UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
AMENDMENT #1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
HOME FEDERAL CORPORATION
(Exact name of Registrant as specified in its charter)
Maryland 0-16463 52-1636831
State of Incorporation Commission I.R.S. Employer
File Number I.D. Number
122-128 West Washington Street, Hagerstown, Maryland 21740
(Address of Principal Executive Office)
Registrant's telephone number: (301) 733-6300
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 and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
Number of Shares of Common Stock Outstanding
as of July 24, 1995: 2,519,010 Shares
<PAGE>
HOME FEDERAL CORPORATION AND SUBSIDIARIES
INDEX
PAGE
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
Report on Review by Independent Certified Public
Accountants. . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Financial Condition as of
June 30, 1995 (Unaudited) and December 31, 1994. . . . . . . 4
Consolidated Statements of Changes in Stockholders'
Equity for the Six Months Ended June 30, 1995
(Unaudited) and the Year Ended December 31, 1994 . . . . . . 5
Consolidated Statements of Operation for the Three and
Six Months Ended June 30, 1995 and 1994 (Unaudited). . . . . 6
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1995 and 1994 (Unaudited). . . . . . . 8
Notes to Consolidated Financial Statements (Unaudited) . . . . 10
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations for the Three
and Six Months Ended June 30, 1995. . . . . . . . . . . . . .15
PART II: OTHER INFORMATION
Item 1: Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . .21
Item 2: Changes in Securities. . . . . . . . . . . . . . . . . . . . .21
Item 3: Defaults Upon Senior Securities. . . . . . . . . . . . . . . .21
Item 4: Submission of Matters to a Vote of Security Holders. . . . . .21
Item 5: Other Information. . . . . . . . . . . . . . . . . . . . . . .21
Item 6: Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . .21
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . .21
<PAGE>
INDEPENDENT ACCOUNTANT'S REPORT
The Board of Directors
Home Federal Corporation
We have reviewed the accompanying consolidated statement of financial
condition of Home Federal Corporation and Subsidiaries (Corporation) as of
June 30, 1995 and the related consolidated statement of changes in
stockholders' equity for the six months ended June 30, 1995 and the
consolidated statements of operation for the three and six months ended June
30, 1995 and 1994 and consolidated statements of cash flows for the six months
ended June 30, 1995 and 1994. These financial statements are the responsibility
of the Corporation's management.
We conducted our reviews in accordance with standards established by
the American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the consolidated
financial statements taken as a whole. Accordingly, we do not express such
an opinion.
Based on our reviews, we are not aware of any material modifications
that should be made to the accompanying consolidated financial statements for
them to be in conformity with generally accepted accounting principles.
/s/ Smith Elliott Kearns & Company
SMITH ELLIOTT KEARNS & COMPANY
Hagerstown, Maryland
August 8, 1995
<PAGE>
<TABLE>
HOME FEDERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
June 30, December 31,
1995 1994
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash $ 7,181,775 $ 6,044,795
Short-term interest-bearing deposits 452,826 315,861
Federal funds sold 1,598,596 1,592,588
Investment securities (approximate market value
of $5,045,347 in 1995 and $4,839,097 in 1994) 5,064,097 5,064,097
Mortgage-backed securities available for sale
(at approximate market value) 29,516,431 29,781,620
Mortgage-backed securities (approximate market
value of $10,567,414 in 1995, and $10,814,726
in 1994) 10,446,780 11,222,245
Loans receivable, net 140,369,604 135,553,111
Real estate owned held for sale, net 7,356,644 6,450,058
Federal Home Loan Bank of Atlanta stock 1,600,000 1,900,000
Office properties and equipment, net 3,974,643 4,035,817
Prepaid expenses and other assets 2,701,294 2,776,557
Deferred tax assets, net 2,595,000 1,780,000
------------ ------------
TOTAL ASSETS $212,857,690 $206,516,749
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Savings accounts $160,231,017 $151,202,667
Advances from the Federal Home Loan Bank
of Atlanta 32,143,458 38,184,372
Advances by borrowers for taxes and insurance 1,241,665 611,990
Other liabilities 1,664,098 1,818,095
------------ ------------
TOTAL LIABILITIES $195,280,238 $191,817,124
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, $.10 par value, authorized
5,000,000 shares (None issued) $ - $ -
Common stock, $1.00 par value, authorized
10,000,000 shares, issued and outstanding
