meeting may be adjourned to another time or place, if necessary or appropriate to permit, among other things, further solicitation of proxies if necessaryin the event there is not a sufficient number of votes present at the TriSummit special meeting in person or by proxy, and entitled to obtain additional votes in favor ofvote, to approve the JeffersonTriSummit merger proposal.
If at the JeffersonTriSummit special meeting the number of shares of JeffersonTriSummit common stock and Series A preferred stock present in person or representedby proxy and voting in favor of the JeffersonTriSummit merger proposal is insufficient to approve the JeffersonTriSummit merger proposal, JeffersonTriSummit intends to move to adjourn the JeffersonTriSummit special meeting in order to enable the JeffersonTriSummit board of directors to solicit additional proxies for approval of the JeffersonTriSummit merger proposal.
In
By this proposal, JeffersonTriSummit is asking holders of its shareholderscommon stock to authorize the holder of any proxy solicited by the JeffersonTriSummit board of directors from a holder of TriSummit common stock to, on a discretionary basis, to vote in favor of adjourning the JeffersonTriSummit special meeting to another time andor place for the purpose of soliciting additional proxies, including the solicitation of proxies from JeffersonTriSummit shareholders who have previously voted.voted against the TriSummit merger proposal.
The affirmative
Only holders of TriSummit common stock as of the record date set for the TriSummit special meeting are entitled to vote ofon the TriSummit adjournment proposal. For the TriSummit adjournment proposal to be approved by the holders of a majority ofTriSummit common stock, the votes cast onby holders of TriSummit common stock in favor of such proposal at the Jefferson adjournment proposal is required to approveTriSummit special meeting must exceed the Jefferson adjournmentvotes cast by holders of TriSummit common stock in opposition of such proposal.
The JeffersonTriSummit board of directors unanimously recommends that Jefferson shareholdersholders of TriSummit common stock vote “FOR” the JeffersonTriSummit adjournment proposal.
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Table of ContentsJefferson Compensation Proposal
In accordance with Section 14A of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) Jefferson is providing its shareholders with the opportunity to cast an advisory (non-binding) vote on certain compensation that may become payable to its named executive officers that is based on or otherwise relates to the merger, the value of which is set forth in the table included in the section of this proxy statement/prospectus entitled “The Merger—Merger-Related Compensation for Jefferson’s Named Executive Officers”. As required by Section 14A of the Exchange Act, and the applicable SEC rules issued thereunder, Jefferson is asking its shareholders to vote on the approval of the following resolution:
“RESOLVED, that the compensation that may be paid or become payable to Jefferson’s named executive officers that is based on or otherwise relates to the merger, as disclosed in the table and associated narrative discussion in the section of the proxy statement/prospectus statement entitled “The Merger—Merger-Related Compensation for Jefferson’s Named Executive Officers,” is hereby APPROVED.”
The affirmative vote of the holders of a majority of the votes cast on the Jefferson compensation proposal is required to approve the Jefferson compensation proposal. The vote on named executive officer merger-related compensation is a vote separate and apart from the vote on the Jefferson merger proposal. Accordingly, a Jefferson shareholder may vote to approve the Jefferson merger proposal and vote not to approve the Jefferson compensation proposal and vice versa.
Because the vote on named executive officer merger-related compensation is advisory in nature only, it will not be binding on either Jefferson or HomeTrust. Accordingly, because Jefferson is contractually obligated to pay the compensation described in the section of this proxy statement/prospectus entitled “The Merger—Merger-Related Compensation for Jefferson’s Named Executive Officers”, such compensation will be payable, subject only to the conditions applicable thereto, if the merger is approved and the merger is completed, regardless of the outcome of the advisory vote.
The Jefferson board of directors unanimously recommends that Jefferson shareholders vote “FOR” the Jefferson compensation proposal.
The following discussion contains certain information about the merger. The discussion is subject, and qualified in its entirety by reference, to the merger agreement attached asAppendix Ato this proxy statement/prospectus and incorporated herein by reference. We urge you to read carefully this entire proxy statement/prospectus, including the merger agreement attached asAppendix A, for a more complete understanding of the merger.
Each of HomeTrust’s and Jefferson’sTriSummit’s board of directors has approved the merger agreement. The merger agreement provides for the merger of JeffersonTriSummit with and into HomeTrust, with HomeTrust continuing as the surviving corporation in the merger. Immediately following the completion of the merger, Jefferson’sTriSummit’s wholly owned bank subsidiary, Jefferson FederalTriSummit Bank, will merge with and into HomeTrust’s wholly owned bank subsidiary, HomeTrust Bank, with HomeTrust Bank continuing as the resulting institution in the bank merger.
In the merger, each share of JeffersonTriSummit common stock, $0.01$1.00 par value per share, and TriSummit Series A preferred stock, $1.00 par value per share, issued and outstanding immediately prior to the completion of the merger, except for specified shares of Jefferson commonTriSummit stock held by JeffersonTriSummit or HomeTrust and unallocateddissenting shares, of Jefferson common stock held by the Jefferson Federal Bank Employee Stock Ownership Plan, will be converted into the right to receive $4.00$4.40 in cash plus a number of shares of HomeTrust common stock equal to $4.00$4.40 divided by the average HomeTrust common stock price (the “exchange ratio”), subject to adjustment, which we refer to as the “merger consideration”.consideration.” If the average HomeTrust common stock price is equal to or less than $19.05 per share, then the exchange ratio will be fixed at .2310. If the average HomeTrust common stock price is equal to or greater than $20.96 per share, then the exchange ratio will be fixed at .2099. No fractional shares of HomeTrust common stock will be issued in connection with the merger, and holders of JeffersonTriSummit common stock and TriSummit Series A preferred stock will be entitled to receive cash in lieu thereof.
Jefferson shareholders
Holders of TriSummit common stock and TriSummit Series A preferred stock are being asked to approve the merger agreement. See “The Merger Agreement” for additional and more detailed information regarding the legal documents that govern the merger, including information about the conditions to the completion of the merger and the provisions for terminating or amending the merger agreement.
Jefferson’s
As part of its ongoing consideration and evaluation of TriSummit’s long-term strategic plan, TriSummit’s board of directors and senior management have from time to time engaged inregularly reviews and discussions of long-termassesses the company’s business strategies and objectives, and have considered ways to enhance Jefferson’s performance and prospects in light of competitive and other relevant developments, all with the goal of enhancing shareholder value. These reviews have included periodic discussions with respect to potential transactions that would further its strategic objectives andmaximizing value for the potential benefits and risks of any such transactions.
In 2011, the Jeffersoncompany’s shareholders. The TriSummit board of directors authorized KBW, acting as Jefferson’s financial advisor,also periodically considers the many challenges that may affect TriSummit’s ability to contact selected parties regarding theirgrow its existing business and maximize shareholder value in the current economic and regulatory environment. In recent years, the challenges and risks to TriSummit have included limited access to growth capital, increasing operating costs, the low interest in a possible business combinationrate environment, increasing competition, and challenges associated with Jefferson. For a variety of reasons, including that several potential acquirors were not engaged in acquisition activity at that time because of their need to address their own operational issues, and that those who were engaged in acquisition activity were interested in acquiring Jefferson only at a significant discount to book value, these efforts did not result in a transaction.
During the first half of 2013, Jefferson engaged in discussions with an out-of-state bank holding company regarding a possible business combination. In late May of 2013, these discussions ended without the other company making a proposal for a transaction.
On June 11, 2013, at a meeting of the Jeffersongrowing loan volumes while maintaining asset quality. The board of directors is also mindful of the fact that TriSummit’s stock is not publicly traded, resulting in limited liquidity for TriSummit shareholders. As such, the board hadof directors generally discussed on occasion the possibility of a preliminary discussion with KBW regarding a possible business combination with HomeTrust. After this discussion,strategic transaction if an attractive valuation and structure were presented to the board determined that Jefferson should further explore a possible business combination with HomeTrust.company.
On June 13, 2013, HomeTrust executed a non-disclosure agreement and Jefferson began updating its electronic data room with due diligence materials.
On June 24, 2013, Edward Broadwell, Jr., then Chairman and Chief Executive OfficerIn January of HomeTrust, and Dana Stonestreet, then President and Chief Operating Officer of HomeTrust, met with H. Scott Reams, Chairman of the Board of Jefferson, Anderson Smith,2016, TriSummit’s President and Chief Executive Officer, R. Lynn Shipley, Jr., met informally with the chief executive officer of Jefferson,another financial institution to discuss a potential combination of their two organizations. TriSummit and this institution executed a representativemutual non-disclosure agreement. In February of KBW.2016, Mr. BroadwellShipley and other members of the TriSummit management team met again with representatives of this institution. The organizations continued to engage in discussions over the following months; however, the other institution ultimately decided to pursue other initiatives.
On March 9, 2016, TriSummit engaged BSP Securities to provide certain financial advisory and investment banking services, including: (i) an evaluation of strategic initiatives or alternatives and the company’s long-term strategy, (ii) an evaluation of a potential merger or sale of TriSummit, including an evaluation of the relative strengths and weaknesses of potential merger partners and the financial rationale and implications for shareholder
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value of a potential transaction, and (iii) if requested by TriSummit, an opinion as to the fairness, from a financial point of view, of the consideration received in a potential merger or sale by TriSummit’s shareholders.
In March and April of 2016, BSP Securities prepared a confidential information memorandum regarding TriSummit, and gathered TriSummit due diligence materials into an electronic data room. In May of 2016, representatives of BSP Securities identified 14 financial institutions to contact on a confidential basis in order to ascertain their respective levels of interest in acquiring TriSummit. Of the 14 institutions contacted, 11 initially expressed interest in a possible transaction. Mutual non-disclosure agreements were executed with eight of those institutions, and those eight institutions were each provided with the confidential information memorandum. Of the eight institutions that received the confidential information memorandum, three requested access to the online data room that contained certain non-public information regarding TriSummit. HomeTrust was among the 14 financial institutions initially contacted and among the three institutions that requested access to the data room. HomeTrust executed a mutual non-disclosure agreement on May 19, 2016.
During the ensuing weeks, those institutions that had executed non-disclosure agreements and requested access to the data room conducted preliminary due diligence on TriSummit to determine whether to pursue further negotiations regarding a potential acquisition of TriSummit.
On June 6, 2016, Mr. Shipley met with HomeTrust’s Chairman, President, and Chief Executive Officer, Dana L. Stonestreet, to informally discuss the possible combination of the two companies. Mr. Stonestreet presented an introduction and overview of HomeTrust and the parties discussed a number of matters relevant to a possible combination of their organizations, including their respective company culture,cultures, banking strategy, staffing, competitive environment, asset quality and other matters.
On July 16, 2013, HomeTrust retained Sandler O’Neill to serve as HomeTrust’s outside financial advisor in connection with the potential strategic transaction with Jefferson.
Over the next several weeks, HomeTrust reviewed the due diligence materials made available by Jefferson and the parties communicated regarding various due diligence matters.
In early September, HomeTrust, with the assistance of a third party loan review firm, conducted an on-site review of Jefferson’s loan portfolio. Later that month, HomeTrust and Jefferson had a detailed conversation regarding expense savings for the combined company.
At a regularly-scheduled meeting of the Jefferson board of directors on October 31, 2013, the board of directors of Jefferson discussed the potential business combination with HomeTrust. At this meeting, the Jefferson board of directors reviewed with KBW the recent financial and market performance of HomeTrust and Jefferson and recent trends in the mergers and acquisition market for financial institutions. KBW also reviewed with the board of directors the process that had been undertaken to date to locate a merger partner. Following a full discussion of the contemplated transaction, the Jefferson board of directors authorized management and Jefferson’s representatives to continue discussions with HomeTrust and its representatives regarding the proposed transaction.
In early November, Jefferson was contacted by another bank holding company that had previously expressed interest in a possible business combination with Jefferson, but then determined not to proceed. On November 6, 2013,11, 2016, Mr. Smith met with senior executive officers of the other bank holding company to discuss their renewed interest in a possible business combination with Jefferson.
On November 13 and 15, 2013, representatives of HomeTrust management met with senior executive officers of Jefferson to further discuss the proposed business combination.
On December 9, 2013, HomeTrust provided Jefferson with a written indication of interest regarding a business combination between the two companies that provided that Jefferson shareholders would receive $8.00 in merger consideration for each share of Jefferson common stock consisting of $4.00 in cash plus $4.00 in HomeTrust common stock.
On December 10, 2013, the Jefferson board of directors met to review the indication of interest letter. Participating in the meeting were representatives of KBW and Kilpatrick Townsend & Stockton LLP, Jefferson’s special legal counsel, which we refer to as Kilpatrick Townsend. The board discussed with KBW financial aspects
of HomeTrust’s proposal. After further discussion, the Jefferson board of directors determined to meet with the executive management of HomeTrust to learn firsthand more about HomeTrust. The Jefferson board of directors also approved the engagement of Professional Bank Services as independent financial advisor to the board of directors.
On December 12, 2013, the Jefferson board of directors met with a representative of Professional Bank Services to discuss the proposed business combination with HomeTrust and the upcoming meeting with HomeTrust’s management.
On December 17, 2013, the Jefferson board of directors met to receive a presentation from the executive management of HomeTrust. Dana Stonestreet, President and Chief Executive Officer,Shipley, together with Tony VunCannon,TriSummit’s Chief Financial Officer and Hunter Westbrook, Chief BankingOperations Officers, George J. Schneider, and Chief Credit Officer, delivered a presentation regarding the operationsWilliam B. Bell, III, met with Mr. Stonestreet and strategyother executive officers and senior management of HomeTrust and answered questionsat HomeTrust’s main office to discuss a potential combination of the directors regardingtwo companies, including the companies’ respective business strategies, cultures, goals, and operations, in addition to a discussion of certain of TriSummit’s assets.
By letter dated July 22, 2016, HomeTrust delivered an initial non-binding indication of interest to TriSummit setting forth two alternative pricing options for a proposed business combination: (1) a price per share of TriSummit common stock and Series A preferred stock between $8.70 and $9.00, with the final price to be set following and based on the appraisal of certain of TriSummit’s real property, or (2) a fixed price of $8.80 per share of TriSummit common stock and Series A preferred stock. The indication of interest provided that the consideration would be paid 50% in cash and 50% in shares of HomeTrust common stock, with the exchange ratio calculated based on the 20-day average closing price of HomeTrust’s common stock and with the minimum closing price to be no less than HomeTrust’s tangible book value as of the previous month-end and the proposedmaximum to be no more than 110% of HomeTrust’s tangible book value as of the previous month-end. The indication of interest contemplated that any TriSummit options with strike prices greater than the implied value of the merger consideration on a per share basis (i.e., “out-of-the-money” options) would be cancelled. The initial indication of interest also requested that TriSummit enter into an exclusivity period to permit the parties to more fully negotiate the terms of a potential transaction.
Representatives of BSP Securities requested that institutions confirm their non-binding indications of interest during the week of July 25, 2016. No other indications of interest were received by TriSummit.
On December 18, 2013, Jefferson receivedAugust 2, 2016, the TriSummit board of directors held a proposedspecial meeting to review the non-binding indication of interest letter from HomeTrust. Representatives of BSP Securities and Butler Snow LLP, counsel to TriSummit, which we refer to as Butler Snow, were in attendance at this meeting. BSP Securities representatives presented the other bank holding companyboard of directors with respectan analysis of various strategic alternatives available to TriSummit, including the need to raise additional capital if TriSummit remains an independent institution, the pricing of recent acquisitions in the financial institutions industry, and the projected value of a proposed business combination that provided that Jefferson shareholders would receive stocktransaction with HomeTrust. The board of directors discussed the benefits of the acquiring companytransaction with aHomeTrust, including the value ranging from $5.50of HomeTrust’s common stock, the opportunity for liquidity for TriSummit shareholders, and HomeTrust’s ability to $7.50grow the combined institution. The board of directors additionally discussed challenges to the organization’s continued
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growth, including the current interest rate environment, increased regulatory compliance costs, and the desire to provide liquidity for the company’s shareholders. After extensive discussions regarding the merits of the HomeTrust indication of interest, the board of directors instructed representatives of BSP Securities to ask HomeTrust to increase the merger consideration to an implied value of $9.10 per share of Jefferson commonTriSummit stock, depending on identificationand to provide additional concessions, including the assumption of operational cost savingsout-of-the-money options, certain adjustments regarding the timing of the determination of the pricing collar, and an extension of the time period during which HomeTrust would indemnify and provide insurance coverage for TriSummit’s directors and officers.
On August 9, 2016, HomeTrust submitted a revised non-binding indication of interest, which did not increase the merger consideration, but did provide for certain other of the amendments requested by TriSummit, including adjustments to the pricing collar and the extentassumption of adjustments needed to recordhalf of the assets and liabilities of Jefferson at fair market value for purchase accounting purposes.out-of-the-money stock options.
On December 19, 2013, a representative of Professional Bank Services met with management of HomeTrust to discuss elements of HomeTrust’s financial condition, operations and business plan.
On December 23, 2013,August 11, 2016, the JeffersonTriSummit board of directors met to discuss the proposals from HomeTrust and the other bank holding company and to receive an update from Professional Bank Services regarding its meeting with HomeTrust. The Jefferson board concluded that the proposal from HomeTrust was superior because of price, the cash component and the relative value of HomeTrust common stock based on price to tangible book value and approved moving forward to negotiate a definitive agreement with HomeTrust on the terms set forth in itsrevised indication of interest, letter. The Jefferson boardand after discussion regarding the merits of directors approved the engagementindication of Professional Bank Services to render a fairness opinion tointerest, the board authorized senior management to continue to negotiate the terms of directorsa sale transaction with HomeTrust. TriSummit and the engagement of counsel to advise the independent directors.HomeTrust entered into exclusive negotiations on August 15, 2016.
On January 9, 2014, Jefferson, with the assistance of its outside advisors, conducted on-site due diligence of HomeTrust. Throughout the day, members of management of each of the companies and their respective advisors engaged in a series of comprehensive discussions and questioning aboutAugust 30, 2016, HomeTrust’s business. At the conclusion of the meeting, HomeTrust deliveredlegal counsel, Silver Freedman Taff & Tiernan LLP, which we refer to as SFT&T, distributed an initial draft of an agreement and plan of merger to Butler Snow. From August 30, 2016, to September 15, 2016, HomeTrust and TriSummit and their respective financial and legal advisors negotiated and finalized the proposed merger agreement.
On January 14, 2014, the Jefferson board of directors met to review the statusterms of the proposed transaction. Management of Jefferson reported onmerger agreement and the due diligence investigation of HomeTrust. Kilpatrick Townsend reviewed in detailrelated ancillary agreements. On September 15, 2016, the terms of the definitive merger agreement and related documents withancillary agreements were finalized for presentation to the parties’ respective boards of directors.
On September 16, 2016, the board of directors of TriSummit met to consider the proposed transaction with HomeTrust, after receiving presentations from TriSummit’s outside legal counsel and answered questions ofBSP Securities and discussions with senior management. At the directors.
Over the following days, the parties negotiated the terms of the merger agreement.
On January 16, 2014, the independentmeeting, TriSummit’s legal counsel reviewed with its directors of Jefferson met with counsel to the independent directors to review their fiduciary dutiesduty to the shareholders of Jefferson and the requirements of theunder Tennessee Business Corporation Act regarding approving “conflicting interest transactions”.
On Tuesday, January 21, 2014, Jefferson’s board oflaw. Legal counsel also reviewed with directors held a special meeting to discuss the terms and conditions of the proposedmerger agreement, the merger, and the merger agreement. At the meeting, a representative of Professional Bank Services presented an overview of the current economic environment, the banking markets for Jefferson and HomeTrust and the competitive market for each of them and analyzed the merger consideration in comparison to current market value, prices paid in recent comparable transactions, and various valuation methodologies. At the conclusion of its presentation, Professional Bank Services delivered its oral opinion, subsequently confirmed in writing, that the consideration proposedagreements to be received by the shareholders of Jefferson under the merger agreement is fair and equitable from a financial perspective. Kilpatrick Townsend then reviewedsigned in connection with the directors the changes to the proposed merger agreement that had been made since the initial draft of the agreement that was reviewed with the directors on January 14 and highlighted the significant provisions of the merger agreement. Kilpatrick Townsend
alsoBSP Securities reviewed the exhibits to the merger agreement, including the employment contracts with Mr. Smith and two other executive officers of Jefferson. Also at this meeting, KBW reviewed with the board its financial analysisaspects of the proposed merger consideration and delivered its oral opinion, which was confirmed by a writtenrendered to the TriSummit board of directors an opinion, dated January 21, 2014,September 16, 2016, to the effect that, as of such date and subject to the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by BSP Securities as set forth in thesuch opinion, the consideration to be received by holders of TriSummit common stock and TriSummit Series A preferred stock in the merger pursuant to the terms of the merger agreement is fair to the holders of JeffersonTriSummit common stock under the merger agreement was fair,and TriSummit Series A preferred stock from a financial point of view, to such holders. Theview. Following a discussion among members of TriSummit’s board of directors, reviewed these presentations carefully and considered the experience and qualifications of Professional Bank Services and KBW. The board also carefully reviewed and considered how the proposed transaction was expected to benefit Jefferson’s constituents. Kilpatrick Townsend advised that Mr. Smith might be viewed as having a material financial interest in the transaction by virtueincluding consideration of the fact that, as partfactors described under “—TriSummit’s Reasons for the Merger; Recommendation of the transaction proposed by HomeTrust, Mr. Smith would continue to be employed by HomeTrust and would enter into an employment agreement with HomeTrust’s bank subsidiary. In addition, Kilpatrick Townsend advised that director Jack Campbell might be viewed as having a material relationship with Mr. Smith by virtueTriSummit Board of the marriage of their children and, therefore, would not be a “qualified director” for purposes of voting on the proposed transaction. AtDirectors” below in this point in the meeting, Mr. Smith and Dr. Campbell were excused so that the remaining directors could deliberate and vote on the transaction. After discussion of the transaction, the “qualified directors” of Jefferson unanimously approved the definitive merger agreement. Mr. Smith and Dr. Campbell rejoined the meeting and entireproxy statement/prospectus, TriSummit’s board of directors unanimously determined that the merger agreement and the merger are advisable and in the best interests of TriSummit and its shareholders and approved and adopted the definitive merger agreement.agreement, and resolved to submit the merger agreement to TriSummit’s shareholders for approval and to recommend approval of the merger agreement by TriSummit’s shareholders.
On January 22, 2014,September 16, 2016, HomeTrust’s board of directors held a special meeting to review and discuss the proposed merger and the merger agreement. Following such discussion, HomeTrust’s board of directors unanimously voted to approve the merger agreement and the transactions contemplated by the merger agreement, including the merger, and authorized HomeTrust’s management to execute the merger agreement.
Thereafter, on Thursday morning, January 23, 2014,
On September 20, 2016, the merger agreement was executed by officers of HomeTrust and Jefferson,TriSummit, and before the financial markets opened on thatthe following day, HomeTrust and JeffersonTriSummit issued a joint press release announcing the execution of the merger agreement and the terms of the merger.
Jefferson’sTriSummit’s Reasons for the Merger; Recommendation of Jefferson’sTriSummit’s Board of Directors
After careful consideration, at a meeting held on January 21, 2014, Jefferson’sSeptember 16, 2016, TriSummit’s board of directors unanimously determined that the merger agreement, including the merger and the other transactions contemplated thereby, is in the best interests of JeffersonTriSummit and its shareholders. Accordingly, Jefferson’scommon and Series A preferred shareholders and unanimously approved the
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merger agreement. TriSummit’s board of directors unanimously approved the merger agreement andnow recommends that Jefferson’s shareholdersholders of TriSummit common stock and TriSummit Series A preferred stock vote “FOR” the JeffersonTriSummit merger proposal and that holders of TriSummit common stock vote “FOR” the JeffersonTriSummit adjournment proposal and “FOR” the Jefferson compensation proposal.
In reaching its decision to approve the merger agreement, including the merger and the other transactions contemplated by the merger agreement, and recommend that its shareholders vote “FOR” the JeffersonTriSummit merger proposal, the JeffersonTriSummit board of directors consulted with JeffersonTriSummit management, as well as its independent financial and legal advisors, and considered a number of factors, including the following material factors:
| · | its knowledge of TriSummit’s business, operations, financial condition, asset quality, earnings, loan portfolio, capital and prospects both as an independent organization and as a part of a combined company with HomeTrust; |
| · | its understanding of HomeTrust’s business, operations, regulatory and financial condition, asset quality, earnings, capital and prospects taking into account presentations by senior management of its due diligence review of HomeTrust and information furnished by BSP Securities; |
| · | its belief that the merger will result in a stronger commercial banking franchise with a diversified revenue stream, strong capital ratios, a well-balanced loan portfolio and an attractive funding base that has the potential to deliver a higher value to TriSummit’s shareholders as compared to continuing to operate as a standalone entity; |
| · | the belief that HomeTrust and TriSummit share a common vision of the importance of customer service and local decision-making and that management and employees of TriSummit and HomeTrust possess complementary skills and expertise, which management believes should facilitate integration and implementation of the transaction; |
| · | the expanded possibilities, including organic growth and future acquisitions, that would be available to HomeTrust given its larger size, asset base, capital, market capitalization and trading liquidity and footprint; |
| · | the anticipated pro forma impact of the merger on HomeTrust, including potential synergies, and the expected impact on financial metrics such as earnings and tangible equity per share, as well as on regulatory capital levels; |
| · | the fact that the value of the merger consideration for holders of TriSummit common stock at $8.80 per share represents a premium of approximately 26% over the $7.00 last known sales price of TriSummit common stock on December 23, 2015, and that the value of the merger consideration for holders of TriSummit Series A preferred stock at $8.80 per share represents a premium of approximately 26% over the $7.00 last known sales price of TriSummit Series A preferred stock on October 17, 2014; |
| · | the board’s review of similar transactions and belief that the merger is likely to provide substantial future value to holders of TriSummit common stock and Series A preferred stock; |
| · | the financial analyses of BSP Securities, TriSummit’s independent financial advisor, and its written opinion, dated as of September 16, 2016, delivered to the TriSummit board of directors to the effect that, as of that date and subject to and based on the various assumptions, considerations, qualifications and limitations set forth in the opinion, the merger consideration was fair, from a financial point of view, to TriSummit’s common and Series A preferred shareholders; |
| · | the benefits to TriSummit and its customers of operating as part of a larger organization, including enhancements in products and services, higher lending limits, and greater financial resources; |
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| · | the increasing importance of operational scale and financial resources in maintaining efficiency and remaining competitive over the long term and in being able to capitalize on technological developments which significantly impact industry competitive conditions; |
| · | the expected social and economic impact of the merger on the constituencies served by TriSummit, including its borrowers, customers, depositors, employees, suppliers and communities; |
| · | the effects of the merger on TriSummit employees, including the prospects for continued employment in a larger organization and various benefits agreed to be provided to TriSummit employees; |
| · | the board’s understanding of the current and prospective environment in which TriSummit and HomeTrust operate, including national and local economic conditions, the interest rate environment, the impact of rising operating costs resulting from regulatory initiatives and compliance mandates. |
| · | the continued rapid consolidation in the financial services industry and the competitive effects of the increased consolidation on smaller financial institutions such as TriSummit; |
| · | the ability of HomeTrust to complete the merger from a financial and regulatory perspective; |
| · | the equity interest in the combined company that TriSummit’s existing common and Series A preferred shareholders will receive in the merger, which allows such shareholders to continue to participate in the future success of the combined company; |
| · | the greater market capitalization and trading liquidity of HomeTrust common stock in the event that TriSummit shareholders desire to sell the shares of HomeTrust common stock to be received by them following completion of the merger; |
| · | the board’s understanding that the merger will qualify as a tax-deferred “reorganization” under Section 368(a) of the Code, providing favorable U.S. .federal income tax consequences to TriSummit’s shareholders on the stock portion of the merger consideration; and |
| · | the board’s review with its independent legal advisor, Butler Snow, of the material terms of the merger agreement, including the board’s ability, under certain circumstances, to withhold, withdraw, qualify or modify its recommendation of the merger to TriSummit’s shareholders and to consider and pursue a better unsolicited acquisition proposal, subject to the potential payment by TriSummit of a termination fee of $1.5 million to HomeTrust, which the board of directors concluded was reasonable in the context of termination fees in comparable transactions and in light of the overall terms of the merger agreement, as well as the nature of the covenants, representations and warranties and termination provisions in the merger agreement. |
The JeffersonTriSummit board of directors also considered a number of potential risks and uncertainties associated with the merger in connection with its deliberation of the proposed transaction, including, without limitation, the following:
| · | the potential risk of diverting management attention and resources from the operation of TriSummit’s business and towards the completion of the merger; |
| · | the restrictions in the merger agreement on the conduct of TriSummit’s business prior to the completion of the merger, which are customary for merger agreements involving financial institutions but which, subject to specific exceptions, could delay or prevent TriSummit from undertaking business opportunities that may arise or other actions it would otherwise take with respect to the operations of TriSummit absent the pending merger; |
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| · | the potential risks associated with achieving anticipated cost synergies and savings and successfully integrating TriSummit’s business, operations and workforce with those of HomeTrust; |
| · | the merger-related costs and expenses; |
| · | the fact that certain of TriSummit’s directors and executive officers have interests in the merger that are different from, or in addition to, the interests of TriSummit’s shareholders generally, as described under the heading “-Interests of TriSummit’s Directors and Executive Officers in the Merger”; |
| · | the fact that, although TriSummit expects that the merger will be consummated, there can be no assurance that all conditions to the parties’ obligations to complete the merger will be satisfied, including the risk that necessary regulatory approvals or the TriSummit shareholder approval might not be obtained and, as a result, the merger may not be consummated; |
| · | the risk of potential employee attrition and/or adverse effects on business and customer relationships as a result of the pending merger; |
| · | the fact that HomeTrust has never declared a dividend and may not do so following the merger; |
| · | the fact that (i) TriSummit would be prohibited from affirmatively soliciting other acquisition proposals after execution of the merger agreement and (ii) TriSummit would be obligated to pay to HomeTrust a termination fee of $1.5 million if the merger agreement is terminated under certain circumstances, all of which may discourage other parties potentially interested in a strategic transaction with TriSummit from pursuing such a transaction; and |
| · | the other risks described under the heading “Risk Factors.” |
The foregoing discussion of the information and factors considered by the JeffersonTriSummit board of directors is not intended to be exhaustive, but includes the material factors considered by the JeffersonTriSummit board of directors. In
reaching its decision to approve the merger agreement, including the merger and the other transactions contemplated by the merger agreement, the JeffersonTriSummit board of directors did not quantify or assign any relative weights to the factors considered, and individual directors may have given different weights to different factors. The JeffersonTriSummit board of directors considered all these factors as a whole, including discussions with and questioning of Jefferson’sTriSummit’s management and Jefferson’sTriSummit’s independent financial and legal advisors, and overall considered the factors to be favorable to, and to support, its determination.
Jefferson’s
TriSummit’s board of directors unanimously approved the merger agreement and recommends that Jefferson’s shareholdersholders of TriSummit common stock and TriSummit Series A preferred stock vote “FOR” the approval of the JeffersonTriSummit merger proposal and that holders of TriSummit common stock vote “FOR” approval of the JeffersonTriSummit adjournment proposal and “FOR” the Jefferson compensation proposal. JeffersonTriSummit shareholders should be aware that Jefferson’sTriSummit’s directors and executive officers have interests in the merger that are different from, or in addition to, those of other JeffersonTriSummit shareholders. The JeffersonTriSummit board of directors was aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and in recommending that the TriSummit merger proposal be approved by the shareholders of Jefferson.TriSummit. See “—Interests of Jefferson’sTriSummit’s Directors and Executive Officers in the Merger.”
This summary of the reasoning of Jefferson’sTriSummit’s board of directors and other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed under the heading “Cautionary Statement Regarding Forward-Looking Statements.”
HomeTrust’s Reasons for the Merger
After careful consideration, at a meeting held on January 22, 2014,September 16, 2016, HomeTrust’s board of directors unanimously determined that the merger agreement, including the merger and the other transactions contemplated thereby, is in the best interests of HomeTrust and its shareholders.
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In reaching its decision to approve the merger agreement, the merger and the other transactions contemplated by the merger agreement, the HomeTrust board of directors consulted with HomeTrust management, as well as its independent financial and legal advisors, and considered a number of factors, including the following material factors:
| · | its knowledge of TriSummit’s business, operations, financial condition, earnings and prospects, taking into account the results of HomeTrust’s due diligence review of TriSummit, including HomeTrust’s assessments of TriSummit’s credit policies, asset quality, adequacy of loan loss reserves, interest rate risk and litigation; |
| · | the fact that an acquisition of TriSummit would enable HomeTrust to expand its strategic presence through five additional bank offices in the attractive eastern Tennessee market area; |
| · | The reports of HomeTrust management and the financial presentation of HomeTrust’s financial advisor concerning the operations and financial condition of TriSummit and the pro forma financial impact of the merger; |
| · | the strength of TriSummit’s management team; |
| · | the fact that TriSummit’s shareholders would own approximately 4.4 % of the outstanding shares of HomeTrust common stock immediately following the merger; |
| · | the interests of TriSummit’s directors and executive officers in the merger, in addition to their interests generally as shareholders, as described under “—Interests of TriSummit’s Directors and Executive Officers in the Merger”; |
| · | TriSummit’s and HomeTrust’s management teams share a common business vision and commitment to their respective customers, shareholders, employees and other constituencies; |
| · | The belief of HomeTrust’s management that the merger will be accretive to HomeTrust’s GAAP earnings; |
| · | the merger is likely to provide an increase in shareholder value, including the benefits of a stronger strategic position; |
| · | the anticipated pro forma impact of the merger on the combined company, including potential synergies, and the expected impact on financial metrics such as earnings and tangible equity per share, as well as on regulatory capital levels; |
| · | the likelihood of a successful integration of TriSummit’s business, operations and workforce with those of HomeTrust; |
| · | the regulatory and other approvals required in connection with the transaction and the likelihood such approvals would be received in a timely manner and without unacceptable conditions; and |
| · | the financial and other terms of the merger agreement, including the exchange ratio for the stock portion of the merger consideration and the fixed per share amount for the cash portion of the merger consideration, tax treatment and termination fee provisions, which the HomeTrust board reviewed with its outside financial and legal advisors. |
The HomeTrust board of directors also considered a number of potential risks and uncertainties associated with the merger in connection with its deliberation of the proposed transaction, including, without limitation, the following:
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| · | the potential risk of diverting management attention and resources from the operation of HomeTrust’s business towards the completion of the merger; |
| · | the potential risks associated with achieving anticipated cost synergies and savings and successfully integrating TriSummit’s business, operations and workforce with those of HomeTrust; |
| · | the merger-related costs and expenses; |
| · | the fact that the stock portion of the merger consideration consists of an exchange ratio that floats within certain limits and, therefore, the number of shares of HomeTrust common stock to be issued in the merger is not fixed at this time; |
| · | the outcome of potential litigation in connection with the merger; and |
| · | the other risks described under the heading “Risk Factors.” |
The foregoing discussion of the information and factors considered by the HomeTrust board of directors is not intended to be exhaustive, but includes the material factors considered by the HomeTrust board of directors. In reaching its decision to approve the merger agreement, the merger and the other transactions contemplated by the merger agreement, the HomeTrust board of directors did not quantify or assign any relative weights to the factors considered, and individual directors may have given different weights to different factors. The HomeTrust board of directors considered all these factors as a whole, including discussions with, and questioning of, HomeTrust’s management and HomeTrust’s independent financial and legal advisors, and overall considered the factors to be favorable to, and to support, its determination.
HomeTrust’s board of directors unanimously approved the merger agreement.
This summary of the reasoning of HomeTrust’s board of directors and other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed under the heading “Cautionary Statement Regarding Forward-Looking Statements.”
Opinion of Keefe Bruyette and WoodsBSP Securities, LLC – Financial Advisor to JeffersonTriSummit
Jefferson engaged Keefe, Bruyette & Woods, Inc.
Pursuant to its engagement, TriSummit requested that BSP Securities render financial advisory and investment banking services to Jefferson, including ana written opinion to the JeffersonTriSummit board of directors as to the fairness, from a financial point of view, to the holders of Jefferson common stock of the merger consideration to be paid by HomeTrust to TriSummit shareholders as set forth in the merger agreement. BSP Securities is an investment banking firm that specializes in providing investment banking services to financial institutions. BSP Securities has been involved in numerous bank-related business combinations. No limitations were imposed by TriSummit upon BSP Securities with respect to rendering its opinion.
At the TriSummit board of director’s September 16, 2016 meeting, at which the TriSummit board of directors considered the proposed merger of Jefferson with and into HomeTrust. Jefferson selected KBW because KBW is a nationally recognized investment banking firm with substantial experience in transactions similaragreement, BSP Securities delivered to the merger. As part ofboard its investment banking business, KBW is continually engaged in the valuation of financial services businesses and their securities in connection with mergers and acquisitions.
As part of its engagement, representatives of KBW attended the meeting of the Jefferson board of directors held on January 21, 2014, at which the Jefferson board of directors evaluated the proposed merger. At this meeting, KBW reviewed the financial aspects of the proposed merger and rendered anwritten opinion to the effect that, as of such date, and subjectthe merger consideration was fair to TriSummit shareholders from a financial point of view. The merger agreement was formally approved by the TriSummit board of directors on September 16, 2016.
The full text of BSP Securities’ opinion is attached as Appendix C to this proxy statement/prospectus. The opinion outlines the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by KBW as set forthBSP Securities in such opinion, the merger consideration in the proposed merger was fair, from a financial point of view, to the holders of Jefferson common stock.
rendering its opinion. The description of the opinion set forth hereinbelow is qualified in its entirety by reference to the full textopinion. We urge you to read the entire opinion carefully in connection with your consideration of the opinion, which is attached asAppendix B to this document and is incorporated herein by reference, and describes the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by KBW in preparing the opinion.proposed merger.
KBW’s
The opinion speaks only as of the date of the opinion. The opinion was for the information of, and was directed to the JeffersonTriSummit board of directors (in its capacity as such) in connection with its consideration of the financial terms of the merger. The opinion addressedand is directed only to the fairness, from a financial point of view, of the merger consideration in the merger to the holders of Jefferson common stock.TriSummit’s shareholders. It diddoes not address theTriSummit’s underlying business decision to proceed withengage in the merger or constituteany other aspect of the merger and is not a recommendation to the Jefferson board of directors in connection with the merger, and it does not constitute a recommendation to the shareholders of Jefferson or any other entityshareholder as to
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how tosuch shareholder should vote in connectionat the TriSummit special meeting with respect to the merger or any other matter nor does it constitute a recommendation onas to whether or not any JeffersonTriSummit shareholder should enter into a voting, shareholders’, or affiliates’ agreement with respect to the merger or exercise any dissenters’ or appraisal rights that may be available to such shareholder.
KBW’s
BSP Securities’ opinion was reviewed and approved by KBW’sBSP Securities’ Fairness Opinion Committee in conformity with its policies and procedures established under the requirements of Rule 5150 of the Financial Industry Regulatory Authority.
In rendering For purposes of the opinion KBW reviewed,and in connection with its review of the proposed transactions, BSP Securities, among other things:things, did the following:
KBW’s consideration of financial information and other factors that it deemed appropriate under the circumstances or relevant to its analyses included, among others, the following:
KBW also performed
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BSP Securities assumed and knowledge of the banking industry generally. KBW also held discussions with senior management of Jefferson and HomeTrust regarding the past and current business operations, regulatory relations, financial condition and future prospects of their respective companies and such other matters that KBW deemed relevant to its inquiry. KBW also considered the results of the efforts undertaken by Jefferson, with KBW’s assistance, to solicit indications of interest from third parties regarding a potential transaction with Jefferson.
In conducting its review and arriving at its opinion, KBW relied, without independent verification, upon and assumed the accuracy and completeness of all of the financial and other information that was provided to it orby TriSummit, HomeTrust, and their respective representatives, and of the publicly available and did not independently verify the accuracy or completeness of any such information or assume any responsibility or liability for such verification, accuracy or completeness. KBW relied upon the management of Jefferson as to the reasonableness and achievability of the financial and operating forecasts and projections of Jefferson (and the assumptions and bases therefor) that were prepared and providedwas reviewed by such management and KBW assumed, at the direction of Jefferson, that such forecasts and projections were reasonably prepared on a basis reflecting the best currently available estimates and judgments of such management and that such forecasts and projections would be realized in the amounts and time periods then estimated by such management. KBW further relied upon management of HomeTrust as to the reasonableness and achievability of the financial and operating forecasts and projections of HomeTrust and estimates regarding certain pro forma financial effects of the Transaction on HomeTrust (and the assumptions and bases therefor) which were prepared by and provided to KBW by such management, and KBW assumed, with the consent of Jefferson, that such forecasts, projections and estimates were reasonably prepared on a basis reflecting the best currently available estimates and judgments of such management and that such forecasts, projections and estimates would be realized in the amounts and in the time periods then estimated by such management.
It is understood that such forecasts, projections and estimates prepared by and provided to KBW by the respective management teams of Jefferson and HomeTrust, as the case may be, were not prepared with the expectation of public disclosure, that all such information is based on numerous variables and assumptions that are inherently uncertain, including, without limitation, factors related to general economic and competitive conditions and that, accordingly, actual results could vary significantly from those set forth in such forecasts, projections and estimates. KBW assumed, based on discussions with the respective management teams of Jefferson and HomeTrust, that such forecasts, projections and estimates provided a reasonable basis upon which KBW could form its opinion and KBW expressed no view as to any such information or the assumptions or bases therefor. KBW relied on this information without independent verification or analysis and therefore did not in any respect assume any responsibility or liability for the accuracy or completeness thereof.
KBW assumed that there were no material changes in the assets, liabilities, financial condition, results of operations, business or prospects of either Jefferson or HomeTrust since the date of the last financial statements made available to KBW. KBWBSP Securities. BSP Securities is not an expert in the independent verification of the adequacyevaluation of allowances for loan and lease losses and itdid not independently verified such allowances of TriSummit and HomeTrust, and has relied on and assumed without independent verification and with Jefferson’s consent that the aggregatesuch allowances for loan and lease losses for Jeffersonof TriSummit and HomeTrust were adequate to cover such losses.losses and complied fully with applicable law, regulatory policy and sound banking practice as of the date of the relevant financial statements. BSP Securities was not retained to and did not conduct a physical inspection of any of the properties or facilities of TriSummit or HomeTrust, did not make any independent evaluation or appraisal of the assets, liabilities or prospects of TriSummit or HomeTrust, was not furnished with any such evaluation or appraisal other than third party loan reviews, and did not review any individual credit files. BSP Securities’ opinion was necessarily based on economic, market, and other conditions in effect on, and the information made available to it, as of September 16, 2016.
BSP Securities, as part of its investment banking business, is regularly engaged in the valuation of banks and bank holding companies, thrifts and thrift holding companies, and various other financial services companies, in connection with mergers and acquisitions, private placements of securities, and valuations for other purposes. In rendering its fairness opinion, KBW did not make or obtain any evaluations or appraisals or physical inspectionBSP Securities acted on behalf of the property, assets or liabilities (contingent or otherwise)TriSummit board of Jefferson or HomeTrust, the collateral securing any of such assets or liabilities, or the collectability of any such assets, nor did KBW examine any individual loan or credit files, nor did it evaluate the solvency, financial capability or fair value of Jefferson or HomeTrust under any state or federal laws, including those relating to bankruptcy, insolvency or other matters. Estimates of values of companies and assets do not purport to be appraisals or necessarily reflect the prices at which companies or assets may actually be sold. Because such estimates are inherently subject to uncertainty, KBW assumed no responsibility or liability for their accuracy. With respect to outstanding litigation to which Jefferson or HomeTrust is a party, KBW relied upon the assessments of the respective management teams and counsel of Jefferson and HomeTrust as to all matters relating to such litigation and assumed, without verification, that there would be no developments that would be material to KBW’s analyses.
KBW assumed that, in all respects material to its analysis:directors.
BSP Securities’ opinion is limited to KBW’s analyses from the draft provided to KBW) with no additional payments or adjustments to the merger consideration;
KBW further assumed that the merger and related transactions would comply with the applicable provisions of the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and all other applicable federal and state statutes, rules and regulations. KBW further assumed that Jefferson relied upon the advice of its counsel, independent accountants and other advisors (other than KBW) as to all legal, financial reporting, tax, accounting and regulatory matters with respect to Jefferson, HomeTrust, the merger and related transactions and the merger agreement. KBW did not provide advice with respect to any such matters.
KBW’s opinion addressed only the fairness, from a financial point of view, as of the date of such opinion, of the merger consideration to be paid to holders of TriSummit stock in the merger toand does not address the common stockholders of Jefferson. KBW expressed no view or opinion as to any terms or other aspectsability of the merger to be consummated, the satisfaction of the conditions precedent contained in the merger agreement, or any related transaction, including without limitation, the form or structurelikelihood of the merger (includingreceiving regulatory approval. Although BSP Securities was retained on behalf of the formTriSummit board of merger consideration)directors, our opinion does not constitute a recommendation to any director of TriSummit as to how such director or any related transaction, any consequences ofshareholder should vote with respect to the merger or any related transactionagreement.
Based upon and subject to Jefferson,the foregoing and based on BSP Securities’ experience as investment bankers, BSP Securities’ activities as described above, and other factors BSP Securities deemed relevant, BSP Securities rendered its shareholders, creditors or otherwise, or any terms, aspects or implicationsopinion that, as of any voting, support, shareholder or other agreements, arrangements or understandings contemplated or entered into in connection withSeptember 16, 2016, the merger any related transaction or otherwise.
KBW’s opinion was necessarily based upon conditions as they existed and couldconsideration to be evaluated on the date of such opinion and the information made available to KBW through such date. It is understood that developments subsequent to the date of KBW’s opinion may have affected, and may affect, the conclusion reached in KBW’s opinion and that KBW did not and does not have an obligation to update, revise or reaffirm its opinion. KBW’s opinion did not address, and KBW expressed no view or opinion with respect to:
In performing its analyses, KBW made numerous assumptions with respect to industry performance, general business, economic, market and financial conditions and other matters, which are beyond the control of KBW, Jefferson and HomeTrust. Any estimates contained in the analyses performed by KBW are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by these analyses. Additionally, estimates of the value of businesses or securities do not purport to be appraisals or to reflect the prices at which such businesses or securities might actually be sold. Accordingly, these analyses and estimates are inherently subject to substantial uncertainty. In addition, the KBW opinion was among several factors taken into consideration by the Jefferson board of directors in making its determination to approve the merger agreement and the merger. Consequently, the analyses described below should not be viewed as determinative of the decision of the Jefferson board of directors with respect to the fairness of the merger consideration. The type and amount of consideration payable in the merger were determined through negotiation between Jefferson and HomeTrust and the decision to enter into the merger agreement was solely that of the Board.
The following is a summary of the material financial analyses presentedperformed by KBWBSP Securities in connection with its opinion to the JeffersonTriSummit board of directors on January 21, 2014, in connection with its opinion.September 16, 2016. The summary isdoes not purport to be a complete description of the financial analyses underlying the opinion or the presentation madeperformed by KBW to the Board,BSP Securities but summarizes the material analyses performed and presented in connection with such opinion. The preparation
Summary of a fairness opinion is a complex analytic process involving various determinations asthe Proposed Merger
BSP Securities reviewed the financial terms of the proposed transaction. In accordance with the terms of the merger agreement, each share of TriSummit common stock and Series A preferred stock issued and outstanding immediately prior to appropriate and relevant methodsthe effective time of financial analysisthe merger (excluding shares owned by TriSummit or HomeTrust, unless such shares are held in trust accounts, managed accounts, mutual funds and the applicationlike or otherwise in a fiduciary or agency capacity or as a result of those methodsdebts previously contracted, and shares held by dissenting shareholders) will be converted into the right to receive, if the merger is completed, promptly following the completion of the merger, the merger consideration consisting of $4.40 in cash plus a number of shares of HomeTrust common stock equal to $4.40 divided by the average HomeTrust common stock price (the “exchange ratio”), subject to adjustment. If the average HomeTrust common stock price is equal to or less than $19.05 per share, then the exchange ratio will be fixed at .2310. If the average HomeTrust common stock price is equal to or greater than $20.96 per share, then the exchange ratio will be fixed at .2099. Further, to the particular circumstances. Therefore,extent that a fairness opinionTriSummit warrant is not readily susceptibleproperly exercised prior to partial analysis or summary description. In arrivingthe effective time of the merger, the holder will receive the same merger consideration as the other TriSummit common shareholders for each share of TriSummit common stock acquired via exercise of the TriSummit warrant. Each TriSummit warrant that is outstanding immediately prior to the effective time of the merger will at its opinion, KBW did not attribute any particular weightthe effective time either be (i) cashed out by TriSummit for a cash payment equal to $0.80 (the total per share merger consideration of $8.80 less the warrant exercise price of $8.00 per share) multiplied by the number of shares subject to the TriSummit warrant, subject to any analysiswithholding requirements, or factor that it considered, but rather made qualitative judgments as(ii) assumed by HomeTrust for the sole purpose of paying the merger consideration in respect of the shares of TriSummit common stock subject to the significanceTriSummit warrant upon the proper exercise thereof after the effective time of the merger. Each Adjusted Option
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that is outstanding immediately prior to the effective time of the merger will be assumed by HomeTrust and relevanceconverted into the right to receive an option to purchase that number of shares of HomeTrust common stock equal to the product obtained by multiplying (i) the number of shares of TriSummit common stock and TriSummit Series A preferred stock subject to the Adjusted Option immediately prior to the effective time of the merger (i.e., after taking into account the option cancellations) by (ii) the Adjusted Option Exchange Ratio, rounded to the nearest whole number of shares of HomeTrust common stock. Each option to purchase HomeTrust common stock will have an exercise price per share of HomeTrust common stock equal to (x) $10.00 (the per share exercise price under each TriSummit option award) divided by (y) the Adjusted Option Exchange Ratio, rounded to the nearest whole cent. Each option to purchase HomeTrust common stock will otherwise be subject to the same terms and conditions applicable to the corresponding TriSummit option award, including vesting terms.
Based on the average HomeTrust common stock price as of September 13, 2016, of $19.16 per share, the total implied merger consideration is $39.0 million, which includes the consideration for TriSummit common stock (including common stock equivalents such as the Series A preferred stock), TriSummit warrants, TriSummit stock option and the redemption of TriSummit’s Series B preferred stock, Series C preferred stock and Series D preferred stock, currently held by private shareholders. BSP Securities summarized the merger terms, based on TriSummit’s financial information as of June 30, 2016, in the table below.
| Pricing | ||||
| Common Transaction Value(1) | $ | 31,878,841 | ||
| Legacy TARP Redemption | $ | 7,140,000 | ||
| Total Transaction Value | $ | 39,018,841 | ||
| HTBI Share Price (20-Trading Day Avg. Close) | $ | 19.16 | ||
| HTBI 6/30/16 Tangible Book Value per Share | $ | 19.05 | ||
| Price/ Tangible Book Value (%) | 100.6 | % | ||
| Price/ LTM Earnings per Share (x) | 29.5 | |||
| Price/ LTM 12/31/16 Estimated Earnings per Share (x)(2) | 21.8 | |||
| Current Offer per Common Share(3) | $ | 8.80 | ||
| TriSummit 6/30/16 Tangible Book Value per Share(4) | $ | 7.26 | ||
| Price/ Tangible Book Value (%)(5) | 121.6 | % | ||
| Price/ LTM Earnings (x) | 75.8 | |||
| Price/2016 Estimated Earnings (x)(6) | 64.7 | |||
| Price/Assets (%) | 9.0 | % | ||
| Premium/Core Deposits (%) | 2.4 | % | ||
(1) Includes consideration of TriSummit Warrants and TriSummit Option Awards - the value of which was calculated as of 9/13/16 and based on Black Scholes model; risk free rate assumed at 0.60%, volatility assumed at 12%; value may change prior to closing.
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(2) Mean analyst estimate used to determine LTM 12/31/16 Est. EPS; HomeTrust's FYE is 6/30.
(3) TriSummit common shares outstanding include common stock equivalents.
(4) Tangible Common Equity and Tangible Equity Figures include $508,000 of expected tax benefits associated with the amortization of TriSummit's core deposit intangibles; these non-GAAP figures were used to conform with HomeTrust's preferred method of calculating tangible book value in public filings. The value of these tax benefits is excluded from tangible equity, tangible common equity and tangible book value per share elsewhere in this opinion, unless otherwise noted.
(5) Price to tangible book value on a fully diluted basis.
(6) TriSummit projections used to determine 2016 Est. Earnings; 2016 Net Income is projected on a tax-normalized basis using a 35% corporate tax rate.
| TriSummit Bancshares, Inc. | TriSummit Comparable Trading Group Median | |||||||
| Financial Metrics(1) | ||||||||
| Assets (mm) | $ | 353.8 | $ | 353.0 | ||||
| TCE Ratio | 7.4 | % | 8.2 | % | ||||
| LTM ROAA | 0.31 | % | 0.33 | % | ||||
| LTM ROAE | 3.30 | % | 3.85 | % | ||||
| NPAs/Assets | 0.80 | % | 2.07 | % | ||||
| Market Pricing Metrics(2) | ||||||||
| Price/LTM EPS | 75.8 | x | 22.8 | x | ||||
| Price/Tangible Book Value(3) | 121.6 | % | 82.1 | % | ||||
| Price/Assets | 9.0 | % | 6.9 | % | ||||
(1) TriSummit financial metrics as of 6/30/16; 35% tax rate applied to ROAA and ROAE; peer financial metrics as of most recent twelve months available.
(2) TriSummit information reflects intrinsic common transaction value metrics; peer metrics based on closing stock prices as of 9/14/16 and peer median metrics are adjusted for a 10% liquidity discount.
(3) TriSummit tangible book value includes $508,000 of expected tax benefits associated with the amortization of TriSummit's core deposit intangibles.
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Selected Peer Group Analysis – TriSummit
BSP Securities used publicly available information to compare selected financial information for TriSummit to a peer group of publicly-traded financial institutions that BSP Securities deemed similar to TriSummit and, hence, relevant for purposes of its analysis. BSP Securities compared selected operating results of TriSummit to eight (8) publicly traded Southeast U.S. banks with total assets between $200 million and $600 million, trailing twelve months return on average assets between 0.0% and 0.50%, and three-month average daily trading volume.
Selected Peer Mergers Analysis
BSP Securities used publicly available information to compare selected financial information for TriSummit to three peer groups of publicly announced merger transactions that BSP Securities deemed relevant for purposes of its analysis. BSP Securities compared selected operating results of TriSummit to (a) 47 Southeast U.S. mergers announced since January 1, 2015 for whole banks with total assets between $100 million and $500 million as of announcement date (“SE Asset Size Peer Group”); (b) 24 Southeast U.S. mergers announced since January 1, 2015 for whole banks involving sellers with total assets between $100 million and $500 million at announcement date and a tangible equity to tangible assets ratio between 7.0% and 10.0% at announcement date (“SE Capital Peer Group”); and (c) 12 Southeast U.S. mergers announced since January 1, 2015 for whole banks involving sellers with total assets between $100 million and $500 million at announcement date and trailing twelve month return on average assets less than 0.50% at announcement date (“ SE Profitability Peer Group”). Detailed composition of each analysismerger peer group is available in Tables 1-3 at the end of this section.
| Transaction Value/ | ||||||||||||||||
| LTM Earnings (x) | Tangible Book (%) | Assets (%) | Premium/ Core Deposits (%) | |||||||||||||
| HTBI/TriSummit(1) | 75.8 | 121.6 | 9.0 | 2.4 | ||||||||||||
| Peer Group - Median | 17.9 | 137.2 | 13.3 | 5.5 | ||||||||||||
| Peer Group - 25th Percentile | 16.5 | 121.0 | 10.9 | 2.9 | ||||||||||||
| Peer Group - 75th Percentile | 26.0 | 143.9 | 15.5 | 8.1 | ||||||||||||
| GA/ Carolinas Group - Median | 16.2 | 137.5 | 12.7 | 4.7 | ||||||||||||
| GA/ Carolinas Group - 25th Percentile | 14.0 | 116.0 | 10.6 | 1.5 | ||||||||||||
| GA/ Carolinas Group - 75th Percentile | 23.7 | 148.0 | 14.7 | 7.3 | ||||||||||||
| Southeast Group - Median | 26.2 | 126.2 | 9.3 | 3.5 | ||||||||||||
| Southeast Group - 25th Percentile | 17.5 | 87.3 | 4.9 | -2.1 | ||||||||||||
| Southeast Group - 75th Percentile | 31.9 | 137.7 | 13.2 | 5.9 | ||||||||||||
(1) 35% tax rate applied to TriSummit's LTM earnings; ROAA and factor. The financial analyses summarized below include information presented in tabular format. Accordingly, KBW believes that its analyses andROAE are adjusted for 35% tax rate applied to YTD net income; TriSummit tangible book value includes $508,000 of expected tax benefits associated with the summaryamortization of its analyses must be considered as a whole and that selecting portions of its analyses and factors or focusing on the information presented below in tabular format, without considering all analyses and factors or the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could
create a misleading or incomplete view of the process underlying its analyses and opinion. The tables alone do not constitute a complete description of the financial analyses. No target company or transaction used as a comparison in the selected companies or selected transactions analysespeer merger group analysis described belowabove is identical to Jefferson, HomeTrust or the merger.TriSummit. Accordingly, an analysis of thesethe results is not mathematical. Rather, itof the foregoing necessarily involves complex considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the merger, public trading or other values of the companies.
For purposes of the financial analyses described below, KBW utilized an implied value of merger consideration of $8.00 per share of Jefferson common stock. To perform the selected companies analyses described below, KBW used financial information as of and for the last twelve months (LTM) ended September 30, 2013 and market price information as of January 17, 2014. Certain financial data prepared by KBW, and as referenced in the tables presented below, may not correspond to the data presented in Jefferson’s or HomeTrust’s historical financial statements as a result of the different periods, assumptions and methods used by KBW to compute the financial data presented. KBW calculated Jefferson’s book value per share, tangible book value per share and core deposit premium utilizing a number of outstanding shares of Jefferson common stock, per Jefferson management, which included unallocated ESOP shares to be cancelled in the merger. Earnings per share (“EPS”) data for Jefferson was calculated excluding these unallocated ESOP shares.
