SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995
Commission file number: 0-14507
HOMELAND
BANKSHARES CORPORATION
Incorporated in Iowa I.R.S. Employer Identification
No. 42-1168487
229 EAST PARK AVENUE, WATERLOO, IOWA 50704-5300
Telephone number: (319) 291-5260
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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 of the issuer's classes
of common stock, as of August 10, 1995:
5,738,713 SHARES COMMON STOCK, $12.50 PAR VALUE
PART I. FINANCIAL INFORMATION
-----------------------------
ITEM 1. FINANCIAL STATEMENTS.
------------------------------
HOMELAND BANKSHARES CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
JUNE 30, December 31,
(Dollars in thousands, except per share data) 1995 1994
-------------------------------------------------------------------
ASSETS
Cash and due from banks $ 52,747 $ 46,692
Federal funds sold 6,150 14,700
Securities
Available for sale 173,864 161,096
Held to maturity (market value $101,427
in 1995 and $119,190 in 1994) 100,766 121,354
-------------------------------------------------------------------
Total securities 274,630 282,450
Loans
Commercial, financial, and agricultural 188,155 175,623
Commercial real estate 210,317 207,495
Consumer real estate 313,244 286,085
Consumer 127,532 123,593
-------------------------------------------------------------------
Total loans 839,248 792,796
Allowance for loan losses (8,950) (9,082)
-------------------------------------------------------------------
Net loans 830,298 783,714
Premises and equipment 24,715 24,676
Intangible assets 19,546 20,620
Other assets 17,313 17,781
-------------------------------------------------------------------
Total assets $1,225,399 $1,190,633
===================================================================
LIABILITIES
Deposits
Noninterest bearing demand $ 112,224 $ 118,949
Interest bearing demand 101,550 110,749
Money market 164,574 171,746
Savings 66,391 68,254
Time 488,167 479,662
-------------------------------------------------------------------
Total deposits 932,906 949,360
Federal funds purchased 64,175 27,425
Other short-term borrowings 54,000 84,320
Accrued expenses and other liabilities 10,478 12,336
Long-term borrowings 42,225 2,450
-------------------------------------------------------------------
Total liabilities 1,103,784 1,075,891
-------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock, $12.50 par value; 25,000,000
shares authorized; 5,738,713 shares
issued and outstanding 71,734 71,734
Additional paid-in capital 227 227
Retained earnings 49,910 46,068
Net unrealized loss on securities
available for sale (256) (3,287)
-------------------------------------------------------------------
Total stockholders' equity 121,615 114,742
-------------------------------------------------------------------
Total liabilities and stockholders'
equity $1,225,399 $1,190,633
===================================================================
See notes to consolidated financial statements
HOMELAND BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
THREE MONTHS ENDED, SIX MONTHS ENDED
JUNE 30, JUNE 30,
(Dollars in thousands, except
per share data) 1995 1994 1995 1994
------------------------------------------------------------------------
Interest income
Loans $18,403 $11,235 $35,816 $20,251
Taxable securities 3,846 3,383 7,755 6,414
Tax-exempt securities 516 693 1,075 1,405
Federal funds sold 137 495 363 940
Other short-term investments --- 55 --- 127
-------------------------------------------------------------------------
Total interest income 22,902 15,861 45,009 29,137
-------------------------------------------------------------------------
Interest expense
Deposits 9,025 5,929 17,846 10,664
Short-term borrowings 1,838 520 3,570 852
Long-term borrowings 207 16 251 18
-------------------------------------------------------------------------
Total interest expense 11,070 6,465 21,667 11,534
-------------------------------------------------------------------------
Net interest income 11,832 9,396 23,342 17,603
Provision for loan losses 269 (20) 383 5
-------------------------------------------------------------------------
Net interest income after provision
for loan losses 11,563 9,416 22,959 17,598
-------------------------------------------------------------------------
Noninterest income
Data processing services 616 634 1,266 1,289
Trust services 623 729 1,158 1,448
Deposit account service charges 771 656 1,475 1,202
Securities gains 3 --- 31 1
Other 935 546 1,659 1,017
-------------------------------------------------------------------------
Total noninterest income 2,948 2,565 5,589 4,957
-------------------------------------------------------------------------
Noninterest expenses
Personnel 4,868 3,910 9,461 7,240
Occupancy 692 600 1,237 1,150
Equipment 562 543 1,191 1,100
Supplies 248 176 663 381
Advertising and promotion 392 385 952 696
Professional fees 256 198 497 338
FDIC insurance 532 460 1,064 856
Intangible amortization 538 239 1,075 365
Other real estate owned (94) 11 (146) (346)
Other 1,247 951 2,454 1,781
-------------------------------------------------------------------------
Total noninterest expenses 9,241 7,473 18,448 13,561
-------------------------------------------------------------------------
Income before income taxes 5,270 4,508 10,100 8,994
Income tax expense 2,036 1,599 3,790 3,095
-------------------------------------------------------------------------