2,519,010 shares in 1995 and 1994 2,519,010 2,519,010
Additional paid-in capital 7,903,106 7,903,106
Unrealized loss on mortgage-backed securities
available for sale, net (530,628) (1,531,298)
Retained income-substantially restricted 7,685,964 5,808,807
------------ ------------
TOTAL STOCKHOLDERS' EQUITY $ 17,577,452 $ 14,699,625
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $212,857,690 $206,516,749
============ ============
<FN>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
</TABLE>
<TABLE>
HOME FEDERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>
Unrealized Retained
Gain(Loss)on Income- Total
Additional Securities Substant- Stock-
Common Paid-in Available ially holders
Stock Capital for Sale,net Restricted Equity
---------- ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance,
December 31,
1993 $2,519,010 $7,903,106 $ (119,817) $4,311,348 $14,613,647
Unrealized
loss on
mortgaged-
backed
securities
available
for sale (1,411,481) (1,411,481)
Net Income,
1994 1,497,459 1,497,459
---------- ---------- ----------- ---------- -----------
Balance,
December 31,
1994 $2,519,010 $7,903,106 $(1,531,298) $5,808,807 $14,699,625
Unrealized
gain on
mortgaged-
backed
securities
available
for sale, net 1,000,670 1,000,670
Net Income,
1995 1,877,157 1,877,157
---------- ---------- --------- ---------- -----------
Balance,
June 30,
1995
(Unaudited) $2,519,010 $7,903,106 $(530,628) $7,685,964 $17,577,452
========== ========== ========= ========== ===========
<FN>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
</TABLE>
<TABLE>
HOME FEDERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATION (UNAUDITED)
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
----------------------- -----------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest on loans
receivable $6,235,531 $5,727,210 $3,160,016 $2,869,483
Interest on mortgage-backed
securities 1,205,569 1,022,287 595,505 536,455
Interest or dividends on
investment securities 243,256 119,342 119,418 91,389
Other interest income 107,275 182,128 58,826 77,332
---------- ---------- ---------- ----------
Total Interest Income $7,791,631 $7,050,967 $3,933,765 $3,574,659
---------- ---------- ---------- ----------
INTEREST EXPENSE
Interest on savings $3,139,416 $2,533,305 $1,662,290 $1,265,632
Interest on advances from
the Federal Home Loan
Bank of Atlanta 1,087,649 776,527 512,297 389,218
Interest on other
borrowings -- 546 -- --
---------- ---------- ---------- ----------
Total Interest Expense $4,227,065 $3,310,378 $2,174,587 $1,654,850
---------- ---------- ---------- ----------
NET INTEREST INCOME $3,564,566 $3,740,589 $1,759,178 $1,919,809
PROVISION FOR POSSIBLE LOAN
LOSSES -- 58,000 -- 58,000
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE
LOAN LOSSES $3,564,566 $3,682,589 $1,759,178 $1,861,809
---------- ---------- ---------- ----------
OTHER INCOME
Loan fees $ 206,313 $ 265,992 $ 110,031 $ 110,356
Gains on sales of mortgage
loans 10,371 67,361 6,294 8,371
Other 704,180 717,571 384,009 428,753
---------- ---------- ---------- ----------
Total Other Income $ 920,864 $1,050,924 $ 500,334 $ 547,480
---------- ---------- ---------- ----------
OTHER EXPENSES
Employee compensation and
benefits $1,566,994 $1,477,713 $ 745,454 $ 765,559
Occupancy and equipment 795,123 751,297 401,780 375,880
Advertising and promotion 106,661 104,164 46,361 62,542
Provision for losses on real
estate owned held for sale 130,000 293,000 -- 89,000
Recoveries on real estate
held for development
and sale or rental (35,973) (22,495) (35,973) --
Real estate owned
operations, net and
impaired loan expenses 34,618 111,566 20,103 50,344
Federal insurance premiums 215,655 214,577 107,827 107,289
Other 821,195 803,740 500,030 400,893
---------- ---------- ---------- ----------
Total Other Expenses $3,634,273 $3,733,562 $1,785,582 $1,851,507
---------- ---------- ---------- ----------
INCOME BEFORE INCOME
TAXES $ 851,157 $ 999,951 $ 473,930 $ 557,782
PROVISION FOR (BENEFIT FROM)
INCOME TAXES (1,026,000) 252,100 (1,022,200) 149,450
---------- ---------- ---------- ----------
NET INCOME $1,877,157 $ 747,851 $1,496,130 $ 408,332
========== ========== ========== ==========
EARNINGS PER SHARE $ 0.75 $ 0.30 $ 0.60 $ 0.16
========== ========== ========== ==========
<FN>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
</TABLE>
<TABLE>
HOME FEDERAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
<CAPTION>
Six Months Ended June 30,
---------------------------
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,877,157 $ 747,851
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 317,093 279,250
Provision for possible loan losses -- 58,000
Provision for losses on real estate
owned held for sale 130,000 293,000
(Recoveries) on real estate held for