Jefferson Selected Companies Analysis.Using publicly available information, KBW compared the financial performance, financial condition and market performance of Jefferson to 13 selected publicly traded banks and thrifts traded on a major exchange (defined as the NYSE, NASDAQ and NYST MKT) located in the Southeast Region (defined as Alabama, Arkansas, Florida, Georgia, Mississippi, North Carolina, South Carolina, Tennessee, Virginia and West Virginia) with total assets between $350 million and $700 million. The selected companies included:
KBW’s analysis showed, among other things, the following concerning the financial performance and financial condition of Jefferson and the selected companies:
| Selected Companies | ||||||||||||||||||||
| Jefferson | Top Quartile | Median | Bottom Quartile | Average | ||||||||||||||||
Operating Return on Assets | 0.35 | % | 0.70 | % | 0.68 | % | 0.46 | % | 0.57 | % | ||||||||||
Operating Return on Equity | 3.37 | % | 8.03 | % | 6.30 | % | 5.60 | % | 6.55 | % | ||||||||||
Net Interest Margin | 3.63 | % | 4.09 | % | 3.64 | % | 3.42 | % | 3.86 | % | ||||||||||
Efficiency Ratio | 77.94 | % | 71.61 | % | 73.03 | % | 77.46 | % | 75.79 | % | ||||||||||
Tangible Common Equity/Tangible Assets | 10.50 | % | 10.44 | % | 8.57 | % | 8.21 | % | 9.29 | % | ||||||||||
Total Capital Ratio | 15.57 | % | 18.54 | % | 15.94 | % | 14.80 | % | 16.77 | % | ||||||||||
Loans/Deposits | 80.56 | % | 87.03 | % | 75.92 | % | 71.76 | % | 76.97 | % | ||||||||||
Loan Loss Reserves/Loans | 1.56 | % | 2.05 | % | 1.71 | % | 1.42 | % | 1.91 | % | ||||||||||
Adjusted Nonperforming Assets/Assets | 3.46 | % | 1.44 | % | 2.55 | % | 3.79 | % | 2.54 | % | ||||||||||
Net Charge-Offs/Average Loans | 0.81 | % | 0.18 | % | 0.28 | % | 0.81 | % | 0.74 | % | ||||||||||
KBW’s analysis showed, among other things, the following concerning the market performance of Jefferson and the selected companies (excluding the impact of certain selected company LTM EPS multiples considered to be not meaningful because they were either below 0.0x or greater than 50.0x):
| Selected Companies | ||||||||||||||||||||
| Jefferson | Top Quartile | Median | Bottom Quartile | Average | ||||||||||||||||
Stock Price/Book Value per Share | 0.82x | 1.07x | 1.03x | 0.89x | 1.07x | |||||||||||||||
Stock Price/Tangible Book Value Per Share | 0.83x | 1.09x | 1.03x | 0.90x | 1.10x | |||||||||||||||
Stock Price/ LTM EPS | 23.57x | 16.75x | 12.96x | 10.49x | 14.20x | |||||||||||||||
Core Deposit Premium | -2.57 | % | 0.98 | % | 0.40 | % | -0.79 | % | 1.54 | % | ||||||||||
HomeTrust Selected Companies Analysis – Southeast Region Banks & Thrifts.Using publicly available information, KBW compared the financial performance, financial condition, and market performance of HomeTrust to 17 selected publicly traded banks and thrifts traded on a major exchange located in the Southeast Region with total assets between $1.1 billion and $2.5 billion. The selected companies included:
KBW’s analysis showed, among other things, the following concerning the financial performance and financial condition of HomeTrust and the selected companies:
| Selected Companies | ||||||||||||||||||||
| HomeTrust | Top Quartile | Median | Bottom Quartile | Average | ||||||||||||||||
Operating Return on Assets | 0.70 | % | 0.84 | % | 0.56 | % | 0.37 | % | 0.62 | % | ||||||||||
Operating Return on Equity | 3.03 | % | 8.54 | % | 5.48 | % | 2.97 | % | 5.80 | % | ||||||||||
Net Interest Margin | 3.80 | % | 4.35 | % | 3.92 | % | 3.43 | % | 4.01 | % | ||||||||||
Efficiency Ratio | 72.94 | % | 69.22 | % | 74.11 | % | 78.20 | % | 72.62 | % | ||||||||||
Tangible Common Equity/Tangible Assets | 21.83 | % | 9.54 | % | 8.19 | % | 7.54 | % | 8.22 | % | ||||||||||
Tier 1 Capital Ratio | 21.64 | % | 15.47 | % | 14.58 | % | 12.67 | % | 14.00 | % | ||||||||||
Total Capital Ratio | 22.91 | % | 16.67 | % | 15.75 | % | 14.38 | % | 15.49 | % | ||||||||||
Loans/Deposits | 96.24 | % | 85.03 | % | 79.20 | % | 74.60 | % | 79.93 | % | ||||||||||
Loan Loss Reserves/Loans | 2.43 | % | 1.73 | % | 1.58 | % | 1.08 | % | 1.49 | % | ||||||||||
Adjusted Nonperforming Assets/Assets | 5.98 | % | 1.24 | % | 2.46 | % | 3.74 | % | 2.74 | % | ||||||||||
Net Charge-Offs/Average Loans | 0.19 | % | 0.13 | % | 0.26 | % | 0.57 | % | 0.33 | % | ||||||||||
KBW’s analysis showed, among other things, the following concerning the market performance of HomeTrust and the selected companies (excluding the impact of certain selected company LTM EPS multiples considered to be not meaningful because they were either below 0.0x or greater than 50.0x):
| Selected Companies | ||||||||||||||||||||
| HomeTrust | Top Quartile | Median | Bottom Quartile | Average | ||||||||||||||||
Stock Price/Book Value per Share | 0.85x | 1.40x | 1.22x | 1.09x | 1.35x | |||||||||||||||
Stock Price/Tangible Book Value Per Share | 0.86x | 1.59x | 1.42x | 1.27x | 1.52x | |||||||||||||||
Stock Price/ LTM EPS | 28.30x | 21.84x | 14.78x | 11.24x | 16.15x | |||||||||||||||
Core Deposit Premium | -5.31 | % | 8.22 | % | 5.62 | % | 3.51 | % | 5.31 | % | ||||||||||
HomeTrust Selected Companies Analysis – Nationwide Banks & Thrifts.Using publicly available information, KBW compared the financial performance, financial condition, and market performance of HomeTrust to 13 selected nationwide publicly traded banks and thrifts traded on a major exchange with total assets between $1.1 billion and $2.5 billion and tangible common equity/tangible assets ratios greater than 12.0%. The selected companies included:
KBW’s analysis showed, among other things, the following concerning the financial performance and financial condition of HomeTrust and the selected companies:
| Selected Companies | ||||||||||||||||||||
| HomeTrust | Top Quartile | Median | Bottom Quartile | Average | ||||||||||||||||
Operating Return on Assets(1) | 0.70 | % | 1.50 | % | 0.83 | % | 0.55 | % | 0.95 | % | ||||||||||
Operating Return on Equity(1) | 3.03 | % | 10.25 | % | 6.59 | % | 4.06 | % | 6.74 | % | ||||||||||
Net Interest Margin | 3.80 | % | 3.77 | % | 3.25 | % | 2.91 | % | 3.26 | % | ||||||||||
Efficiency Ratio | 72.94 | % | 62.78 | % | 65.49 | % | 71.83 | % | 67.79 | % | ||||||||||
Tangible Common Equity/Tangible Assets | 21.83 | % | 13.66 | % | 13.28 | % | 12.67 | % | 13.63 | % | ||||||||||
Tier 1 Capital Ratio | 21.64 | % | 21.54 | % | 20.21 | % | 18.98 | % | 20.56 | % | ||||||||||
Total Capital Ratio | 22.91 | % | 22.29 | % | 21.52 | % | 20.02 | % | 21.65 | % | ||||||||||
Loans/Deposits | 96.24 | % | 95.66 | % | 82.81 | % | 78.15 | % | 85.40 | % | ||||||||||
Loan Loss Reserves/Loans | 2.43 | % | 2.28 | % | 1.34 | % | 1.13 | % | 1.56 | % | ||||||||||
Adjusted Nonperforming Assets/Assets | 5.98 | % | 1.13 | % | 1.55 | % | 3.31 | % | 2.37 | % | ||||||||||
Net Charge-Offs/Average Loans | 0.19 | % | 0.02 | % | 0.06 | % | 0.45 | % | 0.26 | % | ||||||||||
KBW’s analysis showed, among other things, the following concerning the market performance of HomeTrust and the selected companies (excluding the impact of certain selected company LTM EPS multiples considered to be not meaningful because they were either below 0.0x or greater than 50.0x):
| Selected Companies | ||||||||||||||||||||
| HomeTrust | Top Quartile | Median | Bottom Quartile | Average | ||||||||||||||||
Stock Price/Book Value per Share | 0.85x | 1.29x | 1.23x | 1.08x | 1.17x | |||||||||||||||
Stock Price/Tangible Book Value Per Share | 0.86x | 1.32x | 1.23x | 1.08x | 1.18x | |||||||||||||||
Stock Price/ LTM EPS(1) | 28.30x | 21.89x | 14.62x | 9.69x | 17.11x | |||||||||||||||
Core Deposit Premium | -5.31 | % | 6.19 | % | 4.93 | % | 1.61 | % | 4.04 | % | ||||||||||
Selected Transactions Analysis. KBW reviewed publicly available information related to 23 selected merger and acquisition transactions announced since January 1, 2012 with bank and thrift targets headquartered in the Southeast Region where the deal value was between $25 million and $75 million. The selected transactions included:
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To the extent publicly available, KBW derived, among other things, the following implied ratios for each selected transaction:are being compared.
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Net Present Value Analysis of Stock Consideration Portion – TriSummit
BSP Securities calculated potential net present values for TriSummit common share paid for the acquired company to tangible book value per sharestock. The purpose of the acquired company based on the latest publicly available financial statements of the company available prioranalysis was to the announcement of the acquisition.
These ratios were compared with corresponding transaction ratios for the proposed merger based oncompare the implied value of TriSummit common stock to the merger consideration of $8.00 per share of Jefferson common stock.
The results of the analysis are set forth in the following table (excluding the impact of certain selected transaction LTM EPS multiples considered to be not meaningful because they were either below 0.0x or greater than 50.0x):
| Selected Transactions | ||||||||||||||||||||
| Merger | Top Quartile | Median | Bottom Quartile | Average | ||||||||||||||||
Price/Tangible Book Value | 101.0 | % | 130.1x | 105.9 | % | 88.4 | % | 111.4 | % | |||||||||||
Price/ LTM EPS | 28.6x | 46.0x | 20.7x | 14.2x | 30.1x | |||||||||||||||
Core Deposit Premium | 0.2 | % | 3.7 | % | 0.9 | % | -1.0 | % | 1.5 | % | ||||||||||
Discounted Cash Flow Analysis. KBW performed a discounted cash flow analysis to estimate a range for the implied equity value of Jefferson. In this analysis, KBW usedoffered by HomeTrust. Accordingly, BSP Securities relied on financial projections derived from TriSummit’s internal forecasts and projections relating to the earnings and assets of Jefferson prepared by and provided to KBW by Jefferson management, and assumed discount rates ranging from 13.0% to 17.0%. The range of values was determined by adding (1)BSP Securities’ discussions with management. In determining the present value of projected cash flows to Jefferson shareholders from fiscal years 2014 to 2019 and (2) the present value of theTriSummit common stock, BSP Securities utilized a terminal value of Jefferson’s common stock. In determining cash flows available to shareholders, KBW assumed balance sheet growth of 2.0% per year for fiscal year 2014 and 5.0% per year thereafter through fiscal year 2019, per Jefferson management and assumed that Jefferson would maintain a tangible common equity / tangible asset ratio of 8.0%, and would retain sufficient earnings to maintain these levels. KBW derived implied terminal multiples using two methodologies, one based on 2019 earnings multiples and the other based on fiscal year 2018a range of terminal tangible book value multiples. Using impliedmultiples of 85% to 110% of 2019 tangible book value and earnings multiples of 15x to 24x 2019 full year earnings. BSP Securities analyzed the trading multiples of TriSummit’s publicly traded peers to determine the range of terminal tangible book value multiples and terminal earnings multiples as of December 31, 2019. The terminal values for Jefferson calculated by applying awere then discounted to the present using an estimated discount rate range of 11.0x11% to 15.0x estimated fiscal year 2019 earnings, KBW derived15%, chosen to reflect the risk of the current operating environment and the risk of TriSummit based on BSP Securities’ experience as a financial advisor.
As shown below, the range of implied valuevalues per share of JeffersonTriSummit common stock, of $5.54 per share to $7.51 per share. Using impliedon a present value basis, based on the assumptions regarding terminal values for Jefferson calculated by applying a range of 0.80x to 1.20x fiscal year 2018 tangible book value KBW derived a range of implied valuemultiples and terminal earnings per share of Jefferson common stock of $5.21 per sharemultiples for fiscal years 2016 through 2019, ranged from $2.17 to $7.44 per share. Implied per share values derived in this analysis were calculated excluding unallocated ESOP shares to be cancelled in$6.45.
| Terminal Tangible Book Multiples | Terminal Earnings Multiples | |||||||||||||||||||||||||||||||||
| 85% | 95% | 105% | 110% | 15.0 | 18.0 | 21.0 | 24.0 | |||||||||||||||||||||||||||
| 11% | $ | 4.98 | $ | 5.57 | $ | 6.16 | $ | 6.45 | 11% | $ | 2.43 | $ | 2.92 | $ | 3.41 | $ | 3.89 | |||||||||||||||||
| 12% | $ | 4.84 | $ | 5.41 | $ | 5.98 | $ | 6.26 | 12% | $ | 2.36 | $ | 2.84 | $ | 3.31 | $ | 3.78 | |||||||||||||||||
| 13% | $ | 4.70 | $ | 5.26 | $ | 5.81 | $ | 6.09 | 13% | $ | 2.30 | $ | 2.76 | $ | 3.22 | $ | 3.68 | |||||||||||||||||
| 14% | $ | 4.57 | $ | 5.11 | $ | 5.65 | $ | 5.91 | 14% | $ | 2.23 | $ | 2.68 | $ | 3.12 | $ | 3.57 | |||||||||||||||||
| 15% | $ | 4.44 | $ | 4.97 | $ | 5.49 | $ | 5.75 | 15% | $ | 2.17 | $ | 2.60 | $ | 3.04 | $ | 3.47 | |||||||||||||||||
BSP Securities noted that the merger. The discounted cash flownet present value analysis is a widely used valuation methodology, but the results of such methodology are highly dependent onupon the numerous assumptions that must be made, including asset and earnings growth rates, terminal values, dividend payout rates, and discount rates. The analysis did not purport to be indicative of the actual values or expected values of Jefferson.
Relative Contribution Analysis. KBW prepared a contribution analysis comparing percentages of total assets, total loans, total deposits, total common equity and tangible common equity as of September 30, 2013, and LTM earnings and estimated earnings for fiscal years 2014, 2015 and 2016, for Jefferson and HomeTrust to be contributed to the combined company on a pro forma basis. In the course of this analysis, KBW used earnings estimates for Jefferson for fiscal years 2014, 2015 and 2016 from Jefferson management and used earnings estimates for HomeTrust for fiscal years 2014, 2015 and 2016 from HomeTrust management.
The implied Jefferson contributions to the combined company are set forth, and compared to illustrative pro forma ownership percentages of Jefferson shareholders in the combined company based on a 50% cash/50% stock consideration mix and 100% stock consideration mix, in the following table:
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Financial Impact Analysis. KBW performed a pro forma merger analysis that combined projected income statement and balance sheet information of Jefferson and HomeTrust. Pro forma assumptions regarding, among other things, the accounting treatment, merger adjustments and cost savings per HomeTrust management were used to calculate the financial impact that the merger could have on certain projected financial results of HTBI. In the course of this analysis, KBW used closing book value, closing tangible book value and fiscal years 2015 and 2016 earnings estimates for HomeTrust from HomeTrust management and closing book value, closing tangible book value and fiscal years 2015 and 2016 earnings estimates for Jefferson from Jefferson management. This analysis indicated that the merger could be accretive to HomeTrust’s estimated EPS in fiscal years 2015 and 2016. The analysis also indicated that the merger could be dilutive to estimated closing book value per share and tangible book value per share for HomeTrust and that HomeTrust’s pro forma capital ratios could be lower at the closing of the merger. For all of the above analyses, the actual results achieved by HTBI following the merger will vary from the projected results, and the variations may be material.
Miscellaneous. KBW served as financial advisor to Jefferson in connection with the proposed merger and did not act as an advisor to or agent of any other person. As part of its investment banking business, KBW is continually engaged in the valuation of bank and bank holding company securities in connection with acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for various other purposes. As specialists in the securities of banking companies, KBW has experience in, and knowledge of, the valuation of banking enterprises. In the ordinary course of its business as a broker-dealer, KBW may, from time to time, purchase securities from, and sell securities to, Jefferson and HomeTrust. As a market maker in securities, KBW may from time to time have a long or short position in, and buy or sell, debt or equity securities of Jefferson and HomeTrust for its own account and for the accounts of its customers. To the extent KBW held any such positions as of the date of its opinion, it was disclosed to the Board.
Pursuant to the KBW engagement agreement, Jefferson agreed to pay KBW a cash fee equal to 1.50% of the aggregate merger consideration, $150,000 of which became payable upon the rendering of KBW’s opinion and the balance of which is contingent upon the consummation of the merger. Jefferson also agreed to reimburse KBW for reasonable out-of-pocket expenses and disbursements incurred in connection with its engagement and to indemnify KBW against certain liabilities relating to or arising out of KBW’s engagement or KBW’s role in connection therewith. Other than in connection with the merger, during the two years preceding the date of its opinion, KBW did not provide investment banking or financial advisory services to Jefferson. During the two years preceding the date of its opinion, KBW provided investment banking and financial advisory services to HomeTrust and received compensation for such services. KBW served as conversion agent for HomeTrust’s mutual-to-stock conversion, completed in July 2012, and as financial advisor to HomeTrust in its acquisition of BankGreenville Financial Corporation, completed in July 2013. KBW may in the future provide investment banking and financial advisory services to Jefferson or HomeTrust and receive compensation for such services.
Opinion of Professional Bank Services – Financial Advisor to Jefferson
Professional Bank Services, Inc. was engaged by Jefferson to advise Jefferson’s board of directors as to the fairness of the consideration, from a financial perspective, to be paid by HomeTrust as set forth and further defined in the merger agreement.
PBS is a bank consulting firm with offices located throughout the United States. As part of its investment banking business, PBS is regularly engaged in reviewing the fairness of financial institution acquisition transactions from a financial perspective and in the valuation of financial institutions and other businesses and their securities in connection with mergers, acquisitions, estate settlements, and other transactions. Neither PBS nor any of its affiliates has, or has had within the past two years, a material financial interest in, or other material relationship with, Jefferson or HomeTrust and PBS was selected to advise Jefferson’s board of directors based on its knowledge of the banking industry as a whole. PBS did not determine the amount of consideration to be paid to Jefferson stockholders in connection with the transaction, but instead recommended the fairness of the consideration provided for in the merger agreement to Jefferson’s board of directors.
PBS performed certain analyses described herein and presented the range of values for Jefferson, resulting from such analyses, to the board of directors of Jefferson in connection with its advice as to the fairness of the consideration to be paid by HomeTrust.
A fairness opinion of PBS was delivered to the board of directors of Jefferson on January 21, 2014 at a special meeting of the board of directors. A copy of the Fairness Opinion, which includes a summary of the assumptions made and information analyzed in deriving the Fairness Opinion, is attached asAppendix C.
In arriving at its Fairness Opinion, PBS reviewed certain publicly available business and financial information relating to Jefferson and HomeTrust. PBS considered certain financial and stock price data of Jefferson and HomeTrust, compared that data with similar data for certain publicly-held bank holding companies and considered the financial terms of certain other comparable transactions that had recently been effected. PBS also considered such other information, financial studies, analyses and investigations and financial, economic and market criteria that it deemed relevant. In connection with its review, PBS did not independently verify the foregoing information and relied on such information as being complete and accurate in all material respects. PBS did not make an independent evaluation or appraisal of the assets of Jefferson or HomeTrust. Financial forecasts prepared by PBS were based on assumptions believed by PBS to be reasonable and to reflect currently available information.
In connection with preparing its Fairness Opinion, PBS performed a limited scope due diligence review of HomeTrust, which included an on-site visit to HomeTrust by PBS personnel on December 19, 2013 and January 9, 2014. The review included certain credit quality reports provided by HomeTrust, consolidated financial statements for HomeTrust, HomeTrust Annual Reports for 2011 and 2012, current consolidated month-end delinquency and non-accrual reports for HomeTrust, current and historical consolidated analysis of the allowance for loan and lease losses for HomeTrust, HomeTrust’s strategic plan, current consolidated internal loan reports, consolidated problem loan listing with classifications, budget for 2014 and various other current internal financial and operating reports prepared by HomeTrust.
PBS reviewed and analyzed the historical performance of Jefferson, including June 30, 2012 and 2013 audited annual reports of Jefferson, June 30, 2013 and September 30, 2013 Consolidated Reports of Condition and Income (“Call Reports”) of Jefferson, Jefferson performance reports as of June 30, 2013, Jefferson’s 2014 operating budget and various internal asset quality, interest rate sensitivity, liquidity, deposit and loan portfolio reports. PBS reviewed and tabulated statistical data regarding the loan portfolio, securities portfolio and other performance ratios and statistics. Financial projections were prepared and analyzed as well as other financial studies, analyses and investigations as deemed relevant for the purposes of the Fairness Opinion. In reviewing the aforementioned information, PBS took into account its assessment of general market and financial conditions, its experience in other similar transactions, and its knowledge of the banking industry generally.
In connection with rendering the Fairness Opinion and preparing its written and oral presentation to Jefferson’s board of directors, PBS performed a variety of financial analyses, including those summarized herein. This summary does not purport to be a complete description of the analyses performed by PBS in this regard. The preparation of a Fairness Opinion involves various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, such an opinion is not readily susceptible to summary description. Accordingly, notwithstanding the separate factors summarized below, PBS believes that its analyses must be considered as a whole and that selecting portions of its analyses and the factors considered by it, without considering all analyses and factors, could create an incomplete view of the evaluation process underlying its opinion. In performing its analyses, PBS made numerous assumptions with respect to industry performance, business and economic conditions and other matters, many of which are beyond Jefferson’s or HomeTrust’s control. The analyses performed by PBSresults thereof are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by such analyses. In addition, analyses relatingresults.
Relative Contribution Analysis
BSP Securities reviewed the relative contributions of TriSummit and HomeTrust to the pro forma combined company with respect to certain financial and operating measurements. This analysis was based on projected December 31, 2016 financials for both parties, except for dates indicated otherwise. BSP Securities then compared these contributions to the pro forma implied stock ownership interests of TriSummit and HomeTrust shareholders based on the exchange ratio.
The following table indicates what TriSummit’s percentage contributions would have been on a pro forma basis to the combined company, excluding merger synergies and merger accounting adjustments, in the categories listed:
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| HomeTrust Bancshares, Inc. | TriSummit Bancorp, Inc. | Seller Contribution | ||||||||||
| ($000) | ($000) | |||||||||||
| Total Assets | 2,743,100 | 360,759 | 11.6 | % | ||||||||
| Total Loans | 1,912,500 | 250,976 | 11.6 | % | ||||||||
| Total Deposits | 1,814,568 | 288,454 | 13.7 | % | ||||||||
| Tangible Common Equity | 340,167 | 32,842 | 8.8 | % | ||||||||
| LTM Net Income to Common * | 11,456 | 416 | 3.5 | % | ||||||||
| 2016 Est. Net Income to Common * | 12,300 | 493 | 3.9 | % | ||||||||
| Average Contribution: | 8.9 | % | ||||||||||
| Seller Pro Forma Common Ownership: | 4.7 | % | ||||||||||
| Seller Pro Forma Common Ownership, If All Stock: | 9.0 | % | ||||||||||
* Net income figures for TriSummit Bancorp, Inc. are shown on a tax-normalized basis using a 35% corporate tax rate
Net Present Value Analysis – HomeTrust
BSP Securities performed a net present value analysis to estimate a range of present values of businesses do not purport to be appraisals or to reflect the process by which businesses actually may be sold.
In the proposed merger, Jefferson shareholders will receive $8.00 per Jefferson common share. Jefferson shareholders will receive $4.00 in HomeTrust common shares (subject to adjustment based on HomeTrust’s common stock price) and $4.00 in cash. The value of HomeTrust’s common stock price in determining the exchange ratio in the PBS analysis is $16.00 per HomeTrust share.
For purposes PBS’s analysis, the calculation of the purchase price is presented in the following table.
Purchase Price | $ | 52,778 | ||
Jefferson Shares Outstanding | 6,597,301 | |||
Value Per Common Share | $ | 8.00 | ||
In performing its various analyses, PBS utilized the following financial inputs for Jefferson:
JEFFERSON FINANCIAL INPUTS
(Dollars in Thousands)
September 30, 2013 LTM Net Income | $ | 1,797 | ||
September 30, 2013 Stated Common Equity | $ | 53,316 | ||
September 30, 2013 Jefferson Shares Outstanding | 6,597,301 | |||
Intangibles | $ | 1,059 | ||
For presentation purposes, PBS utilized a HomeTrust stock price per share of $16.00. The total consideration to be received by Jefferson’s shareholders, utilizing an HomeTrust stock price of $16.00 results in a multiple of Jefferson’s September 30, 2013 tangible equity of 1.01X. In addition, the proposed consideration to be received by Jefferson’s shareholders, utilizing a HomeTrust stock price of $16.00, represents 29.30X Jefferson’s September 30, 2013 last-twelve-month net income and 13.30% of Jefferson’s September 30, 2013 total deposits.
Transaction Value Method: The Transaction Value represents the price(s) at which shares of common stock in Jefferson have exchanged hands between a willing buyer and seller. Jefferson’s stock is traded on NASDAQ under the symbol JFBI. The most recent trades have been at $6.60 per share. Average daily trading volume has been 6,327 shares over the 52 weeks prior to the date of the opinion. The stock is trading at the high of its 52 week trading range. Based on the preceding information the Transaction Value of Jefferson’s common stock is $6.60 per common share.
Market Comparison Method: In performing this analysis, PBS reviewed the 100 bank and thrift transactions in the Southeastern United States since January 1, 2009 for which financial information is available (the “Comparable Group”). The purpose of the analysis was to obtain an evaluation range for Jefferson based on these Comparable Group bank and thrift acquisition transactions. The median multiple ofprojected 2019 tangible book value and median dealearnings, on a standalone basis, based upon a combination of consensus analyst estimates and BSP Securities’ projections for fiscal years 2016 through 2019. In determining the present value of HomeTrust common stock, BSP Securities utilized a terminal value based on a range of terminal tangible book value multiples of 110% to 140% of 2019 tangible book value and earnings ratiomultiples of 18x to 24x 2019 full year earnings. BSP Securities analyzed the trading multiples of HomeTrust’s publicly traded peers to determine the range of terminal tangible book value multiples and terminal earnings multiples. The terminal values were then discounted to the present using an estimated discount rate range of 11% to 15%, chosen to reflect the risk of the Comparable Group transactions were utilized in obtainingcurrent operating environment and the risk of HomeTrust based on BSP Securities’ experience as a financial advisor.
As shown below, the range of values per share of HomeTrust common stock, on a present value basis, based on the assumptions regarding terminal tangible book value multiples and terminal earnings per share multiples for fiscal years 2016 through 2019, ranged from $9.71 to $22.27.
| Terminal Tangible Book Multiples | Terminal Earnings Multiples | |||||||||||||||||||||||||||||||||
| 110% | 120% | 130% | 140% | 18.0 | 20.0 | 22.0 | 24.0 | |||||||||||||||||||||||||||
| 11% | $ | 17.50 | $ | 19.09 | $ | 20.68 | $ | 22.27 | 11% | $ | 10.89 | $ | 12.10 | $ | 13.31 | $ | 14.52 | |||||||||||||||||
| 12% | $ | 17.00 | $ | 18.54 | $ | 20.09 | $ | 21.63 | 12% | $ | 10.58 | $ | 11.76 | $ | 12.93 | $ | 14.11 | |||||||||||||||||
| 13% | $ | 16.51 | $ | 18.01 | $ | 19.51 | $ | 21.02 | 13% | $ | 10.28 | $ | 11.42 | $ | 12.56 | $ | 13.71 | |||||||||||||||||
| 14% | $ | 16.05 | $ | 17.50 | $ | 18.96 | $ | 20.42 | 14% | $ | 9.99 | $ | 11.10 | $ | 12.21 | $ | 13.32 | |||||||||||||||||
| 15% | $ | 15.60 | $ | 17.01 | $ | 18.43 | $ | 19.85 | 15% | $ | 9.71 | $ | 10.79 | $ | 11.87 | $ | 12.95 | |||||||||||||||||
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BSP Securities noted that the net present value analysis is a widely used valuation methodology, but the results of such methodology are highly dependent upon the numerous assumptions that must be made, and the results thereof are not necessarily indicative of actual values or future results.
Net Present Value Analysis – HomeTrust, Pro Forma
BSP Securities also performed a net present value analysis to estimate a range forof present values of HomeTrust’s projected 2019 tangible book value and earnings, on a pro forma basis, based upon projected 2019 pro forma tangible book value per share and pro forma earnings per share. In determining the acquisitionpresent value of Jefferson. In additionHomeTrust common stock, BSP Securities utilized a terminal value based on a range of terminal tangible book value multiples of 110% to reviewing recent Comparable140% of pro forma 2019 tangible book value and earnings multiples of 18x to 24x pro forma 2019 full year earnings. BSP Securities analyzed the trading multiples of HomeTrust’s publicly traded peers to determine the range of terminal tangible book value multiples and terminal earnings multiples. The terminal values were then discounted to the present using an estimated discount rate range of 11% to 15%, chosen to reflect the risk of the current operating environment and the risk of HomeTrust based on BSP Securities’ experience as a financial advisor.
As shown below, the range of values per pro forma share of HomeTrust common stock, on a present value basis, based on the assumptions regarding terminal tangible book value multiples and earnings per share multiples for fiscal years 2016 through 2019, ranged from $12.52 to $21.68.
| Terminal Tangible Book Multiples | Terminal Earnings Multiples | |||||||||||||||||||||||||||||||||
| 110% | 120% | 130% | 140% | 18.0 | 20.0 | 22.0 | 24.0 | |||||||||||||||||||||||||||
| 11% | $ | 17.03 | $ | 18.58 | $ | 20.13 | $ | 21.68 | 11% | $ | 14.05 | $ | 15.61 | $ | 17.17 | $ | 18.74 | |||||||||||||||||
| 12% | $ | 16.55 | $ | 18.05 | $ | 19.55 | $ | 21.06 | 12% | $ | 13.65 | $ | 15.16 | $ | 16.68 | $ | 18.20 | |||||||||||||||||
| 13% | $ | 16.07 | $ | 17.54 | $ | 19.00 | $ | 20.46 | 13% | $ | 13.26 | $ | 14.73 | $ | 16.21 | $ | 17.68 | |||||||||||||||||
| 14% | $ | 15.62 | $ | 17.04 | $ | 18.46 | $ | 19.88 | 14% | $ | 12.88 | $ | 14.32 | $ | 15.75 | $ | 17.18 | |||||||||||||||||
| 15% | $ | 15.18 | $ | 16.56 | $ | 17.94 | $ | 19.32 | 15% | $ | 12.52 | $ | 13.92 | $ | 15.31 | $ | 16.70 | |||||||||||||||||
Selected Peer Group bank and thrift transactions, PBS performed separate comparable analysesAnalysis – HomeTrust
BSP Securities used publicly available information to compare selected financial information for acquisitionsHomeTrust to a peer group of publicly-traded, liquid financial institutions that BSP Securities deemed relevant for purposes of this analysis. BSP Securities compared selected operating results of HomeTrust to seven (7) publicly traded Southeast U.S. banks and thrifts which, like Jefferson, had a non performing assets (NPAs) towith total assets ratio between 2.5%$1 billion and 4.5%, had a last$5 billion, trailing twelve month (“LTM”)months return on average assets less than 0.75%, NPAs/assets less than 1.0% and three-month average daily trading volume greater than 1,000 shares (“ROAA”HomeTrust Comparable Trading Group”). The seven companies compromising the HomeTrust Comparable Trading Group are Atlantic Capital Bancshares, Inc., Capital City Bank Group, Inc., CenterState Banks, Inc., Eastern Virginia Bankshares, Inc., Park Sterling Corp., Seacoast Banking Corp. of Florida, and Smart Financial, Inc. The comparison between 0.25% - 0.75%, had an ROAA between 0.25% - 0.75% since January 1, 2012, had total assets between $300 millionHomeTrust and $1.0 billion, and those locatedthe HomeTrust Comparable Trading Group is summarized in the state of Tennessee. Median values for the 100 Comparable Group acquisitions expressed a multiple of tangible book value equaled 0.97X, and median deal value to earnings equaled 19.74X. The following tables depict the median transaction pricing multiples for the above institution categories as well as the percentile ranking of the proposed offer in terms of the applicable pricing multiple within each comparable category.
ACQUISITION PRICING FOR COMPARABLE GROUP TRANSACTIONS
MEDIAN MULTIPLES
MULTIPLE OF
TANGIBLE
BOOK VALUEtable below.
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DEAL VALUE / EARNINGSTable of Contents
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COMPARABLE GROUP TRANSACTIONS
PROPOSED TRANSACTION PERCENTILE RANKINGS
MULTIPLE OF
TANGIBLE
BOOK VALUE
| HomeTrust Bancorp, Inc. | HomeTrust Comparable Trading Group Median | HomeTrust Comparable Trading Group 25th Percentile | HomeTrust Comparable Trading Group 75th Percentile | |||||||||||||
| Financial Metrics | ||||||||||||||||
| Assets (mm) | $ | 2,717.7 | $ | 2,807.8 | $ | 1,295.0 | $ | 4,381.2 | ||||||||
| TCE Ratio | 12.6 | % | 8.2 | % | 7.3 | % | 9.0 | % | ||||||||
| LTM ROAA | 0.42 | % | 0.54 | % | 0.36 | % | 0.66 | % | ||||||||
| LTM ROAE | 3.16 | % | 5.31 | % | 3.56 | % | 6.29 | % | ||||||||
| NPAs/Assets | 0.90 | % | 0.69 | % | 0.35 | % | 0.82 | % | ||||||||
| Market Pricing Metrics | ||||||||||||||||
| Price/LTM EPS | 28.4 | x | 26.3 | x | 21.4 | x | 29.9 | x | ||||||||
| Price/Tangible Book Value | 97.7 | % | 132.7 | % | 115.3 | % | 178.9 | % | ||||||||
| Price/Assets | 12.2 | % | 0.9 | % | 0.0 | % | 1.1 | % | ||||||||
| Pricing data as of 9/13/16 | ||||||||||||||||
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DEAL VALUE / EARNINGS
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Asset Value Method: PBS reviewed Jefferson’s balance sheet data to determine the amount of material adjustments required to the stockholders’ equity of Jefferson based on differences between the market value of Jefferson’s assets and their value reflected on Jefferson’s financial statements. PBS determined that two adjustments were warranted. Jefferson had $1,059,000 in intangible assets as of September 30, 2013. Utilizing a deposit premium of 1.20% of core deposits, PBS reflected a value of Jefferson’s September 30, 2013 core deposits of approximately $4,755,000. To determine the core deposit premium a search was conducted for all branch transactionsNo company used in the United States since January 1, 2011 for which pricing information was available. The transactions that included loans were excluded. There were a totalselected peer trading group analysis described above is identical to HomeTrust. Accordingly, an analysis of 39 branch transactions that fit the criteria with a median deposit premium of 1.20%. The aggregate adjusted net asset value of Jefferson was determined to be $57,012,000, or 1.07X Jefferson September 30, 2013 stated equity.
Earnings Method: A dividend discount analysis was performed by PBS pursuant to which a range of values of Jefferson was determined by adding (i) the present value of estimated future dividend streams that Jefferson could generate over a five-year period and (ii) the present value of the “terminal value” of Jefferson’s tangible equity at the end of the fifth year. The “terminal value” of Jefferson’s tangible equity at the end of the five-year period was determined by applying a multiple of 1.19 times the projected terminal year’s tangible equity. The 1.19 multiple represents the median price paid as a multiple of tangible equity for all Comparable Group bank and thrift transactions located in the Southeastern United States with LTM ROAA between 0.25% and 0.75% since January 1, 2012.
Projected dividend streams and the terminal value were discounted to present values using a discount rate of 12.99%. This rate reflects assumptions regarding the required rate of return of holders or buyers of Jefferson common shares. The aggregate value of Jefferson, determined by adding the present value of the total cash flows at the end of the five-year period, was $45,559,000, or $6.91 per Jefferson common share. In addition, using the five-year projection as a base, a twenty-year projection was prepared. Assumptions utilized in the analysis included an annual growth rate in assets of 3.0% per year in years one through five and 5.0% per year for the remainder of the analysis. Return on assets was projected to increase to 1.15% by year eleven and remain constant throughout the long-term analysis. It was assumed that Jefferson would pay common dividends in years one through five at a rate equal to 50% of net income and 60% of net income in years six through twenty. This long-term projection resulted in an aggregate value of $36,167,000, or $5.48 per Jefferson common share.
Pro Forma Merger Analysis: The contribution of Jefferson and HomeTrust to the income statement and balance sheet of the pro forma combined organization was analyzed in relation to the pro forma ownership position of Jefferson’s shareholders in the combined organization.
The Fairness Opinion is directed only to the question of whether the consideration to be received by Jefferson’s shareholders under the merger agreement is fair and equitable from a financial perspective and does not constitute a recommendation to any Jefferson shareholder to vote in favor of the adoption of the merger agreement and approval of the Merger. No limitations were imposed on PBS regarding the scope of its investigation or otherwise by Jefferson.
In forming its opinion as to the fairness of the proposed transaction from a financial perspective, PBS took into consideration multiple factors and circumstances including the following: the Asset Value Method reflects a liquidation value of Jefferson and does not accurately reflect the value of Jefferson as a going concern and therefore was not included in PBS’s opinion of value; the values of Jefferson derived from the short and long-term Earnings Method; the percentile rankings of the proposed transaction pricing multiples relative to other transactions in the Comparable Group; HomeTrust’s financial performance and operating history and in particular HomeTrust’s high level of capital and its ability to support its stock price; the future growth prospects and fundamental performance of Jefferson and HomeTrust; the pro forma capital ratios of HomeTrust and HomeTrust’s apparent ability to consummate the proposed transaction; Jefferson’s and HomeTrust’s relative earnings growth on both a historical and pro forma basis; the increase in Jefferson’s projected pro forma book value per share; the relative future growth prospects and fundamental performance of Jefferson and HomeTrust; the due diligence findings of PBS and Jefferson on their review of HomeTrust; and the results of Jefferson’s process of contacting possible acquirersthe foregoing necessarily involves complex considerations and PBS’ analysisjudgments concerning financial and operating characteristics and other factors that could affect the merger, public trading or other values of the potential acquirers and merger partners.
Conclusion
Based on the results of the various analyses and other factors described above, PBSBSP Securities concluded that the merger consideration to be received by Jefferson’s shareholders under the terms of the merger agreement wasis fair, and equitable from a financial perspectivepoint of view, to TriSummit’s shareholders.
The opinion expressed by BSP Securities was based upon market, economic and other relevant considerations as they existed and could be evaluated as of the date of the opinion. Events occurring after the date of issuance of the opinion, including but not limited to, changes affecting the securities markets and the results of operations or material changes in the assets of TriSummit or HomeTrust could materially affect the assumptions used in preparing the opinion.
As described above, BSP Securities’ opinion was among the many factors taken into consideration by the TriSummit board of directors in making its determination to approve the merger agreement. For purposes of rendering its opinion, BSP Securities assumed that, in all respects material to its analyses:
| 47 |
| · | the merger will be consummated in accordance with the terms of the merger agreement without waiver, modification or amendment of any term, condition or agreement thereof; |
| · | the representations and warranties of each party in the merger agreement and in all related documents and instruments referred to in the merger agreement are true and correct; |
| · | each party to the merger agreement and all related documents will perform all of the covenants and agreements required to be performed by such party under such documents; |
| · | all conditions to the completion of the merger will be satisfied without any waivers; and |
| · | in the course of obtaining the necessary regulatory, contractual or other consents or approvals for the merger, no restrictions, including any divestiture requirements, termination or other payments or amendments or modifications will be imposed that will have a material adverse effect on the future results of operations or financial condition of the combined entity or the contemplated benefits of the merger. |
BSP Securities cannot provide assurance as to when or if all of the conditions to the shareholdersmerger can or will be satisfied or, if applicable, waived by the appropriate party. As of Jefferson.the date of this proxy statement/prospectus, BSP Securities has no reason to believe that any of these conditions will not be satisfied.
PBS will receive total fees
Compensation to BSP Securities
TriSummit paid BSP Securities a non-refundable retainer of $15,000$20,000 at the time TriSummit engaged BSP Securities. BSP Securities was paid a fee of $35,000 for all services performed in connectionproviding TriSummit’s board of directors with theits fairness opinion, which fee was paid upon rendering of the Fairness Opinion.opinion. BSP Securities was also paid a progress fee of $80,000, which fee was paid upon TriSummit’s execution of the merger agreement. BSP Securities will also be paid a success fee equal to 1.10% of the sum of the aggregate merger consideration to be paid to TriSummit’s common and Series A preferred shareholders and the amount to be paid upon the redemption of the TriSummit Series B preferred stock, Series C preferred stock, and Series D preferred stock (excluding the amount of accrued dividends), less the $80,000 progress fee previously paid which will be credited against the success fee, in the event the merger is consummated . TriSummit has also agreed to reimburse BSP Securities for certain out-of-pocket expenses and disbursements. In addition, JeffersonTriSummit has agreed to indemnify PBSBSP Securities and its directors, officers and employees from liability in connection with the transaction,merger, and to hold PBSBSP Securities harmless from any losses, actions, claims, damages, expenses or liabilities related to any of PBS’BSP Securities’ acts or decisions made in good faith and in the best interest of Jefferson.TriSummit. During the two years preceding the date of the fairness opinion, BSP Securities did not provide advisory services to TriSummit or HomeTrust where compensation was received or where BSP Securities contemplates compensation will be received after closing of the merger.
| 48 |
Table 1 – SouthEast Asset Size Peer Group
| Transaction Price/ | Target Announcement Financials | |||||||||||||||||||||||||||||||||||||||||||||||
| Target | Announce | Transaction Value | LTM Earnings | MRQ Tang. Book | MRQ Assets | Premium/ Core Deposits | Total Assets | Tang. Equity/ Tang. Assets | LTM ROAA | LTM ROAE | LTM Eff. Ratio | NPAs/ Assets | ||||||||||||||||||||||||||||||||||||
| Buyer/ Target | State | Date | ($mm) | (x) | (%) | (%) | (%) | ($000) | (%) | (%) | (%) | (%) | (%) | |||||||||||||||||||||||||||||||||||
| Median | 29.7 | 17.9 | 137.2 | 13.3 | 5.5 | 245,565 | 10.2 | 0.67 | 6.6 | 77.4 | 1.85 | |||||||||||||||||||||||||||||||||||||
| 25th Percentile | 20.8 | 16.5 | 121.0 | 10.9 | 2.9 | 146,137 | 9.2 | 0.44 | 4.7 | 67.6 | 0.76 | |||||||||||||||||||||||||||||||||||||
| 75th Percentile | 50.1 | 26.0 | 143.9 | 15.5 | 8.1 | 372,806 | 11.9 | 0.86 | 7.1 | 86.8 | 3.51 | |||||||||||||||||||||||||||||||||||||
| National Commerce Corporation/ Private Bancshares, Inc. | GA | 8/31/16 | 58.4 | 23.7 | 223.2 | 20.1 | 14.0 | 291,234 | 8.6 | 1.38 | 16.0 | 76.8 | 1.66 | |||||||||||||||||||||||||||||||||||
| Stonegate Bank/ Insignia Bank | FL | 8/24/16 | 36.5 | 30.5 | 155.8 | 14.7 | 7.4 | 248,250 | 9.4 | 0.53 | 5.3 | 78.9 | 0.80 | |||||||||||||||||||||||||||||||||||
| Citco Community Bancshares, Inc./ American Trust Bank of East Tennessee | TN | 7/22/16 | 19.8 | 14.2 | 111.1 | 14.0 | 2.4 | 141,025 | 12.6 | 1.02 | 8.2 | 73.5 | 1.91 | |||||||||||||||||||||||||||||||||||
| Equity Bancshares, Inc./ Community First Bancshares, Inc. | AR | 7/14/16 | 68.2 | 10.7 | 128.1 | 14.3 | 4.2 | 475,208 | 11.9 | 1.41 | 12.1 | 57.6 | 2.98 | |||||||||||||||||||||||||||||||||||
| Pinnacle Financial Corporation/ Independence Bank of Georgia | GA | 7/1/16 | 30.4 | 18.1 | 128.9 | 16.5 | 5.4 | 184,113 | 12.8 | 0.91 | 7.4 | 62.4 | 0.37 | |||||||||||||||||||||||||||||||||||
| Summit Financial Group, Inc./ First Century Bankshares, Inc. | WV | 6/1/16 | 41.6 | 16.2 | 105.4 | 10.1 | 0.7 | 410,011 | 9.7 | 0.62 | 5.6 | 76.5 | 2.91 | |||||||||||||||||||||||||||||||||||
| First Citizens BancShares, Inc./ Cordia Bancorp Inc. | VA | 5/20/16 | 37.1 | NM | 138.3 | 10.7 | 5.5 | 347,818 | 7.7 | -0.60 | -7.4 | 104.3 | 1.06 | |||||||||||||||||||||||||||||||||||
| State Bank Financial Corporation/ S Bankshares, Inc. | GA | 5/19/16 | 11.0 | NM | 102.0 | 10.1 | 0.3 | 108,813 | 9.5 | 0.53 | 5.4 | 86.5 | 0.90 | |||||||||||||||||||||||||||||||||||
| Coastal Carolina Bancshares, Inc./ VistaBank | SC | 5/12/16 | 12.2 | 4.4 | 100.9 | 11.1 | 0.2 | 110,146 | 11.0 | 2.48 | 23.8 | 103.5 | 1.31 | |||||||||||||||||||||||||||||||||||
| Sunshine Bancorp, Inc./ FBC Bancorp, Inc. | FL | 5/10/16 | 39.2 | 17.1 | 133.1 | 13.0 | 3.8 | 302,200 | 9.9 | 0.82 | 7.6 | 69.3 | 0.38 | |||||||||||||||||||||||||||||||||||
| Stonegate Bank/ Regent Bancorp, Inc. | FL | 4/26/16 | 39.3 | NA | 144.0 | 10.8 | 5.6 | 362,731 | NA | NA | NA | NA | NA | |||||||||||||||||||||||||||||||||||
| State Bank Financial Corporation/ NBG Bancorp, Inc. | GA | 4/5/16 | 68.0 | 14.8 | 165.4 | 18.2 | 10.5 | 374,631 | 10.8 | 1.28 | 12.6 | 52.2 | 0.74 | |||||||||||||||||||||||||||||||||||
| United Community Banks, Inc./ Tidelands Bancshares, Inc. | SC | 4/4/16 | 2.2 | NM | NM | 0.5 | 5.5 | 466,235 | 0.4 | -0.38 | -44.5 | 106.6 | 6.20 | |||||||||||||||||||||||||||||||||||
| Blue Ridge Bankshares, Inc./ River Bancorp, Inc. | VA | 3/31/16 | 12.1 | 8.7 | 106.9 | 10.6 | 1.3 | 114,318 | 9.4 | 1.33 | 15.3 | 81.5 | 1.83 | |||||||||||||||||||||||||||||||||||
| Summit Financial Group, Inc./ Highland County Bankshares, Inc. | VA | 2/29/16 | 21.8 | 30.1 | 137.7 | 17.2 | 6.0 | 126,663 | 11.7 | 0.59 | 5.2 | 75.0 | 1.92 | |||||||||||||||||||||||||||||||||||
| Robertson Holding Company, L.P./ National Bank of Tennessee | TN | 1/21/16 | 5.7 | NM | 68.4 | 4.1 | -2.2 | 140,751 | 6.0 | -0.15 | -2.6 | 106.7 | 3.62 | |||||||||||||||||||||||||||||||||||
| Carolina Financial Corporation/ Congaree Bancshares, Inc. | SC | 1/6/16 | 15.2 | 13.9 | 126.6 | 13.0 | 4.0 | 116,689 | 11.6 | 1.09 | 9.3 | 81.2 | 2.65 | |||||||||||||||||||||||||||||||||||
| Franklin Financial Network, Inc./ Civic Bank & Trust | TN | 12/14/15 | 29.7 | 22.8 | 141.6 | 21.1 | 17.8 | 141,057 | 14.9 | 0.92 | 6.2 | 105.8 | 1.22 | |||||||||||||||||||||||||||||||||||
| Charter Financial Corporation/ CBS Financial Corporation | GA | 12/3/15 | 58.7 | 14.0 | 231.0 | 15.9 | 12.9 | 368,675 | 10.0 | 2.21 | 24.3 | 61.5 | 1.14 | |||||||||||||||||||||||||||||||||||
| Entegra Financial Corp./ Oldtown Bank | NC | 11/24/15 | 13.5 | 9.1 | 115.6 | 12.0 | 3.5 | 112,971 | 10.3 | 1.34 | 13.1 | 78.6 | 2.05 | |||||||||||||||||||||||||||||||||||
| Coastal Banking Company, Inc./ First Avenue National Bank | FL | 11/23/15 | 10.5 | NM | 80.3 | 8.4 | -2.8 | 124,956 | 10.5 | -0.01 | -0.1 | 102.3 | 0.79 | |||||||||||||||||||||||||||||||||||
| Seacoast Banking Corporation of Florida/ Floridian Financial Group, Inc. | FL | 11/3/15 | 77.4 | 33.5 | 143.9 | 18.3 | 8.4 | 423,369 | 12.1 | 0.51 | 4.2 | 79.7 | 1.99 | |||||||||||||||||||||||||||||||||||
| CenterState Banks, Inc./ Hometown of Homestead Banking Company | FL | 10/27/15 | 18.4 | 11.3 | 117.4 | 5.3 | 1.1 | 346,291 | 9.0 | 0.63 | 6.8 | 83.5 | 4.94 | |||||||||||||||||||||||||||||||||||
| Fidelity Southern Corporation/ American Enterprise Bankshares, Inc. | FL | 10/26/15 | 26.9 | NM | 140.8 | 13.1 | 5.7 | 205,398 | 9.1 | 0.59 | 6.6 | 85.5 | 3.62 | |||||||||||||||||||||||||||||||||||
| First National Bancorp, Inc./ Twin Lakes Community Bank | AR | 10/23/15 | 15.3 | 14.0 | 148.3 | 14.0 | 8.8 | 109,304 | 9.5 | 1.10 | 11.0 | 75.0 | 1.96 | |||||||||||||||||||||||||||||||||||
| Southern BancShares (N.C.), Inc./ Heritage Bankshares, Inc. | VA | 10/21/15 | 50.2 | 17.7 | 150.7 | 15.2 | 5.9 | 329,598 | 12.5 | 0.86 | 7.1 | 72.7 | NA | |||||||||||||||||||||||||||||||||||
| Renasant Corporation/ KeyWorth Bank | GA | 10/20/15 | 58.7 | 21.1 | 137.0 | 15.1 | 6.4 | 388,931 | 11.0 | 0.73 | 6.6 | 67.6 | 0.60 | |||||||||||||||||||||||||||||||||||
| Citizens Bancshares of Batesville, Inc./ Parkway Bank | AR | 10/14/15 | 21.8 | 28.5 | 142.5 | 16.5 | 9.0 | 131,792 | 11.6 | 0.61 | 5.1 | 77.0 | 3.00 | |||||||||||||||||||||||||||||||||||
| Republic Bancorp, Inc./ Cornerstone Bancorp, Inc. | FL | 10/7/15 | 32.3 | NA | NA | 13.4 | NA | 241,155 | NA | NA | NA | NA | NA | |||||||||||||||||||||||||||||||||||
| CenterState Banks, Inc./ Community Bank of South Florida, Inc. | FL | 10/5/15 | 66.6 | 31.9 | 145.1 | 13.4 | 6.0 | 495,089 | 9.3 | 0.44 | 4.8 | 86.8 | 6.42 | |||||||||||||||||||||||||||||||||||
| Farmers and Merchants Bankshares, Inc./ Bankshares of Fayetteville, Inc. | AR | 7/30/15 | 42.3 | 16.2 | 121.0 | 11.8 | 2.5 | 360,153 | 9.7 | NA | NA | NA | NA | |||||||||||||||||||||||||||||||||||
| Southern States Bancshares, Inc./ Columbus Community Bank | GA | 7/21/15 | 21.4 | 17.9 | 140.2 | NA | 9.3 | 122,154 | 12.5 | 0.98 | 8.1 | 62.1 | 1.87 | |||||||||||||||||||||||||||||||||||
| HCBF Holding Company, Inc./ OGS Investments, Inc. | FL | 7/20/15 | 23.5 | NM | 117.8 | 10.2 | 2.1 | 231,135 | 8.8 | 0.39 | 4.7 | 87.9 | 3.40 | |||||||||||||||||||||||||||||||||||
| National Commerce Corporation/ Reunion Bank of Florida | FL | 7/7/15 | 42.2 | 24.4 | 160.2 | 15.5 | 8.8 | 272,167 | 9.7 | 0.65 | 7.0 | 67.3 | 0.72 | |||||||||||||||||||||||||||||||||||
| Premier Financial Bancorp, Inc./ First National Bankshares Corp. | WV | 7/7/15 | 26.5 | 17.9 | 147.1 | 13.3 | 4.5 | 250,161 | 8.9 | 0.60 | 7.0 | 77.8 | NA | |||||||||||||||||||||||||||||||||||
| First National Bankers Bankshares, Inc./ Independent Bankers' Bank of Florida | FL | 6/30/15 | 1.9 | NM | NM | 1.3 | -20.9 | 143,213 | 4.7 | -0.58 | -14.7 | 125.3 | 8.94 | |||||||||||||||||||||||||||||||||||
| Hamilton State Bancshares, Inc./ Highland Financial Services, Inc. | GA | 5/15/15 | 20.1 | 24.3 | 143.4 | 15.5 | 7.1 | 129,628 | 10.8 | 0.69 | 6.4 | 70.4 | 1.28 | |||||||||||||||||||||||||||||||||||
| River Financial Corporation/ Keystone Bancshares, Inc. | AL | 5/13/15 | 36.7 | 14.2 | 136.2 | 14.5 | 5.5 | 252,328 | 11.0 | 1.09 | 10.1 | 61.0 | 1.31 | |||||||||||||||||||||||||||||||||||
| Bank of the Ozarks, Inc./ Bank of the Carolinas Corporation | NC | 5/6/15 | 64.7 | 2.8 | 137.5 | 16.8 | 7.2 | 385,459 | 12.2 | 0.03 | 0.6 | 102.6 | 2.99 | |||||||||||||||||||||||||||||||||||
| Seacoast Banking Corporation of Florida/ Grand Bankshares, Inc. | FL | 3/25/15 | 15.2 | 17.5 | 110.7 | 7.3 | 0.9 | 207,976 | 6.7 | 0.41 | 6.4 | 98.8 | 10.46 | |||||||||||||||||||||||||||||||||||
| Carolina Alliance Bank/ PBSC Financial Corporation | SC | 3/24/15 | 23.8 | 25.2 | 118.0 | 15.4 | 4.0 | 154,241 | 13.0 | 0.98 | 7.5 | 74.5 | 1.12 | |||||||||||||||||||||||||||||||||||
| Sunshine Bancorp, Inc./ Community Southern Holdings, Inc. | FL | 2/5/15 | 30.8 | 26.2 | 134.7 | 12.5 | 6.5 | 245,565 | 11.6 | 0.47 | 4.3 | 78.7 | 0.67 | |||||||||||||||||||||||||||||||||||
| Community & Southern Holdings, Inc./ Community Business Bank | GA | 1/30/15 | 27.4 | 27.0 | 140.9 | 18.4 | 9.4 | 149,061 | 13.1 | 0.70 | 5.4 | 64.8 | 0.35 | |||||||||||||||||||||||||||||||||||
| Ameris Bancorp/ Merchants & Southern Banks of Florida, Inc. | FL | 1/29/15 | 50.0 | 17.9 | 140.7 | 10.6 | 4.6 | 472,487 | 9.4 | 1.19 | 12.0 | 66.5 | 1.94 | |||||||||||||||||||||||||||||||||||
| United Community Banks, Inc./ MoneyTree Corporation | TN | 1/27/15 | 53.0 | 20.2 | 136.6 | 12.5 | 4.8 | 425,377 | 10.2 | 0.64 | 6.1 | 72.5 | 0.28 | |||||||||||||||||||||||||||||||||||
| 49 |
Table 2 – SouthEast Capital Peer Group
| Transaction Price/ | Target Announcement Financials | |||||||||||||||||||||||||||||||||||||||||||||||
| Target | Announce | Transaction Value | LTM Earnings | MRQ Tang. Book | MRQ Assets | Premium/ Core Deposits | Total Assets | Tang. Equity/ Tang. Assets | LTM ROAA | LTM ROAE | LTM Eff. Ratio | NPAs/ Assets | ||||||||||||||||||||||||||||||||||||
| Buyer/Target | State | Date | ($mm) | (x) | (%) | (%) | (%) | ($000) | (%) | (%) | (%) | (%) | (%) | |||||||||||||||||||||||||||||||||||
| Median | 36.6 | 16.2 | 137.5 | 12.7 | 4.7 | 262,248 | 9.6 | 0.65 | 7.0 | 77.8 | 1.31 | |||||||||||||||||||||||||||||||||||||
| 25th Percentile | 16.1 | 14.0 | 116.0 | 10.6 | 1.5 | 126,124 | 9.2 | 0.53 | 5.4 | 69.3 | 0.80 | |||||||||||||||||||||||||||||||||||||
| 75th Percentile | 48.1 | 23.7 | 148.0 | 14.7 | 7.3 | 366,545 | 10.3 | 1.28 | 12.6 | 86.5 | 2.26 | |||||||||||||||||||||||||||||||||||||
| National Commerce Corporation/ Private Bancshares, Inc. | GA | 8/31/16 | 58.4 | 23.7 | 223.2 | 20.1 | 14.0 | 291,234 | 8.6 | 1.38 | 16.0 | 76.8 | 1.66 | |||||||||||||||||||||||||||||||||||
| Stonegate Bank/ Insignia Bank | FL | 8/24/16 | 36.5 | 30.5 | 155.8 | 14.7 | 7.4 | 248,250 | 9.4 | 0.53 | 5.3 | 78.9 | 0.80 | |||||||||||||||||||||||||||||||||||
| Summit Financial Group, Inc./ First Century Bankshares, Inc. | WV | 6/1/16 | 41.6 | 16.2 | 105.4 | 10.1 | 0.7 | 410,011 | 9.7 | 0.62 | 5.6 | 76.5 | 2.91 | |||||||||||||||||||||||||||||||||||
| First Citizens BancShares, Inc./ Cordia Bancorp Inc. | VA | 5/20/16 | 37.1 | NM | 138.3 | 10.7 | 5.5 | 347,818 | 7.7 | -0.60 | -7.4 | 104.3 | 1.06 | |||||||||||||||||||||||||||||||||||
| State Bank Financial Corporation/ S Bankshares, Inc. | GA | 5/19/16 | 11.0 | NM | 102.0 | 10.1 | 0.3 | 108,813 | 9.5 | 0.53 | 5.4 | 86.5 | 0.90 | |||||||||||||||||||||||||||||||||||
| Coastal Carolina Bancshares, Inc./ VistaBank | SC | 5/12/16 | 12.2 | 4.4 | 100.9 | 11.1 | 0.2 | 110,146 | 11.0 | 2.48 | 23.8 | 103.5 | 1.31 | |||||||||||||||||||||||||||||||||||
| Sunshine Bancorp, Inc./ FBC Bancorp, Inc. | FL | 5/10/16 | 39.2 | 17.1 | 133.1 | 13.0 | 3.8 | 302,200 | 9.9 | 0.82 | 7.6 | 69.3 | 0.38 | |||||||||||||||||||||||||||||||||||
| State Bank Financial Corporation/ NBG Bancorp, Inc. | GA | 4/5/16 | 68.0 | 14.8 | 165.4 | 18.2 | 10.5 | 374,631 | 10.8 | 1.28 | 12.6 | 52.2 | 0.74 | |||||||||||||||||||||||||||||||||||
| Blue Ridge Bankshares, Inc./ River Bancorp, Inc. | VA | 3/31/16 | 12.1 | 8.7 | 106.9 | 10.6 | 1.3 | 114,318 | 9.4 | 1.33 | 15.3 | 81.5 | 1.83 | |||||||||||||||||||||||||||||||||||
| Charter Financial Corporation/ CBS Financial Corporation | GA | 12/3/15 | 58.7 | 14.0 | 231.0 | 15.9 | 12.9 | 368,675 | 10.0 | 2.21 | 24.3 | 61.5 | 1.14 | |||||||||||||||||||||||||||||||||||
| Entegra Financial Corp./ Oldtown Bank | NC | 11/24/15 | 13.5 | 9.1 | 115.6 | 12.0 | 3.5 | 112,971 | 10.3 | 1.34 | 13.1 | 78.6 | 2.05 | |||||||||||||||||||||||||||||||||||
| Coastal Banking Company, Inc./ First Avenue National Bank | FL | 11/23/15 | 10.5 | NM | 80.3 | 8.4 | -2.8 | 124,956 | 10.5 | -0.01 | -0.1 | 102.3 | 0.79 | |||||||||||||||||||||||||||||||||||
| CenterState Banks, Inc./ Hometown of Homestead Banking Company | FL | 10/27/15 | 18.4 | 11.3 | 117.4 | 5.3 | 1.1 | 346,291 | 9.0 | 0.63 | 6.8 | 83.5 | 4.94 | |||||||||||||||||||||||||||||||||||
| Fidelity Southern Corporation/ American Enterprise Bankshares, Inc. | FL | 10/26/15 | 26.9 | NM | 140.8 | 13.1 | 5.7 | 205,398 | 9.1 | 0.59 | 6.6 | 85.5 | 3.62 | |||||||||||||||||||||||||||||||||||
| First National Bancorp, Inc./ Twin Lakes Community Bank | AR | 10/23/15 | 15.3 | 14.0 | 148.3 | 14.0 | 8.8 | 109,304 | 9.5 | 1.10 | 11.0 | 75.0 | 1.96 | |||||||||||||||||||||||||||||||||||
| CenterState Banks, Inc./ Community Bank of South Florida, Inc. | FL | 10/5/15 | 66.6 | 31.9 | 145.1 | 13.4 | 6.0 | 495,089 | 9.3 | 0.44 | 4.8 | 86.8 | 6.42 | |||||||||||||||||||||||||||||||||||
| Farmers and Merchants Bankshares, Inc./ Bankshares of Fayetteville, Inc. | AR | 7/30/15 | 42.3 | 16.2 | 121.0 | 11.8 | 2.5 | 360,153 | 9.7 | NA | NA | NA | NA | |||||||||||||||||||||||||||||||||||
| HCBF Holding Company, Inc./ OGS Investments, Inc. | FL | 7/20/15 | 23.5 | NM | 117.8 | 10.2 | 2.1 | 231,135 | 8.8 | 0.39 | 4.7 | 87.9 | 3.40 | |||||||||||||||||||||||||||||||||||
| National Commerce Corporation/ Reunion Bank of Florida | FL | 7/7/15 | 42.2 | 24.4 | 160.2 | 15.5 | 8.8 | 272,167 | 9.7 | 0.65 | 7.0 | 67.3 | 0.72 | |||||||||||||||||||||||||||||||||||
| Premier Financial Bancorp, Inc./ First National Bankshares Corp. | WV | 7/7/15 | 26.5 | 17.9 | 147.1 | 13.3 | 4.5 | 250,161 | 8.9 | 0.60 | 7.0 | 77.8 | NA | |||||||||||||||||||||||||||||||||||
| Hamilton State Bancshares, Inc./ Highland Financial Services, Inc. | GA | 5/15/15 | 20.1 | 24.3 | 143.4 | 15.5 | 7.1 | 129,628 | 10.8 | 0.69 | 6.4 | 70.4 | 1.28 | |||||||||||||||||||||||||||||||||||
| River Financial Corporation/ Keystone Bancshares, Inc. | AL | 5/13/15 | 36.7 | 14.2 | 136.2 | 14.5 | 5.5 | 252,328 | 11.0 | 1.09 | 10.1 | 61.0 | 1.31 | |||||||||||||||||||||||||||||||||||
| Ameris Bancorp/ Merchants & Southern Banks of Florida, Inc. | FL | 1/29/15 | 50.0 | 17.9 | 140.7 | 10.6 | 4.6 | 472,487 | 9.4 | 1.19 | 12.0 | 66.5 | 1.94 | |||||||||||||||||||||||||||||||||||
| United Community Banks, Inc./ MoneyTree Corporation | TN | 1/27/15 | 53.0 | 20.2 | 136.6 | 12.5 | 4.8 | 425,377 | 10.2 | 0.64 | 6.1 | 72.5 | 0.28 | |||||||||||||||||||||||||||||||||||
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Table 3 – SouthEast Profitability Peer Group
| Transaction Price/ | Target Announcement Financials | |||||||||||||||||||||||||||||||||||||||||||||||
| Target | Announce | Transaction Value | LTM Earnings | MRQ Tang. Book | MRQ Assets | Premium/ Core Deposits | Total Assets | Tang. Equity/ Tang. Assets | LTM ROAA | LTM ROAE | LTM Eff. Ratio | NPAs/ Assets | ||||||||||||||||||||||||||||||||||||
| Buyer/Target | State | Date | ($mm) | (x) | (%) | (%) | (%) | ($000) | (%) | (%) | (%) | (%) | (%) | |||||||||||||||||||||||||||||||||||
| Median | 19.2 | 26.2 | 126.2 | 9.3 | 3.5 | 219,556 | 8.6 | 0.01 | 0.2 | 102.4 | 3.51 | |||||||||||||||||||||||||||||||||||||
| 25th Percentile | 6.6 | 17.5 | 87.3 | 4.9 | -2.1 | 141,367 | 6.1 | -0.53 | -8.6 | 88.9 | 1.31 | |||||||||||||||||||||||||||||||||||||
| 75th Percentile | 35.5 | 31.9 | 137.7 | 13.2 | 5.9 | 376,049 | 10.5 | 0.41 | 4.6 | 106.7 | 6.37 | |||||||||||||||||||||||||||||||||||||
| Sunshine Bancorp, Inc./ Community Southern Holdings, Inc. | FL | 2/5/15 | 30.8 | 26.2 | 134.7 | 12.5 | 6.5 | 245,565 | 11.6 | 0.47 | 4.3 | 78.7 | 0.67 | |||||||||||||||||||||||||||||||||||
| CenterState Banks, Inc./ Community Bank of South Florida, Inc. | FL | 10/5/15 | 66.6 | 31.9 | 145.1 | 13.4 | 6.0 | 495,089 | 9.3 | 0.44 | 4.8 | 86.8 | 6.42 | |||||||||||||||||||||||||||||||||||
| Seacoast Banking Corporation of Florida/ Grand Bankshares, Inc. | FL | 3/25/15 | 15.2 | 17.5 | 110.7 | 7.3 | 0.9 | 207,976 | 6.7 | 0.41 | 6.4 | 98.8 | 10.46 | |||||||||||||||||||||||||||||||||||
| HCBF Holding Company, Inc./ OGS Investments, Inc. | FL | 7/20/15 | 23.5 | NM | 117.8 | 10.2 | 2.1 | 231,135 | 8.8 | 0.39 | 4.7 | 87.9 | 3.40 | |||||||||||||||||||||||||||||||||||
| Achieva Credit Union/ Calusa Financial Corporation, Inc. | FL | 5/5/15 | 23.2 | NM | 136.1 | 14.0 | 4.9 | 166,146 | 10.4 | 0.23 | 2.2 | 92.1 | 2.03 | |||||||||||||||||||||||||||||||||||
| Bank of the Ozarks, Inc./ Bank of the Carolinas Corporation | NC | 5/6/15 | 64.7 | NM | 137.5 | 16.8 | 7.2 | 385,459 | 12.2 | 0.03 | 0.6 | 102.6 | 2.99 | |||||||||||||||||||||||||||||||||||
| Coastal Banking Company, Inc./ First Avenue National Bank | FL | 11/23/15 | 10.5 | NM | 80.3 | 8.4 | -2.8 | 124,956 | 10.5 | -0.01 | -0.1 | 102.3 | 0.79 | |||||||||||||||||||||||||||||||||||
| Robertson Holding Company, L.P./ National Bank of Tennessee | TN | 1/21/16 | 5.7 | NM | 68.4 | 4.1 | -2.2 | 140,751 | 6.0 | -0.15 | -2.6 | 106.7 | 3.62 | |||||||||||||||||||||||||||||||||||
| United Community Banks, Inc./ Tidelands Bancshares, Inc. | SC | 4/4/16 | 2.2 | NM | NM | 0.5 | 5.5 | 466,235 | 0.4 | -0.38 | -44.5 | 106.6 | 6.20 | |||||||||||||||||||||||||||||||||||
| First National Bankers Bankshares, Inc./ Independent Bankers' Bank of Florida | FL | 6/30/15 | 1.9 | NM | NM | 1.3 | -20.9 | 143,213 | 4.7 | -0.58 | -14.7 | 125.3 | 8.94 | |||||||||||||||||||||||||||||||||||
| First Citizens BancShares, Inc./ Cordia Bancorp Inc. | VA | 5/20/16 | 37.1 | NM | 138.3 | 10.7 | 5.5 | 347,818 | 7.7 | -0.60 | -7.4 | 104.3 | 1.06 | |||||||||||||||||||||||||||||||||||
| Avadian Credit Union/ American Bank of Huntsville | AL | 8/24/15 | 9.2 | NM | 89.7 | 7.5 | -1.7 | 123,101 | 8.3 | -0.76 | -9.0 | 118.9 | 6.22 | |||||||||||||||||||||||||||||||||||
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HomeTrust ’s Board of Directors Following Completion of the Merger
In accordance with the merger agreement, upon
Following completion of the merger HomeTrust will increaseand the sizebank merger, the directors and executive officers of each of the HomeTrust and HomeTrust Bank will be the directors and executive officers of HomeTrust and HomeTrust Bank immediately prior to the merger. No current director of TriSummit or TriSummit Bank will serve on the board of directors from twelve members to thirteen members and will appoint Anderson L. Smith to serve on each board untilof HomeTrust or HomeTrust Bank following the annual meeting of shareholders in 2016.merger.
