SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ___________
Commission file number 0-28696
Home Bancorp of Elgin, Inc.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 36-4090333
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION No.)
16 North Spring Street, Elgin, Illinois 60120
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
(847) 742-3800
(REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE)
N/A
____________________________________
(Former name, former address and former fiscal year,
if changed from last Report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
Outstanding at
Class March 31, 1998
----- --------------
Common Stock,
par value $.01 6,855,799
<PAGE>
TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION
-------------------------------
Item 1. Financial Statements of Home Bancorp of Elgin, Inc.
Consolidated Balance Sheets (Unaudited) -- March 31, 1998
and December 31, 1997 ...............................................1
Consolidated Statements of Earnings (Unaudited) --
Three months ended March 31, 1998 and 1997 ..........................2
Consolidated Statements of Cash Flows (Unaudited) --
Three months ended March 31, 1998 and 1997 ..........................3
Notes to Unaudited Consolidated Financial Statements ................4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................................5
Item 3. Quantitative and Qualitative Disclosures About
Market Risk.........................................................13
PART II -- OTHER INFORMATION
----------------------------
Item 1. Legal Proceedings ..................................................13
Item 2. Changes in Securities and Use of Proceeds ..........................13
Item 3. Defaults upon Senior Securities ....................................13
Item 4. Submission of Matters to a Vote of Security Holders ................13
Item 5. Other Information ..................................................13
Item 6. Exhibits and Reports on Form 8-K ...................................13
Signatures....................................................................14
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<PAGE>
Part I - FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
HOME BANCORP OF ELGIN, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---- ----
(In thousands, except shares
and per share amounts)
<S> <C> <C>
ASSETS
Cash and due from banks..................................................... $ 6,127 $ 6,852
Interest-earning deposits................................................... 48,969 34,708
Loans receivable, net....................................................... 301,680 298,661
Government National Mortgage Association
mortgage-backed securities held to maturity............................... 80 92
Accrued interest receivable................................................. 1,445 1,437
Real estate owned and in judgment, at lower of cost or fair value........... 274 286
Federal Home Loan Bank of Chicago stock, at cost............................ 2,606 2,606
Office properties and equipment, net........................................ 6,981 7,113
Prepaid expenses and other assets........................................... 814 840
------------ ------------
Total assets.............................................................. $ 368,976 $ 352,595
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Savings deposits............................................................ $ 267,745 $ 248,218
Borrowed funds ............................................................. -- 5,000
Advance payment by borrowers for taxes and insurance........................ 3,349 2,285
Accrued interest payable and other liabilities.............................. 2,213 1,877
------------ ------------
Total liabilities......................................................... 273,307 257,380
------------ ------------
Stockholders' Equity:
Preferred stock, $.01 par value, 3,000,000 shares
authorized; none outstanding.............................................. -- --
Common stock, $.01 par value; 12,000,000 shares
authorized, 7,009,250 shares issued; 6,855,799 shares
outstanding at March 31, 1998 and at December 31, 1997................... 70 70
Additional paid-in capital.................................................. 68,558 68,324
Retained earnings, substantially restricted................................. 37,919 38,095
Treasury stock, at cost (153,451 shares) ................................... (2,470) (2,470)
Common stock acquired by Recognition and Retention Plan..................... (3,673) (3,898)
Common stock acquired by Employee Stock Ownership Plan ..................... (4,735) (4,906)
Total stockholders' equity................................................ 95,669 95,215
------------ ------------
Total liabilities and stockholders' equity.................................. $ 368,976 $ 352,595
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
- 1 -
<PAGE>
<TABLE>
<CAPTION>
HOME BANCORP OF ELGIN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
For the Three Months Ended
March 31,
--------------------------
1998 1997
---- ----
(In thousands, except
per share amounts)
<S> <C> <C>
INTEREST INCOME
Loans secured by real estate.............................................. $ 5,763 $ 5,102
Other loans............................................................... 14 15
Mortgage-backed securities held to maturity............................... 1 2
Investment securities held to maturity.................................... -- 682
Interest-earning deposits................................................. 610 302
Federal Home Loan Bank of Chicago stock................................... 43 44
-------- --------
Total interest income.................................................. 6,431 6,147
INTEREST EXPENSE
Savings deposits.......................................................... 2,727 2,569
Borrowed funds............................................................ 16 --
-------- --------
Total interest expense................................................. 2,743 2,569
-------- --------
Net interest income before provision for loan losses...................... 3,688 3,578
Provision for loan losses................................................. 30 30