development and sale or rental (35,973) (22,495)
Amortization of intangible assets 59,170 59,170
(Increase) in real estate held for
development and sale or rental, net -- (2,860)
Proceeds from sale of real estate held
for development and sale or rental, net 92,575 178,281
(Increase) decrease in prepaids and other assets (40,641) 190,504
(Increase) in deferred tax assets, net (1,444,000) (232,000)
Origination of loans receivable originated
for sale (855,450) (2,067,550)
Proceeds from sale of loans receivable
originated for sale 393,480 3,738,527
(Decrease) in other liabilities (153,997) (1,421,536)
Increase in deferred fee income and
unearned discounts on loans receivable 87,975 1,275
Gains on sales of mortgage loans (10,371) (67,361)
Loss on sale of property and equipment 47,145 --
Other, net 95,749 (123,626)
------------ ------------
Net cash provided by operating activities $ 559,912 $ 1,608,430
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from redemption of Federal Home
Loan Bank stock $ 400,000 $ 1,283,500
Purchase of Federal Home Loan Bank stock (100,000) (325,000)
Purchase of investment securities -- (10,000,000)
Proceeds from sales of investment securities -- 5,018,750
Net (increase) in loans receivable (5,780,770) (1,227,726)
Purchase of mortgage-backed securities
available for sale -- (13,314,627)
Principal collections from mortgage-backed
securities available for sale 1,775,734 3,808,744
Purchase of mortgage-backed securities
held to maturity -- (9,056,985)
Principal collections from mortgage-backed
securities held to maturity 758,381 825,103
Proceeds from sale of real estate owned held
for sale 662,152 2,122,865
Net (increase) in real estate owned held
for sale (377,095) (390,481)
Proceeds from sale of property and equipment 143,072 --
Purchase of office property and equipment (419,458) (525,304)
----------- ------------
Net cash (used in) investing activities $(2,937,984) $(21,781,161)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in savings accounts $ 9,028,350 $ (160,157)
Payments at maturity of other FHLB advances (43,000,000) (11,000,000)
Proceeds from other FHLB advances 37,000,000 15,500,000
Proceeds from short term FHLB advances -- 3,500,000
Payments at maturity of short term advances -- (1,500,000)
Net (decrease) in other borrowings -- (92,192)
Net increase in advances for taxes and
insurance 629,675 512,356
----------- ------------
Net cash provided by financing activities $ 3,658,025 $ 6,760,007
----------- ------------
Net increase (decrease) in cash and
cash equivalents $ 1,279,953 $(13,412,724)
Beginning cash and cash equivalents 7,953,244 21,086,201
----------- ------------
Ending cash and cash equivalents $ 9,233,197 $ 7,673,477
=========== ============
Supplemental disclosures of cash flow information:
Cash paid during the period:
Interest $ 4,236,273 $ 3,305,959
Income taxes $ 310,150 $ 680,600
Loans originated on sale of real estate
owned held for sale $ 595,000 $ 62,000
Net transfer to real estate owned held for
sale from loans receivable $ 1,943,643 $ 1,818,305
Increase (decrease) in unrealized loss on
mortgage-backed securities available for
sale, net $(1,000,670) $ 864,359
<FN>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
</TABLE>
<PAGE>
HOME FEDERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - Basis of Presentation
In the opinion of Home Federal Corporation (Home Federal or the
Corporation), the accompanying unaudited consolidated financial statements
contain all adjustments (consisting of only normal recurring accruals)
necessary for a fair presentation of Home Federal's financial condition as of
June 30, 1995, and the results of operations for the three and six months ended
June 30, 1995 and 1994 and cash flows for the six months ended June 30, 1995
and 1994.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions for Form 10-QSB. These financial
statements should be read in conjunction with the consolidated financial
statements and the notes included in Home Federal's Annual Report for the
year ended December 31, 1994.
NOTE B - Loans Receivable
<TABLE>
Loans receivable are summarized as follows:
<CAPTION>
June 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
Real Estate Loans:
Residential $ 83,600,929 $ 77,994,048
Commercial 19,575,243 20,588,201
Construction 26,207,001 26,072,263
------------ ------------
$129,383,173 $124,654,512
Less:
Loans in process (7,733,411) (7,350,158)
Allowances for possible loan losses (4,800,232) (4,879,682)
Deferred fee income and
unearned discounts (641,604) (564,707)
------------ ------------
Total Real Estate Loans $116,207,926 $111,859,965
------------ ------------
Consumer Loans $ 22,510,374 $ 22,075,811
Less:
Loans in process (397) (397)
Allowances for possible loan losses (737,507) (761,521)