Interests of Jefferson’sTriSummit’s Directors and Executive Officers in the Merger
Jefferson shareholders should be aware that some
Some of Jefferson’s directors andthe TriSummit executive officers and directors have financial and other interests in the merger and have arrangements that are different from, or in addition to, those of Jeffersonor different from, their interests as TriSummit shareholders generally. Jefferson’sTriSummit’s board of directors was aware of these interests and considered these interests,them, among other matters, when making its decision to approve the merger agreement,in approving and in recommending that Jefferson shareholders vote in favor of adopting the merger agreement.
These interests include the following:
Amendment and Assumption of Stock Option Award Agreements
Each holder of Jefferson mayan option to purchase TriSummit common stock or TriSummit Series A preferred stock has executed an amendment to his or her TriSummit stock option award agreement which will, as of the effective time of the merger, reduce by 50% the number of shares subject to the award and make certain other changes to the agreement, including the removal of a provision which required that the option be eligible for severance benefitsexercised within 24 months from the date of a change of control.
Each amended option award that is outstanding at the effective time of the merger will be assumed by HomeTrust and converted into the right to receive an option to purchase that number of shares of HomeTrust common stock equal to the product obtained by multiplying (i) the number of shares of TriSummit common stock and TriSummit Series A preferred stock subject to the amended option award (i.e., after taking into account the reduction in the number of shares subject to the award described above) by (ii) the Adjusted Option Exchange Ratio, rounded to the nearest whole number of shares of HomeTrust common stock. Each option to purchase HomeTrust common stock will have an exercise price per share of HomeTrust common stock equal to (x) $10.00 (the per share exercise price under existingeach TriSummit option award) divided by (y) the Adjusted Option Exchange Ratio, rounded to the nearest whole cent. Each option to purchase HomeTrust common stock will otherwise be subject to the same terms and conditions applicable to the corresponding TriSummit option award, including vesting terms.
Existing Employment Agreements
TriSummit previously has entered into employment agreements with William B. Bell, III, Chief Credit Officer; Teddy R. Fields, Executive Vice-President and benefit plans offered by, Jefferson.
The agreements with Messrs. Fields, Hickman, Julian, and Schneider provide generally that if the Easternexecutive resigns within 12 months of a change in control, or if the executive’s employment is terminated in connection with or following a change in control by TriSummit (or any successor thereto) for any reason other than cause, then the executive is entitled to a severance benefit equal to 2.0 times such executive’s annual salary, as defined in the respective employment agreement , payable in 12 monthly installments . Additionally, each executive is entitled to receive health insurance benefits for a period of one year following termination for the executive and his spouse. These agreements provide that any payment or benefit under the agreement which would be subject to the excise tax imposed by Code Section 4999 will be reduced to the extent necessary such that no portion of such payment or benefit will be subject to the excise tax imposed by Code Section 4999 so as to avoid adverse tax consequences to the executive. In the event Messrs. Fields, Hickman, Julian, or Schneider resigns or is terminated without cause within one year of the closing of the merger, such executive will receive a severance benefit equal to $248,000, $386,000, $396,500, and $350,000, respectively, in addition to any health insurance benefits payable pursuant to such executive’s agreement.
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Under his amended employment agreement, Mr. Shipley has agreed to remain employed with TriSummit (or any successor thereto) until the 12-month anniversary following a change of control, after which time, Mr. Shipley will voluntarily resign. Unless he is terminated for cause prior to the 12-month anniversary of a change of control, Mr. Shipley will be entitled to receive a retention bonus equal to 2.9 times his annual salary, payable in 12 equal monthly installments. Additionally, Mr. Shipley and his spouse will continue to receive health insurance benefits for three years following his separation from service. In the event of Mr. Shipley’s death prior to his separation from service, Mr. Shipley’s estate or designated beneficiary would be entitled to receive the retention bonus and the health insurance benefit. Mr. Shipley’s employment agreement additionally provides that in the event any payments or benefits payable to Mr. Shipley would constitute a “parachute payment” under Code Section 280G, then such payments and benefits will be reduced (beginning first with a reduction in Mr. Shipley’s retention bonus) such that no portion of the payments and benefits payable will be non-deductible under Code Section 280G or subject to the excise tax imposed under Code Section 4999. Mr. Shipley will receive a retention bonus equal to $667,000, in addition to any health benefits payable pursuant to the agreement. Mr. Shipley will be appointed the President of the Tennessee Market President offor HomeTrust Bank following the bank merger, has entered into an employmentmerger.
The agreement with HomeTrust BankMr. Bell provides generally that will become effective upon completion of the merger and will becomeif, within 12 months following a director of HomeTrust and HomeTrust Bank.
Further, pursuant to the merger agreement, each director of Jefferson has delivered to HomeTrust an executed voting agreement, and a resignation, non-solicitation and confidentiality agreement effective upon the closing of the merger, each in the form attached as an exhibit to the merger agreement for no additional consideration.
Equity Interests of Directors and Executive Officers
Stock Options. Each Jefferson stock option issued under the Jefferson Federal Savings and Loan Association Stock Option Plan and the Jefferson Bancshares, Inc. 2004 Stock-Based Incentive Plan with an exercise price per share that is less than $8.00 per share and is outstanding immediately prior to the merger will be cancelled by Jefferson at the time of the merger or immediately prior to the merger and entitle its holder to receive a cash
payment from Jefferson equal to: (i) the excess of (A) $8.00 per share over (B) the exercise price per share of the Jefferson stock option, multiplied by (ii) the number of shares of Jefferson common stock subject to such Jefferson stock option. All Jefferson stock options with an exercise price per share equal to or greater than $8.00 per share will, at the time of the merger or immediately prior to the merger, be cancelled and terminated.
New Employment Agreements
In connection with the execution of the merger agreement, HomeTrust entered into employment agreements with Messrs. Smith, Beard and Keys, executive officers of Jefferson. As described below, these agreements set forth the terms and conditions of each such individual’s employment with HomeTrust Bank that will be effective upon and subject to the completion of the merger. When effective, the employment agreements will also supersede and replace any prior Jefferson employment, retention, pre-existing change of control, Mr. Bell resigns for cause, or other similar agreement with Messrs. Smith, Beard and Keys.
Theif Mr. Bell’s employment agreements with Messrs. Smith, Beard and Keys have initial terms of two years from completion of the merger. Mr. Smith will serve as HomeTrust Bank’s Eastern Tennessee President, Mr. Beard will serve as HomeTrust Bank’s Eastern Tennessee Senior Credit Officer and Mr. Keys will serve as a commercial relationship manager.
The employment agreements provide for annual base salaries of $210,000, $175,000 and $155,000 for Messrs. Smith, Beard and Keys, respectfully. Mr. Smith’s employment agreement also provides for a lump sum payment in the amount of $300,000 in full satisfaction of the change in control benefits provided under his prior Jefferson employment agreement and a loan of $200,000. Each required loan payment is expected to be forgiven as additional compensation to Mr. Smith.
The employment agreements for the executives contain restrictive covenants prohibiting the unauthorized disclosure of confidential information of HomeTrust Bankterminated by the executives during and after their employment, prohibiting each executive from competing with HomeTrust Bank and from soliciting HomeTrust Bank’s employees or customers, in each case during employment and for two years after termination of employment.
A Jefferson Director will Become a HomeTrust Director.
Following the completion of the merger, Anderson L. Smith, director, President and Chief Executive Officer of Jefferson will join the board of directors of HomeTrust and HomeTrust Bank for a term expiring at the HomeTrust 2016 annual meeting of shareholders. As an employee director, he will not be entitled toTriSummit (or any separate compensation as a director of HomeTrust or HomeTrust Bank.
Mr. Smith has served as the President and Chief Executive Officer of Jefferson Federal Bank and Jefferson since January 2002 and March 2003, respectively, and has been a director of Jefferson Federal Bank since 2002. Prior to joining Jefferson Federal, Mr. Smith was President, Consumer Financial Services - East Tennessee Metro, First Tennessee Bank, National Association. Mr. Smith is 65 years old.
Executive Compensation
Summary Compensation Table. The following sets forth information regarding the executive compensation paid to Mr. Smith by Jefferson:
| Fiscal Year | Salary(1) | Bonus | Stock Awards | Option Awards | All Other Compensation(2) | Total | ||||||||||||||||||||||
Anderson L. Smith | 2013 | $ | 229,200 | $ | — | $ | — | $ | — | $ | 26,113 | $ | 255,312 | |||||||||||||||
President and Chief | 2012 | 231,000 | — | — | — | 30,806 | 261,806 | |||||||||||||||||||||
Executive Officer | 2011 | 231,700 | — | — | — | 27,525 | 259,225 | |||||||||||||||||||||
Market value of ESOP contributions | $ | 5,318 | ||
Taxable fringe benefits | 3,600 | |||
Perquisites | 12,000 | (a) | ||
BOLI | 5,195 |
Employment Agreement. Jefferson and Jefferson Federal Bank maintain an employment agreement with Anderson L. Smith. The initial term of the employment agreement was for three years beginning on June 25, 2003. The employment agreement provides the Boards of Directors of Jefferson and Jefferson Federal Bank with the authority to extend the term of the agreement for an additional year on each anniversary date of the initial agreement, unless a request for non-renewal is given by Mr. Smith. The Boards of Directors of Jefferson and Jefferson Federal Bank have extended the term of Mr. Smith’s employment agreement through June 25, 2014. The employment agreement provides that Mr. Smith’s base salary is to be reviewed annually. Mr. Smith’s current base salary under the employment agreement is $210,000. In addition to base salary, the employment agreement provides for, among other things, participation in stock benefit plans and other fringe benefits applicable to executive personnel. In addition, the agreement provides Mr. Smith with a bonus opportunity to earn up to 50% of his base salary, on an annual basis, if certain performance criteria are met. The performance criteria and the amount of potential bonus are determined on an annual basis. Mr. Smith’s employment agreement also provides for an annual supplemental retirement benefit of $15,083 payable each year over a 15 year period commencing in the year Mr. Smith attains age 65. In addition, Mr. Smith’s employment agreement provides for a death benefit of not less than $350,000 through a supplemental life insurance policy. Upon termination of employment Jefferson or Jefferson Federal Banksuccessor thereto) for any reason other than cause, then Mr. SmithBell is subject to a two year non-competition agreement.
Outstanding Equity Awards at June 30, 2013.The following table provides information concerning outstanding unexercised options and stock awards that had not vested for Mr. Smith as of June 30, 2013. No stock options were exercised by Mr. Smith during the 2013 fiscal year and no stock awards vested during the 2013 fiscal year. As indicated below, all stock options held by Mr. Smith at June 30, 2013 expired on January 29, 2014.
| Option Awards | Stock Awards | |||||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | ||||||||||||||||||
Anderson L. Smith | 69,875 | — | $ | 13.69 | 01/29/2014 | — | $ | — | ||||||||||||||||
Nonqualified Deferred Compensation. Jefferson Federal Bank maintains a supplemental executive retirement plan which provides restorative payments to executives designated by the Board of Directors who are prevented from receiving the full benefits contemplated by the employee stock ownership plan’s benefit formula due to limitations imposed by the Internal Revenue Code. The restorative payments under the supplemental executive retirement plan consist of payments in lieu of shares that cannot be allocated to the participant’s account under the employee stock ownership plan. In addition to providing for benefits lost under the employee stock ownership plan as a result of limitations imposed by the Internal Revenue Code, the supplemental executive retirement plan also provides supplemental benefits to participants upon a Change in Control (as defined in the plan) before the complete scheduled repayment of the employee stock ownership plan loan. See “—Potential Post-Termination Benefits”below for a more complete discussion of these benefits upon a change in control.
The Board of Directors has designated Mr. Smith as a participant in the supplemental executive retirement plan. The following table provides information with respect to the above described supplemental executive retirement plan in which Mr. Smith participated during fiscal 2013.
Name | Plan Name | Registrant Contributions in Last Fiscal Year ($) | Aggregate Balance at Last Fiscal Year End ($) | |||||||
Anderson L. Smith | Supplemental Executive Retirement Plan | — | $ | 8,414 | ||||||
Potential Post-Termination Benefits
Payments Made Upon Termination for Cause. Under the terms of the employment agreement with Mr. Smith, if Mr. Smith is terminated for cause, he will receive his base salary through the date of termination and retain the rights to any vested benefits under the Jefferson Federal tax-qualified plans. In addition, Mr. Smith will retain all vested benefits under the supplemental executive retirement plan.
Payments Upon Termination Without Cause or for Good Reason. Under the terms of his employment agreement, if Mr. Smith resigns after specified circumstances that would constitute constructive termination, he (or, if he dies, his beneficiary) would be entitled to receive an amount equal to his base salary due for the remaining term of his agreement, and he will receive the contributions that would have been made on his behalf during the remaining term of his agreement to any of our employee benefit plans. Jefferson would also continue and/or pay for Mr. Smith’s life, health and disability coverage for the remaining term of the employment agreement. In addition, Mr. Smith would also be subject to a two year non-compete following termination of employment without cause or for Good Reason (as defined in Mr. Smith’s employment agreement).
Payments Upon Disability. If Mr. Smith becomes disabled and his employment terminates, he will receive disability pay equal to 75% of his weekly rate of base salary in effect as of the date of his termination of employment due to disability. Mr. Smith is entitled to receive disability payments until the earlier of: (i) the date he returns for full employment with us; (ii) his death; or (iii) the date his employment agreement terminates. All disability payments are reduced by the amount of any short-term or long-term disability benefits payable under Jefferson’s disability plans. Mr. Smith would continue to receive insurance coverage for the earlier of the events stated above if employment termination occurs due to his disability.
Payments Made Upon Death. Under the terms of the employment agreement with Mr. Smith, the agreement terminates upon Mr. Smith’s death and Mr. Smith’s beneficiary or estate is entitled to receive the compensation due to Mr. Smith through the last day of the month of Mr. Smith’s death. In addition, Mr. Smith’s beneficiary or estate would be entitled to a distribution of his accrued benefit under the supplemental executive retirement plan upon Mr. Smith’s death.
Payments Made Upon a Change in Control. Mr. Smith’s employment agreement provides for severance payments and other benefits in the event Mr. Smith is terminated without cause or he elects to terminate his employment agreement with good reason (as defined in the agreement) in connection with any change in control of Jefferson or Jefferson Federal Bank. In the event of a change in control (as defined in the agreement) followed by Mr. Smith’s voluntary (upon circumstances discussed in the agreement) or involuntary termination of employment, Mr. Smith (or his beneficiary) would be entitled to a severance payment equal to 2.992.0 times Mr. Bell’s annual salary, as defined in his employment agreement , payable in 12 monthly installments . Additionally, Mr. Bell and his eligible dependents are entitled to receive health insurance benefits for a period of one year following termination. In the averageevent Mr. Bell resigns for cause or is terminated without cause within one year of the closing of the merger, Mr. Bell will receive a severance benefit equal to $290,000, in addition to any health benefits payable pursuant to the agreement.
Split Dollar Insurance Agreements
TriSummit Bank sponsors split dollar life insurance agreements for Messrs. Bell, Fields, Hickman, Julian, Schneider, and Shipley that provide for the payment of life insurance proceeds to such executives’ designated beneficiaries if such executives die prior to a separation from service. These split dollar life insurance agreements will be assumed by HomeTrust in connection with the merger. With the exception of the agreements for Messrs. Shipley and Schneider, the split dollar life insurance agreements do not provide for benefits following the executives’ separation from service. The split dollar life insurance agreement for Mr. Shipley provides that, upon the death of Mr. Shipley following a separation from service after a change in control, his five preceding taxable years’ annual compensation (the “base amount”). In addition, Mr. Smith isdesignated beneficiary will be entitled to receive the contributions he would have receivedlesser of $500,000 or the net death proceeds payable under our retirement programsthe agreement. The split dollar life insurance agreement for a period of 36 months, as well as health, life and disability coverage for that same time period.
Section 280G of the Internal Revenue CodeMr. Schneider provides that, severance payments that equal or exceed three times an individual’s base amount are deemed to be “excess parachute payments” if they are contingent upon the death of Mr. Schneider following a change in control. Individuals receiving excess parachute payments are subject to a 20% excise tax on the amount of the payment in excess of the base amount, and Jefferson Federal would not be entitled to deduct such an amount. As a result, Mr. Smith’s employment agreement provides that the total value of the benefits provided and payments made to Mr. Smith in connection withseparation from service after a change in control, may not exceed three times Mr. Smith’s base amount (the “280G Limit”).
Jefferson maintains a supplemental executive retirement plan that provides Mr. Smith with a cash payment inhis designated beneficiary will be entitled to receive the eventlesser of a change in control equal to$250,000 or the benefit that he would have received under our employee stock ownership plan, had he remained employed throughout the term of the loan, less the benefits actually providednet death proceeds payable under the employee stock ownership plan on his behalf. The plan also provides Mr. Smith with a stock benefit equal to the shares of our stock he would have received under Jefferson’s employee stock ownership plan had he not been limited by certain provisions of the Internal Revenue Code.agreement.
Under the terms of the employee stock ownership plan, upon a change in control (as defined in the plan), the ESOP will terminate and the plan trustee will repay in full any outstanding acquisition loan. After repayment of the acquisition loan, all remaining shares of Jefferson stock held in the loan suspense account, all other stock or securities, and any cash proceeds from the sale or other disposition of any shares of Jefferson common stock held in the loan suspense account will be allocated among the accounts of all participants in the employee stock ownership plan who were employed by us on the date immediately preceding the effective date of the change in control. The allocations of shares or cash proceeds shall be credited to each eligible participant in proportion to the opening balances in their accounts as of the first day of the valuation period in which the change in control occurred. Payments under Jefferson’s employee stock ownership plan are not categorized as parachute payments and, therefore, do not count towards an executive’s 280G Limit.
Indemnification and Insurance.
As described under “The Merger Agreement—Director and Officer Indemnification and Insurance,” for a period of six years following the merger, HomeTrust will maintain and preserve the rights to indemnification of Jefferson’s directors and officers, to the maximum extent permitted by Jefferson’sTriSummit’s charter and bylaws and applicable law, HomeTrust has agreed to indemnify and hold harmless the directors and officers of TriSummit and TriSummit Bank for all losses and claims incurred by these individuals in connection with any claimstheir capacity as such and arising out of or relating to matters existing or occurring at or prior to completion of the merger and will provide directors’ and officers’ liability insurance with respect to claims against Jefferson indemnified persons arising from facts or events occurring upon or before completion of the merger, including(including the transactions contemplated by the merger agreement.
Merger-Related Compensation for Jefferson’s Named Executive Officers
This section sets forthagreement). Additionally, the information required by Item 402(t) of SEC Regulation S-K regarding the compensation that will or may become payablemerger agreement requires TriSummit to Jefferson’s “named executive officers” (as defined under SEC rules) that is based on or otherwise relatespurchase prior to the merger. Jefferson shareholders are being askedmerger a three year “tail” policy under its or TriSummit Bank’s current directors’ and officers’ liability and insurance policy, which will provide insurance coverage post-merger for the officers and directors of TriSummit and TriSummit Bank. If requested by HomeTrust, the term of this “tail” policy can be extended to approve,up to six years.
Non-Compete Agreements
Each TriSummit executive officer and director has entered into a non-compete agreement with HomeTrust whereby the executive or director has agreed that, for 18 months following the later of (i) the effective time of the merger, or (ii) the termination of the individual’s service as an employee or community board member of HomeTrust or any of its subsidiaries, the individual will not: (w) serve as a director, advisory director, officer, or employee of, or service provider to, a financial institution within a 50-mile radius of any banking office maintained by HomeTrust or TriSummit as of September 20, 2016, or become an owner of any financial institution that conducts business in Tennessee or North Carolina other than owning less than 5% of the common stock of any
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company whose common stock is traded on a non-binding, advisory basis, such compensation for these executive officers (see “Jefferson Proposals—Jefferson Compensation Proposal” beginning on page [ ]). Because the votenationally recognized exchange; (x) sell or market any financial institution products or services to approve such compensation is advisory only, it will not be binding on eitherany customer of TriSummit or HomeTrust; (y) offer employment to any officer or employee of HomeTrust or Jefferson. Accordingly, ifany of its subsidiaries, or take any action to cause any officer or employee of, or person or entity doing business with, HomeTrust or any of its subsidiaries to terminate his, her or its employment or business relationship with HomeTrust or any of its subsidiaries; or (z) make derogatory statements about HomeTrust or any of its subsidiaries or any of their respective directors, officers, employees, agents, or representatives, in each case subject to standard exceptions.
HomeTrust Community Board
Each member of the merger is completed, the compensationboard of directors of TriSummit will be paid (or payable) regardlessentitled to serve on the HomeTrust Tri-Cities Tennessee Community Board, and Lynn Shipley will become the Vice Chairman of the outcomeHomeTrust Tri-Cities Tennessee Community Board. Service on the HomeTrust Tri-Cities Tennessee Community Board is for a period of one year which may be extended by HomeTrust Bank. Each member of the vote to approve such compensation, subject only to the conditions applicable thereto, which are described below. Except as notedHomeTrust Tri-Cities Tennessee Community Board receives a fee of $200 for each meeting attended in the footnotes to the table, the amounts indicated below are estimates of amounts that would be payable if the merger were consummated on March 31, 2014. See the footnotes to the table for additional information.person.
Name Anderson L. Smith John W. Beard, Jr. Gary L. Keys Cash Equity Pension/
Nonqualified
Deferred
Compensation Perquisites/
Benefits Tax
Reimbursement Other Total $ 300,000 (1) $ — $ 12,784 (2) $ — $ — $ 200,000 (3) $ 512,784 — — — — — — — — — — — — — —
Under applicable law, the merger and bank merger must be approved by the Federal Reserve Board and the bank merger must be approved by the OCC.Commissioner. The U.S. Department of Justice may review the impact of the merger and the bank merger on competition.
We have requested a waiver from the Federal Reserve Board Upon receipt of its application requirements that would apply to the merger. Assuming this waiver is granted by the Federal Reserve Board and the OCC approve the bank merger,these approvals, we must wait for up to 30 days before we can complete the merger. If, however, there are no adverse comments from the U.S. Department of Justice and we receive permission from the OCCCommissioner to do so, the merger may be completed on or after the 15th day after approval from the OCC.Commissioner.
As of the date of this proxy statement/prospectus, all of theapplications and notices necessary to obtain all required applicationsregulatory approvals have been filed. There can be no assurance as to whether all required regulatory approvals will be obtained or as to the dates of the approvals. There also can be no assurance that the regulatory approvals received will not contain a condition or requirement that results in a failure to satisfy the conditions to closing set forth in the merger agreement. See “The Merger Agreement—Conditions to Complete the Merger.”
In accordance with current accounting guidance, the merger will be accounted for using the acquisition method of accounting in accordance with FASB Topic 805, “Business Combinations.” The result of this is that the recorded assets and liabilities of HomeTrust will be carried forward at their recorded amounts, the historical operating results will be unchanged for the prior periods being reported on and that the assets and liabilities of JeffersonTriSummit will be adjusted to fair value at the date of the merger. In addition, all identified intangibles will be recorded at fair value and included as part of the net assets acquired. To the extent that the purchase price, consisting of cash plus the number of shares of HomeTrust common stock to be issued to former JeffersonTriSummit shareholders, at fair value, exceeds the fair value of the net assets, including identifiable intangibles, of JeffersonTriSummit at the merger date, that amount will be reported as goodwill. In accordance with current accounting guidance, goodwill will not be amortized but will be evaluated for impairment annually. Identified intangibles will be amortized over their estimated lives. Further, the acquisition method of accounting results in the operating results of JeffersonTriSummit being included in the operating results of HomeTrust beginning from the date of completion of the merger.
JeffersonTriSummit Shareholder Dissenters’ Rights
Jefferson
General. Dissenters’ rights with respect to TriSummit common stock and TriSummit Series A preferred stock are governed by Chapter 23 of the TBCA (Sections 48-23-101 to 48-23-302). Holders of TriSummit common stock and TriSummit Series A preferred stock have the right to dissent from the merger and to obtain payment of the “fair value” of their shares (as specified in the TBCA) in the event the merger is consummated. Strict compliance with the dissenters’ rights procedures contained in the TBCA is mandatory. Subject to the terms of the merger agreement, TriSummit could elect to terminate the merger agreement even if it is approved by TriSummit’s
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shareholders, thus cancelling the dissenters’ rights of holders of TriSummit common stock and TriSummit Series A preferred stock.
The term “fair value” means the value of a dissenting shareholder’s shares immediately before the completion of the merger, excluding any appreciation or depreciation in anticipation of the merger.
If you contemplate exercising your right to dissent from the merger, we urge you to read carefully the provisions of Chapter 23 of the TBCA, which are attached to this proxy statement/prospectus as Appendix B. We cannot give you legal advice. To completely understand the provisions of the TBCA governing dissenters’ rights, you may want, and we encourage you, to consult with your own legal advisor. To preserve your right to dissent, you must not vote in favor of the TriSummit merger proposal. If you wish to dissent, do not send in a signed proxy unless you mark your proxy to vote against the TriSummit merger proposal or you may lose the right to dissent.
Address for Notices. Send or deliver any written notice or demand required concerning your exercise of dissenters’ rights to TriSummit Bancorp, Inc., Attention: R. Lynn Shipley, Jr., President and Chief Executive Officer, Post Office Box 628, Kingsport, Tennessee 37662.
We urge you to act carefully! We cannot and do not accept the risk of late or undelivered notices or demands required by Chapter 23 of the TBCA. Holders of TriSummit common stock or TriSummit Series A preferred stock who exercise their dissenters’ rights may call TriSummit at (423) 246-2265 and ask for R. Lynn Shipley, Jr. (President and Chief Executive Officer) or George Schneider (Chief Financial Officer) to receive confirmation that their notices or demands have been received. If your notices or demands are not timely received, then you will not be entitled to exercise your dissenters’ rights. TriSummit shareholders bear the risk of non-delivery and of untimely delivery of notices and demands.
Summary of Chapter 23 of the TBCA — Dissenters’ Rights
The following is a summary of Chapter 23 of the TBCA and the procedures that a holder of TriSummit common stock or Series A preferred stock must follow to dissent from the merger. This summary is qualified in its entirety by reference to Chapter 23 of the TBCA, which is reprinted in full asAppendix B to this proxy statement/prospectus. Appendix Bshould be reviewed carefully by any shareholder who wishes to perfect his or her dissenters’ rights. Failure to strictly comply with the procedures set forth in Chapter 23 of the TBCA will, by law, result in the loss of dissenters’ rights.It may be prudent for a person considering whether to dissent from the merger to obtain legal counsel.
If the merger is completed, any holder of TriSummit common stock or Series A preferred stock who has properly perfected his or her statutory dissenters’ rights in accordance with Chapter 23 of the TBCA has the right to obtain, in cash, payment of the fair value of such holder’s dissenting shares. By statute, “fair value” is to be determined immediately prior to the completion of the merger and excludes any appreciation or depreciation in anticipation of the merger.
To exercise dissenters’ rights under Chapter 23 of the TBCA, a holder of TriSummit common stock or Series A preferred stock must:
| · | deliver to TriSummit,before the vote on the TriSummit merger proposal is taken, written notice of the holder’s intent to demand payment for the holder’s shares of TriSummit common stock or Series A preferred stock if the merger is completed; and |
| · | not vote, or permit to be voted, the holder’s shares in favor of the TriSummit merger proposal. |
A holder of TriSummit common stock or Series A preferred stockwho fails to satisfy each of these two requirements is not entitled to payment for the holder’s shares under Chapter 23 of the TBCA. The second requirement above does not require that a dissenting shareholder vote against the TriSummit merger proposal, but instead that a dissenting shareholder must not have voted in favor of the TriSummit merger proposal.In addition, any shareholder who returns a signed proxy but fails to provide instructions as to the manner in
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which the shareholder’s shares are to be voted will be deemed to have voted in favor of approval of the TriSummit merger proposal and will not be entitled to assert dissenters’ rights.
A holder of TriSummit common stock or appraisalSeries A preferred stock may assert dissenters’ rights as to fewer than all the shares registered in connectionthe holder’s name only if the holder dissents with respect to all shares beneficially owned by any one beneficial holder and notifies TriSummit in writing of the name and address of each person on whose behalf the holder is asserting dissenters’ rights. The rights of such a partial dissenter are determined as if the shares as to which he or she dissents and his or her other shares are registered in the names of different shareholders. A beneficial holder may assert dissenters’ rights as to shares held by a record holder on the beneficial holder’s behalf only if the beneficial holder submits to TriSummit the record holder’s written consent to the dissent not later than the time the beneficial holder asserts dissenters’ rights, and does so with respect to all shares of the same class of which the person is the beneficial holder or over which the person has power to direct the vote.
If the TriSummit merger proposal is approved at the TriSummit special meeting, TriSummit (or HomeTrust as the surviving corporation in the merger) must deliver a written dissenters’ notice to all holders of dissenting shares who satisfied the two requirements of Chapter 23 of the TBCA described above. The dissenters’ notice must be sent no later than 10 days after the effective time of the merger and must:
A holder of TriSummit common stock or Series A preferred stock who receives the dissenters’ notice must demand payment, certify that the holder acquired beneficial ownership of the subject shares prior to the date set forth in the dissenters’ notice and deposit the holder’s certificates in accordance with the terms of the dissenters’ notice. TriSummit (or HomeTrust as the surviving corporation in the merger) may elect to withhold payment required by Chapter 23 of the TBCA from the dissenting shareholder unless such shareholder was the beneficial owner of the subject shares prior to the public announcement of the merger on September 21, 2016. A dissenting shareholder will retain all other rights of a TriSummit shareholder until those rights are canceled or modified by the completion of the merger. A TriSummit shareholder who does not demand payment or deposit his or her share certificates where required, in each case by the date set in the dissenters’ notice, is not entitled to payment for his or her shares under Chapter 23 of the TBCA as a result of the merger. A demand for payment may not be withdrawn unless consented to by TriSummit (or HomeTrust as the surviving corporation in the merger).
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TriSummit may restrict the transfer of uncertificated shares from the date a demand for payment is received until the merger is completed. A TriSummit shareholder for whom dissenters’ rights are asserted as to uncertificated shares retains all other rights of a TriSummit shareholder until these rights are canceled or modified by the completion of the merger.
At the effective time of the merger or upon receipt of a demand for payment, whichever is later, TriSummit (or HomeTrust as the surviving corporation in the merger) must pay each dissenting shareholder who strictly and fully complied with Chapter 23 of the TBCA the amount that TriSummit (or HomeTrust as the surviving corporation in the merger) estimates to be the fair value of his or her shares, plus accrued interest from the effective time of the merger. The payment must be accompanied by:
If the merger is not completed within two months after the date set for demanding payment and depositing share certificates, TriSummit must return deposited certificates and release the transfer restrictions imposed on uncertificated shares. If after such return or release the merger is completed, TriSummit (or HomeTrust as the surviving corporation in the merger) must send a new dissenters’ notice and repeat the payment procedure described above.
To the extent TriSummit (or HomeTrust as the surviving corporation in the merger) elects to withhold payment for shares acquired after the public announcement of the merger, after effectuating the merger, it must estimate the fair value of the shares, plus accrued interest, and pay this amount to each dissenter who agrees to accept it in full satisfaction of the dissenter’s demand. TriSummit (or HomeTrust as the surviving corporation in the merger) must send with its offer a statement of its estimate of the fair value of the shares, an explanation of how the interest was calculated, and a statement of the dissenter’s right to demand payment.
A dissenting TriSummit shareholder may notify TriSummit (or HomeTrust as the surviving corporation in the merger) in writing of the shareholder’s own estimate of the fair value of the shareholder’s shares and the amount of interest due and demand payment of the shareholder’s estimate, or reject TriSummit’s (or HomeTrust’s, as the surviving corporation in the merger) offer with respect to shares acquired after the public announcement of the merger with respect to which payment has been withheld and demand payment of the fair value of the shares and interest due, if:
A dissenting TriSummit shareholder will waive the shareholder’s right to demand payment under the immediately preceding provisions unless the shareholder notifies TriSummit (or HomeTrust as the surviving
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corporation in the merger) of the shareholder’s demand in writing within one month after TriSummit (or HomeTrust as the surviving corporation in the merger) makes or offers payment for such shareholder’s shares.
If a demand for payment by a TriSummit shareholder remains unsettled, TriSummit (or HomeTrust as the surviving corporation in the merger) must commence a proceeding in the appropriate court, as specified in Chapter 23 of the TBCA, within two months after receiving the demand for payment, and petition the court to determine the fair value of the subject shares and accrued interest. If TriSummit (or HomeTrust as the surviving corporation in the merger) does not commence the proceeding within this two month period, TriSummit (or HomeTrust as the surviving corporation in the merger) is required to pay each dissenting shareholder whose demand remains unsettled the amount demanded. TriSummit (or HomeTrust as the surviving corporation in the merger) is required to make all dissenting TriSummit shareholders with respect to the merger whose demands remain unsettled parties to the proceeding and to serve a copy of the petition upon each dissenting TriSummit shareholder. The court may appoint one or more appraisers to receive evidence and to recommend a decision on fair value. Each dissenting TriSummit shareholder made a party to the proceeding is entitled to judgment for the amount, if any, by which the court finds the fair value of the shareholder’s shares, plus accrued interest, exceeds the amount paid by TriSummit (or HomeTrust as the surviving corporation in the merger), or for the fair value, plus accrued interest, of the shareholder’s after-acquired shares with respect to which TriSummit (or HomeTrust as the surviving corporation in the merger) elected to withhold payment.
In an appraisal proceeding commenced under Chapter 23 of the TBCA, the court must determine the costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court. The court will assess these costs against TriSummit (or HomeTrust as the surviving corporation in the merger), except that the court may assess the costs against all or some of the dissenting shareholders to the extent the court finds they acted arbitrarily, vexatiously, or not in good faith in demanding payment under Chapter 23 of the TBCA. The court also may assess the fees and expenses of attorneys and experts for the respective parties against TriSummit (or HomeTrust as the surviving corporation in the merger), if the court finds that TriSummit (or HomeTrust as the surviving corporation in the merger) did not substantially comply with the requirements of Chapter 23 of the TBCA, or against either TriSummit (or HomeTrust as the surviving corporation in the merger) or a dissenting shareholder, if the court finds that such party acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by Chapter 23 of the TBCA.
If the court finds that the services of the attorneys for any dissenting shareholder were of substantial benefit to other dissenting shareholders similarly situated, and that the fees for those services should not be assessed against TriSummit (or HomeTrust as the surviving corporation in the merger), the court may award those attorneys reasonable fees out of the amounts awarded the dissenting shareholders who were benefitted.
The foregoing does not purport to be a complete statement of the provisions of the TBCA relating to statutory dissenters’ rights and is qualified in its entirety by reference to the dissenters rights provisions of the TBCA, which are reproduced in full inAppendix B to this proxy statement/prospectus and which are incorporated herein by reference.
If you intend to dissent, or if you think that dissenting might be in your best interests, you should read Appendix B carefully.
The holders of HomeTrust common stock receive cash dividends if and when declared by the HomeTrust board of directors out of legally available funds. The timing and amount of cash dividends depends on HomeTrust’searnings, capital requirements, financial condition, cash on hand and other relevant factors. HomeTrust also has the ability to receive dividends or capital distributions from its bank subsidiary, HomeTrust Bank. There are regulatory restrictions on the ability of HomeTrust Bank to pay dividends. As a savings and loanbank holding company, HomeTrust’s ability to pay dividends is subject to the guidelines of the Federal Reserve Board regarding capital adequacy and dividends and limitations under Maryland law. To date, HomeTrust has not paid any cash dividends. No assurances can be given that any cash dividends will be paid by HomeTrust on its common stock or that any such dividends, if paid, will not be reduced or eliminated in future periods. For additional information, see “Comparative Market Prices and Dividends on Common Stock.”
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HomeTrust’s common stock and Jefferson’s common stock areis listed on NASDAQ under the symbolssymbol “HTBI” and “JFBI,” respectively. Upon completion of the merger, Jefferson common stock will be delisted from NASDAQ and thereafter will be deregistered under the Exchange Act.. The shares of HomeTrust common stock issuable in the merger for shares of JeffersonTriSummit common stock and TriSummit Series A preferred stock will be listed on NASDAQ. Neither TriSummit’s common stock nor TriSummit’s Series A preferred stock is listed on an exchange or quoted on any automated services, and there is no established trading market for shares of TriSummit common stock or TriSummit Series A preferred stock.
Litigation Relating to the Merger
On January 31, 2014, a class action complaint, captioned William P. Cooper III v. Jefferson Bancshares, Inc., et al., was filed under Case No. 2014-cv-35 in the Chancery Court of Hamblen County, Tennessee, against Jefferson, its directors, Jefferson Federal Bank, HomeTrust and HomeTrust Bank challenging the merger. On April 1, 2014, the plaintiff filed an amended class action complaint. The complaint alleges, among other things, that the Jefferson directors breached their fiduciary duties to Jefferson and its stockholders by agreeing to the proposed merger at an unfair price pursuant to a flawed sales process, by agreeing to terms with HomeTrust that discourages other bidders and by filing an initial Form S-4 registration statement which included a preliminary proxy statement/prospectus that purportedly omits material information. The plaintiff further alleges that Jefferson’s directors and officers were not independent or disinterested with respect to the merger. The plaintiff also alleges that HomeTrust and HomeTrust Bank aided and abetted the Jefferson directors’ breaches of fiduciary duties. The complaint seeks, among other things, an order enjoining the defendants from consummating the merger, as well as attorneys’ and experts’ fees and certain other damages. Jefferson, its directors, and HomeTrust believe this action is without merit and intend to vigorously defend against the lawsuit.
The following describes certain aspects of the merger, including certain material provisions of the merger agreement. The following description of the merger agreement is subject to, and qualified in its entirety by reference to, the merger agreement, which is attached to this proxy statement/prospectus asAppendix A and is incorporated by reference into this proxy statement/prospectus. We urge you to read the merger agreement carefully and in its entirety, as it is the legal document governing the merger.
Each of HomeTrust’s and Jefferson’s board of directors has approved the merger agreement.
The merger agreement provides for the merger of JeffersonTriSummit with and into HomeTrust, with HomeTrust continuing as the surviving corporation. Immediately following the completion of the merger, Jefferson’sTriSummit’s wholly owned subsidiary bank, Jefferson FederalTriSummit Bank, will merge with HomeTrust’s wholly owned subsidiary bank, HomeTrust Bank.
Consideration for Holders of JeffersonTriSummit Common Stock and Series A Preferred Stock
If the merger is completed, each share of JeffersonTriSummit common stock and Series A preferred stock that is issued and outstanding immediately prior to the completion of the merger, excluding unallocated shares held by the Jefferson Federal Bank Employee Stock Ownership Plan and shares of JeffersonTriSummit common stock and Series A preferred stock that are owned by JeffersonTriSummit or HomeTrust (other than shares held in a fiduciary or agency capacity for third parties and other than shares held in respect of a debt previously contracted), will be converted into the right to receive, promptly following the completion of the merger: (1) $4.00$4.40 in cash and (2) a number of shares of HomeTrust common stock equal to $4.00$4.40 divided by the average HomeTrust common stock price, subject to adjustment (the “exchange ratio”). If the average HomeTrust common stock price is equal to or less than $15.00$19.05 per share, then the exchange ratio will instead be fixed at .2667 per share..2310. If the average HomeTrust common stock price is equal to or greater than $18.00$20.96 per share, then the exchange ratio will be fixed at .2222 per share..2099. HomeTrust will not issue any fractional shares of HomeTrust common stock in the merger. JeffersonTriSummit shareholders who would otherwise be entitled to a fractional share of HomeTrust common stock upon completion of the merger will instead receive an amount in cash equal to such fractional share interest multiplied by the average HomeTrust common stock price. We refer to this cash and stock consideration described above as the “merger consideration.”
In addition, pursuant to the merger agreement, the stock portion of the merger consideration may be increased and the cash portion of the merger consideration correspondingly decreased to assure that the value of the stock portion of the aggregate merger consideration at the effective time of the merger is equal to 42% of the total value of the consideration being paid to TriSummit shareholders in the transaction, taking into account dissenting shares and the intended redemption of the outstanding TriSummit Series B preferred stock, Series C preferred stock, and Series D preferred stock, in order to ensure the merger qualifies as a tax-deferred reorganization for U.S. federal income tax purposes. For example, assumingfurther information, see “Material U.S. Federal Income Tax Consequences of the average closing price was $15.85,Merger—Treatment of the closing price of HomeTrust common stock on January 22, 2014,Merger as a Reorganization.”
On September 20, 2016, the last trading day immediately prior to the public announcement of the merger agreement, the closing price of HomeTrust common stock was $18.97. If $18.97 were the average HomeTrust common stock price, holders of TriSummit common stock and Series A preferred stock would receive merger
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consideration consisting of $4.40 in cash and .2310 of a share of HomeTrust common stock for each share of TriSummit common stock and Series A preferred stock as the stock portion of the merger consideration. If the closing price of HomeTrust common stock of $____ per share on November , 2016, the most recent trading day practicable before the printing of this proxy statement/prospectus was the average HomeTrust common stock price, holders of TriSummit common stock and Series A preferred stock would also receive .2310 of a share of HomeTrust common stock for each share of TriSummit common stock and Series A preferred stock as the stock portion of the merger consideration. For example, assuming the average HomeTrust common stock price was $ ___ , the exchange ratio would then be .2524 ($4.00 divided by $15.85),.2310 and, if you hold 1,000 shares of JeffersonTriSummit common stock thenor Series A preferred stock, for the stock portion of the merger consideration, you willwould receive 252231 shares of HomeTrust common stock (1,000 shares × .2524. 2310 = 2522 31 whole shares) and a cash payment of $6.34 instead of the .40 fractional share of HomeTrust common stock (.40 × $15.85 = $6.34), and for the cash portion of the merger consideration, you willwould receive a cash payment of $4,000$4,400 (1,000 × $4.00)x $4.40).
Treatment of JeffersonTriSummit Stock Options
Each JeffersonAdjusted Option that is outstanding at the effective time of the merger will be assumed by HomeTrust and converted into the right to receive an option to purchase that number of shares of HomeTrust common stock equal to the product obtained by multiplying (i) the number of shares of TriSummit common stock and TriSummit Series A preferred stock subject to the Adjusted Option (after taking into account option issued undercancellations) by (ii) the Jefferson Federal Savings and Loan Association Stock“Adjusted Option Plan andExchange Ratio,” rounded to the Jefferson Bancshares, Inc. 2004 Stock-Based Incentive Plan withnearest whole number of shares of HomeTrust common stock. The Adjusted Option Exchange Ratio means the quotient of $8.80 divided by the average HomeTrust common stock price rounded to the nearest one ten thousandth; provided, however, if the average HomeTrust common stock price is equal to or less than $19.05, the Adjusted Option Exchange Ratio will be fixed at .4619, or if the average HomeTrust common stock price is equal to or greater than $20.96, the Adjusted Option Exchange Ratio will be fixed at .4198. Each option to purchase HomeTrust common stock will have an exercise price per share that is less than $8.00of HomeTrust common stock equal to (x) $10.00 (the per share exercise price under each TriSummit option award) divided by (y) the Adjusted Option Exchange Ratio, rounded to the nearest whole cent. Each option to purchase HomeTrust common stock will otherwise be subject to the same terms and conditions applicable to the corresponding TriSummit option award, including vesting terms.
Treatment of TriSummit Warrants
To the extent that a warrant to acquire TriSummit common stock is properly exercised prior to the effective time of the merger, the holder will receive the same merger consideration as the other TriSummit common shareholders for each share of TriSummit common stock acquired via exercise of the TriSummit warrant. Each TriSummit warrant that is outstanding immediately prior to the merger will be cancelled by Jefferson at theeffective time of the merger will at the effective time either be (i) cashed out by TriSummit for a cash payment equal to $0.80 (the total per share merger consideration of $8.80 less the warrant exercise price of $8.00 per share) multiplied by the number of shares subject to the TriSummit warrant, subject to any withholding requirements, or (ii) assumed by HomeTrust for the sole purpose of paying the merger consideration in respect of the shares of TriSummit common stock subject to the TriSummit warrant upon the proper exercise thereof after the effective time of the merger. In the event of the cash-out of any TriSummit warrant, TriSummit will obtain a written cancellation agreement from the holder of the TriSummit warrant as a condition to payment, which must be in form and substance reasonably satisfactory to HomeTrust.
Treatment of TriSummit Preferred Stock
Upon a change of control of TriSummit, each share of TriSummit Series A preferred stock converts to TriSummit common stock on a one-to-one basis. The merger will constitute a change of control of TriSummit for this purpose, and in connection with the merger, each share of TriSummit Series A preferred stock will automatically convert into one share of TriSummit common stock and each holder of Series A preferred stock will receive the same merger consideration as other TriSummit common shareholders. In connection with the merger, each share of the outstanding TriSummit Series B preferred stock, Series C preferred stock and Series D preferred stock will be redeemed by TriSummit in accordance with the terms thereof, subject to regulatory approval, or, if not so redeemed, will at the effective time of the merger be automatically converted into one share of capital stock of HomeTrust having rights, preferences, privileges, and voting powers, and limitations and restrictions thereof, that are the same as the rights, preferences, privileges and voting powers, and limitations and restrictions thereof, of the TriSummit
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Series B preferred stock, Series C preferred stock and Series D preferred stock, respectively, immediately prior to the merger and entitle its holder to receive a cash payment from Jefferson equal to: (i) the excess of (A) $8.00 per share over (B) the exercise price per share of the Jefferson stock option, multiplied by (ii) the number of shares of Jefferson common stock subject to such Jefferson stock option. All Jefferson stock options with an exercise price per share equal to or greater than $8.00 per share will, at the time of the merger or immediately prior to the merger, be cancelled and terminated.
Closing and Effective Time of the Merger
The merger will be completed only if all conditions to the consummation of the merger set forth in the merger agreement are either satisfied or waived. See “—Conditions to Complete the Merger.” The closing of the merger will occur on a date no later than the first business day of the month following (but not earlier than five business days after) the satisfaction or waiver of all conditions to completion of the merger (other than those that by their nature are to be satisfied or waived at the closing of the merger), subject to extension by mutual agreement of the parties. It currently is anticipated that the closing of the merger will occur in the first quarter of 2017, subject to the receipt of regulatory approvals and other customary closing conditions.
The merger will become effective as set forth in the articles of merger to be filed with the Secretary of State of the State of Tennessee and the Department of Assessments and Taxation for the State of Maryland. The closing of the merger will be made on or before the last day of the month (but no earlier than five business days) after all of the conditions to completion of the merger have been satisfied or waived (other than those that by their nature are to be satisfied or waived at the closing of the merger). It currently is anticipated that the closing of the merger will occur in the first half of 2014, subject to the receipt of regulatory approvals and other customary closing conditions.
No assurances can be given as to when or if the merger will be completed.
Conversion of Shares; Exchange Procedures
The conversion of JeffersonTriSummit common stock and TriSummit Series A preferred stock into the right to receive the merger consideration will occur automatically at the effective time of the merger. Prior to the effective time of the merger, HomeTrust will appoint its transfer agent or an unrelated bank or trust company as is reasonably acceptable to Jefferson,TriSummit to act as exchange agent for the exchange of JeffersonTriSummit common stock and TriSummit Series A preferred stock for the merger consideration.
Letter of Transmittal
Within ten days after completion of the merger, the exchange agent will mail to each holder of record of a certificate previously representing shares of JeffersonTriSummit common stock immediately prioror Series A preferred stock that have been converted into the right to receive the effective time of the merger:merger consideration: (1) a letter of transmittal and instructions on how to surrender such shares in exchange for the merger consideration the holder is entitled to receive under the merger agreement; and (2) instructions for surrendering each certificatecertificates in exchange for the merger consideration, any cash in lieu of a fractional share of HomeTrust common stock and any dividends or distributions to which such holder is entitled. Conforming procedures will be used for shares of TriSummit common stock and Series A preferred stock held in book-entry form.
If a certificate for Jeffersonshares of TriSummit common stock or Series A preferred stock has been lost, stolen or destroyed, the exchange agent will issue the merger consideration payable in respect of those shares upon (1) receipt of (1) an affidavit of that fact by the claimant and (2) if required by HomeTrust or the exchange agent, the posting by the claimant of a bond in an amount as HomeTrust may determineor the exchange agent reasonably determines is reasonably necessary as indemnity against any claim that may be made against it with respect to such certificate.
After completion of the merger, there will be no further transfers on the stock transfer books of JeffersonTriSummit of shares of JeffersonTriSummit common stock or Series A preferred stock that were issued and outstanding immediately prior to the effective time of the merger.
Withholding
HomeTrust or the exchange agent will be entitled to deduct and withhold from any cash consideration payable under the merger agreement to any holder of JeffersonTriSummit common stock and, from any cash payments made to holders of Jeffersonor Series A preferred stock options, the amounts it is required to deduct and withhold under the Code or any provision of state, local or foreign tax law. If any such amounts are withheld and paid over to the appropriate governmental authority, these amounts will be treated for all purposes of the merger agreement as having been paid to the persons from whom they were withheld.
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Dividends and Distributions
No dividends or other distributions declared with respect to HomeTrust common stock will be paid to the holder of any unsurrendered shares of JeffersonTriSummit common stock or Series A preferred stock until the holder surrenders such shares in accordance with the merger agreement. After the surrender of such shares in accordance with the merger agreement, the record holder thereof will be entitled to receive any such dividends or other distributions with a record date after the effective time of the merger, without any interest, which had previously become payable with respect to the whole shares of HomeTrust common stock which the shares of JeffersonTriSummit common stock or Series A preferred stock have been converted into the right to receive under the merger agreement.
Representations and Warranties
The representations warranties and covenantswarranties described below and included in the merger agreement were made only for purposes of the merger agreement and as of specific dates, are solely for the benefit of HomeTrust and Jefferson, may be subject to limitations, qualifications or exceptions agreed upon by the parties, including those included in confidential disclosures made for the purposes of, among other things, allocating contractual risk between HomeTrust and JeffersonTriSummit rather than establishing matters as facts, and may be subject to standards of materiality that differ from those standards relevant to shareholders. You should not rely on the representations, warranties, covenants or any description thereof as characterizations of the actual state of facts or condition of HomeTrust, JeffersonTriSummit or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations warranties and covenantswarranties may change after the date of the merger agreement, which subsequent information may or may not be fully reflected in public disclosures by HomeTrust or Jefferson.TriSummit. The representations and warranties and other provisions of the merger agreement should not be read alone, but instead should be read only in conjunction with the information provided elsewhere in this proxy statement/prospectus and in the documents incorporated by reference into this proxy statement/prospectus. See “Where You Can Find More Information.”
The merger agreement contains customary representations and warranties of each of HomeTrust and JeffersonTriSummit relating to their respective businesses. The representations and warranties in the merger agreement do not survive completion of the merger.