NET INCOME $ 3,234 $ 2,909 $ 6,310 $ 5,899
=========================================================================
NET INCOME PER SHARE $ .56 $ .51 $ 1.10 $ 1.03
=========================================================================
AVERAGE NUMBER OF SHARES
OUTSTANDING 5,739,111 5,742,664 5,738,912 5,722,615
=========================================================================
See notes to consolidated financial statements
HOMELAND BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED
JUNE 30,
(Dollars in thousands) 1995 1994
-------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 6,310 $ 5,899
Adjustments to reconcile net income to net
cash provided by (used for) operating
activities
Amortization and accretion 1,019 1,474
Depreciation 999 871
Provision for loan losses 383 5
Provision for deferred income taxes 592 214
Net gain on securities
Available for sale (21) ---
Held to maturity (10) (1)
Net gain on sales of other assets (78) (84)
Increase in other assets (2,334) (2,573)
Decrease in accrued expenses and other
liabilities (1,858) (4,496)
-------------------------------------------------------------------
Net cash provided by operating activities 5,002 1,309
-------------------------------------------------------------------
INVESTING ACTIVITIES
Cash and cash equivalents acquired; net of
payment for purchase of financial institution --- (41,932)
Proceeds from sales of securities
Available for sale 135 ---
Held to maturity --- ---
Proceeds from maturities and calls of
securities
Available for sale 24,044 16,183
Held to maturity 27,001 25,207
Purchases of securities
Available for sale (38,769) (5,032)
Held to maturity (616) (5,574)
Net increase in loans (45,582) (27,753)
Purchases of premises and equipment (1,140) (773)
Proceeds from sales of other assets 147 530
-------------------------------------------------------------------
Net cash used for investing activities (34,780) (39,144)
-------------------------------------------------------------------
FINANCING ACTIVITIES
Net decrease in deposits (16,454) (10,154)
Net increase in federal funds purchased 36,750 2,625
Net increase (decrease) in other short-term
borrowings (30,320) 26,666
Proceeds from long-term borrowings 40,000 2,450
Repayments of long-term borrowings (225) ---
Payments of cash dividends (2,468) (2,398)
Proceeds from stock options --- 975
-------------------------------------------------------------------
Net cash provided by financing activities 27,283 20,164
-------------------------------------------------------------------
Net change in cash and cash equivalents (2,495) (17,671)
Cash and cash equivalents at beginning of
period 61,392 93,121
-------------------------------------------------------------------
Cash and cash equivalents at end of period $ 58,897 $ 75,450
===================================================================
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid
Interest $ 22,050 $ 12,779
Income taxes 3,111 3,245
Noncash investing and financing activities
Loans transferred to (from) foreclosed
property (32) 113
Sales of foreclosed property financed by
Homeland 56 ---
Acquisitions accounted for as a purchase
transaction
Cash paid (including acquisition costs) --- 47,881
Liabilities assumed --- 307,613
Fair value of assets acquired --- 355,494
===================================================================
See notes to consolidated financial statements
<TABLE>
HOMELAND BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(Unaudited)
<CAPTION>
NET
ADDITIONAL UNREALIZED
COMMON PAID-IN RETAINED SECURITIES
(Dollars in thousands, except per share data) STOCK CAPITAL EARNINGS LOSS TOTAL
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $ 71,734 $ 227 $46,068 $ (3,287) $ 114,742
Net income --- --- 6,310 --- 6,310
Cash dividends - $.43 per share --- --- (2,468) --- (2,468)
Net unrealized gain on securities
available for sale --- --- --- 3,031 3,031
-------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1995 $ 71,734 $ 227 $49,910 $ (256) $ 121,615
=============================================================================================================
Balance at January 1, 1994 $ 70,984 $ 2 $38,615 $ --- $ 109,601
Net income --- --- 5,899 --- 5,899
Cash dividends - $.42 per share --- --- (2,398) --- (2,398)
Common stock issued under stock option plans 750 225 --- --- 975
Net unrealized loss on securities available
for sale --- --- --- (1,355) (1,355)
-------------------------------------------------------------------------------------------------------------
Balance at June 30, 1994 $ 71,734 $ 227 $42,116 $ (1,355) $ 112,722
=============================================================================================================
<FN>
See notes to consolidated financial statements
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited consolidated financial statements: The accompanying interim
consolidated financial statements are unaudited. In the opinion of
management, all adjustments consisting of normal recurring accruals
considered necessary for fair presentation have been included. Certain
balances previously reported have been reclassified to conform with 1995
financial statement presentation. Further information may be obtained by
reference to the consolidated financial statements and accompanying footnotes
included in the Homeland Bankshares Corporation ("Homeland") 1994
Annual Report.