-------- --------
Net interest income after provision for loan losses....................... 3,658 3,548
-------- --------
NON-INTEREST INCOME
Service fee income........................................................ 230 250
Gain on sale of real estate owned......................................... -- 34
Other income.............................................................. 8 188
-------- --------
Total non-interest income.............................................. 238 472
NON-INTEREST EXPENSE
Compensation and benefits................................................. 1,599 1,232
Occupancy expense......................................................... 405 397
Federal deposit insurance premiums........................................ 59 32
Advertising and promotion................................................. 115 97
Automated teller machines................................................. 99 96
Professional services .................................................... 211 92
Data processing........................................................... 234 235
Other..................................................................... 342 388
-------- --------
Total non-interest expense............................................. 3,064 2,569
-------- --------
Income before income tax expense.......................................... 832 1,451
Income tax expense........................................................ 322 563
-------- --------
Net income............................................................. $ 510 $ 888
======== ========
Earnings per share:
Basic .................................................................... $ 0.08 $ 0.14
Diluted................................................................... 0.08 0.14
======== ========
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
HOME BANCORP OF ELGIN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended
March 31,
----------------------------
1998 1997
---- ----
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................................. $ 510 $ 888
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization expense.................................................. 151 161
Provision for loan losses.............................................................. 30 30
Market adjustment for committed ESOP shares............................................ 233 70
Cost of ESOP shares released .......................................................... 171 --
Cost of RRP ........................................................................... 225 --
Accretion of discounts, net............................................................ -- (314)
Increase (decrease) in deferred loan fees.............................................. 115 (48)
Real estate owned expense ............................................................. 11 --
Gain on sale of real estate owned...................................................... -- (34)
Decrease (increase) in accrued interest receivable..................................... (8) 374
Decrease (increase) in prepaid expenses and other assets, net.......................... 26 (70)
Increase (decrease) in accrued interest payable and other liabilities, net............. 336 (803)
----------- -----------
Net cash provided by operating activities........................................... 1,800 254
----------- -----------
Cash flows from investing activities:
Net increase in loans receivable....................................................... (3,163) (457)
Repayment of mortgage-backed securities held-to-maturity............................... 12 10
Purchase of investment securities held-to-maturity..................................... -- (24,851)
Proceeds from the maturity of investment securities held-to-maturity................... -- 30,000
Proceeds from the sale of real estate owned............................................ -- 208
Purchase of office properties and equipment ........................................... (19) (89)
----------- -----------
Net cash provided by (used in) investing activities................................. (3,170) 4,821
----------- -----------
Cash flows from financing activities:
Decrease in borrowed funds............................................................. (5,000) --
Net increase in savings deposits....................................................... 19,527 1,242
Net increase in advance payments by borrowers for taxes and insurance ................. 1,064 963
Dividends paid on common stock......................................................... (686) --
----------- -----------
Net cash provided by financing activities.............................................. 14,905 2,205
----------- -----------
Increase in cash and cash equivalents.................................................. 13,535 7,280
Cash and cash equivalents at beginning of period....................................... 41,561 28,003
----------- -----------
Cash and cash equivalents at end of period............................................. $ 55,096 $ 35,283
=========== ===========
Supplemental disclosure of cash flow information: Cash paid during the period
for:
Interest........................................................................ $ 2,751 $ 2,579
Income taxes.................................................................... 166 175
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
- 3 -
<PAGE>
HOME BANCORP OF ELGIN, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The consolidated financial statements included herein have been prepared
by the Company without audit. In the opinion of management, the quarterly
unaudited consolidated financial statements include all adjustments, consisting
of normal recurring accruals, necessary for a fair presentation of the financial
position and results of operations at and for the periods presented. Certain
information and footnote disclosures normally included in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to the rules and regulations of the Securities and Exchange Commission. The
Company believes that the disclosures are adequate to make the information
presented not misleading, however, the results for the periods presented are not
necessarily indicative of results to be expected for the entire year.
