UNITED STATES
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 period ended: March 31, 2000
[ ] 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 000-22103
HEMLOCK FEDERAL FINANCIAL CORP.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified In Its Charter)
Delaware 36-4126192
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
5700 West 159th Street 60452
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
708-687-9400
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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 12 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 the issuer's classes of common
stock, as of the latest practicable date:
Class Outstanding at April 3, 2000
- --------------------------------------------------------------------------------
Common Stock, par value $.01 1,040,479 shares
<PAGE>
HEMLOCK FEDERAL FINANCIAL CORP.
AND SUBSIDIARY
INDEX
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Condition as of March 31, 2000
and December 31, 1999................................................. 3
Condensed Consolidated Statements of Income for the three months
ended March 31, 2000 and 1999......................................... 4
Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 2000 and 1999.................................. 5
Condensed Consolidated Statements of Changes in Stockholders' Equity
for the three months ended March 31, 2000 and 1999.................... 8
Notes to the Condensed Consolidated Financial Statements as of
March 31, 2000........................................................ 10
Item 2. Management's Discussion and Analysis of the Financial Condition
and Results of Operation................................................ 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk....... 17
Part II. Other Information................................................. 20
- 2 -
<PAGE>
HEMLOCK FEDERAL FINANCIAL CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION
(In thousands, except share data)
- --------------------------------------------------------------------------------
March 31, December 31,
2000 1999
----------- -------------
ASSETS
Cash and due from banks $ 6,581 $ 9,813
Securities available-for-sale, at fair value 31,905 32,982
Securities held-to-maturity 58,983 61,126
Loans receivable, net 118,752 116,998
Property, plant and equipment, net 3,497 3,538
FHLB stock, at cost 2,325 2,325
Accrued interest and other assets 1,607 1,675
-------- --------
Total Assets $223,650 $228,457
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $152,664 $150,576
FHLB advances 46,000 49,500
Advances from borrowers for taxes and insurance 753 1,133
Note Payable 3,000 -
Accrued interest and other liabilities 1,695 1,527
-------- --------
Total Liabilities 204,112 202,736
Stockholders' Equity
Common stock, $.01 par value; 3,100,000 shares
authorized; 2,076,325 shares issued 21 21
Surplus 20,278 20,270
Unearned ESOP, (2000 - 112,122 shares; 1999
- 116,274 shares) (1,121) (1,163)
Unearned stock awards (794) (859)
Retained earnings 14,529 14,235
Net unrealized gain on securities
Available-for-sale, net of tax 282 444
Treasury stock at cost ( 2000 - 877,709 ; shares 1999
- 457,762 shares) (13,657) (7,227)
-------- --------
Total Stockholders' Equity 19,538 25,721
-------- --------
Total Liabilities and Stockholders' Equity $223,650 $228,457
======== ========
See accompanying notes to condensed consolidated financial statements.
- --------------------------------------------------------------------------------
- 3 -
<PAGE>
HEMLOCK FEDERAL FINANCIAL CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
- --------------------------------------------------------------------------------
Three months ended
March 31,
--------------------
2000 1999
--------- --------
Interest and Dividend Income
Loans $2,120 $1,866
Investment securities 1,624 1,405
Interest bearing deposits 56 72
------ ------
Total Interest and Dividend Income 3,800 3,343
Interest expense
Deposits 1,397 1,410
FHLB advances 617 348
Other borrowings 16 -
------ ------
Total Interest Expense 2,030 1,758
Net interest income 1,770 1,585
Provision for loan losses 0 0
------ ------
Net interest income after provision for loan losses 1,770 1,585
Non-interest income
Service fees 127 128
Other income 41 37
Gain/(loss) on sale of available for sale securities (13) 33
------ ------
Total Non-interest Income 155 198
Non-interest expenses
Salaries and employee benefits 610 592
Occupancy and equipment expense 239 224
Computer service fees 83 69
Other expenses 260 255
------ ------
Total Non-interest Expense 1,192 1,140
------ ------
Income before Income Taxes 733 643
Provision for Income Taxes 261 248
------ ------
Net Income $ 472 $ 395
====== ======
Earnings per share - Basic and Diluted $ 0.35 $ 0.25
====== ======
See accompanying notes to condensed consolidated financial statements.