Cash and cash equivalents: Cash equivalents include amounts due from
banks and federal funds sold.
Securities: Securities available for sale are reported at fair value,
with the unrealized gains and losses excluded from earnings and reported as a
separate component of stockholders' equity. Securities available for sale
may be sold for management of general liquidity needs, response to market
interest rate fluctuations, implementation of asset-liability management
strategy, funding increased loan demand, changes in securities prepayment
risk, or other similar factors. Realized gains and losses on sales are
computed on a specific identification basis and are shown separately as a
component of noninterest income. Securities held to maturity are stated at
cost, net of premium amortization and discount accretion, and consist of debt
securities for which Homeland has the positive intent and the ability to hold
to maturity.
Loans: SFAS No. 114 "Accounting by Creditors for Impairment of a Loan,"
was adopted January 1, 1995. Under this statement, loans considered to be
impaired are reduced to the present value of expected future cash flows or to
the fair value of collateral, by allocating a portion of the allowance for
loan losses to such loans. If these allocations cause the allowance for loan
losses to require an increase, such increase is reported as provision for
loan losses. Adopting this standard resulted in no increase to either the
allowance for loan losses or the provision for loan losses.
The carrying values of impaired loans are periodically adjusted to reflect
cash payments, revised estimates of future cash flows, and increases in the
present value of expected cash flows due to the passage of time. Cash
payments are reported as reductions in carrying value, while increases or
decreases due to changes in estimates of future payments and due to the
passage of time are reported as provision for loan losses.
Intangible assets: Goodwill and core deposit intangibles arise from
purchase transactions. Goodwill is amortized on a straight-line basis over a
15 year period. Core deposit intangibles are amortized on a straight-line
basis over the estimated lives of deposits which average approximately
7 years. At June 30, 1995 and 1994, the unamortized balances of goodwill
were $13,555,000 and $15,391,000 and core deposit intangibles were $5,991,000
and $4,792,000, respectively.
Net income per share: Net income per share calculations are based on the
weighted average number of common shares outstanding, adjusted for stock
splits and common stock equivalents arising from the assumed exercise of
outstanding stock options.
2. ACQUISITION
On June 1, 1994, Homeland acquired all of the outstanding common stock of
MidAmerica Financial Corporation ("MidAmerica"). The acquisition was
accounted for as a purchase transaction with the results of MidAmerica's
operations subsequent to the acquisition date included in Homeland's
consolidated financial statements.
The following unaudited pro forma financial information contains the
results of operations for the six month periods ended June 30, 1995 and 1994
assuming the acquisition of MidAmerica had occurred on January 1, 1994. The
pro forma amounts are not necessarily indicative of the financial results
that would have actually occurred had the acquisition taken place on January
1, 1994, nor are they necessarily indicative of future consolidated
operations of Homeland.
SIX MONTHS ENDED
JUNE 30,
(Dollars in thousands, except per share data) 1995 1994
----------------------------------------------------------------------
Total revenues $50,598 $46,750
Net interest income 23,342 22,510
Provision for loan losses 383 135
Net income 6,310 6,042
Net income per share $ 1.10 $ 1.06
<TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
<CAPTION>
3. SECURITIES
AVAILABLE FOR SALE GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
(Dollars in thousands) COST GAINS LOSSES VALUE
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury $ 29,469 $ 149 $ (345) $ 29,273
U.S. Government agencies 13,659 120 (81) 13,698
U.S. Government agencies mortgage-backed 75,767 722 (825) 75,664
Student loan participation certificates 40,862 --- --- 40,862
Corporate mortgage-backed 4,602 --- (140) 4,462
Other 9,905 --- --- 9,905
-------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1995 $ 174,264 $ 991 $ (1,391) $ 173,864
=======================================================================================================
U.S. Treasury $ 32,512 $ 1 $ (1,234) $ 31,279
U.S. Government agencies 8,441 --- (302) 8,139
U.S. Government agencies mortgage-backed 81,668 2 (3,434) 78,236
Student loan participation certificates 30,105 --- --- 30,105
Corporate mortgage-backed 4,781 --- (208) 4,573
Other 8,764 --- --- 8,764
-------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 $ 166,271 $ 3 $ (5,178) $ 161,096
=======================================================================================================
<CAPTION>
HELD TO MATURITY GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
(Dollars in thousands) COST GAINS LOSSES VALUE
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury $ 49,115 $ 181 $ (351) $ 48,945
U.S. Government agencies 13,701 168 (17) 13,852
States and political subdivisions 36,235 955 (277) 36,913
Corporate 1,715 5 (3) 1,717
-------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1995 $ 100,766 $ 1,309 $ (648) $ 101,427
=======================================================================================================