(2) Earnings Per Share
Earnings per share of common stock for the three months ended March 31,
1998 have been calculated according to the guidelines of Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). Earnings per
share for the three months ended March 31, 1997 have been restated to comply
with the provisions of SFAS 128. ESOP shares are only considered outstanding for
earnings per share calculations when they are released or committed to be
released.
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
---------------------------
1998 1997
---- ----
<S> <C> <C>
Basic:
Net income................................................................ $ 509,740 $ 888,384
Weighted average common shares outstanding................................ 6,380,015 6,462,529
--------- ---------
Basic earnings per share....................................................... $ 0.08 $ 0.14
============= ============
Diluted:
Net income................................................................ $ 509,740 $ 888,384
Weighted average common shares outstanding................................ 6,380,015 6,462,529
Stock options............................................................. 128,197 -
------------- ------------
Diluted weighted average common shares outstanding............................. 6,508,212 6,462,529
------------ ------------
Diluted earnings per share..................................................... $ 0.08 $ 0.14
============ =============
</TABLE>
(3) Commitments and Contingencies
At March 31, 1998, the Company had outstanding commitments to originate
mortgage loans of $11.7 million, of which $11.0 million were fixed-rate
commitments.
- 4 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
On September 26, 1996, Home Federal Savings and Loan Association of
Elgin ("Home Federal" or the "Association") completed its conversion from mutual
to stock form and became a wholly-owned subsidiary of Home Bancorp of Elgin,
Inc. ("Home Bancorp" or the "Company"). On such date, the Company sold 7,009,250
shares of its common stock, par value $.01 per share, to the public, at a per
share price of $10.00. The conversion and offering raised $62.4 million in net
proceeds.
Home Bancorp's sole business activity consists of the ownership of the
Association. The Company also invests in short-term investment grade marketable
securities and other liquid investments. The Association's principal business
consists of attracting deposits from the public and investing those deposits,
along with funds generated from operations, primarily in loans secured by
mortgages on one- to four-family residences. The Association's results of
operations are dependent primarily on net interest income, which is the
difference between the interest income earned on its interest-earning assets,
such as loans, interest-earning deposits and securities, and the interest
expense on its interest-bearing liabilities, such as savings deposits and
borrowed funds. The Association also generates non-interest income such as
service charges and other fees. The Association's non-interest expenses
primarily consist of employee compensation and benefits, occupancy expenses,
federal deposit insurance premiums, data processing fees and other operating
expenses. The Association's results of operations are also significantly
affected by general economic and competitive conditions (particularly changes in
market interest rates), government policies and actions of regulatory agencies.
- 5 -
<PAGE>
The selected financial ratios and other data of the Company set forth
below is derived in part from, and should be read in conjunction with, the
Unaudited Consolidated Financial Statements of the Company and Notes thereto
presented elsewhere in this report.
<TABLE>
<CAPTION>
At or For the
Three Months Ended
March 31,
1998 1997
--------------------------------
(Dollars in thousands, except
shares and per share amounts)
(Unaudited)
<S> <C> <C>
SELECTED FINANCIAL RATIOS(1):
PERFORMANCE RATIOS:
Return on average assets....................................... 0.56% 1.00%
Return on average equity....................................... 2.14 3.54
Average interest rate spread(2)................................ 3.15 3.04
Net interest margin(3)......................................... 4.23 4.20
Average interest-earning assets to average
interest-bearing liabilities................................. 134.32 138.37
Non-interest expense to average assets......................... 3.35 2.88
CAPITAL RATIOS(1):
Average equity to average assets............................... 26.08 28.18
Consolidated equity to total assets at end of period........... 25.84 28.11
Tangible capital(4)............................................ 20.15 20.15
Core capital(4)................................................ 20.15 20.15
Total risk-based capital(4).................................... 36.77 41.42
ASSET QUALITY RATIOS AND OTHER DATA(1):
Total non-performing loans(5).................................. $ 898 $ 879
Real estate owned, net......................................... 274 377
Non-performing loans to total loans(6)......................... 0.30% 0.33%
Non-performing assets to total assets.......................... 0.32 0.35
Allowance for loan losses to:
Non-performing loans........................................ 121.46 110.91
Total loans(6).............................................. 0.36 0.37
Number of shares outstanding................................... 6,855,799 7,009,250
Book value per share........................................... $ 13.95 $ 14.39
- ---------------------
</TABLE>
(1) With the exception of end-of-period ratios, all ratios are based on
average monthly balances during the indicated periods and are annualized
where appropriate. Capital Ratios and Asset Quality Ratios And Other Data
are end-of-period ratios and data.