- --------------------------------------------------------------------------------
- 4 -
<PAGE>
HEMLOCK FEDERAL FINANCIAL CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
- --------------------------------------------------------------------------------
Three months ended
-------------------
March 31, March 31,
2000 1999
-------- --------
Cash flows from operating activities
Net income $ 472 $ 395
Adjustments to reconcile net income to net
cash from operating activities
Provision for depreciation 60 57
Net amortization of security
premiums/discounts 15 64
Change in deferred loan fees (15) (54)
(Gain)/Loss on sale of securities 13 (33)
Change in accrued interest receivable
and other assets 68 4
Change in accrued interest payable and
other liabilities 271 221
Stock awards expense 65 65
ESOP compensation 50 56
-------- -------
Net cash provided by operating activities 999 775
Cash flows from investing activities
Purchase of securities (3,709) (3,262)
available-for-sale
Proceeds from sales of securities available for sale
3,659 34
Principal payments of mortgage-backed
securities and collateralized mortgage 3,059 13,227
obligations
Proceeds from maturities and calls of securities - 1,174
Net increase in loans (1,739) (8,450)
Purchases of securities held-to-maturity (82) (5,997)
Purchases of property, plant and equipment, net (19) (77)
-------- -------
Net cash provided by (used in) investing activities 1,169 (3,351)
Cash flows from financing activities
Net increase in deposits 2,088 3,540
Change in advance payments by borrowers
for taxes and insurance (380) (365)
Purchase of treasury shares (6,430) -
Change in FHLB advances (3,500) (4,000)
Change in note payable 3,000 -
Dividends paid (178) (160)
-------- -------
Net cash provided by financing activities (5,400) (985)
======== =======
Net decrease in cash and cash equivalents (3,232) (3,561)
(Continued)
- --------------------------------------------------------------------------------
- 5 -
<PAGE>
HEMLOCK FEDERAL FINANCIAL CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
- --------------------------------------------------------------------------------
Cash and due from banks at beginning of period 9,813 6,036
-------- -------
Cash and due from banks at end of period $ 6,581 $ 2,475
======== =======
Supplemental disclosure of cash flow information
Cash paid during period for
Interest $ 2,007 $ 1,748
Income taxes 38 18
See accompanying notes to condensed consolidated financial statements.
- --------------------------------------------------------------------------------
- 6 -
<PAGE>
HEMLOCK FEDERAL FINANCIAL CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS EQUITY
FOR NINE MONTHS ENDED MARCH 31, 2000 AND 1999
(In thousands except share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
Other Unearned Total
Common Retained Comprehensive Unearned Treasury Stock Stockholders Comprehensive
Stock Surplus Earnings Income ESOP Stock Awards Equity Income (Loss)
----- ------- -------- ------------- -------- -------- ------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $ 21 $20,208 $13,207 $ 1,082 $(1,329) $(4,863) $(1,120) $27,206 $ -
Net income for three months
ended March 31, 1999 - - 395 - - - - 395 395
ESOP shares earned - 14 - - 42 - - 56 -
Stock award earned - - - - - - 65 65 -
Change in unrealized
Gain on securities
Available for sale - - - (177) - - - (177) (177)
Treasury Stock Purchase-net - - - - - - - - -
Dividends declared - - (215) - - - - (215) -
----- ------- ------- ------- ------- ------- ------- ------- -----
Balance at March 31, 1999 $ 21 $20,222 $13,387 $ 905 $(1,287) $(4,863) $(1,055) $27,330 $ 218
===== ======= ======= ======= ======= ======= ======= ======= =====
</TABLE>
(Continued)
- --------------------------------------------------------------------------------
- 7 -
<PAGE>
HEMLOCK FEDERAL FINANCIAL CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS EQUITY
FOR THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(In thousands except share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