U.S. Treasury $ 54,216 $ --- $ (1,740) $ 52,476
U.S. Government agencies 22,747 30 (141) 22,636
States and political subdivisions 42,436 735 (1,026) 42,145
Corporate 1,955 --- (22) 1,933
-------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 $ 121,354 $ 765 $ (2,929) $ 119,190
=======================================================================================================
<CAPTION>
REALIZED GAINS AND LOSSES THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(Dollars in thousands) 1995 1994 1995 1994
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross realized gains $ 3 $ 5 $ 31 $ 6
Gross realized losses --- (5) --- (5)
--------------------------------------------------------------------------------------------------------
Total $ 3 $ --- $ 31 $ 1
========================================================================================================
</TABLE>
Realized gains and losses consisted entirely of net gains related to calls of
securities prior to their maturity or sales of securities from the available
for sale category.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
4. ALLOWANCE FOR LOAN LOSSES
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(Dollars in thousands) 1995 1994 1995 1994
-------------------------------------------------------------------
Balance at beginning of period $8,857 $7,275 $9,082 $7,315
Allowance of purchased financial
institution --- 1,600 --- 1,600
Provision for loan losses 269 (20) 383 5
Loan loss recoveries 83 953 186 1,096
Loans charged off (259) (698) (701) (906)
-------------------------------------------------------------------
Balance at end of period $8,950 $9,110 $8,950 $9,110
===================================================================
The average investment in impaired loans for the six months ended June 30,
1995 was $2,721,000. No interest income was recognized on impaired loans
during this period. Information regarding impaired loans at June 30, 1995
was as follows:
(Dollars in thousands)
-------------------------------------------------------------------
Balance of impaired loans $2,384
Less portion for which no allowance for loan
losses was allocated (---)
-------------------------------------------------------------------
Portion of impaired loan balance for which an allowance
for loan losses was allocated $2,384
===================================================================
Portion of allowance for loan losses allocated to the
impaired loan balance $ 177
===================================================================
5. SHORT-TERM BORROWINGS
At June 30, 1995, other short-term borrowings consisted of $45 million of
advances from the Federal Home Loan Bank ("FHLB") and $9 million in U.S.
Treasury tax depository accounts. The FHLB advances were secured by certain
U.S. Government securities, FHLB stock, and a blanket pledge of eligible
consumer real estate loans, with a weighted average interest rate of 6.3%.
6. LONG-TERM BORROWINGS
Long-term borrowings consisted of $42,225,000 advances from the FHLB to
Homeland subsidiaries with an average fixed interest rate of 5.8%. These
advances were secured by eligible consumer real estate loans and FHLB stock
and were scheduled to mature as follows at June 30, 1995:
(Dollars in thousands)
---------------------------------------------------------------------
1996 $ 225
1997 40,225
1998 225
1999 225
2000 225
Thereafter 1,100
---------------------------------------------------------------------
Balance at end of period $42,225
=====================================================================
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
<TABLE>
HOMELAND BANKSHARES CORPORATION
FINANCIAL HIGHLIGHTS
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
(Dollars in thousands, except per share data) 1995 1994 % Change 1995 1994 % Change
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Net interest income $11,832 $9,396 25.9% $23,342 $17,603 32.6%
Provision for loan losses 269 (20) NM 383 5 NM
Noninterest income 2,948 2,565 14.9 5,589 4,957 12.7
Noninterest expenses 9,241 7,473 23.7 18,448 13,561 36.0
Income tax expense 2,036 1,599 27.3 3,790 3,095 22.5
Net income 3,234 2,909 11.2 6,310 5,899 7.0
PER SHARE DATA
Net income $.56 $.51 9.8% $1.10 $1.03 6.8%
Cash dividends .22 .21 4.8 .43 .42 2.4
Book value 21.19 19.64 7.9 21.19 19.64 7.9
Market price 24.00 25.00 -4.0 24.00 25.00 -4.0
END OF PERIOD BALANCES
Loans $839,248 $723,563 16.0% $839,248 $723,563 16.0%
Deposits 932,906 976,962 -4.5 932,906 976,962 -4.5
Stockholders' equity 121,615 112,722 7.9 121,615 112,722 7.9
Total assets 1,225,399 1,193,141 2.7 1,225,399 1,193,141 2.7
Nonperforming assets 6,297 7,718 -18.4 6,297 7,718 -18.4
AVERAGE BALANCES
Loans $821,557 $553,281 48.5% $808,953 $508,394 59.1%
Deposits 942,811 810,481 16.3 947,926 761,762 24.4
Stockholders' equity 119,498 112,035 6.7 117,660 111,644 5.4
Total assets 1,208,088 983,637 22.8 1,203,875 930,129 29.4
Total earning assets 1,111,223 897,893 23.8 1,104,641 851,025 29.8
FINANCIAL RATIOS
Return on average total assets 1.07% 1.19% 1.06% 1.28%
Return on average stockholders' equity 10.86 10.41 10.81 10.66
Net interest margin 4.36 4.34 4.36 4.32
Efficiency ratio 62.13 60.77 63.20 59.93
Stockholders' equity to total assets 9.92 9.45 9.92 9.45
Leverage capital ratio 8.60 9.75 8.60 9.75
<FN>
Note: The comparability of this financial information is significantly affected by the
acquisition of MidAmerica Financial Corporation on June 1, 1994 which was accounted for
as a purchase transaction.