The representations and warranties made by each of JeffersonTriSummit and HomeTrust in the merger agreement relate to a number of matters, including the following:
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HomeTrust also has made representations and warranties to TriSummit regarding its tax benefits preservation plan and that it does not own any TriSummit common or Series A preferred stock other than share of TriSummit stock beneficially owned by third-parties.
Certain representations and warranties of HomeTrust and JeffersonTriSummit are qualified as to “materiality” or “material adverse effect.” For purposes of the merger agreement, a “material adverse effect,” when used in reference to either HomeTrust, JeffersonTriSummit or the combined company, means:
| (1) | a material adverse effect on the business, |
| (2) | a material adverse effect on the ability of such party or its |
Conduct of Businesses Prior to the Completion of the Merger
Pursuant to the merger agreement, each of JeffersonTriSummit and HomeTrust has agreed to certain restrictions on its activities until the merger is completed or terminated. In general, each party has agreed that, except as otherwise permitted by the merger agreement, or as required by applicable law or a governmental entity or with the prior written consent of the other party, it will:
| · | use commercially reasonable |
| · | not take any action that is intended to or that would reasonably be expected to adversely affect or materially delay the ability of either party or its subsidiaries to obtain any necessary regulatory approvals or to complete the merger or bank merger; |
| · | not take any action that is intended or that would reasonably be expected to cause the merger or the bank merger to fail to qualify as a reorganization under Section 368(a) of the Code or cause any of its representations and warranties in the merger agreement to be untrue in any material respect or any of the conditions in the merger agreement to be unsatisfied or to result in a violation of any provision of the merger agreement; |
| · | not merge or consolidate itself or any of its subsidiaries with any other person, or restructure, reorganize or completely or partially liquidate or dissolve itself or any of its subsidiaries; and |
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| · | not take any action that is likely to materially impair the party’s ability to perform any of its obligations under the merger agreement or its subsidiary bank to perform any of its obligations under the bank merger agreement. |
HomeTrust has also agreed that it will not and will not permit any of its subsidiaries to amend its articles of incorporation or bylaws or other governing documents in a manner that wouldcould reasonably be expected to adversely affect the economic benefits of the merger to the holders of JeffersonTriSummit common stock or Series A preferred stock. HomeTrust will, however, reserve a sufficient number of shares of its common stock to pay the stock portion of the merger consideration and to satisfy the exercise of Adjusted Options as well as to use its best efforts to cause the shares of HomeTrust common stock to be issued in the merger to be authorized for listing on NASDAQ.
Jefferson
Conduct of Businesses Prior to the Completion of the Merger
TriSummit has also agreed that it will, and will cause each of its subsidiaries to, conduct its business in the ordinary course consistent with past practice in all material respects. JeffersonTriSummit has further agreed that it will not, and will not permit any of its subsidiaries, to do any of the following without the prior written consent of HomeTrust:
| · | issue or sell, or authorize the creation of, any additional shares of its capital stock, other ownership interests or any warrants, options, rights, convertible securities or other arrangements or commitments to acquire any shares of its capital stock or other ownership interests, except pursuant to the exercise of TriSummit stock options and warrant agreements outstanding on the date of the merger agreement and the automatic conversion of Series A preferred stock into TriSummit common stock at the effective time of the merger; |
| · | modify or amend any of the terms of any outstanding TriSummit stock option award or warrant agreement except for (i) the extension of the expiration date of the outstanding warrants until the earlier of (1) June 30, 2017 and (2) the day next following the effective time of the merger; and (ii) the amendment of the directors’ and executive officers’ stock option agreements as required by the merger agreement; |
| · | issue any other capital securities, including trust preferred or other similar securities, indebtedness with voting rights or other debt securities; |
| · | pay or declare any dividends or other distributions on its capital stock, other than (i) dividends from wholly owned subsidiaries to TriSummit or to another wholly owned subsidiary of TriSummit; and (ii) accrued dividends on TriSummit’s Series B preferred stock, Series C preferred stock and Series D preferred stock |
| · | adjust, split, combine, redeem, reclassify, purchase or otherwise acquire any shares of TriSummit’s capital stock, other than the redemption of TriSummit’s Series B preferred stock, Series C preferred stock, and Series D preferred stock, as provided in the merger agreement; |
| · | (i) enter into, modify, renew, or terminate any employment, severance or similar agreement or arrangement with any director, officer, employee or independent contractor, or grant any salary or wage increase or increase any employee benefit (including incentive or bonus payments) other than (A) at will agreements, (B) normal increases in salary to rank and file employees, (C) severance in accordance with past practice; (D) incentive bonuses to certain employees specified in the disclosure schedules to the merger agreement; and (E) changes that are required by applicable law; (ii) hire any new employees except to replace terminated employees; (iii) promote any employee to a rank of vice president or higher except to fill a vacated position; or (iv) pay expenses in excess of a specified amount for employees and directors to attend conventions or similar meetings; |
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| · | except as required by law, establish, modify, renew or terminate any employee benefit plan or take action to accelerate the vesting of benefits under any employee benefit plan; |
| · | sell, transfer, lease or encumber any of its material assets or properties, except in the ordinary course of business consistent with past practice, and in the case of a sale or transfer, at fair value, or sell or transfer any of its deposit liabilities; |
| · | enter into, modify or renew any data processing contract, service provider agreement or any lease, license or maintenance agreement relating to real or personal property or intellectual property, other than the annual renewal of an agreement that is necessary to operate its business in the ordinary course consistent with past practice, or permit to lapse its rights in any material intellectual property; |
| · | acquire the assets, business, deposits or properties of any person or entity, other than pursuant to foreclosure, in a fiduciary capacity or in satisfaction of debts contracted prior to the date of the merger agreement; |
| · | sell or acquire any loans (excluding originations) or loan participations, except in the ordinary course of business consistent with past practice (but, in the case of a sale, after giving HomeTrust or HomeTrust Bank a first right of refusal to acquire such loan or loan participation), or sell or acquire any loan servicing rights; |
| · | amend its governing documents; |
| · | materially change its accounting principles, practices or methods, except as may be required by accounting principles generally accepted in the United States or any governmental entity; |
| · | except for certain contracts specified in the disclosure schedules to the merger agreement, enter into, materially modify, terminate or renew (other than necessary renewals in the ordinary course of business for a term not to exceed one year) any TriSummit material contract as defined in the merger agreement; |
| · | settle any legal claims involving an amount in excess of $25,000, excluding amounts paid or reimbursed under any insurance policy; |
| · | foreclose upon any real property without obtaining a phase one environmental report, except for one- to four-family non-agricultural residential properties of five acres or less which TriSummit does not have reason to believe contains hazardous substances or might be in violation of or require remediation under environmental laws; |
| · | in the case of TriSummit Bank, (i) voluntarily make a material change in its deposit mix; (ii) increase or decrease the interest rate paid on its time deposits or certificates of deposit except in a manner consistent with past practice and competitive factors in the marketplace; (iii) except for certain specified liabilities, incur any material liability or obligation relating to retail banking and branch merchandising, marketing and advertising activities and initiatives except in the ordinary course of business consistent with past practice; (iv) open any new branch of deposit taking facility; or (v) close or relocate any existing branch or other facility; |
| · | acquire any investment securities outside of the limits specified in the merger agreement; |
| · | make capital expenditures outside the limits and commitments and exceptions specified in the merger agreement; |
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| · | materially change its loan underwriting policies or make loans on extensions of credit in excess of amounts specified in the merger agreement; |
| · | invest in any new or existing joint venture or any new real estate development or construction activity; |
| · | materially change its interest rate and other risk management policies and practices; |
| · | incur any debt for borrowed funds other than in the ordinary course of business consistent with past practice with a term of six months or less; |
| · | make any written communications to the officers or employees of TriSummit or any of its subsidiaries, or any oral communications presented to a significant portion of the officers or employees of TriSummit or any of its subsidiaries, pertaining to compensation or benefit matters that are affected by the merger without providing HomeTrust with a copy or written description of the intended communication and with a reasonable period of time to review and comment on the communication; |
| · | except as specified in the disclosure schedules to the merger agreement or to maintain its business premises, engage in or conduct any demolition, remodeling or modifications or alterations to any of its business premises unless required by applicable law or fail to use commercially reasonable efforts to maintain its business premises or other assets in substantially the same condition as the date of the merger agreement, ordinary wear and tear excepted; |
| · | create any lien on any of TriSummit’s assets or properties other than liens existing on the date of the merger agreement and pursuant to agreements with the Federal Home Loan Bank of Cincinnati and federal funds transactions; |
| · | make charitable contributions in excess of limits specified in the merger agreement; |
| · | except as specified in the disclosure schedules to merger agreement, develop, market or implement any new products or lines of business; |
| · | make, change or revoke any tax election, amend any tax return, enter into any tax closing agreement, or settle any liability with respect to disputed taxes; or |
| · | agree to take, make any commitment to take, in support of, any of the foregoing. |
Regulatory Matters
HomeTrust has agreed to promptly prepare with Jefferson’sTriSummit’s assistance and file all necessary documentation, to effect all applications, notices, petitions and filings, to obtain as promptly as practicable all permits, consents, approvals and authorizations of all governmental entities which are necessary or advisable to consummate the transactions contemplated by the merger agreement. HomeTrust and JeffersonTriSummit have also agreed to furnish each other with all information reasonably necessary or advisable in connection with any statement, filing, notice or application to any governmental entity in connection with the merger and the bank merger, as well as to keep each other apprised of the status of matters related to the completion of the transactions contemplated by the merger agreement or any condition or requirement which individually or in the aggregate,that (i) is reasonably deemed unduly burdensome by HomeTrust including any regulatory condition or requirement that would increase the minimum regulatory capital requirementsrequirement of HomeTrust or HomeTrust Bank, or (ii) would reasonably be expected to have a material adverse effect on the combined company after giving effect to the merger other than any condition or requirement customarily imposed by a governmental entity in approving transactions such as the merger (an “unduly burdensome condition”).
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Employee Benefit Plan Matters
Following
As soon as practicable following the effective time of the merger, HomeTrust shallwill cause HomeTrust Bank to maintain or cause to be maintained employee benefit plans and compensation opportunities for the benefit of full-time active employees (as a group) who are full-time employees of Jefferson and its subsidiariesTriSummit Bank on the merger closing date (referred to below as “covered employees”) which in the aggregate, provide employee benefits and compensation opportunities which, in the aggregate, are substantially comparable and equivalent to the employee benefits and compensation programs that are made available on a uniform and non-discriminatory basis to similarly situated employees of HomeTrust or its subsidiaries, as applicable. Other than with respect to Jefferson’s ESOP, which shall be terminated prior to or immediately upon the closing or the merger, untilBank. Until such time as HomeTrust causes covered employees to participate in the benefit plans that are made available to similarly situated employees of HomeTrust or its subsidiaries,Bank, a covered employee’s continued participation in employee benefit opportunities of Jefferson and its subsidiariesTriSummit Bank will be deemed to satisfy this provision of the merger agreement. In no event will any covered employee be eligible to participate in any closed or frozen plan of HomeTrust or its subsidiaries.
To the extent that a covered employee becomes eligible to participate in a HomeTrust benefit plan, HomeTrust shallBank will cause the plan to recognize full-time years of prior service from the date of the most recent hire of such covered employee with Jefferson and its subsidiaries,TriSummit Bank (or Community National Bank of the Lakeway Area, to which TriSummit Bank is the successor), for purposes of eligibility, participation, vesting and, except under any plan that determines benefits on an actuarial basis, for benefit accrual, but only to the extent such service was recognized immediately prior to the merger closing date under a comparable JeffersonTriSummit benefit plan in which such covered employee was eligible to participate immediately prior to completion of the merger. This recognition of service will not duplicate any benefits of a covered employee with respect to the same period of service.
With respect to any HomeTrust benefit plan that is a health, dental, vision or welfare plan in which any covered employee is actually participating, HomeTrust or a subsidiary of HomeTrustBank shall use commercially reasonable best efforts to cause the waiver of all limitations as to
pre-existing conditions and waiting periods with respect to participation and coverage requirements applicable to the covered employees and his or her eligible dependents, to the extent such pre-existing condition was or would have been covered under a JeffersonTriSummit benefit plan in which such covered employees participated immediately prior to the merger closing date.
Jefferson
TriSummit has agreed to take, and cause its subsidiaries to take, other than with respect to the termination of Jefferson’s ESOP, all actions reasonably requested by HomeTrust that may be necessary or appropriate to (i) cause one or more JeffersonTriSummit benefit planplans to cease as of the effective time of the merger, or as of the date immediately preceding the effective time of the merger, (ii) cause benefit accruals and entitlements under any JeffersonTriSummit benefit plan to cease as of the effective time of the merger, or as of the date immediately preceding the effective time, (iii) cause the continuation on and after the effective time of the merger, of any contract, arrangement or insurance policy relating to any JeffersonTriSummit benefit plan for such period as may be requested by HomeTrust, and (iv) facilitate the merger of any JeffersonTriSummit benefit plan into any employee benefit plan maintained by HomeTrust or a HomeTrust subsidiary.
HomeTrust has agreed that HomeTrust Bank will assume and honor the obligations of Jefferson FederalTriSummit Bank under six employment agreements for executive officers, two supplemental executive retirement agreements for commercial relationship managers and nine split-dollar agreements, including six split-dollar agreements for executive officers. For a more complete description of these interests, see “The Merger—Interests of TriSummit’s Directors and Executive Officers in the Merger” on page 52 . Full time employees of TriSummit Bank who are not retained within one year following the closing of the merger other than for cause and are not eligible for other severance benefits under the amended and restatedor change in control benefits will be paid by HomeTrust Bank a severance planpayment equal to two weeks of Jefferson Federalbase pay for each year of full-time service at TriSummit Bank (including service at Community National Bank of the Lakeway Area) with a minimum payment of four weeks base pay and a maximum payment of 22 weeks base pay, subject to such plan being amended as provided in the merger agreement.employees executing and not revoking a release of all employment claims.
Director and Officer Indemnification and Insurance
For a period of six years following the merger, HomeTrust will maintain and preserve the rights to indemnification of Jefferson’s directors and officers, to the maximum extent permitted by Jefferson’sTriSummit’s charter and bylaws and applicable law, HomeTrust has agreed to indemnify and hold harmless the directors and officers of TriSummit and TriSummit Bank for all losses and claims incurred by these individuals in connection with any claimstheir capacity as such and arising out of or relating to matters existing or occurring at or prior to completion of the merger (including the transactions contemplated by the merger agreement).
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Additionally, the merger agreement requires TriSummit to purchase prior to the effective time of the merger including the transactions contemplated by the merger agreement.
For a period of six years following the effective time of the merger, HomeTrust will provide, at HomeTrust’s expense,three year “tail” policy under its or TriSummit Bank’s current directors’ and officers’ liability and insurance with respect to claims against Jefferson indemnified persons arising from facts or events occurring at or beforepolicy, which will provide insurance coverage post-merger for the effective timeofficers and directors of the merger, including the transactions contemplated by the merger agreement. This insurance must be equivalent to the coverage currently provided by Jefferson but theTriSummit and TriSummit Bank. The cost thereofof this policy is limited to 200%300% of Jefferson’sTriSummit’s current annual premium for suchdirectors’ and officers’ insurance. If the tail policy cannot be obtained for this amount, then HomeTrust will either authorize TriSummit to pay the required premium cost or provide equivalent insurance coverage. Instead of providing this insurance coverage, Jefferson may, orTriSummit at the request of HomeTrust shall,will, prior to the effective time of the merger, purchase a prepaid tail policy for directors’ and officers’ liability insurance provided thatfor a longer term (not to exceed six years) without being subject to a limitation on the cost thereof is limited to 450% of the current annual premium for such insurance.
Trust Preferred Securities
Redemption of TriSummit’s Series B preferred stock, Series C preferred stock and Series D preferred stock
The merger agreement provides that upon completionTriSummit will use its commercially reasonable efforts to redeem all of the outstanding shares of TriSummit Series B preferred stock, TriSummit Series C preferred stock, and TriSummit Series D preferred stock no later than the day next preceding the closing date of the merger, HomeTrust will assumesubject to the performancereceipt of all required regulatory approvals. Each share of Series B preferred stock, Series C preferred stock, or Series D preferred stock that is not redeemed by TriSummit and observancethat is outstanding as of the covenants to be performed by Jefferson under an indenture relating to $10.31 million in trust preferred securities issued in 2006 and the due and punctual paymenteffective time of the principalmerger will, at the effective time of the merger, be automatically converted into one share of capital stock of HomeTrust having rights, preferences, privileges, and premiumvoting powers, and interest on such trustlimitations and restrictions thereof, that are the same as the rights, preferences, privileges and voting powers, and limitations and restrictions thereof, of the TriSummit Series B preferred securities. In connection with such assumption, HomeTrust has agreedstock, Series C preferred stock and Series D preferred stock, respectively, immediately prior to enter into any supplemental indentures or other documents as necessary to make such assumption effective.the merger.
Shareholder Meeting and Recommendation of Jefferson’sTriSummit’s Boards of Directors
Jefferson
TriSummit has agreed to hold the JeffersonTriSummit special meeting for the purpose of voting upon the JeffersonTriSummit merger proposal and compensation proposals within 40 days after notice of the JeffersonTriSummit special meeting is given. The board of directors of JeffersonTriSummit has agreed to use its commercially reasonable best efforts to hold the JeffersonTriSummit special meeting to obtain from its shareholdersthe holders of TriSummit common stock and Series A preferred stock the vote required to approve the JeffersonTriSummit merger proposal, including by communicating to itsTriSummit’s shareholders its recommendation (and including such recommendation in this proxy statement/prospectus) that theyholders of TriSummit common stock and Series A preferred stock approve the merger agreement and the transactions contemplated thereby.
Notwithstanding any change in recommendation by the board of directors of Jefferson,TriSummit, unless the merger agreement has been terminated in accordance with its terms, JeffersonTriSummit is required to convene the JeffersonTriSummit special meeting and to submit the merger agreement to a vote of its shareholders. Jefferson will adjourn or postpone the Jefferson special meeting if there are insufficient shares of Jefferson common stock, represented (either in person or by proxy) to constitute a quorum necessary to conduct the business of such meeting.
Agreement Not to Solicit Other Offers
Jefferson
TriSummit has agreed that, from the date of the merger agreement until the effective time of the merger or, if earlier, the termination of the merger agreement, it will not, and will cause its subsidiaries not to: (i) initiate, solicit, encourage or knowingly facilitate inquiries or proposals with respect to, or engage in any discussions or negotiations concerning, or provide to any person any confidential or nonpublic information concerning, itsTriSummit’s and its subsidiaries’ business, properties or assets with respect to an acquisition proposal; or (ii) have any discussions with any person or entity relating to an acquisition proposal.
Notwithstanding this agreement, if Jefferson
If TriSummit receives an unsolicited written acquisition proposal prior to shareholder approval of the JeffersonTriSummit merger proposal that Jefferson’sTriSummit’s board of directors determines in good faith will constitute or result in a transaction that is more favorable from a financial point of view to the shareholders of JeffersonTriSummit than the merger with HomeTrust (referred to as a “superior proposal”), JeffersonTriSummit may provide confidential information to and negotiate with the third party that submitted such acquisition proposal if the JeffersonTriSummit board of directors determines in good faith, after consulting with counsel, that the failure to do so would reasonably be likely to violate the board’s fiduciary duties. In order to constitute a superior proposal, an acquisition proposal must be for a tender or exchange offer for a merger or consolidation or other business combination involving Jefferson or Jefferson Federal Bank or for the acquisition ofthat if consummated would result in any person acquiring more than a majority of the voting power in TriSummit or TriSummit Bank, or a proposal for a merger, consolidation or other business combination involving TriSummit or TriSummit Bank or any proposal or offer to acquire in any manner more than a majority of the voting power in, or
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more than a majority of the fair market value of the business, assets or deposits of, JeffersonTriSummit or Jefferson FederalTriSummit Bank. JeffersonTriSummit must promptly advise HomeTrust of any acquisition proposal received and keep it apprisedreasonably appraised of any related developments.
The merger agreement generally prohibits the JeffersonTriSummit board of directors from withdrawing or modifying in a manner adverse to HomeTrust the board’s recommendation that Jefferson’sTriSummit’s shareholders vote to approve the merger agreement (referred to as a “change in recommendation”). At any time prior to the approval of the merger agreement by Jefferson’sTriSummit’s shareholders, however, the JeffersonTriSummit board of directors may effect a change in recommendation in response to a bona fide written unsolicited acquisition proposal that the board determines in good faith, after consultation with outside legal counsel, constitutes a superior proposal. The JeffersonTriSummit board of directors may not make a change in recommendation in response to a superior proposal, or terminate the merger agreement to pursue a superior proposal, unless it has given HomeTrust at least four business days to propose a modification to the merger agreement and, after considering any such proposed modification, the TriSummit board of directors determines in good faith, after consultation with counsel, that the proposal continues to constitute a superior proposal.
If HomeTrust terminates the merger agreement based on a change in recommendation by the JeffersonTriSummit board of directionsdirectors or JeffersonTriSummit terminates the merger agreement to pursue a superior proposal, JeffersonTriSummit will be required to pay HomeTrust a termination fee of $1.95$1.5 million in cash. See “-Termination of the Merger Agreement.”
Conditions to Complete the Merger
HomeTrust’s and Jefferson’sTriSummit’s respective obligations to complete the merger are subject to the satisfaction or, to the extent legally permitted, waiver of the following conditions:
| · | the approval of the TriSummit merger proposal by TriSummit’s shareholders; |
| · | the authorization for listing on NASDAQ, subject to official notice of issuance, of the shares of HomeTrust common stock to be issued in the merger; |
| · | the receipt of necessary regulatory approvals, including from the Federal Reserve Board and the Commissioner, and other approvals necessary to consummate the transactions contemplated by the merger agreement, without the imposition of an unduly burdensome condition (provided that prior to declaring an unduly burdensome condition and electing not to effect the merger HomeTrust had negotiated in good faith with the relevant governmental entity to seek a commercially reasonable modification to reduce the burdensome nature of the condition or requirement) and such authorizations, consents, orders and approvals shall remain in full force and effect and all statutory waiting period in respect thereof shall have expired; |
| · | the effectiveness of the registration statement of which this proxy statement/prospectus is a part, and the absence of any stop order (or proceedings for that purpose initiated or threatened and not withdrawn); |
| · | the absence of any order, injunction, decree or law preventing or making illegal the completion of the merger or the bank merger; |
| · | accuracy, as of the date of the merger agreement and as of the closing date of the merger, of the representations and warranties made by HomeTrust and TriSummit to the extent specified in the merger agreement, and the receipt by each party of an officer’s certificate from the other party to that effect; |
| · | the performance by the other party in all material respects of all obligations required to be performed by it under the merger agreement and the receipt by each party of an officer’s certificate from the other party to that effect; |
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| · | the holders of less than 7.5% of the outstanding shares of TriSummit common stock and Series A preferred stock exercising dissenters’ rights under Tennessee law; |
| · | receipt by each party of an opinion of its legal counsel to the effect that on the basis of facts, representations and assumptions set forth or referred to in such opinion, the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code; and |
| · | as an additional condition to HomeTrust’s obligation to complete the merger, receipt by TriSummit of all designated third party consents in form and substance reasonably satisfactory to HomeTrust. |
Neither HomeTrust nor JeffersonTriSummit can provide assurance as to when or if all of the conditions to the merger can or will be satisfied or waived by the appropriate party.
Termination of the Merger Agreement
The merger agreement can be terminated at any time prior to completion of the merger in the following circumstances:
| · | by mutual written consent of HomeTrust and TriSummit; |
| · | by either HomeTrust or TriSummit, if any governmental entity that must grant a required regulatory approval has denied approval of the merger or bank merger and such denial has become final and non-appealable or any governmental entity of competent jurisdiction has issued a final non-appealable order, injunction or decree permanently enjoining or otherwise prohibiting or making illegal the merger or bank merger, unless the failure to obtain a required regulatory approval is due to the failure of the party seeking to terminate the merger agreement to perform or observe its covenants and agreements under the merger agreement; |
| · | by either HomeTrust or TriSummit, if the merger has not been completed on or before June 30, 2017 (which we refer to as the “termination date”), unless the failure of the merger to be completed by that date is due to the failure of the party seeking to terminate the merger agreement to perform or observe its covenants and agreements under the merger agreement; |
| · | by either HomeTrust or TriSummit (provided that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained in the merger agreement), if there is a breach of any of the covenants or agreements or any of the representations or warranties set forth in the merger agreement on the part of the other party which, either individually or in the aggregate, would constitute, if occurring or continuing on the date the merger is completed, the failure of a closing condition of the terminating party and which is not cured within 20 days following written notice to the party committing such breach, or by its nature or timing cannot be cured during such period (or such fewer days as remain prior to the termination date); |
| · | by HomeTrust, if the board of directors of TriSummit fails to recommend in this proxy statement/prospectus that its shareholders approve the TriSummit merger proposal, or the TriSummit board of directors withdraws, modifies or makes or causes to be made any third party or public communication announcing an intention to modify or withdraw such recommendation in a manner adverse to HomeTrust, or TriSummit materially breaches any of its obligations relating to third party acquisition proposals; |
| · | by either HomeTrust or TriSummit, if the TriSummit special meeting has been held (including any postponement or adjournment thereof) and the required vote to approve the TriSummit merger proposal has not been obtained; provided in the case of a termination by TriSummit that TriSummit has complied in all material respects with its obligations under the merger agreement, including with respect to recommending approval of the TriSummit merger proposal and the non-solicitation of third party acquisition proposals; |
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| · | by TriSummit, if both of the following conditions are satisfied: |
(i) the average HomeTrust common stock price is less than $15.24; and
(ii) the average HomeTrust common stock price divided by $19.05 is less than 80% of the closing price of the NASDAQ Bank Index on the fifth trading day before the day of completion of the merger or bank merger and such denial has become final and non-appealable or any governmental entitydivided by the closing price of competent jurisdiction has issued a final non-appealable order, injunction or decree permanently enjoining or otherwise prohibiting or making illegalthe NASDAQ Bank Index on September 20, 2016 (the date of entry into the merger or bank merger, unlessagreement); provided, if TriSummit chooses to exercise this termination right, HomeTrust has the failureoption, within two business days of receipt of notice from TriSummit, to obtain a required regulatory approval is due to the failure of the party seeking to terminateadjust the merger agreement to perform or observe its covenantsconsideration and agreementsprevent termination under the merger agreement;
| · | by either TriSummit or HomeTrust, if the average HomeTrust common stock price for any five consecutive trading days is less than $10.00; or |
| · | by TriSummit prior to TriSummit obtaining shareholder approval of the merger agreement in order to enter into a definitive acquisition agreement with respect to a third party superior unsolicited acquisition proposal, provided TriSummit has not committed a material breach of its obligation with respect to third party acquisition proposals and concurrently with such termination pays HomeTrust a termination fee of $1.5 million in cash. |
If the merger agreement is terminated, it will become void and have no effect, except that (1) both HomeTrust and JeffersonTriSummit will remain liable for any liabilities or damages arising out of its willful and material breach of any provision of the merger agreement except, in the case of Jefferson,TriSummit, if the termination fee is paid, and (2) designated provisions of the merger agreement will survive the termination, including those relating to payment of fees and expenses.
HomeTrust is entitled to a termination fee of $1.95$1.5 million from JeffersonTriSummit if the merger agreement is terminated under the following circumstances:
In the event HomeTrust terminates the merger agreement as a result of a willful and material breach by TriSummit of the provisions of the merger agreement by Jefferson that would entitle HomeTrustrelating to the termination fee,third party acquisition proposals, HomeTrust is not required to accept the termination fee from JeffersonTriSummit and may pursue alternate relief against Jefferson.TriSummit.
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All costs and expenses incurred in connection with the merger agreement and the transactions contemplated thereby will be paid by the party incurring such expense, except that the costs and expenses of printing and mailing this proxy statement/prospectus will be paid by JeffersonTriSummit and all filing and other fees paid to the SEC in connection with the merger will be paid by HomeTrust.
Amendment, Waiver and Extension of the Merger Agreement
Subject to compliance with applicable law, the merger agreement may be amended by the parties at any time before or after approval of the merger agreement by the shareholders of Jefferson,TriSummit, except that after approval of the merger agreement by the shareholders of Jefferson,TriSummit, there may not be, without further approval of such shareholders, any amendment of the merger agreement that requires further approval of such shareholders under applicable law.
At any time prior to completion of the merger, the parties may, to the extent legally allowed, extend the time for the performance of any of the obligations or other acts of the other party, waive any inaccuracies in the representations and warranties contained in the merger agreement or in any document delivered pursuant to the merger agreement, and waive compliance with any of the agreements or satisfaction of any conditions contained in the merger agreement, except that after approval of the merger agreement by the Jefferson shareholders, there may not be, without further approval of such shareholders, any extension or waiver of the merger agreement or any portion of the merger agreement that requires further approval under applicable law.agreement.
As an inducement to HomeTrust to enter into the merger agreement, the directors and executive officers of JeffersonTriSummit have entered into voting agreements with HomeTrust with respect to the shares of JeffersonTriSummit common stock they own. The following summary of the voting agreements is qualified in its entirety by reference to the form of voting agreement, a copy of which is attached as Exhibit A to the merger agreement, which is included inAppendix A to this proxy statement/prospectus.
Pursuant to the voting agreements, the directors and executive officers of JeffersonTriSummit have agreed:
| · | to vote, or cause to be voted, all of their shares of TriSummit stock in favor of approval of the TriSummit merger proposal; and |
| · | not to sell, transfer or otherwise dispose of any such shares of TriSummit stock until after shareholder approval of the TriSummit merger proposal, excluding (i) a transfer where the transferee has agreed in writing to abide by the terms of the voting agreement in a form reasonably satisfactory to HomeTrust, (ii) a transfer by will or operation of law, or (iii) a transfer made with the prior written consent of HomeTrust. |
The obligations under each voting agreement will terminate concurrently with anyon the first to occur of: (i) the termination of the merger agreement.
UNAUDITED PRO FORMA COMBINED CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
The following isagreement, (ii) the unaudited pro forma combined condensed consolidated financial information for HomeTrust and Jefferson Bancshares, giving effect to the merger without including the pro forma financial impact of the pending Bank of Commerce acquisition on HomeTrust. The unaudited pro forma combined condensed consolidated balance sheet as of December 31, 2013 gives effect to the merger as if it occurred on that date. The unaudited pro forma combined condensed consolidated statements of operations for the six months ended December 31, 2013 and the year ended June 30, 2013 give effect to the merger as if it occurred on July 1, 2012.
The unaudited pro forma combined condensed consolidated financial statements have been prepared using the acquisition method of accounting for business combinations under GAAP. HomeTrust is the acquirer for accounting purposes. Certain reclassifications have been made to the historical financial statements of Jefferson Bancshares to conform to the presentation in HomeTrust’s financial statements.
A final determination of the fair values of Jefferson Bancshares’s assets and liabilities, which cannot be made prior to the completion of the merger, will be based on the actual net tangible and intangible assets of Jefferson Bancshares that exist as of the date of completion of the transaction. Consequently, fair value adjustments and amounts preliminarily allocated to goodwill and identifiable intangibles could change significantly from those allocations used in the unaudited pro forma combined condensed consolidated financial statements presented herein and could result in a material change in amortization of acquired intangible assets. In addition, the value of the final purchase price of the merger will be determined based on HomeTrust’s average closing stock price during the ten trading days ending on the fifth trading day prior to the closing date, with the exchange ratio fixed at 0.2667 if the average closing price is equal to or less than $15.00 per share and at 0.2222 if the average closing price is equal to or greater than $18.00 per share. For purposes of the accompanying pro forma financial information, the closing price of HomeTrust common stock on January 22, 2014, the last trading day before the day on which the merger agreement was publicly announced, was used for purposes of presenting the pro forma combined consolidated balance sheet at December 31, 2013.
In connection with the plan to integrate the operations of HomeTrust and Jefferson Bancshares following the completion of the merger, HomeTrust anticipates that nonrecurring charges, such as costs associated with systems implementation, severance and other costs related to exit or disposal activities, will be incurred. HomeTrust is not able to determine the timing, nature and amount of these charges as of the date of this document. However, these charges will affect the results of operations of HomeTrust and Jefferson Bancshares, as well as those of the combined company following the completion of the merger, in the period in which they are recorded. The unaudited pro forma combined condensed consolidated statements of operations do not include the effects of the nonrecurring costs associated with any restructuring or integration activities resulting from the merger, as they are nonrecurring in nature and not factually supportable at this time. Additionally, the unaudited pro forma adjustments do not give effect to any nonrecurring or unusual restructuring charges that may be incurred as a result of the integration of the two companies or any anticipated disposition of assets that may result from such integration.
The actual amounts recorded as of the completion of the merger may differ materially from the information presented in these unaudited pro forma combined condensed consolidated financial statements as a result of:
The unaudited pro forma combined condensed consolidated financial statements are provided for informational purposes only. The unaudited pro forma combined condensed consolidated financial statements are not necessarily, and should not be assumed to be, an indication of the results that would have been achieved had the transaction been completed as of the dates indicated or that may be achieved in the future. The preparation of the unaudited pro forma combined condensed consolidated financial statements and related adjustments required management to make certain assumptions and estimates. The unaudited pro forma combined condensed consolidated financial information is based on, and should be read together with, the historical consolidated financial statements and related notes of HomeTrust incorporated into this document by reference from its Quarterly Report on Form 10-Q for the quarter ended December 31, 2013 and its Annual Report on Form 10-K for the year ended June 30, 2013, and of Jefferson Bancshares incorporated into this document by reference from its Quarterly Report on Form 10-Q for the quarter ended December 31, 2013 and its Annual Report on Form 10-K for the year ended June 30, 2013.
HOMETRUST BANCSHARES, INC. AND JEFFERSON BANCSHARES, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED BALANCE SHEET
As of December 31, 2013
(In thousands)
| HomeTrust | Jefferson Bancshares | Pro Forma Adjustments | Pro Forma | |||||||||||||
Assets | ||||||||||||||||
Cash | $ | 14,175 | $ | 8,555 | $ | — | $ | 22,730 | ||||||||
Interest-bearing deposits | 69,897 | 8,146 | (25,638 | ) | 52,405 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Cash and cash equivalents | 84,072 | 16,701 | (25,638 | ) | 75,135 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Certificates of deposit in other banks | 152,027 | — | — | 152,027 | ||||||||||||
Securities available for sale, at fair value | 82,661 | 93,472 | — | 176,133 | ||||||||||||
Loans held for sale | 8,907 | 424 | — | 9,331 | ||||||||||||
Total loans, net of deferred loan fees and discount | 1,170,058 | 334,180 | (10,357 | ) | 1,493,881 | |||||||||||
Allowance for loan losses | (27,125 | ) | (3,973 | ) | 3,973 | (27,125 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Net loans | 1,142,933 | 330,207 | (6,384 | ) | 1,466,756 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Premises and equipment, net | 24,648 | 25,268 | (2,500 | ) | 47,416 | |||||||||||
Federal Home Loan Bank stock, at cost | 2,089 | 4,735 | — | 6,824 | ||||||||||||
Accrued interest receivable | 5,901 | 1,357 | — | 7,258 | ||||||||||||
Real estate owned | 9,935 | 5,417 | (1,000 | ) | 14,352 | |||||||||||
Deferred income taxes | 46,748 | 10,810 | 3,687 | 61,245 | ||||||||||||
Bank owned life insurance | 63,134 | 7,222 | — | 70,356 | ||||||||||||
Core deposit intangible | 586 | 976 | 2,727 | 4,289 | ||||||||||||
Goodwill | 2,802 | — | 4,769 | 7,571 | ||||||||||||
Other assets | 2,882 | 1,223 | — | 4,105 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Assets | $ | 1,629,325 | $ | 497,812 | $ | (24,339 | ) | $ | 2,102,798 | |||||||
|
|
|
|
|
|
|
| |||||||||
Liabilities and Stockholders’ Equity | ||||||||||||||||
Liabilities | ||||||||||||||||
Deposits | $ | 1,211,447 | $ | 388,020 | $ | 500 | $ | 1,599,967 | ||||||||
Other borrowings | 2,217 | 47,746 | 602 | 50,565 | ||||||||||||
Capital lease obligations | 2,007 | — | — | 2,007 | ||||||||||||
Subordinated debentures | — | 7,414 | 2,586 | 10,000 | ||||||||||||
Other liabilities | 55,548 | 1,088 | — | 56,636 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total liabilities | 1,271,219 | 444,268 | 3,688 | 1,719,175 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Stockholders’ Equity | ||||||||||||||||
Preferred stock | — | — | — | — | ||||||||||||
Common stock | 198 | 92 | (76 | ) | 214 | |||||||||||
Additional paid in capital | 211,855 | 45,639 | (20,138 | ) | 237,356 | |||||||||||
Retained earnings | 156,193 | 10,603 | (10,603 | ) | 156,193 | |||||||||||
Unearned Employee Stock Ownership Plan (ESOP) shares | (9,787 | ) | (2,160 | ) | 2,160 | (9,787 | ) | |||||||||
Accumulated other comprehensive loss | (353 | ) | (630 | ) | 630 | (353 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Total stockholders’ equity | 358,106 | 53,544 | (28,027 | ) | 383,623 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Liabilities and Stockholders’ Equity | $ | 1,629,325 | $ | 497,812 | $ | (24,339 | ) | $ | 2,102,798 | |||||||
|
|
|
|
|
|
|
| |||||||||
HOMETRUST BANCSHARES, INC. AND JEFFERSON BANCSHARES, INC.
UNAUDITED PROFORMA COMBINED CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
For the Six Months Ended December 31, 2013
(In thousands, except share and per share data)
| HomeTrust | Jefferson Bancshares | Pro Forma Adjustments | Pro Forma | |||||||||||||
Interest and Dividend Income | ||||||||||||||||
Loans | $ | 28,453 | $ | 8,270 | $ | 246 | $ | 36,969 | ||||||||
Securities available for sale | 721 | 954 | — | 1,675 | ||||||||||||
Certificates of deposit and other interest-bearing deposits | 907 | — | — | 907 | ||||||||||||
Federal Home Loan Bank stock | 27 | 114 | — | 141 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total interest and dividend income | 30,108 | 9,338 | 246 | 39,692 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Interest Expense | ||||||||||||||||
Deposits | 2,925 | 658 | — | 3,583 | ||||||||||||
Other borrowings | 4 | 652 | — | 656 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total interest expense | 2,929 | 1,310 | — | 4,239 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net Interest Income | 27,179 | 8,028 | 246 | 35,453 | ||||||||||||
Recovery of Loan Losses | (3,000 | ) | — | — | (3,000 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Net Interest Income after Recovery of Loan Losses | 30,179 | 8,028 | 246 | 38,453 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Noninterest Income | ||||||||||||||||
Service charges on deposit accounts | 1,333 | 495 | — | 1,828 | ||||||||||||
Mortgage banking income and fees | 1,786 | 80 | — | 1,866 | ||||||||||||
Other, net | 1,398 | 402 | — | 1,800 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total other income | 4,517 | 977 | — | 5,494 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Noninterest Expense | ||||||||||||||||
Salaries and employee benefits | 14,695 | 3,527 | — | 18,222 | ||||||||||||
Net occupancy expense | 2,463 | 660 | — | 3,123 | ||||||||||||
Marketing and advertising | 693 | 155 | — | 848 | ||||||||||||
Telephone, postage, and supplies | 865 | — | — | 865 | ||||||||||||
Deposit insurance premiums | 667 | 338 | — | 1,005 | ||||||||||||
Computer services | 1,824 | 1,257 | — | 3,081 | ||||||||||||
Loss on sale and impairment of real estate owned | 205 | 24 | — | 438 | ||||||||||||
REO expense | 821 | 209 | — | 821 | ||||||||||||
Other | 2,988 | 1,470 | (20 | ) | 4,438 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total other expense | 25,221 | 7,640 | (20 | ) | 32,841 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Income Before Income Taxes | 9,475 | 1,365 | 266 | 11,106 | ||||||||||||
Income Tax Expense | 3,272 | 423 | 90 | 3,785 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net Income | $ | 6,203 | $ | 942 | $ | 176 | $ | 7,321 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Per Share Data: | ||||||||||||||||
Net income per common share: | ||||||||||||||||
Basic | $ | 0.32 | $ | 0.15 | $ | 0.36 | ||||||||||
Diluted | $ | 0.32 | $ | 0.15 | $ | 0.35 | ||||||||||
Average shares outstanding: | ||||||||||||||||
Basic | 18,930,301 | 6,271,395 | 1,609,910 | 20,540,211 | ||||||||||||
Diluted | 19,029,109 | 6,271,395 | 1,609,910 | 20,639,019 | ||||||||||||
HOMETRUST BANCSHARES, INC. AND JEFFERSON BANCSHARES, INC. COMPANY
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
For the Year Ended June 30, 2013
(In thousands, except share and per share data)
| HomeTrust | Jefferson Bancshares | Pro Forma Adjustments | Pro Forma | |||||||||||||
Interest and Dividend Income | ||||||||||||||||
Loans | $ | 58,404 | $ | 17,529 | $ | 616 | $ | 76,549 | ||||||||
Securities available for sale | 324 | 1,689 | — | 2,013 | ||||||||||||
Certificates of deposit and other interest-bearing deposits | 1,578 | — | — | 1,578 | ||||||||||||
Federal Home Loan Bank stock | 83 | 283 | — | 366 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total interest and dividend income | 60,389 | 19,501 | 616 | 80,506 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Interest Expense | ||||||||||||||||
Deposits | 6,975 | 1,535 | — | 8,510 | ||||||||||||
Other borrowings | 280 | 1,595 | — | 1,875 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total interest expense | 7,255 | 3,130 | — | 10,385 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net Interest Income | 53,134 | 16,371 | 616 | 70,121 | ||||||||||||
Recovery of Loan Losses | 1,100 | 800 | — | 1,900 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net Interest Income after Recovery of Loan Losses | 52,034 | 15,571 | 616 | 68,221 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Noninterest Income | ||||||||||||||||
Service charges on deposit accounts | 2,589 | 1,036 | — | 3,625 | ||||||||||||
Mortgage banking income and fees | 5,107 | 445 | — | 5,552 | ||||||||||||
Other, net | 2,691 | 632 | — | 3,323 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total other income | 10,387 | 2,113 | — | 12,500 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Noninterest Expense | ||||||||||||||||
Salaries and employee benefits | 26,438 | 6,761 | — | 33,199 | ||||||||||||
Net occupancy expense | 5,497 | 1,343 | — | 6,840 | ||||||||||||
Marketing and advertising | 1,705 | 383 | — | 2,088 | ||||||||||||
Telephone, postage, and supplies | 1,737 | — | — | 1,737 | ||||||||||||
Deposit insurance premiums | 1,407 | 968 | — | 2,375 | ||||||||||||
Computer services | 2,386 | 2,453 | — | 4,839 | ||||||||||||
Loss on sale and impairment of real estate owned | 951 | 297 | — | 1,683 | ||||||||||||
Federal Home Loan Bank advance prepayment penalty | 3,069 | — | — | 3,069 | ||||||||||||
REO expense | 2,135 | 435 | — | 2,135 | ||||||||||||
Other | 6,068 | 2,906 | 143 | 9,117 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total other expense | 51,393 | 15,546 | 143 | 67,082 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Income Before Income Taxes | 11,028 | 2,138 | 473 | 13,639 | ||||||||||||
Income Tax Expense | 1,975 | 544 | 161 | 2,680 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net Income | $ | 9,053 | $ | 1,594 | $ | 312 | $ | 10,959 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Per Share Data: | ||||||||||||||||
Net income per common share: | ||||||||||||||||
Basic | $ | 0.45 | $ | 0.25 | $ | 0.51 | ||||||||||
Diluted | $ | 0.45 | $ | 0.25 | $ | 0.51 | ||||||||||
Average shares outstanding: | ||||||||||||||||
Basic | 19,922,283 | 6,270,523 | 1,609,910 | 21,532,193 | ||||||||||||
Diluted | 19,941,687 | 6,270,523 | 1,609,910 | 21,551,597 | ||||||||||||
��
80
Notes to Unaudited Pro Forma Combined Condensed Consolidated Financial Statements
Note 1 – Basis of Presentation
The unaudited pro forma combined condensed consolidated financial information has been prepared under the acquisition method of accounting for business combinations. The unaudited pro forma combined condensed consolidated statements of operations for the year ended June 30, 2013 and six months ended December 31, 2013, are presented as if the acquisition occurred on July 1, 2012. The unaudited pro forma combined condensed consolidated balance sheet as of December 31, 2013 is presented as if the acquisition occurred as of that date. This information is not intended to reflect the actual results that would have been achieved had the acquisition actually occurred on those dates. The pro forma adjustments are preliminary, based on estimates, and are subject to change as more information becomes available and after final analyses of the fair values of both tangible and intangible assets acquired and liabilities assumed are completed. Accordingly, the final fair value adjustments may be materially different from those presented in this document.
Certain historical data of Jefferson Bancshares has been reclassified on a pro forma basis to conform to HomeTrust’s classifications.
Note 2 – Purchase Price
Each share of Jefferson Bancshares common stock and nonvoting preferred stock will be converted into the right to receive, promptly following completion of the merger, (1) 0.2524 shares of HomeTrust common stock equal to $4.00 per share divided by an assumed average HomeTrust closing price of $15.85, which was the price on January 22, 2014, the last trading day before public announcement of the merger agreement, and (2) $4.00 in cash, representing an aggregate consideration mix of 50% HomeTrust stock and 50% cash. All “in-the-money” Jefferson Bancshares stock options outstanding immediately prior to the merger will be canceled in exchange for a cash payment as provided in the mergerparties’ mutual agreement.
HomeTrust will issue approximately 1.6 million shares of common stock in the merger, resulting in approximately 21.4 million shares of common stock outstanding after the merger, and pay aggregate cash consideration in the merger of approximately $25.6 million (Adjustment Note A).
Note 3 – Allocation of Purchase Price of Jefferson Bancshares
At the merger date, Jefferson Bancshares’ assets and liabilities are required to be adjusted to their estimated fair values. The purchase price is then allocated to the identifiable assets and liabilities based on the fair value. The excess of the purchase price over the fair value of the net assets acquired is allocated to goodwill.
The pro forma purchase price was preliminarily allocated to the assets acquired and liabilities assumed based on their estimated fair values as summarized in the following table:
| At December 31, 2013 | ||||
| (in thousands) | ||||
Pro forma purchase price of Jefferson Bancshares | ||||
Fair value of HomeTrust common stock at $15.85 per share | $ | 25,517 | ||
Cash to be paid | 25,517 | |||
Consideration value for stock options | 121 | |||
|
| |||
Total pro forma purchase price | $ | 51,155 | ||
|
| |||
Fair value of assets acquired: | ||||
Cash | $ | 16,701 | ||
Investment securities available for sale | 93,472 | |||
Loans | 324,247 | |||
Other real estate owned | 4,417 | |||
Intangible assets | 3,703 | |||
Other assets | 51,802 | |||
|
| |||
Total assets acquired | $ | 494,342 | ||
|
| |||
Fair value of liabilities assumed: | ||||
Deposits | $ | 388,520 | ||
Other borrowed money | 48,348 | |||
Subordinated debentures | 10,000 | |||
Accrued expenses and other liabilities | 1,088 | |||
|
| |||
Total liabilities assumed | $ | 447,956 | ||
|
| |||
Fair value of net assets acquired | $ | 46,386 | ||
|
| |||
Goodwill | $ | 4,769 | ||
|
| |||
Note 4 – Pro Forma Condensed Combined Financial Information Adjustments
The following pro forma adjustments have been included in the unaudited pro forma condensed combined financial information. Estimated fair value adjustments are based upon available information, and certain assumptions considered reasonable, and may be revised as additional information becomes available. The following are the pro forma adjustments made to record the transaction and to adjust Jefferson Bancshares’ assets and liabilities to their estimated fair values at December 31, 2013.
Statement of Condition
As of December 31, 2013
(In thousands)
A. Adjustments to Cash and cash equivalents | ||||
To reflect cash used to purchase Jefferson Bancshares. | $ | (25,638 | ) | |
B. Adjustments to Loans receivable, excluding Allowance for loan losses | ||||
Fair value adjustment on loans which includes $7,684 to adjust for credit deterioration of the acquired portfolio and $2,673 to reflect current interest rates and spreads to be accreted using the level yield method on purchased performing loans as they are repaid over time. The interest rate market value adjustment was determined based on the present value of estimated future cash flows of the loans to be acquired discounted using a weighted average market rate. The credit market value adjustment was determined based on assigned risk ratings, and the present value of estimated expected cash flows (including the estimated fair value of loan collateral). HomeTrust engaged a third-party advisor to assist in determining the credit adjustment. | $ | (10,357 | ) | |
C. Adjustments to Allowance for loan losses | ||||
To remove the Jefferson Bancshares allowance for loan losses at period end date as the credit risk is accounted for in the fair value adjustment for the loans receivable in AdjustmentB above. | $ | 3,973 | ||
D. Adjustments to Core Deposit Intangible (“CDI”) | ||||
To record the estimated fair value of the CDI identified in the merger as calculated by a third party and to eliminate Jefferson Bancshares CDI created in its prior acquisitions. | ||||
CDI identified in merger | $ | 3,703 | ||
Elimination of Jefferson Bancshares prior CDI | $ | (976 | ) | |
E. Adjustment to Goodwill | ||||
To record the difference between the consideration transferred and the estimated fair value of net assets acquired in the merger. | $ | 4,769 | ||
F. Adjustments to Other assets | ||||
To reflect the fair value of the other assets in the merger as follows: | ||||
Premises and equipment, net | $ | (2,500 | ) | |
Real estate owned | $ | (1,000 | ) | |
Deferred tax asset, net | ||||
Subtotal of fair value adjustments is $10,845 at the Company’s estimated statutory rate of 34% | $ | 3,687 | ||
G. Adjustment to Subordinated debentures | ||||
To reflect the fair value of the subordinate debentures in the merger. This adjustment reflects HomeTrust’s intention to repay these subordinate debentures at face value as of the merger date. | $ | 2,586 | ||
H. Adjustment to other liabilities | ||||
To reflect the fair value of other liabilities in the merger as follows: | ||||
To reflect the fair value of certificates of deposit | $ | 500 | ||
To reflect the fair value of other borrowings | $ | 602 | ||
I. Adjustments to Common stock and Additional paid in capital (“APIC”) | ||||
To record the changes in common stock and APIC: | ||||
Issuance of HomeTrust common stock to Jefferson Bancshares shareholders | $ | 25,517 | ||
Elimination of the historical Jefferson Bancshares common stock and APIC | $ | (45,731 | ) | |
J. Adjustment to Retained earnings | ||||
To eliminate the historical Jefferson Bancshares retained earnings | $ | (10,603 | ) | |
K. Adjustment to ESOP To eliminate the unallocated shares held as collateral in the leveraged Jefferson Bancshares ESOP L. Adjustment to Accumulated other comprehensive loss To eliminate the historical Jefferson Bancshares accumulated other comprehensive loss. $ 2,160 $ 630
For purposes of determining the pro forma effect of the merger on the statements of operations, the following pro forma adjustments have been made as if the acquisition occurred as of July 1, 2012:
Statements of Income
(In thousands)
| For the Six Months Ended December 31, 2013 | For the Year Ended June 30, 2013 | |||||||
M. Adjustments to Interest income: Loans | $ | 246 | $ | 616 | ||||
To reflect the accretion of interest component of the loan discount resulting from the pro forma loan fair value adjustment in Adjustment B above. The accretion was calculated using the level yield method as these loans are repaid over time. | ||||||||
N. Adjustments to Noninterest expense: Other | ||||||||
To eliminate the direct costs for professional services incurred by the companies in connection with the merger | $ | (110 | ) | $ | — | |||
To reflect the amortization of the CDI resulting from the pro forma fair value adjustment in AdjustmentD above and to eliminate the historical Jefferson Bancshares CDI amortization | $ | 90 | $ | 143 | ||||
Amortization of CDI resulting from the merger based on amortization period of 7 years using the straight-line method of amortization of $265 and $529 for the six months ended 12/31/13 and for the year ended 6/30/13, respectively. | ||||||||
Elimination of historical Jefferson Bancshares CDI amortization of $(175) and $(386) for the six months ended 12/31/13 and for the year ended 6/30/13, respectively. | ||||||||
O. Adjustment to Federal income taxes | $ | 90 | $ | 161 | ||||
To reflect the income tax effect of the pro forma Adjustments M-P above at the Company’s estimated 34% statutory tax rate. | ||||||||
Earnings per share, basic and diluted, (Adjustment NoteP) were calculated using the calculated pro forma net income divided by the calculated pro forma basic and dilutive average shares outstanding.
Basic and dilutive average shares outstanding (Adjustment Note Q) were calculated by adding the shares assumed to be issued by HomeTrust in the merger (1.6 million shares) to the historical average HomeTrust shares outstanding for the six months ended December 31, 2013 and for the year ended June 30, 2013.
Note 5 – Merger Costs
In connection with the merger, the plan to integrate HomeTrust’s and Jefferson Bancshares’ operations is still being developed. Over the next several months, the specific details of these plans will continue to be refined. Management of both companies is currently in the process of assessing the two companies’ personnel, benefit plans, computer systems, service contracts and other key factors to determine the most beneficial structure for the merged company. Certain decisions arising from these assessments may involve involuntary termination of employees, changing information systems, canceling contracts with service providers and other actions. To the extent there are costs associated with these actions, the costs will be recorded based on the nature and timing of these integration actions. Most acquisition and restructuring costs are recognized separately from a business combination and generally will be expensed as incurred.
The table below reflects HomeTrust’s current estimate of the aggregate estimated merger costs of $3.8 million (net of $1.7 million of taxes, computed using the statutory federal tax rate of 34%) expected to be incurred in connection with the merger, which are excluded from the pro forma financial information. While a portion of these costs may be required to be recognized over time, the current estimate of these costs, primarily comprised of anticipated cash charges, include the following:
| At December 31, 2013 | ||||
| (in thousands) | ||||
Professional Fees | $ | 1,908 | ||
Change of control payments | 500 | |||
Severance and retention plan | 1,200 | |||
Data processing, termination and conversion | 1,910 | |||
|
| |||
Pre-tax merger costs | 5,518 | |||
Taxes | 1,677 | |||
|
| |||
Total merger costs | $ | 3,841 | ||
|
| |||
HomeTrust’s cost estimates are forward-looking. While the costs represent HomeTrust’s current estimate of merger costs associated with the merger that will be incurred, the ultimate level and timing of recognition of these costs will be based on the final integration in connection with consummation of the merger. Readers are cautioned that the completion of this integration and other actions that may be taken in connection with the merger will impact these estimates. The type and amount of actual costs incurred could vary materially from these estimates if future developments differ from the underlying assumptions used by management in determining the current estimate of these costs.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following summary describes generally the material U.S. federal income tax consequences of the merger to U.S. holders (as defined below) of JeffersonTriSummit common stock and TriSummit Series A preferred stock. The summaryterm “U.S. holder” means a beneficial owner of shares of TriSummit common stock or TriSummit Series A preferred stock that is, for U.S. federal income tax purposes:
| · | an individual citizen or resident of the United States; |
| · | a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States or any of its political subdivisions; |
| 73 |
| · | a trust that (i) is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons or (ii) has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person for U.S. federal income tax purposes; or |
| · | an estate that is subject to U.S. federal income taxation on its income regardless of its source. |
This discussion is based upon current provisions of the Code, the U.S. Treasury Regulations promulgated thereunder, judicial decisions and published positions of the Internal Revenue Code of 1986, as amended (which we refer to in this document as the “Code”Service (the “IRS”), applicable Treasury Regulations, judicial decisions, and administrative rulings and practice, all as in effect as of the date hereof,of this document, and all of which are subject to change or differing interpretations, possibly with retroactive effect. Any such change or interpretation could affect the continued accuracy of the statements and conclusions set forth in this discussion.
This discussion is for general information only and does not purport to address all aspects of U.S. federal income taxation that may be relevant to particular holders of TriSummit common stock or TriSummit Series A preferred stock in light of their particular facts and circumstances. This discussion addresses only U.S. holders of TriSummit common stock and TriSummit Series A preferred stock that hold such stock as a “capital asset” within the meaning of Section 1221 of the Code (generally, property held for investment). This summary does not address any tax consequences of the merger under any state, local, or foreign laws or any federal laws other than those pertaining to income tax.
tax, nor does it address any considerations in respect of any withholding required pursuant to the Foreign Account Tax Compliance Act of 2010 (including the U.S. Treasury Regulations issued thereunder and intergovernmental agreements entered into pursuant thereto). This discussion addresses only those holders of Jefferson common stock that hold their Jefferson common stock as a capital asset within the meaning of Section 1221 of the Code. It does not address all the U.S. federal income tax consequencesconsiderations that may be relevant to particular holders of JeffersonTriSummit common stock or TriSummit Series A preferred stock in light of their individual circumstances or to holders of JeffersonTriSummit common stock or TriSummit Series A preferred stock that are subject to special rules, including, without limitation, holders that are:
If a partnership (or otheran entity that is taxedor arrangement treated as a partnership for U.S. federal income tax purposes)purposes holds JeffersonTriSummit common stock or TriSummit Series A preferred stock, the tax treatment of a person treated as a partner in that partnership generally will depend upon the status of the partner and the activities of the partnership. Partnerships andPersons that for U.S. federal income tax purposes are treated as partners in partnerships holding shares of TriSummit common stock or TriSummit Series A preferred stock should consult their own tax advisors about the tax consequences of the merger to them.
For purposes of this discussion, the term “U.S. holder” means a beneficial owner that is: an individual citizen or resident of the United States; a corporation (or other entity taxable as a corporation for
ALL HOLDERS OF TRISUMMIT STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABILITY AND EFFECTS OF U.S. federal income tax purposes) created or organized under the laws of the United States or any of its political subdivisions; a trust that (i) is subject to the supervision of a court within the United States and the control of one or more U.S. persons or (ii) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person; or an estate that is subject to U.S. federal income taxation on its income regardless of its source.
In connection with the filing with the SEC of the registration statement on Form S-4 of which this proxy statement/prospectus is a part, Kilpatrick TownsendSilver, Freedman, Taff & StocktonTiernan LLP, or Kilpatrick Townsend,tax counsel to HomeTrust, has rendered its tax opinion to JeffersonHomeTrust and Silver, Freedman, Taff & TiernanButler Snow LLP, or SFT&T,tax counsel to TriSummit, has rendered its tax opinion to HomeTrustTriSummit addressing the U.S. federal income tax consequences of the merger as described below. The discussion below of the material U.S. federal income tax consequences of the merger, serves, insofar as such discussion constitutes statements of United States federal income tax law or legal conclusions, as the opinion of each of Silver,
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Freedman, Taff & Tiernan LLP and Butler Snow LLP as to the material U.S. federal income tax consequences of the merger to the U.S. holders of TriSummit common stock and Series A preferred stock. In rendering their respective tax opinions, each counsel relied upon representations and covenants, including those contained in certificates of officers of JeffersonHomeTrust and HomeTrust,TriSummit, reasonably satisfactory in form and substance to each such counsel. The opinions represent each counsel’s best legal judgment. However, ifIf any of the representations or assumptions upon which the opinions are based are inconsistent with the actual facts, the U.S. federal income tax consequences of the merger could be adversely affected. Copies of the tax opinions are attached as Exhibits 8.1 and 8.2 to the registration statementRegistration Statement on Form S-4.
Neither HomeTrust nor Jefferson has sought, and neither
Treatment of them will seek, any ruling from the Internal Revenue Service regarding any matters relating toMerger as a “Reorganization”
The parties intend for the merger and the opinions described above will notto be binding on the Internal Revenue Service or any court. Consequently, there can be no assurance that the Internal Revenue Service will not assert, or thattreated as a court would not sustain, a position contrary to any of the conclusions set forth below.