Unearned discounts (37,692) (26,888)
------------ ------------
Total Consumer Loans $ 21,734,778 $ 21,287,005
------------ ------------
Commercial Business Loans $ 1,583,814 $ 1,593,131
------------ ------------
Accrued Interest Receivable $ 843,086 $ 813,010
------------ ------------
Total Loans Receivable, net $140,369,604 $135,553,111
============ ============
</TABLE>
Non-Performing loans consist of nonaccrual and impaired loans and loans
which are 90 days or more delinquent. Loans are placed on nonaccrual status or
are considered impaired when, in the judgement of management, the probability
of collection of principal or interest is deemed to be insufficient to warrant
further accrual. A summary of nonaccrual and impaired loans as of June 30,
1995 and 1994 and December 31, 1994 is as follows:
<TABLE>
<CAPTION>
June 30,
------------------- December 31,
1995 1994 1994
---- ---- ------------
<S> <C> <C> <C>
Non-Performing Loans:
Non-Accrual Loans:
Real Estate Loans:
Residential $ 464,052 $ 1,591,342 $ 498,812
Commercial 126,150 39,801 38,579
Construction -- -- --
Consumer and Commercial
Loans 73,899 211,931 87,782
----------- ----------- -----------
Total Non-Accrual
Loans $ 664,101 $ 1,843,074 $ 625,173
----------- ----------- -----------
Impaired Loans:
Real Estate Loans:
Residential $ 3,136,853 $ 4,651,003 $ 4,080,899
Commercial 1,774,827 4,957,030 4,919,359
Construction 9,309,876 6,084,241 6,292,623
Consumer and Commercial
Loans 127,300 242,300 242,300
----------- ----------- -----------
Total Impaired Loans $14,348,856 $15,934,574 $15,535,181
----------- ----------- -----------
Total Non-Performing
Loans $15,012,957 $17,777,648 $16,160,354
=========== =========== ===========
<CAPTION>
An analysis of the allowances for possible loan losses follows:
Real Estate Loans
-------------------------------------------
Six Months Ended June 30, Year Ended
---------------------------- December 31,
1995 1994 1994
---------- ---------- ------------
<S> <C> <C> <C>
Beginning Balance $4,879,682 $5,575,336 $5,575,336
Additional provision -- 58,000 278,000
Recoveries 405,000 -- --
Charge-offs:
Construction (121,000) -- --
Commercial (161,007) -- (328,000)
Single-family (102,443) (29,379) (63,654)
Multi-family (100,000) -- (141,000)
Land -- -- (441,000)
---------- ---------- ----------
Ending Balance $4,800,232 $5,603,957 $4,879,682
========== ========== ==========
<CAPTION>
Consumer and Commercial Loans
-------------------------------------------
Six Months Ended June 30, Year Ended
---------------------------- December 31,
1995 1994 1994
-------- -------- ------------
<S> <C> <C> <C>
Beginning Balance $761,521 $916,317 $916,317
Additional provision -- -- --
Recoveries 58,536 22,560 63,746
Charge-offs (82,550) (71,560) (218,542)
-------- -------- --------
Ending Balance $737,507 $867,317 $761,521
======== ======== ========
</TABLE>
NOTE C - Real Estate Owned Held for Sale
<TABLE>
Real estate owned held for sale is summarized as follows:
<CAPTION>
June 30,
------------------ December 31,
1995 1994 1994
---- ---- ----
<S> <C> <C> <C>
Real estate owned acquired
by foreclosure $ 2,676,107 $ 2,359,826 $ 2,313,072
Real estate owned acquired by
deed in lieu of foreclosure 6,754,254 7,982,001 6,661,431
----------- ----------- -----------
$ 9,430,361 $10,341,827 $ 8,974,503
Less:
Allowance for losses 1,859,217 2,499,665 2,336,945
Accumulated depreciation 214,500 160,500 187,500
----------- ----------- -----------
Total Real Estate Owned
held for sale, net $ 7,356,644 $ 7,681,662 $ 6,450,058
=========== =========== ===========
<CAPTION>
An analysis of the allowance for losses on real estate owned held for
sale follows:
Six Months Ended June 30, Year Ended
---------------------------- December 31,
1995 1994 1994
---- ---- ------------
<S> <C> <C> <C>
Beginning Balance $2,336,945 $2,307,763 $2,307,763
Additional provision 130,000 293,000 339,000
Recoveries -- 46,513 69,561
Charge-offs (607,728) (147,611) (379,379)
---------- ---------- ----------
Ending Balance $1,859,217 $2,499,665 $2,336,945
========== ========== ==========
</TABLE>
NOTE D - Advances from the Federal Home Loan Bank of Atlanta
Advances from the Federal Home Loan Bank of Atlanta (FHLB) totalling
$32,143,458 at June 30, 1995 are at a 6.5% weighted average interest rate per
annum with $16,000,000 maturing in 1995, $14,000,000 maturing in 1996,
$1,000,000 maturing in 1999 and $1,000,000 maturing in 2001. Such advances are
secured by assets amounting to $49,374,907 at June 30, 1995. Such amount is
composed of capital stock in the FHLB, certain of the Savings Bank's mortgage
loans and mortgage-backed securities, and certain other assets. Accrued
interest payable on advances from the FHLB totalled $143,458 at June 30, 1995.