</TABLE>
EARNINGS ANALYSIS
PERFORMANCE SUMMARY
Homeland Bankshares Corporation's net earnings for the first six months of
1995 were up 7.0% to $6,310,000, compared to $5,899,000 for the same period
in 1994. Per share earnings were $1.10 and $1.03 for the first halves of
1995 and 1994, respectively. Net interest income was $5.7 million higher for
the first six months of 1995 than the same period in 1994, but higher
noninterest expenses and loan loss provision modified the overall increase in
consolidated net earnings. Second quarter earnings were $3,234,000 and
$2,909,000, with earnings per share of $.56 and $.51 for the three-month
periods ended June 30, 1995 and 1994, respectively. Comparisons of 1995
results of operations with 1994 are significantly affected by the acquisition
of MidAmerica Financial Corporation ("MidAmerica") on June 1, 1994 as
presented in the following table:
<TABLE>
CONDENSED STATEMENTS OF INCOME
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
REPORTED EXCLUDING MIDAMERICA REPORTED EXCLUDING MIDAMERICA
-------- -------------------- -------- --------------------
(Dollars in thousands) 1995 1995 1994 1995 1995 1994
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income $ 11,832 $ 8,951 $ 8,626 $ 23,342 $ 17,516 $ 16,833
Provision for loan losses 269 209 (25) 383 218 ---
Noninterest income 2,948 2,139 2,360 5,589 4,152 4,752
Noninterest expenses 9,241 6,215 6,536 18,448 12,586 12,624
Income tax expense 2,036 1,638 1,549 3,790 2,989 3,045
-------------------------------------------------------------------------------------------------------------
Net income $ 3,234 $ 3,028 $ 2,926 $ 6,310 $ 5,875 $ 5,916
=============================================================================================================
Net income per share $ .56 $ .52 $ .51 $ 1.10 $ 1.02 $ 1.03
=============================================================================================================
</TABLE>
The return on average assets and return on average equity for the six
months ended June 30, 1995 were 1.06% and 10.81%, respectively. Prior year
returns for the same periods were 1.28% and 10.66%, respectively. For the
second quarter of 1995, the return on average assets was 1.07% with a return
on average equity of 10.86%. As management expected, the return on assets
has decreased over the last year as a result of the MidAmerica acquisition.
The return on equity showed a 15 basis point improvement for the six-month
periods ended June 30, 1995 and 1994.
SFAS No. 122 "Accounting for Mortgage Servicing Rights" was issued in May
1995 with an effective date for fiscal years beginning after December 15,
1995. This statement amends SFAS No. 65 by establishing a new standard for
capitalizing mortgage servicing rights. Under SFAS No. 122, the accounting
principles for mortgage servicing rights are the same for mortgages
originated by the servicer as for those acquired through purchase
transactions. Accordingly, under the new standard, a bank would record an
asset for mortgage servicing rights when it sold mortgages and retained the
servicing. Management believes that the effect of the statement on
Homeland's financial statements will not be material.
NET INTEREST INCOME
A $254 million increase in average earning assets and a 4 basis point
increase in net interest margin combined to generate a $5,739,000 increase in
net interest income during the first six months of 1995, compared to the same
period in 1994. Net interest income for the 1995 second quarter was
$2,436,000 higher than 1994, with a $213 million increase in average earning
assets. The increase in average earning assets was generated by substantial
loan growth during the last year, both from internal loan volume increases
and from the acquisition of MidAmerica during the second quarter of 1994.
NET INTEREST SPREAD AND MARGIN
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(Taxable-equivalent basis) 1995 1994 1995 1994
----------------------------------------------------------------
Yield on earning assets 8.36% 7.23% 8.31% 7.05%
Rate on interest bearing
liabilities 4.62 3.46 4.56 3.32
----------------------------------------------------------------
NET INTEREST SPREAD 3.74 3.77 3.75 3.73
Noninterest bearing funds
contribution .62 .57 .61 .59
----------------------------------------------------------------
NET INTEREST MARGIN 4.36% 4.34% 4.36% 4.32%
================================================================
Net interest spread improved by 2 basis points for the first half of 1995,
compared to the first half of 1994, while net interest margin increased by 4
basis points. Increased loan volume contributed to an increase in the
earning asset yield; however, an increased cost of funds narrowed the overall
benefit. The higher cost of funds in 1995 was a result of higher market
interest rates and a change in the composition of deposits as the relatively
more expensive time deposits grew while money market type deposit balances
declined. The net interest margin for the second quarter of 1995 remained
unchanged from the previous quarter at 4.36% and increased 2 basis points
from the 1994 second quarter.