“reorganization” for U.S. federal income tax purposes. The obligations of the parties to complete the merger are conditioned on, among other things, the receipt by JeffersonTriSummit and HomeTrust of tax opinions from Kilpatrick TownsendButler Snow LLP and SFT&T,Silver, Freedman, Taff & Tiernan LLP, respectively, each dated and based on the facts and law existing as of the closing date of the merger, that for U.S. federal income tax purposes the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. These opinions will be based upon representation letters provided by Jefferson and HomeTrust and upon customary factual assumptions. The condition that Jefferson receive an opinion from Kilpatrick Townsend may be waived by Jefferson, and the condition that HomeTrust receive an opinion from SFT&T may be waived by HomeTrust. Neither Jefferson nor HomeTrust currently intends to waive the conditions related to the receipt of the opinions. However, if these conditions were waived and the change in tax consequences would be material, Jefferson would re-solicit the approval of its shareholders prior to completing the merger.
In addition, the obligation of each of Kilpatrick TownsendButler Snow LLP and SFT&TSilver, Freedman, Taff & Tiernan LLP to deliver such opinions is conditioned on the merger satisfying the statutory and regulatory requirements of a “reorganization,” including the “continuity of proprietary interest” requirement. That requirement generally will be satisfied if HomeTrust common stock constitutes at least 40% of the value of the total consideration to be paid or deemed paid in the merger. Pursuant to the merger consideration. The determinationagreement, the stock portion of the merger consideration may be increased and the cash portion of the merger consideration correspondingly decreased to assure that the value of the stock portion of the aggregate merger consideration at the effective time of the merge is equal to 42% of the total value of the consideration being paid to TriSummit shareholders in the transaction, taking into account dissenting shares and the intended redemption of the outstanding TriSummit Series B preferred stock, Series C preferred stock, and Series D preferred stock, in order to meet the continuity of proprietary interest requirement.
In the opinion of Butler Snow LLP and Silver, Freedman, Taff & Tiernan LLP in reliance on representation letters provided by tax counselTriSummit and HomeTrust and upon customary factual assumptions, as to whetherwell as certain covenants and undertakings of TriSummit and HomeTrust , the merger will be treatedqualify as a “reorganization”reorganization within the meaning of Section 368(a) of the Code is based on. If any of such representations, assumptions, covenants or undertakings are or become incorrect, incomplete, or inaccurate, or are violated, the facts and law existing asvalidity of the closing date ofopinions described above may be affected, and the merger.
The actualU.S. federal income tax consequences of the merger to you may be complexcould differ materially from those described below. Neither HomeTrust nor TriSummit has sought, and neither of them will depend upon your specific situation and upon factors that are not withinseek, any ruling from the control of HomeTrust or Jefferson. You should consult with your own tax advisor asIRS regarding any matters relating to the tax consequencesmerger, and the opinions described above will not be binding on the IRS or any court. Consequently, there can be no assurance that the IRS will not assert, or that a court would not sustain, a position contrary to any of the mergerconclusions set forth in light of your particular circumstances, including the applicability and effect of the alternative minimum tax and any state, localsuch opinions or foreign income or other tax laws.below.
U.S. Federal Income Tax Consequences of the Merger Generallyto U.S. Holders
The parties intend for
Subject to the merger to be treated as a “reorganization” for U.S. federal income tax purposes. As such,qualifications and limitations set forth above, the material U.S. federal income tax consequences of the merger to U.S. holders will be as follows:
| · | No gain or loss will be recognized by HomeTrust or TriSummit as a result of the merger. |
| · | A U.S. holder who receives a combination of |
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TriSummit common stock and cash in exchange for sharesTriSummit Series A preferred stock exchanged is more than one year at the time of Jefferson common stock pursuant to the merger in an amount equal to the lesser of (i) the amount by which the sumcompletion of the fair market value of the HomeTrust common stock and cash received by such U.S. holder of Jefferson common stock exceeds such U.S. holder’s basis in its Jefferson common stock and (ii) the amount of cash received by such U.S. holder of Jefferson common stock;
| · | The aggregate tax basis of the HomeTrust common stock received by a U.S. holder of TriSummit common stock or TriSummit Series A preferred stock in the merger (including any fractional shares of HomeTrust common stock deemed received and exchanged for cash, as described below) will be the same as the aggregate tax basis of the TriSummit common stock or TriSummit Series A preferred stock for which it is exchanged, decreased by the amount of cash received in the merger (other than cash received in lieu of a fractional share of HomeTrust common stock), and increased by the amount of gain recognized on the exchange, other than with respect to cash received in lieu of a fractional share of HomeTrust common stock (regardless of whether such gain is classified as capital gain or as dividend income, as discussed below under "—Potential Recharacterization of Gain as a Dividend"); |
| · | The holding period of HomeTrust common stock received in exchange for shares of TriSummit common stock or TriSummit Series A preferred stock (including fractional shares of HomeTrust common stock deemed received and exchanged for cash, as described below) will include the holding period of the TriSummit common stock or TriSummit Series A preferred stock for which it is exchanged. |
If a U.S. holder of Jefferson commonTriSummit stock acquired different blocks of Jefferson commonTriSummit stock at different times or at different prices, any gain or loss (if applicable) will be determined separately with respect to each block of Jefferson commonTriSummit stock, and such U.S. holder’s tax basis and holding period in its shares of HomeTrust stock may be determined with reference to each block of TriSummit stock. U.S. holders should consult their own tax advisors regarding the manner in which cash and HomeTrust common stock received in the merger should be allocated among different blocks of Jefferson common stock and with respectregard to identifying the tax bases or holding periods of the particular shares of HomeTrust common stock received in the merger.
Taxation of Capital Gain
Except as described under “—Potential Recharacterization of Gain as a Dividend” below,Dividend
Any gain thatrecognized by a U.S. holder of JeffersonTriSummit common stock recognizesor Series A preferred stock in connection with the merger generally will constitute capital gain and will constitute long-term capital gain if such U.S. holder has held (or is treated as having held) its Jefferson commonshares of TriSummit stock surrendered for more than one year as of the date of the merger. For non-corporate U.S. holders of Jefferson common stock, the maximum U.S. federal income tax rate on long-termexchange. Long-term capital gains is 20%.
Potential Recharacterization of Gain ascertain non-corporate holders, including individuals, are generally taxed at preferential rates. However, in some cases, if a Dividend
All or part of the gain that a particular U.S. holder of JeffersonTriSummit common stock recognizesor Series A preferred stock actually or constructively owns HomeTrust stock other than HomeTrust stock received pursuant to the merger, the recognized gain could be treated as dividend income rather than capital gain if: (i) such U.S. holder is a significant shareholder of HomeTrust; or (ii) such U.S. holder’s percentage ownership in HomeTrust afterhaving the merger, taking into account constructive ownership rules, is not meaningfully reduced from what its percentage ownership would have been if it had received solely shares of HomeTrust common stock rather than a combination of cash and shares of HomeTrust common stock in the merger. This could happen, for example, because of ownership of additional shares of HomeTrust common stock by such holder, ownership of shares of HomeTrust common stock by a person related to such holder or a share repurchase by HomeTrust from other holders of HomeTrust common stock. The Internal Revenue Service has indicated in rulings that any reduction in the interesteffect of a minority shareholder that ownsdistribution of a small numberdividend under the tests set forth in Section 302 of sharesthe Code, in a publicly and widely held corporation and that exercises no control over corporate affairswhich case such gain would result in capital gainbe treated as opposed to dividend treatment.income. Because the possibility of dividend treatment depends primarily upon the particular circumstances of a U.S. holder of JeffersonTriSummit common stock or Series A preferred stock, including the application of certain constructive ownership rules, holders of JeffersonTriSummit common stock or Series A preferred stock should consult their own tax advisors regarding the potential tax consequences of the merger to them.
Receipt of Cash Received Insteadin Lieu of a Fractional Share of HomeTrust Common Stock
A U.S. holder of JeffersonTriSummit common stock or TriSummit Series A preferred stock who receives cash insteadin lieu of a fractional share of HomeTrust common stock will generally be treated as having received the fractional share pursuant to the merger and then as having exchanged the fractional share for cash in a redemption by HomeTrust. As a result, such U.S. holder of JeffersonTriSummit common stock or TriSummit Series A preferred stock will generally recognize gain or loss equal to the difference between the amount of cash received and the tax basis in his or herits fractional share interest as set forth above. The gain or loss recognized by the U.S. holders described in this paragraph will generally be capital gain or loss, and will be long-term capital gain or loss if, as of the effective date of the merger,exchange, the U.S. holder’s holding period for the relevant sharesshare is greater than one year. The deductibility of capital losses is subject to limitations.
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Dissenting Shareholders
Medicare Tax on Unearned Income
If you are a U.S. holder of TriSummit common stock or TriSummit Series A preferred stock and you perfect your dissenters’ rights with respect to your shares of such stock, you will generally recognize capital gain or loss equal to the difference between your tax basis in those shares and the amount of cash received in exchange for those shares. Any taxable gain or loss to a shareholder on the exchange of TriSummit common stock or TriSummit Series A preferred stock will generally be treated as either long-term or short-term capital gain or loss depending on such shareholder’s holding period for such stock. The tax consequences of cash received may vary depending upon your individual circumstances. Each holder of TriSummit stock who contemplates exercising statutory dissenters’ rights should consult its tax adviser as to the possibility that all or a portion of the payment received pursuant to the exercise of such rights will be treated as dividend income.
Net Investment Income Tax
A holder of TriSummit common stock or Series A preferred stock that is an individual hasis subject to a 3.8% tax on the lesser of: (1) his or her “net investment income” for the relevant taxable year, or (2) the excess of his or her modified adjusted gross income for the taxable year over a certain threshold (between $125,000 and $250,000 depending on the individual’s U.S. federal income tax filing status), such individual is. Estates and trusts are subject to a 3.8% tax on the lesser of: (i) his or her “net investment income” for the relevant taxable year; or (ii) the excess of his or her modified gross income for the taxable year over his or her applicable certain threshold (between $125,000 and $250,000 depending on the individual’s U.S. federal income tax filing status). A similar regime applies to estates and trusts.rules. Net investment income generally would include any capital gain incurredrecognized in connection with the merger (including any gain treated as a dividend), as well as, among other items, other interest, dividends, capital gains and rental or royalty income received by such individual. Holders of TriSummit common stock or Series A preferred stock should consult their tax advisors as to the application of this additional tax to their circumstances.
Backup Withholding and Information Reporting
Payments of cash, including cash received in lieu of a fractional share of HomeTrust common stock, to a U.S. holder of JeffersonTriSummit common stock or TriSummit Series A preferred stock pursuant to the merger may, under certain circumstances, be subject to information reporting and backup withholding (currently at a rate of 28%) unless the U.S. holder provides proof of an applicable exemption or, in the case of backup withholding, furnishes its taxpayer identification number and otherwise complies with all applicable requirements of the backup withholding rules. Certain holders (such as corporations and non-U.S. holders) are exempt from backup withholding. Holders exempt from backup withholding may be required to comply with certification requirements and identification procedures in order to establish an exemption from information reporting and backup withholding or otherwise avoid possible erroneous backup withholding. Any amounts withheld from payments to a U.S. holder under the backup withholding rules are not additional tax and generally will be allowed as a refund or credit against the U.S. holder’s U.S. federal income tax liability, provided the required information is timely furnished to the Internal Revenue Service.IRS.
Information Reporting
A U.S. holder of JeffersonTriSummit common stock or TriSummit Series A preferred stock who receives HomeTrust common stock as a result of the merger shouldmay be required to retain records pertaining to the merger, including records relating to the number of shares and the basis of such U.S. holder’s Jefferson common stock.merger. Each U.S. holder of JeffersonTriSummit common stock or TriSummit Series A preferred stock who is required to file a U.S. federal income tax return and who is a “significant holder” that receives HomeTrust common stock in the merger will be required to file a statement with such U.S. holder’s U.S. federal income tax return for the year in which the merger is completed in accordance with Treasury Regulations Section 1.368-3 setting1.368-3(b). Such statement must set forth such U.S. holder’s basis in the Jefferson common stock surrendered, the fair market value, determined immediately before the exchange, of all the HomeTrustTriSummit common stock and cash received inTriSummit Series A preferred stock exchanged pursuant to the merger, and certain other information.the holder’s adjusted tax basis, determined immediately before the exchange, in its TriSummit common stock and TriSummit Series A preferred stock. A “significant holder” is a holder of Jefferson commonTriSummit stock who, immediately before the merger, owned at least 5%1% of the outstanding stock of JeffersonTriSummit or securities of JeffersonTriSummit with a basis for federal income taxes of at least $1.0 million.
This discussion does not address U.S. federal income tax consequences that may vary with, or are contingent upon, individual circumstances. Moreover, it does not address any non-income tax or any foreign, state or local tax consequences of the merger. Tax matters are very complicated, and the tax consequences of the merger to you will depend upon the facts of your particular situation. Accordingly, we strongly urge you
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to consult with ayour tax advisor to determine the particular federal, state, local or foreign income or other tax consequences to you of the merger.
HomeTrust
HomeTrust, headquartered in Asheville, North Carolina, is a savings and loanbank holding company for HomeTrust Bank, including its banking divisions –Bank. HomeTrust Bank, Tryon Federal Bank, Shelby Savings Bank, Home Savings Bank, Industrial Federal Bank, Cherryville Federal Bank and Rutherford County Bank. HomeTrust offers traditional financial services within its local communities through its 21 full service officesfounded in Western1926, is a North Carolina includingstate chartered, community-focused financial institution committed to providing value added relationship banking through 39 locations as well as online/mobile channels. Locations include: North Carolina (including the Asheville metropolitan area, the “Piedmont”"Piedmont" region, of NorthCharlotte, and a loan production office in Raleigh), Upstate South Carolina (Greenville), East Tennessee (including Kingsport/Johnson City, Knoxville, and Greenville, South Carolina.Morristown) and Southwest Virginia (including the Roanoke Valley). HomeTrust is the 13th6th largest community bank based on asset size headquartered in North Carolina. As of December 31, 2013, on a consolidated basis,June 30, 2016, HomeTrust had total assets of $1.63$2.7 billion, deposits of $1.21$1.8 billion, and stockholders’ equity of $358.1$360.0 million.
HomeTrust’s principal office
As a bank holding company, HomeTrust Bancshares, Inc. is located at 10 Woodfin Street, Asheville,regulated by the Federal Reserve Board. HomeTrust has elected to be treated as a financial holding company, which allows it flexibility to engage in some non-bank activities that are financial in nature although it has not yet engaged in any significant activity other than holding the stock of HomeTrust Bank. As a North Carolina 28801,state-chartered bank, and member of the Federal Reserve System, the Bank's primary regulators are the North Carolina Commissioner of Banks and the Federal Reserve Board.
Beginning in 2012, executive management of HomeTrust implemented a strategic plan that would complement HomeTrust Bank’s existing market areas and enhance its telephone numberability to achieve positive growth. Between 2013 and 2015, HomeTrust Bank entered five attractive markets through various acquisitions and new office openings, as well as expanded its product lines. Acquisitions and new offices included:
By expanding its geographic footprint and hiring local experienced talent, HomeTrust has built a foundation that allows it to focus on organic growth, while maintaining the community-focused, relationship style of exceptional customer service that has differentiated its brand and characterized its success to date.
HomeTrust’s mission is (828) 259-3939. HomeTrust’s common stockto create stockholder value by building relationships with our employees, customers, and communities. By building a platform that supports growth and profitability, HomeTrust Bank is listedcontinuing its transition toward becoming a high-performing community bank and delivering on NASDAQ underits promise that "It's Just Better Here."
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HomeTrust Bank’s principal business consists of attracting deposits from the symbol “HTBI.”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, construction and land/lot loans, commercial real estate loans, construction and development loans, commercial and industrial loans, indirect automobile, 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. HomeTrust Bank also purchases investment securities consisting primarily of securities issued by United States Government agencies and government-sponsored enterprises, as well as, certificates of deposit insured by the Federal Deposit Insurance Corporation or FDIC.
HomeTrust Bank offers a variety of deposit accounts for individuals, businesses, and nonprofit organizations. Deposits are our primary source of funds for its lending and investing activities.
HomeTrust regularly evaluates opportunities to expand through acquisitions and conducts due diligence activities in connection with such opportunities. As a result, acquisition discussions and, in some cases, negotiations, may take place at any time, and acquisitions involving cash or our debt or equity securities may occur. In this regard, on March 2, 2014, HomeTrust entered into a definitive agreement to acquire Bank of Commerce, which operates a full service banking facility headquartered in Charlotte,
HomeTrust’s principal office is located at 10 Woodfin Street, Asheville, North Carolina in a cash transaction valued at approximately $10.1 million. In addition, all $3.2 million of Bank of Commerce’s preferred28801, and its telephone number is (828) 259-3939. HomeTrust’s common stock will be redeemed. The boards of directors of HomeTrust and Bank of Commerce unanimously approvedis listed on NASDAQ under the transaction, which is subject to regulatory approval and other customary closing conditions. Upon closing of the transaction, Bank of Commerce will be merged into HomeTrust Bank. At December 31, 2013, Bank of Commerce had $129.3 million in assets and deposits of $93.8 million.symbol “HTBI.”
Additional information about HomeTrust and its subsidiaries is included in documents incorporated by reference in this proxy statement/prospectus. See “Where You Can Find More Information.”
Other Acquisitions
On March 2, 2014, HomeTrust entered into a definitive agreement to acquire Bank of Commerce, which operates a full service banking facility headquartered in Charlotte, North Carolina in a cash transaction valued at approximately $10.1 million. In addition, all $3.2 million of Bank of Commerce’s preferred stock will be redeemed. The boards of directors of HomeTrust and Bank of Commerce unanimously approved the transaction, which is subject to regulatory approval and other customary closing conditions. Upon closing of the transaction, Bank of Commerce will be merged into HomeTrust Bank. At December 31, 2013, Bank of Commerce had $129.3 million in assets and deposits of $93.8 million.
INFORMATION ABOUT JEFFERSONTRISUMMIT
General
Jefferson
Headquartered in Kingsport, Tennessee, TriSummit is a Tennessee corporation and the bank holding company for Jefferson Federalof TriSummit Bank. In connection with the Jefferson’s acquisition of State of Franklin Bancshares, Jefferson FederalTriSummit Bank merged with and into State of Franklin Savings Bank, the wholly owned subsidiary of State of Franklin Bancshares. The resulting institution continues to operate asis a Tennessee chartered savings bank, “Jefferson Federal Bank.”
Jefferson Federal operates as a community-orientedcommunity oriented financial institution offering traditional financial services with offices in Kingsport and Johnson City, Tennessee, and Bristol, Virginia (the “Tri-Cities” region), as well as in Morristown and Jefferson City, Tennessee. The bank is a member of the Federal Reserve System and is chartered under the laws of the State of Tennessee. TriSummit Bank is subject to consumersthe supervision of, and businesses in its market area. Jeffersonis regularly examined by, the Tennessee Department of Financial Institutions and the Board of Governors of the Federal Reserve System. The bank attracts deposits from the general public and uses those funds to originate loans, most of which it holds for investment. Jefferson considers its primary market areas to consist of: (i) Hamblen County, Tennessee, and its contiguous counties; (ii) Knoxville, Tennessee, and its surrounding areas; and (iii) the greater Johnson City, Tennessee, Kingsport, Tennessee, and Bristol, Tennessee region (the “Tri-Cities region”). As of December 31, 2013, on a consolidated basis, JeffersonAt June 30, 2016, TriSummit Bank had total assets of $497.8$353.8 million, deposits of $388.0$288.4 million and stockholders’shareholders’ equity of $53.5$34.2 million.
Jefferson’sTriSummit’s principal office is located at 120 Evans Avenue, Morristown,422 Broad Street, Kingsport, Tennessee 37814,37660, and its telephone number is (423) 586-8421. Jefferson’s common246-2265. TriSummit has no class or series of stock is listed on NASDAQ under the symbol “JBFI.”
Management of Jefferson and the Jefferson Federal are substantially similar and Jefferson neither owns nor leases any property, but instead uses the premises, equipment and furniture of Jefferson Federal.
Available Information
Jefferson maintains an Internet website athttp://www.jeffersonfederal.com. It makes available its annual reports onForm 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended, and other related information, free of charge, on this site as soon as reasonably practicable after Jefferson electronically files those documents with, or otherwise furnish them to, the Securities Exchange Commission. Jefferson’s Internet website and the information contained therein or connected thereto are not intended to be incorporated into this proxy statement/prospectus or the reports it files with the Securities Exchange Commission. Jefferson’s reports have not been reviewed, or confirmed for accuracy or relevance, by the Securities and Exchange Commission, the FDIC or any other governmental authority.
Market Area
Jefferson Federal currently operates two full-service branch offices and two limited-service drive-through facilities in Hamblen County, Tennessee. The economy of Hamblen County, which has an estimated population of 62,000, is primarily oriented to manufacturing and agriculture. Morristown and Hamblen County also serve as a hub for retail shopping and medical services for a number of surrounding rural counties. The manufacturing sector is focused on three types of products: automotive and heavy equipment components; plastics, paper and corrugated products; and furniture. According to published statistics, the unemployment rate in Hamblen County was 7.6% as of December 2013, the most recent period for which data is available, which was above the national unemployment rate and slightly below the state unemployment rates at that time.
Jefferson Federal also currently operates two full-service branch offices in Knoxville, Tennessee. Knoxville’s population is approximately 183,000 and its economy is largely fueled by the location of the main campus of the University of Tennessee, the Oak Ridge National Laboratory, the National Transportation Research Center and the Tennessee Valley Authority. Additionally, Knoxville has many warehousing and distribution companies because of its central location in the eastern half of the United States. The unemployment rate for the Knoxville metropolitan statistical area was 6.7% as of December 2013, which was equal to the national unemployment rate and below the state unemployment rates at that time.
Jefferson Federal also currently operates six full-service branch offices in the Tri-Cities region, which is comprised of Kingsport, Tennessee, Johnson City, Tennessee and Bristol, Tennessee and the surrounding areas. The population of the Tri-Cities region is approximately 500,000 and its economy is largely fueled by manufacturing and trade services. The unemployment rate for the Tri-Cities region combined statistical area was 6.4% as of December 2013, which was below the national and the state unemployment rates at that time.
Competition
Jefferson Federal faces significant competition for the attraction of deposits and origination of loans. The most direct competition for deposits has historically come from the several financial institutions operating in Jefferson Federal’s market area and, to a lesser extent, from other financial service companies, such as brokerage firms, credit unions and insurance companies. Jefferson Federal also faces competition for investors’ funds from money market funds and other corporate and government securities. At June 30, 2013, which is the most recent date for which data is available from the FDIC, Jefferson Federal held: (i) 23.38% of the deposits in Hamblen County, which is the largest market share out of nine financial institutions with offices in the county at that date; (ii) 0.22% of the deposits in the Knoxville, Tennessee, metropolitan statistical area, which is the 38th largest market share out of 52 financial institutions with offices in the metropolitan statistical area at that date; (iii) 4.38% of the deposits in the Johnson City, Tennessee metropolitan statistical area, which is the eighth largest market share out of 22 financial
institutions located in the metropolitan statistical area at that date; and (iv) 0.98% of the deposits in the Kingsport, Tennessee-Bristol, Virginia metropolitan statistical area, which is the 20th largest market share out of 31 financial institutions located in the metropolitan statistical area at that date. Banks owned by SunTrust Banks, Inc., First Tennessee National Corporation and Regions Financial Corporation and other large regional bank holding companies also operate in Jefferson Federal’s primary market areas. These institutions are significantly larger than Jefferson Federal and, therefore, have significantly greater resources.
Jefferson Federal’s competition for loans comes primarily from financial institutions in its market area, and to a lesser extent from other financial service providers, such as mortgage companies and mortgage brokers. Competition for loans also comes from non-depository financial service companies, such as insurance companies, securities companies and specialty finance companies.
Jefferson Federal expects to continue to face significant competition in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. Technological advances, for example, have lowered barriers to entry, allowed banks to expand their geographic reach by providing services over the Internet and made it possible for non-depository institutions to offer products and services that traditionally have been provided by banks. Federal law permits affiliation among banks, securities firms and insurance companies, which promotes a competitive environment in the financial services industry. Competition for deposits and the origination of loans could limit Jefferson’s growth in the future.
Lending Activities
General. Jefferson Federal’s loan portfolio consists of a variety of mortgage, commercial and consumer loans. As a community-oriented financial institution, Jefferson Federal tries to meet the borrowing needs of consumers and businesses in its market area. Mortgage loans constitute a significant majority of the portfolio, and commercial mortgage loans are the largest segment in that category.
One- to Four-Family Residential Loans. Jefferson Federal originates mortgage loans to enable borrowers to purchase or refinance existing homes or to construct new one- to four-family homes. Jefferson Federal offers fixed-rate mortgage loans with terms up to 30 years and adjustable-rate mortgage loans with terms up to 30 years. Borrower demand for adjustable-rate loans versus fixed-rate loans is a function of the level of interest rates, the expectations of changes in the level of interest rates, the difference between the interest rates and loan fees offered for fixed-rate mortgage loans and the first year interest rates and loan fees for adjustable-rate loans. The relative amount of fixed-rate mortgage loans and adjustable-rate mortgage loans that can be originated at any time is largely determined by the demand for each in a competitive environment and the effect each has on Jefferson Federal’s interest rate risk.
The loan fees charged, interest rates and other provisions of mortgage loans are determined by us on the basis of Jefferson Federal’s own pricing criteria and competitive market conditions. Interest rates and payments on Jefferson Federal’s adjustable-rate loans generally are adjusted annually basedtraded on any change in the National Average Contract Mortgage Rate for the Purchase of Previously Occupied Homes by Combined Lenders as published by the Federal Housing Finance Board. Changes in this index tend to lag behind changes in market interest rates. Jefferson Federal’s adjustable-rate mortgage loans may have initial fixed-rate periods ranging from one to seven years.
Jefferson Federal’s originates all adjustable-rate loans at the fully indexed interest rate. The maximum amount by which the interest rate may be increasedestablished securities exchange or decreased is generally 2% per year and the lifetime interest rate cap is generally 5% over the initial interest rate of the loan. Jefferson Federal’s adjustable-rate residential mortgage loans generally do not provide for a decrease in the rate paid below the initial contract rate. The inability of Jefferson Federal’s residential real estate loans to adjust downward below the initial contract rate can contribute to increased income in periods of declining interest rates, and also assists us in its efforts to limit the risks to earnings and equity value resulting from changes in interest rates, subject to the risk that borrowers may refinance these loans during periods of declining interest rates.
While one- to four-family residential real estate loans are normally originated with up to 30-year terms, such loans typically remain outstanding for substantially shorter periods because borrowers often prepay their loans
in full upon sale of the property pledged as security or upon refinancing the original loan. In addition, substantially all of the mortgage loans in its loan portfolio contain due-on-sale clauses providing that Jefferson Federal may declare the unpaid amount due and payable upon the sale of the property securing the loan. Jefferson Federal enforces these due-on-sale clauses to the extent permitted by law. Therefore, average loan maturity is a function of, among other factors, the level of purchase and sale activity in the real estate market, prevailing interest rates and the interest rates payable on outstanding loans.
In addition to originating loans for its portfolio, Jefferson Federal originates loans for the secondary mortgage market. Loans are sold without recourse and on a servicing-released basis. Jefferson Federal generally does not make conventional loans with loan-to-value ratios exceeding 85% and generally make loans with a loan-to-value ratio in excess of 85% only when secured by first liens on owner-occupied, one- to four-family residences. Loans with loan-to-value ratios in excess of 90% generally require private mortgage insurance or additional collateral. Jefferson Federal requires all properties securing mortgage loans in excess of $250,000 to be appraised by a board-approved appraiser. Jefferson Federal requires title insurance on all mortgage loans in excess of $25,000. Borrowers must obtain hazard or flood insurance (for loans on property located in a flood zone) prior to closing the loan.
Home Equity Lines of Credit. Jefferson Federal offers home equity lines of credit on single family residential property in amounts up to 80% of the appraised value. Rates and terms vary by borrower qualifications, but are generally offered on a variable rate, open-end term basis with maturities of ten years or less.
Commercial Real Estate and Multi-Family Loans. An important segment of Jefferson Federal’s loan portfolio is mortgage loans secured by commercial and multi-family real estate. Its commercial real estate loans are secured by professional office buildings, shopping centers, manufacturing facilities, hotels, vacant land, churches and, to a lesser extent, by other improved property such as restaurants and retail operations.
Jefferson Federal originates both fixed- and adjustable-rate loans secured by commercial and multi-family real estate with terms up to 20 years. Fixed-rate loans have provisions that allow us to call the loan after five years. Adjustable-rate loans are generally based on prime and adjust monthly. Loan amounts generally do not exceed 85% of the lesser of the appraised value or the purchase price. When the borrower is a corporation, partnership or other entity, Jefferson Federal generally requires personal guarantees from significant equity holders. Currently, it is Jefferson Federal’s philosophy to originate commercial real estate loans only to borrowers known to it and on properties in or near its market area.
At December 31, 2013, loans with principal balances of $500,000 or more secured by commercial real estate totaled $85.1 million, or 66.4% of commercial real estate loans, and loans with principal balances of $500,000 or more secured by multi-family properties totaled $6.5 million, or 69.2% of multi-family loans. At December 31, 2013, nine commercial real estate loans totaling $2.1 million were nonaccrual loans.
Construction Loans. Jefferson Federal originates loans to finance the construction of one- to four-family homes and, to a lesser extent, multi-family and commercial real estate properties. At December 31, 2013, $4.5 million of Jefferson Federal’s construction loans was for the construction of one- to four-family homes and $7.3 million was for the construction of commercial or multi-family real estate. Construction loans are generally made on a “pre-sold” basis; however, contractors who have sufficient financial strength and a proven track record are considered for loans for model and speculative purposes, with preference given to contractors with whom Jefferson Federal has had successful relationships. Jefferson Federal generally limits loans to contractors for speculative construction to a total of $350,000 per contractor. Construction loans generally provide for interest-only payments at fixed-rates of interest and have terms of six to 12 months. At the end of the construction period, the loan generally converts into a permanent loan. Construction loans to a borrower who will occupy the home, or to a builder who has pre-sold the home, will be considered for loan-to-value ratios of up to 85%. Construction loans for speculative purposes, models and commercial properties may be considered for loan-to-value ratios of up to 80%. Loan proceeds are disbursed in increments as construction progresses and as inspections warrant. Jefferson Federal generally uses in-house inspectors for construction disbursement purposes; however, it may rely on architect certifications and independent third party inspections for disbursements on larger commercial loans.
Land Loans. Jefferson Federal originates loans secured by unimproved property, including lots for single family homes, raw land, Jefferson Federal’s commercial property and agricultural property. Jefferson Federal originates both fixed- and adjustable-rate land loans with terms up to 20 years. Adjustable-rate loans are generally based on prime and adjust monthly. Loans secured by unimproved commercial property or for land development generally have five-year terms with a longer amortization schedule.
At December 31, 2013, Jefferson Federal’s largest land loan had an outstanding balance of $3.5 million and was secured by vacant land. At December 31, 2013, loans with principal balances of $500,000 or more secured by unimproved property totaled $10.0 million, or 45.2% of land loans. At December 31, 2013, 10 land loans totaling $923,000 were nonaccrual loans.
Commercial Business Loans. Jefferson Federal extends commercial business loans on an unsecured and secured basis. Secured loans generally are collateralized by industrial/commercial machinery and equipment, livestock, farm machinery and, to a lesser extent, accounts receivable and inventory. Jefferson Federal originates both fixed- and adjustable-rate commercial loans with terms up to 15 years. Fixed-rate loans have provisions that allow it to call the loan after five years. Adjustable-rate loans are generally based on prime and adjust monthly. Where the borrower is a corporation, partnership or other entity, Jefferson Federal generally requires personal guarantees from significant equity holders.
Consumer Loans. Jefferson Federal offers a variety of consumer loans, including loans secured by automobiles and savings accounts. Other consumer loans include loans on recreational vehicles and boats, debt consolidation loans and personal unsecured debt.
The procedures for underwriting consumer loans include an assessment of the applicant’s payment history on other debts and ability to meet existing obligations and payments on the proposed loans. Although the applicant’s creditworthiness is a primary consideration, the underwriting process also includes a comparison of the value of the collateral, if any, to the proposed loan amount. Jefferson Federal uses a credit scoring system and charge borrowers with poorer credit scores higher interest rates to compensate for the additional risks associated with those loans.
Loan Underwriting Risks.
Adjustable-Rate Loans. While Jefferson Federal anticipates that adjustable-rate loans will better offset the adverse effects of an increase in interest rates as compared to fixed-rate mortgages, the increased mortgage payments required of adjustable-rate loan borrowers in a rising interest rate environment could cause an increase in delinquencies and defaults. The marketability of the underlying property also may be adversely affected in a high interest rate environment. In addition, although adjustable-rate mortgage loans help make Jefferson Federal’s asset base more responsive to changes in interest rates, the extent of this interest sensitivity is limited by the annual and lifetime interest rate adjustment limits.
Commercial and Multi-Family Real Estate Loans. Loans secured by commercial and multi-family real estate are generally larger and involve a greater degree of risk than one- to four-family residential mortgage loans. Of primary concern in commercial and multi-family real estate lending is the borrower’s creditworthiness and the feasibility and cash flow potential of the project. Payments on loans secured by income properties are often dependent on the successful operation or management of the properties. As a result, repayment of such loans may be subject to a greater extent than residential real estate loans to adverse conditions in the real estate market or the economy. In order to monitor cash flows on income properties, Jefferson Federal requires borrowers and loan guarantors, if any, to provide annual financial statements and rent rolls on multi-family loans. Jefferson Federal also perform annual reviews on all lending relationships of $500,000 or more where the loan is secured by commercial or multi-family real estate.
Construction Loans. Construction financing is generally considered to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate. Risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the property’s value at completion of construction or development and the estimated cost (including interest) of construction. During the construction phase, a number of factors could result in delays and cost overruns. If the estimate of construction costs proves to be inaccurate,
Jefferson Federal may be required to advance funds beyond the amount originally committed to permit completion of the development. If the estimate of value proves to be inaccurate, Jefferson Federal may be confronted, at or prior to the maturity of the loan, with a project having a value which is insufficient to assure full repayment. As a result of the foregoing, construction lending often involves the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project rather than the ability of the borrower or guarantor to repay principal and interest. If Jefferson Federal is forced to foreclose on a project prior to or at completion due to a default, there can be no assurance that it will be able to recover all of the unpaid balance of, and accrued interest on, the loan as well as related foreclosure and holding costs.
Land Loans.Loans secured by undeveloped land or improved lots generally involve greater risks than residential mortgage lending because land loans are more difficult to evaluate. If the estimate of value proves to be inaccurate, in the event of default and foreclosure, Jefferson Federal may be confronted with a property the value of which is insufficient to assure full repayment.
Commercial Loans. Commercial business lending generally involves greater risk than residential mortgage lending and involves risks that are different from those associated with commercial and multi-family real estate lending. Although the repayment of commercial and multi-family real estate loans depends primarily on the cash-flow of the property or related business, the underlying collateral generally provides a sufficient source of repayment. Although commercial business loans are often collateralized by equipment, inventory, accounts receivable or other business assets, the liquidation of collateral if a borrower defaults is often an insufficient source of repayment because accounts receivable may be uncollectible and inventories and equipment may be obsolete or of limited use, among other things. Accordingly, the repayment of a commercial business loan depends primarily on the cash-flow, character and creditworthiness of the borrower (and any guarantors), while liquidation of collateral is secondary.
Consumer Loans. Consumer loans may entail greater risk than do residential mortgage loans, particularly in the case of consumer loans that are unsecured or secured by assets that depreciate rapidly, such as automobiles, boats and recreational vehicles. In such cases, repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan and the remaining deficiency often does not warrant further substantial collection efforts against the borrower. In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.
Loan Originations. All of Jefferson Federal’s portfolio loans are originated by in-house lending officers and are underwritten and processed in-house. Jefferson Federal relies on advertising, referrals from realtors and customers, and personal contact by its staff to generate loan originations. Jefferson Federal occasionally purchases participation interests in commercial real estate loans through other financial institutions in its market area.
Loan Approval Procedures and Authority. Loan approval authority has been granted by the Board of Directors to certain officers on an individual and combined basis for consumer (including residential mortgages) and commercial purpose loans up to a maximum of $1.0 million per transaction. All loans with aggregate exposure of $2.0 million or more require the approval of Jefferson Federal’s Loan Committee or Board of Directors.
Jefferson Federal’s Loan Committee meets every two weeks to review all mortgage loans made within granted lending authority of $75,000 or more and all non-mortgage loans made within granted lending authority of $50,000 or more. The committee approves all requests which exceed granted lending authority or when the request carries aggregate exposure to us of $2.0 million or more. The minutes of the committee are reported to and reviewed by the Board of Directors.
Loans to One Borrower. The maximum amount that Jefferson Federal may lend to one borrower and the borrower’s related entities is limited by regulation. At December 31, 2013, its regulatory limit on loans to one borrower was $11.7 million. At that date, Jefferson Federal’s largest lending relationship was $5.7 million and consisted of multiple real estate and commercial business loans. These loans were performing according to their original repayment terms at December 31, 2013.
Loan Commitments. Jefferson Federal issues commitments for fixed-rate and adjustable-rate single-family residential mortgage loans conditioned upon the occurrence of certain events. Commitments to originate mortgage loans are legally binding agreements to lend to its customers and generally expire in 90 days or less.
Investment Activities
Jefferson Federal has legal authority to invest in various types of liquid assets, including U.S. Treasury obligations, securities of various federal agencies and of state and municipal governments, deposits at the Federal Home Loan Bank of Cincinnati and certificates of deposit of federally insured institutions. Within certain regulatory limits, Jefferson Federal also may invest a portion of its assets in corporate securities. Jefferson Federal also is required to maintain an investment in Federal Home Loan Bank of Cincinnati stock.
At December 31, 2013, Jefferson Federal’s investment portfolio consisted of U.S. agency securities, mortgage-backed securities, municipal securities and corporate securities.
Jefferson Federal’s investment objectives are to provide and maintain liquidity, to maintain a balance of high quality investments, to diversify investments to minimize risk, to provide collateral for pledging requirements, to establish an acceptable level of interest rate risk, to provide an alternate source of low-risk investments when demand for loans is weak, and to generate a favorable return. Any two of the following officers are authorized to purchase or sell investments: the President, Executive Vice President and/or Vice President. There is a limit of $2.0 million par value on any single investment purchase unless approval is obtained from the Board of Directors. For mortgage-backed securities, real estate mortgage investment conduits and collateralized mortgage obligations issued by Ginnie Mae, Freddie Mac or Fannie Mae, purchases are limited to a current par value of $2.5 million without Board approval.
Deposit Activities and Other Sources of Funds
General. Deposits and loan repayments are the major sources of Jefferson Federal’s funds for lending and other investment purposes. Loan repayments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are significantly influenced by general interest rates and money market conditions. Jefferson Federal may use borrowings on a short-term basis to compensate for reductions in the availability of funds from other sources. Borrowings may also be used on a longer-term basis for general business purposes.
Deposit Accounts. Substantially all of Jefferson Federal’s depositors are residents of the State of Tennessee. Deposits are attracted from within its primary market area through the offering of a broad selection of deposit instruments, including NOW accounts, money market accounts, regular savings accounts, Christmas club savings accounts, certificates of deposit and retirement savings plans. Jefferson Federal does not utilize brokered funds. Deposit account terms vary according to the minimum balance required, the time periods the funds must remain on deposit and the interest rate, among other factors. In determining the terms of its deposit accounts, Jefferson Federal considers the rates offered by its competition, profitability to us, matching deposit and loan products and customer preferences and concerns. Jefferson Federal generally reviews its deposit mix and pricing monthly. Its current strategy is to offer competitive rates, but not be the market leader in every type and maturity. In recent years, Jefferson Federal’s advertising has emphasized transaction accounts, with the goal of shifting its mix of deposits towards a smaller percentage of higher cost time deposits.
Borrowings. Jefferson Federal has relied upon advances from the Federal Home Loan Bank of Cincinnati to supplement its supply of lendable funds and to meet deposit withdrawal requirements. Advances from the Federal Home Loan Bank are typically secured by Jefferson Federal’s first mortgage loans.
The Federal Home Loan Bank functions as a central reserve bank providing credit for member financial institutions. As a member, Jefferson Federal is required to own capital stock in the Federal Home Loan Bank and is authorized to apply for advances on the security of such stock and certain of its mortgage loans and other assets (principally securities which are obligations of, or guaranteed by, the United States), provided certain standards related to creditworthiness have been met. Advances are made pursuant to several different programs. Each credit program has its own interest rate and range of maturities. Depending on the program, limitations on the amount of advances are based either on a fixed percentage of an institution’s net worth or on the Federal Home Loan Bank’s
assessment of the institution’s creditworthiness. Under its current credit policies, the Federal Home Loan Bank generally limits advances to 50% of a member’s assets. The availability of Federal Home Loan Bank advances to each borrower is based on the financial condition and the degree of security provided to collateralize borrowings.
Personnel
As of December 31, 2013, Jefferson Federal had 135 full-time employees and eight part-time employees, none of whom is represented by a collective bargaining unit. Jefferson Federal believes its relationship with its employees is good.
Subsidiaries
In addition to Jefferson Federal, Jefferson currently has one subsidiary, State of Franklin Statutory Trust II. State of Franklin Statutory Trust II is a Delaware statutory trust. In December 2006, State of Franklin Bancshares issued subordinated debentures to State of Franklin Statutory Trust II, which purchased the debentures with the proceeds from the sale of trust preferred securities issued in a private placement. Jefferson’s net consolidated principal obligation under the debentures and trust preferred securities is $10.0 million.
Regulation and Supervision of Jefferson
General. Jefferson is a bank holding company subject to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) under the Bank Holding Company Act of 1956, as amended (the “BHCA”). As a result, Jefferson activities are subject to certain limitations, which are described below. In addition, as a bank holding company, Jefferson is required to file annual and quarterly reports with the Federal Reserve Board and to furnish such additional information as the Federal Reserve Board may require pursuant to the BHCA. Jefferson is also subject to regular examination by and the enforcement authority of the Federal Reserve Board.
Activities. With certain exceptions, the BHCA prohibits a bank holding company from acquiring direct or indirect ownership or control of more than 5% of the voting shares of a company that engages directly or indirectly in activities other than those of banking, managing or controlling banks, or providing services for its subsidiaries. The principal exceptions to these prohibitions involve certainnon-bank activities which, by statute or by Federal Reserve Board regulation or order, have been identified as activities closely related to the business of banking. The activities of Jefferson are subject to these legal and regulatory limitations under the BHCA and the related Federal Reserve Board regulations. Notwithstanding the Federal Reserve Board’s prior approval of specific nonbanking activities, the Federal Reserve Board has the power to order a holding company or its subsidiaries to terminate any activity, or to terminate its ownership or control of any subsidiary, when it has reasonable cause to believe that the continuation of such activity or such ownership or control constitutes a serious risk to the financial safety, soundness or stability of any bank subsidiary of that holding company.
Acquisitions. Under the BHCA, a bank holding company must obtain the prior approval of the Federal Reserve Board before: (1) acquiring direct or indirect ownership or control of any voting shares of any bank or bank holding company if, after such acquisition, the bank holding company would directly or indirectly own or control more than 5% of such shares; (2) acquiring all or substantially all of the assets of another bank or bank holding company; or (3) merging or consolidating with another bank holding company. Satisfactory financial condition, particularly with regard to capital adequacy, and satisfactory CRA ratings are generally prerequisites to obtaining federal regulatory approval to make acquisitions.
Under the BHCA, any company must obtain approval of the Federal Reserve Board prior to acquiring control of the Jefferson or Jefferson Federal. For purposes of the BHCA, “control” is defined as ownership of more than 25% of any class of voting securities of a company or a bank, the ability to control the election of a majority of the directors, or the exercise of a controlling influence over management or policies of a company or a bank. In addition, the Change in Bank Control Act and the related regulations of the Federal Reserve Board require any person or persons acting in concert (except for companies required to make application under the BHCA), to file a written notice with the Federal Reserve Board before such person or persons may acquire control of Jefferson or Jefferson Federal. The Change in Bank Control Act defines “control” as the power, directly or indirectly, to vote
25% or more of any voting securities or to direct the management or policies of a bank holding company or an insured bank. There is a presumption of “control” where the acquiring person will own, control or hold with power to vote 10% or more of any class of voting security of a bank holding company or insured bank if, like Jefferson, the company involved has registered securities under Section 12 of the Securities Exchange Act of 1934.
Under Tennessee banking law, prior approval of the Tennessee Department of Financial Institutions is also required before any person may acquire control of a Tennessee bank or bank holding company. Tennessee law generally prohibits a bank holding company from acquiring control of an additional bank if, after such acquisition, the bank holding company would control more than 30% of the FDIC-insured deposits in the State of Tennessee.
Capital Requirements. The Federal Reserve Board has adopted guidelines regarding the consolidated capital adequacy of bank holding companies, which require bank holding companies to maintain specified minimum ratios of capital to total assets and to risk-weighted assets. See“Regulation and Supervision of Jefferson Federal—Capital Requirements.”
In July 2013, the Federal Reserve Board approved revisions to its capital adequacy guidelines and prompt corrective action rules that implement the revised standards of the Basel Committee on Banking Supervision, commonly called Basel III, and address relevant provisions of the Dodd-Frank Act Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”). The final rule applies to all depository institutions, top-tier bank holding companies with total consolidated assets of $500 million or more, and top-tier savings and loan holding companies (“banking organizations”). Among other things, the rule establishes a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), increases the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets) and assigns a higher risk weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property. The final rule also limits a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements. The final rule becomes effective for us on January 1, 2015. The capital conservation buffer requirement will be phased in beginning January 1, 2016 and ending January 1, 2019, when the full capital conservation buffer requirement will be effective.
Dividends. The Federal Reserve Board has the power to prohibit dividends by bank holding companies if their actions constitute unsafe or unsound practices. The Federal Reserve Board has issued a policy statement on the payment of cash dividends by bank holding companies, which expresses the Federal Reserve Board’s view that a bank holding company should pay cash dividends only to the extent that the company’s net income for the past year is sufficient to cover both the cash dividends and a rate of earnings retention that is consistent with the company’s capital needs, asset quality and overall financial condition. The Federal Reserve Board also indicated that it would be inappropriate for a bank holding company experiencing serious financial problems to borrow funds to pay dividends. The Federal Reserve Board may prohibit a bank holding company from paying any dividends if the holding company’s bank subsidiary is classified as “undercapitalized” or worse.” See “Regulation and Supervision of Jefferson Federal —Prompt Corrective Regulatory Action.”
Stock Repurchases. Bank holding companies are required to give the Federal Reserve Board prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of Jefferson’s consolidated net worth. The Federal Reserve Board may disapprove such a purchase or redemption if it determines that the proposal would violate any law, regulation, Federal Reserve Board order, directive or any condition imposed by, or written agreement with, the Federal Reserve Board. This requirement does not apply to bank holding companies that are“well-capitalized,” received one of the two highest examination ratings at their last examination and are not the subject of any unresolved supervisory issues.
Regulation and Supervision of Jefferson Federal
General. Jefferson Federal is subject to extensive regulation by the Tennessee Department of Financial Institutions (the “Department”) and, as an insured state bank that is not a member of the Federal Reserve System (a
“nonmember bank”), by the FDIC. The lending activities and other investments of Jefferson Federal must comply with various federal regulatory requirements. The Department and FDIC periodically examine Jefferson Federal for compliance with these regulatory requirements and Jefferson Federal must regularly file reports with the Department and the FDIC describing its activities and financial condition. Jefferson Federal is also subject to certain reserve requirements promulgated by the Federal Reserve Board. This supervision and regulation is intended primarily for the protection of depositors.
The Dodd-Frank Act has created the Consumer Financial Protection Bureau (the “Bureau”) to implement federal consumer protection laws. The Bureau will assume responsibility for the existing federal consumer protection laws and regulations and has the authority to impose new requirements. The prudential regulators, however, will retain examination and enforcement authority over an institution’s compliance with such laws and regulations so long as the institution has less than $10 billion in assets.
Tennessee State Law. As a Tennessee-chartered savings bank, Jefferson Federal is subject to the applicable provisions of Tennessee law and the regulations of the Department adopted thereunder. Jefferson Federal derives its lending and investment powers from these laws, and is subject to periodic examination and reporting requirements by and of the Department. Certain powers granted under Tennessee law may be constrained by federal regulation. Banks nationwide are permitted to enter Jefferson Federal’s market area and compete for deposits and loan originations. The approval of the Department is required prior to any merger or consolidation, or the establishment or relocation of any branch office. Tennessee savings banks are also subject to the enforcement authority of the Department, which may suspend or remove directors or officers, issue cease and desist orders and appoint conservators or receivers in appropriate circumstances.
Capital Requirements. Under FDIC regulations, nonmember banks are required to maintain a minimum leverage capital requirement consisting of a ratio of Tier 1 capital to total assets of 3% if the FDIC determines that the institution is not anticipating or experiencing significant growth and has well-diversified risk, including no undue interest rate risk exposure, excellent asset quality, high liquidity, good earnings and in general a strong banking organization, rated composite 1 under the Uniform Financial Institutions Rating System (the CAMELS rating system) established by the Federal Financial Institutions Examination Council. For all but the most highly rated institutions meeting the conditions set forth above, the minimum leverage capital ratio is not less than 4%. Tier 1 capital is the sum of common stockholders’ equity, noncumulative perpetual preferred stock (including any related surplus) and minority interests in consolidated subsidiaries, minus all intangible assets (other than certain mortgage servicing rights and purchased credit card relationships) minus identified losses, disallowed deferred tax assets and investments in financial subsidiaries and certain non-financial equity investments.
In addition to the leverage ratio (the ratio of Tier 1 capital to total assets), state-chartered nonmember banks must currently maintain a minimum ratio of qualifying total capital to risk-weighted assets of at least 8%, of which at least half must be Tier 1 capital. Qualifying total capital consists of Tier 1 capital plus Tier 2 or supplementary capital items. Tier 2 capital items include allowances for loan losses in an amount of up to 1.25% of risk-weighted assets, certain cumulative preferred stock and subordinated debentures, certain other capital instruments and up to 45% of pre-tax net unrealized holding gains on equity securities. The includable amount of Tier 2 capital cannot exceed the institution’s Tier 1 capital. Qualifying total capital is further reduced by the amount of Jefferson Federal’s investments in banking and finance subsidiaries that are not consolidated for regulatory capital purposes, reciprocal cross-holdings of capital securities issued by other banks, most intangible assets and certain other deductions. Under the FDIC risk-weighted system, all of a bank’s balance sheet assets and the credit equivalent amounts of certain off-balance sheet items are assigned to one of four broad risk weight categories from 0% to 100%, based on the risks inherent in the type of assets or item. The aggregate dollar amount of each category is multiplied by risk weight assigned to that category. The sum of these weighted values equals Jefferson Federal’s risk-weighted assets.
Dividend Limitations. Jefferson Federal may not pay dividends on its capital stock if its regulatory capital would thereby be reduced below the amount then required for the liquidation account established for the benefit of certain depositors of Jefferson Federal at the time of its conversion to stock form.
Earnings of Jefferson Federal appropriated to bad debt reserves and deducted for federal income tax purposes are not available for payment of cash dividends or other distributions to stockholders without payment of
taxes at the then current tax rate by Jefferson Federal on the amount of earnings removed from the reserves for such distributions. Jefferson Federal intends to make full use of this favorable tax treatment and does not contemplate use of any earnings in a manner which would limit Jefferson Federal’s bad debt deduction or create federal tax liabilities.
Under FDIC regulations, Jefferson Federal is prohibited from making any capital distributions if, after making the distribution, Jefferson Federal would have: (i) a total risk-based capital ratio of less than 8%; (ii) a Tier 1 risk-based capital ratio of less than 4%; or (iii) a leverage ratio of less than 4%.
Investment Activities. Under federal law, all state-chartered FDIC-insured banks have generally been limited to activities as principal and equity investments of the type and in the amount authorized for national banks, notwithstanding state law, subject to certain exceptions. For example, the FDIC is authorized to permit institutions to engage in state authorized activities or investments that do not meet this standard (other than non-subsidiary equity investments) for institutions that meet all applicable capital requirements if it is determined that such activities or investments do not pose a significant risk to the Deposit Insurance Fund.
Insurance of Deposit Accounts. Jefferson Federal’s deposits are insured up to applicable limits by the Deposit Insurance Fund of the Federal Deposit Insurance Corporation. Under the Federal Deposit Insurance Corporation’s existing risk-based assessment system, insured institutions are assigned to one of four risk categories based on supervisory evaluations, regulatory capital levels and certain other factors, with less risky institutions paying lower assessments. An institution’s assessment rate depends upon the category to which it is assigned. Assessment rates range from seven to 77.5 basis points on the institution’s assessment base, which is calculated as total assets minus tangible equity.
Deposit insurance per account owner is currently $250,000. The Federal Deposit Insurance Corporation adopted an optional Temporary Liquidity Guarantee Program by which, for a fee, non-interest bearing transaction accounts would receive unlimited insurance coverage until December 31, 2010, which was later extended to December 31, 2012. Jefferson Federal opted to participate in the unlimited coverage for noninterest bearing transaction accounts.
The Federal Deposit Insurance Corporation has authority to increase insurance assessments. A significant increase in insurance premiums would likely have an adverse effect on the operating expenses and results of operations of Jefferson Federal. Management cannot predict what insurance assessment rates will be in the future.
Prompt Corrective Regulatory Action. Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept broker deposits. The FDIC is required to take certain supervisory actions against undercapitalized institutions, the severity of which depends upon the institution’s degree of undercapitalization. In addition, numerous mandatory supervisory actions become immediately applicable to an undercapitalized institution, including, but not limited to, increased monitoring by regulators and restrictions on growth, capital distributions and expansion. The FDIC could also take any one of a number of discretionary supervisory actions, including the issuance of a capital directive and the replacement of senior executive officers and directors. Significantly and critically undercapitalized institutions are subject to additional mandatory and discretionary measures.
Safety and Soundness Guidelines. Each federal banking agency has established safety and soundness standards for institutions under its authority. These agencies, including the FDIC, have released interagency guidelines establishing such standards and adopted rules with respect to safety and soundness compliance plans. The guidelines require savings institutions to maintain internal controls and information systems and internal audit systems that are appropriate for the size, nature and scope of the institution’s business. The guidelines also establish certain basic standards for loan documentation, credit underwriting, interest rate risk exposure, and asset growth. The guidelines further provide that savings institutions should maintain safeguards to prevent the payment of compensation, fees and benefits that are excessive or that could lead to material financial loss, and should take into account factors such as comparable compensation practices at comparable institutions. If the agency determines that a savings institution is not in compliance with the safety and soundness guidelines, it may require the institution to
submit an acceptable plan to achieve compliance with the guidelines. A savings institution must submit an acceptable compliance plan to the agency within 30 days of receipt of a request for such a plan. Failure to submit or implement a compliance plan may subject the institution to regulatory sanctions. Management believes that Jefferson Federal has met substantially all the standards adopted in the interagency guidelines.
Additionally, federal banking agencies have established standards relating to asset and earnings quality. The guidelines require a bank to maintain systems, commensurate with its size and the nature and scope of its operations, to identify problem assets and prevent deterioration in those assets as well as to evaluate and monitor earnings and ensure that earnings are sufficient to maintain adequate capital and reserves.
Federal Reserve System. The Federal Reserve Board regulations require depository institutions to maintain noninterest-earning reserves against their transaction accounts (primarily NOW and regular checking accounts). The Federal Reserve Board regulations generally provide that reserves be maintained against aggregate transaction accounts as follows: a 3% reserve ratio is assessed on net transaction accounts up to and including $55.2 million; a 10% reserve ratio is applied above $55.2 million. The first $10.7 million of otherwise reservable balances (subject to adjustments by the Federal Reserve Board) are exempted from the reserve requirements. The amounts are adjusted annually. At December 31, 2013, Jefferson Federal met applicable FRB reserve requirements.
Federal Home Loan Bank System. Jefferson Federal is a member of the Federal Home Loan Bank System (“FHLBS”) which consists of 12 regional Federal Home Loan Banks governed and regulated by the Federal Housing Finance Board (“FHFB”) of the Federal Home Loan Bank Board. Jefferson Federal, as a member of the FHLB of Cincinnati, is required to purchase and hold shares of capital stock in the FHLB of Cincinnati. As of December 31, 2013, Jefferson Federal held stock in the FHLB of Cincinnati in the amount $4.7 million and was in compliance with the above requirement. The Federal Home Loan Banks are required to provide funds for certain purposes including contributing funds for affordable housing programs. These requirements, or financial stress caused by economic conditions, could reduce the amount of dividends that the Federal Home Loan Banks pay to their members and result in the Federal Home Loan Banks imposing a higher rate of interest on advances to their members.
Loans to Executive Officers, Directors and Principal Stockholders. Under federal law, loans to directors, executive officers and principal stockholders of a state non-member bank like Jefferson Federal must be made on substantially the same terms as those prevailing for comparable transactions with persons who are not executive officers, directors, principal stockholders or employees of Jefferson Federal unless the loan is made pursuant to a compensation or benefit plan that is widely available to employees and does not favor insiders. Loans to any executive officer, director and principal stockholder, together with all other outstanding loans to such person and affiliated interests, generally may not exceed 15% of the bank’s unimpaired capital and surplus, and aggregate loans to such persons may not exceed the institution’s unimpaired capital and unimpaired surplus. Loans to directors, executive officers and principal stockholders, and their respective affiliates, in excess of the greater of $25,000 or 5% of capital and surplus (and any loan or loans aggregating $500,000 or more) must be approved in advance by a majority of the board of directors of Jefferson Federal with any “interested” director not participating in the voting. State nonmember banks are prohibited from paying the overdrafts of any of their executive officers or directors unless payment is made pursuant to a written, pre-authorized interest-bearing extension of credit plan that specifies a method of repayment or transfer of funds from another account at Jefferson Federal. Loans to executive officers are further restricted as to type, amount and terms of credit. In addition, the BHCA prohibits extensions of credit to executive officers, directors and greater than 10% stockholders of a depository institution by any other institution which has a correspondent banking relationship with the institution, unless such extension of credit is on substantially the same terms as those prevailing at the time for comparable transactions with other persons and does not involve more than the normal risk of repayment or present other unfavorable features.
Transactions with Affiliates. A state non-member bank or its subsidiaries may not engage in “covered transactions” with any one affiliate in an amount greater than 10% of such bank’s capital stock and surplus, and for all such transactions with all affiliates a state non-member bank is limited to an amount equal to 20% of capital stock and surplus. All such transactions must also be on terms substantially the same, or at least as favorable, to the bank or subsidiary as those provided to a non-affiliate. The term “covered transaction” includes the making of loans, purchase of assets, issuance of a guarantee and similar types of transactions. Specified collateral requirements apply to covered transactions such as loans to and guarantees issued on behalf of an affiliate. An affiliate of a state
non-member bank is any company or entity which controls or is under common control with the state non-member bank and, for purposes of the aggregate limit on transactions with affiliates, any subsidiary that would be deemed a financial subsidiary of a national bank. In a holding company context, the parent holding company of a state non-member bank and any companies which are controlled by such parent holding company are affiliates of the state non-member bank. Federal law further prohibits a depository institution from extending credit to or offering any other services, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the institution or certain of its affiliates or not obtain services of a competitor of the institution, subject to certain limited exceptions.
Enforcement. The FDIC has extensive enforcement authority over insured non-member banks, including Jefferson Federal. This enforcement authority includes, among other things, the ability to assess civil money penalties, issue cease and desist orders and remove directors and officers. In general, these enforcement actions may be initiated in response to violations of laws and regulations and unsafe or unsound practices.
The FDIC has authority under federal law to appoint a conservator or receiver for an insured bank under limited circumstances. The FDIC is required, with certain exceptions, to appoint a receiver or conservator for an insured state non-member bank if that bank was “critically undercapitalized” on average during the calendar quarter beginning 270 days after the date on which the institution became “critically undercapitalized.” See “Prompt Corrective Regulatory Action.” The FDIC may also appoint itself as conservator or receiver for an insured state non-member institution under specific circumstances on the basis of the institution’s financial condition or upon the occurrence of other events, including: (1) insolvency; (2) substantial dissipation of assets or earnings through violations of law or unsafe or unsound practices; (3) existence of an unsafe or unsound condition to transact business; and (4) insufficient capital, or the incurring of losses that will deplete substantially all of the institution’s capital with no reasonable prospect of replenishment without federal assistance.