(2) The average interest rate spread represents the difference between the
weighted-average yield on interest-earning assets and the weighted-average
cost of interest-bearing liabilities.
(3) The net interest margin represents net interest income as a percentage of
average interest-earning assets.
(4) These regulatory capital ratios are for Home Federal Savings and Loan
Association of Elgin only.
(5) Non-performing loans consist of non-accrual loans; the Company did not
have any loans that were 90 days or more past due and still accruing at
any of the dates referred to in the table above.
(6) Total loans represents gross loans less deferred loan fees and loans in
process.
- 6 -
<PAGE>
ANALYSIS OF NET INTEREST INCOME
Net interest income represents the difference between income on
interest-earning assets and expense on interest-bearing liabilities. Net
interest income depends upon the relative amounts of interest-earning assets and
interest-bearing liabilities and the interest rates earned or paid on them.
The following table sets forth certain information relating to the
Company's statements of financial condition and the statements of operations for
the three months ended March 31, 1998 and 1997, and reflects the average yield
on assets and average cost of liabilities for the periods indicated. Such yields
and costs are derived by dividing income or expense by the average balance of
assets or liabilities, respectively, for the periods shown. Average balances are
derived from average monthly balances. The yields and costs include fees which
are considered adjustments to yields.
- 7 -
<PAGE>
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
1998 1997
---- ----
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Real estate loans(1)............................... $ 298,485 $ 5,763 7.72% $ 261,616 $ 5,102 7.80%
Other loans........................................ 603 14 9.29 652 15 9.20
Mortgage-backed securities......................... 84 1 4.76 135 2 5.93
Investment securities.............................. -- -- -- 51,446 682 5.30
Interest-earning deposits.......................... 46,947 610 5.20 23,954 302 5.04
FHLB of Chicago stock.............................. 2,606 43 6.60 2,678 44 6.72
--------- --------- --------- --------- --------- ---------
Total interest-earning assets................... 348,725 6,431 7.38% 340,481 6,147 7.22%
--------- --------- --------- --------- --------- ---------
Allowance for loan losses............................. (1,083) (965)
Non-interest earning assets........................... 17,884 17,224
--------- ---------
Total assets.................................... $ 365,526 $ 356,740
========= =========
LIABILITIES AND EQUITY:
Interest-bearing liabilities:
NOW/Super NOW accounts............................. $ 43,034 $ 221 2.05% $ 42,523 $ 223 2.10%
Money market accounts.............................. 15,962 130 3.26 16,843 133 3.16
Passbook accounts.................................. 60,129 452 3.01 62,805 478 3.04
Certificates of deposit............................ 139,028 1,924 5.54 123,897 1,735 5.60
Borrowed funds..................................... 1,167 16 5.48 -- -- --
--------- --------- --------- --------- --------- ---------
Total interest-bearing liabilities.............. 259,320 2,743 4.23% 246,068 2,569 4.18%
--------- --------- --------- --------- --------- ---------
Non-interest bearing NOW accounts..................... 6,482 5,474
Other non-interest-bearing liabilities................ 4,377 4,682
--------- ---------
Total liabilities............................... 270,179 256,224
--------- ---------
Stockholders' equity................................ 95,347 100,516
--------- ---------
Total liabilities and stockholders' equity...... $ 365,526 $ 356,740
========= =========
Net interest income................................... $ 3,688 $ 3,578
========= =========
Interest rate spread(2)............................... 3.15% 3.04%
========= =========
Net interest margin(3)................................ 4.23% 4.20%
========= =========
Ratio of interest-earning assets to
interest-bearing liabilities........................ 134.32% 138.37%
========= =========
</TABLE>
(1) In computing the average balance of loans, non-accrual loans have been
included.