NONINTEREST INCOME
Noninterest income was up by $632,000 or 12.7% for the first six months of
1995 compared to the same period of 1994. Student loan origination fee
income generated by the Homeland Student Loan Company totalled $508,000
during the first half of 1995, compared to only $34,000 during the same
period in 1994. Trust services income during the first six months of 1995
was $290,000 lower than that reported in 1994; however, second quarter 1995
trust fee income of $623,000 was $88,000 or 16.4% higher than first quarter
1995 trust fee income.
NONINTEREST EXPENSES
Noninterest expenses increased by $4,887,000 for the first six months of
1995 compared to the same six months of 1994; however, excluding MidAmerica,
they declined by $38,000. Similarly, for the comparisons of the second
quarters of 1995 and 1994, noninterest expenses increased by $1,768,000 and,
excluding MidAmerica, decreased by $321,000.
Expenses associated with the corporate name change recognized during the
first six months of 1995 totaled approximately $460,000. In addition,
supplies costs have also been higher than normal as depleted supplies
inventories were replenished with items displaying the new name and logo.
Amortization of intangible assets increased by $710,000 for the first half of
1995 from the first half of 1994.
Homeland's efficiency ratio was 62.1% for the second quarter of 1995,
improving for the third consecutive quarter as operational efficiencies
continue to be realized following the MidAmerica acquisition. The efficiency
ratio for the first six months of 1995 was 63.2%. The efficiency ratio
represents adjusted operating expenses as a percentage of fully-taxable
equivalent net interest income and adjusted noninterest income.
CREDIT RISK MANAGEMENT
NONPERFORMING ASSETS AND RESTRUCTURED LOANS
JUNE 30, December 31, June 30,
(Dollars in thousands) 1995 1994 1994
-----------------------------------------------------------------------------
Loans past due 90 days or more $2,284(1)<F1> $1,622 $1,456
Nonaccrual loans 3,425 5,443 5,868
Foreclosed property 588 356 394
-----------------------------------------------------------------------------
Total nonperforming assets $6,297 $7,421 $7,718
=============================================================================
Total nonperforming assets as a percentage
of total loans and foreclosed property .75% .94% 1.06%
=============================================================================
Restructured loans $346 $296 $458
=============================================================================
[FN]
<F1>
(1) Included in loans past due 90 days or more were $1,684,000 of government
sponsored student loans, for which there is minimal risk of loss.
Complementing Homeland's loan volume growth has been a steady decline in
the amount of nonperforming assets. Nonperforming assets were $6.3 million
at June 30, 1995, an 18.4% decline from one year ago. Accordingly,
nonperforming assets as a percentage of total loans and foreclosed property
declined to .75% at June 30, 1995, compared to 1.06% a year earlier.
Subsequent to June 30, 1995, the company's largest problem loan was
satisfied through a negotiated sale of Homeland's rights. This settlement
further reduced Homeland's nonperforming assets by approximately $1 million
in the third quarter of 1995.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is a valuation reserve for estimated losses
inherent in the loan portfolio. Actual credit losses, net of recoveries, are
deducted from the allowance for loan losses when they occur. Factors
considered in the evaluation of the allowance level include estimated future
losses from loan agreements and obligations, deterioration in credit
concentrations or pledged collateral, and historical loss experience, as well
as trends in portfolio volume, composition, delinquencies, and nonaccruals.
Management assesses the adequacy of the allowance for loan losses of each
subsidiary bank every quarter.
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan" was
adopted January 1, 1995. Under this standard, loans considered to be
impaired were reduced to the present value of expected future cash flows or
to the fair value of collateral by allocating a portion of the allowance for
loan losses to such loans. If these allocations cause the allowance for loan
losses to require increase, such increase was reported as provision for loan
losses. Adopting this standard resulted in no increase to either the
allowance for loan losses or the provision for loan losses.
The balance in the reserve for loan losses was $9.0 million at June 30,
1995, representing 1.07% of total loans and 142% of nonperforming assets. At
December 31, 1994, the reserve for loan losses represented 1.15% of total
loans and 122% of nonperforming assets.
Net loan charge offs totaled $515,000 during the first six months of 1995.
This compares to net recoveries of $190,000 for the same period in 1994. The
provision for loan losses was $383,000 compared to $5,000 for the first
halves of 1995 and 1994, respectively. Net loan charge offs and provision
for the 1995 second quarter were $176,000 and $269,000, respectively.
CAPITAL RESOURCES
Homeland's stockholders' equity totaled $121.6 million at June 30, 1995, a
7.9% increase from June 30, 1994. Out of net income of $6.3 million during
the first six months of 1995, Homeland retained $3.8 million after paying
dividends to stockholders of $2.5 million. The net unrealized loss on
securities available for sale, net of deferral income taxes, was $256,000 at
June 30, 1995, compared to a $3.3 million net unrealized loss at year-end
1994. Declining market interest rates during 1995 were responsible for the
securities market value improvement.