Community Reinvestment Act. Under the Community Reinvestment Act, as implemented by FDIC regulations, a state non-member bank has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate-income neighborhoods. The Community Reinvestment Act neither establishes specific lending requirements or programs for financial institutions nor limits an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community. The Community Reinvestment Act requires the FDIC, in connection with its examination of an institution, to assess the institution’s record of meeting the credit needs of its community and to consider such record when it evaluates applications made by such institution. The Community Reinvestment Act requires public disclosure of an institution’s Community Reinvestment Act rating. Jefferson Federal’s latest Community Reinvestment Act rating received from the FDIC was “satisfactory.”
Financial Regulatory Legislation
The previously referenced Dodd-Frank Act contains a wide variety of provisions affecting the regulation of depository institutions. Those include, but are not limited to, restrictions related to mortgage originations, risk retention requirements as to securitized loans and the noted newly created consumer protection agency. The full impact of the Dodd-Frank Act on its business and operations will not be known for years until regulations implementing the statute are written and adopted. The Dodd-Frank Act may have a material impact on Jefferson Federal’s operations, particularly through increased compliance costs resulting from possible future consumer and fair lending regulations.
Properties
Jefferson conducts its business through its main office, nine full-service branch offices and two limited-service drive-through facilities located in Hamblen, Knox, Sullivan and Washington Counties, Tennessee. Jefferson Federal owns all of our offices, except for a drive-through facility located in Morristown, Tennessee, the lease on which expires on December 31, 2015. As of December 31, 2013, the total net book value of its offices was $25.3 million. Jefferson believes that its facilities are adequate to meet its present and immediately foreseeable needs.
Legal Proceedings
Jefferson is not a party to any pending legal proceedings. Periodically, there have been various claims and lawsuits involving Jefferson Federal, such as claims to enforce liens, condemnation proceedings on properties in which Jefferson Federal holds security interests, claims involving the making and servicing of real property loans and other issues incident to Jefferson Federal’s business. Jefferson Federal is not a party to any pending legal proceedings that it believes would have a material adverse effect on the financial condition or operations of Jefferson.
JEFFERSON’S MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The objective of this section is to help shareholders and potential investors understand Jefferson’s views on its results of operations and financial condition. You should read this discussion in conjunction with the consolidated financial statements and notes to the consolidated financial statements that appear elsewhere in this proxy statement/prospectus.
Overview.
Income
Jefferson has two primary sources of pre-tax income. The first is net interest income. Net interest income is the difference between interest income – which is the income that it earns on its loans and investments – and interest expense – which is the interest that it pays on its deposits and borrowings.
Jefferson’s second principal source of pre-tax income is fee income – the compensation it receives from providing products and services. Most of Jefferson’s fee income comes from service charges on NOW accounts and fees for late loan payments. Jefferson also earns fee income from ATM charges, insurance commissions, safe deposit box rentals and other fees and charges.
Jefferson occasionally recognizes gains or losses as a result of sales of investment securities or foreclosed real estate. These gains and losses are not a regular part of Jefferson’s income.
Expenses
The expenses Jefferson incurs in operating its business consist of compensation and benefits expenses, occupancy expenses, equipment and data processing expense, deposit insurance premiums, advertising expenses, expenses for foreclosed real estate and other miscellaneous expenses.
Compensation and benefits consist primarily of the salaries and wages paid to Jefferson’s employees, fees paid to Jefferson’s directors and expenses for retirement and other employee benefits.
Occupancy expenses, which are the fixed and variable costs of building and equipment, consist primarily of lease payments, real estate taxes, depreciation charges, maintenance and costs of utilities.
Equipment and data processing expense includes fees paid to Jefferson’s third-party data processing service and expenses and depreciation charges related to office and banking equipment.
Deposit insurance premiums are payments Jefferson makes to the Federal Deposit Insurance Corporation for insurance of Jefferson Federal’s deposit accounts.
Expenses for foreclosed real estate include maintenance and repairs on foreclosed properties prior to sale.
Other expenses include expenses for attorneys, accountants and consultants, payroll taxes, franchise taxes, charitable contributions, insurance, office supplies, postage, telephone and other miscellaneous operating expenses.
Critical Accounting Policies
Jefferson considers accounting policies involving significant judgments and assumptions by management that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies. Jefferson considers the following to be its critical accounting policies: allowance for loan losses and deferred income taxes.
Allowance for Loan Losses. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Management reviews the level of the allowance on a monthly basis and establishes the
provision for loan losses based on the composition of the loan portfolio, delinquency levels, loss experience, economic condition and other factors related to the collectibility of the loan portfolio. Although Jefferson believes that it uses the best information available to establish the allowance for loan losses, future additions to the allowance may be necessary based on estimates that are susceptible to change as a result of changes in economic conditions and other factors. In addition, Tennessee Department of Financial Institutions and the FDIC, as an integral part of their examination processes, periodically review Jefferson’s allowance for loan losses. These agencies may require Jefferson to recognize adjustments to the allowance based on their judgments about information available to them at the time of their examination.
Deferred Income Taxes. Jefferson uses 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. If current available information raises doubt as to the realization of the deferred tax assets, a valuation allowance is established. 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. Jefferson exercises significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets, including projections of future taxable income. These judgments and estimates are reviewed on a continual basis as regulatory and business factors change.
Results of Operations for the Three and Six Months Ended December 31, 2013 and 2012
Overview.quotation system.
| Three Months Ended December 31, | Six Months Ended December 31, | |||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| (Dollars in thousands, except per share data) | (Dollars in thousands, except per share data) | |||||||||||||||
Net earnings | $ | 444 | $ | 348 | $ | 942 | $ | 643 | ||||||||
Net earnings per share, basic | $ | 0.07 | $ | 0.05 | $ | 0.15 | $ | 0.10 | ||||||||
Net earnings per share, diluted | $ | 0.07 | $ | 0.05 | $ | 0.15 | $ | 0.10 | ||||||||
Return on average assets (annualized) | 0.36 | % | 0.28 | % | 0.38 | % | 0.25 | % | ||||||||
Return on average equity (annualized) | 3.29 | % | 2.60 | % | 3.52 | % | 2.41 | % | ||||||||
For the three months ended December 31, 2013, net income totaled $444,000, or $0.07 per diluted share, compared to net income of $348,000, or $0.05 per diluted share, for the quarter ended December 31, 2012. For the six months ended December 31, 2013, net income totaled $942,000, or $0.15 per diluted share, compared to net income of $643,000, or $0.10 per diluted share, for the six months ended December 31, 2012. The improvement in net income is largely the result of a lower provision for loan losses and lower noninterest expense which more than offset a decrease in net interest income and noninterest income during the three and six months ended December 31, 2013.
Net Interest Income.
The following table summarizes changes in interest income and expense for the three month periods ended December 31, 2013 and 2012:AND MANAGEMENT OF TRISUMMIT
| Three Months Ended December 31, | ||||||||||||||||
| 2013 | 2012 | $ Change | % Change | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||
Interest income: | ||||||||||||||||
Loans | $ | 4,197 | $ | 4,435 | $ | (238 | ) | (5.4 | %) | |||||||
Investment securities | 486 | 419 | 67 | 16.0 | % | |||||||||||
Interest-earning deposits | 6 | 20 | (14 | ) | (70.0 | %) | ||||||||||
FHLB stock | 48 | 57 | (9 | ) | (15.8 | %) | ||||||||||
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Total interest income | 4,737 | 4,931 | (194 | ) | (3.9 | %) | ||||||||||
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Interest expense: | ||||||||||||||||
Deposits | 321 | 388 | (67 | ) | (17.3 | %) | ||||||||||
Repurchase agreements | 1 | 2 | (1 | ) | (50.0 | %) | ||||||||||
Borrowings | 265 | 318 | (53 | ) | (16.7 | %) | ||||||||||
Subordinated notes & debentures | 78 | 81 | (3 | ) | (3.7 | %) | ||||||||||
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Total interest expense | 665 | 789 | (124 | ) | (15.7 | %) | ||||||||||
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Net interest income | $ | 4,072 | $ | 4,142 | ($ | 70 | ) | (1.7 | %) | |||||||
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Net interest income before loan loss provision decreased $70,000, or 1.7%, to $4.1 million for the three months ended December 31, 2013 compared to the same period in 2012. The interest rate spread and net interest margin for the quarter ended December 31, 2013 were 3.59% and 3.67%, respectively, compared to 3.60% and 3.69%, respectively, for the same period in 2012.
The following table summarizes changes in interest income and expense for the six month periods ended December 31, 2013 and 2012:Beneficial Ownership of TriSummit Common Stock
| Six Months Ended December 31, | ||||||||||||||||
| 2013 | 2012 | $ Change | % Change | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||
Interest income: | ||||||||||||||||
Loans | $ | 8,270 | $ | 8,920 | $ | (650 | ) | (7.3 | %) | |||||||
Investment securities | 954 | 829 | 125 | 15.1 | % | |||||||||||
Interest-earning deposits | 16 | 44 | (28 | ) | (63.6 | %) | ||||||||||
FHLB stock | 98 | 107 | (9 | ) | (8.4 | %) | ||||||||||
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Total interest income | 9,338 | 9,900 | (562 | ) | (5.7 | %) | ||||||||||
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Interest expense: | ||||||||||||||||
Deposits | 657 | 832 | (175 | ) | (21.0 | %) | ||||||||||
Repurchase agreements | 1 | 3 | (2 | ) | (66.7 | %) | ||||||||||
Borrowings | 494 | 637 | (143 | ) | (22.4 | %) | ||||||||||
Subordinated notes & debentures | 158 | 163 | (5 | ) | (3.1 | %) | ||||||||||
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Total interest expense | 1,310 | 1,635 | (325 | ) | (19.9 | %) | ||||||||||
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Net interest income | $ | 8,028 | $ | 8,265 | ($ | 237 | ) | (2.9 | %) | |||||||
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Total interest income decreased $194,000, or 3.9%, to $4.7 million for the three months ended December 31, 2013 and decreased $562,000, or 5.7%, to $9.3 million for the six months ended December 31, 2013 compared to the prior year periods due primarily due to lower market interest rates. The average yield on interest-earning assets was 4.27% and 4.21%, respectively, for the three and six months ended December 31, 2013 compared to 4.39% and 4.35%, respectively, for the same periods in 2012.
Interest on loans decreased $238,000, or 5.4%, to $4.2 million for the three months ended December 31, 2013 and decreased $650,000, or 7.3%, to $8.3 million for the six months ended December 31, 2013 compared to the prior year periods. The average balance of loans increased $4.2 million, or 1.29%, to $325.9 million for the three months ended December 31, 2013 and increased $1.1 million, or 0.33%, to $325.5 million for the six months ended December 31, 2013. The increase in the average balance of loans is due to an increase in loan demand. The average yield on loans was 5.11% and 5.04%, respectively, for both the three and six months ended December 31, 2013, compared to 5.47% and 5.45%, respectively, for the same periods in 2012.
Interest on investment securities increased $67,000, or 16.0%, to $486,000 for the three months ended December 31, 2013 and increased $125,000, or 15.1%, to $954,000 for the six months ended December 31, 2013 compared to the prior year periods. The increase for both periods was the result of an increase in the average yield of investment securities coupled with an increase in the average balance. The average yield on investment securities increased 11 basis points to 2.01% for the three months ended December 31, 2013 and increased 3 basis points to 1.98% for the six months ended December 31, 2013 compared to the same periods in 2012.
Total interest expense decreased $124,000, or 15.7%, to $665,000 for the three month period ended December 31, 2013 and decreased $325,000, or 19.9%, to $1.3 million for the six month period ended December 31, 2013 compared to the prior year periods. The decrease for both periods was primarily due to lower interest rates on interest-bearing liabilities. Interest expense on deposits decreased $67,000, or 17.3%, to $321,000 for the three month period ended December 31, 2013 and decreased $175,000, or 21.0%, to $657,000 for the six months ended December 31, 2013 compared to the same periods in 2012. The decrease in interest expense on deposits was primarily due to downward repricing of certificates of deposit coupled with a lower average balance. The average rate paid on deposits decreased 6 basis points to 0.38% for the three months ended December 31, 2013 and
decreased 8 basis points to 0.38% for the six months ended December 31, 2013 compared to the prior year period. Interest expense on FHLB advances decreased $53,000, or 16.7%, to $265,000 for the three months ended December 31, 2013 and decreased $143,000, or 22.4%, to $494,000 for the six months ended December 31, 2013 compared to the same periods in 2012. The decrease in interest expense on advances is due to the restructuring of $15.0 million in FHLB advances during the first quarter of fiscal 2014.
Average Balances and Yields.The following table presents information regarding average balances of assets and liabilities, as well as the total dollar amounts of interest income and dividends from average interest-earning assets and interest expense on average interest-bearing liabilities and the resulting average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. For purposes of this table nonaccrual loan balances and related accrued interest income have been included.
| Three Months Ended December, | Six Months Ended December, | |||||||||||||||||||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||||||||||||||||||
| Average Balance | Yield/ Cost | Average Balance | Yield/ Cost | Average Balance | Yield/ Cost | Average Balance | Yield/ Cost | |||||||||||||||||||||||||
| (Dollars in thousands) | (Dollars in thousands) | |||||||||||||||||||||||||||||||
Loans | $ | 325,868 | 5.11 | % | $ | 321,716 | 5.47 | % | $ | 325,544 | 5.04 | % | $ | 324,480 | 5.45 | % | ||||||||||||||||
Investment securities | 98,912 | 2.01 | % | 90,888 | 1.90 | % | 98,495 | 1.98 | % | 87,424 | 1.95 | % | ||||||||||||||||||||
Interest-earning deposits | 11,748 | 0.20 | % | 29,812 | 0.27 | % | 12,977 | 0.24 | % | 36,548 | 0.24 | % | ||||||||||||||||||||
FHLB stock | 4,735 | 4.02 | % | 4,735 | 4.78 | % | 4,735 | 4.11 | % | 4,735 | 4.48 | % | ||||||||||||||||||||
Deposits | �� | 339,149 | 0.38 | % | 352,098 | 0.44 | % | 342,237 | 0.38 | % | 356,794 | 0.46 | % | |||||||||||||||||||
FHLB advances | 41,480 | 2.53 | % | 37,676 | 3.35 | % | 39,518 | 2.48 | % | 37,753 | 3.35 | % | ||||||||||||||||||||
Repurchase agreements | 1,288 | 0.31 | % | 1,072 | 0.74 | % | 1,171 | 0.17 | % | 952 | 0.63 | % | ||||||||||||||||||||
Subordinated debentures | 7,396 | 4.18 | % | 7,283 | 4.41 | % | 7,382 | 4.25 | % | 7,270 | 4.45 | % | ||||||||||||||||||||
Rate/Volume Analysis. The following table sets forth the effects of changing rates and volumes on Jefferson’s net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. For purposes of this table, changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionately based on the changes due to rate and the changes due to volume.
| Three Months Ended December 31, 2013 Compared to 2012 | Six Months Ended December 31, 2013 Compared to 2012 | |||||||||||||||||||||||
| Increase (Decrease) Due To | Increase (Decrease) Due To | |||||||||||||||||||||||
| Volume | Rate | Net | Volume | Rate | Net | |||||||||||||||||||
| (In thousands) | (In thousands) | |||||||||||||||||||||||
Interest income: | ||||||||||||||||||||||||
Loans receivable | $ | 57 | ($ | 295 | ) | ($ | 238 | ) | $ | 29 | ($ | 679 | ) | ($ | 650 | ) | ||||||||
Investment securities | 39 | 28 | 67 | 113 | 12 | 125 | ||||||||||||||||||
Daily interest-earning deposits and other interest-earning assets | (10 | ) | (13 | ) | (23 | ) | (29 | ) | (8 | ) | (37 | ) | ||||||||||||
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Total interest-earning assets | 86 | (280 | ) | (194 | ) | 113 | (675 | ) | (562 | ) | ||||||||||||||
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Interest expense: | ||||||||||||||||||||||||
Deposits | (14 | ) | (53 | ) | (67 | ) | (33 | ) | (142 | ) | (175 | ) | ||||||||||||
FHLB advances | 30 | (83 | ) | (53 | ) | 29 | (172 | ) | (143 | ) | ||||||||||||||
Repurchase agreements | 0 | (1 | ) | (1 | ) | 1 | (3 | ) | (2 | ) | ||||||||||||||
Subordinated debentures | 1 | (4 | ) | (3 | ) | 2 | (7 | ) | (5 | ) | ||||||||||||||
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Total interest-bearing liabilities | 18 | (142 | ) | (124 | ) | (1 | ) | (324 | ) | (325 | ) | |||||||||||||
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Net change in interest income | $ | 68 | ($ | 138 | ) | ($ | 70 | ) | $ | 114 | ($ | 351 | ) | ($ | 237 | ) | ||||||||
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Provision for Loan Losses. There was no provision for loan losses for the three and six month periods ended December 31, 2013 compared to $300,000 and $600,000, respectively, for the same periods in 2012. The decrease in the provision for loan losses is the result of improvements in asset quality. Net charge-offs for the three and six month periods ended December 31, 2013 amounted to $1.0 million and $1.7 million, respectively, compared to $359,000 and $750,000 for the comparable periods in 2012. A significant portion of the loan charge-offs during the six months ended December 31, 2013 were against specific reserves and did not require replenishment of the allowance for loan losses. Management reviews the level of the allowance for loan losses on a monthly basis and establishes the provision for loan losses based on changes in the nature and volume of the loan portfolio, the amount of impaired and classified loans, historical loan loss experience and other qualitative factors. In addition, the Federal Deposit Insurance Corporation and Tennessee Department of Financial Institutions, as an integral part of their examination process, periodically review Jefferson’s allowance for loan losses and may require Jefferson to recognize adjustments to the allowance for loan losses based on their judgments about information available to them at the time of their examination.
The following table summarizes changes in noninterest income for the three month periods ended December 31, 2013 and 2012:
| Three Months Ended December 31, | ||||||||||||||||
| $ Change | % Change | |||||||||||||||
| 2013 | 2012 | |||||||||||||||
| (Dollars in thousands) | ||||||||||||||||
Noninterest income: | ||||||||||||||||
Mortgage origination fee income | $ | 32 | $ | 131 | ($ | 99 | ) | (75.6 | %) | |||||||
Service charges and fees | 239 | 276 | (37 | ) | (13.4 | %) | ||||||||||
Gain on investment securities | 1 | 8 | (7 | ) | (87.5 | %) | ||||||||||
Loss on sale of foreclosed real estate, net | (40 | ) | (53 | ) | 13 | (24.5 | %) | |||||||||
BOLI increase in cash value | 61 | 60 | 1 | 1.7 | % | |||||||||||
Other | 190 | 159 | 31 | 19.5 | % | |||||||||||
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Total noninterest income | $ | 483 | $ | 581 | ($ | 98 | ) | (16.9 | %) | |||||||
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Noninterest income decreased $98,000, or 16.9%, to $483,000 for the three months ended December 31, 2013 compared to $581,000 for the same period in 2012. The decrease was primarily the result of a decrease in mortgage origination fee income totaling $99,000. The decrease in mortgage origination fee is due to a decline in refinance originations.
The following table summarizes changes in noninterest income for the six month periods ended December 31, 2013 and 2012:
| Six Months Ended December 31, | ||||||||||||||||
| $ Change | % Change | |||||||||||||||
| 2013 | 2012 | |||||||||||||||
| (Dollars in thousands) | ||||||||||||||||
Noninterest income: | ||||||||||||||||
Mortgage origination fee income | $ | 80 | $ | 277 | ($ | 197 | ) | (71.1 | %) | |||||||
Service charges and fees | 495 | 529 | (34 | ) | (6.4 | %) | ||||||||||
Gain on sale of fixed assets | — | 1 | (1 | ) | (100.0 | %) | ||||||||||
Gain on investment securities | 1 | 12 | (11 | ) | (91.7 | %) | ||||||||||
Loss on sale of foreclosed real estate, net | (64 | ) | (209 | ) | 145 | (69.4 | %) | |||||||||
BOLI increase in cash value | 122 | 120 | 2 | 1.7 | % | |||||||||||
Other | 343 | 307 | 36 | 11.7 | % | |||||||||||
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Total noninterest income | $ | 977 | $ | 1,037 | ($ | 60 | ) | (5.8 | %) | |||||||
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For the six months ended December 31, 2013, noninterest income decreased $60,000, or 5.8%, to $977,000 compared to $1.0 million for the same period in 2012. The decrease was primarily the result of a $197,000 decrease in mortgage origination fee income partially offset by a $145,000 decrease in loss on sale of foreclosed real estate. The decrease in mortgage origination fee income for the six month periods is primarily due to a decline in refinance originations.
Noninterest Expense. The following table summarizes the dollar amounts for each category of noninterest expense, and the dollar and percent changes for the three months ended December 31, 2013 compared to the same period in 2012.
Noninterest expense: Compensation and benefits Occupancy expense Equipment and data processing expense Deposit insurance premiums Advertising Professional services Valuation adjustment and expenses on other real estate owned Amortization of intangible assets Other Total noninterest expense Three Months Ended
December 31, $
Change %
Change 2013 2012 (Dollars in thousands) $ 1,799 $ 1,767 $ 32 1.8 % 326 341 (15 ) (4.4 %) 647 617 30 4.9 % 168 210 (42 ) (20.0 %) 68 39 29 74.4 % 123 139 (16 ) (11.5 %) 133 232 (99 ) (42.7 %) 82 96 (14 ) (14.6 %) 572 520 52 10.0 % $ 3,918 $ 3,961 ($ 43 ) (1.1 %)
Noninterest expense decreased $43,000, or 1.1%, to $3.9 million for the three months ended December 31, 2013 compared to $4.0 million for the same period in 2012. Valuation adjustments and expenses on OREO decreased $99,000, or 42.7%, to $133,000 for the three months ended December 31, 2013 compared to the same period in 2012.
The following table summarizes the dollar amounts for each category of noninterest expense, and the dollar and percent changes for the six months ended December 31, 2013 compared to the same period in 2012.
| Six Months Ended December 31, | ||||||||||||||||
| $ Change | % Change | |||||||||||||||
| 2013 | 2012 | |||||||||||||||
| (Dollars in thousands) | ||||||||||||||||
Noninterest expense: | ||||||||||||||||
Compensation and benefits | $ | 3,527 | $ | 3,447 | $ | 80 | 2.3 | % | ||||||||
Occupancy expense | 660 | 703 | (43 | ) | (6.1 | %) | ||||||||||
Equipment and data processing expense | 1,257 | 1,216 | 41 | 3.4 | % | |||||||||||
Deposit insurance premiums | 338 | 417 | (79 | ) | (18.9 | %) | ||||||||||
Advertising | 155 | 89 | 66 | 74.2 | % | |||||||||||
Professional services | 210 | 245 | (35 | ) | (14.3 | %) | ||||||||||
Valuation adjustment and expenses on OREO | 233 | 479 | (246 | ) | (51.4 | %) | ||||||||||
Amortization of intangible assets | 174 | 202 | (28 | ) | (13.9 | %) | ||||||||||
Other | 1,086 | 1,069 | 17 | 1.6 | % | |||||||||||
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| |||||||||||
Total noninterest expense | $ | 7,640 | $ | 7,867 | ($ | 227 | ) | (2.9 | %) | |||||||
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| |||||||||||
Noninterest expense decreased $227,000, or 2.9%, to $7.6 million for the six months ended December 31, 2013 compared to $7.9 million the same period in 2012. Valuation adjustments and expenses on OREO decreased $246,000, or 51.4%, to $233,000 for the six month period ended December 31, 2013 compared to $479,000 for the same period in 2012.
Income Taxes. Income tax expense for the three and six months ended December 31, 2013 increased to $193,000 and $423,000, respectively, compared to income tax expense of $114,000 and $192,000, respectively, for the same periods in 2012. The increase in income tax expense for both periods was due to higher taxable income.
Financial Condition at December 31, 2013 and June 30, 2013
Loans. Net loans increased $8.9 million, or 2.8%, to $330.2 million at December 31, 2013, compared to $321.3 million at June 30, 2013 due to an increase in loan demand.
The following table sets forth the composition of Jefferson’s loan portfolio at the dates indicated.
| At December 31, 2013 | At June 30, 2013 | |||||||||||||||||||||||
| Amount | Percent of Portfolio | Amount | Percent of Portfolio | $ Change | % Change | |||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
Real estate loans: | ||||||||||||||||||||||||
Residential one-to four-family | $ | 82,416 | 24.6 | % | $ | 87,233 | 26.7 | % | $ | (4,817 | ) | (5.5 | %) | |||||||||||
Home equity line of credit | 17,664 | 5.3 | % | 16,259 | 5.0 | % | 1,405 | 8.6 | % | |||||||||||||||
Commercial | 128,095 | 38.3 | % | 120,205 | 36.7 | % | 7,890 | 6.6 | % | |||||||||||||||
Multi-family | 9,453 | 2.8 | % | 13,509 | 4.1 | % | (4,056 | ) | (30.0 | %) | ||||||||||||||
Construction | 11,812 | 3.5 | % | 6,692 | 2.0 | % | 5,120 | 76.5 | % | |||||||||||||||
Land | 22,146 | 6.6 | % | 22,296 | 6.8 | % | (150 | ) | (0.7 | %) | ||||||||||||||
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Total real estate loans | 271,586 | 81.2 | % | 266,194 | 81.3 | % | 5,392 | 2.0 | % | |||||||||||||||
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Commercial business loans | 59,952 | 17.9 | % | 57,288 | 17.5 | % | 2,664 | 4.7 | % | |||||||||||||||
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Consumer loans: | ||||||||||||||||||||||||
Automobile loans | 464 | 0.1 | % | 510 | 0.2 | % | (46 | ) | (9.0 | %) | ||||||||||||||
Loans secured by deposits | 372 | 0.1 | % | 340 | 0.1 | % | 32 | 9.4 | % | |||||||||||||||
Other consumer loans | 2,211 | 0.7 | % | 2,971 | 0.9 | % | (760 | ) | (25.6 | %) | ||||||||||||||
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| |||||||||||||||
Total consumer loans | 3,047 | 0.9 | % | 3,821 | 1.2 | % | (774 | ) | (20.3 | %) | ||||||||||||||
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| |||||||||||||||
Total gross loans | 334,585 | 100.0 | % | 327,303 | 100.0 | % | 7,282 | 2.2 | % | |||||||||||||||
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| |||||||||||||||||||||
Less: | ||||||||||||||||||||||||
Deferred loan fees, net | (405 | ) | (344 | ) | (61 | ) | 17.7 | % | ||||||||||||||||
Allowance for losses | (3,973 | ) | (5,660 | ) | 1,687 | (29.8 | %) | |||||||||||||||||
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| |||||||||||||||||||
Loans receivable, net | $ | 330,207 | $ | 321,299 | $ | 8,908 | 2.8 | % | ||||||||||||||||
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The following table sets forth certain information at December 31, 2013 regarding the dollar amount of principal repayments becoming due during the periods indicated for loans. The table does not include any estimate of prepayments which significantly shorten the average life of all loans and may cause Jefferson’s actual repayment experience to differ from that shown below. Demand loans having no stated schedule of repayments and no stated maturity are reported as due in one year or less.
| Real Estate Loans | Commercial Business Loans | Consumer Loans | Total Loans | |||||||||||||
| (In thousands) | ||||||||||||||||
Amounts due in: | ||||||||||||||||
One year or less | $ | 43,045 | $ | 24,090 | $ | 1,539 | $ | 68,674 | ||||||||
More than one to three years | 36,730 | 9,907 | 1,022 | 47,659 | ||||||||||||
More than three to five years | 90,406 | 10,965 | 486 | 101,857 | ||||||||||||
More than five to 15 years | 46,967 | 11,550 | — | 58,517 | ||||||||||||
More than 15 years | 54,438 | 3,440 | — | 57,878 | ||||||||||||
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|
|
|
|
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| |||||||||
Total | $ | 27,586 | $ | 59,952 | $ | 3,047 | $ | 334,585 | ||||||||
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The following table sets forth the dollar amount of all loans at December 31, 2013 that are due after December 31, 2014 and have either fixed interest rates or floating or adjustable interest rates.
| Fixed-Rates | Floating or Adjustable Rates | Total | ||||||||||
| (In thousands) | ||||||||||||
Real estate loans: | ||||||||||||
One- to four-family | $ | 20,402 | $ | 56,537 | $ | 76,939 | ||||||
Home equity lines of credit | 85 | 16,308 | 16,393 | |||||||||
Commercial | 59,426 | 46,443 | 105,869 | |||||||||
Multi-family | 8,011 | 264 | 8,275 | |||||||||
Construction | 6,746 | 4,107 | 10,853 | |||||||||
Land | 7,895 | 2,317 | 10,212 | |||||||||
Commercial business loans | 20,044 | 15,818 | 35,862 | |||||||||
Consumer loans | 1,487 | 21 | 1,508 | |||||||||
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|
|
|
|
| |||||||
Total | $ | 124,096 | $ | 141,815 | $ | 265,911 | ||||||
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| |||||||
The following table shows activity in Jefferson’s loan portfolio, excluding loans held for sale, during the periods indicated.
| Six Months Ended December 31, 2013 | ||||
Total loans at beginning of period | $ | 327,303 | ||
Loans originated: | ||||
Real estate | 43,202 | |||
Commercial business | 14,791 | |||
Consumer | 707 | |||
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| |||
Total loans originated | 58,700 | |||
Loan principal repayments | (51,418 | ) | ||
Net loan activity | 7,282 | |||
|
| |||
Total gross loans at end of period | $ | 334,585 | ||
|
| |||
Investments. Jefferson’s investment security portfolio primarily consists of U.S. Government agency obligations, mortgage-backed securities issued by government-sponsored entities, and municipal bonds. Investment
securities decreased to $93.5 million at December 31, 2013 compared to $96.0 million at June 30, 2013. The decrease in the investment portfolio reflects security purchases totaling $10.9 million, partially offset by sales, paydowns and calls of securities totaling approximately $12.2 million. Investments classified as available-for-sale are carried at fair market value and reflect an unrealized loss of $1.0 million, or $630,000 net of taxes, at December 31, 2013.
| At December 31, | At June 30, | |||||||||||||||
| 2013 | 2013 | |||||||||||||||
| Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||||
| (Dollars in thousands) | (Dollars in thousands) | |||||||||||||||
Federal agency securities | $ | 20,913 | $ | 20,301 | $ | 21,985 | $ | 21,653 | ||||||||
Mortgage-backed securities | 65,020 | 64,799 | 65,607 | 65,868 | ||||||||||||
Municipal securities | 7,953 | 7,881 | 8,004 | 8,005 | ||||||||||||
Other securities | 607 | 491 | 607 | 498 | ||||||||||||
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|
|
|
|
|
|
| |||||||||
Total | $ | 94,493 | $ | 93,472 | $ | 96,203 | $ | 96,024 | ||||||||
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|
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| |||||||||
The following table sets forth the maturities and weighted average yields of investment securities at December 31, 2013.
| More than One Year to Five Years | More than Five Years to Ten Years | More than Ten Years | Total | |||||||||||||||||||||||||||||
| Carrying Value | Weighted Average Yield | Carrying Value | Weighted Average Yield | Carrying Value | Weighted Average Yield | Carrying Value | Weighted Average Yield | |||||||||||||||||||||||||
Federal agency securities | $ | 1,999 | 1.76 | % | $ | 11,907 | 1.67 | % | $ | 868 | 3.00 | % | $ | 14,774 | 1.77 | % | ||||||||||||||||
Mortgage-backed securities | — | 0.00 | 9,141 | 0.16 | 55,658 | 1.91 | 64,799 | 2.04 | ||||||||||||||||||||||||
Municipal securities | 1,382 | 1.81 | 3,526 | 3.45 | 2,696 | 4.77 | 7,604 | 2.66 | ||||||||||||||||||||||||
Other securities | — | 0.00 | — | 0.00 | 492 | 0.00 | 492 | 0.00 | ||||||||||||||||||||||||
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| |||||||||||||||||||||||||
Total | $ | 3,381 | 1.62 | % | $ | 24,574 | 1.76 | % | $ | 59,714 | 2.18 | % | $ | 87,669 | 2.12 | |||||||||||||||||
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Deposits. Total deposits decreased $11.6 million to $388.0 million at December 31, 2013 compared to $399.6 million at June 30, 2013 primarily due to planned runoff of certificates of deposit through lower interest rates and fluctuations in existing customer balances. Certificates of deposit decreased $6.9 million, or 4.7%, to $141.2 million while transaction accounts decreased $4.7 million, or 1.9%, to $246.8 million at December 31, 2013. Certificates of deposit comprised 36.4% of total deposits at December 31, 2013 compared to 37.1% of total deposits at June 30, 2013.
| At December 31, 2013 | At June 30, 2013 | $ Change | % Change | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||
Noninterest-bearing accounts | $ | 52,753 | $ | 54,765 | ($ | 2,012 | ) | (3.7 | %) | |||||||
NOW accounts | 56,279 | 54,164 | 2,115 | 3.9 | % | |||||||||||
Savings accounts | 89,267 | 91,280 | (2,013 | ) | (2.2 | %) | ||||||||||
Money market accounts | 48,541 | 51,324 | (2,783 | ) | (5.4 | %) | ||||||||||
Certificates of deposit | 141,180 | 148,109 | (6,929 | ) | (4.7 | %) | ||||||||||
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|
|
|
| |||||||||||
Total | $ | 388,020 | $ | 399,642 | ($ | 11,622 | ) | (2.9 | %) | |||||||
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The following table indicates the amount of jumbo certificates of deposit by time remaining until maturity as of December 31, 2013. Jumbo certificates of deposit require minimum deposits of $100,000.
| Certificates of Deposit | ||||
Maturity Period | (In thousands) | |||
Three months or less | $ | 9,871 | ||
Over three through six months | 9,684 | |||
Over six through twelve months | 17,224 | |||
Over twelve months | 18,138 | |||
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| |||
Total | $ | 54,917 | ||
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| |||
The following table sets forth the time deposits classified by rates at the dates indicated.
| At December 31, 2013 | At June 30, 2013 | |||||||
| (In thousands) | ||||||||
0.01 – 1.00% | $ | 113,262 | $ | 115,563 | ||||
1.01 – 2.00% | 27,726 | 31,306 | ||||||
2.01 – 3.00% | 192 | 533 | ||||||
3.01 – 4.00% | — | 35 | ||||||
4.01 – 5.00% | — | 672 | ||||||
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| |||||
Total | $ | 141,180 | $ | 148,109 | ||||
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The following table sets forth the amount and maturities of time deposits at December 31, 2013.
| At December 31, 2013 | ||||||||||||||||||||||||||||
| Less Than One Year | 1-2 Years | 2-3 Years | 3-4 Years | 4 or More Years | Total | Percent of Total Certificate Accounts | ||||||||||||||||||||||
| (In Thousands) | ||||||||||||||||||||||||||||
0.01 – 1.00% | $ | 76,548 | $ | 24,462 | $ | 10,621 | $ | 1,217 | $ | 414 | $ | 113,262 | 80.2 | % | ||||||||||||||
1.01 – 2.00% | 20,826 | 1,965 | 156 | 3,054 | 1,725 | 27,726 | 19.6 | |||||||||||||||||||||
2.01 – 3.00% | 154 | 38 | — | — | — | 192 | 0.1 | |||||||||||||||||||||
3.01 – 4.00% | — | — | — | — | — | — | 0.0 | |||||||||||||||||||||
4.01 – 5.00% | — | — | — | — | — | — | 0.0 | |||||||||||||||||||||
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Total | $ | 97,528 | $ | 26,465 | $ | 10,777 | $ | 4,271 | $ | 2,139 | $ | 141,180 | 100.0 | % | ||||||||||||||
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Borrowings. Jefferson has relied upon advances from the Federal Home Loan Bank (“FHLB”) of Cincinnati to supplement its supply of lendable funds and to meet deposit withdrawal requirements. FHLB advances totaled $46.9 million at December 31, 2013 compared to $37.6 million at June 30, 2013. Additional FHLB advances have been utilized during the second quarter of fiscal 2014 to manage daily liquidity needs and to support loan growth.
| Six Months Ended December 31, | ||||
| 2013 | ||||
| (Dollars in thousands) | ||||
Maximum amount of advances outstanding at any month end | $ | 46,909 | ||
Average advances outstanding | 39,518 | |||
Weighted average interest rate during the period | 2.48 | % | ||
Balance outstanding at end of period | $ | 46,909 | ||
Weighted average interest rate at end of period | 2.28 | % | ||
Stockholders’ Equity. Stockholders’ equity was $53.5 million at December 31, 2013 compared to $53.0 million at June 30, 2013. Unrealized gains and losses, net of taxes, in the available-for-sale investment portfolio are reflected as an adjustment to stockholders’ equity. At December 31, 2013, the adjustment to stockholders’ equity was a net unrealized loss of $630,000 compared to an unrealized loss of $111,000 at June 30, 2013. Stock repurchases for the three months ended December 31, 2013 totaled 2,438 shares at an average cost of $6.40 per share. On November 13, 2008, Jefferson announced its third stock repurchase program pursuant to which up to 620,770 shares of Jefferson’s outstanding common stock may be repurchased. At December 31, 2013, 401,115 shares remained eligible for repurchase under the current stock repurchase program.
Results of Operations for the Years Ended June 30, 2013 and 2012
Overview.
| 2013 | 2012 | |||||||
| (Dollars in thousands, except per share data) | ||||||||
Net earnings | $ | 1,594 | ($ | 4,000 | ) | |||
Net earnings per share, basic | $ | 0.25 | ($ | 0.64 | ) | |||
Net earnings per share, diluted | $ | 0.25 | ($ | 0.64 | ) | |||
Return on average assets | 0.31 | % | (0.74 | %) | ||||
Return on average equity | 2.97 | % | (7.37 | %) | ||||
For the year ended June 30, 2013, Jefferson reported net income of $1.6 million, or $0.25 per diluted share, compared to a net loss of $4.0 million, or $0.64 per diluted share, for the year ended June 30, 2012. The improvement in net income was primarily due to a lower provision for loan losses totaling $800,000 for fiscal 2013 compared to $9.9 million for fiscal 2012. The decrease in the provision for loan losses was attributable to improvements in asset quality.
Net Interest Income.
The following table summarizes changes in interest income and expense for the years ended June 30, 2013 and 2012:
| Year Ended June 30, | % Change | |||||||||||
| 2013 | 2012 | 2013/2012 | ||||||||||
Interest income: | ||||||||||||
Loans | $ | 17,529 | $ | 20,271 | (13.5 | %) | ||||||
Investment securities | 1,689 | 1,900 | (11.1 | %) | ||||||||
Interest-earning deposits | 75 | 62 | 21.0 | % | ||||||||
FHLB stock | 208 | 199 | 4.5 | % | ||||||||
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Total interest income | 19,501 | 22,432 | (13.1 | %) | ||||||||
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Interest expense: | ||||||||||||
Deposits | 1,535 | 2,965 | (48.2 | %) | ||||||||
Borrowings | 1,270 | 1,278 | (0.6 | %) | ||||||||
Subordinated debentures | 325 | 327 | (0.6 | %) | ||||||||
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Total interest expense | 3,130 | 4,570 | (31.5 | %) | ||||||||
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Net interest income | $ | 16,371 | $ | 17,862 | (8.3 | %) | ||||||
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Net interest income before loan loss provision decreased $1.5 million to $16.4 million for the year ended June 30, 2013. The interest rate spread and net interest margin for the year ended June 30, 2013 were 3.55% and 3.64%, respectively, compared to 3.60% and 3.72%, respectively, for the year ended June 30, 2012.
Total interest income decreased $2.9 million, or 13.1%, to $19.5 million for fiscal 2013 compared to $22.4 million for fiscal 2012 primarily due to a lower volume of interest-earning assets and lower market interest rates. The average volume of earning assets decreased $29.9 million to $451.3 million for fiscal 2013, while the average yield on interest-earning assets decreased 33 basis points to 4.33% compared to fiscal 2012.
Interest on loans decreased $2.7 million, or 13.5%, to $17.5 million for fiscal 2013 as a result of a lower average balance of loans and a lower average yield. The average balance of loans decreased $40.8 million, or 11.2%, to $322.3 million due to the combination of reduced loan demand, normal paydowns on existing loans, transfers to other real estate owned (“OREO”) and charge-offs. The average yield on loans was 5.44% for fiscal 2013 compared to 5.57% for fiscal 2012.
Interest on investment securities decreased to $1.7 million for fiscal 2013 compared to $1.9 million for fiscal 2012. The average balance of investment securities increased $9.4 million to $92.7 million for fiscal 2013 compared to $83.3 million for fiscal 2012 as excess liquidity has been deployed into the investment portfolio. The average yield on investments decreased to 1.89% for fiscal 2013 compared to 2.36% for fiscal 2012 due to lower market interest rates. Dividends on FHLB stock were $208,000 for fiscal 2013, compared to $199,000 for fiscal 2012.
Total interest expense decreased $1.4 million to $3.1 million for the year ended June 30, 2013, compared to $4.6 million for the year ended June 30, 2012. The average volume of interest-bearing liabilities decreased $29.4 million to $400.2 million while the average rate paid on interest-bearing liabilities decreased 28 basis points to 0.78% for fiscal 2013. Interest expense on deposits decreased $1.4 million to $1.5 million for 2013 compared to $3.0 million for fiscal 2012 as a result of lower interest rates combined with a lower average balance of deposits. The average rate paid on deposits decreased 34 basis points to 0.43% for the year ended June 30, 2013. Interest expense on FHLB advances remained level at $1.3 million for fiscal 2013 compared to fiscal 2012. The average balance of FHLB advances decreased $206,000 to $37.7 million for fiscal 2013 while the average rate paid on FHLB advances remained unchanged at 3.36% compared to fiscal 2012.
Average Balances and Yields. The following table presents information regarding average balances of assets and liabilities, as well as the total dollar amounts of interest income and dividends from average interest-earning assets and interest expense on average interest-bearing liabilities and the resulting average yields and costs.
The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. For purposes of this table nonaccrual loan balances and related accrued interest income have been included.
| Year Ended June 30, | ||||||||||||||||||||||||||||||||||||
| 2013 | 2012 | 2011 | ||||||||||||||||||||||||||||||||||
| Average Balance | Interest and Dividends | Yield/ Cost | Average Balance | Interest and Dividends | Yield/ Cost | Average Balance | Interest and Dividends | Yield/ Cost | ||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||||||||||||||
Loans(1) | $ | 322,331 | $ | 17,529 | 5.44 | % | $ | 363,154 | $ | 20,271 | 5.57 | % | $ | 415,966 | $ | 24,251 | 5.83 | % | ||||||||||||||||||
Investment securities | 92,721 | 1,689 | 1.89 | 83,276 | 1,900 | 2.36 | 55,013 | 1,696 | 3.23 | |||||||||||||||||||||||||||
Daily interest deposits | 31,466 | 75 | 0.24 | 29,996 | 62 | 0.21 | 72,804 | 180 | 0.25 | |||||||||||||||||||||||||||
Other earning assets | 4,735 | 208 | 4.39 | 4,735 | 199 | 4.19 | 4,735 | 207 | 4.37 | |||||||||||||||||||||||||||
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Total interest-earning assets | 451,253 | 19,501 | 4.33 | 481,161 | 22,432 | 4.66 | 548,518 | 26,334 | 4.82 | |||||||||||||||||||||||||||
Noninterest-earning assets | 57,262 | — | — | 57,864 | — | — | 59,553 | — | — | |||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
Total assets | $ | 508,515 | — | $ | 539,025 | — | $ | 608,071 | — | |||||||||||||||||||||||||||
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Interest-bearing liabilities: | ||||||||||||||||||||||||||||||||||||
Passbook accounts | 91,745 | 207 | 0.23 | 97,167 | 485 | 0.50 | 86,581 | 651 | 0.75 | |||||||||||||||||||||||||||
NOW accounts | 53,935 | 59 | 0.11 | 48,312 | 77 | 0.16 | 49,609 | 145 | 0.29 | |||||||||||||||||||||||||||
Money market accounts | 51,708 | 119 | 0.23 | 53,797 | 311 | 0.58 | 56,113 | 521 | 0.93 | |||||||||||||||||||||||||||
Certificates of deposit | 156,835 | 1,150 | 0.73 | 184,352 | 2,092 | 1.13 | 239,551 | 4,284 | 1.79 | |||||||||||||||||||||||||||
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Total interest-bearing deposits | 354,223 | 1,535 | 0.43 | 383,628 | 2,965 | 0.77 | 431,854 | 5,601 | 1.30 | |||||||||||||||||||||||||||
Borrowings | 37,700 | 1,266 | 3.36 | 37,906 | 1,272 | 3.35 | 60,459 | 2,105 | 3.48 | |||||||||||||||||||||||||||
Repurchase agreements | 985 | 4 | 0.41 | 912 | 6 | 0.66 | 1,053 | 6 | 0.57 | |||||||||||||||||||||||||||
Subordinated debentures | 7,298 | 325 | 4.45 | 7,186 | 327 | 4.54 | 7,073 | 318 | 4.50 | |||||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
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|
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Total interest-bearing liabilities | 400,206 | 3,130 | 0.78 | 429,632 | 4,570 | 1.06 | 500,439 | 8,030 | 1.60 | |||||||||||||||||||||||||||
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Noninterest-bearing deposits | 53,680 | — | 54,090 | — | — | 49,503 | — | — | ||||||||||||||||||||||||||||
Other noninterest-bearing liabilities | 959 | — | 1,014 | — | — | 1,284 | — | — | ||||||||||||||||||||||||||||
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Total liabilities | 454,845 | 484,736 | 551,226 | |||||||||||||||||||||||||||||||||
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Stockholders’ equity | 53,670 | 54,289 | 56,845 | |||||||||||||||||||||||||||||||||
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Total liabilities and stockholders’ equity | $ | 508,515 | $ | 539,025 | $ | 608,071 | ||||||||||||||||||||||||||||||
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Net interest income | $ | 16,371 | $ | 17,862 | $ | 18,304 | ||||||||||||||||||||||||||||||
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Interest rate spread | 3.55 | % | 3.60 | % | 3.21 | % | ||||||||||||||||||||||||||||||
Net interest margin | 3.64 | % | 3.72 | % | 3.35 | % | ||||||||||||||||||||||||||||||
Ratio of average interest-earning assets to average interest-bearing liabilities | 112.76 | % | 111.99 | % | 109.61 | % | ||||||||||||||||||||||||||||||
Rate/Volume Analysis. The following table sets forth the effects of changing rates and volumes on Jefferson’s net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. For purposes of this table, changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionately based on the changes due to rate and the changes due to volume.
| 2013 Compared to 2012 | 2012 Compared to 2011 | |||||||||||||||||||||||
| Increase (Decrease) Due to | Increase (Decrease) Due to | |||||||||||||||||||||||
| Volume | Rate | Net | Volume | Rate | Net | |||||||||||||||||||
| (In Thousands) | ||||||||||||||||||||||||
Interest income: | ||||||||||||||||||||||||
Loans receivable | $ | (2,231 | ) | $ | (511 | ) | $ | (2,742 | ) | $ | (2,981 | ) | $ | (999 | ) | $ | (3,980 | ) | ||||||
Investment securities | 250 | (461 | ) | (211 | ) | 950 | (746 | ) | 204 | |||||||||||||||
Daily interest-bearing deposits and other interest-earning assets | 3 | 19 | 22 | (92 | ) | (34 | ) | (126 | ) | |||||||||||||||
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Total interest-earning assets | (1,978 | ) | (953 | ) | (2,931 | ) | (2,123 | ) | (1,779 | ) | (3,902 | ) | ||||||||||||
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Interest expense: | ||||||||||||||||||||||||
Deposits | (212 | ) | (1,218 | ) | (1,430 | ) | (571 | ) | (2,065 | ) | (2,636 | ) | ||||||||||||
Borrowings | (7 | ) | (1 | ) | (8 | ) | (760 | ) | (73 | ) | (833 | ) | ||||||||||||
Subordinated debentures | 5 | (7 | ) | (2 | ) | 5 | 4 | 9 | ||||||||||||||||
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Total interest-bearing liabilities | (214 | ) | (1,226 | ) | (1,440 | ) | (1,326 | ) | (2,134 | ) | (3,460 | ) | ||||||||||||
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Net change in interest income | $ | (1,764 | ) | $ | 273 | $ | (1,491 | ) | $ | (797 | ) | $ | 355 | $ | (442 | ) | ||||||||
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Provision for Loan Losses.
The provision for loan losses for fiscal 2013 was $800,000 compared to a provision of $9.9 million for fiscal 2012. Management reviews the level of the allowance for loan losses on a monthly basis and establishes the provision for loan losses based on changes in the nature and volume of the loan portfolio, the amount of impaired and classified loans, historical loan loss experience and other qualitative factors. Net charge-offs for the year ended June 30, 2013 amounted to $992,000 compared to $12.2 million for the year ended June 30, 2012. A significant portion of the loan charge-offs during fiscal 2013 and 2012 were against specific reserves and did not require replenishment of the allowance for loan losses.
An analysis of the changes in the allowance for loan losses is presented under “Allowance for Loan Losses and Asset Quality.”
Noninterest Income. The following table shows the components of noninterest income and the percentage changes from 2013 to 2012.
| 2013 | 2012 | % Change 2013/2012 | ||||||||||
| (Dollars in Thousands) | ||||||||||||
Mortgage origination fees | $ | 445 | $ | 306 | 45.4 | % | ||||||
Service charges and fees | 1,036 | 1,106 | (6.3 | ) | ||||||||
Gain on investment securities | 12 | 50 | (76.0 | ) | ||||||||
Impairment on investment securities | — | (29 | ) | (100.0 | ) | |||||||
Loss on sale of fixed assets | 1 | (12 | ) | (108.3 | ) | |||||||
Loss on foreclosed real estate | (266 | ) | (169 | ) | 57.4 | |||||||
BOLI increase in cash value | 239 | 236 | 1.3 | |||||||||
Other | 646 | 692 | (6.6 | ) | ||||||||
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Total noninterest income | $ | 2,113 | $ | 2,180 | (3.1 | %) | ||||||
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For the year ended June 30, 2013, noninterest income decreased $67,000 to $2.1 million compared to $2.2 million for fiscal 2012. Mortgage origination fee income increased $139,000, or 45.4%, to $445,000 compared to the prior year due to higher demand for residential mortgage refinancing. Net losses on sale of foreclosed property totaled $266,000 for fiscal 2013 compared to $169,000 for fiscal 2012. Service charges and fees decreased $70,000, or 6.3%, to $1.0 million for fiscal 2013 compared to fiscal 2012.
Noninterest Expense. The following table shows the components of noninterest expense and the percentage changes from 2013 to 2012.
| 2013 | 2012 | % Change 2013/2012 | ||||||||||
| (Dollars in Thousands) | ||||||||||||
Compensation and benefits | $ | 6,761 | $ | 6,209 | 8.9 | % | ||||||
Occupancy | 1,343 | 1,379 | (2.6 | ) | ||||||||
Equipment and data processing | 2,453 | 2,376 | 3.2 | |||||||||
Deposit insurance premiums | 968 | 811 | 19.4 | |||||||||
Advertising | 383 | 359 | 6.7 | |||||||||
Professional services | 463 | 442 | (13.1 | ) | ||||||||
Valuation adjustment and expenses on OREO | 732 | 2,374 | (69.2 | ) | ||||||||
Amortization of intangible assets | 386 | 441 | (12.5 | ) | ||||||||
Other | 2,057 | 2,302 | (7.0 | ) | ||||||||
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Total noninterest expense | $ | 15,546 | $ | 16,693 | (6.9 | ) | ||||||
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For the year ended June 30, 2013, noninterest expense decreased $1.1 million to $15.5 million compared to $16.7 million for fiscal 2012. Compensation and benefits expense increased $552,000, or 8.9%, to $6.8 million for fiscal 2013 compared to fiscal 2012 due to a higher number of full-time employees combined with increases in commissions, salaries, ESOP expense, and health insurance costs. Valuation adjustments and expenses on other real estate owned decreased $1.6 million to $732,000 for fiscal 2013 compared to $2.4 million for fiscal 2012.
Income Taxes.
For the year ended June 30, 2013, income tax expense was $544,000 compared to a tax benefit of $2.5 million for the year ended June 30, 2012.
Balance Sheet Analysis
Loans. Net loans decreased slightly to $321.3 million at June 30, 2013 compared to $322.5 million at June 30, 2012. Loan principal repayments and payoffs slightly exceeded new loan volume during fiscal year 2013 compared to the year ended June 30, 2012. Jefferson’s primary lending activity is the origination of loans secured by real estate. Jefferson originates real estate loans secured by one- to four-family homes, commercial real estate, multi-family real estate and land. Jefferson also originates construction loans and home equity loans. At June 30, 2013, real estate loans totaled $266.2 million, or 81.3% of total loans, compared to $282.4 million, or 85.9% of total loans, at June 30, 2012. Real estate loans decreased $16.2 million, or 5.7%, in fiscal 2013.