(2) Interest rate spread represents the difference between the average yield
earned on interest-earning assets and the average cost of interest-bearing
liabilities.
(3) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
- 8 -
<PAGE>
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1998 AND DECEMBER 31, 1997
TOTAL ASSETS. Total assets increased $16.4 million or 4.6% from $352.6
million at December 31, 1997 to $369.0 million at March 31, 1998. The increase
in total assets was primarily due to funds received from the $19.5 million
increase in savings deposits which were partially offset by disbursements of
funds to repay $5.0 million in borrowed funds.
CASH AND DUE FROM BANK. Cash and due from banks decreased $725,000 or
10.6% from $6,852,000 at December 31, 1997 to $6,127,000 at March 31, 1998. This
decrease was primarily due to the transfer of funds to interest-earning
deposits.
INTEREST-EARNING DEPOSITS. Interest-earning deposits increased $14.3
million or 41.1% from $34.7 million at December 31, 1997 to $49.0 million at
March 31, 1998. This increase is primarily due to $725,000 of funds transferred
from cash and due from banks and $13.6 million invested from the increase in
savings deposits.
LOANS RECEIVABLE. Loans receivable increased $3.0 million or 1.0% from
$298.7 million at December 31, 1997 to $301.7 million at March 31, 1998. This
increase was primarily due to aggressive marketing of the Association's loan
products.
SAVINGS DEPOSITS. Savings deposits increased $19.5 million or 7.9% from
$248.2 million at December 31, 1997 to $267.7 million at March 31, 1998. This
increase was primarily due to the offering of a special rate short-term
certificate of deposit.
ADVANCE PAYMENTS BY BORROWERS FOR TAXES AND INSURANCE. Advance payment
by borrowers for taxes and insurance increased $1.1 million or 46.6% from $2.2
million at December 31, 1997 to $3.3 million at March 31, 1998. This increase is
due to the normal accumulation of funds in the first quarter of the year for
taxes payable in the second and third quarters of the year.
STOCKHOLDERS' EQUITY. Stockholders' equity increased $454,000 or 4.8%
from $95.2 million at December 31, 1997 to $95.7 million at March 31, 1998.
Additional paid-in capital increased $234,000 or 0.34% from $68,324,000 at
December 31, 1997 to $68,558,000 at March 31, 1998, primarily due to market
value adjustments on ESOP shares released. Common stock acquired by recognition
and retention plan decreased $225,000 or 5.8% from $3.9 million at December 31,
1997 to $3.7 million at March 31, 1998 due to RRP expense. Common stock acquired
by employee stock ownership plan decreased $171,000 or 3.5% from $4.9 million at
December 31, 1997 to $4.7 million at March 31, 1998 due to the release of stock
for the ESOP. Retained earnings decreased $176,000 or 0.5% from $38.1 million at
December 31, 1997 to $37.9 million at March 31, 1998. This decrease was due to
$686,000 in dividends paid on common stock, which was offset by $510,000 in net
income for the three months ended March 31, 1998.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
1997
GENERAL. Net income for the three months ended March 31, 1998 decreased
$378,000 or 42.6% from $888,000 or $0.14 basic and diluted earnings per share
for the three months ended March 31, 1997 to $510,000 or $0.08 basic and diluted
earnings per share for the three months ended March 31, 1998. The $378,000
decrease was primarily due to a decrease of $234,000 in noninterest income and a
$495,000 increase in noninterest expense. These were offset, in part, by a
$110,000 increase in net interest income before provision for loan losses and a
$241,000 decrease in income tax expense.