Other Unearned Total
Common Retained Comprehensive Unearned Treasury Stock Stockholders Comprehensive
Stock Surplus Earnings Income ESOP Stock Awards Equity Income (Loss)
----- ------- -------- ------------- -------- --------- ------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 $ 21 $20,270 $14,235 $ 444 $(1,163) $ (7,227) $ (859) $25,721 $ -
Net income for three months
ended March 31, 2000 - - 472 - - - - 472 472
ESOP shares earned - 8 - - 42 - - 50 -
Stock award earned - - - - - - 65 65 -
Change in unrealized
Gain on securities
Available for sale - - - (162) - - - (162) (162)
Treasury stock purchase-net - - - - - (6,430) - (6,430) -
Dividends declared - - (178) - - - - (178) -
----- ------- ------- ------- ------- -------- ------- ------- -----
Balance at March 31, 2000 $ 21 $20,278 $14,529 $ 282 $(1,121) $(13,657) $ (794) $19,538 $ 310
===== ======= ======= ======= ======= ======== ======= ======= =====
</TABLE>
See accompanying notes to condensed consolidated financial statements.
- --------------------------------------------------------------------------------
- 8 -
<PAGE>
HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
Notes to the consolidated financial statements
NOTE 1
Hemlock Federal Financial Corp. (Corporation) is a unitary thrift holding
company which owns 100% of the voting stock of Hemlock Federal Bank for Savings
(Bank), a federally chartered thrift located in Oak Forest, Illinois. The
Corporation was incorporated under Delaware law in December of 1996. In the
opinion of management, the accompanying condensed consolidated financial
statements contain all adjustments (consisting of normally recurring items)
necessary to present fairly the Corporation's consolidated financial position as
of March 31, 2000 and December 31, 1999, and the results of its consolidated
operations, for the three month period ended March 31, 2000 and 1999, and its
consolidated cash flows and changes in stockholders' equity for the three month
periods ended March 31, 2000 and 1999. The results of operations for the period
ended March 31, 2000 are not necessarily indicative of the results to be
expected for the full year.
The financial statements and notes are presented as permitted by Form 10-Q and
do not contain certain information included in the Corporation's annual
financial statements and notes thereto.
NOTE 2
The Corporation completed its repurchase of 419,947 shares of common stock at a
cost of $6.30 million, plus expenses of $130,000, through a Dutch auction tender
offer during the quarter ended March 31, 2000. The Corporation's stock
repurchase was funded with $3.0 million in borrowings and $3.0 million in
dividends from the Bank.
- --------------------------------------------------------------------------------
- 9 -
<PAGE>
HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
NOTE 3
A reconciliation of the numerators and denominators for earnings per common
share computations is presented below.
Three months ended
March 31,
------------------
2000 1999
-------- --------
Basic earnings per share
Net income available to common stockholders $ 472 $ 395
====== ======
Weighted average common shares outstanding 1,337 1,595
Basic earnings per share $ .35 $ .25
====== ======
The Corporation's outstanding stock options and stock awards were not considered
in the computations of earnings per common share - assuming dilution because the
effects of assumed exercise would have been antidilutive.
NOTE 4
In March 2000, the Corporation established a secured revolving line of credit
with LaSalle National Bank. Interest payments are due quarterly with principal
due at maturity on March 7, 2001. The note is secured by 100% of the Bank's
outstanding common stock. The line of credit bears interest at a variable rate
equal to prime or three-month LIBOR plus 1.75% at the Corporation's option. In
March 2000, the Corporation drew on its line to finance the repurchase of
Corporation common stock in a Dutch auction tender offer.