The following table sets forth the composition of Jefferson’s loan portfolio at the dates indicated.
| At June 30, | ||||||||||||||||||||||||||||||||||||||||
| 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||||||||||||||||||
| Amount | Percent | Amount | Percent | Amount | Percent | Amount | Percent | Amount | Percent | |||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||
Real estate loans: | ||||||||||||||||||||||||||||||||||||||||
Residential one- to four-family | $ | 87,233 | 26.7 | % | $ | 97,182 | 29.6 | % | $ | 110,046 | 28.4 | % | $ | 136,430 | 30.7 | % | $ | 144,659 | 28.7 | % | ||||||||||||||||||||
Home equity lines of credit | 16,259 | 5.0 | 18,395 | 5.6 | 20,029 | 5.2 | 19,768 | 4.4 | 22,467 | 4.5 | ||||||||||||||||||||||||||||||
Commercial | 120,205 | 36.7 | 127,185 | 38.7 | 144,519 | 37.3 | 140,024 | 31.5 | 159,608 | 31.7 | ||||||||||||||||||||||||||||||
Multi-family | 13,509 | 4.1 | 11,564 | 3.5 | 14,062 | 3.6 | 16,536 | 3.7 | 6,584 | 1.3 | ||||||||||||||||||||||||||||||
Construction | 6,692 | 2.0 | 548 | 0.2 | 2,171 | 0.6 | 21,073 | 4.7 | 40,831 | 8.1 | ||||||||||||||||||||||||||||||
Land | 22,296 | 6.8 | 27,487 | 8.4 | 30,053 | 7.8 | 37,135 | 8.4 | 46,987 | 9.3 | ||||||||||||||||||||||||||||||
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Total real estate loans | 266,194 | 81.3 | 282,361 | 85.9 | 320,880 | 82.9 | 370,966 | 83.5 | 421,136 | 83.7 | ||||||||||||||||||||||||||||||
Commercial business loans | 57,288 | 17.5 | 42,107 | 12.8 | 60,497 | 15.6 | 66,699 | 15.0 | 73,467 | 14.6 | ||||||||||||||||||||||||||||||
Non-real estate loans: | ||||||||||||||||||||||||||||||||||||||||
Automobile loans | 510 | 0.2 | 833 | 0.3 | 1,237 | 0.3 | 1,848 | 0.4 | 2,754 | 0.5 | ||||||||||||||||||||||||||||||
Mobile home loans | — | 0.0 | 3 | 0.0 | 13 | 0.0 | 23 | 0.0 | 43 | 0.0 | ||||||||||||||||||||||||||||||
Loans secured by deposits | 340 | 0.1 | 381 | 0.1 | 1,268 | 0.3 | 1,372 | 0.3 | 1,322 | 0.3 | ||||||||||||||||||||||||||||||
Other consumer loans | 2,971 | 0.9 | 2,989 | 0.9 | 3,235 | 0.8 | 3,566 | 0.8 | 4,609 | 0.9 | ||||||||||||||||||||||||||||||
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Total non-real estate loans | 3,821 | 1.2 | 4,206 | 1.3 | 5,753 | 1.5 | 6,809 | 1.5 | 8,728 | 1.7 | ||||||||||||||||||||||||||||||
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Total gross loans | 327,303 | 100.00 | % | 328,674 | 100.0 | % | 387,130 | 100.0 | % | 444,474 | 100.0 | % | 503,331 | 100.00 | % | |||||||||||||||||||||||||
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Less: | ||||||||||||||||||||||||||||||||||||||||
Deferred loan fees, net | (344 | ) | (323 | ) | (362 | ) | (447 | ) | (502 | ) | ||||||||||||||||||||||||||||||
Allowance for losses | (5,660 | ) | (5,852 | ) | (8,181 | ) | (9,649 | ) | (4,722 | ) | ||||||||||||||||||||||||||||||
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Total loans receivable, net | $ | 321,299 | $ | 322,499 | $ | 378,587 | $ | 434,378 | $ | 498,107 | ||||||||||||||||||||||||||||||
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The following table sets forth certain information at June 30, 2013 regarding the dollar amount of principal repayments becoming due during the periods indicated for loans. The table does not include any estimate of prepayments which significantly shorten the average life of all loans and may cause Jefferson’s actual repayment experience to differ from that shown below. Demand loans having no stated schedule of repayments and no stated maturity are reported as due in one year or less.
| Real Estate Loans | Commercial Business Loans | Consumer Loans | Total Loans | |||||||||||||
| (In thousands) | ||||||||||||||||
Amounts due in: | ||||||||||||||||
One year or less | $ | 57,320 | $ | 25,726 | $ | 2,450 | $ | 85,496 | ||||||||
More than one to three years | 42,694 | 11,036 | 841 | 54,571 | ||||||||||||
More than three to five years | �� | 75,075 | 12,578 | 522 | 88,175 | |||||||||||
More than five to 15 years | 37,519 | 4,986 | 8 | 42,513 | ||||||||||||
More than 15 years | 53,586 | 2,962 | — | 56,548 | ||||||||||||
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Total | $ | 266,194 | $ | 57,288 | $ | 3,821 | $ | 327,303 | ||||||||
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The following table sets forth the dollar amount of all loans at June 30, 2013 that are due after June 30, 2014 and have either fixed interest rates or floating or adjustable interest rates.
| Fixed-Rates | Floating or Adjustable Rates | Total | ||||||||||
| (In thousands) | ||||||||||||
Real estate loans: | ||||||||||||
One- to four-family | $ | 19,047 | $ | 58,001 | $ | 77,048 | ||||||
Home equity lines of credit | 86 | 14,796 | 14,882 | |||||||||
Commercial | 55,225 | 37,631 | 92,856 | |||||||||
Multi-family | 7,897 | 512 | 8,409 | |||||||||
Construction | 2,832 | 2,205 | 5,037 | |||||||||
Land | 8,908 | 1,734 | 10,642 | |||||||||
Commercial business loans | 15,526 | 16,036 | 31,562 | |||||||||
Consumer loans | 1,352 | 19 | 1,371 | |||||||||
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| |||||||
Total | $ | 110,873 | $ | 130,934 | $ | 241,807 | ||||||
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The following table shows activity in Jefferson’s loan portfolio, excluding loans held for sale, during the periods indicated.
| Year Ended June 30, | ||||||||||||
| 2013 | 2012 | 2011 | ||||||||||
| (In thousands) | ||||||||||||
Total loans at beginning of period | $ | 328,674 | $ | 387,130 | $ | 444,474 | ||||||
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Loans originated: | ||||||||||||
Real estate | 48,757 | 21,219 | 25,706 | |||||||||
Commercial business | 24,279 | 6,386 | 14,051 | |||||||||
Consumer | 1,278 | 1,011 | 1,387 | |||||||||
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Total loans originated | 74,314 | 28,616 | 41,144 | |||||||||
Loan principal repayments | (75,685 | ) | (87,072 | ) | (98,488 | ) | ||||||
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Net loan activity | (1,371 | ) | (58,456 | ) | (57,344 | ) | ||||||
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Total gross loans at end of period | $ | 327,303 | $ | 328,674 | $ | 387,130 | ||||||
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Investments. Jefferson’s investment portfolio consists of U.S. agency securities, mortgage-backed securities, corporate securities, and municipal securities. Investment securities increased $12.5 million to $96.0 million at June 30, 2013 compared to $83.5 million at June 30, 2012 as the result of excess liquidity deployed into the investment portfolio. Investments classified as available-for-sale are carried at fair market value and reflect an
unrealized loss of $179,000, or $111,000 net of taxes. The increase in the investment portfolio reflects security purchases totaling $42.9 million, partially offset by sales, paydowns and calls of securities totaling approximately $27.8 million.
| At June 30, | ||||||||||||||||||||||||
| 2013 | 2012 | 2011 | ||||||||||||||||||||||
| Amortized Cost | Fair Value | Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
Federal agency securities | $ | 21,985 | $ | 21,653 | $ | 24,033 | $ | 24,296 | $ | 43,721 | $ | 43,949 | ||||||||||||
Mortgage-backed securities | 65,607 | 65,868 | 52,822 | 54,415 | 24,551 | 25,356 | ||||||||||||||||||
Municipal securities | 8,004 | 8,005 | 4,245 | 4,563 | 5,150 | 5,237 | ||||||||||||||||||
Other securities | 607 | 498 | 609 | 209 | 613 | 238 | ||||||||||||||||||
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Total | $ | 96,203 | $ | 96,024 | $ | 81,709 | $ | 83,483 | $ | 74,035 | $ | 74,780 | ||||||||||||
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The following table sets forth the maturities and weighted average yields of investment securities at June 30, 2013.
| More than One Year to Five Years | More than Five Years to Ten Years | More than Ten Years | Total | |||||||||||||||||||||||||||||
| Carrying Value | Weighted Average Yield | Carrying Value | Weighted Average Yield | Carrying Value | Weighted Average Yield | Carrying Value | Weighted Average Yield | |||||||||||||||||||||||||
Federal agency securities | $ | 3,549 | 1.85 | % | $ | 10,627 | 1.54 | % | $ | 929 | 3.00 | % | $ | 15,105 | 1.70 | % | ||||||||||||||||
Mortgage-backed securities | — | 0.00 | 9,475 | 1.24 | 56,386 | 1.91 | 65,861 | 1.82 | ||||||||||||||||||||||||
Municipal securities | 1,066 | 1.09 | 3,474 | 2.66 | 3,211 | 3.54 | 7,751 | 2.66 | ||||||||||||||||||||||||
Other securities | — | 0.00 | — | 0.00 | 499 | 0.00 | 499 | 0.00 | ||||||||||||||||||||||||
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Total | $ | 4,615 | 1.67 | % | $ | 23,576 | 1.58 | % | $ | 61,025 | 2.00 | % | $ | 89,216 | 1.86 | % | ||||||||||||||||
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Deposits. Jefferson’s primary source of funds is its deposit accounts. The deposit base is comprised of checking, savings, money market and time deposits. These deposits are provided primarily by individuals and businesses within Jefferson’s market area. Jefferson does not use brokered deposits as a source of funding. Total deposits decreased $24.2 million to $399.6 million at June 30, 2013 primarily due to the planned runoff of higher cost certificates of deposit. Certificates of deposit decreased $22.3 million, or 13.1%, to $148.1 million while transaction accounts decreased $1.9 million to $251.5 million at June 30, 2013. Management monitors the deposit mix and deposit pricing on a regular basis and has focused on growth in lower cost transaction accounts. Jefferson’s deposit pricing strategy is to offer competitive rates, but not to offer the highest deposit rates in its markets.
| At June 30, | ||||||||||||
| 2013 | 2012 | 2011 | ||||||||||
| (In thousands) | ||||||||||||
Noninterest-bearing accounts | $ | 54,765 | $ | 52,436 | $ | 54,340 | ||||||
NOW accounts | 54,164 | 52,958 | 46,134 | |||||||||
Passbook accounts | 91,280 | 96,588 | 91,637 | |||||||||
Money market deposit accounts | 51,324 | 51,492 | 51,252 | |||||||||
Certificates of deposit | 148,109 | 170,408 | 210,899 | |||||||||
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Total | $ | 399,642 | $ | 423,882 | $ | 454,262 | ||||||
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The following table indicates the amount of jumbo certificates of deposit by time remaining until maturity as of June 30, 2013. Jumbo certificates of deposit require minimum deposits of $100,000.
| Certificates of Deposit | ||||
Maturity Period | (In thousands) | |||
Three months or less | $ | 14,988 | ||
Over three through six months | 9,024 | |||
Over six through twelve months | 15,792 | |||
Over twelve months | 17,394 | |||
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Total | $ | 57,198 | ||
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The following table sets forth the time deposits classified by rates at the dates indicated.
| At June 30, | ||||||||||||
| 2013 | 2012 | 2011 | ||||||||||
| (In thousands) | ||||||||||||
0.01 – 1.00% | $ | 115,563 | $ | 129,619 | $ | 82,706 | ||||||
1.01 – 2.00% | 31,306 | 36,538 | 108,257 | |||||||||
2.01 – 3.00% | 533 | 2,313 | 8,046 | |||||||||
3.01 – 4.00% | 35 | 64 | 4,963 | |||||||||
4.01 – 5.00% | 672 | 1,874 | 6,927 | |||||||||
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Total | $ | 148,109 | $ | 170,408 | $ | 210,899 | ||||||
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The following table sets forth the amount and maturities of time deposits at June 30, 2013.
| At June 30, 2013 | ||||||||||||||||||||||||||||
| Less Than One Year | 1-2 Years | 2-3 Years | 3-4 Years | 4 or More Years | Total | Percent of Total Certificate Accounts | ||||||||||||||||||||||
| (In Thousands) | ||||||||||||||||||||||||||||
0.01 – 1.00% | $ | 91,537 | $ | 11,320 | $ | 11,323 | $ | 1,250 | $ | 133 | $ | 115,563 | 78.0 | % | ||||||||||||||
1.01 – 2.00% | 17,309 | 9,954 | 207 | 955 | 2,881 | 31,306 | 21.1 | |||||||||||||||||||||
2.01 – 3.00% | 471 | 62 | — | — | — | 533 | 0.4 | |||||||||||||||||||||
3.01 – 4.00% | 35 | — | — | — | — | 35 | 0.0 | |||||||||||||||||||||
4.01 – 5.00% | 672 | — | — | — | — | 672 | 0.5 | |||||||||||||||||||||
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Total | $ | 110,024 | $ | 21,336 | $ | 11,530 | $ | 2,205 | $ | 3,014 | $ | 148,109 | 100.0 | % | ||||||||||||||
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Borrowings. Jefferson has relied upon advances from the FHLB to supplement its supply of lendable funds and to meet deposit withdrawal requirements. FHLB advances decreased to $37.6 million at June 30, 2013 from $37.9 million at June 30, 2012. The following table presents certain information regarding Jefferson’s use of FHLB advances during the periods and at the dates indicated.
| Year Ended June 30, | ||||||||||||
| 2013 | 2012 | 2011 | ||||||||||
| (Dollars in thousands) | ||||||||||||
Maximum amount of advances outstanding at any month end | $ | 37,856 | $ | 37,936 | $ | 85,104 | ||||||
Average advances outstanding | $ | 37,700 | $ | 37,906 | $ | 60,459 | ||||||
Weighted average interest rate during the period | 3.36 | % | 3.36 | % | 3.48 | % | ||||||
Balance outstanding at end of period | $ | 37,626 | $ | 37,863 | $ | 37,942 | ||||||
Weighted average interest rate at end of period | 3.36 | % | 3.36 | % | 3.36 | % | ||||||
Stockholders’ Equity. Stockholders’ equity was $53.0 million at June 30, 2013 compared to $52.6 million at June 30, 2012. Jefferson Federal’s total risk-based capital ratio was 14.18% at June 30, 2013, compared to 13.42% at June 30, 2012. During the year ended June 30, 2013, there were 30,897 shares of Jefferson common stock purchased through Jefferson’s stock repurchase program at a cost of $156,000. At June 30, 2013, an additional 406,905 shares remained eligible for repurchase under the current stock repurchase program. Unrealized gains and losses, net of taxes, in the available-for-sale investment portfolio are reflected as an adjustment to stockholders’ equity. At June 30, 2013, the adjustment to stockholders’ equity was a net unrealized loss of $111,000 compared to a net unrealized gain of $1.1 million at June 30, 2012.
Allowance for Loan Losses and Asset Quality
Allowance for Loan Losses.The allowance for loan losses is a valuation allowance for probable losses inherent in the loan portfolio. Jefferson evaluates the need to establish reserves against losses on loans on a monthly basis. When additional reserves are necessary, a provision for loan losses is charged to earnings.
In connection with assessing the allowance, Jefferson has established a systematic methodology for determining the adequacy of the allowance for loan losses. The methodology segments loans with similar risk characteristics. Management performs a monthly assessment of the allowance for loan losses based on the nature and volume of the loan portfolio, the amount of impaired and classified loans and historical loan loss experience. In addition, management considers other qualitative factors, including delinquency trends, economic conditions and loan considerations.
The Tennessee Department of Financial Institutions and the FDIC, as an integral part of their examination process, periodically review Jefferson’s allowance for loan losses. The Tennessee Department of Financial Institutions and FDIC may require Jefferson to make additional provisions for loan losses based on judgments different from ours.
The allowance for loan losses was $4.0 million at December 31, 2013 compared to $5.7 million at June 30, 2013. Jefferson’s allowance for loan losses represented 1.19% of total loans and 59.40% of nonperforming loans at December 31, 2013 compared to 1.73% of total loans and 44.23% of nonperforming loans at June 30, 2013. The allowance for loan losses decreased $192,000 for fiscal 2013 to $5.7 million at June 30, 2013. Primarily as a result of management’s evaluation of credit quality and current economic conditions, the provision for loan losses was $800,000 for fiscal 2013, compared to a provision of $9.9 million for fiscal 2012.
Net charge-offs for the three and six month periods ended December 31, 2013 amounted to $1.0 million and $1.7 million, respectively, compared to $359,000 and $750,000 for the comparable periods in 2012. Net charge-offs were $992,000 for fiscal 2013 compared to $12.2 million for fiscal 2012. Net charge-offs for the fiscal year ended June 30, 2013 were primarily attributable to real estate loans. At June 30, 2013, Jefferson’s allowance for loan losses represented 1.73% of total gross loans and 44.23% of nonperforming loans, compared to 1.78% of total gross loans and 31.53% of nonperforming loans at June 30, 2012. A significant portion of the loan charge-offs during the six months ended December 31, 2013 and fiscal 2013 were against specific reserves and did not require replenishment of the allowance for loan losses.
Although Jefferson believes that it uses the best information available to establish the allowance for loan losses, future adjustments to the allowance for loan losses may be necessary and results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations. Furthermore, while Jefferson believes it has established its allowance for loan losses in conformity with generally accepted accounting principles, there can be no assurance that regulators, in reviewing its loan portfolio, will not request Jefferson to increase its allowance for loan losses. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that increases will not be necessary should the quality of any loans deteriorate as a result of the factors discussed above. Any material increase in the allowance for loan losses may adversely affect Jefferson’s financial condition and results of operations.
Summary of Loan Loss Experience. The following table sets forth an analysis of the allowance for loan losses for the periods indicated. Where specific loan loss reserves have been established, any difference between the loss reserve and the amount of loss realized has been charged or credited to current income.
| Six Months Ended December 31, | Year Ended June 30, | |||||||||||||||||||||||
| 2013 | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
Allowance at beginning of period | $ | 5,660 | $ | 5,852 | $ | 8,181 | $ | 9,649 | $ | 4,722 | $ | 1,836 | ||||||||||||
Provision for loan losses | — | 800 | 9,873 | 4,447 | 8,809 | 910 | ||||||||||||||||||
Reserve for acquired bank | — | — | — | — | 2,577 | |||||||||||||||||||
Recoveries: | ||||||||||||||||||||||||
Real estate loans | 114 | 36 | 12 | 110 | 7 | 22 | ||||||||||||||||||
Commercial business loans | 77 | 386 | 897 | 91 | 3 | 29 | ||||||||||||||||||
Consumer loans | 9 | 17 | 25 | 18 | 51 | 63 | ||||||||||||||||||
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Total recoveries | 200 | 439 | 934 | 219 | 61 | 114 | ||||||||||||||||||
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Charge offs: | ||||||||||||||||||||||||
Real estate loans | 1,289 | (950 | ) | (4,363 | ) | (3,853 | ) | (1,955 | ) | (220 | ) | |||||||||||||
Commercial business loans | 540 | (441 | ) | (8,673 | ) | (2,150 | ) | (1,869 | ) | (327 | ) | |||||||||||||
Consumer loans | 58 | (40 | ) | (100 | ) | (131 | ) | (119 | ) | (168 | ) | |||||||||||||
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Total charge-offs | 1,887 | (1,431 | ) | (13,136 | ) | (6,134 | ) | (3,943 | ) | (715 | ) | |||||||||||||
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Net charge-offs | 1,687 | (992 | ) | (12,202 | ) | (5,915 | ) | (3,882 | ) | (601 | ) | |||||||||||||
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Allowance at end of period | $ | 3,973 | $ | 5,660 | $ | 5,852 | $ | 8,181 | $ | 9,649 | $ | 4,722 | ||||||||||||
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Allowance to nonperforming loans | 59.40 | % | 44.23 | % | 31.53 | % | 99.19 | % | 51.38 | % | 78.30 | % | ||||||||||||
Allowance to total gross loans outstanding at the end of the period | 1.19 | % | 1.73 | % | 1.78 | % | 2.11 | % | 2.17 | % | 0.94 | % | ||||||||||||
Net charge-offs to average loans outstanding during the period | 1.04 | % | 0.31 | % | 3.36 | % | 1.42 | % | 0.83 | % | 0.14 | % | ||||||||||||
The following table sets forth the breakdown of the allowance for loan losses by loan category at the dates indicated.
| At December 31, | At June 30, | |||||||||||||||||||||||||||||||||||
| 2013 | 2013 | 2012 | ||||||||||||||||||||||||||||||||||
| Amount | % of Allowance to Total Allowance | % of Loans in Category to Total Loans | Amount | % of Allowance to Total Allowance | % of Loans in Category to Total Loans | Amount | % of Allowance to Total Allowance | % of Loans in Category to Total Loans | ||||||||||||||||||||||||||||
Real estate | $ | 3,221 | 81.1 | % | 81.2 | % | $ | 3,084 | 54.5 | % | 81.3 | % | $ | 3,700 | 63.2 | % | 85.9 | % | ||||||||||||||||||
Commercial business | 697 | 15.5 | 17.9 | 2,524 | 44.6 | 17.5 | 2,130 | 36.4 | 12.8 | |||||||||||||||||||||||||||
Consumer | 55 | 1.4 | 0.9 | 52 | 0.9 | 1.2 | 22 | 0.4 | 1.3 | |||||||||||||||||||||||||||
Unallocated | — | 0.0 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
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Total allowance for loan losses | $ | 3,973 | 100.0 | % | 100.00 | % | $ | 5,660 | 100.0 | % | 100.0 | % | $ | 5,852 | 100.0 | % | 100.0 | % | ||||||||||||||||||
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Real estate Commercial business Consumer Unallocated Total allowance for loan losses At June 30, 2011 2010 2009 Amount % of
Allowance
to Total
Allowance % of
Loans in
Category
to Total
Loans Amount % of
Allowance
to Total
Allowance % of
Loans in
Category
to Total
Loans Amount % of
Allowance
to Total
Allowance % of
Loans in
Category
to Total
Loans $ 6,941 84.8 % 80.8 % $ 7,857 81.4 % 83.5 % $ 3,819 80.9 % 83.7 % 1,197 14.6 17.7 1,675 17.4 15.0 755 16.0 14.6 43 0.5 1.5 117 1.2 1.5 148 3.1 1.7 — — — — — — — — — $ 8,181 100.0 % 100.0 % $ 9,649 100.0 % 100.0 % $ 4,722 100.0 % 100.0 %
Nonperforming and Classified Assets. When a loan becomes 90 days delinquent, the loan is placed on nonaccrual status at which time the accrual of interest ceases and the reserve for any uncollectible accrued interest is established and charged against operations. The interest on these loans is accounted for on the cash basis or cost-recovery method until the loan is returned to accrual status. Loans are returned to accrual status when future payments are reasonably assured. Payments received on non-accrual loans are applied to the remaining principal balance of the loans.
Jefferson considers repossessed assets and loans that are 90 days or more past due to be nonperforming assets. Real estate that Jefferson acquires as a result of foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned until it is sold. When property is acquired, it is recorded at the lower of its cost, which is the unpaid balance of the loan plus foreclosure costs, or fair market value at the date of foreclosure. Holding costs and declines in fair value after acquisition of the property result in charges against income.
Nonperforming assets totaled $13.0 million, or 2.61% of total assets, at December 31, 2013, compared to $19.2 million, or 3.81% of total assets, at June 30, 2013. Nonaccrual loans totaled $6.7 million at December 31, 2013 compared to $12.8 million at June 30, 2013. TDRs were $3.9 million at December 31, 2013 compared to $9.1 million at June 30, 2013. Nonperforming assets decreased to $19.2 million, or 3.81% of total assets, at June 30, 2013, compared to $25.2 million, or 4.82% at June 30, 2012 as a result of a decrease in nonaccrual loans and foreclosed real estate. Nonaccrual loans totaled $12.8 million at June 30, 2013 compared to $18.6 million at June 30, 2012. The decrease in nonaccrual loans is primarily driven by the real estate segments of the portfolio. Nonaccrual loans with a current payment status were approximately 71% of the balance at June 30, 2013. Foreclosed real estate remained relatively unchanged at $5.4 million at December 31, 2013 compared to June 30, 2013. At December 31, 2013, foreclosed real estate consisted of vacant land totaling $3.5 million, residential property totaling $1.1 million, and commercial real estate totaling $792,000. Foreclosed real estate decreased $642,000 for fiscal 2013 to $5.4 million at June 30, 2013. At June 30, 2013, foreclosed real estate consisted of $1.3 million of single family homes, $3.6 million of vacant land, and commercial real estate totaling $525,000.
Under current accounting guidelines, a loan is defined as impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due under the contractual terms of the loan agreement. Jefferson considers consumer installment loans to be homogeneous and, therefore, do not separately evaluate them for impairment. All other loans are evaluated for impairment on an individual basis. At June 30, 2013, impaired loans totaled $14.4 million.
Troubled debt restructuring (“TDR”) loans were $3.9 million at December 31, 2013 and $9.1 million at June 30, 2013. A TDR exists when Jefferson grants a concession to a borrower experiencing financial difficulty that it normally would not otherwise consider. These concessions can result in avoidance of foreclosure proceedings and can result in the full repayment of the loan principal amount. Troubled debt restructurings are considered to be nonperforming, except for those that have established a sufficient performance history (generally at a minimum of six consecutive months of performance under the restructured terms) under the terms for the restructured loan. The majority of Jefferson Federal’s TDRs involve a modification in loan terms such as a temporary period of interest
only or extension of the maturity date. The majority of loans in this category are in compliance with their modified loan terms as of June 30, 2013. The amount of accruing TDR loans totaled $2.3 million at December 31, 2013 and $1.6 million at June 30, 2013. Additional information on all of Jefferson’s troubled debt restructurings appears in the troubled debt restructurings table below.
The following table provides information with respect to Jefferson’s nonperforming assets at the dates indicated.
| At December 31, | At June 30, | |||||||||||||||||||||||
| 2013 | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
Nonaccrual loans: | ||||||||||||||||||||||||
Real estate | $ | 3,619 | $ | 4,597 | $ | 9,040 | $ | 5,401 | $ | 17,367 | $ | 5,724 | ||||||||||||
Commercial business | 1,422 | 211 | 1,034 | 848 | 1,309 | 252 | ||||||||||||||||||
Consumer | — | 439 | 33 | 41 | 103 | 55 | ||||||||||||||||||
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Total nonaccrual loans | 5,041 | 5,247 | 10,107 | 6,290 | 18,779 | 6,031 | ||||||||||||||||||
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Nonaccrual restructured loans: | ||||||||||||||||||||||||
Real estate | 1,465 | 7,312 | 8,140 | 1,531 | — | — | ||||||||||||||||||
Commercial business | 182 | 237 | 315 | 427 | — | — | ||||||||||||||||||
Consumer | — | — | — | — | — | — | ||||||||||||||||||
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Total nonaccrual restructured loans | 1,647 | 7,549 | 8,455 | 1,958 | — | — | ||||||||||||||||||
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Total nonperforming loans | 6,688 | 12,796 | 18,562 | 8,248 | 18,779 | 6,031 | ||||||||||||||||||
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Nonaccrual investments | 904 | 942 | 207 | 464 | 731 | — | ||||||||||||||||||
Real estate owned | 5,417 | 5,433 | 6,075 | 9,498 | 6,865 | 3,328 | ||||||||||||||||||
Other nonperforming assets(1) | — | — | 348 | 1 | — | 106 | ||||||||||||||||||
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Total nonperforming assets | $ | 13,009 | $ | 19,171 | $ | 25,192 | $ | 18,211 | $ | 26,375 | $ | 9,465 | ||||||||||||
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Accruing restructured loans | 2,278 | $ | 1,553 | $ | 2,304 | $ | 13,821 | $ | — | $ | — | |||||||||||||
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Accruing restructured loans and nonperforming loans | 8,966 | $ | 14,349 | $ | 20,866 | $ | 22,069 | $ | 18,779 | $ | 6,031 | |||||||||||||
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Total nonperforming loans to total loans | 2.00 | % | 3.91 | % | 5.65 | % | 2.13 | % | 4.22 | % | 1.20 | % | ||||||||||||
Total nonperforming loans to total assets | 1.34 | % | 2.54 | % | 3.55 | % | 1.47 | % | 2.98 | % | 0.91 | % | ||||||||||||
Total nonperforming assets to total assets | 2.61 | % | 3.81 | % | 4.82 | % | 3.25 | % | 4.18 | % | 1.43 | % | ||||||||||||
Interest income that would have been recorded for the years ended June 30, 2013, and 2012 had nonaccruing loans and accruing restructured loans been current according to their original terms was $742,000 and $1.2 million, respectively. Interest related to nonaccrual loans or accruing restructured loans totaling $111,000 and $162,000 was included in interest income for the years ended June 30, 2013 and 2012, respectively.
Jefferson reviews and classifies its assets on a regular basis. In addition, the Tennessee Department of Financial Institutions has the authority to identify problem assets and, if appropriate, require them to be classified. There are three classifications for problem assets: substandard, doubtful and loss. “Substandard assets” must have one or more defined weaknesses and are characterized by the distinct possibility that Jefferson will sustain some loss if the deficiencies are not corrected. “Doubtful assets” have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. An asset classified “loss” is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted. The regulations also provide for a “special mention” category, described as assets which do not currently expose Jefferson to a sufficient degree of risk to warrant classification but do possess credit deficiencies or potential
weaknesses deserving Jefferson’s close attention. When Jefferson classifies an asset as substandard or doubtful it must establish a general allowance for loan losses. If Jefferson classifies an asset as loss, it must either establish specific allowances for loan losses in the amount of 100% of the portion of the asset classified loss or charge off such amount.
The following table shows the aggregate amounts of Jefferson’s classified assets at the dates indicated.
| At December 31, | At June 30, | |||||||||||||||
| 2013 | 2013 | 2012 | 2011 | |||||||||||||
| (In thousands) | ||||||||||||||||
Substandard assets | $ | 9,030 | $ | 18,990 | $ | 28,886 | $ | 35,153 | ||||||||
Doubtful assets | 1,167 | — | — | — | ||||||||||||
Loss assets | — | — | — | — | ||||||||||||
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Total classified assets | $ | 10,197 | $ | 18,990 | $ | 28,886 | $ | 35,153 | ||||||||
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At each of the dates in the above table, substandard assets consisted of nonperforming assets plus other loans that Jefferson believed exhibited weakness. These substandard but performing loans totaled $7.2 million, $11.8 million and $27.4 million at June 30, 2013, 2012 and 2011, respectively. At June 30, 2013, Jefferson also had $14.6 million of loans that it was monitoring because of concerns about the borrowers’ ability to continue to make payments in the future, none of which were nonperforming or classified as substandard.
Delinquencies. The following table provides information about delinquencies in Jefferson’s loan portfolio at the dates indicated.
| At December 31, | At June 30, | |||||||||||||||||||||||||||||||
| 2013 | 2013 | 2012 | 2011 | |||||||||||||||||||||||||||||
| 30-59 Days Past Due | 60-89 Days Past Due | 30-59 Days Past Due | 60-89 Days Past Due | 30-59 Days Past Due | 60-89 Days Past Due | 30-59 Days Past Due | 60-89 Days Past Due | |||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||
Real estate loans | $ | 2,008 | $ | 51 | $ | 314 | $ | 270 | $ | 1,381 | $ | 372 | $ | 3,006 | $ | 449 | ||||||||||||||||
Commercial business loans | 19 | 25 | 101 | 227 | 133 | — | 137 | 808 | ||||||||||||||||||||||||
Consumer loans | 9 | — | 10 | — | 17 | — | 24 | — | ||||||||||||||||||||||||
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Total | $ | 2,036 | $ | 76 | $ | 425 | $ | 497 | $ | 1,531 | $ | 372 | $ | 3,167 | $ | 1,257 | ||||||||||||||||
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At June 30, 2013, 2012 and 2011, delinquent loans consisted primarily of loans secured by commercial and residential real estate.
Liquidity and Capital Resources
Liquidity is the ability to meet current and future financial obligations of a short-term nature. Jefferson’s primary sources of funds consist of deposit inflows, loan repayments, maturities and sales of investment securities and borrowings from the FHLB of Cincinnati. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.
Jefferson regularly adjusts its investments in liquid assets based upon Jefferson’s assessment of (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities and (4) the objectives of Jefferson’s asset/liability management program. Excess liquid assets are invested generally in interest-earning deposits and short- and intermediate-term U.S. Government agency obligations. The Asset/Liability Committee (“ALCO”) is responsible for monitoring and implementing liquidity strategies and contingency plans that address Jefferson’s ongoing liquidity needs.
Jefferson’s most liquid assets are cash and cash equivalents and interest-bearing deposits. The levels of these assets are dependent on Jefferson’s operating, financing, lending and investing activities during any given period.
At December 31, 2013, cash and cash equivalents totaled $16.7 million compared to $24.5 million at June 30, 2013. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $93.5 million at December 31, 2013 compared to $96.0 million at June 30, 2013. At December 31, 2013, approximately $27.0 million of the investment portfolio was pledged as collateral for municipal deposits, FHLB borrowings and repurchase agreements. Municipal deposits totaled $7.5 million at December 31, 2013. Jefferson’s external sources of liquidity include borrowing capacity with the FHLB of Cincinnati, the Federal Reserve, and other correspondent banks. FHLB advances totaled $46.9 million at December 31, 2013 compared to $37.6 million at June 30, 2013. At December 31, 2013, borrowing capacity with the FHLB totaled $51.6 million based on pledged collateral, of which $4.8 million was unused. Additional eligible collateral may be transferred to the FHLB to increase borrowing capacity. Jefferson can borrow from the Federal Reserve Bank of Atlanta’s discount window to meet short-term liquidity requirements. At December 31, 2013, Jefferson had approximately $19.0 million of unused borrowing capacity based on pledged collateral with the Federal Reserve Bank discount window. In addition, Jefferson also maintains federal funds lines with two correspondent banks totaling $18.5 million under which no borrowings were outstanding. These federal funds lines may be terminated at any time and may not be outstanding for more than 14 consecutive days.
At December 31, 2013, Jefferson had approximately $15.3 million in commitments to extend credit, consisting entirely of commitments to fund real estate loans. In addition to commitments to originate loans, at December 31, 2013, Jefferson had $547,000 in unused letters of credit and approximately $28.6 million in unused lines of credit. December 31, 2013, Jefferson had approximately $75.5 million in certificates of deposit due within one year, $25.2 million in certificates of deposit without specific maturities and $246.8 million in other deposits without specific maturities. Jefferson believes, based on past experience, that a significant portion of those deposits will remain with it. Jefferson has the ability to attract and retain deposits by adjusting the interest rates offered.
The following table presents certain of Jefferson’s contractual obligations as of December 31, 2013.
| Payments due by period | ||||||||||||||||||||
Contractual Obligations | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | |||||||||||||||
| (In thousands) | ||||||||||||||||||||
Federal Home Loan Bank advances | $ | 46,909 | $ | 26,515 | $ | 10,029 | $ | 10,126 | $ | 239 | ||||||||||
Subordinated debentures | 10,001 | — | — | — | 10,001 | |||||||||||||||
Capital lease obligations | — | — | — | — | — | |||||||||||||||
Operating lease obligations | 38 | 19 | 19 | — | — | |||||||||||||||
Purchase obligations | 1,236 | 1,051 | 185 | 0 | — | |||||||||||||||
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Total | $ | 58,184 | $ | 27,585 | $ | 10,233 | $ | 10,126 | $ | 10,240 | ||||||||||
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Jefferson’s primary investing activities are the origination of loans and the purchase of securities. In the year ended June 30, 2013, Jefferson originated $74.3 million of loans. In fiscal 2012, Jefferson originated $28.6 million of loans and in fiscal 2011 Jefferson originated $41.1 million of loans.
Financing activities consist primarily of activity in deposit accounts and FHLB advances. Jefferson experienced a net decrease in total deposits of $11.6 million in the six months ended December 31, 2013, $24.2 million in the year ended June 30, 2013, a net decrease in total deposits of $30.4 million for the year ended June 30, 2012 and a net decrease in total deposits of $24.9 million for the year ended June 30, 2011, respectively. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by Jefferson and its local competitors and other factors. Jefferson generally manages the pricing of its deposits to be competitive and to increase core deposit relationships. Occasionally, Jefferson offers promotional rates on certain deposit products in order to attract deposits. FHLB advance activity reflected a decrease of $237,000 at June 30, 2013 and a decrease of $79,000 and $46.9 million at June 30, 2012 and 2011, respectively.
Jefferson is subject to various regulatory capital requirements administered by the federal prompt corrective action regulations, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At December 31, 2013, Jefferson exceeded all of its regulatory capital requirements. Jefferson is considered “well capitalized” under regulatory guidelines.
Jefferson Bancshares is a separate entity and apart from Jefferson Federal and must provide for its own liquidity. In addition to its operating expenses, Jefferson Bancshares is responsible for the payment of dividends declared for its shareholders, and interest and principal on outstanding debt. At times, Jefferson Bancshares has redeemed its stock. Substantially all of Jefferson Bancshares’ revenues are obtained from subsidiary service fees and dividends. Payment of such dividends to Jefferson Bancshares by Jefferson Federal is limited under Tennessee law. The amount that can be paid in any calendar year, without prior approval from the Tennessee Department of Financial Institutions, cannot exceed the total of Jefferson Federal’s net income for the year combined with its retained net income for the preceding two years. Jefferson Bancshares believes that such restriction will not have an impact on its ability to meet its ongoing cash obligations.
Off-Balance Sheet Arrangements
In the normal course of operations, Jefferson engages in a variety of financial transactions that, in accordance with generally accepted accounting principles, are not recorded in its financial statements. These transactions involve, to varying degrees, elements of credit, interest rate, and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments, unused lines of credit, amounts due mortgagors on construction loans, amounts due on commercial loans and commercial letters of credit.
For the six months ended December 31, 2013 and year ended June 30, 2013, Jefferson engaged in no off-balance-sheet transactions reasonably likely to have a material effect on its financial condition, results of operations or cash flows.
Impact of New Accounting Pronouncements
The impact of new accounting pronouncements is discussed in Note 4 to Jefferson’s Audited Consolidated Financial Statements beginning on page F-1 and incorporated herein by reference.
Effect of Inflation and Changing Prices
The financial statements and related financial data presented in this proxy statement/prospectus have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation. The primary impact of inflation on Jefferson’s operations is reflected in increased operating costs. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution’s performance than do general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.
Jefferson’s Quantitative and Qualitative Disclosures About Market Risk
Qualitative Aspects of Market Risk. Jefferson Federal’s most significant form of market risk is interest rate risk. Jefferson Federal manages the interest rate sensitivity of our interest-bearing liabilities and interest-earning assets in an effort to minimize the adverse effects of changes in the interest rate environment. Deposit accounts typically react more quickly to changes in market interest rates than mortgage loans because of the shorter maturities of deposits. As a result, sharp increases in interest rates may adversely affect our earnings while decreases in interest rates may beneficially affect our earnings. To reduce the potential volatility of our earnings, Jefferson Federal has sought to improve the match between asset and liability maturities and rates, while maintaining an acceptable interest rate spread. Pursuant to this strategy, Jefferson Federal actively originate adjustable-rate mortgage loans for retention in Jefferson Federal’s loan portfolio. These loans generally reprice beginning after five years and annually
thereafter. Most of Jefferson Federal’s residential adjustable-rate mortgage loans may not adjust downward below their initial interest rate. Although historically Jefferson Federal has been successful in originating adjustable-rate mortgage loans, the ability to originate such loans depends to a great extent on market interest rates and borrowers’ preferences. This product enables Jefferson Federal to compete in the fixed-rate mortgage market while maintaining a shorter maturity. Fixed-rate mortgage loans typically have an adverse effect on interest rate sensitivity compared to adjustable-rate loans. In recent years, Jefferson Federal has used investment securities with terms of seven years or less and mortgage-backed securities to help manage interest rate risk. Jefferson Federal currently does not participate in hedging programs, interest rate swaps or other activities involving the use of off-balance sheet derivative financial instruments.
Jefferson Federal has established an Asset/Liability Committee to communicate, coordinate and monitor all aspects involving asset/liability management. The committee establishes and monitors the volume and mix of assets and funding sources with the objective of managing assets and funding sources to produce results that are consistent with liquidity, capital adequacy, growth, risk limits and profitability goals.
Quantitative Aspects of Market Risk. Jefferson Federal monitors the impact of changes in interest rates on our net interest income and present value of equity using rate shock analysis. The present value of equity is defined as the present value of assets minus the present value of liabilities. This analysis assesses the risk of loss in market risk sensitive instruments in the event of a sudden and sustained 100 to 400 basis point increase or 100 basis point decrease in market interest rates with no effect given to any steps that Jefferson Federal might take to counter the effect of that interest rate movement. Because of the low level of market interest rates, this analysis is not performed for decreases of more than 100 basis points. Jefferson Federal measures interest rate risk by modeling the changes in net portfolio value over a variety of interest rate scenarios.
The following table presents the estimated impact on net interest income and equity due to immediate changes in interest rates at the specified levels at June 30, 2013:
| Change In: | ||||||||||||||||
| Net Interest Income | Economic Value of Equity | |||||||||||||||
Change in Interest Rates (In Basis Points) | $ Change | % Change | Market Value | Change | ||||||||||||
400 | $ | 17,718 | 7.6 | % | $ | 60,575 | (15.7 | %) | ||||||||
300 | 17,069 | 3.6 | 62,018 | (13.7 | ) | |||||||||||
200 | 16,508 | 0.2 | 64,871 | (9.7 | ) | |||||||||||
100 | 16,260 | (1.3 | ) | 68,366 | (4.9 | ) | ||||||||||
No change | 16,475 | 0.0 | 71,874 | 0.0 | ||||||||||||
(100) | 15,969 | (3.1 | %) | 75,056 | 4.4 | % | ||||||||||
Jefferson Federal uses certain assumptions in assessing interest rate risk that relate to interest rates, loan prepayment rates, deposit decay rates and the market values of certain assets under differing interest rate scenarios, among others. As with any method of measuring interest rate risk, certain shortcomings are inherent in the method of analysis presented in the foregoing table. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable-rate mortgage loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset. Further, in the event of a change in interest rates, expected rates of prepayments on loans and early withdrawals from certificates could deviate significantly from those assumed in calculating the table.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF JEFFERSON
Beneficial Ownership of Jefferson Common Stock
The following table sets forth information regarding beneficial ownership of JeffersonTriSummit common stock as ofApril 16, 2014, by: (1)of September 30, 2016, by (i) each shareholderdirector of TriSummit, (ii) each executive officer of TriSummit, (iii) all directors and executive officers of TriSummit as a group, and (iv) each person or entity known by JeffersonTriSummit to be the beneficial owner ofbeneficially own more than five percent5.0% of the outstanding shares of JeffersonTriSummit common stock; (2)stock as of September 30, 2016. Unless otherwise specified, the address of each listed shareholder is c/o TriSummit Bancorp, Inc., 422 Broad Street, Kingsport, Tennessee 37660.
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The percentage of Jefferson’s directors;beneficial ownership is calculated based on 3,208,830 shares of TriSummit common stock issued and (4) all Jefferson directorsoutstanding as of September 30, 2016, and executive officers402,627 shares of TriSummit Series A preferred stock issued and outstanding as of September 30, 2016, which automatically convert to common stock on a group. The information presented in the table is basedone-to-one basis upon the most recent filings with the SEC by such persons or upon information otherwise provided by such persons to Jefferson prior toApril 16, 2014.
a change of control of TriSummit. Beneficial ownership is determined according to thein accordance with rules of the SEC and generally includes any shares over which a person possessesexercises sole or shared voting and/or investment power as of April 16, 2014, as well as any shares that such person has the right to acquire within 60 daysof April 16, 2014, through the exercise of options or other rights. Except as otherwise indicated, Jefferson believes that the beneficial owners of stock listed below have sole investment and voting power with respect to the shares described.
The applicable percentage ownership for each person listed below is based upon6,595,301 shares of Jefferson common stock outstanding as ofApril 16, 2014.power. Shares of Jefferson commonTriSummit stock subject to options or other securitiesand warrants currently exercisable or exercisable on or beforeApril 16, 2014,within 60 days are deemed outstanding for the purposepurposes of calculatingcomputing the percentage ownership of the person holding thosethe options or other securities,warrants but are not treated asdeemed outstanding for the purpose of calculatingcomputing the percentage ownership of any other person.
Unless otherwise noted,indicated, and subject to the address for each holder of five percentvoting agreements entered into with HomeTrust in connection with the merger (see “The TriSummit Special Meeting—Shares Subject to Voting Agreements; Shares Held by Directors and Executive Officers” on page 28 ), to TriSummit’s knowledge, the persons or more of any of the stock listedentities identified in the following table is: c/o Jefferson Bancshares, Inc., 120 Evans Avenue, Morristown, Tennessee 37814.below have sole voting and investment power with respect to all shares shown as beneficially owned by them.
Names of Beneficial Owners | Beneficial Ownership of Jefferson Common Stock | Percentage of Outstanding Jefferson Common Stock(1) | ||||||
Beneficial Owners of More Than 5% | ||||||||
Jefferson Federal Bank | 620,426 | 9.40 | % | |||||
Employee Stock Ownership Plan 120 Evans Avenue Morristown, Tennessee 37814 | ||||||||
Steven R. Gerbel | 455,328 | (2) | 6.90 | |||||
Brown Trout Management, LLC | ||||||||
311 South Wacker Drive Suite 6025 | ||||||||
Chicago, Illinois 60606 | ||||||||
| Beneficial Ownership of TriSummit Common Stock(1) | Number of Shares of TriSummit Common Stock Subject to Options and Warrants(2) (3) | Total Beneficial Ownership of TriSummit Common Stock(1) (2) (3) | Percentage Ownership of Outstanding TriSummit Common Stock(4) | |||||||||||||
| Directors and Executive Officers | ||||||||||||||||
| Wallace D. Alley, Jr. | 55,000 | 52,000 | 107,000 | 2.92 | % | |||||||||||
| Lois A. Clarke | 104,000 | 79,000 | 183,000 | 4.96 | % | |||||||||||
| Sam F. Grigsby, Jr. | 27,350 | - | 27,350 | * | ||||||||||||
| Richard A. Manahan | 39,764 | 55,000 | 94,764 | 2.58 | % | |||||||||||
| C. Mack Patton, M.D. | 100,000 | 79,000 | 179,000 | 4.85 | % | |||||||||||
| R. Lynn Shipley, Jr. | 43,270 | 79,090 | 122,360 | 3.32 | % | |||||||||||
| Dr. Brenda White Wright | 1,200 | 5,000 | 6,200 | * | ||||||||||||
| William B. Bell | 3,700 | 14,500 | 18,200 | * | ||||||||||||
| Ted R. Fields | 4,950 | 10,420 | 15,370 | * | ||||||||||||
| Vince Hickam | 1,200 | 14,000 | 15,200 | * | ||||||||||||
| Jerome Julian | 5,000 | - | 5,000 | * | ||||||||||||
| George Schneider | 5,000 | 22,170 | 27,170 | * | ||||||||||||
All directors and executive officers as a group (12 persons) | 390,434 | 410,180 | 800,614 | 19.91 | % | |||||||||||
| Beneficial owner(s) of more than 5.0% of TriSummit common stock | ||||||||||||||||
| James W. McGlothlin | 178,375 | 2,550 | 180,925 | 5.01 | % | |||||||||||
Directors and Named Executive Officer John W. Beard, Jr. Dr. Terry M. Brimer Dr. Jack E. Campbell William T. Hale Gary L. Keys H. Scott Reams Anderson L. Smith All directors and executive officers as a group (13 persons) Beneficial
Ownership
of
Jefferson
Common
Stock(1) Percentage
of
Outstanding
Jefferson
Common
Stock(2) Number of
Shares of
Jefferson
Common
Stock
Underlying
Options
Included in
Shares
Beneficially
Owned 833 *% 2,000 109,909 (3) — — 73,188 1.67 — 57,811 * — 738 * 2,000 115,627 (4) 1.75 — 77,278 (5) 1.17 — 568,544 8.68 % 4,000
| * | Represents less than 1.0% |
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| (1) | Includes |
| (2) |
| (3) |
| (4) |
COMPARATIVE MARKET PRICES AND DIVIDENDS ON COMMON STOCK
HomeTrust common stock is traded on NASDAQ under the symbol “HTBI.” Jefferson common stock is traded on NASDAQ under the symbol “JFBI.” The following table sets forthpresents quarterly market information for the reported highCompany’s common stock for the year ended June 30, 2016 and low sales prices2015.
| Year Ended June 30, | ||||||||||||||||
| 2016 | 2015 | |||||||||||||||
| High | Low | High | Low | |||||||||||||
| First quarter | $ | 18.79 | $ | 16.71 | $ | 15.87 | $ | 14.55 | ||||||||
| Second quarter | 20.98 | 17.50 | 16.68 | 14.58 | ||||||||||||
| Third quarter | 19.99 | 16.97 | 16.72 | 15.37 | ||||||||||||
| Fourth quarter | 19.73 | 17.62 | 16.94 | 15.35 | ||||||||||||
HomeTrust did not declare any dividends on its common stock during the fiscal years ended June 30, 2016 or 2015. The timing and amount of sharescash dividends paid depends on our earnings, capital requirements, financial condition and other relevant factors. HomeTrust also has the ability to receive dividends or capital distributions from HomeTrust Bank subject to regulatory restrictions on the ability of HomeTrust common stock and Jefferson common stock, and the quarterly cash dividends per share declared, in each case for the periods indicated. The high and low sales prices are based on intraday sales for the periods reported.Bank to pay dividends.
| HomeTrust Common Stock | Jefferson Common Stock | |||||||||||||||||||||||
| High | Low | Dividends | High | Low | Dividends | |||||||||||||||||||
Year Ended June 30, 2014 | ||||||||||||||||||||||||
Fourth Quarter (through April 22, 2014) | ||||||||||||||||||||||||
Third Quarter | 16.20 | 15.25 | — | 7.85 | 6.26 | — | ||||||||||||||||||
Second Quarter | 16.62 | 15.85 | — | 6.65 | 5.77 | — | ||||||||||||||||||
First Quarter | 17.00 | 15.91 | — | 5.95 | 5.35 | — | ||||||||||||||||||
Year Ended June 30, 2013 | ||||||||||||||||||||||||
Fourth Quarter | 17.00 | 15.05 | — | 5.95 | 5.10 | — | ||||||||||||||||||
Third Quarter | 16.24 | 13.37 | — | 5.84 | 2.71 | — | ||||||||||||||||||
Second Quarter | 13.75 | 12.55 | — | 2.96 | 2.27 | — | ||||||||||||||||||
First Quarter | 13.29 | 11.24 | — | 2.63 | 1.92 | — | ||||||||||||||||||
Year Ended June 30, 2012 | ||||||||||||||||||||||||
Fourth Quarter | — | — | — | 2.47 | 1.84 | — | ||||||||||||||||||
Third Quarter | — | — | — | 2.75 | 2.00 | — | ||||||||||||||||||
Second Quarter | — | — | — | 2.90 | 2.18 | — | ||||||||||||||||||
First Quarter | — | — | — | 3.37 | 2.50 | — | ||||||||||||||||||
On January 22, 2014,September 20, 2016, the closing price on NASDAQ immediatelyday prior to the public announcement of the merger agreement, the high and low sales prices of shares of HomeTrust common stock as reported on NASDAQ were $15.93$19.17 and $15.59,$18.91, respectively. On November , 2014,2016, the last trading day before the date of this proxy statement/prospectus, the high and low sales prices of shares of HomeTrust common stock as reported on NASDAQ were $$___ and $ ,$____, respectively.
On January 22, 2014,
TriSummit has never paid a cash dividend on its common stock. The holders of TriSummit common stock receive dividends if and when declared by the closingTriSummit board of directors out of legally available funds. The declaration and payment of dividends depends upon business conditions, operating results, capital and reserve requirements, regulatory limitations and consideration by the TriSummit board of directors of other relevant factors. The primary source for dividends paid to TriSummit shareholders is dividends paid to it from TriSummit Bank.
TriSummit has been a privately held company since its inception, and there is no established public trading market for TriSummit’s common stock or Series A preferred stock. TriSummit’s shares are thinly traded in private transactions. A TriSummit shareholder who desires to sell his or her stock must privately locate one or more willing buyers, and may ultimately be motivated to sell for reasons that are different from a seller of shares with an established public market. Recent trades of TriSummit common stock and/or Series A preferred stock are not necessarily indicative of the potential value of TriSummit’s common stock if it were actually traded in a public market. The price on NASDAQper share for trades among TriSummit’s shareholders are not necessarily reported to TriSummit’s management, and trades known to TriSummit’s management are not necessarily the only trades of TriSummit’s stock. To the best knowledge of TriSummit’s management, asof September 20, 2016, the date immediately prior to the public announcement of the merger agreement, the high and low sale prices of shares of Jeffersonlast reported sales price for TriSummit common stock aswas $7.00 and the last reported on NASDAQ were $6.61 and $6.50, respectively.sales price for TriSummit Series A preferred stock was $7.00. On November , 2014,2016, the last trading day before the date of this proxy statement/prospectus, the high and low sale prices oflast known sales price for shares of JeffersonTriSummit common stock as reported on NASDAQ werewas $ 7.00 and the last known sales price for TriSummit Series A preferred stock was $ , respectively.7.00 .
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As of November , 2014,2016, the last date prior to printing this proxy statement/prospectus for which it was practicable to obtain this information for HomeTrust and Jefferson,TriSummit, respectively, there were approximately ____ registered holders of HomeTrust common stock, and 578316 registered holders of JeffersonTriSummit common stock and 315 registered holders of TriSummit Series A preferred stock.
Each of HomeTrust and Jefferson
TriSummit shareholders are advised to obtain a current market quotationsquotation for HomeTrustHomeTrust’s common stock. A current market quotation for TriSummit’s common stock and Jefferson common stock.is not available. The market price of HomeTrust common stock and Jefferson commonTriSummit stock will fluctuate between the date of this proxy statement/prospectus and the date of completion of the merger. No assurance can be given concerning the market price of HomeTrust common stock or Jefferson commonTriSummit stock before or after the effective date of the merger. Changes in the market price of HomeTrust common stock prior to the completion of the merger will affect the market value of the stock portion of the merger consideration that Jefferson shareholdersholders of TriSummit common stock and Series A preferred stock will receive upon completion of the merger.
DESCRIPTION OF HOMETRUST’S CAPITAL STOCK
The following information regarding the material terms of HomeTrust’s capital stock is qualified in its entirety by reference to HomeTrust’s articles of incorporation.
HomeTrust’s authorized capital stock currently consists of:
| · | 60,000,000 shares of common stock, $0.01 par value per share; and |
| · | 10,000,000 shares of preferred stock, $0.01 value per share. |
As of April 22, 2014,September 30 , 2016, there were 17,999,150 shares of HomeTrust common stock issued and outstanding. No shares of HomeTrust preferred stock are currently outstanding. HomeTrust’s common stock is traded on NASDAQ under the symbol “HTBI.”
Each share of HomeTrust common stock has the same relative rights and is identical in all respects with each other share of HomeTrust common stock. HomeTrust common stock represents non-withdrawable capital, is not of an insurable type and is not insured by the FDIC or any other government agency.
Subject to any prior rights of the holders of any preferred or other stock of HomeTrust then outstanding, holders of HomeTrust common stock are entitled to receive such dividends as are declared by the board of directors of HomeTrust out of funds legally available for dividends.
Except with respect to greater than 10% shareholders, full voting rights are vested in the holders of HomeTrust common stock and each share is entitled to one vote. See “Comparison of Shareholder Rights—Voting Limitations.” Subject to any prior rights of the holders of any HomeTrust preferred stock then outstanding, in the event of a liquidation, dissolution or winding up of HomeTrust, holders of shares of HomeTrust common stock will be entitled to receive, pro rata, any assets distributable to shareholders in respect of shares held by them. Holders of shares of HomeTrust common stock will not have any preemptive rights to subscribe for any additional securities which may be issued by HomeTrust, nor will they have cumulative voting rights.
Preferred Share Purchase Rights
On September 25, 2012, the Board of Directors of HomeTrust declared a dividend of one preferred share purchase right (a “Right”) for each share its common stock outstanding at the close of business on October 9, 2012 (the “Rights Record Date”), and to become outstanding between the Record Date and the earlier of the Distribution Date and the Expiration Date (each as defined below). The Rights will be issued pursuant to a Tax Benefits Preservation Plan, dated as of September 25, 2012, as amended on August 31, 2015 (the “Plan”), between HomeTrust and Registrar and Transfer Company, as rights agent (the “Rights Agent”). Each Right represents the right to purchase, upon the terms and subject to the conditions set forth in the Plan, 1/1,000th of a share of Junior
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Participating Preferred Stock, Series A, par value $0.01 per share (“Preferred Share”), for $16.14$22.63 (the “Purchase Price”), subject to adjustment as provided in the Plan.
The purpose of the Plan is to protect HomeTrust’s ability to use certain tax assets, including net operating loss carryforwards (the “Tax Benefits”), to offset future taxable income. HomeTrust’s use of the Tax Benefits in the future would be substantially limited if it experiences an “ownership change” for purposes of Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”).Code. In general, an ownership change will occur if HomeTrust’s “5-percent shareholders,” as defined in Section 382 of the Code, collectively increase their ownership in HomeTrust by more than 50 percentage points over a rolling three-year period.
The Plan is designed to reduce the likelihood that HomeTrust will experience an ownership change by discouraging any person from becoming a beneficial owner of 4.99% or more of the then outstanding common stock (a “Threshold Holder”). There is no guarantee, however, that the Plan will prevent HomeTrust from experiencing an ownership change. A corporation that experiences an ownership change will generally be subject to
an annual limitation on certain of its pre-ownership change tax assets in an amount equal to the fair market value of the corporation’s outstanding stock immediately prior to the ownership change, multiplied by the long-term tax-exempt rate.
Distribution Date.Initially, the Rights will be attached to all shares of HomeTrust common stock then outstanding, and no separate Right certificates will be distributed. On or after the Distribution Date, the Rights will separate from the shares of common stock and become exercisable.
The “Distribution Date” will occur on the earlier of (i) the close of business on the tenth business day after a Shares Acquisition Date (as defined below) and (ii) the close of business on the tenth business day (or such later day as may be designated prior to a Shares Acquisition Date by HomeTrust’s Board of Directors) after the date of the commencement of a tender or exchange offer by any person if, upon consummation of the offer, such person would or could be an Acquiring Person (as defined below).
A “Shares Acquisition Date” is the date of the first public announcement by HomeTrust or an Acquiring Person indicating that an Acquiring Person has become such.
An “Acquiring Person” means any person who or which, together with its affiliates, beneficially owns 4.99% or more of HomeTrust’s common stock (or any other securities of HomeTrust then outstanding that would be treated as “stock” under Section 382 of the Code), other than (i) the U.S. Government; (ii) HomeTrust or any subsidiary or employee benefit plan or compensation arrangement of HomeTrust; (iii) any person or entity who or which, together with its affiliates, was on the Rights Record Date, the beneficial owner of 4.99% or more of HomeTrust’s common stock, unless that person or entity subsequently increases their beneficial ownership percentage (other than as a result of any stock dividend, stock split or similar transaction or stock repurchase by HomeTrust); (iv) any person or entity who or which HomeTrust’s Board of Directors determines, in its sole discretion, has inadvertently become a 4.99% or greater stockholder so long as such person or entity promptly divests sufficient shares to no longer be a 4.99% or greater stockholder; (v) any person or entity who or which has become the beneficial owner of 4.99% or more of HomeTrust’s common stock as a result of an acquisition of shares of common stock by HomeTrust which, by reducing the number of shares outstanding, increased the proportionate number of shares beneficially owned by that person or entity, provided that the person or entity does not acquire any additional shares other than as a result of any stock dividend, stock split or similar transaction; and (vi) any person or entity who or which has become a 4.99% or greater stockholder if HomeTrust’s Board of Directors in good faith determines that the attainment of such status has not jeopardized or endangered the HomeTrust’s utilization of the Tax Benefits.
Flip-In. From and after a Shares Acquisition Date, (i) Rights owned by the Acquiring Person and its affiliates and certain of their transferees will automatically be void; and (ii) each other Right will automatically become a Right to buy, for the Purchase Price, in lieu of Series A Preferred Stock, that number of shares of HomeTrust’s common stock equal to (a) the Purchase Price multiplied by the number of 1/1000ths of a share of Series A Preferred Stock for which the Right is then exercisable divided by (b) 50% of the then-current per share market price of the HomeTrust’s common stock.
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Exchange.At any time after a Shares Acquisition Date HomeTrust’s Board of Directors may, at its option, exchange all or part of the then outstanding and exercisable Rights for shares of common stock at an exchange ratio of one share of common stock per Right, subject to adjustments and limitations described in the Plan. The Board may enter into a trust agreement pursuant to which HomeTrust would deposit into a trust shares of common stock that would be distributable to stockholders (excluding the Acquiring Person and its affiliates) in the event the exchange is implemented. This feature is intended to facilitate a more orderly distribution of shares of common stock in the event that a Shares Acquisition Date occurs.
Redemption. At any time prior to the Distribution Date, HomeTrust’s Board of Directors may, at its option, redeem all, but not fewer than all, of the then outstanding Rights at a redemption price of $0.0001 per Right.
Amendments.HomeTrust may from time to time before the Distribution Date supplement or amend the Tax Benefits Preservation Plan without the approval of any holders of Rights.
After the Distribution Date, the Plan may not be amended in any manner that would adversely affect the interests of the holders of Rights.
Expiration.The Rights will expire on the earliest of (i) September 25, 2015,August 31, 2018, (ii) the time at which all Rights have been redeemed by HomeTrust, (iii) the time at which all Rights have been exchanged by HomeTrust, (iv) such time as HomeTrust’s Board of Directors determines, in its sole discretion, that the Rights and the Plan are no longer necessary for the preservation of existence of the Tax Benefits, and (v) a date prior to a Shares Acquisition Date on which the Board determines, in its sole discretion, that the Rights and the Plan are no longer in the best interests of HomeTrust and its stockholders.
Anti-Takeover Impact.The Plan could have an anti-takeover effect because it will restrict the ability of a person, entity or group to accumulate 4.99% or more of our common stock, and the ability of persons, entities or groups owning 4.99% or more of our common stock prior to the adoption of the Plan, from acquiring additional shares of our common stock without the approval of HomeTrust’s Board of Directors. The Plan also could have an anti-takeover effect because an Acquiring Person’s ownership may be diluted substantially upon the occurrence of a triggering event. Accordingly, the overall effects of the Tax Benefits Preservation Plan may be to render more difficult, or discourage, a merger, tender offer, proxy contest or assumption of control by a substantial holder of HomeTrust stock.
HomeTrust may issue preferred stock in one or more series at such time or times and for such consideration as the board of directors of HomeTrust may determine, generally without shareholder approval. The board of directors of HomeTrust is expressly authorized at any time, and from time to time, to issue HomeTrust preferred stock, with such voting and other powers, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions, as are stated and expressed in the board resolution providing for the issuance. The board of directors of HomeTrust is authorized to designate the series and the number of shares comprising such series, the dividend rate on the shares of such series, the redemption rights, if any, any purchase, retirement or sinking fund provisions, any conversion rights and any special voting rights. The ability of HomeTrust’s board of directors to approve the issuance of preferred or other stock without shareholder approval could make an acquisition by an unwanted suitor of a controlling interest in HomeTrust more difficult, time-consuming or costly, or otherwise discourage an attempt to acquire control of HomeTrust.
Shares of preferred stock redeemed or acquired by HomeTrust may return to the status of authorized but unissued shares, without designation as to series, and may be reissued by HomeTrust upon approval of its board of directors.
Other Anti-Takeover Provisions
In addition to the ability to issue common and preferred stock without shareholder approval, HomeTrust’s charter and bylaws contain a number of provisions which may have the effect of delaying, deferring or preventing a change in control of HomeTrust. See “Comparison of Shareholder Rights.”
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COMPARISON OF SHAREHOLDER RIGHTS
Jefferson
TriSummit is incorporated under the laws of the State of Tennessee. HomeTrust is incorporated under the laws of the State of Maryland. The rights of holders of Jefferson commonTriSummit stock are governed by the Tennessee Business Corporation Act Code (the “TBCA”)TBCA and Jefferson’sTriSummit’s charter and bylaws. Holders of HomeTrust capital stock are entitled to all the rights and obligations provided to capital shareholders under the Maryland General Corporation Law (the “MGCL”) and HomeTrust’s charter and bylaws. Consequently, after the merger, the rights of former shareholders of JeffersonTriSummit who receive shares of HomeTrust common stock in the merger will be determined by reference to HomeTrust’s charter and bylaws and Maryland law.
This section describes certainthe material differences between the rights of JeffersonTriSummit shareholders and HomeTrust shareholders including those which may be material. This section does not include a complete description of all differences among the rights of these shareholders, nor does it include a complete description of the specific rights of these shareholders. In addition, the identification of some of the differences in the rights of these shareholders is not intended to indicate that other differences that are equally important do not exist. The discussion in this section is qualified in its entirety by reference to Tennesseeunder their respective governing corporate instruments and Maryland law, and to Jefferson’ certificate of formation and bylaws and HomeTrust’s charter and bylaws.state corporate law. Copies of the governing corporate instruments are available, without charge, to any person by following the instructions listed under “Where You Can Find More Information.”