- 9 -
<PAGE>
INTEREST INCOME. Interest income increased $284,000 or 4.6% from $6.1
million for the three months ended March 31, 1997 to $6.4 million for the three
months ended March 31, 1998. This increase was primarily due to an increase in
the average yield on interest earning assets of 16 basis points from 7.22% for
the three months ended March 31, 1997 to 7.38% for the three months ended March
31, 1998 and an increase in the average balance of interest-earning assets of
$8.2 million or 2.4% from $340.5 million for the three months ended March 31,
1997 to $348.7 million for the three months ended March 31, 1998. The increase
in the average yield was primarily due to a change in the composition of
interest-earning assets. The average balance of real estate loans increased
$36.9 million, which is a higher yielding asset, while investment securities and
interest-earning deposits decreased $28.5 million, which are lower yielding
assets. The increase in the average balance was primarily due to receipt of the
proceeds from the increase in savings deposits.
INTEREST EXPENSE. Interest expense increased $174,000 or 6.8% from
$2,569,000 for the three months ended March 31, 1997 to $2,743,000 for the three
months ended March 31, 1998. This increase was primarily due to a 5 basis point
increase in the cost of average interest-bearing liabilities from 4.18% for the
three months ended March 31, 1997 to 4.23% for the three months ended March 31,
1998 and a $13.5 million increase in the average balance of interest-bearing
liabilities from $246.1 million for three months ended March 31, 1997 to $259.6
million for the three months ended March 31, 1998. The 5 basis point increase in
the cost of average interest-bearing liabilities was primarily due to higher
costing certificates of deposit. The increase in the average balance of
interest-bearing liabilities was primarily due to the Association's offering of
a special rate short-term certificate of deposit.
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES. Net interest
income before provision for loan losses increased $110,000 or 3.1% from
$3,578,000 for the three months ended March 31, 1997 to $3,688,000 for the three
months ended March 31, 1998. This increase was primarily due to an 11 basis
point increase in the interest rate spread from 3.04% for the three months ended
March 31, 1997 to 3.15% for the three months ended March 31, 1998. This was
offset, in part, by a decrease of 405 basis points in the ratio of
interest-earning assets to interest-bearing liabilities from 138.37% for the
three months ended March 31, 1997 to 134.32% for the three months ended March
31, 1998. The net interest margin increased 3 basis points from 4.20% for the
three months ended March 31, 1997 to 4.23% for the three months ended March 31,
1998.
PROVISION FOR LOAN LOSSES. The provision for loan losses was $30,000
for each period. Management determined that keeping the provision for loan
losses at the same level was appropriate in light of its current review of the
Association's loan portfolio, asset quality, delinquent and non-performing
loans, the historically low loan loss experience and the national and regional
economies. The ratio of the allowance for loan losses to non-performing loans
was 121.46% and 110.91% at March 31, 1998 and 1997, respectively, and the ratio
of the allowance for loan losses to total loans was 0.36% and 0.37% at such
respective dates. Management believes that the provision for loan losses and the
allowance for loan losses are reasonable and adequate to cover any known losses
and any losses reasonably expected in the existing loan portfolio. While
management estimates loan losses using the best available information, such as
independent appraisals on collateral, no assurance can be given that future
additions to the allowance will not be necessary based on changes in economic
and real estate market conditions, further information obtained regarding known
problem loans, identification of additional problem loans, regulatory
examinations and other factors, both within and outside of management's control.
NONINTEREST INCOME. Noninterest income decreased $234,000 or 49.6% from
$472,000 for the three months ended March 31, 1997 to $238,000 for the three
months ended March 31, 1998. This decrease was primarily due to the $180,000 or
95.7% decrease in other income from $188,000 for the three months ended March
31, 1997 to $8,000 for the three months ended March 31, 1998. This decrease was
due to the receipt of $182,000 in excess funds from the liquidation of the
Association's pension plan in 1997 in connection with the Association's
conversion to stock form in September 1996, a non-recurring item. There was also
a decrease in gain on sale of real estate owned as there were no sales of real
estate owned in 1998.