NOTE 5
On January 10, 2000, the Bank announced the execution of a definitive agreement
providing for the purchase and merger of Midwest Savings Bank (Midwest) into
Hemlock Federal Bank for Savings. Total assets of Midwest at December 31, 1999
were approximately $48.6 million. The transaction is valued on a current basis
at $3.36 million. In the transaction, Midwest stockholders will receive cash for
each share of Midwest common stock approximately equal to the book value of the
stock as of December 31, 1999 plus net income through the month end prior to the
closing date and subject to certain other transaction adjustments. The
transaction is subject to the approval of the stockholders of Midwest, as well
as banking regulators, and is expected to close in the second quarter of 2000.
- --------------------------------------------------------------------------------
- 10 -
<PAGE>
HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
Item 2. Management's Discussion and Analysis of the Financial Condition and
Results of Operations
The following discussion focuses on the consolidated financial condition of
Hemlock Federal Financial Corp. and Subsidiary at March 31, 2000 and the
consolidated results of operations for the three months ended March 31, 2000,
compared to the same period in 1999. The purpose of this discussion is to
provide a better understanding of the condensed consolidated financial
statements and the operations of the Corporation and its subsidiary, Hemlock
Federal Bank for Savings (Bank). This discussion should be read in conjunction
with the interim condensed consolidated financial statements and notes thereto
included herein.
Results of Operations
Consolidated net income of the Corporation for the first quarter of 2000 totaled
$472,000, or $.35 per share, as compared to net income of $395,000, or $.25 per
share earned for the first quarter of 1999.
Net Interest Income
Net interest income before provision for loan losses was $1.77 million for the
three month period ended March 31, 2000, as compared to $1.59 million for the
same period in 1999. For the three month period ended March 31, 2000, interest
income increased to $3.80 million, from $3.34 million for the same period ended
March 31, 1999. This increase is due primarily to an increase in the average
balance of loans receivable, funded by an increase in the average balances of
deposits and FHLB advances. Interest expense increased to $2.03 million for the
three months ended March 31, 2000, from $1.76 million for the same period in
1999. This increase is attributable to increases in the balance of deposits and
FHLB advances, as well as an increase in the cost of funds.
Provision for Loan Losses
The Corporation's allowance for loan losses was $795,000 as of March 31, 2000,
equal to .67% of total loans. The Bank had non-performing assets totaling
$213,000 as of March 31, 2000. No provision for loan losses was made during the
three months ended March 31, 2000, nor was a provision made during the same
period ended March 31, 1999. Management believes the existing level of reserves
is adequate, given current economic conditions as well as loss experience and
credit demand.
- --------------------------------------------------------------------------------
- 11 -
<PAGE>
HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
Changes In Non-Interest Income and Non-Interest Expense
Non-interest income decreased to $155,000 for the three month period ended March
31, 2000, as compared to $198,000 for the same period ended March 31, 1999. The
decrease is due primarily to a net loss of $13,000 on the sale of securities
from the available for sale portfolio incurred during the first quarter ended
March 31, 2000, as compared to a net gain of $33,000 on the sale of securities
from the available for sale portfolio during the same period one year ago.
Non-interest expense for the three month period ended March 31, 2000 increased
to $1.19 million, as compared to $1.14 million for the same period ended March
31, 1999. The increase in expenses of $50,000 is due primarily to increased
compensation, occupancy, and equipment expenses associated with branch
operations.
Provision for Income Taxes
The Corporation's federal and state income tax expense increased to $261,000 for
the three month period ended March 31, 2000, from $248,000, for the same period
ended March 31, 1999. The increase in income tax was the result of an increase
in income before income taxes.
Financial Condition
Consolidated total assets decreased to $223.65 million as of March 31, 2000,
from $228.46 million as of December 31, 1999, a decrease in total assets of
$4.81 million. Cash on hand decreased to $6.58 million as of March 31, 2000, as
compared to $9.81 million as of December 31, 1999, a decrease of $3.22 million.