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| Authorized Capital Stock | ||
The authorized capital stock of TriSummit currently consists of 20,000,000 shares of capital stock, classified as follows:
· 10,000,000 shares of common stock, $1.00 par value per share; and · 10,000,000 shares of preferred stock, $1.00 par value per share. As of September 30, 2016, there were 3,208,830 shares of TriSummit common stock issued and outstanding, 402,627 shares of TriSummit Series A Preferred Stock issued and outstanding, 2,765 shares of TriSummit Series B Preferred Stock issued and outstanding, 138 shares of TriSummit Series C Preferred Stock issued and outstanding, and 4,237 shares of TriSummit Series D Preferred Stock issued and outstanding. No other shares of TriSummit preferred stock are currently outstanding. The charter of TriSummit authorizes the board of directors to establish one or more series of preferred stock and, for any series of preferred stock, to determine the terms and rights of the series, including voting rights, conversion rates and liquidation preferences. | The authorized capital stock of HomeTrust currently consists of 70,000,000 shares of capital stock, presently classified as follows: · 60,000,000 shares of common stock, $0.01 par value per share; and · 10,000,000 shares of preferred stock, $0.01 par value per share. As of September 30, 2016, there were 17,999,150 shares of HomeTrust common stock issued and outstanding and no shares of HomeTrust preferred stock issued and outstanding. No other shares of HomeTrust preferred stock are currently outstanding. HomeTrust’s articles of incorporation authorizes HomeTrust’s board of directors to classify or reclassify any unissued shares of capital stock from time to time into one or more classes or series of stock by setting or changing in one or more respects the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications or terms and conditions of redemption of such shares. HomeTrust is authorized under its articles of incorporation to issue additional shares of capital stock, up to the amount authorized, generally without stockholder approval. In addition, HomeTrust’s articles of incorporation provides by its terms that it may be amended by HomeTrust’s board of directors, without a stockholder vote, to change the number of shares of capital stock authorized, which could have the effect of diluting the interests of stockholders. Currently, no HomeTrust preferred stock is issued or outstanding. | |
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The authorized capital stockTable of Jefferson currently consists of 40,000,000 shares of capital stock, classified as follows:Contents
The charter of Jefferson authorizes the Board of Directors to establish one or more series of preferred stock and, for any series of preferred stock, to determine the terms and rights of the series, including voting rights, conversion rates and liquidation preferences.
The authorized capital stock of HomeTrust currently consists of 70,000,000 shares of capital stock, presently classified as follows:
HomeTrust’s articles of incorporation authorizes HomeTrust’s board of directors to classify or reclassify any unissued shares of capital stock from time to time into one or more classes or series of stock by setting or changing in one or more respects the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications or terms and conditions of redemption of such shares. HomeTrust is authorized under its articles of incorporation to issue additional shares of capital stock, up to the amount authorized, generally without stockholder approval. In addition, HomeTrust’s articles of incorporation provides by its terms that it may be amended by HomeTrust’s board of directors, without a stockholder vote, to change the number of shares of capital stock authorized, which could have the effect of diluting the interests of stockholders. Currently, no HomeTrust preferred stock is issued or outstanding.
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Holders of TriSummit common stock are entitled to one vote per share in the election of directors and on all other matters submitted to a vote at a meeting of shareholders.
Subject to certain exceptions, holders of TriSummit Series A preferred stock are not entitled to vote; however, shares of Series A preferred stock are entitled to vote on a change of control of TriSummit and as may be otherwise required by law. Holders of Series A preferred stock are entitled to vote on the proposal to approve the merger agreement. Shares of Series A preferred stock vote together as a class with shares of common stock.
The Tennessee Control Share Acquisition Act generally requires that shareholders of a corporation approve a “control-share acquisition.” A “control share acquisition” is defined by Tennessee law as the acquisition by any person of ownership of, or the power to direct the exercise of voting power with respect to, issued and outstanding control shares.
The Tennessee Control Share Acquisition Act does not apply to TriSummit because TriSummit’s charter does not contain a specific provision “opting in” to the act, as required under the act.
Voting Rights
Holders of Jefferson common stock are entitled to one vote per share in the election of directors and on all other matters submitted to a vote at a meeting of shareholders. The charter of Jefferson generally provides that in no event shall any person, who directly or indirectly beneficially owns in excess of 10% of the then outstanding shares of Jefferson common stock as of the record date for the determination of shareholders entitled or permitted to vote on any matter (the “10% limit”), be entitled or permitted to any vote in respect of the shares held in excess of the 10% limit. Beneficial ownership is determined pursuant to the federal securities laws and includes, but is not limited to, shares as to which any person and his or her affiliates (1) have the right to acquire upon the exercise of conversion rights, exchange rights, warrants or options and (2) have or share investment or voting power (except that a person shall not be deemed the beneficial owner of any voting shares solely by reason of a revocable proxy granted for a particular meeting of shareholders, and that are not otherwise beneficially, or deemed by Jefferson to be beneficially, owned by such person and his or her affiliates).
The Tennessee Control Share Acquisition Act generally requires that shareholders of a corporation approve a “control-share acquisition.” A “control share acquisition” is defined by Tennessee law as the acquisition by any person of ownership of, or the power to direct the exercise of voting power with respect to, issued and outstanding control shares. All shares acquired within 90 days and all shares acquired pursuant to a plan to make a control share acquisition are deemed to have been acquired in the same acquisition.
Holders of HomeTrust common stock generally are entitled to one vote per share in the election of directors and on all other matters submitted to a vote at a meeting of shareholders, provided that HomeTrust’s articles of incorporation generally prohibits any shareholder who beneficially owns more than 10% of the outstanding shares of HomeTrust common stock from voting shares in excess of that amount.
The MGCL contains a control share acquisition statute which, in general terms, provides that where a shareholder acquires issued and outstanding shares of a corporation’s voting stock (referred to as control shares) within one of several specified ranges (one-tenth or more but less than one-third, one-third or more but less than a majority, or a majority or more), approval by a supermajority vote of shareholders of the control share acquisition must be obtained before the acquiring shareholder may vote the control shares. A corporation may, however, opt-out of the control share statute through a articles of incorporation or bylaw provision, which HomeTrust has done pursuant to its bylaws. Accordingly, the Maryland control share acquisition statute does not apply to acquisitions of shares of HomeTrust common stock. Though not expected, HomeTrust could decide to become subject to the Maryland control share acquisition statute by amending its bylaws to eliminate the opt-out provision. See “—Amendments to Bylaws.”
Voting Rights(continued)
The Tennessee Control Share Acquisition Act generally provides that any person or group that acquires the power to vote more than certain specified levels (one-fifth, one-third or a majority) of the shares of certain Tennessee corporations will not have the right to vote such shares unless granted voting rights by the holders of a majority of the vote entitled to be cast, excluding “interested shares.” Interested shares are those share held by the acquiring person, officers of the corporation and persons who are both employees and directors of the corporation. If approval of voting power for the shares is obtained at one of the specified levels, additional shareholder approval is required when a shareholder seeks to acquire the power to vote shares at the next level. In the absence of such approval, the additional shares acquired by the shareholder may not be voted until they are transferred to another person in a transaction other than a control share acquisition. The statutory provisions will only apply to a Tennessee corporation if, as in the case of Jefferson’s charter, its charter or bylaws so provide and if the corporation has: (1) 100 or more shareholders; (2) its principal place of business, its principal office or substantial assets within Tennessee; and (3) either (A) more than 105 of its shareholders resident in Tennessee, (B) more than 10% of its shares owned by shareholders resident in Tennessee, or (C) 10,000 or more shareholders resident in Tennessee.
| No shareholder has the right of cumulative voting in the election of directors. | Holders of HomeTrust common stock generally are entitled to one vote per share in the election of directors and on all other matters submitted to a vote at a meeting of shareholders, provided that HomeTrust’s articles of incorporation generally prohibits any shareholder who beneficially owns more than 10% of the outstanding shares of HomeTrust common stock from voting shares in excess of that amount. The MGCL contains a control share acquisition statute which, in general terms, provides that where a shareholder acquires issued and outstanding shares of a corporation’s voting stock (referred to as control shares) within one of several specified ranges (one-tenth or more but less than one-third, one-third or more but less than a majority, or a majority or more), approval by a supermajority vote of shareholders of the control share acquisition must be obtained before the acquiring shareholder may vote the control shares. A corporation may, however, opt-out of the control share statute through an articles of incorporation or bylaw provision, which HomeTrust has done pursuant to its bylaws. Accordingly, the Maryland control share acquisition statute does not apply to acquisitions of shares of HomeTrust common stock. Though not expected, HomeTrust could decide to become subject to the Maryland control share acquisition statute by amending its bylaws to eliminate the opt-out provision. See “—Amendments to Bylaws.” No shareholder has the right of cumulative voting in the election of directors. |
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| TRISUMMIT | HOMETRUST | |
| Stock Transfer Restriction | ||
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Series A preferred stock: Before a holder of TriSummit Series A preferred stock may sell his or her shares of Series A preferred stock, the holder must offer to sell the shares to another holder of TriSummit Series A preferred stock, or, if no such holder can be identified, the selling shareholder must offer TriSummit the right of first refusal with respect to the shares. | None. | |
| Dividends | ||||
Holders of TriSummit common stock are entitled to dividends when, as and if declared by the board of directors out of funds legally available therefor. The TBCA generally provides that, unless otherwise restricted in a corporation’s charter, a corporation’s board of directors may authorize and a corporation may pay dividends to shareholders. However, a distribution may not be made if, after giving effect thereto: (1) the corporation would not be able to pay its debts as they become due in the usual course of business; or (2) the total assets of the corporation would be less than the sum of its total liabilities plus (unless otherwise provided in its charter) the amount that would be needed, if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. | Holders of HomeTrust common stock are entitled to dividends when, as and if declared by the board of directors out of funds legally available therefor. Under the MGCL, HomeTrust is permitted to pay dividends or make other distributions unless after the distribution: (1) HomeTrust would not be able to pay its debts as they become due in the usual course of business; or (2) except as provided in the MGCL, HomeTrust’s total assets would be less than the sum of its total liabilities, plus, unless HomeTrust’s articles of incorporation permits otherwise, the amount that would be needed, if HomeTrust were dissolved at the time of the distribution, to satisfy preferential rights of stockholders whose preferential rights are superior to those receiving the distribution. | |||
Dividends
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The TBCA generally provides that, unless otherwise restricted in a corporation’s charter, a corporation’s board of directors may authorize and a corporation may pay dividends to shareholders. However, a distribution may not be made if, after giving effect thereto: (1) the corporation would not be able to pay its debts as they become due in the usual course of business; or (2) the total assets of the corporation would be less than the sum of its total liabilities plus (unless otherwise provided in its charter) the amount that would be needed, if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution.
Holders of HomeTrust common stock are entitled to dividends when, as and if declared by the board of directors out of funds legally available therefor.
Under the MGCL, HomeTrust is permitted to pay dividends or make other distributions unless after the distribution: (1) HomeTrust would not be able to pay its debts as they become due in the usual course of business; or (2) except as provided in the MGCL, HomeTrust’s total assets would be less than the sum of its total liabilities, plus, unless HomeTrust ‘s articles of incorporation permits otherwise, the amount that would be needed, if HomeTrust were dissolved at the time of the distribution, to satisfy preferential rights of stockholders whose preferential rights are superior to those receiving the distribution.
Number of Directors and Director Term
Jefferson’s charter provides that the number of Jefferson’s shall be no less than five and no more than 15. Subject to this charter limitation, Jefferson’s bylaws provide that the number of directors will be fixed by the board of directors from time to time.
There are currently five directors serving on Jefferson’s board of directors.
HomeTrust’s bylaws provide that the number of directors will be fixed by the board of directors from time to time.
There are currently twelve directors serving on HomeTrust’s board of directors. In accordance with the merger agreement, at the effective time of the merger, Jefferson’s President and Chief Executive Officer, Anderson L. Smith, will be appointed to HomeTrust’s board of directors.
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Number of Directors and Director Term (continued)
The charter and bylaws of Jefferson require the Board of Directors to be divided into three classes as nearly equal in number as possible and that the members of each class be elected for a term of three years and until their successors are elected and qualified, with one class being elected annually.
The bylaws of Jefferson provide that to be eligible to serve on the Board of Directors a person must beneficially own 100 shares of Jefferson common stock and reside in a county in which an office of Jefferson or Jefferson Federal is located or in an adjacent county. The bylaws also provide that no person will be eligible to serve on the Board of Directors who has (i) in the past 10 years, been subject to a supervisory action by a financial regulatory agency that involved fraud or other bad actions, (ii) has been convicted of a crime involving dishonesty or breach of trust that is punishable by a year or more in prison, or (iii) is currently charged with such a crime. These provisions may prevent shareholders from nominating themselves or persons of their choosing for election to the Board of Directors. The bylaws of HomeTrust do not contain similar qualifications requirements.
HomeTrust’s board of directors is divided into three classes, with the members of each class of directors serving staggered three-year terms and approximately one-third of the directors elected annually. As a result, while the entire board of directors of HomeTrust can be replaced at a single annual meeting of shareholders, it would take a dissident shareholder or shareholder group at least two annual meetings of shareholders to replace a majority of the directors of HomeTrust. Each director holds office for the term for which he or she is elected and until his or her successor is elected and qualified, subject to such director’s death, resignation or removal.
Election of Directors
Directors are elected by a plurality of the votes cast by the holders of the shares entitled to vote for directors.
Directors are elected by a plurality of the votes cast by the holders of the shares entitled to vote for directors.
Removal of Directors
The charter of Jefferson provides that any director may be removed by shareholders only for cause at a duly constituted meeting of shareholders called expressly for that purpose upon the affirmative vote of the holders of not less than 80% of the outstanding voting shares.
HomeTrust’s articles of incorporation provide that, subject to the rights of the holders of any series of preferred stock then outstanding, directors may be removed from office only for cause and only by the vote of the holders of at least 80% of the voting power of the outstanding shares of capital stock entitled to vote generally in the election of directors (after giving effect to the 10% voting limitation in HomeTrust’s articles of incorporation as described above under “-Voting Rights”), voting together as a single class.
| Number of Directors and Director Term | ||
TriSummit’s bylaws provide that the number of TriSummit’s board of directors shall be no less than five and no more than 25. TriSummit’s bylaws provide that the number of directors will be fixed by the board of directors from time to time. There are currently seven directors serving on TriSummit’s board of directors.
The charter of TriSummit requires the board of directors to be divided into three classes as nearly equal in number as possible and that the members of each class be elected for a term of three years and until their successors are elected and qualified, with one class being elected annually.
Filling Vacancies on the Board of Directors
Under the bylaws of Jefferson, any vacancy occurring in the Board of Directors, however, caused, and newly created directorships may be filled by an affirmative vote of the majority of the directors then in office, whether or not a quorum is present, and any director so chosen shall hold office only until the next annual meeting of shareholders at which directors are elected.
HomeTrust’s bylaws provide that any vacancies in the board of directors resulting from an increase in the size of the board or the death, resignation or removal of a director may be filled only by a majority vote of the directors then in office, even if less than a quorum, and any director so chosen will hold office for the remainder of the full term of the class of directors in which the vacancy occurred and until a successor is elected and qualified.
Action by Stockholders Without a Meeting
Under the TBCA, action may be taken by shareholders without a meeting if all shareholders entitled to vote on the action consent to taking such action without a meeting.
HomeTrust’s bylaws provide that, except as described in the following sentence, any action required or permitted to be taken at a meeting of shareholders may instead be taken without a meeting if a unanimous consent which sets forth the action is given in writing or by electronic transmission by each shareholder entitled to vote on the matter. The bylaws also provide that, unless HomeTrust’s articles of incorporation provides otherwise, the holders of any class of HomeTrust stock, other than common stock, that is entitled to vote generally in the election of directors may act by consent without a meeting if the consent is given in writing or by electronic transmission by the holders entitled to cast the minimum number of votes that would be necessary to approve the action at a meeting of shareholders.
HomeTrust’s bylaws provide that the number of directors will be fixed by the board of directors from time to time. There are currently thirteen directors serving on HomeTrust’s board of directors.
HomeTrust’s board of directors is divided into three classes, with the members of each class of directors serving staggered three-year terms and approximately one-third of the directors elected annually. As a result, it would take a dissident shareholder or shareholder group at least two annual meetings of shareholders to replace a majority of the directors of HomeTrust. Each director holds office for the term for which he or she is elected and until his or her successor is elected and qualified, subject to such director’s death, resignation or removal.
Advance Notice Requirement for Shareholder Nominations and Other Proposals
Jefferson’s bylaws establish an advance notice procedure for shareholders to nominate directors or bring other business before an annual meeting of shareholders of Jefferson. A person may not be nominated for election as a director unless that person is nominated by or at the direction of the Jefferson’s Board or by a shareholder who has given appropriate notice to Jefferson before the meeting. Similarly, a shareholder may not bring business before an annual meeting unless the shareholder has given Jefferson appropriate notice of its intention to bring that business before the meeting. Jefferson’s secretary must receive notice of the nomination or proposal not less than 90 days prior to the annual meeting;provided,however, that in the event that less than 100 days’ notice of prior public disclosure of the date of the meeting is given or made to the shareholders, notice by the shareholder to be timely must be received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. A shareholder who desires to raise new business must provide certain information to Jefferson concerning the nature of the new business, the shareholder and the shareholder’s interest in the business matter. Similarly, a shareholder wishing to nominate any person for election as a director must provide Jefferson with certain information concerning the nominee and the proposing shareholder.
HomeTrust’s bylaws provide that HomeTrust must receive written notice of any shareholder proposal for business at an annual meeting of shareholders not less than 90 days or more than 120 days before the anniversary of the preceding year’s annual meeting. If the date of the current year annual meeting is advanced by more than 20 days or delayed by more than 60 days from the anniversary date of the preceding year’s annual meeting, notice of the proposal must be received by HomeTrust no earlier than the close of business on the 120th day prior to the date of the annual meeting and no later than the close of business on the later of the 90th day prior to the annual meeting or the 10th day following the day on which notice of the meeting is mailed or otherwise transmitted or public disclosure of the meeting date is first made, whichever occurs first.
HomeTrust’s bylaws also provide that HomeTrust must receive written notice of any shareholder director nomination for a meeting of shareholders not less than 90 days or more than 120 days before the date of the meeting. If, however, less than 100 days’ notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice of the nomination must be received by the secretary no later than the tenth day following the day on which notice of the meeting is mailed or otherwise transmitted or public disclosure of the meeting date is first made, whichever occurs first.
Notice of Shareholder Meeting
Notice of each shareholder meeting must be given to each shareholder entitled to vote not less than ten days nor more than two months before the date of the meeting.
Notice of each shareholder meeting must be given to each shareholder entitled to vote and to each other shareholder entitled to notice not less than 10 nor more than 90 days before the date of the meeting.
Amendments to Charter/Articles of Incorporation
The charter of Jefferson generally may be amended by the holders of a majority of the shares entitled to vote generally in an election of directors, voting together as a single class;provided, however, that any amendment of Articles VIII (Directors), IX (Removal of Directors), X (Elimination of Directors’ Liability), XI (Indemnification), XII (Limitation of Voting Common Stock), XIII (Approval of Business Combinations), XIV (Evaluations of Business Combinations), XV (Control Share Acquisitions), XVI (Special Meetings of Shareholders) and XVIII (Amendment of Bylaws) must be approved by the affirmative vote of the holders of at least 80% of the outstanding shares entitled to vote generally in the election of directors, voting together as a single class, cast at a meeting of the shareholders called for that purpose,except that such repeal, alteration or amendment may be made by the affirmative vote of the majority of the outstanding shares if the same is first approved by a majority of disinterested directors.
HomeTrust’s articles of incorporation may be amended in accordance with the MGCL, which generally requires the approval of the board of directors and the holders of a majority of the outstanding shares of HomeTrust common stock. The amendment of certain provisions of HomeTrust’s articles of incorporation, however, requires the vote of the holders of at least 80% of the voting power of all of the outstanding shares of capital stock entitled to vote generally in the election of directors, (after giving effect to the 10% voting limitation in HomeTrust’s articles of incorporation as described above under “-Voting Rights”), voting together as a single class. These include provisions relating to: the ability of the board of directors to designate and set the terms of series of preferred stock; the voting limitations on greater than 10% shareholders; the number, classification, election and removal of directors; certain business combinations with greater than 10% shareholders; the prevention of greenmail; indemnification of directors and officers; limitation on liability of directors and officers; and amendments to the articles of incorporation and bylaws. HomeTrust’s articles of incorporation provides by its terms that it may be amended by HomeTrust’s board of directors, without a shareholder vote, to change the number of shares of capital stock authorized for issuance.
Amendments to Bylaws
The bylaws of Jefferson may be amended by the majority vote of the Board of Directors at any legal meeting. The bylaws may be amended by the shareholders only by a vote of at least 80% of the outstanding shares of capital stock entitled to vote generally in the election of directors, cast at a meeting of the shareholders called for that purpose.
HomeTrust’s bylaws may be amended either by the board of directors, by a vote of a majority of the whole board, or by HomeTrust’s shareholders, by the vote of the holders of 80% of the outstanding shares of capital stock entitled to vote generally in the election of directors (after giving effect to the 10% voting limitation in HomeTrust’s articles of incorporation as described above under “-Voting Rights”), voting together as a single class.
| Directors are elected by a plurality of the votes cast by the holders of the shares entitled to vote for directors. | ||
Special Meetings of Shareholders
The charter of Jefferson contains a provision pursuant to which, subject to the rights of any holders of preferred stock, special meetings of the shareholders of Jefferson may only be called by the Board of Directors pursuant to a resolution adopted by a majority of the total number of directors which Jefferson would have if there were no vacancies on the Board of Directors.
HomeTrust’s bylaws provide that special meetings of shareholders may be called by the President or by the board of directors by vote of a majority of the whole board. In addition, HomeTrust’s bylaws provide that a special meeting of shareholders shall be called by the Secretary of HomeTrust on the written request of shareholders entitled to cast at least a majority of all votes entitled to be cast at the meeting.
Quorum
A majority of the shares entitled to vote, represented in person or by proxy, constitutes a quorum at any shareholder meeting.
The holders of at least one-third of all shares entitled to vote at the meeting, present in person or by proxy, constitutes a quorum at any shareholder meeting.
| Directors are elected by a plurality of the votes cast by the holders of the shares entitled to vote for directors. | ||
| Removal of Directors | ||
| The bylaws of TriSummit provides that any director may be removed by shareholders with or without cause at a duly constituted meeting of shareholders called expressly for that purpose if the number of votes cast to remove the director exceeds the number of votes cast not to remove the director. The bylaws also provide that a director may be removed for cause at a duly constituted meeting of directors called expressly for that purpose upon the affirmative vote of a majority of the disinterested directors. | ||
Limitation of Personal Liability of Directors
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Jefferson’s charter provides that a director shall not be personally liable to Jefferson or its shareholders for monetary damages for a breachTable of duty as a director, except for liability for:Contents
Consistent with the MGCL, HomeTrust’s articles of incorporation provides that an officer or director of HomeTrust shall not be liable to HomeTrust or its shareholders for money damages, except to the extent:
HomeTrust’s articles of incorporation provides that HomeTrust will indemnify and advance expenses to its directors and officers to the fullest extent required or permitted by the MGCL. HomeTrust’s articles of incorporation also provides that HomeTrust will indemnify other employees and agents to the extent authorized by its board of directors and permitted by law.
The MGCL permits a corporation to indemnify its directors, officers, employees and agents against judgments, penalties, fines, settlements and reasonable expenses actually incurred unless it is proven that (1) the conduct of the person was material to the matter giving rise to the proceeding and the person acted in bad faith or with active and deliberate dishonesty, (2) the person actually received an improper personal benefit or (3) in the case of a criminal proceeding, the person had reason to believe that his conduct was unlawful.
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Limitation of Personal Liability of Directors(continued)
The MGCL provides that where a person is a defendant in a derivative proceeding, the person may not be indemnified if the person is found liable to the corporation. The MGCL also provides that a person may not be indemnified in respect of any proceeding alleging improper personal benefit in which the person was found liable on the grounds that personal benefit was improperly received. The person found liable in the derivative proceeding or in the proceeding alleging improper personal benefit may petition a court to nevertheless order indemnification for expenses if the court determines that the person is fairly and reasonably entitled to indemnification in view of all the relevant circumstances. The MGCL provides that unless otherwise provided in the corporation’s articles of incorporation, a director or officer (but not an employee or agent) who is successful on the merits or otherwise in defense of any proceeding must be indemnified against reasonable expenses.
The MGCL provides that reasonable expenses incurred by a director, officer, employee or agent who is a party to a proceeding may be paid by the corporation in advance of the final disposition of the proceeding if the corporation receives a written affirmation from the person to receive the advancement of that person’s good faith belief that he or she has met the standard of conduct necessary for indemnification and a written undertaking by the person to repay the advanced amount if it is ultimately determined that he or she has not met the standard of conduct.
HomeTrust’s articles of incorporation provides, consistent with the MGCL, that the rights to indemnification and to the advancement of expenses conferred by HomeTrust’s articles of incorporation are not exclusive of any other right which a person may have under any statute, the articles of incorporation, HomeTrust’s bylaws, any agreement, any vote of stockholders or the board of directors, or otherwise.
Indemnification of Directors and Officers
The charter of Jefferson provides that Jefferson shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (a “proceeding”), by reason of the fact that he or she is or was a director or officer of Jefferson, or is or was serving at the request of Jefferson as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan, against all expense, liability and loss (including attorney’s fees, judgments, fines, ERISA excise taxes or penalties and amount paid in settlement) reasonably incurred or suffered by him or her in connection with the action or proceeding if he or she: (1) acted in good faith; (2) reasonably believed (A) in the case of conduct in his or her official capacity with Jefferson that his or her conduct was in the best interests of Jefferson and (B) in all other cases, that his or her conduct was at least not opposed to Jefferson’s best interests; and (3) in the case of any criminal proceeding, he or she had no reasonable cause to believe his or her conduct was unlawful.
Indemnification shall not be made with respect to an action by or in the right of Jefferson as to which the person has been adjudged to be liable to Jefferson unless and only to the extent that the proper court determines upon application that, despite the adjudication of liability but in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for the expenses that the court deems proper. The charter of Jefferson further provides that to the extent that the representative of Jefferson has been successful on the merits or otherwise in defense of any action or proceeding or in defense of any claim, issue or matter therein, he or she shall be indemnified against expenses (including attorneys’ fees) reasonably incurred by him in connection therewith. Unless otherwise ordered by a court, any indemnification shall be made by Jefferson only as authorized in the specific case upon a determination that indemnification is proper in the circumstance because such person has met the applicable standard of conduct set forth in the TBCA.
HomeTrust’s articles of incorporation requires HomeTrust to indemnify its current and former directors and officers, whether serving HomeTrust or at its request any other entity, to the fullest extent required or permitted by the MGCL including the advancement of expenses. If and to the extent authorized by the board of directors and permitted by law, HomeTrust may indemnify other employees and agents.
The MGCL permits a corporation to indemnify its directors, officers, employees and agents against judgments, penalties, fines, settlements and reasonable expenses actually incurred unless it is proven that (1) the conduct of the person was material to the matter giving rise to the proceeding and the person acted in bad faith or with active and deliberate dishonesty, (2) the person actually received an improper personal benefit or (3) in the case of a criminal proceeding, the person had reason to believe that his conduct was unlawful. The MGCL provides that where a person is a defendant in a derivative proceeding, the person may not be indemnified if the person is found liable to the corporation. The MGCL also provides that a person may not be indemnified in respect of any proceeding alleging improper personal benefit in which the person was found liable on the grounds that personal benefit was improperly received. The person found liable in the derivative proceeding or in the proceeding alleging improper personal benefit may petition a court to nevertheless order indemnification for expenses if the court determines that the person is fairly and reasonably entitled to indemnification in view of all the relevant circumstances. The MGCL provides that unless otherwise provided in the corporation’s charter, a director or officer (but not an employee or agent) who is successful on the merits or otherwise in defense of any proceeding must be indemnified against reasonable expenses.
The MGCL provides that reasonable expenses incurred by a director, officer, employee or agent who is a party to a proceeding may be paid by the corporation in advance of the final disposition of the proceeding if the corporation receives a written affirmation from the person to receive the advancement of that person’s good faith belief that he or she has met the standard of conduct
Indemnification of Directors and Officers(continued)
Expenses (including attorney’s fees) incurred in defending any action or proceeding shall be paid by Jefferson in advance of the final disposition of the action or proceeding upon: (1) delivery to Jefferson of an undertaking to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal that such individual is not entitled to be indemnified for such expenses; (2) delivery to Jefferson of a written affirmation of his or her good faith belief that he or she has met the standard of conduct set forth in the TBCA; and (3) a determination that the facts would not preclude indemnification.
necessary for indemnification and a written undertaking by the person to repay the advanced amount if it is ultimately determined that he or she has not met the standard of conduct.
Home Trust’s articles of incorporation provides, consistent with the MGCL, that the rights to indemnification and to the advancement of expenses conferred by Home Trust’s articles of incorporation are not exclusive of any other right which a person may have under any statute, the articles of incorporation, HomeTrust’s bylaws, any agreement, any vote of stockholders or the board of directors, or otherwise.
Business Combinations with Certain Persons
State Law.The TBCA generally prohibits a “business combination” (generally defined to include mergers, share exchanges, sales and leases of assets, issuances of securities and similar transactions) by a “resident domestic corporation” (as defined below) or a subsidiary with an “interested shareholder” (generally defined as any person or entity which beneficially owns 10% or more of the voting power of any class or series of the corporation’s stock then outstanding) for a period of five years after the date the person becomes an interested shareholder unless, prior to such date, the board of directors approved either the business combination or the transaction which resulted in the shareholder becoming an interested shareholder and the business combination satisfies any other applicable requirements imposed by law or by the corporation’s charter or bylaws. The TBCA also limits the extent to which a “resident domestic corporation” which has a class of voting stock traded on any national securities exchange or registered pursuant to Section 12(g) of the Exchange Act or any of its officers or directors could be held liable for resisting any business combination.
State Law. The MGCL contains a business combination statute that prohibits a business combination between a corporation and an interested shareholder (one who beneficially owns 10% or more of the voting power) for a period of five years after the interested shareholder first becomes an interested shareholder, unless the transaction has been approved by the board of directors before the interested shareholder became an interested shareholder or the corporation has exempted itself from the statute pursuant to an articles of incorporation provision. After the five-year period has elapsed, a corporation subject to the statute may not consummate a business combination with an interested shareholder unless (1) the transaction has been recommended by the board of directors and (2) the transaction has been approved by (a) 80% of the outstanding shares entitled to be cast and (b) two-thirds of the votes entitled to be cast other than shares owned by the interested shareholder. This approval requirement need not be met if certain fair price and terms criteria have been satisfied. HomeTrust has opted-out of the Maryland business combination statute through a provision in its articles of incorporation.
Business Combinations with Certain Persons (continued)
For purposes of the TBCA, the term “resident domestic corporation” is defined as an issuer of voting stock which, as of the share acquisition date in question, is organized under the laws of Tennessee and meets two or more of the following requirements:
Charter Provision. The charter of Jefferson requires the approval of the holders of at least 80% of Jefferson’s outstanding shares of voting stock entitled to vote to approve certain “business combinations” (for example, mergers, share exchanges, significant asset sales and significant stock issuances) with an “interested shareholder.” This supermajority voting requirement will not apply in cases where the proposed transaction has been approved by a majority of disinterested directors or where various fair price and procedural conditions have been met.
Articles of Incorporation Provision.HomeTrust’s articles of incorporation provides that certain business combinations (for example, mergers, share exchanges, significant asset sales and significant stock issuances) involving “interested shareholders” of HomeTrust require, in addition to any vote required by law, the approval of at least 80% of the voting power of the outstanding shares of stock entitled to vote generally in the election of directors, voting together as a single class, unless either (i) a majority of the disinterested directors have approved the business combination or (ii) certain fair price and procedure requirements are satisfied. An “interested shareholder” generally means a person who is a greater than 10% shareholder of HomeTrust or who is an affiliate of HomeTrust and at any time within the past two years was a greater than 10% shareholder of HomeTrust.
| HomeTrust’s bylaws provide that any vacancies in the board of directors resulting from an increase in the size of the board or the death, resignation or removal of a director may be filled only by a majority vote of the directors then in office, even if less than a quorum, and any director so chosen will hold office for the remainder of the full term of the class of directors in which the vacancy occurred and until a successor is elected and qualified. | ||
Prevention of Greenmail
Jefferson’s charter does not contain a provision designed to prevent greenmail.
The Tennessee Greenmail Act prohibits a Tennessee corporation having a class of voting stock registered or traded on a national securities exchange or registered pursuant to Section 12(g) of the Securities Exchange Act from purchasing, directly or indirectly, any of its shares at a price above the market value of such shares from any person who holds more than 3% of the class of securities to be purchased if such person has held such shares for less than two years, unless: (1) such purchase has been approved by the affirmative vote of a majority of the outstanding shares of each class of voting stock issued by such corporation or (2) the corporation makes an offer, at least equal value per share, to all holders of shares of such class. Market value is defined as the average of the highest and lowest closing market price of such shares during the 30 trading days preceding the purchase or preceding the commencement or announcement of a tender offer if the seller of such shares has commenced a tender offer or announced an intention to seek control of the corporation.
Because Jefferson’s common stock is traded on a national securities exchange, Jefferson is subject to the restrictions of the Greenmail Act.
HomeTrust’s articles of incorporation generally prohibits HomeTrust from acquiring any of its own equity securities from a beneficial owner of 5% or more of HomeTrust’s voting stock unless: (i) the acquisition is approved by the holders of at least 80% of the voting power of the outstanding shares of stock entitled to vote in the election of directors, voting together as a single class; (ii) the acquisition is made as part of a tender or exchange offer by HomeTrust or a subsidiary of HomeTrust to purchase securities of the same class on the same terms to all holders of such securities; (iii) the acquisition is pursuant to an open market purchase program approved by a majority of the board of directors, including a majority of the disinterested directors; or (iv) the acquisition is at or below the market price of the HomeTrust equity security and is approved by a majority of the board of directors, including a majority of the disinterested directors.
| Under the TBCA, action may be taken by shareholders without a meeting if all shareholders entitled to vote on the action consent to taking such action without a meeting. | ||
Fundamental Business Transactions
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State Law. The TBCA requires the approvalTable of the BoardContents
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| Advance Notice Requirement for Shareholder Nominations and Other Proposals | ||
| Under Tennessee law, shareholders have the right to submit proposals to the board of directors and to submit nominations for directors. TriSummit’s charter and bylaws contain no provisions addressing an advance notice procedure with respect to shareholder nominations or proposals. | HomeTrust’s bylaws provide that HomeTrust must receive written notice of any shareholder proposal for business at an annual meeting of shareholders not less than 90 days or more than 120 days before the anniversary of the preceding year’s annual meeting. If the date of the current year annual meeting is advanced by more than 20 days or delayed by more than 60 days from the anniversary date of the preceding year’s annual meeting, notice of the proposal must be received by HomeTrust no earlier than the close of business on the 120th day prior to the date of the annual meeting and no later than the close of business on the later of the 90th day prior to the annual meeting or the 10th day following the day on which notice of the meeting is mailed or otherwise transmitted or public disclosure of the meeting date is first made, whichever occurs first. HomeTrust’s bylaws also provide that HomeTrust must receive written notice of any shareholder director nomination for a meeting of shareholders not less than 90 days or more than 120 days before the date of the meeting. If, however, less than 100 days’ notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice of the nomination must be received by the secretary no later than the tenth day following the day on which notice of the meeting is mailed or otherwise transmitted or public disclosure of the meeting date is first made, whichever occurs first. | |
| Notice of Shareholder Meeting | ||
| Notice of each shareholder meeting must be given to each shareholder entitled to vote not less than ten days nor more than 60 days before the date of the meeting. | Notice of each shareholder meeting must be given to each shareholder entitled to vote and to each other shareholder entitled to notice not less than 10 nor more than 90 days before the date of the meeting. | |
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| Amendments to Charter/Articles of Incorporation | ||
The TBCA provides that certain relatively technical amendments to a corporation’s charter may be adopted by the directors without shareholder action. Generally, the TBCA provides that a corporation’s charter may be amended by a majority of votes entitled to be cast on an amendment, subject to any condition the board of directors may place on its submission of the amendment to the shareholders. TriSummit’s charter provides that, unless a greater vote is required by the TBCA, an amendment must be approved by TriSummit’s shareholders by the vote of a majority of all votes entitled to be cast on the amendment. Any amendment or repeal of the provision relating to the limitation on liability of directors may be prospective only and shall not limit the limitation for actions or omissions occurring prior to the amendment. | HomeTrust’s articles of incorporation may be amended in accordance with the MGCL, which generally requires the approval of the board of directors and the holders of a majority of the outstanding shares of HomeTrust common stock. The amendment of certain provisions of HomeTrust’s articles of incorporation, however, requires the vote of the holders of at least 80% of the voting power of all of the outstanding shares of capital stock entitled to vote generally in the election of directors, (after giving effect to the 10% voting limitation in HomeTrust’s articles of incorporation as described above under “-Voting Rights”), voting together as a single class. These include provisions relating to: the ability of the board of directors to designate and set the terms of series of preferred stock; the voting limitations on greater than 10% shareholders; the number, classification, election and removal of directors; certain business combinations with greater than 10% shareholders; the prevention of greenmail; indemnification of directors and officers; limitation on liability of directors and officers; and amendments to the articles of incorporation and bylaws. HomeTrust’s articles of incorporation provides by its terms that it may be amended by HomeTrust’s board of directors, without a shareholder vote, to change the number of shares of capital stock authorized for issuance. | |
| Amendments to Bylaws | ||
Under the TBCA, shareholder action is generally not necessary to amend the bylaws, unless the charter provides otherwise or the shareholders in amending or repealing a particular bylaw provide expressly that the board of directors may not amend or repeal that bylaw. The shareholders may amend or repeal TriSummit’s bylaws even though the bylaws may also be amended or repealed by its board of directors. However, any change in the bylaws made by the board of directors may be amended or repealed by the shareholders. TriSummit’s charter and bylaws provide that TriSummit’s bylaws may be amended, or repealed by the shareholders by the vote of those representing a majority of the votes entitled to be cast on the amendment or repeal or by the board of directors, by a vote of a majority of the whole board, in each case subject to the TBCA. | HomeTrust’s bylaws may be amended either by the board of directors, by a vote of a majority of the whole board, or by HomeTrust’s shareholders, by the vote of the holders of 80% of the outstanding shares of capital stock entitled to vote generally in the election of directors (after giving effect to the 10% voting limitation in HomeTrust’s articles of incorporation as described above under “-Voting Rights”), voting together as a single class. | |
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| Special Meetings of Shareholders | ||
| Under the TBCA, the board of directors, any person authorized by the charter or bylaws, or (unless the charter provides otherwise) the holders of at least 10% of the votes entitled to be cast may call a special meeting of shareholders. Under TriSummit’s bylaws special meetings of shareholders may be called by the Chairman, the President/Chief Executive Officer, a majority of the board of directors, or by the shareholders. The shareholder request for a special meeting must state the purpose or purposes of the special meeting and the business to be conducted. | HomeTrust’s bylaws provide that special meetings of shareholders may be called by the President or by the board of directors by vote of a majority of the whole board. In addition, HomeTrust’s bylaws provide that a special meeting of shareholders shall be called by the Secretary of HomeTrust on the written request of shareholders entitled to cast at least a majority of all votes entitled to be cast at the meeting. | |
| Quorum | ||
| A majority of the shares entitled to vote, represented in person or by proxy, constitutes a quorum at any shareholder meeting. | The holders of at least one-third of all shares entitled to vote at the meeting, present in person or by proxy, constitutes a quorum at any shareholder meeting. | |
| Limitation of Personal Liability of Directors | ||
Consistent with the TBCA, TriSummit’s charter provides that a director shall not be personally liable to TriSummit or its shareholders for monetary damages for a breach of duty as a director, except for liability for: · for any breach of the director’s duty of loyalty to TriSummit or its shareholders; · for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; or · for unlawful distributions under Section 48-18-304 of the TBCA. | Consistent with the MGCL, HomeTrust’s articles of incorporation provides that an officer or director of HomeTrust shall not be liable to HomeTrust or its shareholders for money damages, except to the extent: · it is proved that the person actually received an improper benefit or profit, for the amount of the benefit or profit; · a final judgment or adjudication against the person is based on a finding that the person’s action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action against the person; or · to the extent otherwise provided in the MGCL. HomeTrust’s articles of incorporation provides that HomeTrust will indemnify and advance expenses to its directors and officers to the fullest extent required or permitted by the MGCL. HomeTrust’s articles of incorporation also provide that HomeTrust will indemnify other employees and agents to the extent authorized by its board of directors and permitted by law. | |
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| Limitation of Personal Liability of Directors(continued) | ||
| The MGCL permits a corporation to indemnify its directors, officers, employees and agents against judgments, penalties, fines, settlements and reasonable expenses actually incurred unless it is proven that (1) the conduct of the person was material to the matter giving rise to the proceeding and the person acted in bad faith or with active and deliberate dishonesty, (2) the person actually received an improper personal benefit or (3) in the case of a criminal proceeding, the person had reason to believe that his conduct was unlawful. | ||
The MGCL provides that reasonable expenses incurred by a director, officer, employee or agent who is a party to a proceeding may be paid by the corporation in advance of the final disposition of the proceeding if the corporation receives a written affirmation from the person to receive the advancement of that person’s good faith belief that he or she has met the standard of conduct necessary for indemnification and a written undertaking by the person to repay the advanced amount if it is ultimately determined that he or she has not met the standard of conduct. | ||
| The MGCL provides that where a person is a defendant in a derivative proceeding, the person may not be indemnified if the person is found liable to the corporation. The MGCL also provides that a person may not be indemnified in respect of any proceeding alleging improper personal benefit in which the person was found liable on the grounds that personal benefit was improperly received. The person found liable in the derivative proceeding or in the proceeding alleging improper personal benefit may petition a court to nevertheless order indemnification for expenses if the court determines that the person is fairly and reasonably entitled to indemnification in view of all the relevant circumstances. The MGCL provides that unless otherwise provided in the corporation’s articles of incorporation, a director or officer (but not an employee or agent) who is successful on the merits or otherwise in defense of any proceeding must be indemnified against reasonable expenses. | ||
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| Indemnification of Directors and Officers | ||
The TriSummit charter provides that TriSummit shall indemnify and advance expenses to, and may purchase and maintain insurance or furnish similar protection on behalf of, its directors, officers, and employees to the fullest extent permitted by the TBCA and applicable federal law and regulation. The bylaws of TriSummit provide that TriSummit shall indemnify, including the advancement of expenses, any person who was or is a party or is threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative (a “proceeding”), by reason of the fact that he or she is or was a director, officer or employee of TriSummit, or is or was serving at the request of TriSummit as a director, officer, or employee of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan, against all expense, liability and loss (including attorney’s fees, judgments, fines, excise taxes or penalties and amount paid in settlement) reasonably incurred or suffered by him or her in connection with the action or proceeding to the fullest extent required or permitted by the TBCA. The TBCA requires that the indemnified person: (1) acted in good faith; (2) reasonably believed (A) in the case of conduct in his or her official capacity with TriSummit that his or her conduct was in the best interests of TriSummit and (B) in all other cases, that his or her conduct was at least not opposed to TriSummit’s best interests; and (3) in the case of any criminal proceeding, he or she had no reasonable cause to believe his or her conduct was unlawful. Expenses (including attorney’s fees) incurred in defending any action or proceeding shall be paid by TriSummit in advance of the final disposition of the action or proceeding upon: (1) delivery to TriSummit of an undertaking to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal that such individual is not entitled to be indemnified for such expenses; (2) delivery to TriSummit of a written affirmation of his or her good faith belief that he or she has met the standard of conduct set forth in the TBCA; and (3) a determination that the facts would not preclude indemnification. | HomeTrust’s articles of incorporation require HomeTrust to indemnify its current and former directors and officers, whether serving HomeTrust or at its request any other entity, to the fullest extent required or permitted by the MGCL including the advancement of expenses. If and to the extent authorized by the board of directors and permitted by law, HomeTrust may indemnify other employees and agents. The MGCL permits a corporation to indemnify its directors, officers, employees and agents against judgments, penalties, fines, settlements and reasonable expenses actually incurred unless it is proven that (1) the conduct of the person was material to the matter giving rise to the proceeding and the person acted in bad faith or with active and deliberate dishonesty, (2) the person actually received an improper personal benefit or (3) in the case of a criminal proceeding, the person had reason to believe that his conduct was unlawful. The MGCL provides that where a person is a defendant in a derivative proceeding, the person may not be indemnified if the person is found liable to the corporation. The MGCL also provides that a person may not be indemnified in respect of any proceeding alleging improper personal benefit in which the person was found liable on the grounds that personal benefit was improperly received. The person found liable in the derivative proceeding or in the proceeding alleging improper personal benefit may petition a court to nevertheless order indemnification for expenses if the court determines that the person is fairly and reasonably entitled to indemnification in view of all the relevant circumstances. The MGCL provides that unless otherwise provided in the corporation's charter, a director or officer (but not an employee or agent) who is successful on the merits or otherwise in defense of any proceeding must be indemnified against reasonable expenses. The MGCL provides that reasonable expenses incurred by a director, officer, employee or agent who is a party to a proceeding may be paid by the corporation in advance of the final disposition of the proceeding if the corporation receives a written affirmation from the person to receive the advancement of that person's good faith belief that | |
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| Indemnification of Directors and Officers (continued) | ||
he or she has met the standard of conduct necessary for indemnification and a written undertaking by the person to repay the advanced amount if it is ultimately determined that he or she has not met the standard of conduct. HomeTrust's articles of incorporation provide, consistent with the MGCL, that the rights to indemnification and to the advancement of expenses conferred by HomeTrust's articles of incorporation are not exclusive of any other right which a person may have under any statute, the articles of incorporation, HomeTrust’s bylaws, any agreement, any vote of stockholders or the board of directors, or otherwise. | ||
| Business Combinations with Certain Persons | ||
State Law.The Tennessee Business Combination Act generally prohibits a “business combination” (generally defined to include mergers, share exchanges, sales and leases of assets, issuances of securities and similar transactions) by a “resident domestic corporation” (as defined below) or a subsidiary with an “interested shareholder” (generally defined as any person or entity which beneficially owns 10% or more of the voting power of any class or series of the corporation’s stock then outstanding) for a period of five years after the date the person becomes an interested shareholder unless, prior to such date, the board of directors approved either the business combination or the transaction which resulted in the shareholder becoming an interested shareholder and the business combination satisfies any other applicable requirements imposed by law or by the corporation’s charter or bylaws. The Tennessee Business Combination Act also limits the extent to which a “resident domestic corporation” which has a class of voting stock traded on any national securities exchange or registered pursuant to Section 12(g) of the Exchange Act or any of its officers or directors could be held liable for resisting any business combination. | State Law. The MGCL contains a business combination statute that prohibits a business combination between a corporation and an interested shareholder (one who beneficially owns 10% or more of the voting power) for a period of five years after the interested shareholder first becomes an interested shareholder, unless the transaction has been approved by the board of directors before the interested shareholder became an interested shareholder or the corporation has exempted itself from the statute pursuant to an articles of incorporation provision. After the five-year period has elapsed, a corporation subject to the statute may not consummate a business combination with an interested shareholder unless (1) the transaction has been recommended by the board of directors and (2) the transaction has been approved by (a) 80% of the outstanding shares entitled to be cast and (b) two-thirds of the votes entitled to be cast other than shares owned by the interested shareholder. This approval requirement need not be met if certain fair price and terms criteria have been satisfied. HomeTrust has opted-out of the Maryland business combination statute through a provision in its articles of incorporation. | |
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| Business Combinations with Certain Persons (continued) | ||
For purposes of the Tennessee Business Combination Act, the term “resident domestic corporation” is defined as an issuer of voting stock which, as of the share acquisition date in question, is organized under the laws of Tennessee and meets two or more of the following requirements: · The corporation has more than 10,000 shareholders or 10% of its shareholders reside in Tennessee or more than 10% of its shares are held by shareholders who are Tennessee residents; · The corporation has its principal office or place of business in Tennessee; · The corporation has the principal office or place of business of a significant subsidiary, representing not less than 25% of the corporation’s consolidated net sales located in Tennessee; · The corporation employs more than 250 individuals in Tennessee or has a combined annual payroll paid to Tennessee residents which is in excess of $5.0 million · The corporation produces goods and services in Tennessee which result in annual gross receipts in excess of $10.0 million; or · The corporation has physical assets and/or deposits, including those of any subsidiary located within Tennessee which exceed $10.0 million in value. | ||
| Charter Provision. Unlike the HomeTrust articles of incorporation, TriSummit charter does not contain a business combination provision. | Articles of Incorporation Provision. HomeTrust’s articles of incorporation provides that certain business combinations (for example, mergers, share exchanges, significant asset sales and significant stock issuances) involving “interested shareholders” of HomeTrust require, in addition to any vote required by law, the approval of at least 80% of the voting power of the outstanding shares of stock entitled to vote generally in the election of directors, voting together as a single class, unless either (i) a majority of the disinterested directors have approved the business combination or (ii) certain fair price and procedure requirements are satisfied. An “interested shareholder” generally means a person who is a greater than 10% shareholder of HomeTrust or who is an affiliate of HomeTrust and at any time within the past two years was a greater than 10% shareholder of HomeTrust. | |
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| Prevention of Greenmail | ||
TriSummit’s charter does not contain a provision designed to prevent greenmail. The Tennessee Greenmail Act prohibits a Tennessee corporation having a class of voting stock registered or traded on a national securities exchange or registered pursuant to Section 12(g) of the Securities Exchange Act from purchasing, directly or indirectly, any of its shares at a price above the market value of such shares from any person who holds more than 3% of the class of securities to be purchased if such person has held such shares for less than two years, unless: (1) such purchase has been approved by the affirmative vote of a majority of the outstanding shares of each class of voting stock issued by such corporation or (2) the corporation makes an offer, at least equal value per share, to all holders of shares of such class. Market value is defined as the average of the highest and lowest closing market price of such shares during the 30 trading days preceding the purchase or preceding the commencement or announcement of a tender offer if the seller of such shares has commenced a tender offer or announced an intention to seek control of the corporation. Because TriSummit’s stock is not traded on a national securities exchange or registered under Section 12(g) of the Securities Exchange Act, TriSummit is not subject to the restrictions of the Greenmail Act. | HomeTrust’s articles of incorporation generally prohibits HomeTrust from acquiring any of its own equity securities from a beneficial owner of 5% or more of HomeTrust’s voting stock unless: (i) the acquisition is approved by the holders of at least 80% of the voting power of the outstanding shares of stock entitled to vote in the election of directors, voting together as a single class; (ii) the acquisition is made as part of a tender or exchange offer by HomeTrust or a subsidiary of HomeTrust to purchase securities of the same class on the same terms to all holders of such securities; (iii) the acquisition is pursuant to an open market purchase program approved by a majority of the board of directors, including a majority of the disinterested directors; or (iv) the acquisition is at or below the market price of the HomeTrust equity security and is approved by a majority of the board of directors, including a majority of the disinterested directors. | |
| Fundamental Business Transactions | ||
| State Law. The TBCA requires the approval of the board of directors and the affirmative vote of a majority of the votes entitled to be cast by all shareholders entitled to vote thereon for mergers, consolidations and sales of all or substantially all of its assets, subject to certain exceptions which are not applicable to the merger of TriSummit and HomeTrust. | State Law. Under the MGCL, a consolidation, merger, share exchange or sale, lease, exchange or transfer of all or substantially all of the corporation’s assets generally must be approved at a meeting of a corporation’s shareholders by the affirmative vote of two-thirds of all the votes entitled to be cast on the matter. As noted below, HomeTrust’s articles of incorporation contains a provision that reduces this vote requirement to the holders of a majority of the outstanding shares entitled to vote. | |
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State Law. Under the MGCL, a consolidation, merger, share exchange or sale, lease, exchange or transfer of all or substantially all of the corporation’s assets generally must be approved at a meeting of a corporation’s shareholders by the affirmative vote of two-thirds of all the votes entitled to be cast on the matter. As noted below, HomeTrust’s articles of incorporation contains a provision that reduces this vote requirement to the holders of a majority of the outstanding shares entitled to vote.
| TRISUMMIT | HOMETRUST | |||||||||||||||||
| Fundamental Business Transactions (continued) | ||||||||||||||||||
| Charter Provision. | Articles of Incorporation
HomeTrust’s articles of incorporation provide that when evaluating any offer of another person to (1) make a tender or exchange offer for any equity security of HomeTrust, (2) merge or consolidate HomeTrust with another corporation or entity or (3) acquire all or substantially all of the properties and assets of HomeTrust, or when evaluating any other transaction which would or may involve a change in control of HomeTrust, HomeTrust’s board of directors may, in exercising its business judgment as to what is in the best interests of HomeTrust and its shareholders and in making any recommendation to HomeTrust’s shareholders, give due consideration to all relevant factors, including, but not limited to:
·the immediate and long-term economic effect upon HomeTrust’s shareholders, including shareholders, if any, who do not participate in the transaction; | |||||||||||||||||
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| Other Constituency Provision (continued) | ||||||||
·the social and economic effect on the employees, creditors and customers of, and others dealing with, HomeTrust and its subsidiaries and on the communities in which HomeTrust and its subsidiaries operate or are located; ·whether the proposal is acceptable based on the historical, current or projected future operating results or financial condition of HomeTrust; ·whether a more favorable price could be obtained for HomeTrust’s stock or other securities in the future; ·the reputation and business practices of the other entity to be involved in the transaction and its management and affiliates as they would affect the employees of HomeTrust and its subsidiaries; ·the future value of the stock or any other securities of HomeTrust or the other entity to be involved in the proposed transaction; ·any antitrust or other legal and regulatory issues that are raised by the proposal;
| ||||||||
·the business and historical, current or projected future financial condition or operating results of the other entity to be involved in the proposed transaction, including, but not limited to, debt service and other existing financial obligations, financial obligations to be incurred in connection with the proposed transaction, and other likely financial obligations of the other entity to be involved in the proposed transaction; and
·the ability of HomeTrust to fulfill its objectives as a financial institution holding company and on the ability of its subsidiary financial institution(s) to fulfill the objectives of a federally insured financial institution. | ||||||||
| If HomeTrust’s board of directors determines that any proposed transaction of the type described above should be rejected, it may take any lawful action to defeat the transaction, including, but not limited to, any or all of the following: | ||||||||
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| Other Constituency Provision (continued) | ||||||||
·advising shareholders not to accept the proposal;
·instituting litigation against the party making the proposal;
·filing complaints with governmental and regulatory authorities;
·acquiring the stock or any other securities of HomeTrust;
| ||||||||
·increasing the authorized capital stock of HomeTrust;
·selling or otherwise issuing authorized but unissued stock, other securities or granting options or rights with respect to authorized but unissued stock;
·acquiring a company to create an antitrust or other regulatory problem for the party making the proposal; and
·obtaining a more favorable offer from another individual or entity. | ||||||||
| Dissenters’ Rights | ||||||||
Holders of TriSummit common stock and Series A preferred stock are entitled to dissenters' rights | The MGCL provides that, subject to very limited exceptions, a shareholder is not entitled to demand the fair value of his or her shares in any transaction if the corporation’s stock is listed on a national securities exchange. Since HomeTrust common stock is listed on | |||||||
| Stockholder Inspection Rights | ||||||||
| The TBCA provides that a shareholder may inspect books and records for any proper purpose upon written verified demand stating the purpose of the inspection. | Under the MGCL, only a holder or group of holders of 5% or more of the corporation’s stock for at least six months has the right to inspect the corporation’s stock ledger, list of stockholders and books of account. Any stockholder is entitled to inspect the corporation’s bylaws, minutes of stockholder meetings, annual statement of affairs and any voting trust agreements. | |||||||
The validity of the shares of HomeTrust stock to be issued in connection with the merger has been passed upon by Silver, Freedman, Taff & Tiernan, LLP, Washington, D.C. Certain United States federal income tax consequences of the merger have been passed upon by Silver, Freedman, Taff & Tiernan LLP, Washington, D.C., and by Kilpatrick Townsend & Stockton, LLP, Washington, D.C.
The consolidated financial statements of HomeTrust Bancshares, Inc. appearing in HomeTrust Bancshares, Inc.’s Annual Report (Form 10-K) as of and for the years ended June 30, 2013 and 2012 and for each year in the three-year period ended June 30, 2013 have been audited by Dixon Hughes Goodman LLP, an independent registered public accounting firm, as set forth in their report thereon, included therein, and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Jefferson as of June 30, 2013 and 2012 and for each of the fiscal years in the three-year period ended June 30, 2013 have been included herein in reliance upon the report of Craine, Thompson & Jones, P.C., Morristown, Tennessee, an independent registered certified public accounting firm, included elsewhere in this joint proxy statement/ prospectus, and upon the authority of said firm as experts in accounting and auditing.
Jefferson
If the merger occurs in the expected timeframe, there will be no Jefferson annual meeting of shareholders in 2014. In that case, shareholder proposals must be submitted to HomeTrust’s Corporate Secretary in accordance with the procedures described above. In case the merger is not completed, in order to be eligible for inclusion in the proxy materials for next year’s Jefferson annual meeting of shareholders, the shareholder proposal must be received at Jefferson’s executive office at 120 Evans Avenue, Morristown, Tennessee 37814, no later than October 31, 2014, which is 120 calendar days before the anniversary of the date on which Jefferson first mailed its proxy statement for 2013. If the date of the annual meeting is 30 days before or after October 31, 2014, then the shareholder proposal must be received at a reasonable time before Jefferson begins to print and send its proxy materials. If the 2014 annual meeting of Jefferson shareholders becomes necessary, Jefferson will specify the deadline for shareholders to submit proposals. All shareholder proposals shall be subject to the requirements of Rule 14a-8 under the proxy rules adopted under the Exchange Act, and, as with any shareholder proposal Jefferson’s articles of incorporation and bylaws and Washington law.
Jefferson’s Bylaws provide that, in order for a shareholder to make nominations for the election of directors or proposals for business to be brought before the annual meeting, a shareholder must deliver notice of such nominations and/or proposals to the Corporate Secretary not less than 90 days prior to the date of the annual meeting; however, if less than
The validity of the shares of HomeTrust stock to be issued in connection with the merger has been passed upon by Silver, Freedman, Taff & Tiernan, LLP, Washington, D.C. Certain United States federal income tax consequences of the merger have been passed upon by Silver, Freedman, Taff & Tiernan LLP, Washington, D.C., and by Butler Snow LLP, Nashville, Tennessee.
The consolidated financial statements of HomeTrust Bancshares, Inc. appearing in HomeTrust Bancshares, Inc.’s Annual Report (Form 10-K) as of and for the years ended June 30, 2016 and 2015 and for each year in the three-year period ended June 30, 2016 have been audited by Dixon Hughes Goodman LLP, an independent registered public accounting firm, as set forth in their report thereon, included therein, and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
HomeTrust files annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy these filings at the public reference room of the SEC located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. HomeTrust’s SEC filings are also available to the public from commercial document retrieval services and at the web site maintained by the SEC at “www.sec.gov.” You may also obtain copies of this information by mail from the Public Reference Section of the SEC, at 100 F Street, N.W., Washington, D.C. 20549, at prescribed rates.
HomeTrust filed with the SEC a registration statement on Form S-4 under the Securities Act of 1933 with respect to the shares of HomeTrust common stock to be issued in the merger to the holders of TriSummit common stock and Series A preferred stock. This proxy statement/prospectus is a part of that registration statement and constitutes a prospectus of HomeTrust in addition to being a proxy statement of TriSummit for the special meeting of TriSummit’s shareholders. As permitted by SEC rules, this proxy statement/prospectus does not contain all the information contained in the registration statement or the exhibits to the registration statement. The additional information may be inspected and copied as set forth above.
The SEC permits the incorporation by reference of information regarding HomeTrust into this proxy statement/prospectus, which means that important business and financial information about HomeTrust can be disclosed to you by referring you to another document filed separately with the SEC. The information incorporated by reference is considered to be part of this document, and later information that HomeTrust files with the SEC will update and supersede that information. This document incorporates by reference the documents set forth below that HomeTrust has previously filed with the SEC and all documents filed by HomeTrust with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after the date of this proxy statement/prospectus and before the date of the special meeting.
HomeTrust Filings (SEC file number 001-35593)
| · | Annual Report on Form 10-K for the year ended June 30, |
| · | Current |
| · | Description of HomeTrust’s common stock contained in its Registration Statement on Form 8-A filed with the SEC on July 2, 2012, and all amendments or reports filed for the purpose of updating such description; and |
| 101 |
| · | Description of the preferred share purchase rights of HomeTrust contained in its Registration Statement onForm 8-A filed on September 25, 2012, and all amendments or reports filed for the purpose of updating such description.
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