- 10 -
<PAGE>
NONINTEREST EXPENSE. Noninterest expense increased $495,000 or 19.3%
from $2.6 million for the three months ended March 31, 1997 to $3.1 million for
the three months ended March 31, 1998. This increase was primarily due to
increases in compensation and benefits, federal deposit insurance premiums,
advertising, promotion and professional services expenses, which were partially
offset by a decrease in other expense. Compensation and benefits expense
increased $367,000 or 29.8% from $1,232,000 for the three months ended March 31,
1997 to $1,599,000 for the three months ended March 31, 1998. This increase was
due, in part, to an increase in Employee Stock Ownership Plan ("ESOP") expense
of $163,000 which resulted, in part, from a market value adjustment for shares
released, due to the repayment of principal on the ESOP loan by the ESOP trustee
from plan earnings. There was no similar expense in the three months ended March
31, 1997. Expenses associated with the RRP increased $225,000 in 1998. The RRP
plan was not in effect in the first three months of 1997. Advertising and
promotion expense increased $18,000 or 18.6% from $97,000 for the three months
ended March 31, 1997 to $115,000 for the three months ended March 31, 1998. This
increase was primarily due to additional expenses incurred in connection with
the special rate short-term certificate of deposit offered during the three
months ended March 31, 1998. Professional services expense increased $119,000 or
129.3% from $92,000 for the three months ended March 31, 1997 to $211,000 for
the three months ended March 31, 1998. This increase was primarily due to the
Company's use of additional professional consulting services during the three
months ended March 31, 1998. Other expenses decreased $46,000 or 11.9% from
$388,000 for the three months ended March 31, 1997 to $342,000 for the three
months ended March 31, 1998. This decrease was primarily due to a decrease in
stationary, printing and office supply expense, franchise taxes, postage and
express and real estate expense.
INCOME TAX EXPENSE. Income tax expense decreased $241,000 or 42.8% from
$563,000 for the three months ended March 31, 1997 to $322,000 for the three
months ended March 31, 1998. This decrease was primarily due to a lower level of
taxable income. The effective tax rate was 38.7% for the three months ended
March 31, 1998, which was comparable to 38.8% for the three months ended March
31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are savings deposits, principal
and interest payments on loans and securities and, to a limited extent,
borrowings from the FHLB of Chicago. While maturities and scheduled amortization
of loans and securities provide an indication of the timing of the receipt of
funds, changes in interest rates, economic conditions and competition strongly
influence mortgage prepayment rates and savings deposit flows, reducing the
predictability of the timing of sources of funds.
The Association is required to maintain an average daily balance of
liquid assets as a percentage of net withdrawable savings deposit accounts plus
short-term borrowings, as defined by the regulations of the OTS. The minimum
required liquidity ratio is currently 4.0%. At March 31, 1998, the Association's
liquidity ratio was 12.76%. The levels of the Association's liquid assets are
dependent on the Association's operating, financing and investing activities
during any given period. Management believes it will have adequate resources to
fund all commitments on a short-term and long-term basis in accordance with its
business strategy.
The primary investing activities of the Company are the origination of
mortgage and other loans and, to a much more limited extent, the purchase of U.
S. Government or U. S. Government agency securities. See the "Consolidated
Statements of Cash Flows" in the unaudited consolidated financial statements
included in this Form 10- Q for the sources and uses of cash flows for operating
activities, investing activities and financing activities for the three months
ended March 31, 1998 and 1997.
The Company has other sources of liquidity if a need for additional
funds arises, including the ability to obtain FHLB of Chicago advances of up to
$52.1 million based on the Association's current investment in FHLB of Chicago
stock. There were no borrowings outstanding at March 31, 1998.
- 11 -
<PAGE>
At March 31, 1998, the Association had outstanding loan origination
commitments of $11.7 million, undisbursed loans in process of $614,000 and
unused lines of consumer credit of $255,000. The Association anticipates that it
will have sufficient funds available to meet its current origination and other
lending commitments. Certificates of deposit scheduled to mature in one year or
less from March 31, 1998 totaled $91.9 million. Based upon the Association's
most recent experience and pricing strategy, management believes that a
significant portion of such deposits will remain with the Association.