In addition, total securities held in portfolio decreased by $3.22 million, from
$94.13 million as of December 31, 1999, to $90.89 million as of March 31, 2000
due to principal pay down of mortgage related securities. These decreases were
partially offset by an increase in loans receivable to $118.75 million as of
March 31, 2000 from $117.00 million as of December 31, 1999, due to new loan
originations resulting from the commissioned loan officer program.
Total liabilities increased to $204.11 million as of March 31, 2000, from
$202.74 million as of December 31, 1999. The $1.37 million increase in
liabilities is due in part to an increase in total deposits to $152.66 million
as of March 31, 2000 from $150.58 million as of December 31, 1999, an increase
of $2.08 million, as well as an increase in other liabilities, which rose to
$4.70 million as of March 31, 2000, from $1.53 million as of December 31, 1999.
This increase was due principally to a $3.00 million borrowing made by the
holding company. These increases were partially offset by a decrease in FHLB
advances, which fell to $46.00 million as of March 31, 2000, from $49.50 million
as of December 31, 1999, a decrease of $3.50 million. The increase in deposits
is attributable to increases in both the Oak Lawn and Lemont branches. The $3.00
million borrowing by the holding company was used to partially fund the
Company's Dutch auction tender offer.
Stockholders' equity decreased to $19.54 million as of March 31, 2000 from
$25.72 million as of December 31, 1999, a decrease of $6.18 million. This
decrease is attributable to
- --------------------------------------------------------------------------------
- 12 -
<PAGE>
HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
the repurchase of 419,947 shares of the Corporation's common stock at a cost of
$6.30 million plus expenses of $130,000 through a dutch auction tender offer
which occurred during the three month period ended March 31, 2000. In addition,
the Corporation paid dividends of $178,000 during the first three months of
2000, which was partially offset by net income.
Capital Resources and Commitments
The Bank is subject to two capital to asset requirements in accordance with bank
regulations. The following table summarizes the Bank's regulatory capital
requirements versus actual capital as of March 31, 2000 and December 31, 1999.
Actual
Regulatory Requirement -----------------
to be adequately capitalized 3/31/00 12/31/99
----------------------------- ------- --------
Core capital 4.0% 20.22% 28.86%
Risk-based capital 8.0% 21.41% 24.14%
Liquidity
Liquidity measures the ability of the Corporation to meet maturing obligations
and its existing commitments, to withstand fluctuations in deposit levels, to
fund operations, and to provide for customers' credit needs. The liquidity of
the Corporation principally depends on cash flows from operating activities,
investment in and maturity of assets, changes in balances of deposits and
borrowings, and its ability to borrow funds in the money or capital markets.
The Bank's regulatory liquidity ratio at March 31, 2000 was 12.79%, a portion of
which includes interest-earning assets with terms of 5 years or less. Loan
commitments outstanding totaled $2.86 million at March 31, 2000.
On January 10, 2000, the Company announced it had entered into an agreement to
acquire Midwest Savings Bank located in Bolingbrook, Illinois, at a price of
approximately $3.36 million. The transaction is expected to close during the
second quarter of 2000.
Impact of New Accounting Standards
Statement of Financial Accounting Standards (Statement) No. 133 on derivatives
will, in 2001, require all derivatives to be recorded at fair value in the
balance sheet, with changes in fair value charged or credited to income. If
derivatives are documented and effective as hedges, the change in the derivative
fair value will be offset by an equal change in the fair value of the hedged
item. Under the new standard, securities held-to-maturity can no longer be
hedged, except for changes in the issuer's creditworthiness. Therefore, upon
adoption of Statement No. 133, companies will have another one-time window of
opportunity to reclassify held-to-maturity securities to either trading or
available-for-sale, provided certain criteria are met. This
- --------------------------------------------------------------------------------
- 13 -
<PAGE>
HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
Statement may be adopted early at the start of a calendar quarter. Since the
Company has no significant derivative instruments or hedging activities,
adoption of Statement No. 133 is not expected to have a material impact on the
Company's financial statements.