NOTE E - Provision for (Benefit from) Income Taxes
Federal and state income taxes consisted of the following:
<TABLE>
<CAPTION>
Six Months Ended June 30, Year Ended
------------------------- December 31,
1995 1994 1994
----------- -------- ------------
<S> <C> <C> <C>
State income tax current expense $ 75,700 $ 91,100 $108,100
Federal income tax current expense 342,300 393,000 464,500
Deferred income tax expense (credit) 32,000 (28,000) 187,000
Change in valuation allowance (1,476,000) (204,000) (454,000)
----------- -------- --------
$(1,026,000) $252,100 $305,600
=========== ======== ========
Home Federal's income tax differs from the tax determined by applying the
statutory Federal income tax rate to income before taxes for the following
reasons:
<CAPTION>
Six Months Ended June 30, Year Ended
------------------------- December 31,
1995 1994 1994
----------- -------- ------------
<S> <C> <C> <C>
Tax at Federal income tax rate $ 289,393 $339,983 $ 613,040
Bad debt deduction (4,080) 19,550 (163,270)
State income tax 75,700 91,100 108,100
Change in valuation allowance (1,476,000) (204,000) (454,000)
Other - net 88,987 5,467 201,730
----------- -------- ---------
$(1,026,000) $252,100 $ 305,600
=========== ======== =========
The tax effects of temporary differences between the financial reporting
basis and income tax basis of assets and liabilities that are included in net
deferred tax assets at June 30, 1995 and 1994 and December 31, 1994 relate to
the following:
<CAPTION>
June 30,
------------------------- December 31,
1995 1994 1994
---------- ---------- ------------
<S> <C> <C> <C>
Deferred Tax Assets:
Allowances for losses $2,331,000 $2,601,000 $2,391,000
Unrealized loss on securities
available for sale 334,000 619,000 963,000
Intangible asset 323,000 278,000 301,000
Deferred fees on loans 198,000 171,000 162,000
Deferred directors' fees 146,000 154,000 158,000
Other, net 45,000 60,000 48,000
---------- ---------- ----------
Total deferred tax assets $3,377,000 $3,883,000 $4,023,000
Less valuation allowances 474,000 2,200,000 1,950,000
---------- ---------- ----------
Total Deferred Tax Assets
less Valuation Allowances $2,903,000 $1,683,000 $2,073,000
Deferred Tax Liabilities -
Depreciation and amortization 308,000 282,000 293,000
---------- ---------- ----------
Net Deferred Tax Assets $2,595,000 $1,401,000 $1,780,000
========== ========== ==========
Federal and state current income taxes payable is as follows:
<CAPTION>
June 30,
-------------------- December 31,
1994 1993 1993
-------- ------- ------------
<S> <C> <C> <C>
Current payable:
State $ 18,000 $ 8,204 $ --
Federal 105,000 50,000 --
</TABLE>
NOTE F - Common Stock and Earnings Per Share
Earnings per share have been computed based on 2,519,010 average shares
outstanding in 1995 and 1994.
<PAGE>
HOME FEDERAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Three and Six Months Ended June 30, 1995
GENERAL
Home Federal Corporation (Corporation) is the unitary savings and loan
holding company of Home Federal Savings Bank (Savings Bank) and its
subsidiaries. The Corporation and its subsidiaries are sometimes collectively
referred to herein as "Home Federal." The Corporation currently owns 100% of
the issued and outstanding common stock of the Savings Bank, which is the
principal asset of the Corporation. On May 19, 1995, the Office of Thrift
Supervision (OTS) terminated the June 6, 1991 written agreement between the
Savings Bank and the OTS.
Financial Condition
The Corporation's total assets increased $6.3 million or 3.1% to $212.9
million from December 31, 1994 to June 30, 1995, due primarily to a $4.8
million increase in net loans, a $907,000 increase in real estate owned held
for sale, net (REO), a $ 1.3 million increase in cash and cash equivalents and
a $815,000 increase in deferred tax assets, net which increases were partially
offset by a $1.0 million decrease in mortgage-backed securities and a $300,000
decrease in Federal Home Loan Bank Stock. The Corporation's total liabilities
increased by $3.5 million or 1.8% to $195.3 million from December 31, 1994 to
June 30, 1995, primarily due to a $9.0 million increase in savings accounts,
and a $630,000 increase in advances by borrowers for taxes and insurance, which
increases were offset to some extent by a $6.0 million decrease in borrowings.
Stockholders' equity increased $2.9 million to $17.6 million at June 30, 1995
due to a $1.9 million increase in retained earnings and a $1.0 decrease in
unrealized losses on mortgage-backed securities available for sale.
Nonperforming Assets
The Corporation's nonperforming assets decreased by $240,000 or 1.1% from
$22.6 million or 10.9% of total assets at December 31, 1994 to $22.4 million or
10.5% of total assets at June 30, 1995. At June 30, 1995, the allowances for
possible loan losses amounted to $5.5 million or 4.0% of loans, net, and 36.9%
of total nonperforming loans. At June 30, 1995, the allowance for losses on REO
amounted to $1.9 million or 25.3% of REO, net. While management presently
believes that its allowances for possible loan losses and REO losses are
adequate, no assurance can be given that future provisions for possible loan or
REO losses may not be necessary. See Notes B and C of the unaudited notes to
consolidated financial statements.
RESULTS OF OPERATIONS
Net Income
Net income for the six months ended June 30, 1995 amounted to $1.9 million
compared to net income of $748,000 during the comparable period in 1994, a
151.0% increase. Net income for the three months ended June 30, 1995 amounted
to $1.5 million compared to net income of $408,000 during the comparable period
in 1994, a 266.4% increase. The increase in net income was due primarily to a
benefit in the provision for income taxes as well as, to a lesser extent,
decreases in provision for possible loan losses and other expenses, which were
partially offset by decreases in net interest income and other income. All of
such changes are described in further detail below.