The stockholders' equity-to-asset ratio was 9.92% at June 30, 1995
compared to 9.45% the prior year. The core risk-based capital ratio was
12.96% at June 30, 1995, with a total risk-based capital ratio of 14.04%,
both ratios exceeding the respective regulatory levels of 6.00% and 10.00%
required for "well-capitalized" financial institutions. The leverage
capital ratio was 8.60%, substantially higher than the "well-capitalized"
requirement of 5.00%.
Homeland's book values per share were $21.19 and $19.64 at June 30, 1995
and 1994, respectively. The closing market trade price of Homeland's common
stock was $24.00 per share at June 30, 1995, which represented a
price-to-earnings ratio of 10.8.
ASSET-LIABILITY MANAGEMENT
Asset-liability management encompasses both the maintenance of adequate
liquidity and the management of interest rate sensitivity. Liquidity
management involves planning to meet anticipated funding needs. Interest
rate sensitivity management attempts to provide the optimal level of net
interest income, while managing exposure to risks associated with interest
rate movements.
LIQUIDITY
Core deposits have historically provided Homeland with a major source of
stable and relatively low-cost funding. Secondary sources of liquidity
include federal funds sold, maturing securities and loans, securities
available for sale, and short-term financing. Also, Homeland banks have
established lines of credit for short-term borrowings for the management of
daily liquidity needs.
The loan-to-deposit ratio increased from 83.5% at December 31, 1994 to
90.0% at June 30, 1995. Net loans increased by $46.5 million during the
first six months of 1995, while deposits declined by $16.4 million during the
same time period. The increase in loans was funded primarily by federal
funds purchased.
During the second quarter of 1995, Homeland elected to reduce its
borrowing costs by extending $40 million of short-term borrowings to long-
term debt maturing in 1997.
INTEREST RATE SENSITIVITY
Interest rate sensitivity has traditionally been measured by gap analysis,
which represents the difference between assets and liabilities that reprice
in certain time periods. This method, while useful, has a number of
limitations as it is a static point-in-time measurement and does not take
into account the varying degrees of sensitivity to interest rates within the
balance sheet. As shown in the table following, on a static-gap basis, the
cumulative ratio of interest sensitive assets to interest sensitive
liabilities in a one-year time frame was 1.02, and as a percentage of total
assets was 1.01%. Because of inherent limitations of gap analysis,
Homeland uses an earnings simulation model to more realistically measure its
sensitivity to changing interest rates. Management monitors the rate
sensitivity and liquidity positions on an ongoing basis and, when necessary,
appropriate action is taken to minimize any adverse effects of rapid interest
rate movements or any unexpected liquidity concerns.
<TABLE>
INTEREST RATE SENSITIVITY ANALYSIS
<CAPTION>
JUNE 30, 1995
-------------------------------------------------------------------------------
AFTER ONE AFTER THREE
WITHIN THROUGH THROUGH
ONE THREE TWELVE TOTAL AFTER ONE
(Dollars in thousands) MONTH MONTHS MONTHS ONE YEAR YEAR TOTAL
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets
Federal funds sold $ 6,150 $ --- $ --- $ 6,150 $ --- $ 6,150
Securities 40,960 26,978 61,071 129,009 145,621 274,630
Loans 234,735 88,290 206,252 529,277 309,971 839,248
----------------------------------------------------------------------------------------------------------------------------
Total interest earning assets 281,845 115,268 267,323 664,436 455,592 1,120,028
----------------------------------------------------------------------------------------------------------------------------
Sources of funds
Interest bearing demand deposits(1)<F2> 61,002 --- --- 61,002 40,548 101,550
Money market deposits(1)<F2> 147,195 --- --- 147,195 17,379 164,574
Savings deposits(1)<F2> 39,835 --- --- 39,835 26,556 66,391
Time deposits 80,031 37,421 168,176 285,628 202,539 488,167
Federal funds purchased 64,175 --- --- 64,175 --- 64,175
Other short-term borrowings 54,000 --- --- 54,000 --- 54,000
Long-term borrowings --- --- 225 225 42,000 42,225
----------------------------------------------------------------------------------------------------------------------------
Total rate sensitive liabilities 446,238 37,421 168,401 652,060 329,022 981,082
Demand deposits, net of cash and
due from banks --- --- --- --- 59,477 59,477
Other, net --- --- --- --- 79,469 79,469
----------------------------------------------------------------------------------------------------------------------------
Total sources of funds 446,238 37,421 168,401 652,060 467,968 1,120,028
============================================================================================================================
Interest sensitivity gap $ (164,393) $ 77,847 $ 98,922 $ 12,376 $ (12,376) $ ---
============================================================================================================================
Cumulative gap $ (164,393) $ (86,546) $ 12,376 $ 12,376
Cumulative gap as a percentage
of total assets -13.42% -7.06% 1.01% 1.01%
Cumulative ratio of interest sensitive
assets to interest sensitive
liabilities 0.63 0.82 1.02 1.02
============================================================================================================================
<FN>
<F2>
(1) On the basis of historical studies, deposits determined to be less sensitive to changes in market interest rates are
included in the "after one year" category.