Forward Looking Statements
When used in this Form 10-Q or future filings made by the Corporation with the
Securities and Exchange Commission, in the Corporation's press releases or other
public shareholder communications, or in oral statements made with the approval
of an authorized executive officer, the words or phrases "will likely result",
"are expected to," "will continue," "is anticipated," "estimate," "project," or
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. The
Corporation wishes to caution readers not to place undue reliance on any
forward-looking statements, which speak only as of the date made, and to advise
readers that various factors - including regional and national economic
conditions, changes in levels of market interest rates, credit risks of lending
activities, and competitive and regulatory factors - could affect the Bank's
financial performance and could cause the Corporation's actual results for
future periods to differ materially from those anticipated or projected.
The Corporation does not undertake, and specifically disclaims, any obligation
to publicly release the result of any revisions which may be made to any
forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.
Quantitative and Qualitative Disclosures About Market Risk
In an attempt to manage its exposure to changes in interest rates, management
monitors the Company's interest rate risk. The Board of Directors reviews at
least quarterly the Bank's interest rate risk position and profitability. The
Board of Directors also reviews the Bank's portfolio, formulates investment
strategies and oversees the timing and implementation of transactions to assure
attainment of the Bank's objectives in the most effective manner. In addition,
the Board anticipates reviewing on a quarterly basis the Bank's asset/liability
position, including simulations of the effect on the Bank's capital of various
interest rate scenarios.
In managing its asset/liability mix, Hemlock Federal, depending on the
relationship between long- and short-term interest rates, market conditions and
consumer preference, at times places more emphasis on managing net interest
margin than on better matching the interest rate sensitivity of its assets and
liabilities in an effort to enhance net interest income. Management believes
that the increased net interest income resulting from a mismatch in the maturity
of its asset and liability portfolios can, during periods of declining or stable
interest rates, provide high enough returns to justify the increased exposure to
sudden and unexpected increases in interest rates.
- --------------------------------------------------------------------------------
- 14 -
<PAGE>
HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
Management utilizes the net portfolio value ("NPV") analysis to quantify
interest rate risk. In essence, this approach calculates the difference between
the present value of liabilities, expected cash flows from assets and cash flows
from off balance sheet contracts. Under OTS regulations, an institution's
"normal" level of interest rate risk in the event of an immediate and sustained
200 basis point change in interest rates is a decrease in the institution's NPV
in an amount not exceeding 2% of the present value of its assets. Pursuant to
this regulation, thrift institutions with greater than "normal" interest rate
exposure must take a deduction from their total capital available to meet their
risk-based capital requirement. The amount of that deduction is one-half of the
difference between (a) the institution's actual calculated exposure to the 200
basis point interest rate increase or decrease (whichever results in the greater
pro forma decrease in NPV) and (b) its "normal" level of exposure which is 2% of
the present value of its assets. Savings institutions, however, with less than
$300 million in assets and a total capital ratio in excess of 12%, will be
exempt from this requirement unless the OTS determines otherwise. The OTS has
postponed the implementation of the rule until further notice. Based upon its
asset size and capital level at March 31, 2000, the Bank would qualify for an
exemption from this rule; management believes that the Bank would be required to
make a deduction from capital of $507,000 if it were subject to this rule.
The following table sets forth, at December 31, 1999, an analysis of the Bank's
interest rate risk as measured by the estimated changes in NPV resulting from
instantaneous and sustained parallel shifts in the yield curve (+/-300 basis
points, measured in 100 basis point increments) as compared to tolerance limits
under the Bank's current policy.