Net Interest Income
Net interest income for the six months ended June 30, 1995 decreased by
$176,000, or 4.7%, over the same period in 1994 due to increased interest
expense which more than offset increased interest income. Interest income for
the six months ended June 30, 1995 increased by $741,000 or 10.5% compared to
the same period in 1994, while interest expense increased by $917,000 or 27.7%
during the six months ended June 30, 1995 as compared to the same period in the
prior year. Net interest income for the three months ended June 30, 1995
decreased by $161,000, or 8.4%, over the same period in 1994 due to increased
interest expense which more than offset increased interest income. Interest
income for the three months ended June 30, 1995 increased by $359,000 or 10.0%
compared to the same period in 1994, while interest expense increased by
$520,000 or 31.4% during the three months ended June 30, 1995 as compared to
the same period in the prior year.
During each of the three and six month periods, the increase in interest
income was due primarily to an increase in the average balances of loans
receivable, mortgage-backed and investment securities and an increase in the
average rate earned on mortgage-backed and investment securities. Such
increases were offset by decreases in the average balances of short-term
interest bearing deposits and federal funds. The primary reason for the
increase in the average balance of loans receivable was the Savings Bank's
emphasis during 1994 and 1995 on originations of adjustable rate mortgages,
fixed-rate 10 to 15 year mortgages and consumer loans. The increase in the
average balance of mortgage-backed and investment securities was due to the
Savings Bank's restructuring the composition of its assets during 1994 in
order to maintain its interest rate spreads. The increase in interest expense
was primarily the result of increases in the average balances of advances from
the FHLB of Atlanta and savings accounts and the average rates paid thereon.
The increase in the average balance of savings accounts was due to competitive
pricing, as the Savings Bank sought funds in order to originate loans. The
average balance of advances from the FHLB of Atlanta increased primarily due
to the Savings Bank utilizing advances from the FHLB of Atlanta to purchase
investment and mortgage-backed securities during 1994.
The Savings Bank's interest rate spread decreased from 4.3% during the
six months ended June 30, 1994 to 3.8% during the six months ended June 30,
1995, and the ratio of interest earning assets to interest-bearing liabilities
decreased from 99.1% during the six months ended June 30, 1994 to 98.9% during
the six months ended June 30, 1995. The Savings Bank's interest rate spread
decreased from 4.4% during the three months ended June 30, 1994 to 3.8% during
the three months ended June 30, 1995, and the ratio of interest earning assets
to interest-bearing liabilities decreased from 98.9% during the three months
ended June 30, 1994 to 98.7% during the three months ended June 30, 1995. The
decrease in the interest rate spread in 1995 was due in large part to the
general higher level of market interest rates.
Other Income
Other income totalled $921,000 and $1.1 million for the six months ended
June 30, 1995 and 1994, respectively. Other income totalled $500,000 and
$547,000 for the three months ended June 30, 1995 and 1994, respectively. The
$130,000, or 12.4% decrease during the six months ended June 30, 1995 and the
$47,000, or 8.6% decrease during the three months ended June 30, 1995 was
primarily due to decreases in income related to loan originations, loan sales
and loan servicing, which was partially offset by increases in stockbrokerage
and insurance commissions and increased fees on checking and savings accounts.
While the Savings Bank intends to continue to sell certain mortgage loans in
the secondary market without recourse, the amount of the gain, if any, from the
sale of such loans will depend on the level of loan sales and market
conditions. Further, the amount of loan servicing income may increase or
decrease depending on the level of the Savings Bank's loan servicing portfolio.
The Savings Bank's loan servicing portfolio decreased $1.8 million during the
six months ended June 30, 1995 and $1.3 million during the three months ended
June 30, 1995, over each prior comparable period, to $46.4 million at June 30,
1995, primarily due to repayments.
Operating Expenses
Operating expenses amounted to $3.6 million and $3.7 million for the six
months ended June 30, 1995 and 1994, respectively. Operating expenses amounted
to $1.8 million and $1.9 million for the three months ended June 30, 1995 and
1994, respectively. During the six months ended June 30, 1995 the Corporation
experienced decreases in expenses associated with REO operations, net and
impaired loan expenses and provision for losses on REO, which were offset by
increases in employee compensation and benefits and office occupancy and
equipment expense. REO operations, net and impaired loans expenses decreased
due to decreased costs associated with such properties, particularly appraisal
and legal expenses. Employee compensation and benefits increased due to
increased profit sharing expenses and merit increases. Office occupancy and
equipment expense increased due to increased depreciation on office properties
and equipment primarily due to a branch renovation in 1994. During the three
months ended June 30, 1995, the Corporation experienced decreases in employee
compensation and benefits, advertising and promotion, expenses associated with
REO operations, net and impaired loan expenses and provision for losses on REO
which were offset by increases in office occupancy and equipment expense and
other operating expenses. Other operating expenses increased due to increases
in professional fees, loan expenses, provision for losses on bad checks and
loss on sale and retirement of property and equipment, which was offset by
decreases in provision for losses on other assets.
Income Taxes
Home Federal's income tax benefit totaled $1.0 million for the three and
six months ended June 30, 1995 as compared to income tax expense of $149,000
and $252,000 during the same periods in the prior year, respectively. The
decrease in the provision for income taxes is primarily attributable to a
reduction in the valuation allowance on deferred tax assets since management,
due to, among other circumstances, continuing taxable income and the lifting of
the written agreement with OTS, determined that it is now more likely than not
that a significant portion of Home Federal's deferred tax assets will be
realized.