</TABLE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
======= ------------------
Not applicable.
ITEM 2. CHANGES IN SECURITIES.
======= ----------------------
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
======= --------------------------------
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
======= ----------------------------------------------------
Not applicable.
ITEM 5. OTHER INFORMATION.
======= ------------------
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
======= ---------------------------------
(a) EXHIBITS: Index to Exhibits - Page 16.
Exhibit 11 Statement Re Computation of Earnings Per Share
Exhibit 27 Financial Data Schedule
(b) REPORTS ON FORM 8-K:
No reports were filed on Form 8-K during the quarter ended June 30,
1995.
*** 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.
HOMELAND BANKSHARES CORPORATION
(Registrant)
Date August 10, 1995 /S/Erl A. Schmiesing
--------------------------------------------
Erl A. Schmiesing, Chairman, President & CEO
(Principal Executive Officer)
Date August 10, 1995 /S/Robert S. Kahler
--------------------------------------------
Robert S. Kahler, Exec. Vice President & CFO
(Principal Financial and Accounting Officer)
-------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
INDEX TO EXHIBITS
TO FORM 10-Q CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
-------------------------
HOMELAND BANKSHARES CORPORATION
229 EAST PARK AVENUE
WATERLOO, IOWA 50704-5300
EXHIBIT NO. ITEM PAGE
----------- ----------------------------------------------------- -----
11 Statement Re Computation of Earnings Per Share 17
27 Financial Data Schedule 18
<TABLE> HOMELAND BANKSHARES CORPORATION EXHIBIT 11
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------------- -------------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET INCOME: $ 3,233,904 $ 2,909,475 $ 6,309,905 $ 5,899,175
============ ============ ============ ============
PRIMARY EARNINGS PER SHARE:
Weighted average shares outstanding 5,738,713 5,738,713 5,738,713 5,709,063
Net effect of the assumed exercise of stock
options based on the treasury stock
method using average market price 398 3,951 199 13,552
------------ ------------ ------------ ------------
5,739,111 5,742,664 5,738,912 5,722,615
============ ============ ============ ============
Primary earnings per share $ .56 $ .51 $ 1.10 $ 1.03
============ ============ ============ ============
FULLY DILUTED EARNINGS PER SHARE:
Weighted average shares outstanding 5,738,713 5,738,713 5,738,713 5,709,063
Net effect of the assumed exercise of stock
options based on the treasury stock
method using average market price or
market price at the end of the period,
whichever is higher 2,330 3,951 1,963 13,552
------------ ------------ ------------ ------------
5,741,043 5,742,664 5,740,676 5,722,615
============ ============ ============ ============
Fully diluted earnings per share $ .56 $ .51 $ 1.10 $ 1.03
============ ============ ============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from Homeland
Bankshares Corporation second quarter 1995 10-Q and is qualified in its entirety
by reference to such 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 52747
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 6150
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 173864
<INVESTMENTS-CARRYING> 100766
<INVESTMENTS-MARKET> 101427
<LOANS> 839248
<ALLOWANCE> 8950
<TOTAL-ASSETS> 1225399
<DEPOSITS> 932906
<SHORT-TERM> 118175
<LIABILITIES-OTHER> 10478
<LONG-TERM> 42225
<COMMON> 71734
0
0
<OTHER-SE> 49881
<TOTAL-LIABILITIES-AND-EQUITY> 1225399
<INTEREST-LOAN> 35816
<INTEREST-INVEST> 8830
<INTEREST-OTHER> 363
<INTEREST-TOTAL> 45009
<INTEREST-DEPOSIT> 17846
<INTEREST-EXPENSE> 21667
<INTEREST-INCOME-NET> 23342
<LOAN-LOSSES> 383
<SECURITIES-GAINS> 31
<EXPENSE-OTHER> 18448
<INCOME-PRETAX> 10100
<INCOME-PRE-EXTRAORDINARY> 6310
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6310
<EPS-PRIMARY> 1.10
<EPS-DILUTED> 1.10
<YIELD-ACTUAL> 4.36
<LOANS-NON> 3425
<LOANS-PAST> 2284
<LOANS-TROUBLED> 346
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 9082
<CHARGE-OFFS> 701
<RECOVERIES> 186
<ALLOWANCE-CLOSE> 8950
<ALLOWANCE-DOMESTIC> 8950
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