- --------------------------------------------------------------------------------
- 15 -
<PAGE>
HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
Change in Estimated Increase
Interest Estimated Ratio of NPV (Decrease) in NPV
Rates NPV to -----------------------------
(Basis Points) Amount PV of Assets Amount Percent
- --------------------------------------------------------------------------------
(Dollars in Thousands)
+300 14,800 7.09 (10,579) (42)
+200 18,827 8.77 (6,553) (26)
+100 22,504 10.20 (2,876) (11)
--- 25,380 11.24 --- ---
-100 27,646 12.00 2,267 9
-200 29,135 12.42 3,755 15
-300 30,075 12.62 4,696 19
Certain assumptions utilized in assessing the interest rate risk of thrift
institutions were employed in preparing the preceding table. These assumptions
relate to interest rates, loan prepayment rates, deposit decay rates, and the
market values of certain assets under the various interest rate scenarios. It
was also assumed that delinquency rates will not change as a result of changes
in interest rates although there can be no assurance that this will be the case.
Even if interest rates change in the designated amounts, there can be no
assurance that the Bank's assets and liabilities would perform as set forth
above. In addition, a change in U.S. Treasury rates in the designated amounts
accompanied by a change in the shape of the Treasury yield curve would cause
significantly different changes to the NPV than indicated above.
While the above estimates are based on data provided as of December 31, 1999,
management believes that the Bank's interest rate risk as of March 31, 2000 has
not significantly changed from the level indicated in the above table.
Annual Meeting
The Company's Annual Meeting for the fiscal year ending December 31, 1999 was
held on May 10, 2000 at 10:30 a.m. at the Oak Forest office of the Company.
- --------------------------------------------------------------------------------
- 16 -
<PAGE>
HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
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
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits - 27 Financial Data Schedule
b. Reports on Form 8-K
Filed with the Securities and Exchange Commission on
January 19, 2000:
On January 10, 2000, Hemlock Federal Financial Corporation,
a Delaware corporation, and Midwest Savings Bank issued a
joint press release announcing the execution of a definitive
agreement as of January 7, 2000 by and between Hemlock
Federal Bank for Savings, the wholly-owned subsidiary of
Hemlock, and Midwest.
- --------------------------------------------------------------------------------
- 17 -
<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.
HEMLOCK FEDERAL FINANCIAL CORP.
(Registrant)
/s/ Maureen G. Partynski
---------------------------------------
Maureen G. Partynski
Chief Executive Officer
May 11 , 2000
/s/ Michael R. Stevens
---------------------------------------
Michael R. Stevens
President
May 11, 1999
/s/ Jean M. Thornton
---------------------------------------
Jean M. Thornton
Chief Financial Officer
May 11, 1999
- 18 -
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT ON FORM 10-Q FOR THE FISCAL QUARTER ENDED MARCH 31, 2000 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 2,747
<INT-BEARING-DEPOSITS> 3,834
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 31,905
<INVESTMENTS-CARRYING> 58,983
<INVESTMENTS-MARKET> 0
<LOANS> 118,752
<ALLOWANCE> 795
<TOTAL-ASSETS> 223,650
<DEPOSITS> 152,664
<SHORT-TERM> 46,000
<LIABILITIES-OTHER> 5,448
<LONG-TERM> 0
<COMMON> 21
0
0
<OTHER-SE> 19,517
<TOTAL-LIABILITIES-AND-EQUITY> 223,650
<INTEREST-LOAN> 2,120
<INTEREST-INVEST> 1,624
<INTEREST-OTHER> 56
<INTEREST-TOTAL> 3,800
<INTEREST-DEPOSIT> 1,397
<INTEREST-EXPENSE> 2,030
<INTEREST-INCOME-NET> 1,770
<LOAN-LOSSES> 0
<SECURITIES-GAINS> (13)
<EXPENSE-OTHER> 1,192
<INCOME-PRETAX> 733
<INCOME-PRE-EXTRAORDINARY> 733
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 472
<EPS-BASIC> 0.35
<EPS-DILUTED> 0.35
<YIELD-ACTUAL> 3.27
<LOANS-NON> 213
<LOANS-PAST> 213
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 795
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 795
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 795
</TABLE>