ASSET AND LIABILITY MANAGEMENT
Home Federal has undertaken a variety of strategies to better match the
interest-rate sensitivity of its assets and liabilities. Home Federal's
present policy is to emphasize the origination for portfolio of interest-
sensitive loan products such as adjustable-rate residential mortgage loans,
short-term residential construction loans to individuals and a variety of
consumer loans. With respect to Home Federal's single-family residential loan
originations, the Savings Bank originates both fixed-rate and adjustable-rate
loans. Single-family, fixed-rate loans are originated primarily for resale in
the secondary market, thereby reducing Home Federal's interest rate risk. In
1994, Home Federal instituted a program whereby it will generally (depending
upon market interest rates) retain fixed-rate single-family loans with a 10 or
15 year maturity in its portfolio. Home Federal generally retains single-family
adjustable-rate loans in portfolio. During the six months ended June 30, 1995
and 1994, Home Federal originated $13.6 million and $14.6 million,
respectively, of single-family residential loans. Of such amounts, $9.1 million
and $7.9 million provided for periodic adjustment of interest rates, or 66.7%
and 53.9% of single-family residential loans originated by Home Federal during
the respective periods. During 1995, Home Federal has originated $547,000 of
fixed-rate loans with 10 or 15 year maturities.
Home Federal also has continued to originate both commercial business
(primarily automobile floor plan loans) and consumer loans, which generally
have shorter terms and/or rates that vary with interest rate indices and
higher yields than residential mortgage loans. Consumer and commercial
business loan originations amounted to $7.5 million during the six months
ended June 30, 1995 as compared to $7.0 million during the comparable
period in 1994.
Rates of interest paid on deposits at Home Federal are priced to be
sufficiently competitive in its primary market area in order to meet its
asset/liability management objectives and requirements for funds, but are
typically not the highest rates available. This policy helps Home Federal
control its cost of funds. Home Federal maintains a tiered pricing program for
some of its certificate accounts, pursuant to which higher rates of interest
are paid for longer-term certificate accounts. Home Federal relies on savings
deposits, loan and mortgage-backed securities repayments and advances from the
FHLB of Atlanta to fund loan originations and commitments.
REGULATORY CAPITAL REQUIREMENTS
The Savings Bank is subject to regulations of the OTS that impose
certain minimum regulatory capital requirements. At June 30, 1995 the
Savings Bank's tangible, core and risk-based capital exceeded regulatory
requirements. The following table summarizes, as of June 30, 1995, the
Savings Bank's regulatory capital requirements, the amount of its actual
capital and the amount of its excess capital on a dollar and percentage basis.
<TABLE>
<CAPTION>
June 30, 1995
---------------------------------
Capital Capital
Capital Requirement Excess
------- ----------- -------
(Dollars in Thousands)
<S> <C> <C> <C>
Dollar basis:
Tangible $17,423 $ 3,180 $14,243
Core 16,570 6,335 10,235
Risk-based 18,307 10,906 7,401
Percentage basis:
Tangible 8.2% 1.5% 6.7%
Core 7.9 3.0 4.9
Risk-based 13.4 8.0 5.4
</TABLE>
There can be no assurance that the Savings Bank will not be subject to
additional capital requirements in the future, either as a result of
regulations, guidelines and policies of general applicability or individual
regulatory capital requirements which may be applied to the Savings Bank.
Liquidity
Home Federal is required under applicable Federal regulations to maintain
specified levels of "liquid" investments including United States government and
Federal agency securities and other investments. Regulations currently in
effect require Home Federal to maintain liquid assets of not less than 5% of
its net withdrawable accounts plus short-term borrowings, of which short-term
liquid assets must consist of not less than 1%. These levels are changed from
time to time by the OTS to reflect economic conditions. Liquidity is influenced
by general economic conditions, financial market conditions and fluctuations in
the interest rates and products offered by competing entities. Home Federal's
regulatory liquidity ratio averaged 7.9% for the month ended June 30, 1995. At
June 30, 1995, Home Federal was required to maintain liquid investments
amounting to $9.3 million, none of which were pledged to secure advances from
the FHLB of Atlanta.
The principal sources of funds to Home Federal are savings accounts,
amortization and prepayments of outstanding loans and mortgage-backed
securities, sales of loans, FHLB advances and other borrowings. During the
past several years, Home Federal has used such funds primarily to meet its
ongoing commitments to fund maturing savings certificates and savings
withdrawals, fund existing and continuing loan commitments, purchase
mortgage-backed securities and maintain its liquidity.
At June 30, 1995, the total of approved loan origination commitments
amounted to $1.1 million, exclusive of loans in process. The amount of savings
certificates which are scheduled to mature during the twelve months ended June
30, 1996 is $54.7 million. Management believes that, by evaluating competitive
instruments and prices in its market area, it can, in most circumstances,
manage and control maturing deposits so that a portion of such maturing
deposits will be redeposited in the Savings Bank. During the six months ended
June 30, 1995, the Savings Bank experienced a $9.0 million increase in savings
accounts. The Savings Bank utilized these funds to repay $6.0 million of FHLB
advances during the six months ended June 30, 1995.