At March 31, 1998, the Association exceeded all of its regulatory
capital requirements with a tangible capital level of $70.2 million, or 20.15%
of total adjusted assets, which is above the required level of $5.2 million or
1.5%; core capital of $70.2 million, or 20.15% of total adjusted assets, which
is above the required level of $10.5 million or 3.0%; and total risk-based
capital of $71.3 million, or 36.77% of risk-weighted assets, which is above the
required level of $15.5 million, or 8.0%.
At March 31, 1998, the total stockholders' equity of Home Bancorp was
$95.7 million, and the ratio of stockholders' equity to total assets was 25.84%.
THE YEAR 2000 PROBLEM
The "Year 2000 Problem" centers on the inability of computer systems to
recognize the Year 2000. Many existing computer programs and systems were
originally programmed with six digit dates that provided only two digits to
identify the calendar year in the date field, without considering the upcoming
change in the century. With the impending millennium, these programs and
computers will recognize "00" as the year 1900 rather than the year 2000.
Like most financial service providers, the Company and the Association may be
significantly affected by the Year 2000 Problem due to the nature of financial
information. Furthermore, if computer systems are not adequately changed to
identify the Year 2000, many computer applications could fail or create
erroneous results.
In order to address the Year 2000 issue and to minimize its potential
adverse impact, management has begun a process to identify areas that will be
affected by the Year 2000 Problem, assess its potential impact on the operations
of the Association, monitor the progress of third party software vendors in
addressing the matter, test changes provided by these vendors and develop
contingency plans for any critical systems that are not effectively
reprogrammed. The Company's plan is divided into these five phases: (1)
awareness; (2) assessment; (3) renovation; (4) validation; and (5)
implementation.
The Company has substantially completed the first two phases of the
plan and is currently working internally and with external vendors on the final
three phases. Because the Company outsources its data processing and item
processing operations, a significant component of the Year 2000 plan is working
with external vendors to test and certify their systems as Year 2000 compliant.
The Company's external vendors have surveyed their programs to inventory the
necessary changes and have begun correcting the applicable computer programs and
replacing equipment so that the Company's information systems will be Year 2000
compliant prior to June 30, 1998. This will enable the Company to devote
substantial time to the testing of the upgraded systems prior to the arrival of
the millennium. The Company expects to complete its timetable for carrying out
its plans to address year 2000 issues, and to finish testing by December 31,
1998.
In addition, monitoring and managing the year 2000 project will result
in additional direct and indirect costs to the Company and the Association. The
Company currently estimates that the aggregate direct and indirect costs will
not exceed $100,000 and does not believe that such costs will have a material
effect on its results of operations. Both direct and indirect costs of
addressing the Year 2000 Problem will be charged to earnings as
incurred. Such costs have not been material to date.
The costs of the project and the date on which the Company plans to
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events
- 12 -
<PAGE>
including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved, and actual results could differ materially
from those plans. In addition, there can be no guarantee that the systems of
other companies on which the Company's systems rely will be timely converted, or
that a failure to convert by another company, or a conversion that is
incompatible with the Company's systems, would not have a material adverse
effect on the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
In management's opinion, there has not been a material change in market
risk from December 31, 1997 as reported in Item 7A of the Company's Form 10-K.
Part II -- OTHER INFORMATION
-----------------
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 -- Financial Data Schedule*
(b) Reports on Form 8-K
None
- ---------------
*Submitted only with filing in electronic format.
- 13 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOME BANCORP OF ELGIN, INC.
(Registrant)
By: /s/Lyle N. Dolan
----------------------------------
Lyle N. Dolan
Executive Vice President and Chief
Financial and Accounting Officer
May 12, 1998
- 14 -
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and the statements of income of Home Bancorp of
Elgin, Inc. and Subsidiary and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<CIK> 0001016325
<NAME> HOME BANCORP OF ELGIN, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 6,127,291
<INT-BEARING-DEPOSITS> 48,968,965
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