By Scott Robertson
Last Wednesday afternoon, after issuing a press release announcing the planned purchase of TriSummit Bancorp, Inc. by HomeTrust Bancshares, Inc., HomeTrust CEO Dana Stonestreet and TriSummit CEO Lynn Shipley sat down together for an exclusive joint interview with The Business Journal of Tri-Cities, TN/VA and Johnson City News & Neighbor at TriSummit’s Church Circle headquarters in Kingsport.
TriSummit currently has assets in the neighborhood of $353 million. Once the TriSummit acquisition is complete in December, HomeTrust’s assets will exceed $3 billion. The difference in scale between the two banks was a key reason the merger made sense for both, the CEOs said.
From TriSummit’s standpoint, Shipley said, having less than half a billion dollars in assets made further growth difficult.
“We make money by lending dollars,” Shipley said. When interest rates remain at record lows for extended periods of time, margins for banks are driven down. “For the last five or six years, when we have done our budget, we would think, ‘Gee whiz, this is going to be the year that rates start to move up.’ Well, the fed passed again on that today, so the pressure is going to continue on margin.”
That pressure is compounded by the massive increase in both the quantity and scope of regulations placed on the industry following the great recession. “The regulators won’t tell you, ‘You have to hire another person to handle this compliance matter,’” Shipley said. “They’ll just say, ‘you have to handle this matter,” and the way to do that is to hire another person, and of course, there’s a cost associated with that. The compliance costs, the regulatory burden – those continue to be an issue. You’ve got to have a certain scale to spread all these costs over. A few years ago, I would have said we’d need to be at least $500 million. But if I was giving the same answer today, I’d say you need $1 billion to $1.5 billion to even begin to be in a reasonable position on the cost of all those things with the continued pressure.”
Combine those pressures with the fact that every bank’s legal lending limit is tied to its capital, and it’s easy to see how a community bank can be too small to be sustainable, much less grow.
“We may have a commercial relationship right now where we are near the legal lending limit, so we can’t really grow with that company,” Shipley explained. “HomeTrust has a higher lending limit because they have $3 billion in assets. We have $350 million. So obviously their capital is substantially more. By being part of HomeTrust, we will have the room to grow those relationships.”
From the point of view of HomeTrust, the acquisition of TriSummit, which operates entirely in East Tennessee, within HomeTrust’s own footprint, offered the chance to reduce expenses in existing markets while offering growth opportunities TriSummit would not have been able to access.
“We can expand the customer base,” Stonestreet said. “Lynn’s added a lot of talented people to his team that are well-known in the community. We’ll just be able to enable them to be able to do larger loans and meet more customer needs. They’ll keep being here and doing what they’re doing today. They’ll just have more to do it with.”
From a market share standpoint, the merged HomeTrust will move from third to first in Hamblen County, from ninth to sixth in Sullivan County and from fifth to fourth in Washington County. TriSummit currently ranks sixth, seventh and eleventh in those counties, respectively.
In addition to simply growing market share, the newly merged bank will realize savings by keeping the former TriSummit from having to make some costly purchases. HomeTrust already has up and running several tech pieces that were proving difficult for TriSummit to put in place. An online mortgage application system and multiple treasury management tools are chief among these.
“We’ve made a lot of commitments on the technology side,” Stonestreet said. “We’re running the best software out of California. We’re set up to meet all the new regulations – irritating as they are – making sure everybody can afford to make their payments and meeting all those disclosure regulations.”
Having that technology in place also helps reduce the strain of dealing with regulations, Stonestreet explained. “We have a department that does nothing but the required disclosures within the day’s timeframe. It takes an expert team that does only that all day every day because it’s so complicated.”
That team is one part of the operations department that will allow HomeTrust to realize significant savings from the acquisition. “We have the infrastructure to be able to handle back office operations and systems,” Stonestreet said. “We can eliminate duplication in the back office operations department, which is something you see happening with every bank combination with the pressure on margins, low interest rates and the pressure on efficiency. As banks combine, one of the processes is putting together the talent so we can generate more revenue together and reduce the expense base that has raised so much in the regulatory environment.”
That means the transition will not be painless, Stonestreet said, but it will be focused on the long-term success of the business. “TriSummit will be affected in the operations areas as we leverage the infrastructure in the operation area that we’ve built in our home office. It’s one of the challenges, but it’s also one of the realities.
“Our focus is, ‘let’s do the most good for the most people we possibly can,’ because if we don’t make the hard decisions to find the efficiencies, then maybe none of us have earned the right to be here. We’re trying to build something here that’s sustainable.”
HomeTrust has said in disclosure documents published on its website that in addition to back office changes, it will consolidate three branch locations after the merger. Stonestreet declined to say which branches will be closing, or whether those branches are currently TriSummit or HomeTrust branches. Those decisions will be announced in December. Stonestreet expects full regulatory approval by the end of the 2016 calendar year. The boards of directors of both companies have unanimously approved the merger agreement.
Said Shipley, “The tough part is losing some folks you worked with for a lot of years in many cases, but this is about building a sustainable organization we can all be proud of, can return value to our shareholders and can give something back to our community.”