IMPACT OF INFLATION ON CHANGING PRICES
The consolidated financial statements and related data presented herein
have been prepared in accordance with generally accepted accounting principles
which require the measurement of financial position and operating results in
terms of historical dollars, without considering changes in the relative
purchasing power of money over time due to inflation.
Unlike many industrial corporations, virtually all of the assets and
liabilities of Home Federal are monetary in nature. As a result, interest
rates have a more significant impact on Home Federal's performance than the
effects of general levels of inflation. Over short periods of time, interest
rates may not necessarily move in the same direction or in the same magnitude
as the prices of goods and services, since such prices are affected by
inflation to a larger extent than interest rates.
PROPOSED DEPOSIT INSURANCE PREMIUMS
Deposits of the Savings Bank are currently insured by the Savings
Association Insurance Fund (SAIF). Both the SAIF and the Bank Insurance Fund
(BIF), the deposit insurance fund that covers most commercial bank deposits,
are statutorily required to be recapitalized to a ratio of 1.25% of insured
reserve deposits. Members of the SAIF and BIF currently are paying average
deposit insurance premiums of between 23 and 25 basis points. While the BIF has
reached the required reserve ratio, the SAIF is not expected to be
recapitalized until 2002 at the earliest. The Resolution Trust Corporation
Completion Act authorized $8 billion in funding for the SAIF. However, such
funds only become available to the SAIF if the FDIC determines that the funds
are needed to cover losses of the SAIF and several other stringent criteria are
met.
The FDIC has proposed to establish a new assessment rate schedule of 4-31
basis points for BIF members beginning on or about September 30, 1995. Under
that proposal, approximately 91% of BIF members would pay the lowest assessment
rate of 4 basis points. With respect to SAIF members institutions, the FDIC
proposed to retain the existing assessment rate of 23-31 basis points
applicable to SAIF member institutions. In announcing this proposed rule, the
FDIC noted that the premium differential may have adverse consequences for SAIF
members, including reduced earnings and an impaired ability to raise funds in
the capital markets. In addition, SAIF members, such as the Savings Bank, could
be placed at a substantial disadvantage to BIF members with respect to pricing
of loans and deposits and the ability to achieve lower operating costs.
Several alternatives to mitigate the effect of the BIF/SAIF premium
disparity have been suggested by the Administration, by members of Congress and
by industry groups. In July 1995, the Chairman of the FDIC announced in
testimony before the U.S. Congress related to the condition of the SAIF and
related issues a proposal to recapitalize the SAIF by a one-time charge of
SAIF-insured institutions of approximately $6.6 billion, or approximately $.85
to $.90 for every $100.00 of assessable deposits, and an eventual merger of the
SAIF with the BIF. Home Federal currently is unable to predict the likelihood
of legislation effecting these changes, although a consensus among regulators,
legislators and bankers appears to be developing in this regard. If the
proposed assessment of $.85 to $.90 per $100.00 of assessable deposits was
effected based on deposits as of March 31, 1995, as proposed, the Savings
Bank's pro rata share would amount to approximately $1.3 million to $815,000
after taxes, respectively.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
The Corporation and its subsidiaries are involved in various legal
proceedings occurring in the ordinary course of business. There are no
material legal proceedings to which the Corporation or any of its
subsidiaries is a part, or to which any of their property is subject.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 FEDERAL CORPORATION
August 10, 1995 BY: /s/ Richard W. Phoebus
Date Richard W. Phoebus
President and
Chief Executive Officer
August 10, 1995 BY: /s/ Salvatore M. Savino
Date Salvatore M. Savino
Vice President and Treasurer,
Chief Financial Officer
(principal financial and
accounting officer)
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 7,182
<INT-BEARING-DEPOSITS> 453
<FED-FUNDS-SOLD> 1,599
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 29,516
<INVESTMENTS-CARRYING> 15,511
<INVESTMENTS-MARKET> 15,613
<LOANS> 146,587
<ALLOWANCE> 5,538
<TOTAL-ASSETS> 212,858
<DEPOSITS> 160,231
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,906
<LONG-TERM> 32,143
<COMMON> 2,519
0
0
<OTHER-SE> 15,058
<TOTAL-LIABILITIES-AND-EQUITY> 212,858
<INTEREST-LOAN> 6,442
<INTEREST-INVEST> 1,449
<INTEREST-OTHER> 107
<INTEREST-TOTAL> 7,998
<INTEREST-DEPOSIT> 3,139
<INTEREST-EXPENSE> 4,227
<INTEREST-INCOME-NET> 3,565
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,634
<INCOME-PRETAX> 851
<INCOME-PRE-EXTRAORDINARY> 1,877
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,877
<EPS-PRIMARY> 0.75
<EPS-DILUTED> 0.75
<YIELD-ACTUAL> 3.83
<LOANS-NON> 15,013
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 12,811
<ALLOWANCE-OPEN> 5,641
<CHARGE-OFFS> 567
<RECOVERIES> 464
<ALLOWANCE-CLOSE> 5,538
<ALLOWANCE-DOMESTIC> 4,550
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 988
</TABLE>
